ex41.htm


    NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A)
UNDER THE SECURITIES ACT.

     

    eMagin
Corporation

     

    Warrant

     

    Warrant
No. 1

     

    Original
Issue Date:  December 22, 2008

     

    


     

    eMagin Corporation, a Delaware
corporation (the “Company”),
hereby certifies that, for value received, STILLWATER LLC or its
registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of 1,875,467 Shares of Common
Stock (each such share, a “Warrant
Share” and all such shares, the “Warrant
Shares”), at any time and from time to time from and after December 22,
2008 and through and including December 22, 2013 (the “Expiration
Date”), and subject to the following terms and conditions:

     

    Section
1. Definitions.  As
used in this Warrant, the following terms shall have the respective definitions
set forth in this Section 1.  Capitalized terms that are used but not
defined in this Warrant that are defined in the Securities Purchase Agreement
(as defined below) shall have the respective definitions set forth in the
Securities Purchase Agreement.

     

    “Alternate
Consideration” shall have the meaning ascribed to it in Section
9(b).

     

    “Below Market
Issuance” shall have the meaning ascribed to it in Section
9(c)(ii).

     

    “Business
Day” means any day except Saturday, Sunday and any day that is a federal
legal holiday in the United States or a day on which banking institutions in the
State of New York or the State of Washington are authorized or required by law
or other government action to close.

     

    “Buy-In”
shall have the meaning ascribed to it in Section 5(c).

     

    “Common
Stock” means the common stock of the Company, par value $0.001 per share,
and any securities into which such common stock may hereafter be
reclassified.

     

    “Company”
shall have the meaning ascribed to it in the first paragraph.

     

    “Convertible
Securities” shall have the meaning ascribed to it in Section
9(c)(i).

     

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

     

    “Date of
Exercise “ means the date on which the Holder shall have delivered to the
Company: (i) the Exercise Notice (with the Warrant Shares Exercise Log attached
to it), appropriately completed and duly signed and (ii) if such Holder is not
utilizing the cashless exercise provisions set forth in this Warrant, payment of
the Exercise Price for the number of Warrant Shares so indicated by the Holder
to be purchased.

     

    “Dilutive
Issuance” shall have the meaning ascribed to it in Section
9(c)(i).

     

    “Disregarded
Securities” shall have the meaning ascribed to it in Section
9(c)(iii)(D).

     

    “Excluded
Securities” shall have the meaning ascribed to it in Section
9(c)(iv).

     

    “Exercise
Notice” is the form of Exercise Notice attached hereto.

     

    “Exercise
Price” means $1.03 subject to adjustment in
accordance with Section 9.

     

    “Expiration
Date” shall have the meaning ascribed to it in the first
paragraph.

     

    “Fair Market
Value” shall equal the closing price for the Trading Day immediately
prior to (but not including) the Exercise Date.  For purposes of Rule
144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares shall be deemed to have commenced, on the date this Warrant
was originally issued.

     

    “Form of
Assignment” is the form of Form of Assignment attached
hereto.

     

    “Fundamental
Transaction” means any of the following: (1) the Company effects any
merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its shares or assets in
one or a series of related transactions, (3) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (4) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property.

     

    “Holder” shall have the meaning
ascribed to it in the first paragraph.

     

    “Market
Price” shall have the meaning ascribed to it in Section
9(c)(ii).

     

    “New
Warrant” shall have the meaning ascribed to it in Section 3.

     

    “New York
Courts” means the state and federal courts sitting in the City of New
York, Borough of Manhattan.

     

    “Original Issue
Date” means the Original Issue Date first set forth on the first page of
this Warrant.

     

    “Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

     

    “Proceedings”
shall have the meaning ascribed to it in Section 15(b).

     

    “Purchase
Rights” shall have the meaning ascribed to it in Section
9(c)(i).

     

    “Securities
Purchase Agreement” means the Securities Purchase Agreement, dated
December 18, 2008, to which the Company and the original holder of the Warrant
are parties.

