Document:

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 

    

    
      
        
        

      

      
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    (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

    

    
      
        
        

      

      
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    (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]

    
      
         

        
        

      

      
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    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 

    

    
      
        
           

        

        
        

      

      
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    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)ex1045.htm

    Exhibit
10.45

    
 

    PLEDGE AND SECURITY
AGREEMENT

    

    THIS PLEDGE AND SECURITY
AGREEMENT, dated
as of July 21, 2006 (this “Agreement”), made by EMAGIN
CORPORATION, a
Delaware corporation (the “Grantor”), to ALEXANDRA GLOBAL MASTER FUND
LTD., a
British Virgin Islands international business company, as collateral agent (in
such capacity, the “Collateral Agent”) on behalf of the Holders (such
capitalized term and all other capitalized terms used in this Agreement having
the respective meanings provided in this Agreement).

    

    W I T N E S S E T H:

    

    WHEREAS, the
Grantor and the several Buyers are parties to the several Note Purchase
Agreements, pursuant to which, among other things, the Buyers have agreed to
purchase up to $7,000,000 aggregate principal amount of Notes of the
Grantor;

    

    WHEREAS, in
connection with the transactions contemplated by the Note Purchase Agreements,
the Grantor has agreed to grant to the Collateral Agent a security interest in
certain of its property, assets and rights; 

    

    WHEREAS, it is a
condition precedent to the several obligations of the Buyers to purchase their
respective Notes and Warrants pursuant to the Note Purchase Agreements that the
Grantor shall have executed and delivered this Agreement to the Collateral Agent
for the ratable benefit of the Holders; 

    

    WHEREAS,
contemporaneously with the execution and delivery of this Agreement the Company
and the Collateral Agent are executing and delivering the Patent and Trademark
Security Agreement and the Lockbox Agreement; and

    

    NOW, THEREFORE, in
consideration of the premises and to induce the Buyers to purchase their
respective Notes and Warrants, the Grantor hereby agrees with the Collateral
Agent, for the ratable benefit of the Holders, as follows:

    

    1.  Definitions.

    

    (a) As used
in this Agreement, the terms “Agreement”, “Grantor” and “Collateral Agent” shall
have the respective meanings assigned to such terms in the introductory
paragraph of and the recitals to this Agreement.

    

    (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 Agreement.

    

    (c) Capitalized
terms used herein without definition shall have the respective meanings assigned
to such terms in the Notes.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d) 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):

    

    “Accounts”
means all rights to payment for goods sold or leased or for services rendered,
whether or not such rights have been earned by performance.

    

    “Additional
Note” means the Note issued pursuant to the Additional Note Purchase
Agreement.

    

    “Additional
Note Purchase Agreement” means the Note Purchase Agreement, dated as of July 21,
2006, by and between the Grantor and Stillwater LLC, which by its terms
contemplates the issuance of up to $500,000 aggregate principal amount of Notes
on or after December 10, 2006.

    

    “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.

    

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

    

    “Buyer”
means any of the several buyers party to a Note Purchase Agreement.

    

    “Chattel
Paper” shall have the meaning assigned to such term under the Code.

    

    “Code”
means the Uniform Commercial Code as from time to time in effect in the State of
Delaware.

    

    “Collateral”
means each of the following, whether now existing or hereafter
arising:

    

    (1) all
Accounts of the Grantor and, if the Collateral Agent exercises its rights under
Section 3(b), the Lockbox and each and every General Intangible relating
thereto;

    

    (2) all
Inventory of the Grantor;

    

    (3) all
Equipment of the Grantor;

    

    (4) all
Proprietary Information owned or licensed by the Grantor, whether existing on
the date hereof or developed or acquired hereafter;

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (5) all of
the Grantor’s right, title and interest in and to all Contracts, Documents,
Chattel Paper, Instruments, Investment Property and General Intangibles, whether
existing on the date hereof or hereafter arising;

    

    (6) all cash,
securities, rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of the Collateral,
including, without limitation in respect of the cash or other property held in
the Lockbox or the Collateral Account;

    

    (7) all
Patents, Patent Licenses, Trademarks and Trademark Licenses;

    

    (8) all
insurance policies to the extent they relate to items (1) through (7)
above;

    

    (9) all
books, ledgers, books of account, records, writings, databases, information and
other property relating to, used or useful in connection with, evidencing,
embodying, incorporating, or referring to any of the foregoing; and

    

    (10) to the
extent not otherwise included, all Proceeds, products, rents, issues, profits
and returns of and from any and all of the foregoing, which Proceeds may be in
the form of Accounts, Chattel Paper, Inventory or otherwise.

    

    “Collateral
Account” shall have the meaning provided in the Lockbox Agreement.

    

    “Contracts”
shall have the meaning assigned to that term under the Code.

    

    “Documents”
shall have the meaning assigned to such term under the Code.

    

    “Event of
Default” means:

    

    (1) the
failure by the Grantor to perform in any material respect any obligation of the
Grantor under this Agreement as and when required by this Agreement;
or

    

    (2) any
representation or warranty made by the Grantor pursuant to this Agreement shall
have been untrue in any material respect when made or deemed to have been made;
or

    

    (3) the
failure by the Grantor to perform in any material respect any obligation of the
Grantor under the Patent and Trademark Security Agreement as and when required
by the Patent and Trademark Security Agreement;

    

    (4) any
representation or warranty made by the Grantor pursuant to the Patent and
Trademark Security Agreement shall have been untrue in any material respect when
made or deemed to have been made;

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (5) the
failure by the Grantor to perform in any material respect any obligation of the
Grantor under the Lockbox Agreement as and when required by the Lockbox
Agreement;

    

    (6) any
representation or warranty made by the Grantor pursuant to the Lockbox Agreement
shall have been untrue in any material respect when made or deemed to have been
made; or

    

    (7) any Event
of Default, as that term is defined in any of the Notes.

