Document:

ex42.htm

    

    

    EMAGIN
CORPORATION

    

    CERTIFICATE
OF DESIGNATIONS OF

    SERIES
B CONVERTIBLE PREFERRED STOCK

    

    (Pursuant
to Section 151 of the General Corporation

    Law of
the State of Delaware)

    

                                                     

    

    eMagin
Corporation, a Delaware corporation (the “Corporation”), in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware (the “DGCL”), DOES HEREBY
CERTIFY:

     

    That
pursuant to authority vested in the Board of Directors of the Corporation by the
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors of the Corporation, at a meeting duly called and held on December 15, 2008
adopted a resolution providing for the creation of a series of the Corporation’s
Preferred Stock, $.001 par value, which series is designated as “Series B
Convertible Preferred Stock,” which resolution is as follows:

     

    RESOLVED, that pursuant to
authority vested in the Board of Directors by the Certificate of Incorporation,
as amended, of the Corporation, the Board of Directors does hereby provide for
the creation of a series of Preferred Stock, $.001 par value (hereinafter called
the “Preferred
Stock”), of the Corporation, and to the extent that the voting powers and
the designations, preferences and relative, participating, optional or other
special rights thereof and the qualifications, limitations or restrictions of
such rights have not been set forth in the Certificate of Incorporation, as
amended, of the Corporation, does hereby fix the same as follows:

     

    SERIES
B CONVERTIBLE PREFERRED STOCK

    

    Section
1. Definitions.

     

    (a) All the
agreements or instruments defined in this Certificate of Designations shall mean
such agreements or instruments as the same may from time to time be supplemented
or amended or the terms thereof waived or modified to the extent permitted by,
and in accordance with, the terms thereof and of this Certificate of
Designations.

     

    (b) The
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms
defined):

     

    “Accrual Amount” means
with respect to any share of Series B Convertible Preferred Stock on any date
the amount of all accrued but unpaid dividends on such share from the Issuance
Date to the date of determination.

     

    “Affiliate” means,
with respect to any Person, any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with the subject Person; for purposes of this definition,
“control” (including, with correlative meanings, the terms “controlled by” and
“under common control with”), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.

     

    “Aggregation Parties”
shall have the meaning set forth in Section 10(g).

     

    “AMEX” means the
American Stock Exchange, Inc.

     

    “Average Market Price”
for any date means the arithmetic average of the Market Price for each of the
Trading Days during the applicable Measurement Period.

     

    “Board of Directors”
or “Board”
means the Board of Directors of the Corporation.

     

    “Board Resolution”
means a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Corporation to have been duly adopted by the Board of
Directors, or duly authorized committee thereof (to the extent permitted by
applicable law), and to be in full force and effect on the date of such
certification, and delivered to the Holders.

     

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

     

    “Common Stock”
includes the Common Stock, $.001 par value, of the Corporation as authorized on
the date hereof, and any other securities into which or for which the Common
Stock may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise and any stock (other than
Common Stock) and other securities of the Corporation or any other Person which
any Holder at any time shall be entitled to receive, or shall have received, on
the exercise of conversion rights of the Series B Convertible Preferred Stock,
in lieu of or in addition to Common Stock.

     

     

    
      
        
        

      

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

     

    “Computed Market
Price” shall mean the arithmetic average of the daily VWAPs for each of
the three Trading Days immediately preceding the applicable Measurement Date
(such VWAPs being appropriately and equitably adjusted for any stock splits,
stock dividends, recapitalizations and the like occurring or for which the
record date occurs during such three Trading Days).

     

    “Conversion Date”
means the date on which a Conversion Notice is given by a Holder, whether by
mail, courier, personal service, telephone line facsimile transmission or other
means, as provided in Section 10(b).

     

    “Conversion Notice”
means a written notice, duly signed by or on behalf of a Holder substantially in
the form set forth in Section 14(a).

     

    “Conversion Price”
means $0.75 per share; provided, however, that the Conversion Price
shall be subject to further adjustment as provided in Section 10.

     

    “Converted Market
Price” means, for any share of Series B Convertible Preferred Stock as of
any date of determination, an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock which would, at the time of
such determination, be issuable on conversion in accordance with Section 10(a)
of one share of Series B Convertible Preferred Stock if a Conversion Notice were
given by the Holder of such share of Series B Convertible Preferred Stock on the
date of such determination (determined without regard to any limitation on
conversion based on beneficial ownership contained in Section 10(g)) times (y) the Average Market
Price of the Common Stock during the Measurement Period for the date of such
determination.

     

    “Corporation Notice”
means a Corporation Notice substantially in the form set forth in Section
14(c).

     

    “Current Fair Market
Value” when used with respect to the Common Stock as of a specified date
means with respect to each share of Common Stock the average of the closing
prices of the Common Stock sold on all securities exchanges (including the
OTCBB, the NYSE, the AMEX, the Nasdaq and the Nasdaq Capital Market) on which
the Common Stock may at the time be listed, or, if there have been no sales on
any such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of regular trading 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 greater of (i) the highest price per share of
Common Stock at which the Corporation has sold shares of Common Stock or Common
Stock Equivalents during the 365 days prior to the date of such determination
and (ii) the highest price per share which the Corporation could then obtain
from a willing buyer (not an employee or director of the Corporation at the time
of determination) for shares of Common Stock sold by the Corporation, from
authorized but unissued shares, as determined in good faith by the Board of
Directors.

     

    “Current Market
Price” shall
mean the arithmetic average of the daily Market Prices per share of Common Stock
for the five consecutive Trading Days immediately prior to the date in question;
provided, however, that
(1) if the “ex” date (as hereinafter defined) for any event (other than
the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 10(c)(1), (2), (3), (4),
(5), (6) or (7), occurs during such five consecutive Trading Days, the Market
Price for each Trading Day prior to the “ex” date for such other event shall be
adjusted by multiplying such Market Price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of such other event,
(2) if the “ex” date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion Price
pursuant to Section 10(c)(1), (2), (3), (4), (5), (6) or (7), occurs on or after
the “ex” date for the issuance or distribution requiring such computation and
prior to the day in question, the Market Price for each Trading Day on and after
the “ex” date for such other event shall be adjusted by multiplying such Market
Price by the reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such other event, and (3) if the “ex”
date for the issuance or distribution requiring such computation is prior to the
day in question, after taking into account any adjustment required pursuant to
clause (1) or (2) of this proviso, the Market Price for each Trading Day on or
after such “ex” date shall be adjusted by adding thereto the amount of any cash
and the fair market value (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of Section 10(c)(4)
or (6), whose determination shall be conclusive and described in a Board
Resolution) of the evidences of indebtedness, shares of capital stock or assets
being distributed applicable to one share of Common Stock as of the close of
business on the day before such “ex” date.  Notwithstanding the
foregoing, whenever successive adjustments to the Conversion Price are called
for pursuant to Section 10(c), such adjustments shall be made to the Current
Market Price as may be necessary or appropriate to effectuate the intent of
Section 10(c) and to avoid unjust or inequitable results as determined in good
faith by the Board of Directors.

     

     

    
      
        
        

      

      
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    “DTC” shall have the
meaning provided in Section 10(b)(2).

     

    “Eligible Bank” means
a corporation organized or existing under the laws of the United States or any
other state, having combined capital and surplus of at least $100 million and
subject to supervision by federal or state authority and which has a branch
located in New York, New York.

     

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

     

    “Excluded Shares”
shall have the meaning provided in Section 10(g).

     

    “Expiration Time”
shall have the meaning provided in Section 10(c)(6).

     

    “FAST” shall have the
meaning provided in Section 10(b)(2).

     

    “Fundamental
Change” means

     

    (1) Any
consolidation or merger of the Corporation or any Subsidiary with or into
another entity (other than a merger or consolidation of a Subsidiary into the
Corporation or a wholly-owned Subsidiary in connection with which no change in
outstanding Common Stock occurs) where the stockholders of the Corporation
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 Corporation and the Subsidiaries
in a single transaction or a series of related transactions; or

     

    (2) 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; or

     

    (3) 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 Corporation
representing 50% or more of the combined voting power of the outstanding voting
securities of the Corporation ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors,
provided, however, that
(A) an acquisition by a group of unrelated and unaffiliated Persons comprised
solely of newly issued equity securities of the Corporation which issuance
results in the pro rata dilution of the equity interests of the Persons who are
holders of Common Stock immediately prior to such acquisition and for which no
consideration is paid to or for the benefit of any holders of Common Stock or
the Affiliates of such holders of Common Stock and (B) the issuance of shares of
Common Stock upon conversion, exercise or exchange of Common Stock Equivalents
outstanding as of the date hereof (including shares issuable upon  or
exercise of the Warrants) in accordance with the terms of such Common Stock
Equivalents in effect on the date hereof, shall not constitute a Fundamental
Change.

     

    “Generally Accepted
Accounting Principles” for any person means the generally accepted
accounting principles and practices applied by such person from time to time in
the preparation of its audited financial statements.

     

    “Holder” means at any
time with respect to any share of Series B Convertible Preferred Stock the
Person shown as the holder of record of such share of Series B Convertible
Preferred Stock on the records of the Corporation relating to the Series B
Convertible Preferred Stock which records are maintained in accordance with
applicable law.

     

    “Indebtedness” means,
when used with respect to any Person, without duplication:

     

    (1) all
indebtedness, obligations and other liabilities (contingent or otherwise) of
such Person for borrowed money (including obligations of such Person in respect
of overdrafts, foreign exchange contracts, currency exchange agreements,
currency purchase or similar agreements, Interest Rate Protection Agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or other
instruments for the payment of money, or incurred in connection with the
acquisition of any property, services or assets (whether or not the recourse of
the lender is to the whole of the assets of such Person or to only a portion
thereof), other than any account payable or other accrued current liability or
obligation to trade creditors incurred in the ordinary course of business in
connection with the obtaining of materials or services;

     

    (2) all
reimbursement obligations and other liabilities (contingent or otherwise) of
such Person with respect to letters of credit, bank guarantees, bankers’
acceptances, surety bonds, performance bonds or other guaranty of contractual
performance;

     

    (3) all
obligations and liabilities (contingent or otherwise) in respect of
(A) leases of such Person required, in conformity with Generally Accepted
Accounting Principles, to be accounted for as capitalized lease obligations on
the balance sheet of such Person and (B) any lease or related documents
(including a purchase agreement) in connection with the lease of real property
which provides that such Person is contractually obligated to purchase or cause
a third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the landlord and the obligations of
such Person under such lease or related document to purchase or to cause a third
party to purchase the leased property;

     

    (4) all
direct or indirect guaranties or similar agreements by such Person in respect
of, and obligations or liabilities (contingent or otherwise) of such Person to
purchase or otherwise acquire or otherwise assure a creditor against loss in
respect of, indebtedness, obligations or liabilities of another Person of the
kind described in clauses (1) through (3);

     

    (5) any
indebtedness or other obligations described in clauses (1) through (4) secured
by any mortgage, pledge, lien or other encumbrance existing on property which is
owned or held by such Person, regardless of whether the indebtedness or other
obligation secured thereby shall be payable by or shall have been assumed by
such Person; and

     

    (6) any and
all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or liability of
the kind described in clauses (1) through (5).