     

    “Trading
Day” means (i) a day on which the Common Stock is traded on a Trading
Market, or (ii) if the Common Stock is not quoted or listed on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter
market; provided, that in the
event that the Common Stock is not listed or quoted as set forth in (i) and (ii)
hereof, then Trading Day shall mean a Business Day.

     

    “Trading
Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

     

    “Variable Rate
Convertible Security” shall have the meaning ascribed to it in Section
9(c)(iii)(B).

     

    “Warrant Shares
Exercise Log” is the form of Warrant Shares Exercise Log attached
hereto.

     

    “Warrant
Register” shall have the meaning ascribed to it in Section
2.

     

    “Warrant
Shares” shall have the meaning ascribed to it in the first
paragraph.

     

    Section
2. Registration
of Warrant.  The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to
time.  The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or
any distribution to the Holder, and for all other purposes, absent actual notice
to the contrary.

     

    Section
3. Registration
of Transfers.  Subject to the Holder’s compliance with any
applicable securities laws, including the Holder providing the Company with an
opinion of counsel reasonably acceptable to the Company that the proposed
assignment does not violate any applicable securities laws and any other
supporting documentation that the Company may reasonably require, the Company
shall register the transfer of any portion of this Warrant in the Warrant
Register, upon surrender of this Warrant, with the Form of Assignment duly
completed and signed, to the Company at its address specified
herein.  Upon any such registration or transfer, a new Warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
Warrant, a “New
Warrant”), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Holder.  The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a holder of a Warrant.  The rights of the original
Holder under the Registration Rights Agreement shall be transferred with such
transfer of Warrant.

     

    Section
4. Exercise
and Duration of Warrants.  This Warrant shall be exercisable by
the registered Holder at any time and from time to time for which this Warrant
is exercisable through and including the Expiration Date.  At 6:30
p.m., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value.  The
Company may not call or redeem any portion of this Warrant without the prior
written consent of the Holder.

     

    Section
5. Delivery
of Warrant Shares.

     

    (a) To effect
exercises hereunder, the Holder shall not be required to physically surrender
this Warrant unless the aggregate Warrant Shares represented by this Warrant is
being exercised.  Upon delivery of the Exercise Notice to the Company
(with the Warrant Shares Exercise Log) at its address for notice set forth
herein and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, the Company shall
promptly (but in no event later than three Trading Days after the Date of
Exercise) issue and deliver to the Holder, a certificate for the Warrant Shares
issuable upon such exercise.

     

    (b) If by the
third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section
5(a), then the Holder will have the right to rescind such exercise.

     

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

     

    (c) If by the
third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section
5(a), and if after such third Trading Day and prior to the receipt of such
Warrant Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”),
then the Company shall (i) pay in cash to the Holder the amount by which (A) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (B) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue by (2) the
closing bid price of the Common Stock on the Date of Exercise and (ii) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery obligations
hereunder. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.

     

    (d) The
Company’s obligations to issue and deliver Warrant Shares in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares.  Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing Warrant Shares upon exercise
of the Warrant as required pursuant to the terms hereof.

     

    Section
6. Charges,
Taxes and Expenses.  Issuance and delivery of Warrant Shares
upon exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares
or Warrants in a name other than that of the Holder. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

     

    Section
7. Replacement
of Warrant.  If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity (which shall not include a surety bond), if
requested.  Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and pay
such other reasonable third-party costs as the Company may
prescribe.  If a New Warrant is requested as a result of a mutilation
of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New
Warrant.

     

    Section
8. Reservation
of Warrant Shares.  The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of Persons other than the Holder (taking into account
the adjustments and restrictions of Section 9).  The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and
nonassessable.

     

    Section
9. Certain
Adjustments.  The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9 .