    

    “General
Intangibles” shall have the meaning assigned to such term under the
Code.

    

    “Holder”
means any Buyer or any holder from time to time of any Note.

    

    “Indemnified
Person” shall have the meaning provided in Section 5(j).

    

    “Inventory”
shall have the meaning assigned to such term under the Code, and in any event,
including, without limitation, all raw material, work-in process and finished
goods, inventory, merchandise, goods and other personal property that are held
by or on behalf of a Person for sale or lease or to be furnished under a
contract of service or which give rise to any Account, including, without
limitation, returned goods.

    

    “Issuance
Date” means the date on which the Notes are initially issued.

    

    “Lien”
shall mean any lien, mortgage, security interest, chattel mortgage, pledge or
other encumbrance (statutory or otherwise) of any kind securing satisfaction or
performance of an obligation, including any agreement to give any of the
foregoing, any conditional sales or other title retention agreement, any lease
in the nature thereof, and the filing of or the agreement to give any financing
statement under the Code of any jurisdiction or similar evidence of any
encumbrance, whether within or outside the United States.

    

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

    

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

    

    “Lockbox
Agreement” means that certain Lockbox Agreement dated as of the date hereof, by
and between the Grantor and the Lockbox Agent.

    

    “Majority
Holders” means at any time such of the holders of the Notes who hold Notes
which, based on the outstanding principal amounts thereof, represent a majority
of the aggregate outstanding principal amount of the Notes at such
time.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Note
Purchase Agreements” means the several Note Purchase Agreements, dated as of
July 21, 2006, by and between the Grantor and the respective Buyer party thereto
pursuant to which the Grantor issued the Notes, including, without limitation,
the Additional Note Purchase Agreement.

    

    “Notes”
means the Grantor’s 6% Senior Secured Convertible Notes due 2007-2008 originally
issued pursuant to the Note Purchase Agreements, including, without limitation,
the Additional Note.

    

    “Obligations”
means:

    

    (1) the full
and prompt payment when due of all obligations and liabilities to the Holders,
whether now existing or hereafter arising, under the Transaction Documents and
the due performance and compliance with the terms of the Transaction
Documents;

    

    (2) any and
all sums advanced by the Collateral Agent or any Holder in order to preserve the
Collateral or to preserve the Security Interest;

    

    (3) in the
event of any proceeding for the collection or enforcement of any obligations or
liabilities of the Grantor referred to in the immediately preceding clauses (1)
and (2) in accordance with the terms of the Transaction Documents, the
reasonable expenses of re-taking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Collateral, or of any other exercise
by the Collateral Agent of its rights hereunder, together with reasonable
attorneys' fees and court costs; and

    

    (4) any
amounts for which the Collateral Agent or any Holder is entitled to
indemnification under Section 5(j).

    

    “Patent(s)”
means all present and future patents, patent applications and patent disclosures
which are presently, or in the future may be, owned, issued, acquired or used
(whether pursuant to a license or otherwise) anywhere in the world by the
Grantor, in whole or in part, and all of the Grantor's right, title and interest
in and to all patentable inventions and to file applications for patents under
patent laws of the United States or of any other jurisdiction, including,
without limitation, any and all extensions, reissues, substitutes,
continuations, continuations-in-part, divisional, patents of addition,
re-examinations and renewals thereof, and patents issuing therefrom, and any
other proprietary rights related to any of the foregoing (including, without
limitation, remedies against infringements thereof and rights of protection of
an interest therein under the laws of all jurisdictions) and any and all foreign
counterparts of any of the foregoing.

    

    “Patent
Licenses” means each license agreement relating to Patents granted to, used or
acquired by the Grantor, in each case together with the right to use and rely
upon the inventions and other intellectual property conveyed
thereunder.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “Patent
and Trademark Security Agreement” means that certain Patent and Trademark
Security Agreement, dated as of July 21, 2006, between the Grantor and the
Collateral Agent.

    

    “Permitted
Liens” shall have the meaning assigned to such term in the Notes.

    

    “Person”
means any natural person, corporation, partnership, limited liability company,
trust, incorporated organization, unincorporated association or similar entity
or any government, governmental agency or political subdivision.

    

    “Proceeds”
shall have the meaning assigned to such term under the Code.

    

    “Proprietary
Information” means information in whatever form generally unavailable to the
public that has been created, discovered, developed or otherwise become known to
the Grantor or in which property rights have been assigned or otherwise conveyed
to the Grantor, which information has economic value or potential economic value
to the creation, operation, use, modification, extension, upgrade, application,
marketing, sale and distribution of the Grantor’s products and services.
Proprietary Information shall include, but not be limited to, trade secrets,
processes, formulas, writings, data, know-how, negative know-how, improvements,
discoveries, developments, designs, inventions, techniques, technical data,
customer and supplier lists, financial information, business plans or
projections and modifications or enhancements to any of the above. Proprietary
Information shall include all information existing on the date hereof and all
information developed or acquired hereafter.

    

    “Security
Interest” means the security interest granted in the Collateral pursuant to this
Agreement.

    

    “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 Grantor.

    

    “Trademark
License” means each license agreement relating to Trademarks used, adopted or
acquired by the Grantor. 

    

    “Trademarks”
means (a) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers of the Grantor adopted for use in conjunction
with the Grantor’s business products and services, now existing anywhere in the
world or hereinafter adopted or acquired, whether currently in use or not, and
the goodwill associated therewith, all registrations and recordings thereof, and
all applications in connection therewith, and (b) all renewals thereof by the
Grantor.

    

    “Transaction
Documents” means the Notes, the Note Purchase Agreements, this Agreement, the
Patent and Trademark Security Agreement, the Lockbox Agreement, the Warrants,
and the other agreements, instruments and documents contemplated hereby and
thereby.

