Document:

ex1061.htm

    Exhibit
10.61

    

     

    

    LOAN
AND SECURITY AGREEMENT

    

    by and
between

    

    MORIAH
CAPITAL, L.P.,

    

    as
Lender,

    

    and

    

    EMAGIN
CORPORATION,

    

    as
Borrower

    

    

    

    

    Dated:
August 7, 2007

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    

    

    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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    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.

     

    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;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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;

     

    (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;

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    (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;

    

    (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.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    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.

      

    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.

     

    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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    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.

    

    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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    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.

     

    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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    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.

      

    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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    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;

     

    (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;

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (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.

      

                    
(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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    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.

     

    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. 

    

    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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    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”).

     

    (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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

      

    (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;

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (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.

     

    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.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

    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.

      

    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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    

    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.

     

    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.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

    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.

    

    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.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (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.

     

    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.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    

    (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.

     

    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.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    

    (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).

      

    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.

      

    (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.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    

    (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.

     

    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.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    

    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.

     

    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.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    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.

     

    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).

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    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;

     

    (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

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    

    (iv)              Assignments,
in form a

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

    

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

     

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

     

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

    

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

    

    9.8 Insurance
Required.

    

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

     

    (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;

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

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

    

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

    

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

    

    (vi) Upon
demand, be delivered to Lender.

    

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

     

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

     

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

     

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

     

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

    

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

    

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

     

    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.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    

    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.

     

    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.

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    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

     

    (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.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    

    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.

     

    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.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    

    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.

     

    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.

     

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    

    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.

      

    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.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    

    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.

    

    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

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    

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

      

    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.

     

    (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.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    (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.

    

    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.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    

    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.

     

    

    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.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

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

     

    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.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    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.

     

    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.

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    

    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]

     

    
      
         

      

      
        42

        
          

        

      

      
         

      

    

    

     

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

    

     

    
      
        
          	 
      	
                  EMAGIN
      CORPORATION

                	 
      
	 
      	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ 

                	 
      
	 
      	 
      	
                  Name 

                	 
      
	 
      	 
      	
                  Title 

                	 
      
	 
      	 
      	 
      	 
      

        

      

    

     

    
      
        
          
            	 
      	
                    MORIAH
      CAPITAL L.P.

                  	 
      
	 
      	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    Moriah
      Capital Management, L.P., General Partner

                  	 
      
	 
      	
                    By:

                  	
                    Moriah
      Capital Management, GP, LLC, General Partner

                  	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      

          

        

      

    

     

    
      
        
          	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ 

                	 
      
	 
      	 
      	
                  Name 

                	 
      
	 
      	 
      	
                  Title 

                	 
      
	 
      	 
      	 
      	 
      

        

      

    

     

    

     

     

    

    

    [SIGNATURE
PAGE OF LOAN AND SECURITY AGREEMENT]

     

     

    
      
         

      

      
        43

        
          

        

      

      
         

      

    

    SCHEDULE
2.4

    TO

    LOAN
AND SECURITY AGREEMENT

    

    

    The
Company shall use the loans for working capital purposes and not to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation. 

     

     

     

     

     

     

    
      
         

      

      
        44

        
          

        

      

      
         

      

    

    

     

    SCHEDULE
8.17

    TO

    LOAN
AND SECURITY AGREEMENT

    

    LOCATION
OF COLLATERAL

     

    

    

    eMagin
Corporation

    2070
Route 52

    Hopewell
Junction, NY 12533

    

    eMagin
Corporation

    10500
N.E. 8th
Street

    Suite
1400

    Bellevue,
WA  98004

    

    ASTERIA
MANUFACTURING SDN BHD

    WISMA AIC
LOT 3

    SELANGOR
DARU EHASN

    MALAYSIA

    

    

    
      
         

      

      
        45

        
          

        

      

      
         

      

    

    

    

     

    SCHEDULE
8.18

    TO

    LOAN
AND SECURITY AGREEMENT

    

    CUSTOMERS
AND VENDORS

     

    

     

    
      
         

      

      
        46

        
          

        

      

      
         

      

    

    

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

    

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

    

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        56

        
          

        

      

      
        
        

      

    

     

    

     

    
      
        
        

      

      
        57

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        58

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        61

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        62

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        63

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        64

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        67

        
          

        

      

      
        
        

      

    

     

    
       

      SCHEDULE
8.29

      TO

      LOAN
AND SECURITY AGREEMENT

      

      INDEBTEDNESS

       

      

      

      
        
          
            	
                    Great
      Plains

                  	 	$	(15,340	)
	 
      	 	 	 	 
	
                    6%
      Debentures

                  	 	 	(6,020,000	)
	 
      	 	 	 	 
	
                    Empire
      State (NY Urban Development)

                  	 	 	(115,717	)
	 
      	 	 	 	 
	 
      	 	$	(6,151,057	)

          

        

      

      

      

      

      
        
           

        

        
          68

          
            

          

        

        
           

        

      

      

      

       

      SCHEDULE
10.9

      TO

      LOAN
AND SECURITY AGREEMENT

      

      DIVIDENDS

       

      

      Holders
of $6.02 million of convertible notes have the option to convert 50% of their
notes into Series A Preferred Stock.  Notes converted into Series A
Preferred Stock would be paid an annual dividend of 8%.

      

      

       

      SCHEDULE
10.10

      TO

      LOAN
AND SECURITY AGREEMENT

      

      PAYMENTS
TO AFFILIATES

       

      

      Paul
Cronson, a member of eMagin’s Board of Directors, is the Managing Director of
Larkspur Capital.  Larkspur has been engaged to represent the Company
if approached by a third party interested in merging or acquiring the
Company.  His firm would be entitled to fees if a transaction were
completed that resulted in a merger, acquisition or sale of eMagin’s
assets.  Larkspur would also be entitled to fees if capital were
raised from a firm introduced by them to the Company and to compensation fo
expenses incurred.

      

      Paul
Cronson (Director) is a representative of Navicorp III a holder of $200,000 of
our convertible notes.

      

      John
Atherly (Officer) is a holder of $40,000 of our convertible notes.

      

      Olivier
Prache (VP) is a holder of $10,000 of our convertible notes.

      
        
           

        

        
          69

          
            

          

        

        
           

        

      

      

      

       

      SCHEDULE
10.14

      TO

      LOAN
AND SECURITY AGREEMENT

      

      BANK
ACCOUNTS

    

     

    

     

     

     

     

    
      
        
        

      

      
        70

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

    TO

    LOAN
AND SECURITY AGREEMENT

    

    Permitted
Encumbrances

     

    

    None
other than the convertible notes due December 21, 2008

    

    
      EXHIBIT
B

      TO

      LOAN
AND SECURITY AGREEMENT

      

      

      Form of Revolving Loan
Note

      
SECURED
CONVERTIBLE REVOLVING LOAN NOTE

    

    
       

       

      

      Up to
$2,500,000

      

      Dated:
August 7, 2007

      

      FOR VALUE RECEIVED, the undersigned,
EMAGIN CORPORATION, a
Delaware corporation, with its principal place of business located at 10500 N.E.
8th
Street, Suite 1400 Bellevue, Washington 12533 (“eMagin” and “Borrower”) promises to pay to
the order of MORIAH CAPITAL,
L.P., a Delaware limited partnership with offices at 685 Fifth Avenue,
New York, New York 10022, and its successors and assigns (“Lender”), on or before the
Maturity Date, the principal sum of up to Two Million Five Hundred Thousand
Dollars ($2,500,000) in accordance with the Loan and Security Agreement, of even
date herewith, entered into by and between Borrower and Lender (as amended from
time to time, the “Agreement”).  Capitalized
terms used herein and not defined herein shall have their respective meanings as
set forth in the Agreement.

      

      INTEREST; DUE
DATE:  Interest shall be due and payable as provided in the
Agreement.  The Loan and all other Indebtedness evidenced hereby not
paid before the Maturity Date shall be due and payable on the Maturity
Date.

      

      MAXIMUM RATE OF
INTEREST:  It is intended that the rate of interest herein
shall never exceed the maximum rate, if any, which may be legally charged on the
Loans evidenced by this Note (the “Maximum Rate”), and if the
provisions for interest contained in this Note would result in a rate higher
than the Maximum Rate, interest shall nevertheless be limited to the Maximum
Rate, and any amounts which may be paid toward interest in excess of the Maximum
Rate shall be applied to the reduction of principal, or, at the option of
Lender, returned to Borrower.

      

      PLACE OF
PAYMENT:  All payments hereon shall be made, and all notices to
Lender required or authorized hereby shall be given, at the office of Lender at
the address designated in the Agreement, or to such other place as Lender may
from time to time direct by written notice to Borrower.

      

      APPLICATION OF
PAYMENTS:  All payments received hereunder shall be applied in
accordance with the provisions of the Agreement.

      

      PAYMENT AND
COLLECTION:  All amounts payable hereunder are payable by check
or wire transfer in immediately available funds to the account number specified
by Lender, in lawful money of the United States.  Borrower agrees to
perform and comply with each of the covenants, conditions, provisions and
agreements contained in every instrument now evidencing or securing said
Indebtedness.

      

      SECURITY:  This
Note is issued pursuant to the Agreement and is secured by a pledge of the
Collateral as described in the Loan Documents.  Notwithstanding the
pledge of the Collateral described above, Borrower hereby acknowledges, admits
and agrees that Borrower’s obligations under this Note are recourse obligations
of Borrower to which Borrower pledges its full faith and credit.

       

      
        
          
          

        

        
          71

          
            

          

        

        
          
          

        

      

       

      DEFAULTS:  Upon
the happening of an Event of Default, Lender shall have all of the rights and
remedies set forth in the Agreement.

      

      The
failure to exercise any of the rights and remedies set forth in the Agreement
shall not constitute a waiver of the right to exercise the same or any other
option at any subsequent time in respect of the same event or any other
event.  The acceptance by Lender of any payment which is less than
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to exercise any of the foregoing rights and
remedies at that time or at any subsequent time or nullify any prior exercise of
any such rights or remedies without the express consent of Lender, except as and
to the extent otherwise provided by law.

      

      WAIVERS:  Borrower
waives diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayment of this Note.

      

      TERMINOLOGY:  Any
reference herein to Lender shall be deemed to include and apply to every
subsequent holder of this Note.  Any reference herein to Borrower
shall mean eMagin and any of its Subsidiaries that may be bound under any of the
Loan Documents.

      

      AGREEMENT:  Reference
is made to the Agreement for provisions as to the Loan, rates of interest,
Collateral, acceleration and release matters.  If there is any
conflict between the terms of this Note and the terms of the Agreement, the
terms of the Agreement shall control.

      

      APPLICABLE
LAW:  This Note shall be governed by and construed and
interpreted in accordance under the laws of the State of New York, the laws of
which Borrower hereby expressly elects to apply to this Note, without giving
effect to provisions for choice of law thereunder.  Borrowers agree
that any action or proceeding brought to enforce or arising out of this Note
shall be commenced in accordance with the provisions of the
Agreement.

      

      

      

      

      
 

      

      

      

      

      SIGNATURE
PAGE TO FOLLOW

       

      
        
          
          

        

        
          72

          
            

          

        

        
          
          

        

      

      IN WITNESS WHEREOF, this
Secured Convertible Revolving Loan Note has been duly executed and delivered as
of the day and year first above written.

       

       

      
 

      
        
          	 	EMAGIN
    CORPORATION	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

        

      

      

       

       

      
         

        
          
            
            

          

          
            73

            
              

            

          

          
            
            

          

        

      

    

     

    

     

    EXHIBIT
C

    TO

    LOAN
AND SECURITY AGREEMENT

    

    Form of Intercreditor
Agreement

     

     

      EXHIBIT
C

      
        
          INTERCREDITOR
AGREEMENT

          

          INTERCREDITOR AGREEMENT,  dated  August
7, 2007, by and among MORIAH
CAPITAL, L.P., a Delaware limited partnership with offices at 685 Fifth
Avenue, New York, New York 10022 (“Moriah”), ALEXANDRA GLOBAL MASTER FUND
LTD., a British Virgin Islands international business company with the
offices of its investment advisor at 767 Third Avenue, 39th Floor,
New York, New York 10017 (“Alexandra”), in its capacity
as collateral agent pursuant to the Noteholder Agreements (such capitalized term
and all other capitalized terms used herein having the respective meanings
provided in this Agreement) acting for and on behalf of the holders of Notes (in
such capacity, the “Notes
Collateral Agent” as hereinafter further defined) and 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”).

          

          R E C I T A L
S:

          

          A.              The
Notes Collateral Agent is the collateral agent under the Pledge and Security
Agreement, dated as of July 21, 2006, made by the Borrower to the Notes
Collateral Agent, as amended by Amendment No. 1 to Pledge and Security
Agreement, dated as of July 23, 2007 by and between the Borrower and the Notes
Collateral Agent (the “Note
Pledge Agreement”) for the benefit of the holders (the “Noteholders”) from time to
time of the Amended and Restated 8% Senior Secured Convertible Notes Due 2008
issued by the Borrower (the “Notes”) pursuant to the
several Note Purchase Agreements, dated as of July 21, 2006, by and between the
Borrower and the several investors named therein, as amended by the several
Amendment Agreements, dated as of July 23, 2007, by and between the Borrower and
the several investors named therein (the “Note Purchase Agreements”)
and, to secure the Borrower’s obligations to the Noteholders, the Notes
Collateral Agent and the holders of Series A Senior Secured Convertible
Preferred Stock, par value $0.001 per share, of the Borrower issued or issuable
upon conversion of the Notes, the Borrower granted to the Notes Collateral Agent
a security interest in and to the property of the Borrower described on Schedule 2 annexed
hereto (collectively, the “Notes
Collateral”).

          

          B.              Pursuant
to a Loan and Security Agreement, of even date herewith, between Moriah and
Borrower (as the same may hereafter be amended, the “Moriah Loan Agreement;” the
term “Moriah Loan Agreements”
shall include all of the Loan Documents, as that term is defined in the
Moriah Loan Agreement), Moriah is providing an accounts receivable and inventory
based credit facility to Borrower that is secured by all now owned and hereafter
acquired property (including, without limitation, real property) and assets of
Borrower and the proceeds and products thereof, as more particularly described
in Schedule 1
annexed hereto (collectively, the “Moriah
Collateral”).

          

          C.              It
is a condition to the consummation of the transactions contemplated by the
Moriah Loan Agreements that the Notes Collateral Agent subordinate its liens in
the Accounts and Inventory as the same may be included in the Notes Collateral
on terms satisfactory to Moriah.

          

          D.              The
Notes Collateral Agent and Moriah have each filed or may hereafter file
financing statements under the Uniform Commercial Code, as may be amended from
time to time (“UCC”)
with respect to the Notes Collateral and the Moriah Collateral, respectively, in
connection with the foregoing.

           

          
            
              
              

            

            
              74

              
                

              

            

            
              
              

            

          

           

          E.              The
Notes Collateral Agent and Moriah desire to agree on the relative priority of
their respective security interests in, and liens on, their respective
collateral.

          

          In
consideration of the foregoing, the mutual covenants and agreements herein
contained and other good and valuable consideration, the Notes Collateral Agent
and Moriah mutually covenant, warrant and agree as follows:

          

          1.           Definitions.  All
the agreements or instruments herein defined shall mean such agreements or
instruments as the same may from time to time be supplemented or amended or the
terms thereof waived or modified to the extent permitted by, and in accordance
with the terms thereof.  The following terms (including both the
singular and plurals thereof) shall have the following meanings unless the
context indicates otherwise:

          

          1.1 “Bankruptcy Code” means the
United States Bankruptcy Code (11 U.S.C. §§101 et seq.).

          

          1.2 “Claim” or “Claims” means, as applicable,
the Moriah Claim and/or the Noteholder Claim.

          

          1.3 “Collateral” means all property
and interests in property now owned or hereafter acquired by any Loan Party in
or upon which a security interest or mortgage lien is granted to Moriah or the
Notes Collateral Agent under the Security Documents.

          

          1.4 “Creditors” shall mean Moriah,
the Noteholders and the Notes Collateral Agent and their respective successors
and assigns.

          

          1.5 “Enforcement Action” means with
respect to a Claim, the demand for payment or acceleration of such Claim, the
repossession of any Collateral, the commencement or prosecution of enforcement
of any of the rights and remedies under, as applicable, the Noteholder
Agreements, the Moriah Loan Agreements, or applicable law with respect to such
Claim, including, but not limited to, judicial or UCC foreclosure, provided that
Enforcement Action shall not include the filing of a claim in an Insolvency
Proceeding.

          

          1.6 “Enforcement Notice” means a
written notice delivered by the Enforcing Party to the other Party stating that
an "Event of Default" (as defined in the Noteholder Agreements or the Moriah
Loan Agreements, respectively) has occurred and is continuing and that an
Enforcement Period has commenced.

          

          1.7 “Enforcement  Period”
means the period of time following the receipt by either the Notes Collateral
Agent or Moriah of an Enforcement Notice until (a) the Noteholder Claim is Paid
in Full (if the Notes Collateral Agent is the Enforcing Party) or the Moriah
Claim is Paid in Full (if Moriah is the Enforcing Party), or (b) the Creditors
agree in writing to terminate such Enforcement Period.

          

          1.8 “Enforcing Party” means Moriah
in the case of an Enforcement Action with respect to the Moriah Claim, and the
Notes Collateral Agent in the case of an Enforcement Action with respect to the
Noteholder Claim.

           

          
            
              
              

            

            
              75

              
                

              

            

            
              
              

            

          

           

          1.9 “Insolvency Proceeding” means
any voluntary or involuntary insolvency, bankruptcy, receivership,
custodianship, liquidation, dissolution, reorganization, assignment for the
benefit of creditors, appointment of a custodian, receiver, trustee or other
officer with similar powers or any other proceeding for the liquidation,
dissolution or other winding up of any Loan Party.

          

          1.10 “Loan Party” means Borrower and each
subsidiary of Borrower which is now or may hereafter become a party to the
Noteholder Agreements or the Moriah Loan Agreements.

          

          1.10A “Lockbox Agreement” means the
Lockbox Agreement, dated as of July 21, 2006, by and between the Borrower and
the Notes Collateral Agent, as amended by Amendment No. 1 to Lockbox Agreement,
dated as of July 23, 2007, by and between the Borrower and the Notes Collateral
Agent.

          

          1.11 “Maximum Moriah Debt” means the
sum of (a) $2,500,000, plus (b) such other indebtedness that may be permitted to
be incurred from time to time on or after the date hereof under the terms of the
Notes as Permitted Indebtedness as such term is defined in the
Notes.

          

          1.12
“Moriah Claim” means all
of the obligations of the Loan Parties to Moriah as set forth in the Moriah Loan
Agreements.

          

          1.13 “Moriah Senior Collateral”
means the Collateral described in Section 2.1(a) in
which Moriah has a senior lien or security interest.

          

          1.14 “Noteholder Agreements” means
the Note Purchase Agreements, the Notes, the Note Pledge Agreement, the Patent
and Trademark Security Agreement, dated as of July 21, 2006, by and between the
Borrower and the Notes Collateral Agent, as amended by Amendment No. 1 to Patent
and Trademark Security Agreement dated as of July 23, 2007, by and between the
Borrower and the Notes Collateral Agent, the Lockbox Agreement, the Certificate
of Designations of Series A Senior Secured Convertible Preferred Stock of the
Borrower, the Amended and Restated Common Stock Purchase Warrants issued by the
Borrower to the holders of Notes pursuant to the Note Purchase Agreements and
the other agreements, instruments and documents contemplated
thereby.

          

          1.15
“Noteholder Claim” means
all obligations of the Loan Parties to the Notes Collateral Agent and the
Noteholders as set forth in the Noteholder Agreements.

          

          1.16 “Noteholder Senior Collateral”
means the Collateral described in Section 2.1(b) in
which the Notes Collateral Agent has a senior lien or security
interest.

          

          1.17 “Notes Collateral Agent” means
Alexandra in its capacity as collateral agent pursuant to the Note Pledge
Agreement and the other applicable Noteholder Agreements, and its successors and
assigns including any replacement or successor trustee or agent or any
additional trustee or agent.

           

          
            
              
              

            

            
              76

              
                

              

            

            
              
              

            

          

           

          1.18
“Paid in Full” means, in
the case of the Moriah Claim, the aggregate outstanding, unpaid amount of the
Moriah Claim has been paid in full in cash and all commitments to make loans or
extend other financial accommodations have terminated and, in the case of the
Noteholder Claim, the aggregate outstanding unpaid amount of the Noteholder
Claim has been paid in full in cash and all commitments to make loans or extend
other financial accommodations have terminated.  If after receipt of
any payment of, or proceeds of collateral applied to the payment of, either any
Moriah Claim or Noteholder Claim, as the case may be, any of the Creditors is
required to surrender or return such payment or proceeds to any person for any
reason, then the Moriah Claim or Noteholder Claim as applicable, intended to be
satisfied by such payment or proceeds shall be reinstated and continue as if
such payment or proceeds had not been received by such Creditor, as the case may
be.  Notwithstanding anything to the contrary contained herein, for
purposes of this definition, the Moriah Claim shall not include any amount of
the Moriah Claim in excess of the Maximum Moriah Debt.

          

          1.19
“Party” means Moriah or
the Notes Collateral Agent.

          

          1.20 “Person” or “person” means, as applicable,
any individual, sole proprietorship, partnership, corporation, limited liability
company, limited liability partnership, 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.

           

          1.21
“Post-Petition Interest”
means interest at the contract rate under the Moriah Loan Agreements or the
Noteholder Agreements, as applicable, accruing subsequent to the filing of any
Insolvency Proceeding as to any Loan Party whether or not such interest is an
allowable claim in any such Insolvency Proceeding.

          

          1.22
“Security Documents”
means, collectively, the Noteholder Agreements and the Moriah Loan
Agreements.

          

          2.           Intercreditor
Agreement.

          

          2.1.           Lien
Priorities.  Notwithstanding (a) the date, manner or order of
filing, recordation, or perfection of the security interests or liens granted in
favor of Moriah and the Notes Collateral Agent, (b) any provisions of the UCC,
or any applicable law or decision, (c) the provisions of the Moriah Loan
Agreements, Noteholder Agreements or any contract between any of the Creditors
on one hand, and the Borrower or any affiliate thereof, on the other hand, or
(d) whether either Moriah or the Notes Collateral Agent holds possession of all
or any part of the Collateral, the following, as between Moriah and the Notes
Collateral Agent, shall be the relative priority of the security interests and
liens of Moriah and the Notes Collateral Agent in the Collateral:

          

          (a)           Moriah
shall have a first and prior security interest to the extent set forth herein in
all Accounts and Inventory as defined in the Section 9-102 of the
UCC.  The Notes Collateral Agent shall have a second and subordinate
security interest in the foregoing property and interests in such property;
provided, that, any
amount of the Moriah Claim in excess of the Maximum Moriah Debt at any time
outstanding (together with the interest on such excess) shall not be entitled to
the benefit of the priority of the security interest of Moriah provided for in
this Section 2.1(a).

           

          
            
              
              

            

            
              77

              
                

              

            

            
              
              

            

          

           

          (b)           The
Notes Collateral Agent shall have a first and prior security interest in the
remainder of the Collateral that is the subject of the Noteholder Agreements and
Moriah shall have a second and subordinate security interest in such Notes
Collateral whether now owned or hereafter created by any Loan
Party.

          

          Neither
Moriah nor the Notes Collateral Agent shall contest the validity, perfection,
priority or enforceability of any lien or security interest heretofore granted
to the other Party or granted in connection herewith or contemplated
hereby.  Notwithstanding any failure of a Party to perfect its
security interests in any Collateral or any other defect in any security
interests or obligations owing to such Party, the priority and rights as between
the parties hereto shall be as set forth herein.