     

    (a) Stock Dividends and
Splits.  If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a
distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then, in each such case, the Exercise Price shall be adjusted
by multiplying the Exercise Price in effect immediately prior to such event by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event
and the product so obtained shall thereafter be the Exercise Price then in
effect. Any adjustment made pursuant to clause (i) of this paragraph shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.

     

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     

    (b) Fundamental
Transactions.  If, at any time while this Warrant is
outstanding there is a Fundamental Transaction, then the Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the same amount and
kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of the number of Warrant
Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”).  For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders
of Common Stock are given any choice as to the securities, cash or property to
be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any exercise of
this Warrant following such Fundamental Transaction.  In the event of
a Fundamental Change, the Company or the successor or purchasing Person, as the
case may be, shall execute with the Holder a written agreement providing
that:

     

     

    (i) this
Warrant shall thereafter entitle the Holder to purchase the Alternate
Consideration in accordance with this Section 9(b),

     

     

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

     

     

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

     

    If, in
the case of any Fundamental Change, the Alternate Consideration includes shares
of stock, other securities, other property or assets of a Person other than the
Company or any such successor or purchasing Person, as the case may be, in such
Fundamental Change, then such written agreement shall also be executed by such
other Person and shall contain such additional provisions to protect the
interests of the Holder as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. At the Holder’s option
and request, any successor to the Company or surviving entity in such
Fundamental Transaction shall, either (i) issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing
provisions and evidencing the Holder’s right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof, or (ii)
purchase the Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective date
of the Fundamental Transaction), equal to the Black Scholes value of the
remaining unexercised portion of this Warrant on the date of such request. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this  paragraph (b)  and insuring
that the Warrant (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental
Transaction.

     

    (c) Dilutive
Issuances.

     

     

    (i) Adjustment
Upon Dilutive Issuance.  If, at any time after the date hereof,
the Company issues or sells, or in accordance with subparagraph (iii) of this
paragraph (c), is deemed to have issued or sold, any shares of Common Stock for
per share consideration less than the Exercise Price on the date of such
issuance or sale (a “Dilutive
Issuance”), then the Exercise Price shall be adjusted so as to equal an
amount determined by multiplying such Exercise Price by the following
fraction:

     

    
      	
              N0
      + N1

              -----------

            
	
              N0
      + N2

            
	
              where:

            


    

     

    N0 = the
number of shares of Common Stock outstanding immediately prior to the issuance,
sale or deemed issuance or sale of such additional shares of Common Stock in
such Dilutive Issuance (without taking into account any shares of Common Stock
issuable upon conversion, exchange or exercise of any securities or other
instruments which are convertible into or exercisable or exchangeable for Common
Stock (“Convertible
Securities”) or options, warrants or other rights to purchase or
subscribe for Common Stock or Convertible Securities (“Purchase
Rights”);

     

    N1 = the
number of shares of Common Stock which the aggregate consideration, if any,
received or receivable by the Company for the total number of such additional
shares of Common Stock so issued, sold or deemed issued or sold in such Dilutive
Issuance (which, in the case of a deemed issuance or sale, shall be calculated
in accordance with subparagraph (iii) below) would purchase at the
Exercise   Price in effect immediately prior to such Dilutive
Issuance; and

     

    N2 = the
number of such additional shares of Common Stock so issued, sold or deemed
issued or sold in such Dilutive Issuance.

     

    Notwithstanding
the foregoing, no adjustment shall be made pursuant hereto if such adjustment
would result in an increase in the Exercise Price.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

     

     

    (ii) Adjustment
Upon Below Market Issuance.  If, at any time after the Closing
Date, the Company issues or sells, or in accordance with subparagraph (iii) of
this paragraph (c), is deemed to have issued or sold, any shares of Common Stock
for per share consideration less than the Market Price on the date of such
issuance or sale (or deemed issuance or sale) (a “Below Market
Issuance”), then the Exercise Price shall be adjusted so as to equal an
amount determined by multiplying such Exercise Price by the following
fraction:

     

    
      	
              N0
      + N1

              -----------

            
	
              N0
      + N2

            
	
              where:

            


    

     

    N0 = the
number of shares of Common Stock outstanding immediately prior to the issuance,
sale or deemed issuance or sale of such additional shares of Common Stock in
such Below Market Issuance (without taking into account any shares of Common
Stock issuable upon conversion, exchange or exercise of any Convertible
Securities or Purchase Rights);

     

    N1 = the
number of shares of Common Stock which the aggregate consideration, if any,
received or receivable by the Company for the total number of such additional
shares of Common Stock so issued, sold or deemed issued or sold in such Below
Market Issuance (which, in the case of a deemed issuance or sale, shall be
calculated in accordance with subparagraph (iii) below) would purchase at the
Market Price in effect on the date of such Below Market Issuance;
and

     

    N2 = the
number of such additional shares of Common Stock so issued, sold or deemed
issued or sold in such Below Market Issuance.

     

    Notwithstanding
the foregoing, no adjustment shall be made pursuant to this paragraph (c)(ii) if
such adjustment would result in an increase in the Exercise Price.  In
the event that the Company issues or is deemed to issue Common Stock in a
transaction that is both a Dilutive Issuance and a Below Market Issuance, the
Exercise Price will be adjusted to the lower of the prices calculated pursuant
to subparagraphs (i) and (ii) of this paragraph (c).  For purposes
hereof, “Market
Price” as of a particular date means the average closing price for the
Common Stock on the five (5) Trading Days occurring immediately prior to such
date.

     

     

    (iii) Effect
On Exercise Price Of Certain Events.  For purposes of
determining the adjusted Exercise Price under subparagraph (i) or (ii) of this
paragraph (c), the following will be applicable:

     

     

    (A) Issuance Of Purchase
Rights.  If the Company issues or sells any Purchase Rights,
whether or not immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Purchase Rights (and the price of
any conversion of Convertible Securities, if applicable) is less than the Market
Price or Exercise Price in effect on the date of the issuance or sale of such
Purchase Rights, then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Purchase Rights(assuming full
conversion,  exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Purchase
Rights, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  For purposes of the preceding
sentence, the “price per share for which Common Stock is issuable upon the
exercise of such Purchase Rights” shall be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Purchase Rights, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the exercise of
all such Purchase Rights, plus, in the case of Convertible Securities issuable
upon the exercise of such Purchase Rights, the minimum aggregate amount of
additional consideration payable upon the conversion, exercise or exchange
thereof (determined in accordance with the calculation method set forth in
subparagraph (iii)(B) below)at the time such Convertible Securities first become
convertible, exercisable or exchangeable, by (y) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Purchase
Rights(assuming full conversion,  exercise or exchange of Convertible
Securities, if applicable).  No further adjustment to the Exercise
Price shall be made upon the actual issuance of such Common Stock upon the
exercise of such Purchase Rights or upon the conversion, exercise or exchange of
Convertible Securities issuable upon exercise of such Purchase
Rights.  To the extent that shares of Common Stock or Convertible
Securities are not delivered pursuant to such Purchase Rights, upon the
expiration or termination of such Purchase Rights, the Exercise Price shall be
readjusted to the Exercise Price that would then be in effect had the
adjustments made upon the issuance of such Purchase Rights been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered.

     