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    2. Grant of Security
Interest. As
collateral security for the prompt and complete payment and performance of the
Obligations and for the other purposes provided in this Agreement, the Grantor
hereby grants to the Collateral Agent for the ratable benefit of the Holders a
first priority security interest in all of the Collateral. Such grant includes,
without limitation, a grant of the security interest to secure the payment and
performance of Obligations relating to the Additional Note upon the date of
issuance of such Additional Note.

    

    3. Rights of Collateral Agent;
Limitations on Collateral Agent's Obligations.

    

    (a) Grantor Remains Liable under Accounts
and Contracts.
Anything herein to the contrary notwithstanding, the Grantor shall remain liable
under each of the Accounts and Contracts that constitute part of the Collateral
to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise to each such Account and in accordance with and pursuant to the
terms and provisions of each such Contract. The Collateral Agent shall not have
any obligation or liability under any Account that constitutes part of the
Collateral (or any agreement giving rise thereto) or under any Contract that
constitutes part of the Collateral by reason of or arising out of this Agreement
or the receipt by the Collateral Agent of any payment relating to such Account
or Contract pursuant hereto, nor shall the Collateral Agent be obligated in any
manner to perform any of the obligations of the Grantor under or pursuant to any
such Account (or any agreement giving rise thereto) or under or pursuant to any
such Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any such Account (or any agreement giving rise
thereto) or under any such Contract, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times. 

    

    (b) Notice to Account Debtors and
Contracting Parties. Upon
the direction of the Collateral Agent at any time that an Event of Default has
occurred and is continuing, the
Grantor shall promptly, but in no event later than five Business Days, after
such direction is given, notify all the account debtors on the Accounts that
constitute part of the Collateral and parties to the Contracts that constitute
part of the Collateral that such Accounts and such Contracts have been assigned
to the Collateral Agent for the ratable benefit of the Holders and that payments
in respect thereof shall be made directly to the Collateral Agent or as the
Collateral Agent shall direct in accordance with the Lockbox Agreement.

    

    (c) Verification and Analysis of
Accounts. If an
Event of Default has occurred and the Collateral Agent shall have directed the
Grantor to notify the account debtors on the Accounts and parties to the
Contracts in accordance with Section 3(b), in addition to its rights pursuant to
clause (1) of this Section 3(c) the Collateral Agent shall have the right in its
own name or in the name of others to communicate with account debtors on the
Accounts that constitute part of the Collateral and parties to the Contracts
that constitute part of the Collateral to verify with them to its satisfaction
the existence, amount and terms of any such Accounts or Contracts and to make
test verifications of such Accounts in any manner and through any medium that it
reasonably considers advisable, and the Grantor shall furnish all such
assistance and information as the Collateral Agent may require in connection
therewith. At any time and from time to time, upon the Collateral Agent's
reasonable request and at the expense of the Grantor, the Grantor shall cause
independent public accountants or others satisfactory to the Collateral Agent to
furnish to the Collateral Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, such Accounts.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    4. Representations and
Warranties. The
Grantor hereby represents and warrants that: 

    

    (a) Title; No Other
Liens. Except
for the Lien granted to the Collateral Agent for the ratable benefit of the
Holders pursuant to this Agreement, the Patent and Trademark Security Agreement,
the Lockbox Agreement and the Lien granted to the Collateral Agent for the
ratable benefit of the Holders pursuant to the Patent and Trademark Security
Agreement, the Grantor owns and has good and marketable title to each item of
the Collateral free and clear of any and all Liens or claims of others except
Permitted Liens. No security agreement, financing statement or other public
notice with respect to all or any part of the Collateral is on file or of record
in any public office, except such as may have been filed in favor of the
Collateral Agent, for the ratable benefit of the Holders, pursuant to this
Agreement or pursuant to the Patent and Trademark Security
Agreement.

    

    (b) Perfected First Priority
Liens. The
Liens granted pursuant to this Agreement will constitute upon the completion of
all the filings or notices listed in Schedule I hereto,
perfected Liens on all Collateral in favor of the Collateral Agent for the
benefit of the Holders, which are prior to all other Liens (except Permitted
Liens, if any) on such Collateral and which are enforceable as such against all
Persons.

    

    (c) Accounts. No
amount payable to the Grantor under or in connection with any Account that
constitutes part of the Collateral is evidenced by any Instrument (other than
checks in the ordinary course of business) or Chattel Paper which has not been
delivered to the Collateral Agent. The place where the Grantor keeps its records
concerning the Accounts that constitute part of the Collateral is set forth on
Schedule II
hereto.

    

    (d) Consents under
Contracts. No
consent (other than consents that have been obtained) of any party (other than
the Grantor), to any Contract that constitutes part of the Collateral is
required, or purports to be required, in connection with the execution, delivery
and performance of this Agreement or the exercise of the Collateral Agent's
rights and remedies provided herein or at law.

    

    (e) Inventory. The
items of Inventory that constitute part of the Collateral are, as of the
Issuance Date, kept at the locations listed on Schedule III hereto
and have not been kept at any other location within the six-month period ending
on the Issuance Date.

    

    (f) Chief Executive
Office. The
Grantor's chief executive office and chief place of business is located at 10500
N.E. 8th Street,
Suite 1400, Bellevue,
WA 98004.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (g) Power and
Authority. The
Grantor has full power, authority and legal right to grant the Collateral Agent
the Lien on the Collateral pursuant to this Agreement.