          

          2.2.           Distribution of Proceeds of
Collateral.

          

          (a)           No Enforcement
Period:  Except as provided in Section 2.2(b) below
(with respect to distribution of proceeds of Collateral during an Enforcement
Period):

          

          (i)           All
realizations upon and proceeds of Moriah Senior Collateral shall be paid to
Moriah for application to the Moriah Claim, with any residual proceeds after
satisfaction of the Moriah Claim being paid to the Notes Collateral Agent for
the benefit of the Noteholders.

          

          (ii)           All
realizations upon and proceeds of Noteholder Senior Collateral shall be paid to
the Notes Collateral Agent for application to the Noteholder Claim, with any
residual proceeds after satisfaction of the Noteholder Claim being paid to
Moriah.

          

          (b)           During Enforcement
Period:  During any Enforcement Period, all proceeds of
Collateral shall be distributed in accordance with the following
procedure:

          

          (i)           All
realizations upon and proceeds of Moriah Senior Collateral shall be applied to
the Moriah Claim.  After the Moriah Claim is Paid in Full and the
Moriah Loan Agreements are terminated and fully paid or otherwise satisfied, any
remaining proceeds of the Moriah Senior Collateral shall be applied to the
Noteholder Claim.

          

          (ii)           All
realizations upon and proceeds of Noteholder Senior Collateral shall be applied
to the Noteholder Claim.  After the Noteholder Claim is Paid in Full
and the Noteholder Agreements are terminated and fully paid or otherwise
satisfied, any remaining proceeds of the Noteholder Senior Collateral shall be
applied to the Moriah Claim.

          

          (iii)           After
the Moriah Claim and the Noteholder Claim have been paid in full in cash and all
commitments to make loans or extend other financial accommodations have
terminated, the balance of the realizations upon and proceeds of the Collateral,
if any, shall be paid to the respective Loan Party or as otherwise required by
applicable law.

           

          
            
              
              

            

            
              78

              
                

              

            

            
              
              

            

             

          

          (c)           Payments Held in
Trust.  Should any payment or distribution be received by a
Party that is not permitted to receive and retain such payment or distribution
pursuant to the terms hereof, such Party shall receive and hold the same in
trust, as trustee, for the Party entitled to receive and retain such payment,
and shall forthwith deliver the same to such Party in precisely the form
received (except for endorsement or assignment where necessary), for application
to the Claim of such Party and, until so delivered, the recipient shall hold the
same in trust as the property of such Party entitled to the same.  If
a Party obligated to make an endorsement or assignment pursuant to the
provisions of this Section fails to make any such endorsement or assignment, the
permitted recipient of such payment or distribution, or any of its officers or
employees, is hereby irrevocably authorized to make the same.

          

          2.3.           Enforcement
Actions.  Each of Moriah and the Notes Collateral Agent agrees
not to commence or take any Enforcement Action until an Enforcement Notice has
been given by such Enforcing Party to the other Party.  Subject to the
foregoing, Moriah and the Notes Collateral Agent agree that during an
Enforcement Period:

          

          
            	
                    (a)

                  	
                    Moriah
      may, at its option, take and continue any Enforcement Action with respect
      to Moriah Senior Collateral and realize thereon, without the prior written
      consent of the Notes Collateral Agent, provided that during any
      Enforcement Period with respect to the Noteholder Senior Collateral,
      Moriah shall not commence or take any Enforcement Action or realize upon
      the Noteholder Senior Collateral without the Notes Collateral Agent's
      prior written consent.

                  

          

          

          
            	
                    (b)

                  	
                    Subject
      to the standstill period described in Section 2.3(e) below, the Notes
      Collateral Agent may, at its option, take and continue any Enforcement
      Action with respect to the Noteholder Senior Collateral and realize
      thereon without the prior written consent of Moriah, provided that during
      any Enforcement Period with respect to the Moriah Senior Collateral, the
      Notes Collateral Agent shall not commence or take any Enforcement Action
      or realize upon any of the Moriah Senior Collateral without Moriah's prior
      written consent. In furtherance and not in limitation of the foregoing,
      during an Enforcement Period, the Notes Collateral Agent shall not take
      any action to enforce its rights under the Lockbox Agreement, whether
      pursuant to Section 2 thereof or
otherwise.

                  

          

          

          

          
            	
                    (c)

                  	
                    If
      both Moriah and the Notes Collateral Agent elect to proceed with
      Enforcement Actions, then each shall proceed with the Enforcement Action
      of any security interests in or liens on any Collateral in which it has a
      senior lien or security interest, as described in and provided by Section 2.1,
      without prejudice to the other Party to join in any
      proceedings.

                  

          

          

          
            	
                    (d)

                  	
                    Each
      Enforcing Party shall so notify the other Party at such time as the
      Enforcing Party's Claim is Paid in
Full.

                  

          

          

          
            	
                    (e)

                  	
                    Notwithstanding
      anything herein to the contrary, but subject to the proviso at the end of
      this paragraph, the Notes Collateral Agent agrees that, during the first
      five (5) days of an Enforcement Period (the “Standstill Period”), it shall
      not take any action to realize on the Noteholder Senior Collateral, so as
      not to impair the collection by Moriah of Borrower’s outstanding accounts
      receivable during that period; provided, however, that
      the Notes Collateral Agent shall be entitled to take such action as it
      deems necessary in its sole discretion to (i) protect its secured position
      during the Standstill Period, (ii) protect its interest from claims or
      liens of third parties or governmental authorities, or (iii) preserve the
      Noteholder Senior Collateral from deterioration or
      diminishment.

                  

          

           

          
            
              
              

            

            
              79

              
                

              

            

            
              
              

            

          

           

          2.4.           Accountings.  Each
of Moriah and the Notes Collateral Agent agree upon the occurrence of any
Enforcement Action, to render accountings to the other, upon reasonable request
of the other, giving effect to the application of realizations upon and proceeds
of Collateral as hereinbefore provided.

          

          2.5.           Notices of
Defaults.  Moriah and the Notes Collateral Agent agree to give
to the other copies of any notice of the occurrence of an Event of Default,
respectively, simultaneously with the sending of such notice to the applicable
Loan Party, but the failure to give or forward any such notice shall not affect
the validity of such notice, create a cause of action against the Party failing
to give such notice, or create any claim or right on behalf of the other Party
or any third party.  The sending or receipt of such notice shall not
obligate the recipient to cure such Event of Default.

          

          2.6.           Agency for
Perfection.  Moriah and the Notes Collateral Agent each hereby
appoint each other as agent for purposes of perfecting their respective security
interests and liens in the Collateral.  To the extent that either
Party obtains possession of Collateral in which the other Party has a senior
priority under the terms hereof, the Party having possession shall notify the
other Party of such fact and shall deliver such Collateral to the Party having
the senior priority upon request of such Party.  Each Party shall be a
bailee for the other Party with respect to Collateral in such Party's
possession.  If directed by a Loan Party, the bailee Party shall,
after the Claim of such bailee Party has been Paid in Full, deliver the
Collateral in its possession to the other Party.

          

          2.7.           UCC Notices.  In the
event that Moriah or the Notes Collateral Agent shall be required by the UCC or
any other applicable law to give notice to the other of intended disposition of
Collateral, such notice shall be given in accordance with Section 3.8 hereof,
and five (5) days' notice shall be deemed to be commercially
reasonable.

          

          2.8.           Information Sharing. Upon the
occurrence and continuance of an Enforcement Period, in the event that either
Moriah or the Notes Collateral Agent shall, in connection with any Enforcement
Action, receive possession or control of any books and records which contain
information identifying or pertaining to any of the property of any Loan Party
in which the other Party has been granted a lien, it shall notify the other
Party that it has received such books and records and shall, as promptly as
practicable thereafter, make available to the other Party duplicate copies of
such books and records in the same form as the original.  All
reasonable expenses incurred by either Moriah or the Notes Collateral Agent in
performing its obligations under this paragraph shall be borne by the Loan
Parties and shall constitute indebtedness under the respective Party's
agreements with the Loan Parties.  The failure of either Party to
share information shall not create a cause of action against the Party failing
to share information or create any claim on behalf of any Loan Party or any
third party.

           

          
            
              
              

            

            
              80

              
                

              

            

            
              
              

            

          

           

          2.9.           Obligations of the Loan Parties
Unconditional.  Nothing contained herein is intended to or
shall increase or impair the obligations, liabilities and indebtedness of the
Loan Parties to pay the Claims as and when the same shall become due and payable
in accordance with the terms of the Moriah Loan Agreements and the Noteholder
Agreements, as applicable, or to affect the relative rights of the Loan Parties
and creditors of the Loan Parties other than the Creditors.

          

          2.10.         Continuing
Obligations.  This Agreement shall be irrevocable and shall
continue in effect until each Claim has been Paid In Full.  This is a
continuing agreement and each Party may continue, at any time and without notice
to the other Party, to extend credit to or for the benefit of the Loan Parties
on the faith hereof.

          

          2.11.         Certain Waivers.

          

          (a)           The
Notes Collateral Agent acknowledges that Moriah has not made any warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Moriah Loan Agreements or the
collectibility of the Moriah Claim.

          

          (b)           Each
of the Notes Collateral Agent and Moriah shall be entitled to manage and
supervise its financial arrangements with each Loan Party in accordance with its
usual practices, modified from time to time as it deems appropriate under the
circumstances, without affecting the validity or enforceability of this
Agreement.

          

          (c)           Moriah
shall have no liability to the Notes Collateral Agent for, and the Notes
Collateral Agent hereby waives any claim which the Notes Collateral Agent may
now or hereafter have against Moriah arising out of any and all actions which
Moriah, in good faith, takes or omits to take (including, without limitation,
actions with respect to the creation, perfection or continuation of liens or
security interests in any existing or future Collateral, actions with respect to
the occurrence of a default or event of default, actions with respect to the
foreclosure upon, sale, release, or depreciation of, or failure to realize upon,
any of the Collateral and actions with respect to the collection of any claim
for all or any part of the Noteholder Claim from any account debtor, guarantor
or any other person) with respect to and in accordance with any Moriah Loan
Agreements or any other agreement related thereto or to the collection of the
Moriah Claim or the valuation, use, protection or release of the Collateral, so
long as any such actions are taken in a manner consistent with the terms of this
Agreement or any election of the application of Section 1111(b)(2) of the
Bankruptcy Code.

          

          (d)           Moriah
acknowledges that the Notes Collateral Agent has made no warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Noteholder Agreements or the
collectibility of the Noteholder Claim.

          

          (e)           The
Notes Collateral Agent shall have no liability to Moriah for, and Moriah hereby
waives any claim which Moriah may now or hereafter have against the Notes
Collateral Agent arising out of any and all actions which the Notes Collateral
Agent, in good faith, takes or omits to take (including, without limitation,
actions with respect to the creation, perfection or continuation of liens or
security interests in any existing or future Collateral, actions with respect to
the occurrence of a default or event of default, actions with respect to the
foreclosure upon, sale, release, or depreciation of, or failure to realize upon,
any of the Collateral and actions with respect to the collection of any claim
for all or any part of the Moriah Claim from any account debtor, guarantor or
any other person) with respect to and in accordance with the Noteholder
Agreements or  any other agreement related thereto or to the
collection of the Noteholder Claim or the valuation, use, protection or release
of the Collateral, so long as any such actions are taken in a manner consistent
with the terms of this Agreement or any election of the application of Section
1111(b)(2) of the Bankruptcy Code.

           

          
            
              
              

            

            
              81

              
                

              

            

            
              
              

            

          

           

          2.12.         Modifications and
Waivers.  Any modification or waiver of any provision of this
Agreement, or any consent to any departure by either Party from the terms
hereof, shall not be effective in any event unless the same is in writing and
signed by Moriah and the Notes Collateral Agent, and then such modification,
waiver or consent shall be effective only in the specific instance and for the
specific purpose given.  Any notice to or demand on any Party in any
event not specifically required hereunder shall not entitle the Party receiving
such notice or demand to any other or further notice or demand in the same,
similar or other circumstances unless specifically required
hereunder.  Each Loan Party hereby acknowledges and agrees that this
Agreement may be amended or otherwise modified without notice to or consent by
any Loan Party.

          

          2.13.         Insurance.  The
Party having a senior security interest or lien in the Collateral shall have,
subject to such Party’s rights under its agreements with the Loan Parties, the
sole and exclusive right, as against the other Party, to adjust settlement of
such insurance policy in the event of any loss.

          

          2.14          Effect of
Bankruptcy.  This Agreement shall be and remain enforceable
notwithstanding any Insolvency Proceeding by or against the
Borrower.

          

          3.           Miscellaneous.

          

          3.1.           Representations, Warranties and
Covenants.  Each Party represents, warrants and covenants to
the other that:

          

          (a)           except
as set forth herein, it has not subordinated, and agrees that it will not
subordinate at any time while this Agreement remain in effect, any right, claim
or interest of any kind in or to the Collateral as to which such Party has a
senior lien or security interest, and any subordination in violation of this
sub-paragraph shall be null and void;

          

          (b)           it
has not assigned or transferred any right, claim or interest of any kind in or
to its Claim; and

          

          (c)           the
execution, delivery and performance by or on behalf of such Party has been duly
authorized by all necessary action, corporate or otherwise, does not violate any
provision of law, governmental regulation, or any agreement or instrument by
which such Party is bound, and requires no governmental or other consent that
has not been obtained.

          

          3.2.           No Benefit to Third
Parties.  The terms and provisions of this Agreement shall be
for the sole benefit of the Creditors and their respective successors and
assigns, and no other Person shall have any right, benefit, priority or interest
under or because of this Agreement.

           

          
            
              
              

            

            
              82

              
                

              

            

            
              
              

            

          

           

          3.3.           Independent Credit
Investigations.  Neither Party nor any of their respective
directors, officers, agents or employees shall be responsible to any other
person for the solvency, financial condition or ability of any Loan Party to
repay the Moriah Claim or the Noteholder Claim, or for statements of any Loan
Party, oral or written, or for the validity, sufficiency or enforceability of
the Moriah Claim or the Noteholder Claim, the Moriah Loan Agreements, the
Noteholder Agreements, or any liens or security interests granted by any Loan
Party in connection therewith.  Each of the Creditors has entered into
its respective financing agreements with Loan Parties based upon its own
independent investigation and makes no warranty or representation to the other
Party with respect to matters identified or referred to in this
paragraph.  If either Party, in its sole discretion, undertakes, at
any time or from time to time, to provide any such information to the other
Party, such information shall be given with no representation or warranty of any
kind from such Person and such Person shall be under no obligation (a) to
provide any such information to any other Person at that time or to any Person
on any subsequent occasion or (b) to undertake any investigation not a part of
its regular business routine.

          

          3.4           Amendments to Financing Arrangements
or to this Agreement.  Moriah and the Notes Collateral Agent
shall each endeavor to notify the other Party of any material amendment or
modification of the Moriah Loan Agreement or the Noteholder Agreements,
respectively, but the failure to do so shall not create a cause of action
against the Party failing to give such notice or create any claim or right on
behalf of the other Party.  Moriah and the Notes Collateral Agent
shall, upon request of the other Party, provide copies of all such modifications
or amendments and copies of all other documentation relevant to the
Collateral.

          

          3.5.           Marshaling of
Assets.  The Notes Collateral Agent hereby waives any and all
rights to have the Moriah Senior Collateral, or any part thereof, marshaled upon
any foreclosure of any of Moriah's liens thereon or with respect to any other
Enforcement Action by Moriah.  Moriah hereby waives any and all rights
to have the Noteholder Senior Collateral, or any part thereof, marshaled upon
any foreclosure of the Notes Collateral Agent's liens thereon or with respect to
any other Enforcement Action by the Notes Collateral Agent.  If any
Claim is now or hereafter secured by collateral other than the Collateral
described hereunder, the Party holding such collateral shall have no obligation
to marshal such collateral before enforcing its rights in the Collateral
hereunder, and the other Party shall have no rights hereunder to share or
participate in any proceeds of such other collateral.  Each Party
shall have the right, subject to Section 2.3, to take
Enforcement Action against Collateral in such order, or in whole or in part, and
subject to such conditions as such Enforcing Party determines in its sole
discretion.

          

          3.6.           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of each of the Parties, but
does not otherwise create, and shall not be construed as creating, any rights
enforceable by any Loan Party or any other person not a party to this
Agreement.

          

          3.7.           Agreement
Absolute.  This Agreement shall be and remain absolute and
unconditional under any and all circumstances, and no act or omission on the
part of any Party to this Agreement shall affect or impair the agreement of the
other Party hereunder.  Each of the Parties hereby authorizes the
other Party to (a) change any terms relating to such obligations of and Loan
Party to such Party or the loan agreements relating thereto as such other Party
in its discretion may deem advisable and with Borrower’s agreement; (b) grant
renewals, increases or extensions of the time for payment of the Claim of such
Party; (c) receive notes or other evidences of the obligations of the Loan
Parties to such other Party or renewals, increases or extensions thereof; and
(d) take or omit to take any action for the enforcement of, or waive any rights
with respect to, any obligation of the Loan Parties to such other Party without
invalidating or impairing any provision hereof.  The Parties hereby
acknowledge and agree that this Agreement does not increase or expand the
obligations of Borrower under the respective Security Documents to which the
Parties are party.  Further, the Parties acknowledge that if Borrower,
in good faith, shall make a payment of Claims in a manner that is inconsistent
with the terms hereof, it shall have no liability to either Party therefor as
long as Borrower cooperates with the Parties to rectify such
mistake.

           

          
            
              
              

            

            
              83

              
                

              

            

            
              
              

            

          

          

          3.8.           Notice.  All
notices, requests and demands to or upon the respective parties 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 Moriah:	
                      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.

                    
	 
      	 
      	 
      
	 
      	 
      	
                      If
      to the Notes

                    
	
                       

                    	
                      Collateral
      Agent:

                    	
                      Alexandra
      Global Master Fund Ltd.

                    
	 
      	 
      	
                      c/o
      Alexandra Investment Management, LLC

                    
	 
      	 
      	
                      767
      Third Avenue

                    
	 
      	 
      	
                      39th
      Floor

                    
	 
      	 
      	
                      New
      York, New York 10017

                    
	 
      	
                       

                    	
                      Attention:
      Chief Legal Officer

                    

            

          3.9.           Relationship of
Parties.  This Agreement is entered into solely for the
purposes set forth herein, and except as expressly provided herein, neither
Party assumes any other duties or responsibilities to the other regarding the
financial condition of the Borrower or any other Party, or regarding any
collateral, or regarding any other circumstance bearing upon the risk of
nonpayment of the obligations of the Borrower under any of the agreements
hereinabove referred to.  Each Party shall be responsible for managing
its banking investments and/or business relationships with the Borrower, and
neither Party shall be deemed to be the agent of the other for any purpose
(except for the limited purpose set forth in Section 2.6) nor shall any party
hereto be deemed to be acting in concert with, or at the direction of, any other
party.

           

          
            
              
              

            

            
              84

              
                

              

            

            
              
              

            

          

           

          3.10.          Governing Law.  This
Agreement shall be construed in accordance with, and shall be governed by, the
laws of the State of New York (without giving effect to choice of law or
conflict of law rules).

          

          3.11.          Consent to
Jurisdiction.  Each Party 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 or any matter arising therefrom or relating thereto and (b)
waives any objection based on venue or forum non conveniens with
respect thereto.

          

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

          

          3.13           Headings.  The
headings, captions and footers of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

          

          3.14           Severability.  If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

          

          3.15           Entire Agreement;
Benefit.  This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter
hereof.  There are no restrictions, promises, warranties, or
undertakings, other than those set forth or referred to herein.  This
Agreement supersedes all prior agreements and understandings, whether written or
oral, between the parties hereto with respect to the subject matter
hereof.  This Agreement and the terms and provisions hereof are for
the sole benefit of only the Notes Collateral Agent, for the benefit of the
Noteholders, and Moriah and their respective successors and permitted
assigns.

          

          3.16           Waiver.  Failure of
any party to exercise any right or remedy under this Agreement or otherwise, or
delay by a party in exercising such right or remedy, or any course of dealing
between the parties, shall not operate as a waiver thereof or an amendment
hereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or exercise of any other right or
power.

          

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

          

          

          [Remainder
of this Page Intentionally Left Blank]

           

          
            
              
              

            

            
              85

              
                

              

            

            
              
              

            

          

          
 

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

           

          
            
              	 	ALEXANDRA GLOBAL MASTER FUND
      LTD.,	 
	 	As Notes Collateral
      Agent	 
	 	 	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	ALEXANDRA
      INVESTMENT	 
	 	 	MANAGEMENT,
    LLC,	 
	 	 	As Investment
      Advisor	 
	 	 	 	 

            

             

          

          
            
              	 	 	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

            

          

           

          
            
              
                
                  	 	MORIAH CAPITAL,
      L.P.	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	Moriah Capital Management,
      L.P.,	 
	 	 	General
Partner	 
	 	 	 	 
	 	 	 	 

                

              

               

            

          

          
            
              
                
                  	 	 	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	Moriah Capital Management, GP,
      LLC,	 
	 	 	General
Partner	 
	 	 	 	 
	 	 	 	 

                

              

               

            

          

          
            
              
                	 	 	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

              

            

             

          

          
            
              
                
                  	 	Acknowledged
      and agreed to by:	 
	 	 	 	 
	
                           

                        	
                          EMAGIN
      CORPORATION

                        	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

                

                 

              

            

          

          
            
              
                
                  	 	 	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

                

              

               

               

               

              
                
                  
                  

                

                
                  86

                  
                    

                  

                

                
                  
                  

                

              

            

          

        

      

    

    
      ACKNOWLEDGMENT

      

      The
undersigned hereby acknowledges and agrees to the foregoing terms and
provisions.  By executing this Agreement, the undersigned agrees that
it will, together with its successors and assigns, be bound by the provisions
hereof as they relate to the relative rights of the Notes Collateral Agent and
Moriah as between them. The undersigned further agrees that: (i) the terms of
this Agreement shall not give the undersigned any substantive rights vis-a-vis
either the Notes Collateral Agent, the Noteholders or Moriah, (ii) it does not
and will not receive any right, benefit, priority or interest under or because
of the existence of this Agreement, (iii) it will execute and deliver such
additional documents and take such additional action as may be necessary or
desirable in the opinion of any Creditor to effectuate the provisions and
purposes of this Agreement and (iv) this Agreement may be amended or
supplemented from time to time without notice to, or the consent of, the
undersigned.

      

      If either
Moriah or the Notes Collateral Agent shall enforce its rights or remedies in
violation of the terms of this Agreement, the undersigned agrees that it shall
not use such violation as a defense to any Enforcement Action by either Moriah
or the Notes Collateral Agent nor assert such violation as a counterclaim or
basis for set-off or recoupment against either Moriah, the Noteholders or the
Notes Collateral Agent.

       

      

        
          	 	EMAGIN
      CORPORATION	 
	 	 	 	 
	
                  August7,
      2007

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

        

      

       

       

      
        
          
          

        

        
          87

          
            

          

        

        
          
          

        

      

      
 

      Schedule
1

      

      Moriah
Collateral

      

      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 (capitalized terms used but not
defined herein have the meanings given to them in the Moriah Loan
Agreement):

       

      (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;

       

      (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.

       

      
        
          
          

        

        
          88

          
            

          

        

        
          
          

        

      

       

      Schedule
2

      

      Notes
Collateral

      

      The Notes Collateral includes each of
the following, whether now existing or hereafter arising:

      

      (1)           all
Accounts of eMagin Corporation, a Delaware Corporation, (the “Borrower”) and, if
the Collateral Agent exercises its rights under Section 3(b) of the Pledge and
Security Agreement, dated as of July 21, 2006, by the Borrower, to Alexandra
Global Master Fund Ltd., as Collateral Agent (the “Note Pledge Agreement”), the
Lockbox and each and every General Intangible relating thereto;

      

      (2)           all
Inventory of the Borrower;

      

      (3)           all
Equipment of the Borrower;

      

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

      

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

      

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

      

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

      

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

      

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

      

      (10)           to
the extent not otherwise included, all Proceeds, products, rents, issues,
profits and returns of and from any and all of the foregoing, which Proceeds may
be in the form of Accounts, Chattel Paper, Inventory or
otherwise;  all as provided in the Note Pledge
Agreement.  Capitalized terms used herein but not defined herein shall
have the meanings provided for such terms in the Note Pledge
Agreement.