     

     

     

    
      
        
        

      

      
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    “Interest Rate Protection
Agreement” means, with respect to any Person, any interest rate swap
agreement, interest rate cap or collar agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates, as in effect from time to time.

     

    “Issuance Date” means
the first date of original issuance of any shares of Series
B  Convertible Preferred Stock.

     

    “Junior Dividend
Stock” means, collectively, the Common Stock and any other class or
series of capital stock of the Corporation ranking junior as to dividends to the
Series B Convertible Preferred Stock.

     

    “Junior Liquidation
Stock” means the Common Stock or any other class or series of the
Corporation’s capital stock ranking junior as to liquidation rights to the
Series B Convertible Preferred Stock.

     

    “Lien” means any
mortgage, lien, pledge, security interest or other charge or encumbrance,
including, without limitation, the lien or retained security title of a
conditional vendor.

     

    “Liquidation
Preference” means, for each share of Series B Convertible Preferred
Stock, the sum of (i) an amount equal to the Accrual Amount thereon to the date
of final distribution to such Holders and (ii) $1,000.00.

     

    “Majority Holders”
means, at any time, the Holders of a majority of the outstanding shares of
Series B Convertible Preferred Stock.

     

    “Market Price” with
respect to any security on any day shall mean the closing price of such security
on such day on the Nasdaq, the Nasdaq Capital Market, the NYSE, the AMEX or the
OTCBB, as applicable, or, if such security is not listed or admitted to trading
on the Nasdaq, the Nasdaq Capital Market, the NYSE, the AMEX or the OTCBB, on
the principal national securities exchange or quotation system on which such
security is quoted or listed or admitted to trading, in any such case as
reported by Bloomberg, L.P. (or if such source ceases to be available,
comparable source selected by the Holder and acceptable to the Corporation in
its reasonable judgment) or, if not quoted or listed or admitted to trading on
any national securities exchange or quotation system, the average of the closing
bid and asked prices of such security on the over-the-counter market on the day
in question, as reported by Pink Sheets, LLC, or a similar generally accepted
reporting service, or if not so available, in such manner as furnished by any
NYSE member firm selected from time to time by the Board of Directors for that
purpose, or a price determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution.

     

    “Measurement Period”
means, with respect to any date, the period of ten consecutive Trading Days
ending on the Trading Day prior to such date.

     

    “Nasdaq” means the
Nasdaq Global Market.

     

    “Newly Issued Shares”
shall have the meaning provided in Section 10(c)(6)(A).

     

    “1933 Act” means the
Securities Act of 1933, as amended.

     

    “NYSE” means the New
York Stock Exchange, Inc.

     

    “Optional Redemption
Date” shall have the meaning set forth in Section 7(a).

     

    “Optional Redemption
Notice” shall have the meaning set forth in Section 7(a).

     

    “Optional Redemption
Price” shall have the meaning set forth in Section 7(b).

     

    “OTCBB” means the
Over-The-Counter Bulletin Board.

     

    “Parity Dividend
Stock” means any class or series of the Corporation’s capital stock
ranking, as to dividends, on parity with the Series B Convertible Preferred
Stock.

     

    “Parity Liquidation
Stock” means any class or series of the Corporation’s capital stock
having parity as to liquidation rights with the Series B Convertible Preferred
Stock.

     

    “Permitted
Indebtedness” shall mean the following, which in the aggregate amount
does not exceed $4,500,000 at any one time outstanding:

     

    (1) Indebtedness
outstanding on the Issuance Date and reflected in the Company’s financial
statements included in the filings with the SEC;

     

     

    
      
        
        

      

      
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    (2) Indebtedness
outstanding on, or incurred after, the Issuance Date so long as (A) such
Indebtedness (x) is incurred for the purpose of acquiring equipment owned or
used or to be owned or used by the Company or any Subsidiary (or for the purpose
of acquiring the capital stock or similar equity interests of a Subsidiary that
is formed for the limited purpose of owning same and does not own or hold any
other material assets) and does not exceed the purchase price of the equipment,
capital stock or other equity interest so acquired plus reasonable transaction
expenses and (y) if secured, is secured solely by the interest of the Company or
one of its Subsidiaries in the equipment so acquired and rights related thereto,
or (B) the reimbursement obligations and other liabilities (contingent or
otherwise) of the Company or any Subsidiary with respect to letters of credit
issued in lieu of cash security deposits for leases of real property or
equipment used by the Company or any Subsidiary, or commercial or standby
letters of credit issued in the ordinary course of the business of the Company
and its Subsidiaries (the amount of which shall for this purpose be deemed to be
the maximum reimbursement obligations and other liabilities (contingent or
otherwise) with respect to such letters of credit, whether or not a drawing
thereunder has been made);

     

    (3) Indebtedness
incurred after the Issuance Date that is secured solely by raw materials, works
in progress and finished goods inventory and accounts receivable in a financing
by a bank, finance company or other institutional lender providing receivables
or inventory financing;

     

    (4) endorsements
for collection or deposit in the ordinary course of business;

     

    (5) in the
case of any Subsidiary, Indebtedness owed by such Subsidiary to the
Company;

     

    (6) Indebtedness
incurred pursuant to working capital lines of credit, including, without
limitation, the line of credit with Moriah Capital, L.P.; and

     

    (7) Indebtedness
incurred pursuant to capital leases;

     

    so long
as in the case of such Indebtedness referred to in the preceding clauses,
incurrence of such Indebtedness shall have been approved by the Board of
Directors prior to the incurrence thereof.

     

    “Permitted Liens”
shall mean the following, which in the aggregate amount does not exceed
$4,500,000 at any one time outstanding

     

    (1) Liens
upon any property of any Subsidiary or Subsidiaries as security for indebtedness
owing by such Subsidiary to the Company;

     

    (2) purchase
money Liens upon any property acquired by the Company or any Subsidiary or Liens
existing on such property at the time of acquisition and in any such case
securing Permitted Indebtedness described in clause (2) of the definition of the
term Permitted Indebtedness; provided that (A) no such Lien shall extend to or
cover any other property of the Company or any Subsidiary, (B) the principal
amount of Indebtedness secured by each such Lien on any such property shall not
exceed the cost (including such principal amount of the Indebtedness secured
thereby) to the Company or the Subsidiary of the property subject thereto, and
(C) the aggregate principal amount of all Indebtedness of the Company and all
Subsidiaries secured by all Liens described in this subsection (2) and any
extensions, renewals or replacements thereof, at any one time outstanding, shall
not exceed $4,500,000 for the Company and the Subsidiaries; and any Lien
securing Indebtedness that extends, renews or replaces any Indebtedness secured
by any Lien permitted by this subsection (2); provided, however, that in any
such case the Lien securing any Indebtedness so extended, renewed or replaced
shall not extend to or cover any other property of the Company or any Subsidiary
and the principal amount of such Indebtedness extended, renewed or replaced
shall not be increased;

     

    (3) Liens
securing Indebtedness permitted under clause (3) of the definition of the term
Permitted Indebtedness so long as in each such case such Lien does not extend to
any property of the Company or the Subsidiaries other than the accounts
receivables or inventory of the Company and the Subsidiaries so
financed;

     

    (4) Liens for
taxes or assessments or governmental charges or levies on its property if such
taxes or assessments or charges or levies shall not at the time be due and
payable or if the amount, applicability, or validity of any such tax,
assessment, charge or levy shall currently be contested in good faith by
appropriate proceedings or necessary preliminary steps are being taken to
contest, compromise or settle the amount thereof or to determine the
applicability or validity thereof and if the Company or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to the
extent required by sound accounting practice) deemed by it adequate with respect
thereto; deposits or pledges to secure payment of worker’s compensation,
unemployment insurance, old age pensions or other social security; deposits or
pledges to secure performance of bids, tenders, contracts (other than contracts
for the payment of money borrowed or credit extended), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business; mechanics’,
carriers’, workers’, repairmen’s or other like Liens arising in the ordinary
course of business securing obligations which are not overdue for a period of 60
days, or which are in good faith being contested or litigated, or deposits to
obtain the release of such Liens; Liens created by or resulting from any
litigation or legal proceedings or proceedings being contested in good faith by
appropriate proceedings, provided any execution levied thereon shall be stayed;
leases made, or existing on property acquired, in the ordinary course of
business; landlords’ Liens under leases to which the Company or any Subsidiary
is a party; and zoning restrictions, easements, licenses or restrictions on the
use of real property or minor irregularities in title thereto; provided that all
such Liens described in this subsection (4) do not, in the aggregate, materially
impair the use of such property in the operations of the business of the Company
or any Subsidiary or the value of such property for the purpose of such
business;

     

    (5) Liens
existing on the Issuance Date and listed in Schedule 3.1(n) to the Securities
Purchase Agreement;

     

    (6) Liens
incurred pursuant to working capital lines of credit; and

     

    (7) Liens
incurred pursuant to capital leases.

     

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

     

    “Principal Market”
means, at any time, whichever of the Nasdaq, Nasdaq Capital Market, AMEX, NYSE,
OTCBB or such other U.S. market or exchange is at the time the principal market
on which the Common Stock is then listed for trading.

     

    “Record Date” shall mean, with respect
to any dividend, distribution or other transaction or event in which the holders
of Common Stock have the right to receive any cash, securities or other property
or in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the date
fixed for determination of stockholders entitled to receive such cash,
securities or other property (whether such date is fixed by the Board of
Directors or by statute, contract or otherwise).

     

    “Registration
Statement” shall have the meaning provided in the Securities Purchase
Agreement.

     

    “Restricted Ownership
Percentage” shall have the meaning provided in Section
10(g).

     

    “SEC” means the United
States Securities and Exchange Commission.

     

    “SEC Effective Date”
means the date the Registration Statement is first declared effective by the
SEC.

     

    “Securities Purchase
Agreement” means the Agreement between the Company and the purchasers
named therein, dated the date hereof.

     

    
      
        
        

      

      
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    “Senior Dividend
Stock” means any class or series of capital stock of the Corporation
ranking senior as to dividends to the Series B Convertible Preferred Stock,
including, without limitation, the Corporation’s Series A Convertible Preferred
Stock.

     

    “Senior Liquidation
Stock” means any class or series of capital stock of the Corporation
ranking senior as to liquidation rights to the Series B Convertible Preferred
Stock, including, without limitation, the Corporation’s Series A Convertible
Preferred Stock.

     

    “Series A Convertible
Preferred Stock” means the Company’s Preferred Stock having the rights
and preferences set forth on the Certificate of Designations of Series A Senior
Secured Convertible Preferred Stock filed with the Secretary of State for the
State of Delaware on July 25, 2007.

     

    “Series B Convertible
Preferred Stock” means the Series B Convertible Preferred Stock, $.001
par value, of the Corporation.

     

    “Stated Value” means
$1,000 per share of Series B Convertible Preferred Stock.

     

    “Subsidiary” means any
corporation or other entity of which a majority of the capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by the Corporation.

