Document:

ex103.htm

    Exhibit
      10.3

    
 

    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.

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    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

    
      
         

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

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

                	 
	 	 	
                  Title: Interim
                    CEO

                	 
	 	 	 

        

      

    

     

     

     

     

     

    3ex104.htm

    Exhibit
      10.4

     

    
 

    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.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    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.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “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.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (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.

    

    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.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    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.

    

    (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.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (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”):

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

      (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. 

    

     

    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. 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    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):

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    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]

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

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

     

    
      
        	 	 EMAGIN
                CORPORATION
	 	 	 	 
	
                Dated:
                  August 7,
                  2007

              	
                By:
                  

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

              	 
	 	 	
                Title: Interim
                  CEO

              	 
	 	 	 

      

      
        	 	
                MORIAH
                  CAPITAL, L.P.

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

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

              	 
	 	 	 
	 	 	 	 
	
                 

              	
                By:
                  

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

      

    

     

    

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

    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.:

     

     

     

    11

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