    (B) Issuance Of Convertible
Securities.  If the Company issues or sells
any  Convertible  Securities,  whether or not
immediately convertible, exercisable or exchangeable, and the price per share
for which Common Stock is issuable upon such conversion, exercise or exchange is
less than the Market Price or Exercise Price in effect on the date of issuance
or sale of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion, exercise or exchange of all such
Convertible Securities shall, as of the date of the issuance or sale of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share.  If the Convertible
Securities so issued or sold do not have a fluctuating conversion or exercise
price or exchange ratio, then for the purposes of the immediately preceding
sentence, the “price per share for which Common Stock is issuable upon such
conversion, exercise or exchange” shall be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion, exercise or exchange thereof (determined in accordance with the
calculation method set forth in this subparagraph (iii)(B)),by (y) the maximum
total number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities.  If the Convertible
Securities so issued or sold have a fluctuating  conversion or
exercise price or exchange ratio (a “Variable Rate
Convertible Security”) (provided, however, that if the
conversion or exercise price or exchange ratio of a Convertible Security may
fluctuate solely as a result of provisions designed to protect against dilution,
such Convertible Security shall not be deemed to be a Variable Rate Convertible
Security), then for purposes of the first sentence of this subparagraph (B), the
“price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security on
the date of issuance or sale thereof were seventy-five percent (75%) of the
actual conversion price on such date(the “Assumed Variable Market Price”), and,
further, if the conversion price of such Variable Rate Convertible Security at
any time or times thereafter is less than or equal to the Assumed Variable
Market Price last used for making any adjustment under this paragraph (c) with
respect to any Variable Rate Convertible Security, the Exercise Price in effect
at such time shall be readjusted to equal the Exercise Price which would have
resulted if the Assumed Variable Market Price at the time of issuance of the
Variable Rate Convertible Security had been seventy-five percent (75%) of the
actual conversion price of such Variable Rate Convertible Security existing at
the time of the adjustment required by this sentence.  No further
adjustment to the Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion, exercise or exchange of such Convertible
Securities.  To the extent that shares of Common Stock are not
delivered pursuant to conversion of such Convertible Securities into Common
Stock, the Conversion Price shall be readjusted to the Conversion Price that
would then be in effect had the adjustments made upon the issuance of such
Convertible Securities been made on the basis of delivery of only the number of
shares of Common Stock actually delivered.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

     

     

     

    (C) Change In Option Price Or Conversion
Rate.  If, following an adjustment to the Exercise Price upon
the issuance of Purchase Rights or Convertible Securities pursuant to a Below
Market Issuance or a Dilutive Issuance, there is a change at any time in (x) the
amount of additional consideration payable to the Company upon the exercise of
any Purchase Rights; (y) the amount of additional consideration, if any, payable
to the Company upon the conversion, exercise or exchange of any Convertible
Securities; or (z) the rate at which any Convertible  Securities are
convertible  into or exercisable or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed to protect
against dilution), then in any such case, the Exercise Price in effect at the
time of such change shall be readjusted to the Exercise Price which would have
been in effect at such time had such Purchase Rights or Convertible Securities
still outstanding provided for such changed additional consideration or changed
conversion, exercise or exchange rate, as the case may be, at the time initially
issued or sold.

     

    (D) Calculation Of Consideration
Received.  If any Common Stock, Purchase Rights or Convertible
Securities are issued or sold for cash, the consideration received for such
rights or securities will be the amount actually received by the
Company.  In case any Common Stock, Purchase Rights or Convertible
Securities are issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar arrangement in
which the other entity will provide services to the Company, purchase services
from the Company or otherwise provide intangible consideration to the Company,
the amount of the consideration other than cash received by the Company
(including the net present value of the consideration expected by the Company
for the provided or purchased services) shall be the fair market value of such
consideration as agreed between the parties.  In case any Common
Stock, Purchase Rights or Convertible Securities are issued in connection with
any merger or consolidation in which the Company is the surviving corporation,
the amount of consideration therefor will be deemed to be the fair market value
of such portion of the net assets and business of the  non-surviving
corporation as is attributable to such Common Stock, Purchase Rights or
Convertible Securities, as the case may be.  Notwithstanding anything
else hereinto the contrary, if Common Stock Purchase Rights or Convertible
Securities are issued or sold in conjunction with each other as part of a single
transaction or in a series of related transactions, the Holder may elect to
determine the amount of consideration deemed to be received by the Company
therefor by deducting the fair market value of any type of securities (the
“Disregarded
Securities”) issued or sold in such transaction or series of
transactions.  If the Holder makes an election pursuant to the
immediately preceding sentence, no adjustment to the Exercise Price shall be
made pursuant to this paragraph (c) for the issuance of the Disregarded
Securities or upon any conversion, exercise or exchange thereof.