     

    “Tender Offer” means a
tender offer or exchange offer.

     

    “Trading Day” means at
any time a day on which the Principal Market is open for general trading of
securities.

     

    “Transaction
Documents” shall have the meaning provided in the Securities Purchase
Agreement.

     

    “Transfer Agent”
Continental Stock Transfer & Trust Company, or its successor as transfer
agent and registrar for the Common Stock.

     

    “Trigger Event” shall
have the meaning provided in Section 10(c)(4)(B).

     

    “VWAP” of any security
on any Trading Day means the volume-weighted average price of such security on
such Trading Day on the Principal Market, as reported by Bloomberg Financial,
L.P., based on a Trading Day from 9:30 a.m., Eastern Time, to 4:00 p.m., Eastern
Time, using the AQR Function, for such Trading Day; provided, however, that during any period the
VWAP is being determined, the VWAP shall be subject to equitable adjustments
from time to time on terms consistent with Section 10(c) and otherwise
reasonably acceptable to the Majority Holders for (i) stock splits, (ii) stock
dividends, (iii) combinations, (iv) capital reorganizations, (v) issuance to all
holders of Common Stock of rights or warrants to purchase shares of Common
Stock, (vi) distribution by the Corporation to all holders of Common Stock of
evidences of indebtedness of the Corporation or cash (other than regular
quarterly cash dividends), and (vii) similar events relating to the Common
Stock, in each case which occur, or with respect to which the “ex” date occurs,
during such period.

     

    “Warrants” means the
Common Stock Purchase Warrants issued by the Corporation pursuant to the
Securities Purchase Agreement.

     

    Section
2. Designation
and Amount. The
shares of such series shall be designated as “Series B Convertible Preferred
Stock”, par value $.001 per share, and the maximum number of shares constituting
the Series B Convertible Preferred Stock shall be 10,000, and shall not be
subject to increase.  So long as there are Holders of at least 577
outstanding shares of Series B Convertible Preferred Stock, the Corporation
shall not issue any shares of Series B Convertible Preferred Stock unless such
issuance shall have been approved by the Majority Holders.  Any shares
of Series B Convertible Preferred Stock which are redeemed by the Corporation
and retired and any shares of Series B Convertible Preferred Stock which are
converted in accordance with Section 10 shall be restored to the status of
authorized, unissued and undesignated shares of the Corporation’s class of
Preferred Stock and shall not be subject to issuance, and may not thereafter be
outstanding, as shares of Series B Convertible Preferred Stock.

     

    Section
3. Series B
Convertible Preferred Stock Capital.  The amount to be
represented in stated capital at all times for each share of Series B
Convertible Preferred Stock shall be an amount equal to the sum of
$1,000.

     

    Section
4. Rank.  Subject to
Section 12(b), all  Series B Convertible Preferred Stock shall rank
(i) senior to the Common Stock, now or hereafter issued, as to payment of
dividends and distribution of assets upon liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, (ii) junior to the
Corporation’s Series A Convertible Preferred Stock, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up on the
Corporation, whether voluntary or involuntary, (iii) senior to any additional
series of the class of Preferred Stock (other than the Series A Convertible
Preferred Stock) which series the Board of Directors may from time to time
authorize, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, and (iii) senior to any additional class of preferred
stock or series of preferred stock of such class (other than the Series A
Convertible Preferred Stock) which the Board of Directors or the stockholders
may from time to time authorize in accordance herewith.

     

     

     

    
      
        
        

      

      
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    Section
5. Distributions.

     

    (a) The
Holders of shares of Series B Convertible Preferred Stock shall not be entitled
to receive dividends unless the Board of Directors declares a dividend for
holders of the Corporation’s Common Stock and then the dividend shall be equal
to the amount that such Holder would have been entitled to receive if such
Holder converted its shares of Series B Convertible Preferred to shares of the
Common Stock.  No dividends or other distributions, shall be paid to
the Series B Convertible Preferred Stock unless and until such amounts owed to
the Series A Convertible Preferred Stock have been paid.  The Series B
Convertible Stock shall not be entitled to interest payments.

     

    (b) Any
references to “distribution” contained in this Section 5 shall not be deemed to
include any stock dividend or distributions made in connection with any
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary.

     

    (c) RESERVED

     

    (d) Neither
the Corporation nor any Subsidiary shall (1) make any Tender Offer for
outstanding shares of Common Stock, unless the Corporation contemporaneously
therewith makes an offer, or (2) enter into an agreement regarding such a Tender
Offer for outstanding shares of Common Stock by any person other than the
Corporation or any Subsidiary, unless such person agrees with the Corporation to
make an offer, in either such case to each Holder of outstanding shares of
Series B Convertible Preferred Stock to purchase for cash at the time of
purchase in such Tender Offer the same percentage of shares of Series B
Convertible Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock actually purchased in such Tender Offer at a price per
share of Series B Convertible Preferred Stock equal to the greater of (i) (A)
the Stated Value plus
(B) an amount equal to the Accrual Amount plus (C) an amount equal to
any accrued and unpaid interest on cash dividends in arrears and (ii) the
Converted Market Price on the date of purchase pursuant to this Section
5(c).

     

    Section
6. Liquidation
Preference.  In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the Holders of Series B Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, after payment to the Series
A Convertible Preferred Stock, an amount per share of Series B Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided,
however, that
such rights shall accrue to the Holders of Series B Convertible Preferred Stock
only in the event that the Corporation’s payments with respect to the
liquidation preference of the holders of Senior Liquidation Stock are fully
met.  After the liquidation preferences of the Senior Liquidation
Stock are fully met, the entire assets of the Corporation available for
distribution shall be distributed ratably among the Holders of the Series B
Convertible Preferred Stock and any Parity Liquidation Stock in proportion to
the respective preferential amounts to which each is entitled (but only to the
extent of such preferential amounts).  After payment in full of the
liquidation price of the shares of the Series B Convertible Preferred Stock and
the Parity Liquidation Stock, the Holders of such shares shall not be entitled
to any further participation in any distribution of assets by the
Corporation.  Neither a consolidation or merger of the Corporation
with another corporation nor a sale or transfer of all or part of the
Corporation’s assets for cash, securities, or other property in and of itself
will be considered a liquidation, dissolution or winding up of the
Corporation.

     

    Section
7. Optional
Redemption.

     

    (a) The
Corporation may redeem all outstanding shares of Series B Convertible Preferred
Stock.  The Corporation shall give notice of such optional redemption
(the “Optional
Redemption Notice”) to the Holders not less than 20 or more than 35
Business Days prior to the optional redemption date (“Optional Redemption
Date”).  Any failure or defect in the giving of the Optional
Redemption Notice shall not affect the Corporation’s obligation to redeem the
shares of Series B Convertible Preferred Stock pursuant to this Section
7.

     

    (b) On the
Optional Redemption Date (or such later date as a particular Holder shall
surrender to the Corporation the certificate(s) for the shares of Series B
Convertible Preferred Stock redeemed), the Corporation shall pay to or upon the
order of each Holder by wire transfer of immediately available funds to such
account as shall be specified for such purpose by such Holder an amount equal to
the Stated Value multiplied by the number of shares (the “Optional Redemption
Price”) for all of such Holder’s shares of Series B Convertible Preferred
Stock to be redeemed that are outstanding on the Optional Redemption
Date.  A Holder of such shares of Series B Convertible Preferred Stock
shall not be entitled to payment of the Optional  Redemption Price of
such shares of Series B Convertible Preferred Stock until such Holder shall have
surrendered the certificate(s) for such shares of Series B Convertible Preferred
Stock to the Corporation or, in the case of the loss, theft or destruction of
any such certificate, given indemnity in accordance with Section
15(b).

     

    (c) The
Corporation shall not be entitled to give the Optional Redemption Notice with
respect to, or to redeem, any shares of Series B Convertible Preferred Stock
with respect to which a Conversion Notice has been given on a Conversion Date
which is on or prior to the Optional Redemption Date.  If an Optional
Redemption Notice has been given, thereafter the proceedings for such redemption
shall not affect the rights of the Holders to convert in accordance with Section
10 any shares of Series B Convertible Preferred Stock called for redemption at
any time prior to the Optional Redemption Date.  If on the applicable
Optional Redemption Date the Corporation fails to pay the Optional Redemption
Price of any outstanding shares of Series B Convertible  Preferred
Stock to be redeemed in full to such Holder or to deposit the same with an
Eligible Bank in accordance with Section 15(c), such Holder shall be entitled to
convert in accordance with Section 10 the shares of Series B Convertible
Preferred Stock of such Holder so called for redemption at any time after the
Optional Redemption Date and prior to the date on which the Corporation pays the
Optional Redemption Price in full to such Holder for all shares of Series B
Convertible Preferred Stock to be redeemed from such Holder (together with any
amount due to such Holder pursuant to Section 15(d)) or so deposits the same
(together with any amount due to such Holder pursuant to Section 15(d)) and
gives notice to such Holder of such deposit and in the case of any such
conversion of any share of Series B Convertible Preferred Stock, upon delivery
to the converting Holder of the shares of Common Stock issuable upon such
conversion the Corporation shall have no further liability in respect of the
Optional Redemption Price of such share of Series B Convertible Preferred Stock
other than payment of the amount payable pursuant to Section 15(d) in respect of
the period from the Optional  Redemption Date to the Conversion Date
for such conversion.

     

    Section
8. No
Sinking Fund.  The shares of
Series B Convertible Preferred Stock shall not be entitled to the benefits of
any sinking fund for the redemption or repurchase of shares of Series B
Convertible Preferred Stock.

     

    Section
9. RESERVED

     

    Section
10. Conversion.

     

    (a) Conversion at Option of
Holder.  Subject to and upon compliance with the provisions of
this Section 10, each Holder shall have the right, at such Holder’s option, at
any time to convert the outstanding shares of Series B Convertible Preferred
Stock held by such Holder, or from time to time any portion of such shares, plus
an amount equal to accrued and unpaid dividends, if any, on such shares, into
that number of fully paid and non-assessable shares of Common Stock (as such
shares shall then be constituted) obtained by dividing (1) the sum of (x) the
aggregate Stated Value of all shares of Series B Convertible Preferred Stock
being converted by such Holder on the same Conversion Date plus (y) accrued and unpaid
dividends, if any, on the shares of Series B Convertible Preferred Stock being
converted to the applicable Conversion Date by (2) the Conversion Price
in effect on the applicable Conversion Date, by giving a Conversion Notice in
the manner provided in Section 10(b); provided, however, that, if
at any time any share of Series B Convertible Preferred Stock is converted in
whole or in part pursuant to this Section 10(a), the Corporation 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 such Holder made by notice from
such Holder to the Corporation, such share of Series B Convertible Preferred
Stock, 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 Corporation, in lieu of the shares of Common Stock into which
such share of Series B Convertible Preferred Stock would otherwise be converted
and which the Corporation is unable to issue, payment in an amount equal to the
product obtained by multiplying (x) the number of shares of Common Stock which
the Corporation is unable to issue times (y) the arithmetic
average of the Market Price of the Common Stock during the five consecutive
Trading Days immediately prior to the applicable Conversion Date. Any such
payment shall, for all purposes of this Certificate of Designations, be deemed
to be satisfaction in full of the Corporation’s obligation to issue upon such
conversion shares of Common Stock that are not then available for issuance upon
such conversion.  A Holder is not entitled to any rights of a holder
of Common Stock until such Holder has converted one or more shares of Series B
Convertible Preferred Stock to Common Stock, and only to the extent any such
shares of Series B Convertible Preferred Stock are deemed to have been converted
to Common Stock under this Section 10.  For purposes of Sections 10(e)
and 10(f), whenever a provision references the shares of Common Stock into which
any share of Series B Convertible Preferred Stock is convertible or the shares
of Common Stock issuable upon conversion of any share of Series B Convertible
Preferred Stock or words of similar import, any determination required by such
provision shall be made as if a sufficient number of shares of Common Stock were
then available for issuance upon conversion in full of all outstanding shares of
Series B Convertible Preferred Stock.

