Document:

ex101.htm

    Exhibit
      10.1
 

    

    LOAN
      AND SECURITY AGREEMENT

    

    by
      and
      between

    

    MORIAH
      CAPITAL, L.P.,

    

    as
      Lender,

    

    and

    

    EMAGIN
      CORPORATION,

    

    as
      Borrower

    

    

    

    

    Dated:
      August 7, 2007

     

    

    
      
        
        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    LOAN
      AND SECURITY AGREEMENT

    

    

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

    

    R
      E C I T A L S:

    

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

    

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

    

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

    

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

    

    SECTION
      1. DEFINITIONS
      AND RULES OF INTERPRETATION AND CONSTRUCTION

    

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

    

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

    

    (ii) Work-in-process
      Inventory; 

    

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

    

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

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    

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

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

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

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

     

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

     

    SECTION
      2. REVOLVING
      LOANS

    

    2.1 Revolving
      Loans.
      

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

     

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

    

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

    

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

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

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

    

    SECTION
      3. INTEREST,
      FEES AND CHARGES

    

    3.1 Interest. 

    

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

    

    (b) For
      the
      purposes of this Section 3.1, 

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

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

    

    SECTION
      4. TERM.

    

    4.1 
      Term.
      

     

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

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

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

     

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

    

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

    

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

    

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

     

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

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

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

     

    4.2 Early
      Termination. 

    

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

    

    (b) This
      Agreement shall not be terminable by Borrower without Lender’s prior written
      consent, which consent may be withheld by Lender in its sole discretion.
      Notwithstanding the foregoing, if Lender accelerates the Loans due to an Event
      of Default, Borrower shall pay to Lender an early payment fee in an amount
      equal
      to (i) two percent (2%) of the Maximum Credit if such acceleration occurs prior
      to the first anniversary of the Closing Date, and (ii) one percent (1%) of
      the
      Maximum Credit if such acceleration occurs on or after the first anniversary
      of
      the Closing Date; such fee being intended to compensate Lender for its costs
      and
      expenses incurred in initially approving this Agreement or extending same.
      Such
      early payment fee shall be due and payable by Borrower to Lender upon
      termination by acceleration of this Agreement by Lender due to the occurrence
      and continuance of an Event of Default.

    

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

    

    SECTION
      5. COLLATERAL.

    

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

     

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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (b) Inventory;

     

    (c) Equipment
      and fixtures;

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

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

     

    SECTION
      6. CONDITIONS
      TO EXTENSION OF CREDIT

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

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

    

    6.6 Collateral.

    

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

    

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

    

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

    

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

    

    

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

    

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

    

    SECTION
      7. CONDITIONS
      TO MAKING FURTHER LOANS.

    

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

    

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

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

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

    

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

    

    SECTION
      8. REPRESENTATIONS
      AND WARRANTIES.

    

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

    

    8.1 Corporate
      Existence; Good Standing.

    

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

     

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

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

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

    

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

    

    8.4 No
      Events of Default.

    

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

     

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

     

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

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

    8.9 Financial
      Statements.

    

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

    

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

    

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

    

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

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

    

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

    

    8.13 Taxes
      and Assessments.
      

    

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

    

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

    

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

    

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

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

    

    8.15 Environmental
      Matters.

    

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

    

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

    

    8.16 United
      States Anti-Terrorism Laws

    

    (a) In
      this
      Section 8.16:

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

     

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

    

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

    

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

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

    

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

    

    8.23 Representations
      and Warranties: True, Accurate and Complete.

    

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

    

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

    

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

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

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

     

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

    

    8.27 Internal
      Accounting Controls.

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

    

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    8.28 Sarbanes-Oxley
      Act.

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

    

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

    

    SECTION
      9. AFFIRMATIVE
      COVENANTS.

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

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

    

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

     

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

     

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

     

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

     

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

    

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

    

    (e) Other
      Information.
      Promptly upon demand therefor,

     

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

    

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

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

    

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

    

    (iv) Assignments,
      in form acceptable to Lender, of all Accounts, and of the monies due or to
      become due on specific contracts relating to the same.

    

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

     

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

     

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

    

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

    

    9.8 Insurance
      Required.

    

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

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

    (vi) Upon
      demand, be delivered to Lender.