    

    (h) Approvals, Filings,
Etc. No
authorization, approval or consent of, or filing, registration, recording or
other action with, any United States or foreign court, governmental body,
regulatory agency, self-regulatory organization, or stock exchange or market,
the stockholders of the Grantor or any other Person, is required to be obtained
or made by the Grantor or any Subsidiary (x) for the grant by the Grantor of the
Security Interest in the Collateral pursuant to this Agreement, (y) to perfect
the Security Interest purported to be created by this Agreement, or (z) for the
exercise of the Collateral Agent's rights and remedies provided herein or at
law, in each case except as has been obtained or made.

    

    5. Covenants. The
Grantor covenants and agrees with the Collateral Agent that from and after the
date of this Agreement until the payment or performance in full by the Grantor
of all of the Obligations:

    

    (a) Further Documentation; Pledge of
Instruments and Chattel Paper. At any
time and from time to time, upon the written request of the Collateral Agent,
and at the sole expense of the Grantor, the Grantor will promptly and duly
execute and deliver such further instruments and documents and take such further
action as the Collateral Agent may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Code or similar laws in effect in
any such jurisdiction with respect to the Liens created hereby. The Grantor also
hereby authorizes the Collateral Agent to file any such financing or
continuation statement without the signature of the Grantor to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement for filing in any
jurisdiction. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel Paper, such
Instrument or Chattel Paper shall be immediately delivered to the Collateral
Agent, duly endorsed in a manner satisfactory to the Collateral Agent, to be
held as Collateral pursuant to this Agreement.

    

    (b) Maintenance of
Records.
 The
Grantor will keep and maintain at its own cost and expense satisfactory and
complete records of the Collateral, including, without limitation, a record of
all payments received and all credits granted with respect to any Accounts that
may constitute part of the Collateral. For the further security of the
Collateral Agent, the Grantor hereby grants to the Collateral Agent a security
interest in all of the Grantor's books and records pertaining to the Collateral,
and the Grantor shall turn over any such books and records for inspection at the
office of the Grantor to the Collateral Agent or to its representatives during
normal business hours at the request of the Collateral Agent.

    

    (c) Limitation on Liens on
Collateral. The
Grantor (x) will not create, incur or permit to exist, will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien or claim on or to the Collateral, other than the Security Interest
created hereby and Liens created by the Patent and Trademark Security Agreement,
and (y) will defend the right, title and interest of the Collateral Agent in and
to any of the Collateral against the claims and demands of all
Persons.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (d) Limitations on Dispositions of
Collateral. The
Grantor will not sell, transfer, lease, assign, grant any participation or
interest in, or otherwise dispose of, any of the Collateral to any Person,
including, without limitation, any Subsidiary or Affiliate of the Grantor, or
attempt, offer or contract to do so. 

    

    (e) Performance of Contracts and
Agreements Giving Rise to Accounts. The
Grantor shall (i) exercise promptly and diligently each and every material right
and perform each material obligation which it may have under each Contract that
constitutes part of the Collateral and each agreement giving rise to an Account
that constitutes part of the Collateral (other than any right of termination)
and (ii) deliver to the Collateral Agent, upon request, a copy of each material
demand, notice or document received by it relating in any way to any Contract
that constitutes part of the Collateral or any agreement giving rise to an
Account that constitutes part of the Collateral. The Grantor shall not amend or
modify the terms of, or waive any rights under, any Contracts, in a manner which
would materially adversely affect the Security Interest or the value of such
Contracts.

    

    (f) Further Identification of
Collateral. The
Grantor shall furnish to the Collateral Agent from time to time, upon the
request of the Collateral Agent, statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Collateral Agent may reasonably request, all in reasonable
detail.

    

    (g) Notices. The
Grantor will advise the Collateral Agent within two Business Days of the
occurrence thereof, in reasonable detail, at its address in accordance with
Section 16, (i) of any Lien (other than Liens permitted hereunder) on, or claim
asserted against, any of the Collateral, (ii) of any Event of Default or any
event which, with notice or the lapse of time, or both, would become an Event of
Default and (iii) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the Collateral, the Security
Interest or the rights of the Collateral Agent hereunder.

    

    (h) Changes in Locations, Name, Etc.
The
Grantor will not 

    

    (1) change
the location of its chief executive office/chief place of business from that
specified in Section 4(f) or remove its books and records from the location
specified in Section 4(c), or

    

    (2) change
its name, identity or corporate structure to such an extent that any financing
statement filed in connection with this Agreement and naming the Collateral
Agent as secured party would become misleading or invalid, or

    

    (3) change
the location at which any item of Inventory that constitutes Collateral is kept
from the locations specified in Section 4(e),

    

    unless in
any such case it shall have given the Collateral Agent at least 30 days prior
written notice thereof and, prior to such action or event, shall have taken
appropriate action satisfactory to the Collateral Agent to preserve and protect
the Collateral Agent's security interest under this Agreement.

    

    
      
        
        

      

      
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    (i) Subsidiaries. This
Agreement is entered into on behalf of and for the benefit of the Grantor. The
Subsidiaries and the Affiliates of the Grantor have no ownership or other rights
in the Collateral. The Grantor will not permit any Subsidiary or any Affiliate
of the Grantor to have any ownership or other rights in or to exercise any
control over the Collateral.