     

     

     

    
      
        
        

      

      
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            (b) Exercise of Conversion
Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or
Dividends.

     

    (1) In order
to exercise the conversion privilege with respect to the Series B Convertible
Preferred Stock, a Holder shall give a Conversion Notice (or such other notice
which is acceptable to the Corporation) to the Corporation and the Transfer
Agent or to the office or agency designated by the Corporation for such purpose
by notice to the Holders.  A Conversion Notice may be given by
telephone line facsimile transmission to the numbers set forth on the form of
Conversion Notice.

     

    (2) As
promptly as practicable, but in no event later than three Trading Days, after a
Conversion Notice is given, the Corporation shall issue and shall deliver to the
Holder giving such Conversion Notice or such Holder’s designee the number of
full shares of Common Stock issuable upon such conversion of shares of Series B
Convertible Preferred Stock in accordance with the provisions of this Section 10
and make payment by wire transfer of immediately available funds to such account
as shall be specified from time to time by such Holder or deliver a check or
cash in respect of any fractional interest in respect of a share of Common Stock
arising upon such conversion, as provided in Section 10(b)(6) and, if
applicable, any cash payment required pursuant to the proviso to the first
sentence of Section 10(a) (which payment, if any, shall be paid no later than
three Trading Days after the applicable Conversion Date).  In lieu of
delivering physical certificates for the shares of Common Stock issuable upon
any conversion of shares of Series B Convertible Preferred Stock, provided the
Corporation’s transfer agent is participating in the Depository Trust Company
(“DTC”) Fast
Automated Securities Transfer (“FAST”) program, upon
request of the Holder, the Corporation shall use commercially reasonable efforts
to cause its transfer agent electronically to transmit such shares of Common
Stock issuable upon conversion to the Holder (or its designee), by crediting the
account of the Holder’s (or such designee’s) broker with DTC through its Deposit
Withdrawal Agent Commission system (provided that the same time periods herein
as for stock certificates shall apply).

     

    (3) Each
conversion of shares of Series B Convertible Preferred Stock shall be deemed to
have been effected on the applicable Conversion Date, and the person in whose
name any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become on such Conversion
Date the holder of record of the shares represented thereby; provided, however, that if a
Conversion Date is a date on which the stock transfer books of the Corporation
shall be closed such conversion shall constitute the person in whose name the
certificates are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the applicable
Conversion Date.  Upon conversion of any shares of Series B
Convertible Preferred Stock, the accrued and unpaid dividends on such shares of
Series B Convertible Preferred Stock to (but excluding) the applicable
Conversion Date shall be deemed to be paid to the Holder through receipt of such
number of shares of Common Stock issued upon conversion of such shares of Series
B Convertible Preferred Stock as shall have an aggregate Current Fair Market
Value on the Trading Day immediately preceding such Conversion Date equal to the
amount of such accrued and unpaid dividends.

     

    (4) A
Conversion Notice shall be deemed for all purposes to be in proper form absent
timely notice from the Corporation to the Holder of manifest error
therein.  The Corporation shall notify the Holder of any claim by the
Corporation of manifest error in a Conversion Notice within two Trading Days
after the Holder gives such Conversion Notice (which notice from the Corporation
shall specify all defects in the Conversion Notice) and no such claim of error
shall limit or delay performance of the Corporation’s obligation to issue upon
such conversion the number of shares of Common Stock which are not in
dispute.  Time shall be of the essence in the giving of any such
notice by the Corporation.  Any Conversion Notice containing any such
defect shall nonetheless be effective on the date given if the Holder promptly
undertakes to correct all such defects. The Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock or other securities or property
on conversion of shares of Series B Convertible Preferred Stock in a name other
than that of such Holder, and the Corporation shall not be required to issue or
deliver any such shares or other securities or property unless and until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The converting
Holder shall be responsible for the amount of any withholding tax payable in
connection with any conversion of shares of Series B Convertible Preferred
Stock.

     

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

     

    (5) 

     

    (A) If a
Holder shall have given a Conversion Notice in accordance with the terms of this
Certificate of Designations, the Corporation’s obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of any action or inaction by such Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Corporation to any
Holder, or any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by any Holder or any other person of any obligation
to the Corporation or any violation or alleged violation of law by any Holder or
any other person, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to such Holder in connection
with such conversion; provided, however, that
nothing herein shall limit or prejudice the right of the Corporation to pursue
any such claim in any other manner permitted by applicable law. The occurrence
of an event which requires an adjustment of the Conversion Price as contemplated
by Section 10(c) shall in no way restrict or delay the right of any Holder to
receive certificates for Common Stock upon conversion of shares of Series B
Convertible Preferred Stock and the Corporation shall use its best efforts to
implement such adjustment on terms reasonably acceptable to the Holder within
two Trading Days after such occurrence.

     

    (B) If the
Corporation fails to issue and deliver the shares of Common Stock to a
converting Holder in connection with a particular conversion of shares of Series
B Convertible Preferred Stock within five Trading Days after such Holder gives
the Conversion Notice for such conversion, in addition to any other liabilities
the Corporation may have hereunder and under applicable law (i) the Corporation
shall pay or reimburse such Holder on demand for all out-of-pocket expenses,
including, without limitation, reasonable fees and expenses of legal counsel,
incurred by the Holder as a result of such failure, (ii) if as a result of such
failure such Holder shall suffer any direct damages or liabilities from such
failure (including, without limitation, margin interest and the cost of
purchasing securities to cover a sale (whether by such Holder or such Holder’s
securities broker) or borrowing of shares of Common Stock by such Holder for
purposes of settling any trade involving a sale of shares of Common Stock made
by such Holder during the period beginning on the Issuance Date and ending on
the date the Corporation delivers or causes to be delivered to such Holder such
shares of Common Stock, then the Corporation shall upon demand of such Holder
pay to the Holder an amount equal to the actual direct, out-of-pocket damages
and liabilities suffered by such Holder by reason thereof which such Holder
documents to the reasonable satisfaction of the Corporation, and (iii) the
Holder may by written notice (which may be given by mail, courier, personal
service or telephone line facsimile transmission) or oral notice (promptly
confirmed in writing), given at any time prior to delivery to such Holder of the
shares of Common Stock issuable in connection with such exercise of the Holder’s
conversion right, rescind such exercise and the Conversion Notice relating
thereto, in which case such Holder shall thereafter be entitled to convert, in
accordance with this Section 10 that portion of such shares of Series B
Convertible Preferred Stock as to which such exercise is so rescinded.
Notwithstanding the foregoing, the Corporation shall not be liable to such
Holder under clause (ii) of the immediately preceding sentence to the extent the
failure of the Corporation to deliver or to cause to be delivered such shares of
Common Stock results from fire, flood, storm, earthquake, shipwreck, strike,
war, acts of terrorism, crash involving facilities of a common carrier, acts of
God, or any similar event outside the control of the Corporation (it being
understood that the action or failure to act of the Transfer Agent shall not be
deemed an event outside the control of the Corporation except to the extent
resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God, the
bankruptcy, liquidation or reorganization of the Transfer Agent under any
bankruptcy, insolvency or other similar law or any similar event outside the
control of the Transfer Agent). A converting Holder shall notify the Corporation
in writing (or by telephone conversation, confirmed in writing) as promptly as
practicable following the third Trading Day after such Holder gives a Conversion
Notice if such Holder becomes aware that such shares of Common Stock so issuable
have not been received as provided herein, but any failure so to give such
notice shall not affect the Holder’s rights under this Certificate of
Designations or otherwise.  If the Holder shall have exercised the
conversion right in any particular instance and either (1) the Corporation shall
notify the Holder on or after the date the Holder gives such Conversion Notice
that the shares of Common Stock issuable upon such conversion might not be
delivered within three Trading Days after the date the Holder gives such
Conversion Notice or (2) the Holder learns after the date which is three Trading
Days after the date the Holder gives such Conversion Notice that the Holder has
not received such shares of Common Stock, then, without releasing the
Corporation of its obligations with respect thereto, from and after the Trading
Day next succeeding the earlier of the events described in the preceding clauses
(1) and (2) of this sentence the Holder shall make reasonable efforts not to
sell shares of Common Stock in anticipation of receipt of such shares of Common
Stock in a manner which is likely to increase materially the liability of the
Corporation under clause (B) of the first sentence of this Section
10(b)(5).

     

    (6) No
fractional shares of Common Stock shall be issued upon conversion of any shares
of Series B Convertible Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of such conversion,
the Corporation shall pay lawful money of the United States of America for such
fractional share, based on a value of one share of Common Stock being equal to
the Market Price of the Common Stock on the applicable Conversion
Date.

     

    (c) Adjustment of Conversion
Price.  So long as there
are outstanding Series B Convertible Preferred Stock, the Conversion Price shall
be adjusted from time to time by the Corporation as follows:

     

    (1) Adjustments for Certain Dividends
and Distributions in Common Stock.  In case the Corporation
shall on or after the Issuance Date pay a dividend or make a distribution to all
holders of the outstanding Common Stock in shares of Common Stock, the
Conversion Price in effect at the opening of business on the date following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the Record Date fixed for
such determination and the denominator shall be the sum of such number of shares
and the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day following such Record Date. If any dividend or distribution of the type
described in this Section 10(c)(1) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been
declared.

     

    (2) Weighted Adjustments for Certain
Issuances of Rights or Warrants.  In case the Corporation shall
on or after the Issuance Date issue rights or warrants (other than any rights or
warrants referred to in Section 10(c)(4)) to all holders of its outstanding
shares of Common Stock entitling them (for a period expiring within 45 days
after the date fixed for the determination of stockholders entitled to receive
such rights or warrants) to subscribe for or purchase shares of Common Stock at
a price per share less than the Current Market Price on the Record Date fixed
for the determination of stockholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect at the
opening of business on the date after such Record Date by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at the
close of business on the applicable Record Date plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Current Market Price, and the denominator shall be the number
of shares of Common Stock outstanding on the close of business on such Record
Date plus the total number of additional shares of Common Stock so offered for
subscription or purchase. Such adjustment shall become effective immediately
after the opening of business on the day following the Record Date fixed for
determination of stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered pursuant to such rights
or warrants, upon the expiration or termination of such rights or warrants, the
Conversion Price shall be readjusted to the Conversion Price which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered. In the event that such rights or warrants are not so issued,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such Record Date had not been fixed. In determining
whether any rights or warrants entitle the holder to subscribe for or purchase
shares of Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received for such rights or
warrants, the value of such consideration, if other than cash, to be determined
by the Board of Directors.