    

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

     

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

     

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

     

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

     

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

    

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

    

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

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

    9.15 Name
      Changes; Location Changes.

    

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

    

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

    

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    

    SECTION
      10. NEGATIVE
      COVENANTS.

    

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

    

    10.1 Fundamental
      Transactions; No Creation of Subsidiaries.
      

    

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

    

     

     

    

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

    

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

    

    “Fundamental
      Transaction” means

    

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

    

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

    

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

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

     

     

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

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

    

    SECTION
      11. EVENTS
      OF DEFAULT.

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

    11.10 [RESERVED]

    

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

    

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

    

    

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

    

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

    11.18 Trading
      of Common Stock. 

    

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

    

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

    

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    

    SECTION
      12. REMEDIES.

    

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

    

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

     

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

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

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

     

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

     

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

     

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

    

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

    

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

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

    

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

    

    SECTION
      13. OTHER
      RIGHTS OF LENDER.

    

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

    

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

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

    

    13.3 Lender
      Appointed Attorney-in-Fact.

    

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

    

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

    

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

    

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    SECTION
      14. PROVISIONS
      OF GENERAL APPLICATION.

    

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

    

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

    

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

    

    If
      to
      Borrower:                      eMagin
      Corporation.

    10500
      N.E. 8th
      Street

    Suite
      1400

    Bellevue,
      Washington 12533

    Attention:
      John Atherly

     

    With
      a
      copy
      to:                Sichenzia
      Ross Friedman Ference LLP

    61
      Broadway

    New
      York,
      New York 10006

    Attention:
      Richard A. Friedman, Esq.

     

    If
      to
      Lender:                          Moriah
      Capital, L.P.

    685
      Fifth
      Avenue

    New
      York,
      New York 10022

    Attention:
      Greg Zilberstein

     

    

    With
      a
      copy
      to:                   
Cohen
      Tauber Spievack & Wagner LLP

    420
      Lexington Avenue, Suite 2400

    New
      York,
      New York 10170

    Attention:
      Adam Stein, Esq.

     

    

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

    

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

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

    

    14.5 Binding
      on Successors.
      

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

     

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

    

    

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

        
        

      

      
        49

        
          

        

      

      
        
        

      

    

    

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

    
      
         

        
          	 	 EMAGIN
                  CORPORATION
	 	 	 	 
	
                   

                	
                  By:
                    

                	/s/ K.C.
                  Park 	 
	 	 	
                  Name:
                    K.C. Park

                	 
	 	 	
                  Title: Interim
                    CEO

                	 
	 	 	 

        

      

    

     

    
      	 	 

    

    
      	 	 	 
	 	
              MORIAH CAPITAL L.P.

               

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

               

              By:
                Moriah Capital Management, GP, LLC, General
                Partner

            
	 
 	 
 	 
 
	
            	  	By: /s/ Alexandre
              Speaker
	 	
              
                

                Name: Alexandre Speaker

              Title: General Partner

            
	 	 

    

    

    [SIGNATURE
      PAGE OF LOAN AND SECURITY AGREEMENT]

     

     

     

    50ex102.htm

     

    Exhibit
      10.2

    
 

    SECURITIES
      ISSUANCE AGREEMENT

     

    

     

    THIS
      SECURITIES ISSUANCE AGREEMENT (this “Agreement”)
      is
      made and entered into as of August 7, 2007, by and between eMagin
      Corporation,
      a
      Delaware corporation (the “Company”),
      and
      Moriah Capital, L.P., a Delaware limited partnership (the “Lender”).

     

    Capitalized
      terms not otherwise defined herein have the meaning set forth in that certain
      Loan and Security Agreement by and between Lender, as lender, and the Company,
      as borrower, of even date herewith (the “Loan
      Agreement”).