      

    

    
      
         

      

      
        89

        
          

        

      

      
         

      

    

    

    

    EXHIBIT
D

    TO

    LOAN
AND SECURITY AGREEMENT

    

    Form of Securities Issuance
Agreement

    

     

    EXHIBIT D

     

    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. 

            

    

     

    
      
        
        

      

      
        90

        
          

        

      

      
        
        

      

    

     

    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.

            

    

     

    (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.

     

    
      
        
        

      

      
        91

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        92

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        93

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        94

        
          

        

      

      
        
        

      

    

     

    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.

    

    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.

    

    
      
        
        

      

      
        95

        
          

        

      

      
        
        

      

    

    

    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.

     

    
      
        
        

      

      
        96

        
          

        

      

      
        
        

      

    

     

    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]

     

     

    
      
        
        

      

      
        97

        
          

        

      

      
        
        

      

    

     

     

                    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/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

    

     

    
      
        	 	MORIAH CAPITAL,
      L.P.	 
	 	 	 	 
	
                 

              	
                By:
      

              	Moriah Capital Management,
      L.P.,	 
	 	 	General
Partner	 
	 	 	 	 

      

    

     

    
      
        	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	Moriah Capital Management, GP,
      LLC,	 
	 	 	General
Partner	 
	 	 	 	 
	 	 	 	 

      

    

     

    
      
        	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

      

       

      
        
           

        

        
          98

          
            

          

        

        
           

        

      

    

    

     

    EXHIBIT
E

    TO

    LOAN
AND SECURITY AGREEMENT

    

    

    Chief Executive
Office

    

    

    eMagin
Corporation

    10500
N.E. 8th
Street

    Suite
1400

    Bellevue,
WA  98004

    

    Principal Place of
Business

    

    eMagin
Corporation

    10500
N.E. 8th
Street

    Suite
1400

    Bellevue,
WA  98004

    

    Locations of
Collateral

    

    eMagin
Corporation

    2070
Route 52

    Hopewell
Junction, NY 12533

    

    eMagin
Corporation

    10500
N.E. 8th
Street

    Suite
1400

    Bellevue,
WA  98004

    

    ASTERIA
MANUFACTURING SDN BHD

    WISMA AIC
LOT 3

    SELANGOR
DARU EHASN

    MALAYSIA

    

    

    Locations of Books and
Records

     

    eMagin
Corporation

    10500
N.E. 8th
Street

    Suite
1400

    Bellevue,
WA  98004

    
      
         

      

      
        99

        
          

        

      

      
         

      

    

     

     

     EXHIBIT
F

    TO

    LOAN
AND SECURITY AGREEMENT

    

    

    Forms of Landlord
Agreements

    
      

       

      SUBLEASE
AGREEMENT

       

       

      This
Sublease Agreement (the 'Sublease") is made
as of July , 2005 by and between
CAPGEMINI U.S. LLC, a Delaware limited
liability company, (the 'Sublessor"), and
EMAGIN
CORPORATION, a Delaware corporation (the 'Sublessee").

       

      RECITALS

       

      A. Bellevue
Place Office Building Limited Partnership, a Washington limited partnership (the
'Landlord") and
Ernst & Young U.S. LLP, a Delaware limited liability partnership
("E&Y"), entered into that certain Bank of America Office Lease and First
Lease Addendum, both dated April 20, 2000 (the Office Lease"), for
certain space on the fourteenth (14h) floor
in the Bank of America Building at Bellevue Place, 10500 NE gh Street,
Bellevue, Washington (the "Building"), which
leased space is more specifically described in the Office Lease. The Office
Lease was subsequently assigned to Sublessor, formerly known as Cap Gemini Ernst
& Young U.S. LLC, pursuant to that certain Assignment of Lease dated
February 26, 2002 (the "Assignment").

       

      B. The
Office Lease was further amended by that certain Second Lease Addendum dated
October 23, 2003 (the 'Second Addendum").
The Office Lease, as amended by the Second Addendum, is hereinafter
referred to as the 'Prime
Lease".

       

      C.
Sublessor desires to sublet the Subleased Premises (as defined herein) located
in the Building to Sublessee, and Sublessee desires to sublease the Subleased
Premises from Sublessor, for the term and upon the conditions set forth
herein.

       

      NOW,
THEREFORE, in consideration of the rent and other payments hereinafter set
forth, the covenants and agreements of the parties contained herein, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:

       

      1.             Demise. Subject to
Section 23
hereof, Sub lessor does hereby agree to sublease the Subleased Premises
to Sublessee, and Sublessee does hereby accept and sublease the Subleased
Premises from Sublessor, for the term and upon the conditions set forth
herein.

       

      2. Term Provided Landlord has consented
to this Sublease pursuant to Section 23 the term
of the sublease of the Subleased Premises shall commence on July 1,
2005 (the "Commencement Date").
This Sublease shall expire at 11:59 p.m. on August 31, 2009, but in no
event later than the expiration date of the Prime Lease, unless sooner
terminated in accordance with the provisions of this Sublease.

       

      Notwithstanding
the foregoing, if the Landlord has not consented to this Sublease on or before
July 1, 2005, then Sublessor and Sublessee agree that the Commencement Date may
be moved forward for up to an additional 31 days (i.e. August 1, 2005)
in order to further pursue such request and to accommodate the Landlord's
requirements in connection with its review and approval thereof; whereupon the
Rent Commencenemt Date and the Base Rent adjustment dates referenced in Section
5 (a) below shall also be moved forward by the same number of days.

       

       

       

      
 

      
        
          
          

        

        
          100

          
            

          

        

        
          
          

        

      

       

      Sublessor
and Sublessee agree to use their best efforts to obtain the Landlord's consent
as soon as reasonably possible following the date of execution of this
Sublease.

       

      Notwithstanding
the Commencement Date, upon execution of this Sublease, and Landlord's consent
to the Sublease, Sublessee shall have the right to access the Subleased Premises
prior to the Commencement Date, rent-free and without any other consideration to
Sublessor, for the purpose of installing Tenant's fixtures and
equipment.

       

      3.             Subleased Premises.
The 'Subleased
Premises" shall mean approximately -18;961 rentable square feet on the
141h
floor of the Building, as more specifically depicted on Exhibit
A attached hereto and made a part hereof. The Subleased Premises include
all of the Leased Premises identified in the Prime Lease.

       

      4. Use. The
Sublessee may use the Subleased Premises under the trade name "eMagin" solely
for general office purposes (including incidental light assembly of electronic
equipment, if and to the extent permitted in the Prime Lease or consented to by
the Landlord), in accordance with all applicable laws, ordinances and
regulations aid subject to the Incorporated Provisions (defined in Section 6
below) of the Prime Lease and this Sublease.

       

      5.           Payment of
Rent.

       

      (a)           Beginning
on September 1, 2005 (the "Rent Commencement
Date'),

       

      Sublessee
shall pay base rent as follows (the 'Base
Rent"):

       

      
        
          	Dates	 	
                  Montly Base
      Rent

                	 	
                  Annual Base Rent Per
      RSF

                
	Rent
      Commencement Date — June 30, 2006	 	$	22,561.39	 	
                   $14.28 /
      RSF

                
	July
      1, 2006 — June 30, 2007	 	$	39,028.06	 	
                   $24.70 /
      RSF

                
	July
      1, 2007 — August 31, 2009	 	$	40,608.14	 	
                  $25.70
      / RSF

                
	 	 	 	 	 	 

        

      

       

       

      Sublessor
hereby directs Sublessee, and Sublessee does hereby agree, that such payment of
Base Rent and payment of all other amounts due and payable to Sublessor under
this Sublease shall be made to (and to the order of) Capgemini U.S. LLC,
Corporate Real Estate Services, One Panorama Center, 7701 Las Colinas Ridge,
Suite 600, Irving, Texas 75063 (or at such other place as the Sublessor
subsequently shall designate in writing) and shall be paid in lawful money of
the United States of America without notice or demand, and without abatement,
deduction, counter-claim or setoff. Any installment of Base Rent that is
received by Sublessor after the fifth (5th) day of the calendar month shall, at
Sublessor's option, be subject to a late charge of ten percent (10%) of the
amount thereof and such charge shall be paid by Sublessee upon demand by
Sublessor, it being understood that the late fee described herein shall not be
deemed a liquidated damages calculation and shall not preclude any other remedy
of Sublessor under this Sublease or at law. To he
extent that this Sublease shall commence on a day other than the first
day of any calendar month, or
terminate on a day other than the last day of any calendar month, the Base Rent
under this Sublease shall be prorated on a per diem basis for that particular
month.

       

       

       

      
        
          
          

        

        
          101

          
            

          

        

        
          
          

        

      

      
 

       

       

      (b) In
addition to payment of Base Rent as aforesaid, Sublessee shall pay to Sublessor
Operating Costs and Maintenance Expenses, as such term is defined in the Prime
Lease, with respect to the Subleased Premises, to the extent that such Operating
Costs and Maintenance Expenses exceed that which Sublessor must pay for the
calendar year 2005 (the "Base Year"). For example, if the Operating Costs and
Maintenance Expenses required to be paid by Sublessor for the Base Year are
determined to be $9.70 per foot (the "Base Year Rate"), and the Operating Costs
and Maintenance Expenses required to be paid by Sublessor for calendar year 2006
are estimated by the Landlord to be $10.70 per foot as determined pursuant to
the Prime Lease, then Sublessee shall pay said $1.00 increase in the Base Year
Rate to Sublessor as additional rent at the same times and in the same manner as
specified in the Prime Lease. Furthermore, to the extent that Landlord charges
Sublessor for any service, act or utility provided to the Subleased Premises
beyond the basic services, acts and utilities that are required to be supplied
by the Prime Lease without charge, including, without limitation, heating, air
conditioning, utilities and additional cleaning, Sublessee shall pay
for such charges as additional rent, immediately upon demand therefor to
the extent such charges relate to the Subleased Premises (the "Additional
Rent").

       

      (c) All
payments referenced in this Section 5, including,
without limitation, Base Rent and Additional Rent are hereinafter referred to
collectively as 'Rent".

       

      (d)
Notwithstanding the provisions of this Section 5 regarding Sublessee's,
obligation to pay Rent to Sublessor, Sublessor and Sublessee understand,
acknowledge and agree that the Base Rent and Additional Rent required to be paid
by Sublessor to Landlord under the Prime Lease is more than the Rent required to
be paid by Sublessee pursuant to this Sublease, and that Sublessor shall
continue to be obligated to pay such Base Rent and Additional Rent (except to
the extent that Sublessee is required to pay the excess Operating Costs and
Maintenance Expenses as provided in Section 5 (b) above) to the Landlord at the
times and in the manner specified in the Prime Lease.

       

      6. Certain Provisions of Lease
Incorporated. The following provisions of the Prime Lease (the 'Incorporated
Provisions  ") are explicitly incorporated herein by reference
and made a part hereof: Paragraphs 2.2, 6.5, Article 9, Paragraphs 10.2, 10.3,
11.2, 11.3, 12.1, 12.2, Article 13, Article 14, Article 15, Article 16, Article
19, Article 21, Article 22, Article 23, Article 26, Paragraph 34.2, Article 37
(excluding Paragraphs 37.7 and 37.14). No consent, waiver, amendment, or other
change by Landlord as permitted under the Prime Lease of Sublessor's obligations
and liabilities as tenant under the Prime Lease shall reduce or limit
Sublessee's obligations and liabilities to Sublessor hereunder unless Sublessor
shall have agreed in writing that such consent, waiver, amendment or change
shall be effective hereunder. Unless the context requires otherwise, for the
period during the term of this Sublease only, (i) references in the Incorporated
Provisions to Landlord shall refer to Sublessor (subject to the provisions of
this Sublease which relieve Sublessor of any obligation or responsibility for
the performance of the obligations of Landlord under the Prime Lease), (ii)
references in such provisions to Tenant shall refer to Sublessee, and (iii)
references in such provisions to the Premises shall refer to the Subleased
Premises
hereunder. Sublessee expressly assumes toward Sublessor and agrees to perform
all of the obligations, responsibilities and covenants that Sublessor has
assumed as Tenant under the Incorporated Provisions in respect of the Subleased
Premises. Sublessee acknowledges that it has received a copy of the Prime Lease,
and agrees not to do, or cause to be done, any act (whether of omission or
commission) which would result in a default under or breach of any term,
covenant, provision or condition of the Prime Lease. Sublessee shall not have
any expansion, contraction or similar rights (including without limitation any
rights of first offer or rights of first refusal) under the Prime Lease, or any
rights to cancel, terminate, extend or renew the term of the Prime
Lease.

       

       

       

      
        
          
          

        

        
          102

          
            

          

        

        
          
          

        

      

       

      Notwithstanding
the incorporation herein of the Incorporated Provisions or anything otherwise
contained in this Sublease to the contrary,

       

      (a) Sublessor
shall not be obligated to render or provide any of the services required to be
provided by Landlord under the Prime Lease or the Incorporated Provisions,
respectively, and Sublessor shall not be obligated to satisfy any obligations of
the Landlord thereunder; and

       

      (b) Sublessor
shall not have any responsibility or liability to Sublessee (i) on account of
any act or omission of Landlord, any default by Landlord, or breach by Landlord
of any term, covenant or condition of the Prime Lease, or any failure by
Landlord to perform any of its obligations under the Prime Lease, or (ii) by
reason of any condition of or in the Building or the Subleased Premises now or
hereafter existing;

       

      provided,
however, that Sublessor shall, at Sublessee's request and expense, take all such
reasonable actions as Sublessee shall direct to enforce Sublessor's rights and
remedies under the Prime Lease with respect to the Subleased Premises or, at
Sublessor's option, authorize Sublessee to enforce the same in Sublessor's name.
Sublessee shall indemnify and hold harmless Sublessor against any loss,
liability, claim, cost or expense arising out of or in connection with any
actions taken pursuant to the preceding sentence, and Sublessee shall be
entitled to receive and retain any recovery allocable to the Subleased Premises
during the term of this Sublease resulting from such actions, after recovery by
Sublessor of all loss, liability, claim, cost and expense due to Sublessor by
Sublessee hereunder.

       

      7. Net Return The payments
of Sublessee hereunder to Sublessor are intended to constitute an absolutely net
return to Sublessor with respect to the Subleased Premises, and except to the
extent of (i) the difference between the Base Rent payable hereunder and the
Base Rent payable under the Prime Lease, and (ii) excluding the cost of
Operating Costs and Maintenance Expenses to be paid by Sublessor for the
Subleased Premises, all costs of any kind relating to the Incorporated
Provisions (with respect to the Subleased Premises), this Sublease, or the use
and operation of the Subleased Premises shall be the responsibility of the
Sublessee. Without limiting the generality of the foregoing, (i) whenever
Sublessee requires Landlord to furnish any service or perform any act for which
Landlord is entitled to make a separate charge under the Prime Lease, including,
without limitation, heating, air conditioning and utilities, Sublessee shall pay
the same, and (ii) Sublessee shall pay to Sublessor any charges billed to
Sublessor from time to time, to the extent any such charges are allocable, as
determined by Sublessor, for services provided to the Subleased
Premises.

      

       

       

      
        
          
          

        

        
          103

          
            

          

        

        
          
          

        

      

       

       

      8.             Property Located in or about
the Subleased Premises. All improvements, fixtures, equipment and
personal property in or about the Subleased Premises shall be in or about the
Subleased Premises at the sole risk of Sublessee. The improvements, fixtures,
equipment and personal property in or about the Subleased Premises as of the
Commencement Date (as more particularly described on Exhibit B attached hereto and made a
part hereof, the "Sublessor's  Property"), other
than the equipment, trade fixtures and personal property of Sublessee or anyone
claiming by, through or under Sublessee shall be and remain the property of
Sublessor and shall be kept by Sublessee in good condition and repair (subject
to normal wear and tear) and shall not be removed from the Subleased Premises.
Sublessor makes no warranties of any kind or nature, `Whether express or implied
(including without limitation warranties of merchantability or fitness for a
particular purpose), with respect to the Sublessor's Property, and Sublessee
accepts the Sublessor's Property for use during the term hereof in its "as is"
and "where is" condition. Sublessee shall insure the Sublessor's Property in the
name of Sublessor as part of the property insurance required hereunder.
Sublessor shall have the right to enter the Subleased Premises at all reasonable
times and after giving Sublessee reasonable notice, for the purpose of, among
other things, inspecting the Subleased Premises and the Sublessor's Property. In
consideration of the Rent payable to Sublessor, and provided that Sublessee
shall not then be in default under this Sublease, upon the end of the term of
this Sublease (or if, this Sublease is terminated by Landlord on account of
Sublessor's default of its obligations under the Prime Lease excluding any such
termination on account of Sublessee's default of its obligations under this
Sublease) Sublessor shall transfer the Sublessor's Property to Sublessee in its
"as is" and "where is" condition, with all representations and warranties
(including without limitation warranties of merchantability or fitness for a
particular purpose) hereby waived by Sublessee. Any applicable sales, use or
similar tax or charge which may be imposed or due by reason of such use or
transfer of Sublessor's Property shall be the sole responsibility of Sublessee,
and Sublessee agrees to pay such taxes or charges to Sublessor at any, time upon
demand (including after the termination or expiration of this Sublease).
Sublessee hereby acknowledges that it has inspected the Sublessor's Property and
waives any and all claims against Sublessor arising out of any damage, defect or
condition relating to the Sublessor's Property.

       

      9.            Surrender. At the
termination of this Sublease, by lapse of time or otherwise, Sublessee shall
surrender possession of the Subleased Premises to Sublessor and deliver all keys
to the Subleased Premises and all locks therein to Sublessor and make known to
Sublessor the combination of all combination locks in the Subleased Premises and
shall return the Subleased Premises and the Sublessor's Property (to the extent
the Sublessor's Property has not been transferred to Sublessee pursuant to the
terms of Section 8
of this Sublease) to Sublessor in broom clean condition and in as good
condition as Sublessee originally took possession, normal wear and tear
excepted, failing which Sublessor may restore the Subleased Premises and the
Sublessor's Property to such condition and the Sublessee shall pay the cost
thereof to Sublessor on demand. Upon or prior to such termination of this
Sublease, Sublessee shall remove all of Sublessee's personal property (but not
Landlord's personal property) and only those improvements, alterations and
additions, which as a condition to Sublessor's or Landlord's consent to the
installation thereof, are required to be removed and restored upon termination
hereof.

       

      10. Assignment and Subletting.
Sublessee shall have no right to sublet the Subleased Premises or any
portion thereof or assign or otherwise transfer its interest in this Sublease,
whether expressly or by operation of law, without the prior written consent of
Sublessor and all other consents and approvals that may be required under the
Prime Lease.

      

       

       

      
        
          
          

        

        
          104

          
            

          

        

        
          
          

        

      

       

       

       

      11.            Representations and
Warranties of Sublessor. As of the date hereof, Sublessor represents and
warrants to Sublessee, and agrees, as follows: (i) the Prime Lease which is
identified by the documents referenced above in Recital Paragraphs A and B
represents a true, correct and complete copy of the Prime Lease; (ii) the Prime
Lease has not been modified or amended except as set forth in the documents
referenced above in Rectal Paragraphs A and B; (iii) Sublessor has received no
written notice from Landbrd of default still outstanding; (iv) Sublessor will
not, from the date hereof through the date of termination of this Sublease,
trigger an Event of Default (as defined in the Prime Lease) (excluding those
caused by breach of this Sublease by Sublessee or any acts or omissions of
Sublessee) which results in Landlord rightfully terminating "and retaking
possession of the Subleased Premises from Sublessee prior to the end of the term
of this Sublease; (v) no liens exist, nor will be permitted by Sublessor to
exist, against the Subleased Premises in violation of Section 22 of the Prime
Lease for work performed, materials furnished, equipment supplied or obligations
incurred by or on behalf of Sublessor; (vi) if any rent is abated pursuant to
paragraph 16 of the Prime Lease, the Rent owed by Sublessee pursuant to this
Sublease shall also be abated proportionately and for the same time, and (vi)
any award which may be sought by Sublessor pursuant to Section 28.4 of the Prime
Lease will be prorated between Sublessor and Sublessee based upon their
respective interests in the Subleased Premises..

       

      12.            Indemnification By
Sublessee. Sublessee agrees, to the extent not expressly prohibited by
law, to pay, and to protect, defend, indemnify and save harmless Sublessor and
Landlord and their respective past, present and future employees, officers and
agents (each an "Indemnified Party"
and collectively, the Indemnified Parties"),
from and against any liabilities, losses, damages, costs or expenses
(including, but not limited to, attorneys' fees and expenses) of any nature
whatsoever which may be imposed upon, incurred by, or asserted against any
Indemnified Party by reason of or in connection with (i) any accident, injury
to, or death of any person or any damage to property or any other events
occurring on or about the Subleased Premises, or (ii) any breach by Sublessee
(excluding any breach caused by Sublessor) of any term or condition of the
Incorporated Provisions or the Prime Lease, with respect to the Subleased
Premises, or this Sublease or any failure by Sublessee to perform or comply with
(x) any of the terms of the Incorporated Provisions, with respect to the
Subleased Premises or (y) this Sublease, or (z) any restrictions, statutes,
laws, ordinances or regulations affecting the Subleased Premises or any part
thereof or Sublessee's use of the Subleased Premises.

       

      13.             Indemnification by
Sublessor. Subject to the limitations on Sublessor's liabilities as
specified in Section 24 below, Sublessor agrees, to the extent not expressly
prohibited by law, to pay, and to protect, defend, indemnify and save harmless
Sublessee and Sublessee's past, present and future employees, officers and
agents (each an "Indemnified Party"
and collectively, the "Indemnified Parties"),
from and against any liabilities, losses, damages, costs or expenses
(including, but not limited to, attorneys' fees and expenses) of any nature
whatsoever which may be imposed upon, incurred by, or asserted against any
Indemnified Party which result from Sublessor's breach of the Prime Lease
(except to the extent such breach arises out of Sublessee's breach of this
Sublease).

       

      14.             Insurance. As
pursuant to the Incorporated Provisions, Sublessee shall obtain all insurance
policies (and in such amounts) required under the Prime Lease, including, but
not limited to, personal property insurance covering the Sublessee's personal
property. Sublessee shall include Sublessor and Landlord as additional insureds
under all liability-related insurance policies
required under the terms of the Prime Lease and under all liability related
insurance policies which Sublessee may carry with respect to the Subleased
Premises, any property located thereon, or with respect to any claim or accident
arising on or about the Subleased Premises. Prior to the commencement of the
term of this Sublease or any occupancy of or access to the Subleased Premises by
Sublessee, Sublessee shall deliver to Sublessor certificates of insurance
showing such policies to be valid and in effect. Any rights of settlement
allocated to Sublessor as Tenant under the Prime Lease shall continue to be the
rights of Sublessor hereunder.

       

       

      
        
          
          

        

        
          105

          
            

          

        

        
          
          

        

      

       

       

      Sublessee
hereby releases Sublessor and Landlord; and their respective officers,
-employees, agents and representatives, from any and all claims or demands of
damage, liability, loss, expense or injury to the Subleased Premises or to the
furnishings, fixtures, equipment, inventory or other property of Sublessee in,
about or upon the Subleased Premises, which is caused by or results from perils,
events or happenings which are the subject of insurance carried by Sublessee
which is required under this Sublease or otherwise in force at the time of any
such loss, whether or not due to the negligence of Sublessor or Landlord or
their respective officers, employees, agents and representatives, and regardless
of cause or origin. Any insurance carried by Sublessee with respect to the
Buildings or the Subleased Premises (or property therein or occurrences thereon)
shall include a clause or endorsement denying to the insurer rights of
subrogation against Sublessor and Landlord and their respective officers,
employees, agents and representatives.