     

    (3) Adjustments for Certain Subdivisions
of the Common Stock. In
case the outstanding shares of Common Stock shall on or after the Issuance Date
be subdivided into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the earlier of the day following
the day upon which such subdivision becomes effective and the day on which “ex-”
trading of the Common Stock begins with respect to such subdivision shall be
proportionately reduced, and conversely, in case outstanding shares of Common
Stock shall be combined into a smaller number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the earlier of the day
following the day upon which such combination becomes effective and the day on
which “ex-” trading of the Common Stock with respect to such combination begins
shall be proportionately increased, such reduction or increase, as the case may
be, to become effective immediately after the opening of business on the earlier
of the day following the day upon which such subdivision or combination becomes
effective and the day on which “ex-” trading of the Common Stock begins with
respect to such subdivision or combination.

     

     

    
      
        
        

      

      
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    (4) Adjustments for Certain Dividends
and Distributions.

     

    (A) In case
the Corporation shall on or after the Issuance Date, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of capital
stock of the Corporation (other than any dividends or distributions to which
Section 10(c)(1) applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants referred to in
Section 10(c)(2) and dividends and distributions paid exclusively in cash and
excluding any capital stock, evidences of indebtedness, cash or assets
distributed upon a merger or consolidation to which Section 10(d) applies) (the
foregoing hereinafter in this Section 10(c)(4) called the “Securities”)), then,
in each such case, subject to the second paragraph of this Section 10(c)(4), the
Conversion Price shall be reduced so that the same shall be equal to the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the Record Date with respect to such distribution by a
fraction of which the numerator shall be the Current Market Price on such date
less the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) on such
date of the portion of the Securities so distributed applicable to one share of
Common Stock and the denominator shall be such Current Market Price, such
reduction to become effective immediately prior to the opening of business on
the day following such Record Date; provided, however, that in
the event the then fair market value (as so determined) of the portion of the
Securities so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that the Holders shall
have the right to receive upon conversion of shares of Series B Convertible
Preferred Stock the amount of Securities such Holder would have received had
such Holder converted such Holder’s shares of Series B Convertible Preferred
Stock immediately prior to such Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 10(c)(4) by reference to the actual or when issued trading market for
any Securities comprising all or part of such distribution, it must in doing so
consider the prices in such market over the same period used in computing the
Current Market Price to the extent possible.

     

    (B) Rights or
warrants distributed by the Corporation to all holders of Common Stock entitling
the holders thereof to subscribe for or purchase shares of the Corporation’s
capital stock (either initially or under certain circumstances), which rights or
warrants, until the occurrence of a specified event or events (each, a “Trigger Event”): (i)
are deemed to be transferred with such shares of Common Stock; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances of Common
Stock, shall not be deemed to have been distributed for purposes of this Section
10(c) (and no adjustment to the Conversion Price under this Section 10(c) will
be required) until the occurrence of the earliest Trigger Event. If any such
rights or warrants, including any such existing rights or warrants distributed
prior to the Issuance Date are subject to Trigger Events, upon the satisfaction
of each of which such rights or warrants shall become exercisable to purchase
different securities, evidences of indebtedness or other assets, then the
occurrence of each such Trigger Event shall be deemed to be such date of
issuance and record date with respect to new rights or warrants (and a
termination or expiration of the existing rights or warrants without exercise by
the holder thereof) (so that, by way of illustration and not limitation, the
dates of issuance of any such rights shall be deemed to be the dates on which
such rights become exercisable to purchase capital stock of the Corporation, and
not the date on which such rights may be issued, or may become evidenced by
separate certificates, if such rights are not then so exercisable). In addition,
in the event of any distribution of rights or warrants, or any Trigger Event
with respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Price under this Section 10(c)
was made (1) in the case of any such rights or warrants which shall all have
been redeemed or repurchased without exercise by any holders thereof, the
Conversion Price shall be readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or warrants),
made to all holders of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not been
issued.

     

    (C) For
purposes of this Section 10(c)(4) and Sections 10(c)(1) and (2), any dividend or
distribution to which this Section 10(c)(4) is applicable that also includes
shares of Common Stock, or rights or warrants to subscribe for or purchase
shares of Common Stock to which Section 10(c)(2) applies (or both), shall be
deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 10(c)(2)
applies (and any Conversion Price reduction required by this Section 10(c)(4)
with respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 10(c)(1) and (2) with respect to such dividend or distribution shall
then be made), except (A) the Record Date of such dividend or distribution shall
be substituted as “the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution”, “Record Date fixed for such
determination” and “Record Date” within the meaning of Section 10(c)(1) and as
“the date fixed for the determination of stockholders entitled to receive such
rights or warrants”, “the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants” and “such Record Date”
within the meaning of Section 10(c)(2) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed “outstanding at
the close of business on the Record Date fixed for such determination” within
the meaning of Section 10(c)(1).

     

    (5) Adjustments for Certain Cash
Dividends. In
case the Corporation shall on or after the Issuance Date, by dividend or
otherwise, distribute to all holders of its Common Stock cash (excluding any
cash that is distributed upon a merger or consolidation to which Section 10(d)
applies or as part of a distribution referred to in Section 10(c)(4)) in an
aggregate amount that, combined with (1) the aggregate amount of any other such
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution, and in respect
of which no adjustment pursuant to this Section 10(c)(5) has been made, and (2)
the aggregate of any cash plus the fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and set forth in a Board
Resolution) of consideration payable in respect of any Tender Offer by the
Corporation or any Subsidiary for all or any portion of the Common Stock
concluded within the 12 months preceding the date of payment of such
distribution, exceeds 1% of the product of (x) the Current Market Price on the
Record Date with respect to such distribution times (y) the number of
shares of Common Stock outstanding on such date, then, and in each such case,
immediately after the close of business on such date, unless the Corporation
elects to reserve such cash for distribution to the Holders upon the conversion
of shares of Series B Convertible Preferred Stock (and shall have made adequate
provision) so that the Holders will receive upon such conversion, in addition to
the shares of Common Stock to which the Holders are entitled, the amount of cash
which the Holders would have received if the Holders had, immediately prior to
the Record Date for such distribution of cash, converted their shares of Series
B Convertible Preferred Stock into Common Stock, the Conversion Price shall be
reduced so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on such
Record Date by a fraction (i) the numerator of which shall be equal to the
Current Market Price on such Record Date less an amount equal to the quotient of
(x) the excess of such combined amount over such 1% and (y) the number of shares
of Common Stock outstanding on such Record Date and (ii) the denominator of
which shall be equal to the Current Market Price on such Record Date; provided, however, that in
the event the portion of the cash so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price of the Common
Stock on such Record Date, in lieu of the foregoing adjustment, adequate
provision shall be made so that the Holders shall have the right to receive upon
conversion of shares of Series B Convertible Preferred Stock the amount of cash
the Holders would have received had the Holders converted all of their shares of
Series B Convertible Preferred Stock immediately prior to such Record Date. In
the event that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such dividend or distribution had not been
declared.

     

    (6) Adjustments for Certain Issuances of
Newly Issued Shares.

     

    (A) In case
at any time on or before after the Issuance Date the Corporation issues shares
of Common Stock or Common Stock Equivalents (collectively, the “Newly Issued Shares”)
at a price per share at which the Corporation sells such shares of Common Stock
or the price per share at which the holders of such Common Stock Equivalents are
entitled to acquire shares of Common Stock upon conversion or exercise thereof
which is less than the Conversion Price in effect at the time of such issuance,
then following such issuance the Conversion Price shall be reduced to the lowest
price per share at which such shares of Common Stock are issued or at which such
Common Stock Equivalents may be exercised, if the same is lower than the
Conversion Price in effect immediately prior to such issuance.

     

     

     

     

    
      
        
        

      

      
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    (B) Notwithstanding
the foregoing, no adjustment shall be made under this Section 10(c)(6) by reason
of:

     

     

    (i) the
issuance of shares of Common Stock or options to employees, officers, directors
or consultants of the Corporation pursuant to (i) any existing stock or option
plan, or (ii) any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Corporation or a majority
of the members of a committee of non-employee directors established for such
purpose;

     

     

    (ii) the
issuance of shares of Common Stock under the Corporation’s existing Non-Employee
Stock Compensation Plan;

     

     

    (iii) options
issued to new employees;

     

     

    (iv) securities
upon the exercise or exchange of or conversion of any Securities (as defined in
the Securities Purchase Agreement) issued hereunder and/or securities
exercisable or exchangeable for or convertible into shares of Common Stock
issued and outstanding on the date hereof, provided that such
securities have not been amended since the date hereof to increase the number of
such securities or to decrease the exercise, exchange or conversion price of any
such securities without the Majority Holder’s prior written consent;
or

     

     

    (v) securities
issued pursuant to acquisitions or strategic transactions or in connection with
a strategic alliance collaboration, joint venture, partnership, manufacturing,
marketing, distributing or similar arrangement of the Corporation with another
Person which strategic alliance, collaboration, joint venture, partnership
manufacturing, marketing, distributing or similar arrangement relates to the
Corporation’s business as conducted immediately prior thereto and which Person
is engaged, or proposes to be engaged, in a business similar or related to the
business of the Corporation, provided any such
issuance shall only be to a Person which is, or proposes to be, itself or
through its subsidiaries, an operating company in a business synergistic with
the business of the Corporation and in which the Corporation receives benefits
in addition to the investment of funds, but shall not include a transaction in
which the Corporation is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities.

     

    (7) RESERVED

     

    (8) Additional Reductions in Conversion
Price.  The Corporation may make such reductions in the
Conversion Price, in addition to those required by Sections 10(c)(1), (2), (3),
(4), (5) or (6) as the Board of Directors considers to be
advisable.

     

    (9) De Minimus
Adjustments.  No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any
adjustments which by reason of this Section 10(c)(9) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 10 shall be made by the Corporation and
shall be made to the nearest cent or to the nearest one hundredth of a share, as
the case may be.  No adjustment need be made for a change in the par
value of the Common Stock or from par value to no par value or from no par value
to par value.

     

    (10) Corporation Notice of
Adjustments.  Whenever the Conversion Price is adjusted as
herein provided, the Corporation shall promptly, but in no event later than five
days thereafter, give notice to the Holders setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment, but which statement shall not include any information which
would be material non-public information for purposes of the 1934 Act. Failure
to deliver such notice shall not affect the legality or validity of any such
adjustment.

     

    (11) Effectiveness of Certain
Adjustments. In any case in which this Section 10(c) provides that an
adjustment shall become effective immediately after a Record Date for an event,
the Corporation may defer until the occurrence of such event (i) issuing to the
Holders in connection with any conversion of shares of Series B Convertible
Preferred Stock after such Record Date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and (ii) paying to
such Holders any amount in cash in lieu of any fraction pursuant to Section
10(b)(6).