     

    RECITALS

     

    WHEREAS,
      the Company has authorized the issuance to Lender on the date hereof of shares
      of the Company’s common stock, $0.001 par value per share (“Common
      Stock”),
      with
      an aggregate market value on the Closing Date of $195,000, based on the closing
      price of the Common Stock on the OTC Bulletin Board on the Closing Date (the
      “Initial
      Issued Shares”);
      

     

    WHEREAS,
      the Company wishes to issue the Issued Shares (as defined below) to
      Lender;

     

    WHEREAS,
      the Company has authorized the issuance to Lender, pursuant to the terms of
      the
      Loan Agreement, on the effective date of extension of the initial term of the
      Loan (if so extended), Common Stock with an aggregate market value of $195,000
      based on the average closing price of the Common Stock on the OTC Bulletin
      Board
      or such other trading market which such Common Stock is then listed or traded,
      for the ten (10) trading days preceding such effective date(the “Contingent
      Issued Shares”)
      (the
      Contingent Shares, together with the Initial Issued Shares, are referred to
      herein as the “Issued
      Shares”);
      and

     

    WHEREAS,
      the issuances and other obligations and transactions described and contemplated
      hereby are in partial consideration for Lender agreeing to enter into, perform
      or accept, as applicable, the Loan Agreement and the other Loan
      Documents;

     

    NOW,
      THEREFORE, in consideration of the foregoing recitals and the mutual promises,
      representations, warranties and covenants set forth herein, and for other good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:

     

    1.  Issuance.

     

    
      	1.1  	
              On
                the date of execution of this Agreement, also known as the Closing
                Date,
                the Company agrees to issue to Lender, and Lender agrees to acquire
                from
                the Company, the Initial Issued Shares. 

            

    

     

    
      	1.2  	
              On
                the date of extension of the initial term of the Loan, also known
                as the
                Extension Date, the Company agrees to issue to Lender, and Lender
                agrees
                to acquire from the Company, the Contingent Issued Shares, the certificate
                for which shares shall be delivered to Lender within five (5) days
                of such
                date.  

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2.  Closing;
      Delivery. (a)
      Closing
      Obligations of Company.
      At the
      Closing Date, except as set forth below, the Company shall have taken and shall
      take all actions necessary to issue the Issued Shares to Lender and to
      consummate the transactions contemplated
      hereby, including, without limitation, delivery or causing to be delivered
      to
      Lender the following:

     

    
      	(a)  	
              A
                certificate for the Initial Issued Shares within five (5) days of
                the
                Closing Date;

            

    

     

    
      	(b)  	
              executed
                originals, and delivery of, all of the Loan Documents;
                and

            

    

     

    
      	(c)  	
              such
                other certificates, documents, receipts and instruments as Lender
                or its
                legal counsel may request.

            

    

     

    (b)
      Closing
      Obligations of Lender.
      At the
      Closing Date, Lender shall have taken and shall take all actions necessary
      for
      its acquisition of the Initial Issued Shares, and to consummate the transactions
      contemplated hereby.

     

    3.  Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to Lender as follows:

     

    
      	
              3.1  

                 

            	Organization, Good Standing and Qualification.
              Each of the Company and its Subsidiaries is a corporation duly organized,
              validly existing and in good standing under the laws of its jurisdiction
              of organization. Each of the Company and its Subsidiaries has the
              corporate power and authority to own and operate its properties and
              assets; to execute, deliver and perform or cause to be executed, delivered
              and performed this Agreement ; and to carry on its business as presently
              conducted. 

    

    
      	 	 

    

    
      	3.2  	
              Capitalization;
                Voting Rights.

            

    

     

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (a)  The
      authorized and issued capital stock of the Company as of the date hereof is
      as
      disclosed in the Company’s filings that are required by the Securities Act of
      1933, as amended (the “Securities
      Act”)
      and
      the Securities Exchange Act of 1934, as amended (the “Securities
      Exchange Act”)
      (the
“SEC
      Reports”)
      to be
      filed with the Securities and Exchange Commission (“SEC”).

     

    (b)  Except
      as
      disclosed in the SEC Reports, other than: (i) Common Stock reserved for issuance
      under the Company’s stock option plans and (ii) the Issued Shares, there are no
      outstanding options, warrants, rights (including, but not limited to, conversion
      or preemptive rights and rights of first refusal), proxy or stockholder
      agreements, or other arrangements or agreements of any kind for the purchase
      or
      acquisition from the Company or its Subsidiaries, of any of their securities.
      Neither the offer, issuance or sale of any of, or the issuance of any of, the
      Issued Shares, nor the consummation of any transactions contemplated hereby,
      will result in a change in the price or number of any securities of the Company
      or its Subsidiaries authorized or issued.