    

    (j) Indemnification. The
Grantor agrees to indemnify and hold harmless the Collateral Agent and each
Holder and their respective officers, directors, Affiliates, agents, members,
shareholders and investment advisors (each, an “Indemnified Person”) from and
against any and all claims, demands, losses, judgments and liabilities
(including liabilities for penalties) of whatsoever kind or nature, and to
reimburse the Collateral Agent and each Holder for all costs and expenses,
including reasonable attorneys’ fees and expenses, arising out of or resulting
from this Agreement, including any breach hereof or Event of Default hereunder,
or the exercise by the Collateral Agent or any Holder, as the case may be, of
any right or remedy granted to it hereunder or under the other Transaction
Documents under applicable law; provided,
however, that the
Grantor shall not be required to indemnify a particular Indemnified Person to
the extent any claim, demand, loss, judgment, liability, cost or expense is
determined by final judgment (not subject to further appeal) of a court of
competent jurisdiction to have arisen primarily from the gross negligence or
willful misconduct of such Indemnified Person. In no event shall any Indemnified
Person other than the Collateral Agent have any liability or obligation to the
Grantor under this Agreement or applicable law (liability under which the
Grantor hereby waives) for any matter or thing in connection with this
Agreement, and in no event shall the Collateral Agent be liable, in the absence
of a determination of gross negligence or willful misconduct on its part by
final judgment (not subject to further appeal) of a court of competent
jurisdiction, for any matter or thing in connection with this Agreement other
than to account for moneys actually received by it in accordance with the terms
hereof. If and to the extent that the obligations of the Grantor under this
Section 4(j) are unenforceable for any reason, the Grantor hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law. 

    

    6. Collateral Agent's
Powers.

    

    (a) Powers. The
Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any
officer or agent thereof or investment advisor thereto, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, from time to time in the Collateral Agent's
discretion, during any period in which an Event of Default is continuing, for
the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, the Grantor hereby gives the
Collateral Agent and each such officer, agent and investment advisor the power
and right, on behalf of the Grantor, without notice to or assent by the Grantor,
except any notice required by law, to do the following:

    

    (i) to take
possession of and endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under or with respect to any
Collateral and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by the Collateral
Agent for the purpose of collecting any and all such moneys due under or with
respect to any such Collateral whenever payable, in each case in the name of the
Grantor or its own name, or otherwise;

    

    
      
        
        

      

      
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    (ii) to pay or
discharge taxes and liens levied or placed on or threatened against the
Collateral and to pay all or any part of the premiums therefor and the costs
thereof; and

    

    (iii) (A) to
direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the
Collateral Agent or as the Collateral Agent shall direct; (B) to ask or demand
for, collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral; (C) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding brought against
the Grantor with respect to any Collateral; (F) to settle, compromise or adjust
any suit, action or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Collateral Agent may deem
appropriate; and (G) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Collateral Agent were the absolute owner thereof for
all purposes, and to do, at the Collateral Agent's option and the Grantor's
expense, at any time, or from time to time, all acts and things which the
Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and the Collateral Agent's Liens thereon and to effect the intent of
this Agreement, all as fully and effectively as the Grantor might
do.

    

    The
Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be
done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Grantor shall have paid and
performed in full all of the Obligations.

    

    (b) Other Powers. The
Grantor also authorizes the Collateral Agent, from time to time during any
period in which an Event of Default is continuing, to
execute, in connection with the sale provided for herein, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.

    

    (c) No Duty on Collateral Agent's
Part. The
powers conferred on the Collateral Agent hereunder are solely to protect the
Collateral Agent's interests in the Collateral for the pro rata benefit
of the Holders and shall not impose any duty upon the Collateral Agent to
exercise any such powers. The Collateral Agent shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Grantor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.

    

    
      
        
        

      

      
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    7. Performance by Collateral Agent of
Grantor's Obligations. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Collateral Agent, as provided for by the terms of this Agreement and
following reasonable notice to the Grantor, may itself perform or comply, or
otherwise cause performance or compliance, with such agreement, and the expenses
of the Collateral Agent incurred in connection with such performance or
compliance shall be payable by the Grantor to the Collateral Agent on demand and
shall constitute Obligations secured hereby.

    

    8. Remedies in
General. If an
Event of Default has occurred and is continuing, the Collateral Agent may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, if an Event of
Default has occurred and is continuing, the Collateral Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below or expressly
provided for) to or upon the Grantor or any other Person (all and each of which
demands, defenses, advertisements and notices are, to the extent permitted by
applicable law, hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, license, assign, give option or options to purchase,
or otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), at public or private sale or sales, at any
exchange, broker's board or office of the Collateral Agent or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Collateral Agent shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Grantor, which right or equity is
hereby waived, to the extent permitted by applicable law, or released.

    

    The
Grantor further agrees that, if an Event of Default has occurred and is
continuing, at the
Collateral Agent's request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably
select, whether at the Grantor's premises or elsewhere. The Collateral Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Collateral Agent hereunder, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Obligations, in such order as the Collateral Agent may elect, and only after
such application and after the payment by the Collateral Agent of any other
amount required by any provision of law, need the Collateral Agent account for
the surplus, if any, to the Grantor. To the extent permitted by applicable law,
the Grantor waives all claims, damages and demands it may acquire against the
Collateral Agent arising out of the exercise by it of any rights hereunder,
provided, that
nothing contained in this Section 8 shall relieve the Collateral Agent from
liability arising solely from its gross negligence or willful misconduct. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least ten
days before such sale or other disposition. The Grantor shall remain liable for
any deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Collateral Agent to collect such
deficiency.

    

    
      
        
        

      

      
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    9. Limitation on Duties Regarding
Preservation of Collateral. The
Collateral Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under the Code or
otherwise, shall be to deal with it in the same manner as the Collateral Agent
deals with similar property for its own account. Neither the Collateral Agent
nor any of its directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Grantor or
otherwise.

    

    10. Powers Coupled with an
Interest. All
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and powers coupled with an interest until the Grantor has paid and
performed in full all of its obligations under the Transaction
Documents.

    

    11. Severability. Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

    

    12. Paragraph Headings, Captions,
Etc. The
paragraph headings, the captions and the footers used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

    

    13. No Waiver; Cumulative
Remedies. The
Collateral Agent shall not by any act, delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have acquiesced in
any Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Collateral Agent would otherwise have on any
future occasion. The rights and remedies herein and in the Notes and the other
Transaction Documents are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law or in equity or
by statute.