     

    (12) Outstanding
Shares.  For purposes of this Section 10(c), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Corporation but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Corporation will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation other than dividends or
distributions payable only in shares of Common Stock.

     

     

    
      
        
        

      

      
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    (d) Effect of Reclassification,
Consolidation, Merger or Sale.

     

    (1) If any of
the following events occur, namely:

     

    (A) any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination),

     

    (B) any
consolidation, merger or combination of the Corporation with another corporation
or other entity as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or

     

    (C) any
sale or conveyance of the properties and assets of the Corporation as, or
substantially as, an entirety to any other corporation or other entity as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock,

     

    then the
Corporation or the successor or purchasing corporation or other entity, as the
case may be, shall prior to such transaction:

    

    (w)           amend
its certificate of incorporation or comparable instrument to provide that the
shares of Series B Convertible Preferred Stock shall be convertible into the
kind and amount of shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance by the holder of a number of shares of
Common Stock issuable upon conversion of shares of Series B Convertible
Preferred Stock immediately prior to such reclassification, change,
consolidation, merger, combination, sale or conveyance assuming such holder of
Common Stock did not exercise such holder’s rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount
of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance is not the same for each share of
Common Stock in respect of which such rights of election shall not have been
exercised (“non-electing share”), then for the purposes of this Section 10(d)
the kind and amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares);

     

    (x)           the
Conversion Price shall, upon such consolidation, merger, statutory exchange,
combination, sale or conveyance, thereafter be the lower of (1) the Conversion
Price then in effect and (2) the price paid or deemed to have been paid for one
share of Common Stock in such consolidation, merger, statutory exchange,
combination, sale or conveyance (subject to further adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 10),

     

    (y)           in
the case of any such successor or purchasing Person, such Person shall execute
with each Holder a written agreement providing that upon such consolidation,
merger, combination, sale or conveyance such successor or purchasing Person
shall be jointly and severally liable with the Corporation for the performance
of all of the Corporation’s obligations under this Certificate of Designations
and the other Transaction Documents; and

     

    (z)           if
registration or qualification is required under the 1933 Act or applicable state
law for the public resale by the Holder of such shares of stock and other
securities so issuable upon conversion of shares of Series B Convertible
Preferred Stock, such registration or qualification shall be completed prior to
such reclassification, change, consolidation, merger, combination or
sale.

     

    Such
amendment shall provide for, among other things, adjustments in the conversion
rights of the Holders which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 10.  If, in the case
of any such reclassification, change, consolidation, merger, combination, sale
or conveyance, the stock or other securities and assets receivable thereupon by
a holder of shares of Common Stock includes shares of stock or other securities
and assets of a corporation or other entity other than the successor or
purchasing corporation or other entity, as the case may be, in such
reclassification, change, consolidation, merger, combination, sale or
conveyance, then such other corporation or other entity shall also so amend its
certificate of incorporation or comparable instrument and enter into such
written agreement with each Holder.  The certificate(s) of
incorporation or comparable instruments so amended and such written agreement(s)
of each such corporation or other entity shall also contain such additional
provisions to protect the interests of the Holders as the Board of Directors
shall reasonably consider necessary by reason of the foregoing, including the
provisions providing for the redemption rights set forth in Section
11.

     

    (2) The
provisions of this Section 10(d) shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.

     

    (3) If this
Section 10(d) applies to any event or occurrence, Section 10(c) shall not
apply.

     

    (e) Reservation of Shares;
Shares to Be Fully Paid; Listing of Common Stock.

     

     

    
      
        
        

      

      
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    (1) The
Corporation shall reserve and keep available, free from preemptive rights, out
of its authorized but unissued shares of Common Stock or shares of Common Stock
held in treasury, solely for issuance upon conversion of the Series B
Convertible Preferred Stock, sufficient shares to provide for the conversion of
the Series B Convertible Preferred Stock from time to time as shares of Series B
Convertible Preferred Stock are converted.

     

    (2) Before
taking any action which would cause an adjustment reducing the Conversion Price
below the then par value, if any, of the shares of Common Stock issuable upon
conversion of the Series B Convertible Preferred Stock, the Corporation shall
take all corporate action which may, in the opinion of its counsel, be necessary
in order that the Corporation may validly and legally issue shares of such
Common Stock at such adjusted Conversion Price.

     

    (3) The
Corporation covenants that all shares of Common Stock issued upon conversion of
the Series B Convertible Preferred Stock will be fully paid and non-assessable
by the Corporation and free from all taxes, liens and charges with respect to
the issue thereof.

     

    (4) The
Corporation covenants that if any shares of Common Stock to be provided for the
purpose of conversion of the Series B Convertible Preferred Stock require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued upon conversion, the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be.

     

    (5) The
Corporation covenants that, so long as the Common Stock shall be listed on the
AMEX, the NYSE or any other national securities exchange or Nasdaq or Nasdaq
Capital Market or the OTCBB, the Corporation shall obtain and, so long as the
Common Stock shall be so listed on such market or exchange, maintain approval
for listing thereon of all Common Stock issuable upon conversion of the Series B
Convertible Preferred Stock.

     

    (f) Notice to Holders Prior to
Certain Actions.  In case on or after
the Issuance Date:

     

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

     

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

     

    (3) the Board
of Directors shall authorize any reclassification of the Common Stock (other
than a subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to par
value), or any consolidation or merger or other business combination transaction
to which the Corporation is a party and for which approval of any stockholders
of the Corporation is required, or the sale or transfer of all or substantially
all of the assets of the Corporation; or

     

    (4) there
shall be pending the voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation;

     

    the
Corporation shall give the Holders of record of the Series B Convertible
Preferred Stock, as promptly as possible but in any event at least ten Trading
Days prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on which
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up is expected
to become effective or occur, and the date as of which it is expected that
holders of Common Stock of record who shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, other business combination transaction, sale, transfer,
dissolution, liquidation or winding-up shall be determined. Such notice shall
not include any information which would be material non-public information for
purposes of the 1934 Act. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. In the case of any such action of which the
Corporation gives such notice to the Holders of record of the Series B
Convertible Preferred Stock or is required to give such notice to such Holders,
such Holders shall be entitled to give a Conversion Notice which is contingent
on the completion of such action.

     

     

     

    
      
        
        

      

      
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    (g) Restricted Ownership
Percentage Limitation.

     

    (1) Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired at any time by a Holder upon conversion of shares of Series
B Convertible Preferred Stock shall not exceed a number that, when added to the
total number of shares of Common Stock deemed beneficially owned by such Holder
(other than by virtue of the ownership of securities or rights to acquire
securities (including the  Warrants) that have limitations on the
Holder’s right to convert, exercise or purchase similar to the limitation set
forth herein (the “Excluded Shares”)),
together with all shares of Common Stock beneficially owned at such time (other
than by virtue of the ownership of Excluded Shares) by Persons whose beneficial
ownership of Common Stock would be aggregated with the beneficial ownership by
such Holder for purposes of determining whether a group exists or for purposes
of determining the Holder’s beneficial ownership (the “Aggregation
Parties”), in either such case for purposes of Section 13(d) of the 1934
Act and Regulation 13D-G thereunder (including, without limitation, as the same
is made applicable to Section 16 of the 1934 Act and the rules promulgated
thereunder), would result in beneficial ownership by such Holder or such group
of more than 9.9% of the shares of  Common Stock for purposes of
Section 13(d) or Section 16 of the 1934 Act and the rules promulgated thereunder
(as the same may be modified by a particular Holder as provided herein, the
“Restricted Ownership
Percentage”).  A Holder shall have the right (x) at any time
and from time to time to reduce its Restricted Ownership Percentage immediately
upon notice to the Corporation in the event and only to the extent that Section
16 of the 1934 Act or the rules promulgated thereunder (or any successor statute
or rules) is changed to reduce the beneficial ownership percentage threshold
thereunder to a percentage less than 9.9% and (y) at any time and from time to
time, but in no event less than 61 days’ prior notice, to increase its
Restricted Ownership Percentage unless such Holder shall have, by written
instrument delivered to the Corporation, irrevocably waived its rights to so
increase its Restricted Ownership Percentage.  If at any time the
limits in this Section 10(g) make the shares of Series B Convertible Preferred
Stock held by any Holder inconvertible in whole or in part, the Corporation
shall not by reason thereof be relieved of its obligation to issue shares of
Common Stock at any time or from time to time thereafter upon conversion of such
shares of Series B Convertible Preferred Stock as and when shares of Common
Stock may be issued in compliance with such restrictions.

     

    (2) For
purposes of this Section 10(g), in determining the number of outstanding shares
of Common Stock at any time a Holder may rely on the number of outstanding
shares of Common Stock as reflected in (1) the Corporation’s then most recent
Form 10-Q, Form 10-K or other public filing with the SEC, as the case may be,
(2) a public announcement by the Corporation that is later than any such filing
referred to in the preceding clause (1) or (3) any other notice by the
Corporation or its transfer agent setting forth the number of shares of Common
Stock outstanding and knowledge the Holder may have about the number of shares
of Common Stock issued upon conversions or exercises of Series B Convertible
Preferred Stock or other Common Stock Equivalents by any Person, including such
Holder, which are not reflected in the information referred to in the preceding
clauses (1) through (3).  Upon the written request of any Holder, the
Corporation shall within three Business Days confirm in writing to such Holder
the number of shares of Common Stock then outstanding.  In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of Common Stock Equivalents,
including the shares of Series B Convertible Preferred Stock,
the  Warrants, by the Holder or its affiliates, in each such case
subsequent to, the date as of which such number of outstanding shares of Common
Stock was reported.

     

    Section
11. RESERVED

     

    Section
12. Voting Rights; Certain
Restrictions and Covenants.

     

    (a) Voting
Rights.  The Holder of each share of Series B Convertible
Preferred Stock shall be entitled to a number of votes per share at any time
equal to (1) in any case in which the Series B Convertible Preferred Stock votes
together with the Common Stock or any other class or series of stock of the
Corporation, the number of shares of Common Stock issuable upon conversion of
such share of Series B Convertible Preferred Stock at such time (determined
without regard to the shares of Common Stock so issuable upon such conversion in
respect of accrued and unpaid dividends, if any, on such share of Series B
Convertible Preferred Stock) and (2) in any case not covered by the immediately
preceding clause (1), one vote per share of Series B Convertible Preferred
Stock.  Each Holder shall be entitled to notice of any shareholders’
meeting in accordance with the bylaws of the Corporation and shall vote with
holders of Common Stock upon the election of directors and upon any other matter
submitted to a vote of shareholders, except those matters required by law to be
submitted to a vote of holders of Preferred Stock or Series B Convertible
Preferred Stock voting separately as a class or series, and except as provided
in this Certificate of Designations.  Fractional votes shall not,
however, be permitted.