     

    (c)  All
      issued and outstanding securities: (i) have been duly authorized and validly
      issued and are fully paid and nonassessable and (ii) were issued in compliance
      with all applicable state and federal laws.

     

    (d)  The
      Issued Shares have been duly and validly reserved for issuance. When issued
      in
      compliance with the provisions of this Agreement, the Issued Shares will be
      validly issued, fully paid and nonassessable, and will be free of any
liens,
      charges, encumbrances, options, rights of first refusal, security interests,
      claims, mortgages, pledges, charges, easements, covenants, restrictions, (except
      as contained herein) obligations, or any other encumbrances (including, without
      limitation, any conditional sale or other title retention agreement or any
      lease
      in the nature thereof and any agreement to grant or to permit or suffer to
      exist
      any of the foregoing) or third party rights or equitable interests of any nature
      whatsoever
      or any
      Liens all of the above shall be referred to herein as a “Lien”.

     

    3.3  Authorization;
      Binding Obligations.
      All
      corporate action on the part of the Company necessary for the authorization
      of
      the Loan Documents, and the performance of the same, has been taken or will
      be
      taken prior to the Closing Date. The Loan Documents, when executed and
      delivered, will be valid and binding obligations of the Company, enforceable
      against it in accordance with their terms.

     

    3.4  Title
      to Properties and Assets; Liens, Etc.
      Except
      for Permitted Encumbrances, each of the Company and each of its Subsidiaries
      has
      good and marketable title to its properties and assets, and good title to its
      leasehold estates, in each case not subject to any Liens.

     

    3.5  No
      Conflicts.
      Neither
      the Company nor any of its Subsidiaries is in violation or default of (a) any
      term of its formation documents or by-laws or (b) of any provision of any
      indebtedness for borrowed money, Contract any mortgage, indenture, lease,
      license, agreement or contract (collectively, “Contracts”)
      or
      judgment, order, writ, injunction, or decree (“Orders”).
      The
      execution, delivery and performance of this Agreement and the Loan Documents
      will not, with or without the passage of time or giving of notice, result in
      any
      violation, or be in conflict with, or constitute a default under, any such
      term
      or provision of indebtedness for borrowed money, Contract or Order, or result
      in
      the creation of any Lien upon any of the securities, properties or assets of
      the
      Company or any of its Subsidiaries, or the suspension, revocation, impairment,
      forfeiture or nonrenewal of any licenses, permits, franchises, approvals,
      consents, waiver, notices, authorizations, qualifications, concessions, or
      the
      like.

     

    3.6  Registration
      Rights and Voting Rights.
      Except
      as disclosed in the Registration Rights Agreement, neither the Company nor
      any
      of its Subsidiaries is presently under any obligation, and neither the Company
      nor any of its Subsidiaries has granted any rights, to register any of the
      Company’s or its Subsidiaries’ securities. Except as disclosed in any SEC
      Reports, to the Company’s best knowledge, no stockholder of the Company or any
      of its Subsidiaries has entered into any agreement with respect to the voting
      of
      equity securities of the Company or any of its Subsidiaries.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    3.7  Valid
      Offering.
      Assuming the accuracy of the representations and warranties of Lender contained
      in this Agreement, the offer, sale and issuance of the Issued Shares will be
      exempt from the registration requirements of the Securities Act, and will have
      been registered or qualified (or are exempt from registration and qualification)
      under the registration, permit or qualification requirements of all applicable
      state securities laws.

     

    3.8  SEC
      Reports.
      The
      Company’s SEC Reports do not contain any untrue statement of a material fact nor
      omit to state a material fact necessary in order to make the statements
      contained herein or therein, in light of the circumstances in which they are
      made, not misleading.