       

      15.Defaults. It shall be
an Event of Default hereunder

       

      (a) Sublessee
shall fail to pay Rent when due; or

       

      (b) Sublessee
shall fail to pay when due any payments required to be made by Sublessee as
described in this Sublease other than Rent (after, in the case of the first such
failure, ten (10) business days' written notice from Sublessor, and thereafter
without requirement of such notice and grace period; or

       

      (c) Sublessee
shall fail to keep or perform any one or more of the other terms, conditions,
covenants or agreements of this Sublease or the Incorporated Provisions, and
such failure shall continue for ten (10) days after notice of such failure to
Sublessee; or

       

      (d) Sublessee
shall cause or permit to occur a default under the Incorporated Provisions which
is not cured prior to five (5) days before the expiration of any cure period
applicable thereto pursuant to the Incorporated Provisions or the Prime
Lease.

       

      16. Remedies. In the
event of an Event of Default by Sublessee hereunder, Sublessor may exercise any
remedies available to Landlord under the Incorporated Provisions, and, in
addition to or, at its option, in lieu of, any or all other remedies provided
for herein or in the Incorporated Provisions or available to Sublessor at law or
in equity, Sublessor shall be entitled to enjoin such breach or a threatened
breach, or to perform such obligation or cure such breach an behalf of Sublessee
and recover the cost of such performance or cure from Sublessee upon demand.
Notwithstanding anything to the contrary contained in the Prime Lease, Sublessor
shall have the right to terminate this Sublease immediately upon an Event of
Default by Sublessee and, at

      Sublessor's
sole option, Sublessor shall have the right to retain all equipment and fixtures
located on the Subleased Premises as security for the outstanding obligations of
Sublessee.

       

       

      
        
          
          

        

        
          106

          
            

          

        

        
          
          

        

      

       

       

      17.            Tenant Improvements.
Sublessor has not made any warranty or representation as to the condition
of the Subleased Premises or any agreement or promise to decorate, alter, repair
or improve the Subleased Premises and Sublessee hereby waives any and all rights
it may have, express or implied, against Sublessor in connection therewith. The
Subleased Premises are to be leased to Sublessee in "as-is"
condition.

       

      18.            Alterations.
Sublessee shall make no alterations or improvements to the Subleased
Premises except in accordance with the requirements of the Prime Lease and with
the prior written consent of Sublessor which consent shall not be unreasonably
withheld or delayed, and, to the extent such consent is required under the Prime
Lease, the prior written consent of Landlord. Such alteration shall be completed
in accordance with a schedule and plans and specifications submitted to and
approved by the Landlord and Sublessor. Sublessee hereby indemnifies and holds
harmless Sublessor against any loss, liability, cost, damage or claim arising
out of or elating to any alteration or improvements made by or on behalf of
Sublessee to the Subleased Premises, whether or not approved by
Sublessor.

       

      19. Notices. All notices
and demands hereunder shall be in writing and shall be served in person, by
prepaid certified United States Mail, return receipt requested, or by nationally
recognized overnight courier, as follows:

       

      If to
Sublessor:

       

      Corporate
Real Estate Services 

      Capgemini
U.S. LLC

      One
Panorama Center

      7701 Las
Colinas Ridge, Suite 600 

      Irving,
Texas 75063

       

      With a
copy to:

       

      Office of
the General Counsel 

      Capgemini
U.S. LLC

      750
Seventh Avenue, 18th Floor

      New York,
New York 10019

       

      If to
Sublessee:

       

      eMagin
Corporation Bellevue Place

      10500 NE
8th
Street, 14th
Floor

      Bellevue,
Washington 

      Tel:
(425) 882-7878 

      Fax:
(425) 882-7373 

      Attn:
John Atherly

      

       

       

       

      
        
          
          

        

        
          107

          
            

          

        

        
          
          

        

      

       

      Such
notices shall be deemed served when delivered, if served in person, or by
certified mail, or on the next business day after delivery to a nationally
recognized overnight courier service. Any party may change the address for
notices to it by a notice given as described herein.

       

      20.            Brokers. Sublessor
and Sublessee represent and warrant that they have not dealt with any brokers in
connection with the sublease of the Subleased Premises other than Trammell Crow
Company and Washington Partners Corporate Real Estate. Sublessor and Sublessee
do hereby indemnify, defend and agree to hold each other harmless from and
against any and all loss, cost, liability or obligations (including reasonable
attorneys' fees) related to any fees or commissions claimed by any parties, to
the extent such claims are based on the acts or agreements of the indemnifying
party.

       

      21.             Security Deposit. In
order to secure Sublessee's performance hereunder, Sublessee hereby agrees that
within three days of the Sublease Approval date, it shall deposit with Sublessor
a security deposit in the amount of EIGHTY-ONE THOUSAND TWO HUNDRED SIXTEEN
Dollars and 00/100 Dollars ($81,216.00) (the "Security Deposit").
Such Security Deposit shall be held by Sublessor, without interest, and
upon the occurrence of any default of the Sublessee's obligations hereunder, may
be applied or retained for the payment or performance of such obligations. The
use, application or retention of the Security Deposit, or any portion thereof,
by Sublessor shall not prevent Sublessor from exercising any other right or
remedy provided by this Sublease or by law (it being intended that Sublessor
shall not first be required to proceed against the Security Deposit) and shall
not operate as a limitation on any recovery to which Sublessor may otherwise be
entitled. If any portion of the Security Deposit is used, applied or retained by
Sublessor for the purposes set forth above, Sublessee agrees, within ten (10)
days after the written demand therefor is made by Sublessor, to deposit cash
with the Sublessor in an amount sufficient to restore the Security Deposit to
its original amount. Notwithstanding the foregoing, provided no Sublessee
default has occurred, Sublessor will apply two (2) months of such deposit toward
Sublessee's Base Rent otherwise due for the last two months of the Sublease
Term.

       

      22.Miscellaneous.

       

      (a) Sublessor
and Landlord and their agents shall have the right of access to the Subleased
Premises at all reasonable times on reasonable notice to Sublessee (except in
the event of an emergency, in which case no notice is necessary) in order to
inspect or exhibit the Subleased Premises.

       

      (b) This
Sublease contains the entire agreement between the parties hereto, and shall not
be modified in any manner except by a writing signed by the party against which
such modification is sought to be enforced.

       

      (c) The
agreements, terms, covenants, and conditions herein shall bind and inure to the
benefit of Sublessor and Sublessee and their respective heirs, personal
representatives, successors, and permitted assigns.

       

       

       

      
        
          
          

        

        
          108

          
            

          

        

        
          
          

        

      

      
 

       

      (d) Each of
the indemnifications contained in this Sublease shall survive the expiration or
earlier termination of this Sublease. . In addition, Section
24  shall survive the expiration or earlier termination of this
Sublease.

       

      (e) The
Recitals to this Agreement are incorporated herein by this reference as if set
forth in full including, but not limited to, the terms, conditions and
provisions of the Office Lease and the Prime Lease as described in Recital
Paragraphs A and B.

       

      23.             Landlord's Consent.
Sublessor and Sublessee acknowledge that this Sublease is subject to
Sublessor's receipt of the written approval of and consent by the Landlord to
the sublease transaction described herein.

       

      24.             Limitation on Liability of
Sublessor. In no event will Sublessor be liable for consequential,
incidental, indirect, punitive or special damages (including loss of profits or
business) regardless of whether such liability is based on breach of contract,
tort, strict liability, breach of warranties, failure of essential purpose or
otherwise, and even if advised of the likelihood of such damages.

       

      25.             Security. Sublessee
shall contract directly with security providers for any services it deems
reasonably appropriate, and Sublessee acknowledges•that
Sublessor shall have no liability or responsibility for security of the
Subleased Premises.

       

      26. Parkin.
Subject to the terms of the Prime Sublease, Sublessor hereby assigns to
Sublessee effective upon the Commencement Date any and all rights which the
Sublessor has under the Prime Lease to the number of parking spaces in the
parking lot(s) in or adjacent to the Building equal to the ratio allocated to
Sublessor under the Prime Lease, provided that (i) Sublessor shall not be a
party to any lease of parking spaces by Sublessee, as any lease shall be solely
between Sublessee and Landlord (or its parking garage operators), and Sublessor
shall not have any responsibility (or make any warranty) to Sublessee with
respect to such spaces, (ii) any such lease of parking spaces shall be at
Sublessee's sole cost and expense, which shall be paid in accordance with the
prevailing parking rates charged by the Landlord (or its parking garage
operators), and (iii) this assignment of rights to any parking spaces shall be
conditioned on Sublessee's agreement to lease such spaces from Landlord (or its
parking garage operators), and (iv) Sublessor shall not be required to assign
any parking spaces to the extent Sublessor would continue to have any payment or
other obligations to the Landlord (or its parking garage operators) relating to
any such spaces.). Sublessee agrees to indemnify and save harmless Sublessor
from and against any liabilities, losses, damages, costs or expenses (including,
but not limited to, attorneys' fees and expenses) of any nature whatsoever which
may be imposed upon, incurred by, or asserted against Sublessor by reason of or
in connection with Sublessee's use of the parking garage or such parking
spaces.

       

      27. Subordination and
Attornment. This Sublease shall be subject and subordinate to the Prime
Lease and all mortgages, deeds of trust, ground leases and security agreements
now or hereafter encumbering the Building. In the event of termination of the
Prime Lease for any reason, or in the event of any reentry or repossession of
the Subleased Premises by Landlord, Landlord may at its option, either (i)
terminate this Sublease, or (ii) take over all of the right, title and interests
of Sublessor under this Sublease, in which case the Sublessee will attom to
Landlord, but nevertheless Landlord will not (1) be liable for any previous act
or omission of Sublessor
under this Sublease, (2) be subject to any defense or offset previously accrued
in favor of the Sublessee against Sublessor, or (3) be bound by any previous
modification of this Sublease made without Landlord's written consent, or by any
previous prepayment by Sublessee of more than one month's rent.

       

       

      
        
          
          

        

        
          109

          
            

          

        

        
          
          

        

      

       

       

      28. No Presumption Against
Draftor. Sublessor and Sublessee acknowledge that both parties have been
represented by counsel and are fully aware of the contents of this Sublease.
Therefore, Sublessee hereby waives any presumption that may exist under law or
equity against the Sublessor by virtue of Sublessor creating the initial draft
of this Sublease.

       

      IN
WITNESS WHEREOF, the parties have executed this Sublease as of the day and year
first above written.

       

      
        
          	 SUBLESSOR: 	 	 	SUBLESSEE:	 
	 	 	 	 	 
	CAPGEMINI
      U.S. LLC, a  	 	 	EMAGIN
      CORPORATION, a	 
	Delaware
      limited liability company 	 	 	Delaware
      corporation	 
	 	 	 	 	 
	
                  By

                	 	 	
                  By

                	 
	
                  Its

                	 	 	
                  Its

                	 
	
                   

                	 	 	
                   

                	 

        

      

                                                                            

       

       

      

      
        	
                STATE
      OF 

              	 
      	
                )
      

              
	 
      	 
      	) ss
      )
	COUNTY
      OF	 	)
	 	 	 
	 	 	 

      

       

      I certify
that I know or have satisfactory evidence
that_______________________________  is the
person who appeared before me, and said person acknowledged that he signed this
instrument,
on oath statedthat he was authorized to execute the instrument as the
_____________________________________ on behalf
of Capgemini U.S. LLC, a
Delaware limited liability company,
pursuant to the provisions of the Limited Liability Company Agreement of said
company, and acknowledged it to be the free and voluntary act of said company
for the uses and purposes mentioned in the instrument.

      
      

       

      
        	 	 	DATED:	 
	 	 	 	 
	 	 	 	 
	 	 	NAME:	 
	 	 	 	
                (Print
      Name)

              
	 	 	 	 
	 	 	 	 
	 	 	
                Notary
      Public in and for the State of___________

                Commission
  Expires: ______________________

              

      

       

       

       

       

      
        
          
          

        

        
          110

          
            

          

        

        
          
          

        

      

       

      
         

        
          	STATE OF
      WASHINGTON  	)	 	 
	 	) SS	 	 
	COUNTY OF
      KING 	)	 	 

        

         

      

       

        

      I certify
that I know or have satisfactory evidence that John Atherly is the person who
appeared before me, and said person acknowledged that he signed this instrument,
and acknowledged it as the Chief Financial Officer of eMagin Corporation, a
Washington corporation to be the free and voluntary act of such entity
for the uses and purposes mentioned in the instrument.

       

      
        
          	 	 	DATED:	 
	 	 	 	 
	 	 	 	 
	 	 	NAME:	 
	 	 	 	
                  (Print
      Name)

                
	 	 	 	 
	 	 	 	 
	 	 	
                  Notary
      Public in and for the State of___________

                  Commission
  Expires: ______________________

                

        

         

         

         

         

        
          
            
            

          

          
            111

            
              

            

          

          
            
            

          

        

         

         

        EXHIBIT A

         

        SUBLEASED PREMISES

         

         

        

         

         

         

        
          
            
            

          

          
            112

            
              

            

          

          
            
            

          

        

      

       

       

       

       

      EXHIBIT B

       

      SUBLESSOR'S PROPERTY

       

      
        
          	
                  Exhibit
      B

                	
                  SubIessors
      Property

                	 
      	
                  (to
      best of our
      knowledge)

                	
                  (to
      best of our knowledge)

                
	
                  AssetGroup

                	
                  Category

                	
                  Count

                	
                  Brand

                	
                  Model

                
	
                  Accessory

                	
                  Coat
      Rack

                	
                  4

                	 
      	
                  Unknown

                
	
                  Appliance

                	
                  Dishwasher

                	
                  1

                	
                  Whirlpool

                	
                  Quiet
      Wash/DU912DFGGO

                
	
                  Appliance

                	
                  Ice
      Machine

                	
                  1

                	
                  Whir]pool

                	
                  Gold/GI1500XHWO

                
	
                  Appliance

                	
                  Microwave

                	
                  I

                	
                  Sanyo

                	
                  Unknown
      Sanyo

                
	
                  Appliance

                	
                  Microwave

                	
                  1

                	
                  General
      Electric

                	
                  Spacemaker
      II JEM25WYOOI

                
	
                  Appliance

                	
                  Refrigerator

                	
                  1

                	
                  General
      Electric

                	
                  TAX65NXARWH

                
	
                  Appliance

                	
                  Refrigerator

                	
                  1

                	
                  A-U
      LINE

                	
                  ULN-75RB-OO

                
	
                  Appliance

                	
                  Refrigerator

                	
                  1

                	
                  General
      Electric

                	
                  TBXI8JJCARWW

                
	
                  Art

                	
                  Artwork

                	
                  19

                	 
      	
                  Untitled

                
	
                  AV
      Equipment

                	
                  Camera

                	
                  2

                	
                  Toshiba
      Security

                	
                  Cybershot

                
	
                  AV
      Equipment

                	
                  Other

                	
                  2

                	
                  AMX

                	
                  <T-MCA
      0897

                
	
                  AV
      Equipment

                	
                  Projector

                	
                  1

                	
                  Barco
      Graphics

                	
                  Unknown
      lnFocus

                
	
                  AV
      Equipment

                	
                  VCR

                	
                  2

                	
                  Samsung-including
      1 Sony

                	
                  SV-300W

                
	
                  Chairs

                	
                  Chair
      - Aeron

                	
                  94

                	
                  Herman
      Miller

                	
                  Aeron

                
	
                  Chairs

                	
                  Chair
      - Guest

                	
                  8

                	
                  Alexzandria
      Designs

                	
                  Unknown
      Alexzandria Designs

                
	
                  Chairs

                	
                  Chair-
      Lounge

                	
                  6

                	
                  Haworth

                	
                  WR9376777RC8944

                
	
                  Chairs

                	
                  Chair
      - Stacking

                	
                  71

                	
                  Steelcase

                	
                  4754
      12M

                
	
                  Chairs

                	
                  Chair
      - Task

                	
                  39

                	
                  Haworth

                	
                  MHP
      152031

                
	
                  Chairs

                	
                  Chair

                	
                  2

                	 
      	 
      
	
                  Filing
      Cabinets

                	
                  File
      Cabinet - 2 Drawer Lateral

                	
                  1

                	
                  Artelite

                	
                  Unknown
      Artelite

                
	
                  Filing
      Cabinets

                	
                  File
      Cabinet -2 Drawer Lateral

                	
                  11

                	 
      	 
      
	
                  Filing
      Cabinets

                	
                  File
      Cabinet - 2 Drawer Vertical

                	
                  62

                	
                  Hawoith

                	
                  Unknown
      Haworth

                
	
                  Filing
      Cabinets

                	
                  File
      Cabinet - 3 Drawer Lateral

                	
                  26

                	
                  Meridian

                	
                  Unknown
      Meridian

                
	
                  Filing
      Cabinets

                	
                  File
      Cabinet - 4 Drawer Lateral

                	
                  1

                	 
      	
                  Unknown

                
	
                  Filing
      Cabinets

                	
                  File
      Cabinet - 5 Drawer Vertical

                	
                  4

                	
                  Meridian

                	
                  Unknown
      Meridian

                
	
                  Filing
      Cabinets

                	
                  File
      Cabinet - 5 Drawer '/ortical
      Lateral

                	
                  2

                	
                  8
      in conference rooms

                	
                  Unknown

                
	
                  Furniture

                	
                  Bookcase
      - Wood

                	
                  7

                	 
      	
                  Unknown

                

        

      

       

       

       

       

       

       

      
        
          	
                  Exhibit
      B

                	
                  S u
      blessor's Property

                	 
      	
                  (to
      best of our knowledge)

                	
                  (to
      best of our knowledge)

                
	
                  AssetGroup
      -

                	
                  Category

                	
                  Count

                	
                  Brand

                	
                  Model

                
	
                  Furniture

                	
                  Bookcase
      - Misc.

                	
                  3

                	 
      	
                  Unknown

                
	
                  Furniture

                	
                  Desk

                	
                  4

                	
                  Artelite

                	
                  Unknown
      Artelite

                
	
                  Furniture

                	
                  Mailroom
      - Mail Slots

                	
                  I

                	
                  Hamilton

                	
                  FSM481676-L

                
	
                  Furniture

                	
                  Miscellaneous
      Workstations

                	
                  68

                	
                  Haworth

                	
                  Unknown
      Haworth

                
	
                  Furniture

                	
                  Sofa

                	
                  3

                	
                  Brattrud

                	
                  Unknown
      Branching Out

                
	
                  Furniture

                	
                  Sofa

                	
                  I

                	 
      	 
      
	
                  Furniture

                	
                  Special
      Cabinet

                	
                  I

                	
                  Quartet
      Ovonics

                	
                  Unknown
      Quaret Ovonics

                
	
                  Tables

                	
                  Table
      - Boomerang

                	
                  69

                	
                  Knoll

                	
                  Boomerang
      Knoll

                
	
                  Tables

                	
                  Table
      - Conference Room

                	
                  I

                	
                  Haworth.

                	
                  Unknown
      Haworth

                
	
                  Tables

                	
                  Table
      - Conference Room

                	
                  8

                	
                  Vecta

                	
                  Unknown
      Vecta

                
	
                  Tables

                	
                  Table
      - Conference Room

                	
                  5

                	
                  Versteel

                	
                  Unknown
      Versteel

                
	
                  Tables

                	
                  Table
      - Conference Room

                	
                  27

                	
                  Versteel

                	
                  Unknown
      Versteel

                
	
                  Tables

                	
                  Table
      - Conference Room

                	
                  4

                	
                  Round-small

                	
                  Unknown

                
	
                  Tables

                	
                  Table
      - Elliptical

                	
                  4

                	
                  Artelite

                	
                  Unknown
      Artelite

                
	
                  Tables

                	
                  Table
      - Reception Area

                	
                  I

                	
                  Fleischmanri

                	
                  A21-MAM9

                
	
                  Tables

                	
                  Table
      - Reception Area

                	
                  4

                	
                  Ivan
      Allen

                	
                  Unknown
      Ivan Allen

                
	
                  Television

                	
                  TV
      Monitors

                	
                  3

                	
                  Mitsubishi

                	
                  Mitsubishi
      AM2752A

                
	
                  Whiteboards

                	
                  Whiteboard
      - Electronic

                	
                  3

                	
                  Steelase
      Microfield

                	
                  Egan
      Team Board/203

                
	
                  Whiteboards

                	
                  Whiteboard
      - Free Standing

                	
                  13

                	
                  Bretford

                	
                  Unknown
      Bretford

                
	
                  Whiteboards

                	
                  Whiteboard
      - Mobile (Large Curved)

                	
                  4

                	
                  KnowWhere

                	
                  Unknown
      KnowWhere

                
	
                  Whiteboards

                	
                  Whiteboard
      - Wall Mounted with

                	
                  17

                	 
      	
                  Unknown

                
	
                  Whiteboards

                	
                  Whitebcard
      - Workstation

                	
                  68

                	
                  Haworth

                	
                  Unknown
      Haworth

                
	
                  Chairs

                	
                  Leather

                	
                  12

                	
                  Haworth
      Boardroom

                	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  Phone
      Room

                	
                  Equipment
      Racks

                	
                  8

                	 
      	 
      
	
                  Phone
      Room

                	
                  Metal
      Storage Units wlDoors

                	
                  I

                	 
      	 
      
	
                  Phone
      Room

                	
                  Metal
      Storage Shelf

                	
                  1

                	 
      	 
      
	
                  AV
      Equipment

                	
                  Projector

                	
                  1

                	
                  Proxima

                	 
      
	
                  AV
      Equipment

                	
                  Projector

                	
                  1

                	
                  Sanyo

                	 
      
	
                  Computer
      Room

                	
                  Server
      Racks

                	
                  6

                	
                  Compaq
      (empty)

                	 
      
	
                  Computer
      Room

                	
                  Server
      Racks

                	
                  2

                	 
      	 
      

        

      

       

       

       

       

      
        
          
          

        

        
          113

          
            

          

        

        
          
          

        

      

       

       

      
        
          	
                  Exhibit
      B

                	
                  Sub
      lessor's Property

                	 
      	
                  (to
      best of our knowledge)

                	
                  (to
      best of our knowledge)

                
	
                  AssetGroup.

                	
                  Category

                	
                  Count

                	
                  Brand

                	
                  Model

                
	
                  Storage
      Rooms in Common Corridor

                	 
      	 
      	 
      	 
      
	 
      	
                  Metai
      Storage Sheff

                	
                  5

                	 
      	 
      
	 
      	
                  Wood
      Storage Shelf

                	
                  2

                	 
      	 
      
	 
      	
                  4-Drawer
      Vertical

                	
                  3

                	 
      	 
      

        

        

         

         

        Sublessor
makes no warranties of any kind or nature, whether express or implied (including
without limitation warranties of merchantability or fitness for a particular
purpose), with respect to the Sublessor's Property, and Sublessee accepts the
Sublessor's Property for use during the term hereof in its "as is" and "where
is" condition.

         

         

         

        
          
            
            

          

          
            114

            
              

            

          

          
            
            

          

        

         

         

         

        
          

           

          
            

          

          
          

           

          
            	International
      Business Machines Corporation	 	2070 Route
    52	 
	 	 	Hopewell
      Junction, NY 12533	 
	 	 	 	 

          

           

           

           

           

           

           

          November 29, 2004

           

          Mr. Gary W. Jones

          President/ CEO

          eMagin Corporation

          2070 Route 52

          
            Hopewell
Junction, NY 12533

          

           

           

          
            Subject: Lease dated May 28, 1999, as
amended by First Amend­ment to Lease dated July 09, 1999, Second Amendment
to Lease
dated January 29, 2001, Third Amendment to Lease dated May 28, 2002
between International Business Machines Corporation, as Landlord, and eMagin
Corporation, as Tenant, (collectively,
the "Lease") for the premises located at the Hudson Valley Research Park,
2070 Route 52, Hopewell Junction, NY 12533, as such prem­ises are more
particularly described in the Lease.