     

    (b) Certificate of
Incorporation; Certain Stock.  The affirmative
vote or consent of the Majority Holders, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation’s Certificate of Incorporation if
the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series B Convertible Preferred
Stock, (2) the creation and issuance of any Senior Dividend Stock or Senior
Liquidation Stock (other than the Series A Convertible Preferred Stock), (3) the
redemption of or payment of dividends on, any class or series of capital stock
of the Corporation (other than the Series A Convertible Preferred Stock) or (4)
any sale, lease or conveyance of all or substantially all of the assets of the
Corporation, or any merger, consolidation, or business combination with any
other Person or any liquidation, dissolution or winding up of the Corporation;
provided, however, that
any increase in the authorized Preferred Stock of the Corporation or the
creation and issuance of any stock which is both Junior Dividend Stock and
Junior Liquidation Stock shall not be deemed to affect materially and adversely
such powers, preferences, or special rights and any such increase or creation
and issuance may be made without any such vote by the Holders of Series B
Convertible Preferred Stock except as otherwise required by law; and provided further, however,
that no such amendment, alteration or repeal shall (i) reduce the Optional
Redemption Price or the amount payable to a Holder pursuant to Section 5, (ii)
change the definition of Majority Holders, (iii) change the method of
calculating the Conversion Price in a manner adverse to the Holders or reduce
the number of shares of Common Stock issuable upon any conversion of shares of
Series B Convertible Preferred Stock (other than any reduction in the number of
shares of Common Stock so issuable pursuant to an amendment of the Certificate
of Incorporation which effects a combination of the outstanding shares of Common
Stock and results in an adjustment in the Conversion Price pursuant to Section
10(c)(3)), or (iv) amend, modify or repeal any provision of this Section 12(b),
unless in each such case referred to in the preceding clauses (i) through (iv)
such amendment, modification or repeal has been approved by the affirmative vote
or written consent of all Holders, voting separately as a class.

     

     

    
      
        
        

      

      
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    (c) Repurchases of Series B
Convertible Preferred Stock.  The Corporation shall not
repurchase or otherwise acquire any shares of Series B Convertible Preferred
Stock (other than pursuant to Section 7) unless the Corporation offers to
repurchase or otherwise acquire simultaneously a pro rata portion of each
Holder’s shares of Series B Convertible Preferred Stock for cash at the same
price per share.

     

    (d) Other.  So long as any shares
of Series B Convertible Preferred Stock are outstanding the Corporation shall
comply with the following unless otherwise agreed in writing by the Majority
Holders:

     

    (1) Limitation on Certain
Indebtedness. The Corporation will not itself, and will not permit any
Subsidiary to, create, assume, incur, in any manner become liable in respect of,
including, without limitation, by reason of any business combination
transaction, or suffer to exist (all of which are referred to herein as “incur”
or “incurring”), any Indebtedness other than Permitted
Indebtedness.

     

    (2) Payment of
Obligations.  The Corporation will pay and discharge, and will
cause each Subsidiary of the Corporation to pay and discharge, when due all
their respective obligations and liabilities which are material to the
Corporation and its subsidiaries taken as a whole, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings and the Corporation shall have established
adequate reserves therefor on its books.

     

    (3) Maintenance
of Property; Insurance.

     

    (A) The
Corporation will keep, and will cause each Subsidiary to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.

     

    (B) The
Corporation will maintain, and will cause each Subsidiary to maintain, with
financially sound and responsible insurance companies, insurance in at least
such amounts and covering such risks as is reasonably adequate for the conduct
of their respective businesses and the value of their respective
properties.

     

    (4) Conduct of Business and Maintenance
of Existence.  The Corporation will continue, and will cause
each Subsidiary to continue, to engage in business of the same general type as
conducted by the Corporation and its operating subsidiaries at the time this
Certificate of Designations is filed with the Secretary of State of the State of
Delaware, and will preserve, renew and keep in full force and effect, and will
cause each Subsidiary to preserve, renew and keep in full force and effect,
their respective corporate existence and their respective material rights,
privileges and franchises necessary or desirable in the normal conduct of
business except, in the case of any such matter other than maintenance of the
Corporation’s corporate existence, where the failure to do so would not have a
material adverse effect on (i) the business, properties, operations, condition
(financial or other), results of operation or prospects of the Corporation and
the Subsidiaries, taken as a whole, (ii) the ability of the Corporation to pay
and perform its obligations under the Transaction Documents or (iii) the rights
and remedies of the Holders or the Collateral Agent under or in connection with
the Transaction Documents.

     

    (5) Compliance with
Laws.  The Corporation will comply, and will cause each
Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, decisions, orders and requirements of
governmental authorities and courts (including, without limitation,
environmental laws) except (i) where compliance therewith is contested in good
faith by appropriate proceedings or (ii) where non-compliance therewith could
not reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Corporation and the Subsidiaries taken as a whole.

     

    (6) Investment Company
Act.  The Corporation will not be or become an open-end
investment trust, unit investment trust or face-amount certificate company that
is or is required to be registered under Section 8 of the Investment Company Act
of 1940, as amended, or any successor provision.

     

    (7) Limitations on Asset Sales,
Liquidations, Etc.; Certain Matters.  The Corporation shall
not, and shall not permit any Subsidiary to:

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

     

    (A) sell,
convey or otherwise dispose of all or substantially all of its assets as an
entirety or substantially as an entirety in a single transaction or in a series
of related transactions; or

     

    (B) sell one
or more Subsidiaries, or permit any one or more Subsidiaries to sell their
respective assets, if such sale individually or in the aggregate is material to
the Corporation and the Subsidiaries taken as a whole, other than any such sale
or sales which individually or in the aggregate could not reasonably be expected
to have a material adverse effect on (i) the business, properties, operations,
condition (financial or other), results of operation or financial prospects of
the Corporation and the Subsidiaries, taken as a whole, (ii) the validity or
enforceability of, or the ability of the Corporation to perform its obligations
under, the Transaction Documents, or (iii) the rights and remedies of the
Holders under the terms of the Transaction Documents; or

     

    (C) liquidate,
dissolve or otherwise wind up its affairs.

     

    (8) Limitation on Liens.  The Corporation will
not itself, and will not permit any Subsidiary to create, assume or suffer to
exist any Lien upon all or any part of its property of any character, whether
owned at the date hereof or thereafter acquired, except Permitted
Liens.

     

    (9) Transactions with
Affiliates.  The Corporation will not, and will not permit any
Subsidiary, directly or indirectly, to pay any funds to or for the account of,
make any investment (whether by acquisition of stock or Indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Indebtedness, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with, any joint
enterprise or other joint arrangement with, any Affiliate of the Corporation,
except, on terms to the Corporation or such Subsidiary no less favorable than
terms that could be obtained by the Corporation or such Subsidiary from a Person
that is not an Affiliate of the Corporation, as determined in good faith by the
Board of Directors.

     

    (10) Rule 144A Information
Requirement. 
Within the period prior to the expiration of the holding period applicable to
sales of shares of Series B Convertible Preferred Stock under Rule 144 under the
1933 Act (or any successor provision), the Corporation shall, during any period
in which it is not subject to Section 13 or 15(d) under the 1934 Act, make
available to the Holders or any holder of shares of Common Stock issued upon
conversion of shares of Series B Convertible Preferred Stock which continue to
be Restricted Securities in connection with any sale thereof and any prospective
purchaser of Series B Convertible Preferred Stock from any Holder, the
information required pursuant to Rule 144A(d)(4) under the 1933 Act upon the
request of such Holder and it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell the shares of Series B Convertible Preferred Stock held by it
without registration under the 1933 Act within the limitation of the exemption
provided by Rule 144A, as Rule 144A may be amended from time to time. Upon the
request of any Holder, the Corporation will deliver to such Holder a written
statement as to whether it has complied with such requirements.

     

    (11) Limitation on Certain
Issuances.  While the Series B Convertible Preferred Stock is
outstanding the Corporation shall not offer, sell or issue, or enter into any
agreement, arrangement or understanding to offer, sell or issue, any Common
Stock or Common Stock Equivalent (A) that is convertible into, exchangeable or
exercisable for, or includes the right to receive additional shares of Common
Stock either (x) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such Common Stock or
Common Stock Equivalent, or (y) with a fixed conversion, exercise, exchange or
purchase price that is subject to being reset at some future date after the
initial issuance of such Common Stock or Common Stock Equivalent or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Corporation or the market for the Common Stock (but
excluding customary stock split, reverse stock split, stock dividend and similar
anti-dilution provisions substantially similar to those set forth in clauses (1)
through (6) of Section 10(c)), or (B) pursuant to an “equity line” structure in
which one or more Persons commits to provide capital to the Corporation by the
purchase of securities of the Corporation from time to time, whether at
specified times, times determined by the Corporation or by such Person(s) or by
mutual agreement between the Corporation and such Person(s), at prices based on
the market prices of the Common Stock at or near the time of each purchase,
which securities are registered for sale or resale pursuant to the 1933 Act;
provided, however, that
nothing in this Section 12(c)(11) shall prohibit the Corporation from issuing
shares of Common Stock for cash for the account of the Corporation in an
offering that is underwritten on a firm commitment basis and registered with the
SEC under the 1933 Act.

     

    (12) RESERVED

     

    (13) RESERVED

     

    (14) Listing Eligibility
Reporting.  The Corporation shall notify the Holders from time
to time within five Business Days after the Corporation first learns that it
does not meet any of the applicable requirements for the continued listing of
the Common Stock on the Principal Market and shall make appropriate public
announcement thereof so that the content of such notice shall not constitute
material non-public information for purposes of the 1934 Act.

     

    (e) Concerning the Majority
Holders. The
Corporation shall not take any action or engage in any transaction, or enter
into any agreement, arrangement or understanding to take any action or engage in
any transaction, which would constitute a Fundamental Change without the advance
written consent of the Majority Holders.

     

    (f) Amendment.  This
Certificate of Designations may only be amended with the prior written consent
of the Majority Holders.  The Corporation may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Corporation shall have obtained the written consent to such action
or omission to act, of the Majority Holders.

     

    Section
13. Outstanding
Shares.  For purposes of
this Certificate of Designations, all authorized and issued shares of Series B
Convertible Preferred Stock shall be deemed outstanding except (i) from the
applicable Conversion Date, each share of Series B Convertible Preferred Stock
converted into Common Stock, unless the Corporation shall default in its
obligation to issue and deliver shares of Common Stock upon such conversion as
and when required by Section 10; (ii) from the date of registration of transfer,
all shares of Series B Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate of the Corporation (other than an
Affiliate of the Corporation who is a natural person or any original holder of
shares of Series B Convertible Preferred Stock) and (iii) from the Optional
Redemption Date, all shares of Series B Convertible Preferred Stock which are
redeemed or repurchased, so long as in each case the Optional Redemption Price
or other repurchase price, as the case may be, of such shares of Series B
Convertible Preferred Stock shall have been paid by the Corporation as and when
due hereunder.

    
       

      Section
14. Forms of
Notices.  The forms of
certain of the notices required or permitted under this Certificate of
Designations shall be as provided in this Section 14 or as otherwise agreed by
the Corporation and Majority Holders.