     

    3.9  Fees;
      Brokers; Finders.
      There
      are no fees, commissions or other compensation due to any third party in
      connection with the Loan Documents. All negotiations relative to the Loan
      Documents, and the transactions contemplated thereby, have been carried on
      by
      the Company with Lender and without the intervention of any other person or
      entity acting on behalf of the Company, and in such manner as not to give rise
      to any claim against the Company or Lender for any finder's fee, brokerage
      commission or like payment, and if any such fee, commission or payment is
      payable, it shall be the sole responsibility of the Company and the Company
      shall pay, and indemnify Lender for, the same.

     

    4.  Representations
      and Warranties of Lender.
      The
      Lender hereby represents and warrants to the Company that (a) the Lender has
      the
      power and authority to execute, deliver and perform this Agreement, (b) all
      partnership or corporate action on Lender’s part required for the execution,
      delivery and performance of this Agreement has been or will be taken on or
      prior
      to the Closing Date, (c) upon execution and delivery, this Agreement will be
      valid and binding obligations of Lender, enforceable in accordance with its
      terms, and (d)
      the
      Lender will not engage in “short sales” of the issued and outstanding Common
      Stock during the Term.

     

    5.  Covenants
      of the Company.
      The
      Company covenants and agrees with Lender as follows:

     

    5.1  Reporting
      Requirements.
      The
      Company and its Subsidiaries will timely file with the SEC and state regulatory
      authorities all reports, documents, information and other material required
      to
      be filed or disclosed thereto.

     

    5.2  Confidentiality.
      The
      Company agrees that it will not disclose, and will not include in any public
      announcement, the name of Lender or the terms of this Agreement other than
      as
      permitted under the Loan Agreement or as required by law. 

     

    5.3  SEC
      Reporting.
      The
      Company shall comply with all reporting requirements under the Securities
      Exchange Act, including, but not limited to, making available all required
      current information regarding the Company under Rule 144(c) under the Securities
      Act, so as to enable Lender to effect resales of the Issued Shares under Rule
      144. The Company shall cooperate with Lender in connection with all resales
      pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary
      to
      allow such resales, provided the Company and its counsel receive reasonably
      requested representations from Lender and broker, if any.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    5.4  Indemnification.
      The
      Company and its Subsidiaries agree, jointly and severally, to indemnify, hold
      harmless, reimburse and defend Lender, and Lender’s partners, officers,
      directors, agents, representatives, affiliates, members, managers, and
      employees, against any claim, cost, expense, liability, obligation, loss or
      damage (including, without limitations, reasonable legal fees) of any nature,
      incurred by or imposed upon them which results, arises out of, or is based
      upon:
      (a) any misrepresentation by the Company or any of its Subsidiaries, or breach
      of any warranty by the Company or any of its Subsidiaries in this Agreement,
      or
      in any exhibits or schedules attached hereto, and (b) any breach or default
      in
      performance by Company or any of its Subsidiaries of the their obligations
      hereunder.

     

    6.  Put
      Option.
      The
      Company hereby grants to Lender an option (the “Put
      Option”)
      to
      sell all or any portion of the Issued Shares (the “Put
      Shares”)
      to the
      Company for a total purchase price of $195,000, pro-rated for any portion
      thereof (the “Put
      Price”).
      The
      Put Option may be exercised with respect to any amount that is equal to or
      less
      than the entire balance of the outstanding Put Shares, at any time during the
      earlier to occur of the following Put Option exercise periods (the “Put
      Period”): (a) the ten (10) Business Day period commencing on the first
      anniversary hereof, or (b) the ten (10) Business Day period commencing on the
      date which is nine (9) months after the date that the registration statement
      for
      the registration of the Issued Shares is declared effective by the SEC . If
      not
      exercised during the Put Period, the Put Option shall terminate and shall be
      of
      no further force or effect. The Put Option shall be exercisable by Lender’s
      delivery of written notice to the Company (the “Put
      Notice”).
      The
      Put Notice shall specify the date on which the closing of the purchase of the
      Put Shares shall take place (the “Put
      Closing Date”),
      which
      such date shall be no earlier than ten (10) days but no later than thirty (30)
      days from the date of the Put Notice. On or before the Put Closing Date, Lender
      will deliver to the Company the certificate(s) representing the Put Shares
      (duly
      endorsed for transfer by Lender or accompanied by duly executed stock powers
      in
      blank) and the Company shall tender to Lender the Put Price in cash by wire
      transfer of immediately available funds to an account at a bank designated
      by
      Lender. The Company and Lender acknowledge and agree that the Company’s
      obligation to purchase the Issued Shares from Lender pursuant to the Put Option
      is an Obligation secured by the Collateral and any related guarantees under
      the
      Loan Documents, and for so long as the Put Option is outstanding and, if
      exercised, the Put Price is not yet tendered, the Lender’s right to receive the
      Put Price shall be secured by the Collateral and any related guarantees under
      the Loan Documents. Lender’s right to exercise the Put Option shall not be
      transferred or assigned to any third party.