             

            Fourth
Amendment to Lease effective as of June 1, 2004 Dear Mr. Jones,

            The
letter, upon your signed acceptance, amends the above referenced Lease between
IBM and eMagin Corporation for the Premises located at the Hudson Valley
Research Park in Hopewell Junction, NY. The Lease shall be amended as follows ("
Amend­ment 4") and shall be effective as of June 1, 2004:

             

            Replace
"Exhibit Al" dated 6-01-02 in its entirety with "Ex­hibit Al".

             

            Replace
"Exhibit A2" dated 6-01-02 in its entirety with "Ex­hibit A2".

             

            Replace
"Exhibit A3" dated 6-01-02 in its entirety with "Ex­hibit A3".

             

            Replace
"Exhibit Er dated 9-15-99
in its entirety with "Exhibit

             

            Replace
"Schedule A" dated 6-01-02 in its entirety with "Sched­ule A".

             

            Replace
"Schedule B" dated 6-01-02 in its entirety with "Sched­ule B".

             

            Replace
"Schedule D" dated 6-01-99 in its entirety with "Sched­ule D".

             

            Paragraph
4(a): Shall be amended by changing the expiration date from May 31, 2004 to May
31, 2009. The term of this Lease (herein
called the "Term") shall be for a period of five (5) years, to commence on June
1, 2004 (the "Commencement Date"), and shall expire on May 31, 2009 unless
sooner terminated as hereinafter provided.

             

            
              Paragraph 4(c): The first
sentence shall be deleted in its en­tirety and replaced with "After May 31,
2007 the Landlord at its sole discretion may grant the Tenant an option to
extend the Term for all or any part of the Premises for one
(1), two (2)
year period subject to and upon the provisions set forth in this
subparagraph and subject to a Rent to be determined by the Landlord in its sole
discretion.

            

             

            
              Paragraph 28 (a): The
first sentence shall be deleted in it entirety and replaced with
"Commencing  as of June 1, 2004 and continuing thereafter throughout the
Term the landlord shall provide the tenant with 3 (three) received parking
spaces and unreserved parking (the "Tenants Parking Spaces" )as outlined on
EXHIBIT B.

            

             

            Paragraph
35, Security Deposit shall be added to the Lease as follows:

             

            (a) The
Tenant has deposited with the Landlord the sum of One Hundred Fifty Thousand and
00/100 Dollars ($150,000.00) as security for the faithful performance and
observance by the Tendant of the provisions of this Lease on its part to be
performed.
If the Tenant defaults in respect
of any of these provisions, including the payment of rent, the Landlord
may use, apply or
retain the whole or any part of the security so deposited to the extent required
for the payment of any rent for which the Tenant is in default or for any sum
which the Landlord may expend or may be required to expend by reason of the
Tenant's default in respect of any of these provisions, including any
damages or deficiency in the reletting of the Premises, whether such damages or
deficiency accrued before or after summary proceedings or other reentry by the
Landlord. If the Tendant shall fully and faithfully comply with all provisions
of this
Lease on the Tenant's part to be performed, the security shall be credited
toward the payment of rent as described in paragraph (b) hereof.If the Landlord
sells or leases the Building,
the Landlord shall have the right to transfer the security to the vendee or
lessee and the Landlord shall thereupon be released by the Tenant from all
liability for the return of such security. The Tenant agrees to look solely to
the new landlord for the return of said security. It is agreed that the
provisions hereof shall apply to every transfer or assignment made
of the security to a new landlord_The Tenant further
covenants that it will not assign, pledge or encumber or attempt to assign,
pledge or encumber the monies deposited herein as security and that neither the
Landlord nor its successors or assigns shall be bound by any such assignment,
pledge or encumbrance, or attempted assignment, attempted pledge or attempted
encumbrance.

             

             

            
              
                
                

              

              
                115

                
                  

                

              

              
                
                

              

            

             

             

            (b) If
Tenant is not in Default on March 31, 2009 the security deposit
will be credited toward the April 1, 2009 and May 1, 2009 rent payments as shown
in Schedule A, Table 1.

             

            Paragraph
36, Use of Rec Center shall be added to the Lease as follows:

             

            A maximum
of four (4) of Tenant's employees will be authorized access to the Landlord's
Rec Center located on Schenandoah Road, Hopewell Junction, NY, for the sole
purpose of use of the parking, locker rooms, exercise rooms, running track,
basketball, tennis courts and common areas. Tenant's employees are not
authorized to participate in any other activities or sports organized by the
Landlord or its employees, guests or invitees.

             

                Please
indicate eMagin's acceptance of this Fourth Amendment to Lease by having an
authorized representative sign four (4) copies of this letter on behalf of
eMagin and return two (2) copies to IBM, Route 100, Somers, NY 10589,
Attention: Program Manager, Real Estate
Services.

             

                Except as
amended herein of this Fourth Amendment to Lease, all the terms and conditions
of the Lease shall remain in full force and effect.

             

                Persons
signing below certify that they are authorized representatives of their company
and empowered to execute this document on behalf of their company.

             

             

             

            Very
truly yours,

             

            INTERNATIONAL BUSINESS
MACHINES CORPORATION

             

             

            /s/ David
W. Pfirman

            
              
                

              

            

            David W.
Pfirman

            Senior
Program Manager, Real Estate Operations

             

             

            Accepted
and Agreed to: 

             

             

             

            eMagin
Corporation

             

            /s/ Gary
W. Jones

            
              
                

              

            

            Gary W.
Jones

            President/
CEO

             

            CC:

            Mr. Sujit
Ramchand, IBM Area Counsel

            Ms.
Maureen Duffy, IBM General Counsel, Real Estate Services

            Ms.
Debra Durstewitz, Site Operations, East Fishkill 

            File

             

             

            
              
                
                

              

              
                116

                
                  

                

              

              
                
                

              

            

             

            SCHEDULE
A

             

            eMagin
CORPORATION

             

            
              BASE
RENT
COMPUTATION SCHEDULE-- AMEND. 4

            

            Effective Date
06/01/2004

             

             

             

            
              	Effective
      Date	 	
                      Amend. 3

                      June 1, 2002 

                        NPSF 

                      

                    	
                      Amend. 4

                      June 1, 2004 

                        NPSF

                      

                    	
                      Rate/SF 

                    	
                      Annual Rent 

                    	
                       Monthly
      Rent

                    
	B310 	
                      Storage

                    	
                      10,352

                    	
                      56881

                    	
                      $7.00

                    	
                      $39,816.00

                    	
                         $3,318.00

                    
	B334 	
                      Office

                    	
                      8,604

                    	
                      8,
      604

                    	
                      $17.00

                    	
                      $146,268.00

                    	
                       
      $12,189.00

                    
	B3300 	
                      Office

                    	
                      608

                    	
                      608

                    	
                      $17.00

                    	
                      $10,336.00

                    	
                       
      $861.33

                    
	 	
                      Dry

                    	
                      7,691

                    	
                      7,691

                    	
                      $18.00

                    	
                      $138,438.00

                    	
                       
      $11,536.50

                    
	 	
                      Clean

                    	
                      16,316

                    	
                      16,316

                    	
                      $35.00

                    	
                      $571,060.00

                    	
                       
      $47,588.33

                    
	 	
                      1Storage

                    	
                      4.376

                    	
                      4.376

                    	
                      $7.00

                    	
                      $30.632.00

                    	
                         $2,552.67

                    
	
                      Total

                    	
                      47,947

                    	
                      43,283

                    	
                    	
                      $936,550.00

                    	
                       
      $78,045.83

                    
	
                      Average
      Rent/NPSF

                    	 
      	 
      	 
      	
                      $21.64

                    	 
      
	
                      Average
      Rent/NRSF

                    	 
      	 
      	 
      	
                      $15.45

                    	 
      
	 	 	 	 	 	 
	 	 	 	 	 	 
	
                      December 1,
      2004

                    	 
      	 
      	 
      	 
      	 
      
	B310	
                      Storage

                    	 
      	
                      0

                    	
                      $7.00

                    	
                      $0.00

                    	
                         $0.00

                    
	6334 	
                      Office

                    	 
      	
                      6,554

                    	
                      $17.00

                    	
                      $111,418.00

                    	
                       
      $9,284.83

                    
	B3300	
                      Office

                    	 
      	
                      1,606

                    	
                      $17.00

                    	
                      $27,302.00

                    	
                         $2,275.17

                    
	 	
                      Dry

                    	 
      	
                      5,850

                    	
                      $18.00

                    	
                      $105,300.00

                    	
                       
      $8,775.00

                    
	 	Clean	 	
                      16,3161

                    	
                      $35.00

                    	$571,060.00	
                       $47,588.33

                    
	 	Storge	 	6,524	
                      $7.00

                    	$45,668.00	
                        $3,805.67

                    
	Total	 	36,850	 	$860,748.00	
                       $71,729.00

                    
	Average
      Rent/NPSF	 	 	 	
                      $23.36 

                    	
                       $1.03

                    
	Average
      Rent/NRSF	 	 	 	$16.30	
                      $0.23

                    
	 	 	 	 	 	 

            

             

            
              Deriving
Net Rentable Basis

            

             

            
              	 	
                      Building  Number 

                    	 	 	 	
                      Net Productive
      Sq. Ft. 

                        June
      1, 2004 

                      

                    	 	 	 	
                      NP
      to NR 

                        Factor 

                      

                    	 	 	 	
                      Net
      Rentable 

                        Sq.
      Ft.

                      

                      June
      1,
      04 

                    	 	 	 
      

                      Net
      Productive 

                        Sq.
      Ft. 

                        Dec
      1, 2004

                      

                    	 	 	 	
                      Net
      Rentable

                      Sq.
      Ft.

                      Dec
      1, 04 

                    	 
	 	
                      310

                    	 	 	 	5,688	 	 	 	1.26	 	 	 	7,167	 	 	 	 	 	 	0	 
	 	
                      330

                    	 	 	 	8,604	 	 	
                      1.26

                    	 	 	 	10,841	 	 	 	6,554	 	 	 	8,258	 
	 	
                      334

                    	 	 	 	28,991	 	 	 	1.47	 	 	 	42,617	 	 	 	30,296	 	 	 	44,535	 
	
                      Total

                    	 	 	 	43,283	 	 	 	 	 	 	 	60,625	 	 	
                      36,850

                    	 	 	 	52,793	 

            

            

            
            

             

            
              	BOMA Formula
      for Net Productive to Net Rentable	 	 	 
	 	 	 	 
	 Building
      Rentable 	 = Building Net
      Rentable  	Example	 475000
      +1.55
	 Building NET
      Productive	 	 	306,300

            

             

             

             

             

             

            
              
                
                

              

              
                117

                
                  

                

              

              
                
                

              

            

             

             

            
              SCHEDULE
B

               

              eMagin
CORPORATION

               

              BASE RENT COMPUTATION SCHEDULE—
AMEND.

              
              

               

              
                	 	 	
                        Effective
      Date

                      	
                        Lease End
      Date

                      
	 	 	
                        06/01/2004

                      	
                        May 31,
      2009

                      

              

               

            

             

              Table
1                                                                               

             

            
              	 	
                      2004  

                    	   2005   	 2006     	 2007    	2008 	
                      2009 

                    
	
                      January

                    	
                      $73,914.15

                    	
                      $71,729.00

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    
	
                      February

                    	
                      $73,914.15

                    	
                      $71,729.00

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    
	
                      March

                    	
                      $73,914.15

                    	
                      $71,729.00

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    
	
                      April

                    	
                      $0.00

                    	
                      $71,729.00

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $11,463.24

                    
	
                      May             

                    	
                      $0.00

                    	
                      $71,729.00

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $0.00

                    
	
                      June             4

                    	
                            $78,045.831

                    	
                      $73,880.871

                    	
                      $76,097.30

                    	
                      $78,380.211

                    	
                      $80,731.62

                    	 
      
	
                      July              

                    	
                      $78,045.83!

                    	
                      $73,880.871

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    	 
      
	
                      Aug

                    	
                      $78,045.83

                    	
                      $73,880.871

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    	 
      
	
                      September

                    	
                      $75,860.681

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    	 
      
	
                      October

                    	
                      $75,860.68

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    	 
      
	
                      November

                    	
                      $69,987.15

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    	 
      
	
                      December

                    	
                      $71,729.00

                    	
                      $73,880.87

                    	
                      $76,097.30

                    	
                      $78,380.21

                    	
                      $80,731.62

                    	 
      
	
                      Total

                    	
                      $749,317.47

                    	
                      $875,811.09

                    	
                      $902,085.42

                    	
                      $929,147.99

                    	
                      $957,022.421

                    	
                      $253,658.10

                    

            

            

            
              Notes:
Amendments

                  1
May 1999 $8,525.67 Per Mo. credit for 6,254 S/F in 6/310, under construction
& unavailable

                  2
June 2001 Reclassified office and lab (5,000 s.f.) to storage
space

                  3
May 2002 Space Givebacks in Bldgs. 310, 3300

                  4
June 2004 Space
Givebacks in Bldgs. 310, 330C and B334, 5 year renewal with initial increase

                      3%
per year thereafter effective June 1.

                      At
IBM's sole discretion two, (2) year renewal options will be offered after the
3rd year.     

                      at
the same terms

            

             

            2004
Payment Reconcilliation

             

            Table
2

             

             

             

            
              	 	 	 	
                      2004 

                      Base
      Rent 

                    	 	 	 	
                      Loan

                      Amoritization 

                    	 	 	 	
                      Total Rent

                      Due  

                    	 	 	 	
                      Total
      Payments
 	 	 	 	
                      Delta

                      (due
      IBM) due eMagin 

                    	 
	
                      January  

                    	 	$	69,978.171	 	 	$	3,935.98	 	 	$	73,914.15	 	 	$	73,914.15	 	 	$	0.00	 
	
                      February    

                    	 	$	69,978.17	 	 	$	3,935.98	 	 	$	73,914.15	 	 	$	73,914.15	 	 	$	0.00	 
	
                      March    

                    	 	$	69,978.17	 	 	$	0.00	 	 	$	69,978.17	 	 	$	73,914.151	 	 	$	3,935.98	 
	
                      April   

                    	 	$	0.00	 	 	$	0.00
      ;	 	 	$	0.001	 	 	$	73,914.151	 	 	$	73,914.15	 
	
                      May   

                    	 	$	0.00	 	 	
                      $0.00'

                    	 	 	
                      $0.00

                    	 	 	$	73,914.15	 	 	$	73,914.15	 
	
                      June   

                    	 	$	78,045.83	 	 	$	0.001	 	 	$	78,045.83	 	 	$	73,914.151	 	 	$	(4,131.69	)
	
                      July  

                    	 	$	78,045.83	 	 	$	0.001	 	 	$	78,045.83	 	 	$	73,914.151	 	 	$	(4,131.69	)
	
                      Aug  

                    	 	$	78,045.83	 	 	$	0.00	 	 	$	78,045.83	 	 	$	73,914.15	 	 	$	(4,131.69	)
	
                      September 

                    	 	$	78,045.83	 	 	$	0.00	 	 	$	78,045.83	 	 	$	71,729.00	 	 	$	(6,316.84	)
	
                      October
 	 	$	  78,045.83
      ;	 	 	$	0.00	 	 	$	78,045.83	 	 	$	71,729.00	 	 	$	(6,316.84	)
	
                      November
 	 	$	78,045.831	 	 	$	0.00	 	 	$	78,045.83	 	 	$	69,978.15	 	 	$	(8,067.68	)
	
                      Subtotal
      due Magin 

                    	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
                      $118,667.86
      :

                    	 
	
                      Security
      Dlepoit
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(150,000.00	)
	
                      December 

                    	 	$	71,729.001	 	 	$	0.00	 	 	$	71,729.00	 	 	$	103,061.14	 	 	$	(31,332.14	)
	
                      Total 

                    	 	$	749,843.83;	 	 	$	7,871.96	 	 	$	757,715.79	 	 	$	757,715.80	 	 	$	0.00	 

            

            

             

            
              
                
                

              

              
                118

                
                  

                

              

              
                
                

              

            

            
              

               

               

              SCHEDULE
D

              Computed
Utilities Schedule

               

              eMagin
CORPORATION

            

             

            
               

               

                                                              Effective
Date 6/1/04

               

              
              

               

              
                	Maximum Available
      Capacities	 	 	 	 
	Utilities 	 	
                        Peak Allowable
      Usage

                      	 	
                        Total Annual
      Allowable

                      
	 	 	 	 	 
	Electricity	 	 	
                        N/A

                      	 	 
	Chilled
    Water	 	350 Tons	 	 1,401,600
      Ton-Hrs
	
                         Low Temp
      Chilled Wate

                      	 	130 Tons	 	 569,400
      Ton-Hrs
	
                         High Temp Hot
      Water

                      	 	5 MBH	 	 19,251 M
      MBTU
	
                         Deionized
      Water

                      	 	30 gpm	 	 13,220 1K
      Gal
	
                         Compressed
      Air

                      	 	10 scfm	 	 550,000
      SCF
	
                         UHP
      Nitrogen

                      	 	scfm	 	 6,000,000 SCF
      
	
                         Std.
      Oxygen

                      	 	scfm	 	 100,000
      SCF
	
                         Std.
      Argon

                      	 	scfm	 	 100,000
      SCF
	
                         Std. Forming
      Gas

                      	 	15 scfm	 	 150,000
      SCF
	 	 	 	 	 	 

              

               

               

            

             

                           

            
              
                
                

              

              
                119

                
                  

                

              

              
                
                

              

            

          

           

          

           

           

           

           

           

           

          
            
              
              

            

            
              120

              
                

              

            

            
              
              

            

          

           

           

          

           

           

          
            
              
              

            

            
              121

              
                

              

            

            
              
              

            

          

           

          

           

           

           

           

          
            
              
              

            

            
              122

              
                

              

            

            
              
              

            

          

           

           

           

          
            SCHEDULE
D

            Computed
Utilities Schedule

             

            eMagin
CORPORATION

             

            
              

               

                                                              Effective Date
6/1/04

               

              
              

               

              
                	Maximum Available
      Capacities	 	 	 	 
	Utilities 	 	
                        Peak Allowable
      Usage

                      	 	
                        Total Annual
      Allowable

                      
	 	 	 	 	 
	Electricity	 	 	
                        N/A

                      	 	 
	Chilled
    Water	 	350 Tons	 	 1,401,600
      Ton-Hrs
	
                         Low Temp
      Chilled Wate

                      	 	130 Tons	 	 569,400
      Ton-Hrs
	
                         High Temp Hot
      Water

                      	 	5 MBH	 	 19,251 M
      MBTU
	
                         Deionized
      Water

                      	 	30 gpm	 	 13,220 1K
      Gal
	
                         Compressed
      Air

                      	 	10 scfm	 	 550,000
      SCF
	
                         UHP
      Nitrogen

                      	 	scfm	 	 6,000,000 SCF
      
	
                         Std.
      Oxygen

                      	 	scfm	 	 100,000
      SCF
	
                         Std.
      Argon

                      	 	scfm	 	 100,000
      SCF
	
                         Std. Forming
      Gas

                      	 	15 scfm	 	 150,000
      SCF
	 	 	 	 	 	 

              

               

               

            

          

           

          
            
              
              

            

            
              123

              
                

              

            

            
              
              

            

          

        

      

    

     

     

     

    

     

    
      
         

      

      
        124

        
          

        

      

      
         

      

    

    

     

    EXHIBIT
G

    TO

    LOAN
AND SECURITY AGREEMENT

     

     

    Form
of Press Release

     

    eMagin
Corporation (the “Company”) has entered into agreements, effective as of August
7, 2007 (the “Closing Date”), with Moriah Capital, L.P. (“Moriah”), pursuant to
which the Company may borrow an amount not to exceed $2,500,000.  Such
funds may be drawn down by the Company in tranches of at least $25,000 up to
five times each month. In connection with the transaction, the Company issued,
executed and delivered to Moriah the following:

    

    
      	
              ·

            	
              A
      Loan and Security Agreement;

            
	
              ·

            	
              A
      Secured Convertible Revolving Loan Note with a principal amount not to
      exceed $2,500,000;

            

    

    

    
      	
              ·

            	
              A
      Loan Conversion Agreement;

            
	
              ·

            	
              A
      Securities Issuance Agreement pursuant to which the Company issued 162,500
      shares of its common stock, which shares have an aggregate market value on
      the Closing Date of $195,000;

            

    

    

    
      	
              ·

            	
              A
      Registration Rights Agreement;

            

    

    

    
      	
              ·

            	
              An
      Intercreditor
Agreement;  and

            

    

    

    
      	
              ·

            	
              A
      Post-Closing Agreement.

            

    

    

    Pursuant
to the Loan and Security Agreement, the Company is permitted to borrow an amount
not to exceed 90% of its eligible accounts (as defined in the agreements), net
of all taxes, discounts, allowances and credits given or claimed, plus 50% of
its eligible inventory capped at $600,000. As of  August  9,
2007, pursuant to the Loan and Security Agreement,  the Company has
borrowed $607,500. The Company's obligations under the loans are secured by all
of the assets of the Company, including but not limited to inventory and
accounts receivable; provided, however, that Moriah’s lien on the collateral
other than Accounts and Inventory (as such terms are defined in the agreements)
are subject to the prior lien of the holders of the Company’s outstanding
Amended and Restated 8% Senior Secured Convertible Notes Due 2008 in accordance
with the terms of, and subject to the conditions set forth in the Intercreditor
Agreement.

    

    The Loan
and Security Agreement expires on August 7, 2008, but may be extended at
the Company’s option for an additional one year period with the Company issuing
additional shares of common stock to Moriah having 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 the effective date of
the extension of the initial term of the loan. Annual interest on the
loans  is equal to the greater of (i) the sum of (A) the Prime Rate as
reported in the “Money Rates” column of The Wall Street Journal, adjusted as and
when such Prime Rate changes plus (B) 2% or (ii) 10%, and shall be payable
in arrears prior to the Maturity Date, on the first Business Day of each
calendar month, and in full on the Maturity Date.

    

    As part
of the transaction, up to $2,000,000 of the amount of the loan that the Company
actually borrows may be converted to shares of the Company's common stock
pursuant to the terms of the Loan Conversion Agreement. The conversion price is
$1.50, subject to adjustment as provided in the Conversion
Agreement.

     

    
      
        
        

      

      
        125

        
          

        

      

      
        
        

      

    

     

    Notwithstanding
the foregoing, Moriah has contractually agreed to restrict its ability to
convert the convertible notes  evidencing the loans made to the
Company pursuant to the Loan Agreement if such conversion would result in
Moriah’s share ownership exceeding the difference between 4.99% of the
outstanding shares of common stock of the Company and the number of shares of
common stock beneficially owned by Moriah.

    

    The
Company has also agreed to file a registration statement to register the resale
of shares of the Company's common stock issuable under the Securities Issuance
Agreement and the shares issuable upon conversion of the convertible note,
although the Company is not subject to penalties for failure to register such
shares.

    

    In the
event that Moriah accelerates the Loans due to an event of default, the Company
shall pay to Moriah 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.

    

    As part
of the transaction, the Company is paying Moriah a servicing fee of
$82,500.

    

    The
Company has also granted Moriah a put option pursuant to the Securities Issuance
Agreement pursuant to which Moriah can sell the shares issued to Moriah under
the Securities Issuance Agreement back to the Company for $195,000 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 of the Closing Date,  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 Securities and Exchange Commission.

    

    In
addition to the foregoing, as part of the transaction, the Intercreditor
Agreement was entered into between Moriah and Alexandra Global Master Fund
Ltd.

    

    In
connection with the transaction, the parties executed a Post-Closing Agreement
pursuant to which the parties agreed to enter into certain agreements and
exchange certain documents after the closing for the
transaction.  Pursuant to the Post-Closing Agreement, the Company
shall (i) provide to Moriah certain landlord consents, (ii) execute patent and
trademark security and pledge agreements in form and substance not inconsistent
with the existing security and pledge agreements executed by the Company in
favor of Alexandra Global Master Fund Ltd. (with the sole exception that such
agreements shall be subordinate to the existing pledge and security agreements
executed by the Company in favor of Alexandra Global Master Fund Ltd.) and (iii)
execute a Depository Account Agreement (“Lockbox Agreement.) Pursuant to the
Lockbox Agreement, until the revolving loan is repaid and the Loan and Security
Agreement is terminated, remittances and all other proceeds of the Company’s
accounts receivables shall be deposited into a bank account controlled by
Moriah.