    

    14. Waivers and Amendments; Successors
and Assigns. None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the party to be
charged with enforcement; provided, however,
that any
provision of this Agreement may be waived, amended, supplemented or otherwise
modified by the Collateral Agent only with the prior written approval of the
Majority Holders. This Agreement shall be binding upon the successors and
permitted assigns of the Grantor and shall inure to the benefit of the
Collateral Agent and its successors and assigns. The Grantor may not assign its
rights or obligations under this Agreement without the prior written consent of
the Collateral Agent, which the Collateral Agent may withhold in the sole
discretion of the Majority Holders. The requirements for resignation, and
appointment of a successor to, the Collateral Agent are established by
Schedule IV hereto
and not by this Agreement.

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    15. Termination of Security Interest;
Release of Collateral.  

    

    (a) Upon the
payment in full of all principal of and premium, if any, and interest on the
Notes and the payment in full of all other amounts for Obligations that are due
and payable at such time, and if no claims for payment by the Company of any
Obligations are at the time pending, the Security Interest shall terminate and
all rights to the Collateral shall revert to the Grantor. 

    

    (b) If an
Event of Default shall have occurred and be continuing, the Collateral Agent
shall disburse the funds held by it pursuant to this Agreement as
follows:

    

    (i) First, to
pay any amounts payable to the Collateral Agent pursuant to Section 17 that have
not been paid by the Grantor;

    

    (ii) Second,
to pay each Holder on a pro rata basis the amount of all accrued and unpaid
interest (and interest, if any, thereon at the Default Rate) then due each
Holder in accordance with the terms of their respective Notes through the most
recent Interest Payment Date;

    

    (iii) Third, to
pay each Holder on a pro rata basis the amount, if any, of unpaid principal then
due on the Maturity Date of any installment of principal of such Holder’s Notes;

    

    (iv) Fourth,
to pay each Holder, on a pro rata basis, the amount then due upon acceleration,
if any, pursuant to Section 4 of such Holder’s Note(s); and then

    

    (v) Fifth, to
pay each Holder who has exercised its repurchase rights under Section 5 of the
Notes, on a pro rata basis, all of the applicable unpaid Repurchase Price for
each of the Notes or portions thereof required to be repurchased; and
then

    

    (vi) Sixth, to
pay each Holder any other amount due and payable to such Holder under the
Transaction Documents; and then

    

    (vii) Seventh,
the remaining amount, if any, to the Grantor.

    

    provided,
however, that if
the amount of funds held by the Collateral Agent is insufficient to pay all
amounts due to the Holders pursuant to clauses (ii) and (iv) above, then the
amount paid to the Holders pursuant to this Section 15(b) shall be prorated
among the Holders in proportion to the respective amounts due each Holder
pursuant to the particular such clause or clauses for which such funds are
insufficient.

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (c) At any
time and from time to time prior to termination of the Security Interest
pursuant to Section 15(a), the Collateral Agent shall release any of the
Collateral only with the prior written consent of the Majority Holders.

    

    (d) Upon any
such termination of the Security Interest or release of all the Collateral, the
Collateral Agent will, at the expense of the Grantor, execute and deliver to the
Grantor such documents and take such other actions as the Grantor shall
reasonably request to evidence the termination of the Security Interest and
deliver to the Grantor all Collateral so released then in its
possession.

    

    16. Notices. Any
notices required or permitted to be given under the terms of this Agreement
shall be in writing and shall be sent by mail, personal delivery, telephone line
facsimile transmission or courier and shall be effective five days after being
placed in the mail, if mailed, or upon receipt, if delivered personally, by
telephone line facsimile transmission or by courier, in each case addressed to a
party at such party's address (or telephone line facsimile transmission number)
shown below or such other address (or telephone line facsimile transmission
number) as a party shall have provided by notice to the other party in
accordance with this provision. In the case of any notice to the Grantor, such
notice shall be addressed to the Grantor at 10500 N.E. 8th Street,
Suite 1400,Bellevue, WA 98004, Attention: Chief Financial Officer (telephone
line facsimile number (425) 749-3601), with a copy to Sichenzia Ross Friedman
Ference LLP, 1065 Avenue of the Americas, 21st Floor,
New York, New York 10018, Attention: Richard A. Friedman, Esq. (telephone line
facsimile number (212) 930-9725) and in the case of any notice to the Collateral
Agent, such notice shall be addressed to the Collateral Agent at c/o Alexandra
Investment Management, LLC, 767 Third Avenue, 39th Floor,
New York, New York 10017 (telephone line facsimile number (212) 301-1810), with
a copy to Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street,
New York, New York (telephone line facsimile number (212)
980-7055).

    

    17. Fees and Expenses. The
Grantor agrees to pay the fees of the Collateral Agent in performing its
services under this Agreement and all expenses (including but not limited to
reasonable attorneys' fees and costs for legal services, costs of insurance and
payments of taxes or other charges) of, or incidental to, the custody, care,
sale or realization on any of the Collateral or in any way relating to the
performance of the obligations or the enforcement or protection of the rights of
the Collateral Agent hereunder. 

    

    18. Concerning Collateral
Agent. The
Grantor acknowledges that the rights and responsibilities of the Collateral
Agent under this Agreement with respect to any action taken by the Collateral
Agent or the exercise or nonexercise by the Collateral Agent of any option,
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Collateral
Agent and the Holders, be governed by Schedule IV hereto
and by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Collateral Agent and the Grantor, except as
expressly provided in Sections 14 and 15, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Holders with full and valid
authority so to act or refrain from acting, and the Grantor shall not be under
any obligation to make any inquiry respecting such authority. The Collateral
Agent hereby waives for the benefit of the Holders any claim, right or lien of
the Collateral Agent against the Collateral arising under applicable law or
arising from any business or transaction between the Collateral Agent and the
Grantor other than pursuant to this Agreement or any of the other Transaction
Documents.