     

    6.1 Notwithstanding
      the foregoing, Lender shall have the right, but not the obligation, to
      accelerate the exercise of the Put Option upon a Fundamental Transaction (as
      defined in the Loan Agreement), as follows: The Company shall send
      written notice of the proposed Fundamental Transaction (“Fundamental
Transaction
      Notice”)
      no
      later than thirty (30) days prior to the date of the proposed consummation
      of
      the Fundamental Transaction, together with all relevant information relating
      thereto, in form sufficient to enable Lender to make an informed decision as
      to
      whether it should accelerate the Put Option. Within fifteen (15) days of
      Lender’s receipt of the Fundamental Transaction Notice, Lender shall advise the
      Company whether the Lender has elected to accelerate the exercise of the Put
      Option. Lender’s failure to timely notify the Company of Lender’s intention to
      accelerate the Put Option shall be deemed an intention to decline to accelerate
      the Put Option.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    6.2 In
      addition, notwithstanding the foregoing, Lender shall
      have the right, but not the obligation, to accelerate the exercise of the Put
      Option following an Event
      of
      Default under the Loan Documents (which acceleration right shall not be waived
      if not exercised following a prior Event of Default), in which event the Put
      Price shall be added to the Obligations under the Loan Agreement and secured
      by
      the Collateral thereunder, and shall be immediately due and payable to Lender.
      

     

    6.3 If
      any
      portion of the Note is converted into Common Stock pursuant to the Loan
      Documents, the Put Option set forth hereinabove, if not terminated by its terms
      herein, shall terminate.

     

    7. Miscellaneous.

     

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

     

    If
      to the
      Company:

    

    10500
      N.E. 8th
      Street

    Suite
      1400

    Bellevue,
      Washington 12533

    Attention:
      John Atherly

     

    With
      a
      copy to:

     

    Sichenzia
      Ross Friedman Ference LLP

    61
      Broadway

    New
      York,
      New York 10006

    Attention:
      Richard A. Friedman, Esq.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    If
      to
      Lender:

     

    685
      Fifth
      Avenue

    New
      York,
      New York 10022

    Attention:
      Greg Zilberstein

     

    With
      a
      copy to:

     

    Cohen
      Tauber Spievack & Wagner LLP

    420
      Lexington Avenue, Suite 2400

    New
      York,
      New York 10170

    Attention:
      Adam Stein, Esq.

     

    

    7.2 Amendment.
      Any
      modification or amendment shall be in writing and signed by the parties hereto,
      and any waiver of, or consent to any departure from, any representation,
      warranty, covenant or other term or provision shall be in writing and signed
      by
      each affected party hereto or thereto, as applicable.

     

    7.3 Construction.
      No
      provision of this Agreement shall be construed against or interpreted to the
      disadvantage of any party hereto by reason of such party or its counsel having,
      or being deemed to have, structured or drafted such provision.

     

    7.4 Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties with respect to the
      subject matter hereof and supersedes all other negotiations, representations,
      warranties, agreements and understandings, oral or otherwise, between the
      parties with respect to the matters contained herein.