     

    
      
        
        

      

      
        126

        
          

        

      

      
        
        

      

    

     

    

     

    

     

    EXHIBIT
H

    TO

    LOAN
AND SECURITY AGREEMENT

    

    

    Form of Registration Rights
Agreement

     

    
       

      EXHIBIT H
 

      REGISTRATION
RIGHTS AGREEMENT

       

      This
Registration Rights 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. (the “Lender”).

       

      This
Agreement is made pursuant to the Securities Issuance Agreement, dated as of the
date hereof, by and between the Lender and the Company (as amended, modified or
supplemented from time to time, the “Securities Issuance
Agreement”), and pursuant to the Loan and Security Agreement (the “Loan Agreement”)
referred to therein.

       

      The
Company and the Lender hereby agree as follows:

       

      1. Definitions.  Capitalized
terms used and not otherwise defined herein that are defined in the Securities
Issuance Agreement, shall have the meanings given such terms in the Securities
Issuance Agreement.  Capitalized terms not defined herein or in the
Securities Issuance Agreement shall have the meaning set forth in the Loan
Agreement.  As used in this Agreement, the following terms shall have
the following meanings:

       

      “Commission” means the
Securities and Exchange Commission.

      

      “Common Stock” means
shares of the Company’s common stock, par value $0.001 per share.

      

      “Effectiveness Date”
means, with respect to the Registration Statement required to be filed
hereunder, a date no later than one hundred and twenty (120) days following the
date hereof.

      

      “Effectiveness Period”
shall have the meaning set forth in Section
2(a).

      

      “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and any successor
statute.

      

      “Filing Date” means
with respect to the Registration Statement required to be filed hereunder, a
date no later than thirty (30) days following the date hereof.

      

      “Holder” or “Holders” means the
Lender or any of its affiliates or transferees to the extent any of them hold
Registrable Securities.

      

      “Indemnified Party”
shall have the meaning set forth in Section
5(c).

      

      “Indemnifying
Party” shall
have the meaning set forth in Section
5(c).

      

      “Note” shall have the
meaning set forth in the Securities Issuance Agreement.

       

      
        
          
          

        

        
          127

          
            

          

        

        
          
          

        

      

       

      “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a deposition), whether commenced
or threatened.

      

      “Prospectus” means the
prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by the Registration Statement, and
all amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

      

      “Registrable
Securities” means the shares of Common Stock (i) issued to the Lender
pursuant to the Stock Issuance Agreement (including shares to be
issued to the Lender on the date hereof and shares to be issued to the Lender
upon an extension of the original term of the Loan Agreement, if so extended),
and (ii) issuable upon the conversion of the Note.

      

      “Registration
Statement” means each registration statement required to be filed
hereunder, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration
statement.

      

      “Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

      

      “Rule 415” means Rule
415 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

      

      “Securities Act” means
the Securities Act of 1933, as amended, and any successor statute.

      

      “Securities Issuance
Agreement” shall have the meaning provided above.

      

      “Trading Market” means
any of the OTC Bulletin Board, NASDAQ Capital Market, the Nasdaq National
Market, the American Stock Exchange or the New York Stock Exchange.

       

      
        
          
          

        

        
          128

          
            

          

        

        
          
          

        

      

       

      2. Registration.

       

      (a) On or
prior to the applicable Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the Registrable
Securities  for an offering to be made on a continuous basis pursuant
to Rule 415.  The Company shall use good faith efforts to include the
Registrable Securities in the Company’s Registration Statement on Form S-1 as
filed with the Commission on July 25, 2007. If such inclusion is not permitted
by the selling security holders thereunder, or is otherwise impractical, then
the Registrable Securities shall be included in the Company’s next succeeding
registration statement.   The Registration Statement shall be on
Form S-1 or SB-2.  The Company shall cause such Registration Statement
to become effective and remain effective as provided herein.  The
Company shall use its reasonable commercial efforts to cause such Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event no later
than the Effectiveness Date.  The Company shall use its reasonable
commercial efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is the earlier date of when (i)
all Registrable Securities have been sold or (ii) all Registrable Securities may
be sold immediately without registration under the Securities Act and without
volume restrictions pursuant to Rule 144(k), as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the affected Holders
(the  “Effectiveness
Period”).  Notwithstanding anything contained herein to the
contrary, in the event that the Commission limits the amount of Registrable
Securities that may be sold by selling security holders in a particular
Registration Statement, or the Commission takes the position that the all or a
portion of the Registrable Securities cannot be registered, the Company may
exclude from such registration statement the minimum number of Registrable
Securities on behalf of the Lender as is necessary to comply with such
limitation by the Commission. In such event the Company shall give the Lender
prompt notice of the number of the Registrable Securities so
excluded. Further, and in addition to the foregoing, the Company will not
be liable for payment of any damages or penalties for any delay in registration
of the Registrable Securities in the event that such delay is due to the fact
that the SEC has limited the amount of Registrable Securities that may be
included and sold by selling security holders in the Registration Statement
pursuant to Rule 415 promulgated under the 1933 Act or any other
basis.

       

      (c)           Within
3 business days of the Effectiveness Date, the Company shall cause its counsel
to issue a blanket opinion in the form attached hereto as Exhibit A, to the
transfer agent stating that the shares are subject to an effective registration
statement and can be reissued free of restrictive legend upon notice of a sale
by the Lender and confirmation by the Lender that it has complied with the
prospectus delivery requirements, provided that the Company has not advised the
transfer agent orally or in writing that the opinion has been withdrawn. Copies
of the blanket opinion required by this Section 2(c) shall be
delivered to the Lender within the time frame set forth above.

      

       

      3. Registration
Procedures.  If and whenever the Company is required by the
provisions hereof to effect the registration of any Registrable Securities under
the Securities Act, the Company will, as expeditiously as possible:

       

      (a) prepare
and file with the Commission the Registration Statement with respect to such
Registrable Securities, respond as promptly as possible to any comments received
from the Commission, and use its best efforts to cause the Registration
Statement to become and remain effective for the Effectiveness Period with
respect thereto, and promptly provide to the Lender copies of all filings and
correspondence relating thereto;

       

      
        
          
          

        

        
          129

          
            

          

        

        
          
          

        

      

       

      (b) prepare
and file with the Commission such amendments and supplements to the Registration
Statement and the Prospectus used in connection therewith as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by the Registration Statement and to keep
such Registration Statement effective until the expiration of the Effectiveness
Period;

       

      (c) furnish
to the Lender such number of copies of the Registration Statement and the
Prospectus included therein (including each preliminary Prospectus) as the
Lender may reasonably request to facilitate the public sale or disposition of
the Registrable Securities covered by the Registration Statement;

       

      (d) use its
commercially reasonable efforts to register or qualify the Lender’s Registrable
Securities covered by the Registration Statement under the securities or “blue
sky” laws of such jurisdictions within the United States as the Lender may
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

       

      (e) list the
Registrable Securities covered by the Registration Statement with any securities
exchange/Trading Market on which the Common Stock of the Company is then
listed;

       

      (f) immediately
notify the Lender, at any time when a Prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any event of which
the Company has knowledge, or has reason to know, as a result of which the
Prospectus contained in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing; and

       

      (g) make
available for inspection by the Lender and any attorney, accountant or other
representative retained by the Lender, all publicly available, non-confidential
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company’s officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by the
attorney, accountant or representative of the Lender.

       

      4. Registration
Expenses.  All expenses relating to the Company’s compliance
with Sections 2 and
3 hereof, including, without limitation, all registration and filing
fees, printing expenses, counsel fees and disbursements and independent public
accountants for the Company, fees and expenses incurred in connection with
complying with state securities or “blue sky” laws, fees of any Trading Market,
transfer taxes, fees of transfer agents and registrars, fees of, and
disbursements incurred by, one counsel for the Holders to the extent such
counsel is required due to Company’s failure to meet any of its obligations
hereunder, are called “Registration
Expenses.” All selling commissions applicable to the sale of Registrable
Securities, including, without limitation, any fees and disbursements of any
special counsel to the Holders beyond those included in Registration Expenses,
are called “Selling
Expenses.”  The Company shall only be responsible for all
Registration Expenses.

       

      
        
          
          

        

        
          130

          
            

          

        

        
          
          

        

      

       

      5. Indemnification.

       

      (a) In the
event of a registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, the Company will indemnify and hold harmless the
Lender, and its officers, directors, partners, managers and members and each
other person or entity, if any, who controls the Lender within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Lender, or such persons or entities may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or Proceedings in respect thereof) arising out of or are based
upon any Registration Statement under which such Registrable Securities were
registered under the Securities Act pursuant to this Agreement, any preliminary
Prospectus or final Prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon any document, information or material
in connection therewith, and will reimburse the Lender, and each such person or
entity for any and all reasonable legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or proceedings; provided, however, that the Company will not be liable
in any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by or on behalf of the Lender or any such person or entity in writing
specifically for use in any such document.

       

      (b) In the
event of a registration of the Registrable Securities under the Securities Act
pursuant to this Agreement, the Lender will indemnify and hold harmless the
Company, and its officers, directors and each other person, if any, who controls
the Company within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact which was furnished in writing by the Lender to the Company
expressly for use in (and such information is contained in) the Registration
Statement under which such Registrable Securities were registered under the
Securities Act pursuant to this Agreement, any preliminary Prospectus or final
Prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such person for
any reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Lender will be liable in any such case if and only
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing to
the Company by or on behalf of the Lender specifically for use in any such
document.  Notwithstanding the provisions of this paragraph, the
Lender shall not be required to indemnify any person or entity in excess of the
amount of the aggregate net proceeds received by the Lender in respect of
Registrable Securities in connection with any such registration under the
Securities Act.

       

      
        
          
          

        

        
          131

          
            

          

        

        
          
          

        

      

       

      (c) Promptly
after receipt by a party entitled to claim indemnification hereunder (an “Indemnified Party”)
of notice of the commencement of any Proceeding, such Indemnified Party shall,
if a claim for indemnification in respect thereof is to be made against a party
hereto obligated to indemnify such Indemnified Party (an “Indemnifying Party”),
notify the Indemnifying Party in writing thereof, but the omission so to notify
the Indemnifying Party shall not relieve it from any liability which it may have
to such Indemnified Party other than under this Section and shall only relieve
it from any liability which it may have to such Indemnified Party under this
Section if and to the extent the Indemnifying Party is prejudiced by such
omission. In case any such action shall be brought against any Indemnified Party
and it shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such Indemnified Party, and, after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume and undertake the
defense thereof, the Indemnifying Party shall not be liable to such Indemnified
Party under this Section for any legal expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof; if the Indemnified
Party retains its own counsel, then the Indemnified Party shall pay all
reasonable fees, costs and expenses of such counsel, provided, however, that, if
the defendants in any such action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the Indemnifying Party or if the interests
of the Indemnified Party reasonably may be deemed to conflict with the interests
of the Indemnifying Party, the Indemnified Party shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the Indemnifying Party as incurred.

       

      (d) In order
to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) the Lender, or any
officer, director, partner, member, manager or controlling person or entity of
the Lender, makes a claim for indemnification pursuant to this Section but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section provides for indemnification in such
case, or (ii) contribution under the Securities Act may be required on the part
of the Lender or such officer, director, partner, member, manager or controlling
person or entity of the Lender in circumstances for which indemnification is
provided under this Section; then, and in each such case, the Company and the
Lender will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that the Lender is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
Registration Statement bears to the public offering price of all securities
offered by such Registration Statement, provided, however, that, in any such
case, (A) the Lender will not be required to contribute any amount in excess of
the public offering price of all such securities offered by it pursuant to such
Registration Statement and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.

       

      
        
          
          

        

        
          132

          
            

          

        

        
          
          

        

      

       

      6. Representations and
Warranties.

       

      (a) The
Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
Act and, except with respect to certain matters which the Company has disclosed
to the Loan Agreement or the Securities Issuance Agreement, the Company has
timely filed all proxy statements, reports, schedules, forms, statements and
other documents required to be filed by it under the Exchange
Act.  Each Financial Statement was, at the time of its filing, in
compliance with the requirements of its respective form and none of the
Financial Statements, nor the financial statements (and the notes thereto)
included in the Financial Statements, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the
Financial Statements comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect
thereto.  Such financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed) and fairly present in all material respects the financial
condition, the results of operations and the cash flows of the Company and its
subsidiaries, on a consolidated basis, as of, and for, the periods presented in
each such Financial Statements.

       

      (b) The
Common Stock is listed for trading on the OTC Bulletin Board and satisfies all
requirements for the continuation of such listing.  The Company has
not received any notice that its Common Stock will be delisted from the OTC
Bulletin Board (except for prior notices which have been fully remedied) or that
the Common Stock does not meet all requirements for the continuation of such
listing.

       

      (c) Neither
the Company, nor any of its affiliates, nor any person or entity acting on its
or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to the Securities Issuance
Agreement and the Loan Documents to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from
selling the Common Stock pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates take any action or steps that would cause the
offering of such Securities to be integrated with other offerings.

       

      
        
          
          

        

        
          133

          
            

          

        

        
          
          

        

      

       

      (d) The Notes
and the shares of Common Stock which the Lender may acquire pursuant to the
Notes are all restricted securities under the Securities Act as of the date of
this Agreement.  The Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Registrable Securities
at such time as such Registrable Securities are registered for public sale or an
exemption from registration is available, except as required by federal or state
securities laws.

       

      (e) The
Company understands the nature of the Registrable Securities issuable upon the
conversion of the Notes and recognizes that the issuance of such Registrable
Securities may have a potential dilutive effect.  The Company
specifically acknowledges that its obligation to issue the Registrable
Securities is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.

       

      (f)           Except
for agreements made in the ordinary course of business, there is no agreement
that has not been filed with the Commission as an exhibit to a registration
statement or to a form required to be filed by the Company under the Exchange
Act, the breach of which could reasonably be expected to have a material and
adverse effect on the Company or subsidiaries, or would prohibit or otherwise
interfere with the ability of the Company to enter into and perform any of its
obligations under this Agreement in any material respect.

       

      (g)           The
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock for the full conversion of the Notes.

       

      7. Miscellaneous.

       

      (a) Remedies.  In
the event of a breach by the Company of any of its obligations under this
Agreement, each Holder will be entitled to specific performance of its rights
under this Agreement.

       

      (b)  Existing Registration
Rights.  Except as and to the extent specified in Schedule 7(b) hereto,
the Company has not previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person that
have not been fully satisfied.

       

      (c) Compliance.  Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.

       

      
        
          
          

        

        
          134

          
            

          

        

        
          
          

        

      

       

      (d) Discontinued
Disposition.  Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of a Discontinuation Event (as defined below), such Holder will
forthwith discontinue disposition of such Registrable Securities under the
applicable Registration Statement until such Holder’s receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.  For purposes of this
Section, a “Discontinuation
Event” shall mean (i) when the Commission notifies the Company whether
there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); (ii) any request by the Commission or any other
Governmental Authority for amendments or supplements to such Registration
Statement or Prospectus or for additional information; (iii) the issuance by the
Commission of any stop order suspending the effectiveness of such Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and/or (v) the occurrence of any event or passage of time that makes
the financial statements included in such Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.

       

      (e) Piggy-Back
Registrations.  If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within 15 days after receipt of such notice, any such
Holder shall so request in writing, the Company shall use its best efforts to
include in such registration statement all or any part of such Registrable
Securities such holder requests to be registered to the extent the Company may
do so without violating registration rights of others which exist as of the date
of this Agreement, subject to customary underwriter cutbacks applicable to all
holders of registration rights and subject to obtaining any required the consent
of any selling stockholder(s) to such inclusion under such registration
statement.

       

      
        
          
          

        

        
          135

          
            

          

        

        
          
          

        

      

       

      (f) Amendments and
Waivers.  The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented unless
the same shall be in writing and signed by the Company and the Holders of the
then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of certain Holders and that does not directly
or indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.

       

      (g) Notices.  Any
notice or request hereunder may be given to the Company or the Lender at the
respective addresses set forth below or as may hereafter be specified in a
notice designated as a change of address under this Section.  Any
notice or request hereunder shall be given by registered or certified mail,
return receipt requested, hand delivery, overnight mail, Federal Express or
other national overnight next day carrier (collectively, “Courier”).  Notices
and requests shall be deemed delivered upon receipt.  The address for
such notices and communications shall be as follows:

       

      
        	
                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.

              
	 
      	 
      
	
                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.

              
	
                If
      to any other Person who is then the registered Holder:

              	
                 

                To
      the address of such Holder as it appears in the stock transfer books of
      the Company

              

      

      

      or such
other address as may be designated in writing hereafter in accordance with this
Section by such Person.

       

      
        
          
          

        

        
          136

          
            

          

        

        
          
          

        

      

       

      (h)           Successors and
Assigns.  This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. The Company may not assign its rights
or obligations hereunder without the prior written consent of each
Holder.  Each Holder may assign their respective rights hereunder in
the manner and to Persons as permitted under the Loan Documents.

       

      (i)           Execution and
Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile or electronic
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile or electronic signature were the
original thereof.

       

      (j)           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement shall be commenced
exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such Proceeding is improper.  Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.  Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated
hereby.  (k)Cumulative
Remedies.  The remedies provided herein are cumulative and not
exclusive of any remedies provided by law or in equity.

       

      (l)           Severability.  If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

       

      (j)           Headings.  The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

       

      
        
          
          

        

        
          137

          
            

          

        

        
          
          

        

      

      IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.

       

      
         

        
          	 	EMAGIN
    CORPORATION	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

        

         

        
          
            	 	MORIAH CAPITAL,
      L.P.	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	Moriah Capital Management,
      L.P.,	 
	 	 	General
Partner	 
	 	 	 	 

          

        

         

        
          
            	 	 	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	Moriah Capital Management, GP,
      LLC,	 
	 	 	General
Partner	 
	 	 	 	 
	 	 	 	 

          

        

         

        
          
            	 	 	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

          

           

           

        

      

      
        
          
          

        

        
          138

          
            

          

        

        
          
          

        

      

      EXHIBIT
A

       

      

      

      [DATE]

      

      [TRANSFER AGENT]

      [ADDRESS]

      

      Attn:
[_________________]

      

      Ladies and Gentlemen:

       

      As counsel to eMagin Corporation, a Delaware corporation (the
“Company”), we
have been requested to render our opinion to you in connection with the resale
by [____________] (the “Selling
Stockholder”), of an aggregate of [__________] shares (the “Shares”) of the
Company’s Common Stock.

       

      A
Registration Statement on Form [___] under the Securities Act of 1933, as
amended (the “Act”), with respect
to the resale of the Shares was declared effective by the Securities and
Exchange Commission on
[DATE].  Enclosed is the Prospectus dated [DATE].  We
understand that the Shares are to be offered and sold in the manner described in
the Prospectus.

       

      Based
upon the foregoing, upon request by the Selling Stockholder at any time while
the registration statement remains effective, it is our opinion that the Shares
have been registered for resale under the Act and new certificates evidencing
the Shares upon their transfer or re-registration by the Selling Stockholder may
be issued without restrictive legend.  We will advise you if the
registration statement is not available or effective at any point in the
future.

       

      

       

      

       

      Very
truly yours,

      

      [COMPANY
COUNSEL]

       

       

       

      
        
          
          

        

        
          139

          
            

          

        

        
          
          

        

      

      SCHEDULE
7(B)

       

      

      
        Pursuant
to Section 8 of the Note Purchase Agreement dated July 21, 2006 and amended July
23, 2007 with respect to the 8% Senior Secured Notes and related warrants, the
Company is obligated to file a registration statement with respect to 6,908,864
note conversion shares and 4,831,859 warrant
shares.
 

    

    
      
         

      

      
        140

        
          

        

      

      
         

      

    

    

    

     

    EXHIBIT
I

    TO

    LOAN
AND SECURITY AGREEMENT

    

    

    Form of Conversion
Agreement

     

    
      
        EXHIBIT
I
 

        LOAN CONVERSION
AGREEMENT

         

        

        LOAN CONVERSION AGREEMENT,
dated as of August 7, 2007 (this “Agreement”), between
eMagin Corporation, a Delaware corporation (the “Company”), and Moriah
Capital, L.P., a Delaware limited partnership (together with its successors and
any assignees, “Lender”).

        

        WHEREAS,
Lender has contemporaneously entered into a Loan and Security Agreement, dated
as of the date hereof (as the same may be amended, the “Loan Agreement”),
between Lender, as lender, and the Company, as borrower;

        

        WHEREAS,
pursuant to the Loan Agreement, the outstanding principal and accrued and unpaid
interest due to Lender (“Loan Indebtedness”)
under the Note is convertible into such number of fully paid and nonassessable
shares (as may be adjusted pursuant to Section 4 hereof, the
“Shares”) of
Common Stock, par value $0.001 per share (“Common Stock”), of
the Company, as equals (i) that portion of the Loan Indebtedness under the Loan
Agreement that Lender elects to convert into Common Stock divided by (ii) the
Conversion Price (as defined below);

        

        NOW,
THEREFORE, the parties agree as follows:

        

        1.           Conversion
Right; Term.  Subject to
the terms hereof, commencing on the date hereof and until the first to
occur of (a) the date that the Loan Indebtedness is repaid in full in
accordance with the terms of the Loan Agreement or (b) the date that the
Loan Indebtedness is converted into Common Stock upon a Mandatory Conversion (as
defined in Section
12 below) (the “Expiration
Date”), Lender shall
have the right, at any time and from time to time, to convert (the “Conversion Right”)
any amount of the Loan Indebtedness into such number of shares of Common Stock
that shall be obtained by dividing the then-outstanding Loan Indebtedness by the
Conversion Price; provided, however, the total Loan Indebtedness that is
convertible hereunder shall not exceed Two Million Dollars ($2,000,000.00) (the
“Conversion Limit”).  To the extent not
exercised by 5:00 P.M., New York City time, on the Expiration Date, this
Agreement shall completely and automatically terminate and expire, and
thereafter it shall be of no force or effect whatsoever.

        

        1A.           Conversion
Limitations.  Notwithstanding anything contained herein to the
contrary, Lender shall not be entitled to convert pursuant to the hereof an
amount that would be convertible into that number of shares of Common Stock that
would exceed the difference between 4.99% of the issued and outstanding shares
of Common Stock and the number of shares of Common Stock beneficially owned by
Lender (the “4.99%
Limitation”).  For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Lender may void the 4.99% Limitation upon 75 days prior notice to
the Company or without any notice requirement upon an Event of
Default.

         

        
          
            
            

          

          
            141

            
              

            

          

          
            
            

          

        

         

        In the
event that Lender voids the 4.99% Limitation, Lender shall not be entitled to
convert pursuant to the hereof an amount that would be convertible into that
number of shares of Common Stock that would exceed the difference between 9.99%
of the issued and outstanding shares of Common Stock and the number of shares of
Common Stock beneficially owned by Lender (the “9.99%
Limitation”).  For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Lender may void the 9.99% Limitation upon 75 days prior notice to
the Company or without any notice requirement upon an Event of
Default.

         

        2.           Certain
Definitions.  The terms set forth below shall have the
following meanings. Capitalized terms used but not defined herein have the
meanings given to them in the Loan Agreement.

        

        “Conversion
Price” means
an amount per share of Common Stock equal to $1.50, which Conversion
Price shall be subject to adjustment as provided herein.