     

    (E) Issuances Without Consideration
Pursuant to Existing Securities.  If the Company issues (or
becomes obligated to issue)shares of Common Stock pursuant to any anti-dilution
or similar adjustments (other than as a result of stock splits, stock dividends
and the like) contained in any Convertible Securities or Purchase Rights
outstanding as of the date hereof but not included in the Disclosure Schedule to
the Securities Purchase Agreement, whether as a result of the issuance of the
Warrants or otherwise, then all shares of Common Stock so issued shall be deemed
to have been issued for no consideration.  If the Company issues (or
becomes obligated to issue)shares of Common Stock pursuant to any anti-dilution
or similar adjustments contained in any Convertible Securities or Purchase
Rights disclosed in a schedule to the Securities Purchase Agreement as a result
of the issuance of the Warrants and the number of shares that the Company issues
(or is obligated to issue) as a result of such initial issuance exceeds the
amount specified in such schedule, such excess shares shall be deemed to have
been issued for no consideration.

     

    (iv) Exceptions
To Adjustment Of Exercise Price.  Notwithstanding the
foregoing, no adjustment to the Exercise Price shall be made pursuant to this
paragraph (c) upon the issuance of any Exempt Issuances.

     

    (d) Number of Warrant
Shares.  Simultaneously with any adjustment to the Exercise
Price pursuant to this Section 9, the number of Warrant Shares that may be
purchased upon exercise of this Warrant shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price
payable hereunder for the adjusted number of Warrant Shares shall be the same as
the aggregate Exercise Price in effect immediately prior to such
adjustment.

     

    (e) Calculations.  All
calculations under this Section 9 shall be made to the nearest cent or the
nearest 1/100th of a share, as applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.

     

    (f) Notice of
Adjustments.  Upon the occurrence of each adjustment pursuant
to this Section 9, the Company at its expense will promptly compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based.  Upon written request, the
Company will promptly deliver a copy of each such certificate to the Holder and
to the Company’s Transfer Agent.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

     

     

    (g) Notice of Corporate
Events.  If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common
Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or
solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction (but only to the extent
such disclosure would not result in the dissemination of material, non-public
information to the Holder) at least 10 calendar days prior to the applicable
record or effective date on which a Person would need to hold Common Stock in
order to participate in or vote with respect to such transaction, and the
Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided, however, that the
failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such
notice.

     

    Section
10. Payment
of Exercise Price.  The Holder may pay the Exercise Price in
one of the following manners:

     

    (a) Cash
Exercise.  The Holder may deliver immediately available funds;
or

     

    (b) Cashless
Exercise.  If an Exercise Notice is delivered at a time when
(i) a registration statement covering the issuance and sale of all of the
Warrant Shares issuable under this Warrant (without giving effect to any
restrictions on such exercise contained herein) is not effective and available
for such issuance and sale, and (ii) the Fair Market Value is greater than the
Exercise Price, then the Holder may notify the Company in an Exercise Notice of
its election to utilize cashless exercise, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as
follows:

     

    
      	
              X =
      Y [(A - B)/A]

            
	
              where:

            
	
              X =
      the number of Warrant Shares to be issued to the
Holder.

            
	
              Y =
      the number of Warrant Shares with respect to which this Warrant is being
      exercised.

            
	
              A =
      the Fair Market Value

            
	
              B =
      the Exercise Price.

            


    

    Section
11. No
Fractional Shares.  No fractional shares of Warrant Shares will
be issued in connection with any exercise of this Warrant.  In lieu of
any fractional shares which would, otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the closing price of
one Warrant Share as reported by the applicable Trading Market on the date of
exercise.