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    19. Survival. All
representations, warranties, covenants and agreements of the Grantor and of the
Collateral Agent contained herein will survive the execution and delivery hereof
and the release of any Collateral pursuant hereto and shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Collateral Agent or the Grantor or any person who controls the Collateral
Agent or the Grantor.

    

    20. Grantor’s Obligations Absolute, Etc.
The
obligations of the Grantor under this Agreement shall be absolute and
unconditional and shall remain in full force and effect without regard to, and
shall not be released, suspended, discharged, terminated or otherwise affected
by, any circumstance or occurrence whatsoever, including, without limitation:
(a) any renewal, extension, amendment or modification of or addition or
supplement to or deletion from any of the Transaction Documents or any other
agreement or instrument referred to therein, or any assignment or transfer of
any thereof; (b) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such Transaction Document or other agreement
or instrument; (c) any furnishing of any additional security to the Collateral
Agent or its assignees or any acceptance thereof or any release of any security
by the Collateral Agent or its assignees; (d) any limitation on any party’s
liability or obligations under any such Transaction Document or other agreement
or instrument or any invalidity or unenforceability, in whole or in part, of any
such Transaction Document or other agreement or instrument or any term thereof;
or (e) any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to the Grantor, or
any action taken with respect to this Agreement by any trustee or receiver, or
by any court, in any such proceeding, whether or not the Grantor shall have
notice or knowledge of any of the foregoing.

    

    21. Integration. This
Agreement represents the entire agreement of the Grantor and the Collateral
Agent with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the parties relative to the
subject matter hereof not expressly set forth or referred to herein or
therein.

    

    22. Governing Law. This
Agreement and the rights and obligations of the Grantor under this Agreement
shall be governed by, and construed and interpreted in accordance with, the law
of the State of New York, except to the extent that under the New York Uniform
Commercial Code the laws of another jurisdiction govern matters of perfection
and the effect of perfection or non-perfection of any security interest granted
hereunder.

    

    23. Counterparts;
Execution. This
Agreement may be executed in any number of counterparts and by the parties
hereto on separate counterparts, but all the counterparts taken together shall
be deemed to constitute one and the same instrument. This Agreement, once
executed by a party, may be delivered to the other party hereto by telephone
line facsimile transmission of a copy of this Agreement bearing the signature of
the party so delivering this Agreement.

    

    
      
        
        

      

      
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    24. Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

    

    

    [Signature page
follows]

    
      
         

        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    IN WITNESS WHEREOF, the
Grantor and the Collateral Agent have caused this Agreement to be duly executed
and delivered by their respective officers or other representatives thereunto
duly authorized as of the date first above written.

     

     

    
      	 	 	 
	 	EMAGIN
    CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ Gary W.
      Jones
	 	
              
      Name:
      Gary W. Jones
	 	Title: Chief
      Executive Officer

      	 	 	 
	 	
              ALEXANDRA GLOBAL MASTER
      FUND LTD., as Collateral
      Agent

            
	 
 	 
 	
               

               

              ALEXANDRA INVESTMENT
      MANAGEMENT, LLC, as Investment Advisor
 

               

            
	 	By:  	/s/ Mikhail
      Filimonov 
	 	
              
      Name:
      Mikhail Filimonov
	 	Title: Chairman
      and Chief Executive Officer

    

    
      
        
           

        

        
        

      

      
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    SCHEDULE I

    

    Filings Required to Perfect
Security Interest

    

    1. Secretary
of State of the State of Delaware

    

    2. Department
of State of the State of New York

    

    
      
        
           

        

        
        

      

      
        I-1

        
          

        

      

      
        
        

        
          

        

      

    

    SCHEDULE II

    

    Location of Records
Concerning Accounts

    

    

    eMagin
Corporation

    10500 NE
8th Street,
Suite 1400

    Bellevue,
WA. 98004

    
      
        
           

        

        
        

      

      
        II-2

        
          

        

      

      
        
        

        
          

        

      

    

    SCHEDULE III

    

    Inventory
Locations

    

    eMagin
Corporation

    2070
Route 52

    Hopewell
Junction, NY 12533

    

    eMagin
Corporation 

    10500 NE
8th Street,
Suite 1400

    Bellevue,
WA. 98004

    Asteria Manufacturing and
Brimal Holding (same address):

    

    Wisma
AIC

    Lot
3

    Persiaran
Kemajuan

    Seksyen
16

    40200
Shah Alam

    Selangor
Darul Ehsan

    Malaysia

    

    
      
        
           

        

        
        

      

      
        III-1

        
          

        

      

      
        
        

        
          

        

      

    

    SCHEDULE IV

    

    The Collateral
Agent

    

    1. Appointment. The
Holders (all capitalized terms used in this Schedule IV and
not  otherwise  defined shall have the respective meanings provided
in  the  Security agreement to which this Schedule IV is
attached (the “Agreement”)), by their acceptance of the benefits of the
Agreement, hereby irrevocably designate Alexandra Global Master Fund Ltd., as
Collateral Agent, to act as specified herein and in the Agreement. Each Buyer
hereby irrevocably authorizes, and each other Holder of any Note by the
acceptance of such Note shall be deemed irrevocably to authorize, the Collateral
Agent to take such action on its behalf under the provisions of the Agreement
and any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Collateral Agent by the terms
hereof and thereof and such other powers as are reasonably incidental thereto.
The Collateral Agent may perform any of its duties hereunder by or through its
agents or employees.