        

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

        

        “Current Fair Market
Value” when used with respect to the Common Stock as of a specified date
means, with respect to a share of Common Stock, the average of the closing
prices of the Common Stock sold on all securities exchanges including the NASD
OTCBB, NASDAQ Capital Market, the Nasdaq National Market, the American Stock
Exchange or the New York Stock Exchange (each a “Trading Market”) on
which the Common Stock may at the time be listed, or, if there have been no
sales on any such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of regular trading such
day, or, if on such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m.,
New York City time, or, if on such day the Common Stock is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked price on such day
in the domestic over-the-counter market as reported by the Pink Sheets, LLC, or
any similar successor organization, in each such case averaged over a period of
five Trading Days consisting of the day as of which the Current Fair Market
Value of Common Stock is being determined (or if such day is not a Trading Day,
the Trading Day next preceding such day) and the  four consecutive
Trading Days prior to such day.  If on the date for which Current Fair
Market Value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Current Fair Market Value of Common Stock shall be the highest price
per share of Common Stock at which the Company has sold shares of Common Stock
or Common Stock Equivalents to one or more unaffiliated third parties in a bona
fide financing round during the 365 days prior to the date of such
determination.  If no such sales were made during the 365 days prior
to the date of such determination,  the Current Fair Market Value of
Common Stock shall be the price per share which the Company could then obtain
from a willing buyer on an arms’-length basis (not an affiliate, employee or
director of the Company at the time of determination) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in by an
independent appraiser mutually acceptable to, and unaffiliated with, the Company
and Lender, whose appraisal costs shall be paid by the Company.

         

        
          
            
            

          

          
            142

            
              

            

          

          
            
            

          

        

         

        “Trading Day” means at
any time a day on which the Trading Market on which the Common Stock may be
listed is open for general trading of securities.

        

        3.           Deficiency in Shares
Available for Issuance. If at any time the Conversion Right is exercised
the Company does not have available for issuance upon such conversion as
authorized and unissued shares or in its treasury at least the number of shares
of Common Stock required to be issued pursuant hereto, then, at the election of
Lender made by notice from Lender to the Company, the Conversion Right, to the
extent that sufficient shares of Common Stock are not then available for
issuance upon conversion, shall be converted into the right to receive from the
Company, in lieu of the shares of Common Stock which the Company is unable to
issue, payment in an amount equal to the product obtained by multiplying
(a) the number of shares of Common Stock which the Company is unable to
issue times (b) the Current
Market Value of the Common Stock as of the Conversion Date. Such amount shall
further be deemed to be an Obligation under the Loan Agreement secured by the
Collateral thereunder. Any payment of such amount shall be deemed to be a
payment of principal plus a premium equal to the total amount payable less the
principal portion of the Loan converted as to which such payment is required to
be made because shares of Common Stock are not then available for issuance upon
such conversion.

        

        4.           Conversion
Procedure.

        

        (a)           In
order to exercise the conversion privilege hereunder, Lender shall give a
Conversion Notice in the form of Annex A (or such
other notice which is acceptable to the Company) to the Company.

        

        (b)           As
promptly as practicable, but in no event later than three (3) Business Days
after a Conversion Notice is given, the Company shall issue and shall deliver to
Lender the number of full shares of Common Stock issuable upon such
conversion.

        

        (c)           (1)           If
Lender shall have given a Conversion Notice in accordance with the terms hereof,
the Company's obligation to issue and deliver the shares of Common Stock upon
such conversion shall be absolute and unconditional up to the amount of the
outstanding Loan Indebtedness (but not to exceed the Conversion Limit),
irrespective of any action or inaction by Lender to enforce the same, any waiver
or consent with respect to any provision hereof or of the Loan Agreement, the
recovery of any judgment against any person or any action to enforce the same,
any failure or delay in the enforcement of any other obligation of the Company
to Lender, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by Lender or any other person or entity of any
obligation to the Company or any violation or alleged violation of law by Lender
or any other person or entity, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to Lender in connection
with such conversion; provided, however, that nothing herein
shall limit or prejudice the right of the Company to pursue any such claim in
any other manner permitted by applicable law.

         

        
          
            
            

          

          
            143

            
              

            

          

          
            
            

          

        

        

        (2)           If
in any case the Company shall fail to issue and deliver the shares of Common
Stock to Lender upon Lender’s exercise of the Conversion Right in accordance
with the terms of this Agreement and the Loan Agreement within five (5) Business
Days after Lender gives the Conversion Notice, in addition to any other
liabilities the Company may have hereunder and under applicable law (A) the
Company shall pay or reimburse Lender on demand for all out-of-pocket expenses,
including, without limitation, reasonable fees and expenses of legal counsel,
incurred by Lender as a result of such failure, (B) if as a result of such
failure Lender shall suffer any damages or liabilities (including, without
limitation, margin interest and the cost of purchasing securities to cover a
sale (whether by Lender or Lender's securities broker) or borrowing of shares of
Common Stock by Lender for purposes of settling any trade involving a sale of
shares of Common Stock made by Lender, then the Company shall upon demand of
Lender pay to Lender an amount equal to the damages and liabilities suffered by
Lender by reason thereof which Lender documents to the reasonable satisfaction
of the Company, and (C) Lender may by written notice given at any time prior to
delivery to Lender of the shares of Common Stock issuable in connection with
such exercise of Lender's Conversion Right, rescind such exercise and the
Conversion Notice relating thereto.

        

        5.           Notices of Certain Company
Actions. In case
on or after the date of this Agreement:

        

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

        

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

        

        

        the
Company shall give Lender, as promptly as possible but in any event at least ten
(10) Business Days prior to the applicable date hereinafter specified, a notice
stating  the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined. Such notice shall
not include any information which would be material non-public information for
purposes of the Securities Exchange Act of 1934, as amended. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Company gives such notice to Lender or is required to give such
notice to Lender, Lender shall be entitled to give a Conversion Notice which is
contingent on the completion of such action.

         

        
          
            
            

          

          
            144

            
              

            

          

          
            
            

          

        

         

        6.           Stock Fully Paid,
Reservation of Shares.  All Shares that may be issued upon the
exercise of the rights represented by this Agreement will, upon issuance, be
duly authorized, fully paid and nonassessable, and will be free from all Liens
with respect to the issue thereof.  During the period within which the
Conversion Right may be exercised, the Company will at all times have
authorized, and reserved for the exercise of the Conversion Right a sufficient
number of shares of its Common Stock to enable the Company to fulfill its
obligation hereunder.

        

        7.           Adjustment of Conversion
Price and Number of Shares.  The number and kind of securities
purchasable upon conversion, and the Conversion Price, shall be subject to the
adjustment from time to time upon the occurrence of certain events, as
follows:

        

                       (a)Adjustment for Common Stock
Dividends and Distributions.  If the Company makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock or Common Stock Equivalents, in each such event the Conversion Price that is then in effect shall be decreased as of the
time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in
effect by a fraction (i) the
numerator of which is the total number of shares of Common Stock and Common
Stock Equivalents issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (ii) the
denominator of which is the total number of shares of Common Stock and Common
Stock Equivalents issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares of Common Stock or Common Stock
Equivalents issuable in payment of such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion
Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this
Section 4(a) to reflect the actual payment of such dividend or
distribution.

         

        (b)           Adjustments for Stock
Splits, Stock Subdivisions and Combinations.  If the Company
subdivides or combines the Common Stock, (1) in the case of a subdivision (including a stock split), the Conversion Price in
effect immediately prior to such event
shall be proportionately decreased and the number of shares of Common Stock
purchasable thereunder shall be proportionately increased, and (2) in the case of a combination (including
a reverse stock split), the Conversion Price
in effect immediately prior to such event
shall be proportionately increased and the number of shares of Common Stock
purchasable thereunder shall be proportionately decreased.  Any
adjustment under this Section shall become effective at
the close of business on the date the
subdivision or combination becomes effective.

         

        
          
            
            

          

          
            145

            
              

            

          

          
            
            

          

        

         

        (c)           Adjustments for
Reclassification, Reorganization and Consolidation.  In case of
(1) any reclassification, reorganization,
change or conversion of securities of the Common Stock (other than a change in
par value) into other shares or securities of the Company, (2) any merger or consolidation of the
Company with or into another entity (other than a merger or consolidation with
another entity in which the Company is the acquiring and the surviving entity
and that does not result in any reclassification or change of the Common
Stock), or (3) any
sale of all or substantially all the assets of the Company, Lender shall have the right to receive, in lieu of the shares of
Common Stock into which the Loan Indebtedness is convertible, the
kind and amount of shares of stock and other securities, money and property
receivable upon such reclassification, reorganization, change, merger or
consolidation or sale upon conversion by Lender of the maximum number of shares
of Common Stock into which the Loan Indebtedness could have
been converted immediately prior to such reclassification, reorganization, change, merger or consolidation or
sale, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.  The
provisions of this Section shall similarly
attach to successive reclassifications, reorganizations, changes, mergers or
consolidations.

         

                  (d)           Recapitalizations.  If
at any time there occurs a recapitalization of the Common Stock (other than a
subdivision, combination, or merger or sale of assets otherwise provided for in
Section 7(c), Lender shall be entitled to receive, upon
exercise of the Conversion Right and the giving of the Conversion Notice, the number of shares of capital stock or other securities or
property of the Company or otherwise to which a holder of the Common Stock
deliverable upon conversion would have been entitled on such
recapitalization.  In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section (including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon exercise of the Conversion Right hereunder) with respect to the rights of Lender after the
recapitalization so that the provisions of this Section  shall be applicable after that event
as nearly equivalent as may be practicable.

         

                  (e)           No
Impairment.  The Company shall not, by amendment of its
Certificate of Incorporation or bylaws, or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Agreement and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of Lender against impairment.

         

                  (f)           Notice of
Adjustments.  Whenever the consideration issuable upon a
conversion hereunder shall be changed pursuant to this Agreement, the Company
shall prepare a certificate setting forth, in reasonable detail, the event
requiring the change and the kind and amount of shares of stock and other
securities, money and property subsequently issuable upon a conversion
hereof.  Such certificate shall be signed by its chief financial
officer and shall be delivered to Lender or such other person as Lender or any
successor notice recipient may designate.

         

                  (g)           Fractional
Shares.  No fractional shares of Common Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall round up the number of shares issuable in connection with such
exercise to the next whole share.

         

                  (h)           Mandatory Conversion.
If the following conditions are met, then the Company may, on not less
than  fifteen (15) days prior written notice (“Mandatory Conversion
Notice”) to Lender (“Mandatory Conversion Notice
Date”), demand that all, but not less than all, of the outstanding Loan
Indebtedness be converted into Common Stock on the terms set forth herein (a
“Mandatory
Conversion”):

         

        
          
            
            

          

          
            146

            
              

            

          

          
            
            

          

        

         

                        (1)           The
Company’s Common Stock, trading on any Trading Market, has a Current Market
Value equal to $3.50 (as adjusted in accordance with the terms hereof) or more
for ten (10) consecutive Trading Days (the “Mandatory Conversion Measurement
Period”).

         

                        (2)           All
of the shares of Common Stock into which the Loan Indebtedness is convertible
are then freely tradable under an effective registration statement filed with
the Securities and Exchange Commission or pursuant to Rule 144 of the Rules and
Regulations promulgated under the Securities Act of 1933, as amended, and Lender
shall have received an opinion of counsel to the Company as may be necessary or
requested by Lender to allow such resales, provided the Company and its counsel
receive reasonably requested representations from Lender and its broker, if
any.

         

        (3)              Each
of the representations and warranties made by or on behalf of the Company to
Lender in this Agreement and in other Loan Documents shall be true and correct
in all material respects as of the Mandatory Conversion Notice Date (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.

        

        (4)              The
Company shall have duly and properly performed, complied with and observed each
of its covenants, agreements and obligations contained in this Agreement and the
other Loan Documents as of the Mandatory Conversion Notice Date, and Lender
shall have received a certification from a Responsible Officer with respect to
the foregoing  in form and substance satisfactory to
Lender.

        

        (5)              No
event shall have occurred on or prior to the Mandatory Conversion Notice Date or
at any time thereafter and be continuing as of the date of the Mandatory
Conversion, and no condition shall exist on the Mandatory Conversion Notice Date
or at any time thereafter and be continuing as of the date of the Mandatory
Conversion, 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 other 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.

        

        The
Mandatory Conversion Notice shall be accompanied by a certificate of the Company
setting forth, in reasonable detail, the calculation of the Current Fair Market
Value of the Common Stock and the number of Shares issuable upon the Mandatory
Conversion. Such certificate shall be signed by the Company’s chief financial
officer and shall be delivered to Lender or such other person as Lender or any
successor notice recipient may designate.

         

        
          
            
            

          

          
            147

            
              

            

          

          
            
            

          

        

         

        Notwithstanding
the foregoing, the Company may not effect a Mandatory Conversion in the event
that the number of shares of Common Stock issuable upon such Mandatory
Conversion would exceed the number of shares of Common Stock that could be sold
over a period of twenty (20) Trading Days based on twenty five percent (25%) of
the average daily trading volume of the Common Stock on the Trading Market
during the Mandatory Conversion Measurement Period.

         

        8.           Compliance with Securities
Act; Disposition of Shares of Stock.  The Company is obligated
to register the shares to be issued upon conversion under the Securities Act of
1933, as amended, pursuant to the Registration Rights Agreement. Until such
shares are duly registered, Lender will not offer, sell or otherwise dispose of
any such Shares except under circumstances which will not result in a violation
of applicable securities laws.

        

        9.           Rights as
Shareholder.  Lender shall not be entitled to vote or, subject
to Section
4(a), receive dividends with respect to, or be deemed the holder of,
Shares issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon Lender, as such, any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise, until the Conversion Right shall
have been exercised and the Shares purchasable upon the exercise hereof shall
have become deliverable, as provided herein.

        

        10.           Representations and
Warranties of Company.  The Company represents and warrants to
Lender as follows:

        

        (a)           This
Agreement has been duly authorized and executed by the Company and is a valid
and binding obligation of the Company enforceable in accordance with its
terms.

        

        (b)           The
Shares have been duly authorized and reserved for issuance by the Company and,
when issued in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable.

        

        (c)           The
execution and delivery of this Agreement are not, and the issuance of the Shares
upon conversion under this Agreement in accordance with the terms hereof will
not be, inconsistent with the Company’s charter or bylaws, as amended, and do
not and will not constitute a default under, any indenture, mortgage, contract
or other agreement or instrument of which the Company is a party or by which it
is otherwise bound.

        

        11.           Miscellaneous.

        

        (a)           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.

                  
	 
      	 
      
	
                    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.

                  

          

        (b)           Amendments.  The
terms of this Agreement shall not be amended, altered, modified, supplemented or
terminated in any manner whatsoever except by a written instrument signed by the
parties hereto.  The terms of this Agreement shall not be waived
except by a written instrument signed by the party to be charged with such
waiver.

        

        (c)           Binding on
Successors.  This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns in accordance with, and subject to, the terms of the Loan
Agreement.

        

        (d)           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.

        

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

        

        (e)           Governing
Law.  This Agreement shall be construed in accordance with, and
shall be governed by, the laws of the State of New York (without giving effect
to conflict of law rules.

        

        (f)           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]

         

         

        
          
            
            

          

          
            148

            
              

            

          

          
            
            

          

        

         

         

         

                    IN WITNESS WHEREOF, the
parties have executed this Loan Conversion Agreement as of the date set forth
below.

         

        
          
            	 	EMAGIN
    CORPORATION	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

          

        

        
          
            
              	 	MORIAH CAPITAL,
      L.P.	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	Moriah Capital Management,
      L.P.,	 
	 	 	General
Partner	 
	 	 	 	 
	 	 	 	 

            

          

           

          
            
              	 	 	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	Moriah Capital Management, GP,
      LLC,	 
	 	 	General
Partner	 
	 	 	 	 
	 	 	 	 

            

          

           

        

        
          
            	 	 	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

          

        

         

        
          
            
            

          

          
            149

            
              

            

          

          
            
            

          

        

         

        Annex
A

        

        NOTICE OF
CONVERSION

        

        

        To:           eMagin
Corporation

        

        1.           The
undersigned hereby elects to purchase _____ shares of Common Stock of eMagin
Corporation in accordance with the terms of the attached Agreement, and tenders
herewith a certificate of an executive officer of Moriah Capital, L.P. setting
forth the amount of Loan Indebtedness to be cancelled, which amount is equal to
the then applicable Conversion Price per share multiplied by the number of
Shares being purchased, which represents full payment of the purchase price of
such shares.

        

        2.           Please
issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name or names as are specified below:

        

        Name:

        

        Address:

        

        

        

        3.           The
undersigned represents that the aforesaid shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the undersigned has no
present intention of distributing or reselling such shares.

        

        Signature:__________________________

        

        Name:_____________________________

        

        Address:___________________________

        

          _________________________________

        

          _________________________________

        

        Social
Security or Taxpayer Identification No.:

         

      

    

     

     

    
      
         

      

      
        150

        
          

        

      

      
         

      

    

    EXHIBIT
J

    TO

    LOAN
AND SECURITY AGREEMENT

    

     

    
      POST-CLOSING AGREEMENT

      

      POST-CLOSING AGREEMENT ("Agreement") dated
this 7th day of
August, 2007, with respect to the Loan and Security Agreement, dated this 7th
day of August, 2007 ("Loan Agreement") 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 ("Borrower"), and MORIAH CAPITAL, L.P., a
Delaware limited partnership with offices at 685 Fifth Avenue, New York, New
York 10022 ("Lender").  Capitalized
terms used but not defined herein have the meanings given to them in the Loan
Agreement.

      

      R E C I T A L
S:

      

      WHEREAS, the parties have entered
into the Loan Agreement on the date hereof, and

      

      WHEREAS, to facilitate the closing of
the transactions contemplated by the Loan Agreement, Lender has entered into the
Loan Agreement in reliance on Borrower�s undertaking to satisfy the conditions
set forth herein; and

      

      WHEREAS, Borrower has agreed to
satisfy the conditions set forth herein within the time periods set forth
herein;

      

      NOW, THEREFORE, the parties agree as
follows:

      

      1) Landlord
Agreements.  Within thirty (30) days of the date hereof,
Borrower shall provide Lender with (a) that certain landlord agreement in the
form attached hereto executed by Borrower, CapGemeni U.S. LLC, and Bellevue
Place Office Building Limited Partnership and (b) that certain landlord
agreement in the form attached hereto executed by Borrower and International
Business Machines Corporation.

      

      2) Intellectual Property
Security and Pledge Agreements  Within ten (10) Business Days
of being provided with patent and trademark security and pledge agreements in
form and substance not inconsistent with the existing security and pledge
agreements executed by Borrower in favor of Alexandra Global Master Fund Ltd.
(with the sole exception that such agreements shall be subordinate to the
existing assignment agreements executed by Borrower in favor of Alexandra Global
Master Fund Ltd.), Borrower shall execute and deliver such agreements to
Lender.

      

      3) Lockbox
Agreement.  Within thirty (30) days of the date hereof,
Borrower shall provide Lender with that certain lockbox agreement substantially
in the form attached hereto executed by Borrower and HSBC Bank USA, National
Association.

      

      4) Event of Default; No Other
Waiver; Counterparts.  Borrower's failure to timely comply with
any of the foregoing covenants shall constitute an Event of Default under the
Loan Agreement.  Except as expressly set forth herein, nothing
contained herein shall act as a waiver or excuse of performance of any
Obligations.  This Agreement may be executed in counterparts,
including 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.

       

      
        
          
          

        

        
          151

          
            

          

        

        
          
          

        

      

      
 

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

       

       

      
        
          	 	EMAGIN
    CORPORATION	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

        

      

       

      
        
          
            	 	MORIAH CAPITAL
      L.P.	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	Moriah Capital Management,
      L.P.,	 
	 	 	
                    General
      Partner

                  	 
	 	 	 	 
	 	 	 	 

          

        

         

        
          
            
              
                	 	 	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	Moriah Capital Management, GP,
      LLC,	 
	 	 	
                        General
      Partner

                      	 
	 	 	 	 

              

            

             

          

        

      

      
        
          	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name 	 
	 	 	Title 	 
	 	 	 	 

        

      

       

       

    

     

    
      
         

         

        152<PAGE>

EXHIBIT 10.1

    THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
 SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES REFERRED TO HEREIN.

                             SUBSCRIPTION AGREEMENT

        This SUBSCRIPTION AGREEMENT (this "Subscription Agreement") is entered
into by and between the Investor signing the Signature Page attached hereto and
Blackwater Midstream Corp., a Nevada corporation (the "Corporation"). The
Corporation is offering for the sale of restricted shares of Common Stock at a
price of $.25 per share. For each 4 shares subscribed to, the investor will
receive 1 free share of Common Stock. The Investor subscribes for and agrees to
purchase the following:

        Name of Investor:                    _____________________________

        Number of Shares Subscribed For:     _____________________________

        Cash Purchase Price ($0.25/ share):  _____________________________

        Address of Investor:                 ___________________________________

                                             ___________________________________

        The amount of cash or good funds as tender of the purchase price for the
Shares is enclosed (in the case of a check, the check should be payable to the
order of "Blackwater Midstream Corp.") or will be sent via wire transfer to the
Corporation's account.

INVESTOR RIGHTS
---------------

         1. ANTI-DILUTION RIGHTS. Except for "Excluded Securities" described
below, in the event that the Corporation conducts any private placement of
shares of common stock for cash consideration at a price of less than $0.25 per
share, as adjusted for splits, combinations and similar events (the "Base
Price"), during the first year following the Investor's purchase of the Shares
(a "Dilutive Issuance"), so long as the Investor currently owns the Shares, then
Investor shall be entitled to receive for each Share purchased hereunder owned
as of the date of the Dilutive Issuance (the "Base Shares"), and for no
additional consideration, an additional amount of shares of common stock of the
Corporation equal to (i) the number of Base Shares divided by (ii) (X +Y)/(X+Z)
minus (iii) the number of Base Shares, where:

         X equals the number of common shares outstanding prior to the Dilutive
         Issuance;

         Y equals the gross proceeds to the Corporation in the Dilutive Issuance
         divided by the Base Price; and

         Z equals the number of shares sold in the Dilutive Issuance.

The anti-dilution provision of this Section 1 shall not apply to the issuance of
any shares of capital stock of the Corporation (i) issued upon the exercise of
any options, warrants or similar rights outstanding as of the date of this
Agreement or to be issued pursuant to the 2008 Employee Incentive Plan to the
maximum of the currently reserved issuance there under, (ii) issued and sold in
any public offering, (iv) issued as a result of this Section 1 (collectively,
the "Excluded Securities").

                                       1
<PAGE>

         2. PREEMPTIVE RIGHTS. In the event that the Corporation conducts any
private placement sale of shares of common stock during the first year following
the Investor's purchase of the Shares, and provided the Investor is still the
owner of all Shares purchased hereunder, the Investor shall be entitled to
purchase his pro rata portion of the shares offered for sale in the private
placement. An Investor's pro rata share shall be equal to the number of shares
offered for sale in the private placement multiplied by the Investor's
percentage ownership of the outstanding shares of common stock immediately prior
to such private placement. The Corporation shall provide the Investor fifteen
(15) days advance notice, including the material terms of such offering, and the
Investor shall provide its binding commitment to purchase its pro rata portion
no later than the 10th day following receipt of such notice. The Investor's
rights hereunder are subject to the completion of the private placement by the
Corporation- and in the event the Corporation decides to abandon the private
placement for any reason the Investor's rights and commitment to purchase such
shares shall become null arid void. The provisions of this Section 2 shall not
apply to the issuance of any Excluded Securities.

INVESTOR REPRESENTATIONS
------------------------

        The Investor hereby represents and warrants to, and covenants with, the
Corporation as follows, recognizing that the Corporation will rely to a material
degree on such representations, warranties and covenants, each of which shall
survive any acceptance of this subscription in whole or in part by the
Corporation and the issuance and sale of any Shares to the Investor:

         1. ORGANIZATION AND GOOD STANDING. The Investor, if the Investor is a
corporation. partnership, trust or other entity, is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has full power, authority and legal right to execute, deliver
and perform its obligations under this Subscription Agreement.