     

    Section
12. Notices.  Any
and all notices or other communications or deliveries hereunder (including,
without limitation, any Exercise Notice) shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 12 prior to 6:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 12 on a day that is not a Trading Day or later than
6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following
the date of mailing, if sent by nationally recognized overnight courier service,
(d) the fifth day after such notice is deposited in the U.S. mail, certified,
return receipt requested and postage prepaid, or (e) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to 2070 Route 52, Hopewell
Junction, NY 12533, Attn: Chief Executive Officer, or to facsimile no.: (425)
749-3601 (or such other address as the Company shall indicate in writing in
accordance with this Section 12), along with a copy to Richard Friedman, Esq.,
Sichenzia Ross Friedman Ference LLP 61 Broadway, New York, New York 10006, or to
facsimile no. (212) 930-9725, or (ii) if to the Holder, to the address set forth
in the Securities Purchase Agreement (or the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section
12).

     

    Section
13. Warrant
Agent.  The Company shall serve as warrant agent under this
Warrant. Upon 10 calendar days’ notice to the Holder, the Company may appoint a
new warrant agent.  Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder’s last address as shown on the Warrant Register.

     

    Section
14. Compliance
with Securities Laws.  The Holder of this Warrant, by
acceptance hereof, acknowledges and agrees as follows:

     

    (a) The
Warrant and the Warrant Shares to be issued upon exercise hereof are being
acquired solely for the Holder’s own account and not as a nominee for any other
party, and that the Holder will not offer, sell, or otherwise dispose of this
Warrant or Warrant Shares to be issued upon exercise hereof or conversion
thereof except under circumstances that will not result in a violation of the
Securities Act or any state securities laws.  Upon exercise of this
Warrant, the Holder shall, if reasonably requested by the Company, confirm in
writing, in a form reasonably satisfactory to the Company, that the shares of
Warrant Shares so purchased are being acquired solely for the Holder’s own
account and not as a nominee for any other party, and not with a view toward
distribution or resale unless there is then an effective registration statement
permitting the resale of the Warrant Shares by the Holder.

     

    (b) Holder is
familiar with the definition of “accredited investor” in Rule 501 of Regulation
D promulgated under the Securities Act and certifies that Holder is an
accredited investor as defined in such rule.

     

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

     

    (c) Holder
understands that neither this Warrant nor the Warrant Shares have been
registered under the Securities Act, and therefore they may not be sold,
assigned or transferred unless (i) a registration statement under the Securities
Act is in effect with respect thereto or (ii) an exemption from registration is
found to be available to the satisfaction of the Company.

     

    (d) Subject
the provisions of the Securities Purchase Agreement, Holder acknowledges and
agrees that the stock certificates evidencing the Warrant Shares shall bear a
restrictive legend, substantially in the following form (in addition to such
other restrictive legends as are required or deemed advisable under the
provisions of this Warrant, any applicable law or regulation or any other
agreement to which Holder is a party):

     

    “THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT.”

     

    Section
15. Miscellaneous.

     

    (a) This
Warrant shall be binding on and inure to the benefit of the parties hereto and
their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.

     

    (b) All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York (except for matters governed by
corporate law in the State of Delaware), without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of this Warrant and the
transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective affiliates, employees
or agents) shall be commenced exclusively in the New York
Courts.  Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any Proceeding, any claim that it is not personally subject to the jurisdiction
of any New York Court, or that such Proceeding has been commenced in an improper
or inconvenient forum.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Warrant and agrees that such service shall
constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.  Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Warrant or the transactions contemplated
hereby.  If either party shall commence a Proceeding to enforce any
provisions of this Warrant, then the prevailing party in such Proceeding shall
be reimbursed by the other party for its attorney’s fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.

     

    (c) The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

     

    (d) In case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

     

    (e) Prior to
exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a stockholder with respect to the Warrant
Shares.