    

    2. Nature of
Duties. The
Collateral Agent shall have no duties or responsibilities except those expressly
set forth in the Agreement. Neither the Collateral Agent nor any of its
officers, directors, employees or agents shall be liable for any action taken or
omitted by it as such under the Agreement or hereunder or in connection herewith
or therewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Collateral Agent shall be mechanical and
administrative in nature; the Collateral Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in respect
of any Holder; and nothing in the Agreement, expressed or implied, is intended
to or shall be so construed as to impose upon the Collateral Agent any
obligations in respect of the Agreement except as expressly set forth herein.
The Collateral Agent shall not take any material action or exercise any material
right or power pursuant to Section 5, 6 or 7 of this Agreement without the
authorization or direction of the Majority Holders; provided,
however, that if
the Collateral Agent determines that it is unable to contact the Majority
Holders for purposes of seeking such authorization or direction or time will not
permit the Collateral Agent to so contact the Majority Holders prior to such
time as detriment may occur to the rights of the Collateral Agent or the Holders
from any failure of the Collateral Agent to act or exercise such right, then in
any such case the Collateral Agent may take such action or exercise such right
without specific authorization or direction from the Majority
Holders.

    

    The
Collateral Agent shall not be liable for any act it may do or omit to do while
acting in good faith and in the exercise of its own best judgment. Any act done
or omitted by the Collateral Agent on the advice of its own attorneys shall be
deemed conclusively to have been done or omitted in good faith. The Collateral
Agent shall have the right at any time to consult with counsel on any question
arising under the Agreement. The Collateral Agent shall incur no liability for
any delay reasonably required to obtain the advice of counsel.

    

    3. Lack of Reliance on the Collateral
Agent.
Independently and without reliance upon the Collateral Agent, each Holder, to
the extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Grantor
and its subsidiaries in connection with the making and the continuance of the
Obligations and the taking or not taking of any action in connection therewith,
and (ii) its own appraisal of the creditworthiness of the Grantor and its
subsidiaries, and the Collateral Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Holder with any credit
or other information with respect thereto, whether coming into its possession
before any Obligation arises or the purchase of any Note, or at any time or
times thereafter. The Collateral Agent shall not be responsible to any Holder
for any recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Agreement or the financial condition of the Grantor or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement, or the financial condition of the
Grantor, or the existence or possible existence of any Event of
Default.

    

    
      
        
        

      

      
        IV-1

        
          

        

      

      
        
        

      

    

    4. Certain Rights of the Collateral
Agent.  No
Holder shall have the right to cause the Collateral Agent to take any action
with respect to the Collateral, with only the Majority Holders having the right
to direct the Collateral Agent to take any such action. If the Collateral Agent
shall request instructions from the Majority Holders with respect to any act or
action (including failure to act) in connection with the Agreement, the
Collateral Agent shall be entitled to refrain from such act or taking such
action unless and until it shall have received instructions from the Majority
Holders, and to the extent requested, appropriate indemnification in respect of
actions to be taken by the Collateral Agent; and the Collateral Agent shall not
incur liability to any person by reason of so refraining. Without limiting the
foregoing, no Holder shall have any right of action whatsoever against the
Collateral Agent as a result of the Collateral Agent acting or refraining from
acting hereunder in accordance with the instructions of the Majority Holders or
as otherwise specifically provided in the Agreement.

    

    5. Reliance. The
Collateral Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, statement, certificate,
telex, teletype or telecopier message, cablegram, radiogram, order or other
document or telephone message signed, sent or made by the proper person or
entity, and, with respect to all legal matters pertaining to the Agreement and
its duties thereunder, upon advice of counsel selected by it.

    

    6. Limitation of Holder
Liability.  The
Holders shall not be liable for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Collateral Agent in performing its duties hereunder or under the
Agreement, or in any way relating to or arising out of the
Agreement.

    

    7. The Collateral Agent in its
Individual Capacity.  The
Collateral Agent and its affiliates may lend money to, purchase, sell and trade
in securities of and generally engage in any kind of business with the Grantor
or any affiliate or subsidiary of the Grantor as if it were not performing the
duties specified herein, otherwise without having to account for the same to the
Holders; provided,
however, that the
Collateral Agent on behalf of itself and such affiliates, hereby waives any
claim, right or lien against the Collateral in any way arising from or relating
to any such loan, securities transaction or business with the Grantor.

    

    
      
        
        

      

      
        IV-2

        
          

        

      

      
        
        

      

    

    8. Holders. The
Collateral Agent may deem and treat the holder of record of any Note as the
owner thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof, as the case may be, shall have been filed with
the Collateral Agent. Any request, authority or consent of any person or entity
who, at the time of making such request or giving such authority or consent, is
the holder of record of any Note shall be conclusive and binding on any
subsequent holder, transferee or assignee, as the case may be, of such Note or
of any Note(s) issued in exchange therefor.

    

    9. Resignation by the Collateral
Agent.  (a) The
Collateral Agent may resign from the performance of all its functions and duties
under the Agreement at any time by giving 60 days' prior written notice (as
provided in the Agreement) to the Grantor and the Holders. Such resignation
shall take effect upon the appointment of a successor Collateral Agent pursuant
to clauses (b) and (c) below.

    

    (b) Upon any
such notice of resignation, the Majority Holders shall appoint a successor
Collateral Agent hereunder.

    

    (c) If a
successor Collateral Agent shall not have been so appointed within said 60-day
period, the Collateral Agent shall then appoint a successor Collateral Agent who
shall serve as Collateral Agent hereunder or thereunder until such time, if any,
as the Majority Holders appoint a successor Collateral Agent as provided above.
If a successor Collateral Agent has not been appointed within such 60-day
period, the Collateral Agent may petition any court of competent jurisdiction or
may interplead the Grantor and Holders in a proceeding for the appointment of a
successor Collateral Agent, and all fees, including but not limited to
extraordinary fees associated with the filing of interpleader, and expenses
associated therewith shall be payable by the Grantor.

    

    (d) The fees
of any successor Collateral Agent for its services as such shall be payable by
the Grantor.

     

     

    IV-3

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