     

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

     

    7.6 Severability.
      Every
      provision of this Agreement is intended to be severable. If, in any
      jurisdiction, any term or provision hereof is determined to be invalid or
      unenforceable, (a) the remaining terms and provisions hereof shall be
      unimpaired, (b) any such invalidity or unenforceability in any jurisdiction
      shall not invalidate or render unenforceable such term or provision in any
      other
      jurisdiction, and (c) the invalid or unenforceable term or provision shall,
      for
      purposes of such jurisdiction, be deemed replaced by a term or provision that
      is
      valid and enforceable and that comes closest to expressing the intention of
      the
      invalid or unenforceable term or provision. If a court of competent jurisdiction
      determines that any covenant or restriction, by the length of time or any other
      restriction, or portion thereof, set forth in this Agreement is unreasonable
      or
      unenforceable, the court shall reduce or modify such covenants or restrictions
      to those which it deems reasonable and enforceable under the circumstances
      and,
      as so reduced or modified, the parties hereto agree that such covenants and
      restrictions shall remain in full force and effect as so modified. In the event
      a court of competent jurisdiction determines that any provision of this
      Agreement is invalid or against public policy and cannot be so reduced or
      modified so as to be made enforceable, the remaining provisions of this
      Agreement shall not be affected thereby, and shall remain in full force and
      effect.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    7.7 Successors
      and
      Assigns.
      All
      covenants, promises and agreements by or on behalf of the parties contained
      in
      this Agreement shall be binding upon and shall inure to the benefit of the
      parties hereto and their respective successors and permitted assigns;
provided,
      however,
      that
      nothing in this Agreement, express or implied, shall confer on the Company
      the
      right to assign any of its rights or obligations hereunder at any
      time.

     

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

     

    7.9 No
      Waiver;
      Rights and Remedies.
      A
      waiver
      of a breach of any term, covenant or condition of this Agreement shall not
      operate or be construed as a continuing waiver of such term, covenant or
      condition, or breach, or of any other term, covenant or condition, or breach
      by
      such party. No
      failure to exercise and no delay in exercising any right, remedy, or power
      hereunder shall preclude any other or further exercise of any other right,
      remedy or power provided herein or by law or in equity. Lender is entitled
      to
      exercise all rights and remedies available to it at law or in equity in
      connection with this Agreement. The rights and remedies of Lender hereunder
      are
      several and cumulative at Lender’s discretion and may be exercised at Lender’s
      discretion.

     

    7.10 Governing
      Law; Jurisdiction.
      This
      Agreement shall be governed by and construed in accordance with the applicable
      laws pertaining in the State of New York (without giving effect to New York's
      principles of conflicts of law). The parties hereby (a)
      irrevocably submit and consent to the exclusive jurisdiction of the Supreme
      Court for New York County, State of New York, and the United State District
      Court for the Southern District of New York with respect to any action or
      proceeding arising out of this Agreement and (b)
      waive
      any objection based on venue or forum non conveniens
      with
      respect hereto. In any such action or proceeding, the Company waives personal
      service of the summons and complaint or other process and papers therein and
      agrees that the service thereof may be made by mail directed to the Company
      at
      its office set forth herein or other address thereof of which Lender has
      received notice as provided herein, service to be deemed complete as permitted
      under the rules of either of said Courts. Any such action or proceeding
      commenced by the Company against Lender will be litigated only in the New York
      Supreme Court for New York County, State of New York, and the United States
      District Court for the Southern District of New York.

     

    7.11 Counterparts.
      This
      Agreement may be executed in counterparts and by facsimile or electronic
      signature, each of which when so executed, shall be deemed an original, but
      all
      of which shall constitute but one and the same instrument.

     

    [SIGNATURE
      PAGE FOLLOWS]

    
      
         

        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Securities Issuance
      Agreement as of the date set forth in the first paragraph hereof.

    
       

      
        	 	 EMAGIN
                CORPORATION
	 	 	 	 
	
                 

              	
                By:
                  

              	/s/ K.C.
                Park 	 
	 	 	
                Name:
                  K.C. Park

              	 
	 	 	
                Title: Interim
                  CEO

              	 
	 	 	 

      

    

     

     

    
      	 	MORIAH
              CAPITAL,
              L.P.	 
	 	 	 
	 	By:
              Moriah Capital Management, L.P.,
              General
                Partner

            	 
	 	 	 
	 	
              By:
                Moriah Capital Management, GP, LLC,

              General
                Partner

            	 
	 	 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Alexandre
              Speaker	 
	 	 	Name:
              Alexandre Speaker	 
	 	 	Title:
              General Partner	 
	 	 	 	 

     

    

    9

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00128-of-00352.parquet"}]]