         2. AGREEMENT DULY AUTHORIZED. The execution, delivery and performance
by the investor of this Subscription Agreement has been duly authorized by all
necessary action, this Subscription Agreement has been duly executed and
delivered, and, when executed and delivered by the Corporation, this
Subscription Agreement will constitute the legal, valid, binding and enforceable
obligation of the Investor, subject to bankruptcy; insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws, regulations or
procedures of general applicability now or hereafter in effect relating to or
affecting creditors' or other obligees' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).

         3. SOPHISTICATION OF INVESTOR. The Investor either (i) has a
pre-existing personal or business relationship with the Corporation or its
controlling persons, such as would enable a reasonably prudent purchaser to be
aware of the character and general business and financial circumstances of the
Corporation or its controlling persons, or (ii) by reason of the Investor's
business or financial experience, individually or in conjunction with the
Investor's unaffiliated professional advisors who are not compensated by the
Corporation or any affiliate: or selling agent of the Corporation, directly or
indirectly, is capable of evaluating the merits and risks of an investment in
the Shares, making an informed investment decision and protecting the Investor's
own interests in connection with the transactions contemplated hereby.

                                       2
<PAGE>

         4. STATEMENTS OF INVESTOR TRUE AND ACCURATE. All statements and
representations made in Annex I attached hereto ("Nature of Investor; Form of
Ownership"); which has been or is being furnished concurrently herewith to the
Corporation by the Investor, continue to be and are true, accurate and complete
as of the date hereof The Investor agrees to provide such additional information
as reasonably may be required by the Corporation for compliance with the
securities laws of the state in which the Investor is located.

         5. INVESTOR AWARE OF RISKS. The Investor has been informed and is aware
that an investment in the Shares involves a high degree of risk and speculation,
and the Investor has read carefully and considered any information provided by
the Corporation and its affiliates in their entirety. The Investor has read and
understands the "Risk Factors" attached hereto as Exhibit A.

         6. INVESTOR RELYING UPON OWN ADVISORS. The Investor confirms that the
Investor has been advised that the Investor should rely on, and that the
Investor has consulted and relied on. the Investor's own accounting, legal and
financial advisors with respect to this investment in the Shares. The Investor
and the Investor's professional advisor(s), if any, have been afforded an
opportunity to meet with the officers and directors of the Corporation and to
ask .and receive answers to all questions about this offering and the proposed
business and affairs of the Corporation and to obtain any additional information
that the Corporation possesses or can acquire without unreasonable effort or
expense, and the Investor and the Investor's professional advisor(s) therefore
have obtained, in the judgment of the Investor and/or the Investor's
professional advisor(s), sufficient information to evaluate the merits and risks
of investment in the Shares.

         7. SUITABILITY. The Investor understands and has fully considered for
purposes of this investment the risks of this investment and understands that
(i) this investment is suitable only for an investor who is able to bear the
economic consequences of losing the Investor's entire investment; (ii) the
Corporation is a starting a new business and has no significant operating
history in such business; (iii) the purchase of the Shares is a speculative
investment which involves a high degree of risk of loss by the Investor of the
Investor's entire investment, and (iv) there are substantial restrictions on the
transferability of, and there will be no public market for. the Shares, and
accordingly, it may not be possible for the Investor to liquidate the Investor's
investment in the Shares.

         8. ACCREDITED INVESTOR. The Investor is an "Accredited Investor" within
the meaning of Rule 501 of Regulation D.

         9. LACK OF LIQUIDITY. The Investor is able (i) to bear the economic
risk of this investment, (ii) to hold the Shares for an indefinite period of
time, and (iii) to afford a complete loss of the Investor's investment; and
represents that the Investor has sufficient liquid assets so that the lack of
liquidity associated with this investment will not cause any undue financial
difficulties or affect the Investor's ability to provide for the Investor's
current needs and possible financial contingencies.

         10. INVESTMENT INFORMATION. At the request of the Investor, the
Corporation may provide to the Investor various offering documents related to
the Corporation and the terms of the offer and sale of the Common Stock (the
"Offering Documents"). The Investor acknowledges that such Offering Documents,
if any, contain the views of the management of the Corporation, and that the
analysis of the market and of the Corporation's strategy contained therein
represents a subjective assessment about which reasonable persons could
disagree.

                                       3
<PAGE>

         11. ACCESS TO INFORMATION. The Investor, in making the Investor's
decision to purchase the Shares, has relied solely upon independent
investigations made by the Investor and the representations and warranties of
the Corporation contained herein and the Invest6r has been given (i) access to
all material books and records of the Corporation; (ii) access to all material
contracts and documents relating to this offering; and (iii) an opportunity to
ask questions of, and to receive answers from, the appropriate executive
officers and other persons acting on behalf of the Corporation concerning the
Corporation and the terms and conditions of this offering, and to obtain any
additional information, to the extent such persons possess such information or
can acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information set forth in the Offering Documents. The Investor
acknowledges that no valid request to the Corporation by the Investor for
information of any kind about the Corporation has been refused or denied by the
Corporation or remains unfulfilled as of the date thereof. The Investor has
carefully read the Offering Documents, including without limitation this
Subscription Agreement. In evaluating the suitability of an investment in the
Corporation, the Investor has not relied upon any representations or other
information (whether oral or written) other than as set forth in the Offering
Documents or as contained in any documents or answers to questions furnished by
the Corporation.

         12. NO ENDORSEMENT BY FEDERAL OR STATE AGENCIES. The Investor
understands and acknowledges that no federal or state agency has made any
finding or determination as to the fairness or suitability for investment in, or
any recommendation or endorsement of, the Corporation or the Shares.

         13. INVESTOR HAS EVALUATED RISKS. Based on the review of the materials
and information described above, and relying solely thereon and on the knowledge
and experience of the Investor and/or the Investor's professional advisor(s), if
any, in business and financial matters, the Investor has evaluated the merits
and risks of investing in the Shares and has determined that the Investor is
both willing and able to undertake the economic risk of this investment.

         14. SHARES ACQUIRED FOR PERSONAL ACCOUNT, NO VIEW TO DISTRIBUTION. The
Investor is acquiring the Shares for the personal account of the Investor for
investment and not with a view to, or for resale in connection with, any
distribution thereof or of any interest therein, and no one else has any
beneficial ownership or interest in the Shares being acquired by the Investor,
nor is any of the Shares being acquired by the Investor to be subject to any
lien or pledge. The Investor has no present obligation, indebtedness or
commitment pending, nor is any circumstance in existence, that will compel the
Investor to secure funds by the sale, transfer or other distribution of any of
the Shares or any interest therein.

         15. RESTRICTED SECURITIES. The Investor understands and acknowledges
that the Shares will be offered and sold, if at all, pursuant to one or more
exemptions from the registration and qualification requirements of the
Securities Act of 1933, as amended, and the securities laws of the various
states in which the Shares are sold, the availability of which depend (in part)
on the truth and completeness of the information provided to the Corporation in
Annex I attached hereto and the BONA FIDE nature of the foregoing
representations and warranties. With such realization, the Investor hereby
authorizes the Corporation to act as the Corporation may see fit in reliance on
such information, representations and warranties, including the placement of the
following or any substantially similar legend on any stock certificate issued to
the Investor in addition to any other legend that may be imposed thereon that,
in the opinion of the Corporation's counsel, may be required by applicable
securities laws:

                                       4
<PAGE>

         "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
         SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED, OR UNDER APPLICABLE STATE SECURITES LAWS, RULES AND
         REGULATIONS. THESE SECURITIES MAY NOT BE PLEDGED, SOLD OR TRANSFERRED
         IN THE ABSENCE OF AN EFFECTIVE REGISTRATION. STATEMENT UNDER SUCH ACTS
         COVERING THE SECURITIES OR AN OPINION OF QUALIFIED COUNSEL OR OTHER
         EVIDENCE SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
         REQUIRED."

         It is understood that the restricted securities are automatically free
         ----------------------------------------------------------------------
         to trade after 6 months.
         ------------------------

         16. INDEMNIFICATION. The Investor hereby indemnifies and holds "
harmless the Corporation and the Corporation's respective 'Officers, directors,
shareholders,: employees. attorneys and agents, as the case may be, from and
against all damages suffered and liabilities of any kind incurred by any of them
(including costs of investigation and defense and attorneys' fees) arising out
of any inaccuracy in the agreements, representations, covenants and warranties
made by the Investor in this Subscription Agreement,

         17. FIDUCIARY REPRESENTATIONS. If the Investor is purchasing the Shares
subscribed for hereby in a fiduciary capacity, then all of the foregoing
representations, warranties and covenants shall be deemed to have been made on
behalf of the person or persons for whom the Investor is so purchasing.

         18. SUBSCRIPTION IRREVOCABLE. The Investor hereby acknowledges and
agrees that the Investor is not entitled to cancel, terminate or revoke this
subscription or any agreement of the Investor hereunder and that such
subscription and agreement shall survive the death or disability of the
Investor.

         19. ACCEPTANCE OR REJECTION BY CORPORATION. The Investor understands
and acknowledges that this subscription may be accepted or rejected by the
Corporation in its sole and absolute discretion, together with a completed and
executed Annex I attached hereto and all information required by the provisions
hereof and payment of the full amount of the subscription price for the Shares
subscribed for. All amounts tendered in excess of the total amount payable as
the purchase price for Shares as to which this subscription has been accepted
thereafter will be delivered to the Investor as soon as practicable (without
interest). The Corporation shall signify its rejection by returning to the
Investor this Subscription Agreement and all funds (without interest or
deduction) submitted by the Investor.

         NEITHER THE CORPORATION NOR ANY OFFICER, DIRECTOR, SHAREHOLDER,
EMPLOYEE, ATTORNEY OR AGENT OF ANY OF THEM SHALL BE LIABLE TO ANY PERSON FOR THE
REJECTION, IN WHOLE OR IN PART, OF ANY OFFER TO SUBSCRIBE TO PURCHASE SHARES,
NOTWITHSTANDING THAT THE INVESTOR MAY OTHERWISE BE QUALIFIED AS A PROSPECTIVE
INVESTOR.

         20. CHANGES IN STATUS. If, before the sale of any Shares to the
Investor, the Investor's investment intent as expressed herein materially
changes, or if any change occurs that would make either the representations or
warranties made by the Investor herein or the information provided by the
Investor in any of the forms attached hereto (including Annex I attached hereto)
materially untrue or misleading, then the Investor shall immediately so notify
the Corporation,

                                       5
<PAGE>

and any prior acceptance of the subscription of the Investor shall be voidable
at the option of the Corporation in its sole and absolute discretion.

         21. FORWARD LOOKING STATEMENTS. The Offering Documents to the Investor
contain forward-looking statements within the meaning of Section 27A of the
Securities Act. Such forward-looking statements are indicated by the use of such
words as "intends,"'. ".expects," "may," "anticipates," "estimates," "desires,"
"believes," "projections" and similar- expressions, Actual results may differ
from those described by forward-looking statements as a result of many risks and
uncertainties.

         22. MATERIAL NON-PUBLIC INFORMATION; NO TRADING. The Investor
acknowledges and agrees that he or she may have received material non-public
information that has been disclosed to the Investor for the purpose of
evaluating the Corporation and the Shares. The Investor agrees that he or she
shall not purchase or sell any securities of the Corporation until such time as
all material information provided to the Investor has been made publicly
available.

                                       6
<PAGE>

         IN WITNESS WHEREOF, the Investor executes and agrees to be bound by
this Subscription Agreement by executing the Signature Page attached hereto to
be effective as of the date therein indicated.

                               INDIVIDUAL INVESTOR
                               -------------------

------------------------------------     ---------------------------------------
Print Name of Purchaser                  Signature of Purchaser

------------------------------------     ---------------------------------------
Print Name of Spouse                     Signature of Spouse
(if funds arc to be invested             (if funds are to be invested
in joint name or are community           in joint name or are community
property)                                property)

------------------------------------     $ -------------------------------------
Number of Shares purchased               Amount of immediately available
                                         funds transferred herewith

--------------------------------------------------------------------------------
Please PRINT the exact name(s) {registration) investor(s) desire(s) for the
Shares

------------------------------------     ---------------------------------------
Occupation                               Tel. No.

------------------------------------
Social Security or Tax I.D. No.

--------------------------------------------------------------------------------
Street Address

--------------------------------------------------------------------------------
City                                 State                      Zip

SUBSCRIPTION ACCEPTED:                   BLACKWATER MIDSTREAM CORP.:

Dated: __________________, 2008          By: ___________________________________

                                         Its: __________________________________

                                       7
<PAGE>

         IN WITNESS WHEREOF, the Investor executes and agrees to be bound by
this Subscription Agreement by executing the Signature Page attached hereto to
be effective as of the date therein indicated.

                                 ENTITY INVESTOR
                                 ---------------

         I have checked the appropriate boxes in Annex I ("Nature of Investor;
Form of Ownership") as a qualifying entity and have completed the purchasing
entity representation letter.

------------------------------------     ---------------------------------------
Print Name of Partnership,               Signature of authorized representative
Corporation or Trust

By:
   ---------------------------------     ---------------------------------------
Signature of authorized                  Capacity of authorized representative
representative

------------------------------------     $ -------------------------------------
Number of Shares purchased               Amount of immediately available
                                         funds transferred herewith

--------------------------------------------------------------------------------
Please PRINT the exact name(s) (registration) investor(s) desire(s) for the
Shares

------------------------------------
Tel. No.

------------------------------------
Tax I.D. No.

--------------------------------------------------------------------------------
Street Address

--------------------------------------------------------------------------------
City                                 State                        Zip

SUBSCRIPTION ACCEPTED:                   BLACKWATER MIDSTREAM CORP.:

Dated: __________________, 2008          By: ___________________________________

                                         Its: __________________________________

                                       8
<PAGE>

                        ANNEX I. ACCREDITED INVESTOR FORM

         Each prospective investor in Shares of Common Stock of Blackwater
Midstream Corp. that is a US resident must meet one or more of the standards
enumerated below. By your signature below, you certify that you are an
Accredited Investor as defined by Regulation D of the Act:

If you are not a US resident, indicate by initialing here: _____________________

         (a) You are a natural person whose individual net worth or joint net
worth with your spouse at the time of your purchase of the Securities exceeds
$1,000,000.00;

------------------------------------
(Signature of Investor)

         (b) You are a natural person who had an individual income in excess of
$200,000.00 in each of the two most recent years or joint income with your
spouse in excess of $300,000.00 in each of.years and you have a reasonable
expectation of reaching the same income level in the current year;

------------------------------------
(Signature of Investor)

         (c) You are a trustee for a trust that is revocable by the grantor at
any time {including an IRA) and the grantor qualified under either (a) or (b)
above. A copy of the declaration of trust or trust agreement and a
representation as to the net worth or income of the grantor is enclosed;

------------------------------------
(Signature of Investor)

         (d) You are a trustee of a trust, with total, assets in excess of
$5,000,000.00, not formed for the specific purpose of acquiring the securities
offered whose purchase is directed by a sophisticated person as described in
Rule 506 (B)(2)(ii) of the Act;

------------------------------------
(Signature of Investor)

         (e) You are an organization described in Section 501 (c)(3) of the
Internal Revenue Code, corporation, business trust, or partnership, not formed
for the specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000.00;

------------------------------------
(Signature of Investor)

         (f) You are a director or officer of Blackwater Midstream Corp.; or

------------------------------------
(Signature of Investor)

         (g) Investor is an employee benefit plan within the meaning of ERISA
having total assets in excess of Five Million Dollars ($5,000,000.00).

------------------------------------
(Signature of Investor)

                                       9
<PAGE>

         (h) Investor is a self-directed employee benefit plan within the
meaning of ERISA with investment decisions made solely by persons who are
accredited investors as defined in Rule 501(a) of Regulation D.

------------------------------------
(Signature of Investor)

         (i) Investor is an entity all the equity owners of which are
"accredited investors" within one a:- more of the above categories, other than
Category (e). If relying upon this category alone, each equity 'Owner muss
complete a separate copy of this Subscription Agreement.

------------------------------------
(Signature of Investor)

         (j) You represent and warrant that (i) if you are an individual or
individuals, none of you have been convicted of a felony: or (ii) if you are a
corporation, partnership, limited liability company, trust or other entity, none
of the beneficial owners thereof have been convicted of a felony.

------------------------------------
(Signature of Investor)

         The Investor is/are (INITIAL AND CHECK ALL APPLICABLE ANSWERS):
                             ------------------------------------------

         INITIAL           CHECK
         -------           -----

         ____ 1.           [ ]  Individual (one signature required)

         ____ 2.           [ ]  Joint Tenants with right of survivorship
                                (both parties must sign)

         ____ 3.           [ ]  Tenants in Common (both parties must sign)

         ____ 4.           [ ]  Community Property (one signature required
                           if the Shares are held in one name, I.E., managing
                           spouse; two signatures required if the Shares are
                           held in both names or if purchaser is a resident of
                           California)

         ____ 5.           [ ]  Corporation (signature of authorized party or
                           parties required)

         ____ 6.           [ ] Partnership (signature of general partner
                           required and all additional signatures required by
                           Partnership Agreement)

         ____ 7.           [ ]  Trust (Trust must sign as follows:
                           ___________________ as trustee for__________________,
                           dated_________________________).

         ____ 8.           [ ]  Other Entities (signatures as required by
                           applicable organization documents)

DATE: __________________________________

________________________________________________________________________________
PRINT NAME                                      PRINT NAME

________________________________________________________________________________
SIGNATURE                                       SIGNATURE

                                       10
<PAGE>

                                    EXHIBIT A

                                  RISK FACTORS

        YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW AND THE OTHER INFORMATION IN THE INVESTMENT MEMORANDUM DATED JUNE 2008
BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK (THE "SHARES").
THE OCCURRENCE OF ANY OF THE FALLOWING RISKS COULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS. IN ANY SUCH
CASE, YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.

                         RISKS INHERENT IN OUR BUSINESS

WE MAY NOT ATTAIN OUR PROJECTIONS IF WE ARE UNABLE TO OBTAIN, ON COMMERCIALLY
ACCEPTABLE TERMS, ADDITIONAL EQUITY CAPITAL THAT WE MAY REQUIRE FROM TIME IN
TIME IN THE FUTURE TO FINANCE OUR ACQUISITIONS.

         The proceeds of the current Offering are expected to be sufficient to
sustain a cash flow positive business. However, we need additional capital to
expand the business. We do not currently have sufficient cash reserves or
revenue from operations to do so. Without additional capital WE will not be able
to acquire additional facilities. We are unable to provide any assurance or
guarantee that additional capital will be available when needed by our
Corporation, or that such capita] will be available under terms acceptable to
our Corporation or on a drawly basis.

WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST EXISTING AND FUTURE
COMPETITORS, WHICH COULD HARM OUR MARGINS AND OUR BUSINESS.

         The fuel and chemical storage business is highly competitive. We expect
the competitive environment to continue in the future. We face competition from
a number of existing storage facilities. We believe that with relatively strong
financial performance of fuel and related industries, this industry will
continue to attract new competitors and encourage existing competitors to
increase their involvement.

         We can provide no assurance that we will be able to compete
successfully against current or potential competitors. Many of our current and
potential competitors have longer operating histories, better brand recognition
and significantly greater financial, technical and marketing resources than we
do. Many of these competitors may have well-established relationships with
customers and other key partners and can devote substantially more resources to
marketing and sales. As a result, they may be able to secure customers on more
favorable terms. Larger competitors may enjoy significant competitive advantages
that result from, among other things, a lower cost of capital and enhanced
operating efficiencies. In addition. the number of entities and the amount of
funds competing for customers may increase. This will result in reduced prices
and increased cost of sales: Our profitability may be reduced and you may
experience a lower return on your investment.

OUR INABILITY TO RETAIN OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL may HARM
OUR BUSINESS AND IMPEDE THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.

         Our future success depends to a significant degree on the skills,
experience and efforts -of our key management personnel. Our principal managers
are Michael Suder, Dale Chatagnier and Frank Marrocco. We have executed
five-year employment agreements with each of them and have granted them
substantial equity incentives to remain with the Corporation. However, we cannot
guarantee that they will remain employees. The loss of their services could harm
our business and operations. In addition, we have not obtained key person life
insurance on any of our key employees as of the date of this memorandum. If any
of our executive officers or key employees left, died or was seriously injured
and unable to work and we were unable to find a qualified replacement and/or to
obtain adequate compensation for such loss, we may be unable to manage our
business, which could harm our operating results and financial condition.
However, we believe that qualified replacement personnel could be found to
continue to execute the business plan.

THE ECONOMIC PERFORMANCE AND VALUE OF OUR FACILITY DEPEND ON MANY FACTORS BEYOND
OUR CONTROL.

         The economic performance and value of our facility can be affected by
many factors, including the following:

         o        economic downturns and recessions;

                                       11
<PAGE>

         o        declines in revenue due to loss of customers or reduced
                  volume;
         o        reduced demand in the surrounding geographic regions due to
                  general economic conditions;
         o        construction of competitive properties nearby and competition
                  from other available facilities;
         o        increased operating costs and expenses; and
         o        availability of long term financing at reasonable rates.

OUR FACILITY IS SUBJECT TO ENVIRONMENTAL LAWS AND ENVIRONMENTAL RISKS.

         Under various federal, state and local laws, ordinances and
regulations, we are considered to be an owner or operator of real property or to
have arranged for the disposal or treatment of hazardous or toxic substances. As
a result, we could become liable for the costs of removal or remediation of
certain hazardous substances released on or in our property. We could also be
liable for other costs that relate to hazardous or toxic substances (including
governmental fines and injuries to persons and property). Many if not all of the
chemicals and fuels we intend to store are considered to be hazardous materials.
Inadvertent releases or spills can subject it to costly remediation expenses
and/or fines.

                         RISKS RELATING TO THIS OFFERING

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE VALUE OF YOUR
SHARES FOLLOWING THIS OFFERING.

         If you purchase Shares in this offering, you will experience immediate
and substantial book value dilution, in that the price you pay per Share will be
substantially greater than our net tangible book value per share or the per
share value of our assets after subtracting our liabilities.

YOUR OWNERSHIP PERCENTAGE WILL BE DILUTED BY FUTURE ISSUANCES OF CAPITAL STOCK.

         Our business strategy requires us to raise additional equity capital
through the sale of common stock or preferred stock, or the issuance of debt
which may be convertible into equity securities. Your percentage of ownership
will become diluted as we issue new shares of stock, unless you exercise any
applicable preemptive. rights set forth above. We may issue common stock,
convertible debt or common stock pursuant to a public offering or a private
placement, upon exercise of warrants or options, or to sellers of properties we
directly or indirectly acquire instead of, or in addition to, cash
consideration. Investors purchasing Common Stock in this offering who do not
participate in any future stock issues will experience dilution in the
percentage of the issued and outstanding stock they own.

THE OFFERING PRICE OF THE SHARES IS ARBITRARY.

         The offering price of the Shares we are offering was arbitrarily
determined by us, the management of our Corporation, and bears no relationship
to earnings, asset values, book value or any other recognized criteria of value.

THE SHARES ARE RESTRICTED AND TRANSFERABILITY IS LIMITED.

         The Shares are offered and sold pursuant to one or more exemptions from
registration under the Securities Act and without qualification or registration
under the securities laws of the various states. Consequently, the Shares that
you would be purchasing are restricted and may not be sold, transferred or
hypothecated without registration under the Securities Act and applicable state
laws or without an exemption from such registration or qualification, The Shares
you will receive will bear a legend restricting their transfer accordingly.

WE HAVE SET A MINIMUM INVESTMENT OF 2.250.000$ ENABLING US TO ACQUIRE WESTWEGO

         We have established a minimum number of Shares that must be sold in
this offering to acquire Westwego. In the event the minimum of 2.250.000$ has
not been received on or before December 15th, 2008, all funds rendered for
investment will be returned to all undersigned, without interest or deduction by
January 5th, 2009.

                                       12

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00152-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00152-of-00352.parquet"}]]