     

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
 

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.

     

    
      
        	 	eMAGIN
    CORPORATION	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Paul
      Campbell	 
	 	 	Interim
      Chief Financial Officer	 
	 	 	 	 


      



     

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


    EMAGIN
CORPORATION

    WARRANT
DATED DECEMBER 22, 2008

     

    EXERCISE
NOTICE

     

    The
undersigned Holder hereby irrevocably elects to purchase _____________ shares of
Common Stock of eMagin Corporation (the “Company”)
pursuant to the above referenced Warrant. Capitalized terms used herein and not
otherwise defined have the respective meanings set forth in the
Warrant.

     

    (1) The
undersigned Holder hereby exercises its right to purchase _________________
Warrant Shares pursuant to the Warrant.

     

    (2) The
Holder intends that payment of the Exercise Price shall be made as (check
one):

     

    
      	
              [ ]

            	
              Cash Exercise. The undersigned has paid or
      delivered to the Company $__________, the aggregate Exercise Price for
      ___________ shares of the Company’s Common Stock purchased herewith, in
      full in cash or by certified or official bank check or wire
      transfer.

            
	
              [ ]

            	
              Cashless Exercise. In exchange for the
      issuance of _______ shares of the Company’s Common Stock, the undersigned
      hereby agrees to surrender the right to purchase _______ shares of Common
      Stock pursuant to the cashless exercise provisions set forth
      in  Section 10(b) of the
Warrant.

            


    

    (3)
Please deliver to the undersigned Holder _______________ Warrant Shares in
accordance with the terms of the Warrant.

     

    
      	
              Dated:

            	
              Name
      of Holder:________________________________________

            
	 
      	
              (Print)

            
	
                

            	 
      
	 	
              Signature:_____________________________________________

            
	 
      	
              (Signature
      must conform in all respects to name of holder

              as
      specified on the face of the Warrant)

            
	 
      	
              Print
      Name:____________________________________________

            
	 
      	
              Title:
      ___________________________________________________

            


    


    
      
        
           

           

           

           

        

         


      

      
        11

        
          

        

      

      
         


      

    


    EMAGIN
CORPORATION

     

    WARRANT
DATED DECEMBER 22, 2008

     

    WARRANT
NO. 1

     

    WARRANT SHARES EXERCISE
LOG

     

    


     

    
      	
              Date

            	
              Number
      of Warrant Shares Available to be Exercised

            	
              Number
      of Warrant Shares Exercised

            	
              Number
      of Warrant Shares Remaining to be Exercised

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      


    

    


     

    


     

    [continue as necessary]

     

    EMAGIN
CORPORATION

     


    
      
        
           

        

         


      

      
        12

        
          

        

      

      
         


      

    


    WARRANT
ORIGINALLY ISSUED DECEMBER 22, 2008

     

    WARRANT
NO. 1

     

    FORM OF
ASSIGNMENT

     

    [To
be completed and signed only upon transfer of Warrant]

     

    FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto the
transferee indicated below the right represented by the above-captioned Warrant
to purchase ____________ shares of Common Stock of eMagin Corporation (the
“Company”)
to which such Warrant relates and appoints _____________________ attorney to
transfer said right on the books of the Company with full power of substitution
in the premises.

     

    
      	
              Dated:
      _______________, ____

            	 
      
	 
      	
              Holder:____________________________________

              (Print
Name)

            
	 
      	 
      
	 
      	
              ___________________________________________

              (Signature
      must conform in all respects to name of holder as specified on the face of
      the Warrant. Indicate title if signing on behalf of an
      entity.)

            
	 
      	 
      
	 
      	
              Transferee
      Information:

            
	 
      	
              Name:_____________________________________

            
	 
      	
              Address:

            
	 
      	
              ___________________________________________

            
	 
      	
              ___________________________________________

            
	 
      	
              Fax
      No.:____________________________________

            


    

    


     

     

     

     

     

    


    13