       

      (a) Form of Notice of Conversion
of Series B Convertible Preferred Stock.

    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

     

    NOTICE
OF CONVERSION

    OF

    SERIES
B CONVERTIBLE PREFERRED STOCK

    OF

    EMAGIN
CORPORATION

    

    TO:        eMagin
Corporation

    10500 N.E. 8th
Street

    Suite 1400

    Seattle, Washington
98004

    Attention:  Chief Executive
Officer

    Facsimile No.:  (425)
749-3601

    

    (1)           Pursuant
to the terms of the Series B Convertible Preferred Stock (the “Preferred Stock”), of
eMagin Corporation, a Delaware corporation (the “Corporation”), the
undersigned (the “Holder”) hereby
elects to convert      
            
  shares of the Preferred Stock into shares of Common Stock, $.001
par value (the “Common
Stock”), of the Corporation, at a Conversion Price per share of Common
Stock of $___________
, or such other securities into which the Preferred Stock is currently
convertible.  Capitalized terms used in this Notice and not otherwise
defined herein have the respective meanings provided in the Certificate of
Designations of Series B Convertible Preferred Stock.

     

    (2)           The
number of shares of Common Stock issuable upon the conversion of the shares of
Preferred Stock to which this Notice relates is                            .

     

    (3)           Please
issue certificates for the number of shares of Common Stock or other securities
into which such number of shares of Preferred Stock is convertible in the
name(s) specified immediately below or, if additional space is necessary, on an
attachment hereto:

     

    

    
      	 
      	 
      	 
      
	
              Name

            	 
      	
              Name

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              Address

            	 
      	
              Address

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              SS
      or Tax ID Number

            	 
      	
              SS
      or Tax ID Number

            

    

    

    

    Delivery
Instructions

    for
Common
Stock:               
                                                                      

                                                                          

                                                                          

    

    (4)           If
the shares of Common Stock issuable upon conversion of the Preferred Stock have
not been registered for resale under the 1933 Act, the Holder represents and
warrants that (i) the shares of Common Stock not so registered are being
acquired for the account of the Holder for investment, and not with a view to,
or for resale in connection with, the public distribution thereof other than
pursuant to registration under the 1933 Act or an exemption from registration
under the 1933 Act, and that the Holder has no present intention of distributing
or reselling the shares of Common Stock not so registered other than pursuant to
registration under the 1933 Act or an exemption from registration under the 1933
Act and (ii) the Holder is an “accredited investor” as defined in Regulation D
under the 1933 Act.  If the provisions of Rule 144 under the 1933 Act
are inapplicable to the Holder with respect to the Conversion Shares to which
this Notice relates, the Holder further agrees that (A) the shares of Common
Stock not so registered shall not be sold or transferred unless either (i) such
shares first shall have been registered under the 1933 Act or (ii) the
Corporation first shall have been furnished with an opinion of legal counsel
reasonably satisfactory to the Corporation to the effect that such sale or
transfer is exempt from the registration requirements of the 1933 Act and (B)
until such shares are registered for resale under the 1933 Act, the Corporation
may place a legend on the certificate(s) for the shares of Common Stock not so
registered to that effect and place a stop-transfer restriction in its records
relating to the shares of Common Stock not so registered, all in accordance with
the Securities Purchase Agreement by which the Holder is bound.

     

    

    
      	
              Date

            	 
      	 
      	 
      
	 
      	 
      	 
      	
              Signature
      of Holder

              (Must
      be signed exactly as name

              appears
      on the Preferred Stock
Certificate.)

            

    

    

    (b) Form of Optional Redemption
Notice.

     

     

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    
 

    OPTIONAL
REDEMPTION NOTICE

    (Section
7 of Certificate of Designations of

    Series
B Convertible Preferred Stock)

    

    TO:                                                                          

    (Name of Holder)

    

    (1)           Pursuant
to the terms of the Series B Convertible Preferred Stock (the “Preferred Stock”),
eMagin Corporation, a Delaware corporation (the “Corporation”), hereby
notifies the above-named holder (the “Holder”) that the
Corporation is redeeming                 
shares of Preferred Stock held by the Holder in accordance with Section 7 of the
Certificate of Designations of the Series B Senior Secured Convertible Preferred
Stock (the “Certificate of
Designations”).

     

    (2)           The
Optional Redemption Date is December _________.

     

    (3)           The
Optional Redemption Price per share of Preferred Stock is
$_________.

     

    (4)           Upon
surrender to the Corporation of the certificate(s) for the shares of Preferred
Stock to be redeemed (but in no event earlier than the Optional Redemption
Date), the Corporation will make payment of the Optional Redemption Price in
accordance with the Certificate of Designations.

     

    (5)           Capitalized
terms used herein and not otherwise defined herein have the respective meanings
provided in the Certificate of Designations.

     

    

    
      	
              Date:

            	 
      	 
      	
              EMAGIN
      CORPORATION

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              By

            	 
      
	 
      	 
      	 
      	 
      	
              Title:

            

    

    

    

    Section
15. Miscellaneous.

     

    (a) Notices.  Any
notices required or permitted to be given under the terms of this Certificate of
Designations shall be in writing and shall be delivered personally (which shall
include telephone line facsimile transmission) or by courier and shall be deemed
given upon receipt, if delivered personally or by courier (a) in the case of the
Corporation, addressed to the Corporation at 10500 N.E. 8th Street,
Suite 1400, Bellevue, Washington 98004, Attention:  Chief Executive
Officer (telephone line facsimile transmission number (425) 749-3601), or (b) in
the case of any Holder of shares of Series B Convertible Preferred Stock, at
such Holder’s address or telephone line facsimile transmission number shown on
the stock books maintained by the Corporation with respect to the Series B
Convertible Preferred Stock or such other address as the Corporation shall have
provided by notice to the Holders of shares of Series B Convertible Preferred
Stock in accordance with this Section or any Holder of shares of Series B
Convertible Preferred Stock shall have provided to the Corporation in accordance
with this Section.

     

    (b) Replacement of
Certificates.  Upon receipt by the Corporation of evidence
reasonably satisfactory to the Corporation of the ownership of and the loss,
theft, destruction or mutilation of any certificate for shares of Series B
Convertible Preferred Stock and (1) in the case of loss, theft or destruction,
of indemnity from the record Holder of the certificate for such shares of Series
B Convertible Preferred Stock reasonably satisfactory in form to the Corporation
(and without the requirement to post any bond or other security if such Holder
has and agrees to maintain reasonably sufficient assets to support the
indemnity) or (2) in the case of mutilation, upon surrender and cancellation of
the certificate for such shares of Series B Convertible Preferred Stock, the
Corporation will execute and deliver to such Holder a new certificate for such
shares of Series B Convertible Preferred Stock without charge to such
Holder.

     

    (c) Payment on Redemption;
Deposit of Redemption Price.  If any share of Series B
Convertible Preferred Stock is to be redeemed as provided in Section 7 or 11 and
any notice required in connection therewith shall have been timely given as
provided therein, the applicable redemption price of such share of Series B
Convertible Preferred Stock to be so redeemed and with respect to which any such
notice has been given shall become due and payable on the applicable redemption
date.  On and after such redemption date, provided that the Corporation
shall have paid such redemption price to the respective Holders who are entitled
thereto on or prior to the applicable redemption date or shall have deposited
with an Eligible Bank on or prior to such redemption date, to be held in trust
for the respective Holders entitled thereto, an amount sufficient to pay the
applicable redemption price, then on such redemption date the dividends on such
share of Series B Convertible Preferred Stock shall cease to accrue, and such
share of Series B Convertible Preferred Stock shall be deemed not to be
outstanding and the Holder thereof shall not be entitled to any rights of a
Holder except to receive payment of the applicable redemption price and all
other rights hereunder with respect to such share of Series B Convertible
Preferred Stock shall cease.  So long as the Corporation shall have so
paid or deposited the full amount of the applicable redemption price on a timely
basis, no Holder shall be entitled to interest on the amount so held by such
Eligible Bank and, so long as the Corporation shall be in compliance in all
material respects with its obligations to the Holders (including, without
limitation, its obligations under the Transaction Documents), the Corporation
shall be entitled to any interest paid by such Eligible Bank on the funds so
deposited, subject to applicable abandoned property and escheat
laws.  On presentation and surrender of the certificate for such share
of Series B Convertible Preferred Stock, such share shall be redeemed at the
applicable redemption price.

     

    (d) Overdue
Amounts.  Except as otherwise specifically provided in Section
5 with respect to dividends in arrears on the Series B Convertible Preferred
Stock, whenever any amount which is due to any Holder of shares of Series B
Convertible Preferred Stock is not paid to such Holder when due, such amount
shall bear interest at the rate of 12% per annum (or such other rate as shall be
the maximum rate allowable by applicable law) until paid in full.

     

    [Signature
Page Follows]

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    
 

    
      IN WITNESS
WHEREOF, eMagin
Corporation has caused this Certificate of Designations to be signed by
Andrew G. Sculley, its Chief Executive Officer, and Paul Campbell, its Interim
Chief Financial Officer, as of the 18th day of
December, 2008.

       

      
        
          	 	

                  EMAGIN
      CORPORATION

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Andrew
      G. Sculley	 
	 	 	Name:
      Andrew G. Sculley	 
	 	 	Title:  Chief
      Executive Officer	 
	 	 	 	 

        

      

       

      
        
          	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Paul
      Campbell	 
	 	 	Name:
      Paul Campbell	 
	 	 	Title:  Interim
      Chief Financial Officerexh101.htm

     

    Exhibit
10.1

    
 

    
      AMENDMENT
TO EMPLOYMENT AGREEMENT

       

       

      This
AMENDMENT (the “Amendment”) by and between Carrizo Oil & Gas, Inc., a Texas
corporation (the “Company”), and S. P. Johnson, IV (the “Executive”), effective
as of December 19, 2008, is an amendment to that certain Employment Agreement by
and between the Company and the Executive dated as of June 13, 1997 (the
“Employment Agreement”).

       

      RECITALS

       

      The
Company and the Executive have previously entered into the Employment Agreement
to provide for terms and conditions of the Executive’s employment by the
Company; and

       

      The
Company and the Executive desire to make technical amendments to the Employment
Agreement to ensure that the Employment Agreement complies with the requirements
of Section 409A of the Internal Revenue Code.

       

       

      NOW,
THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

       

      1. The first
paragraph of Section 3(c) of the Employment Agreement is hereby amended to read
as follows:

       

      “(c)           Good Reason; Window
Period. The Executive’s employment may be terminated during the
Employment Period by the Executive for Good Reason, or during a Window Period by
the Executive without any reason. For purposes of this Agreement, ‘Window
Period’ shall mean the 45-day period immediately following elapse of one year
after any Change of Control as defined in Section 9 of this Agreement. For
purposes of this Agreement, ‘Good Reason’ shall mean:”

       

      2. The last
paragraph of Section 3(c) of the Employment Agreement is hereby amended to read
as follows:

       

      “Notwithstanding
any provision to the contrary, in order for any event(s) in subparagraph (i)
through (vi) above to constitute ‘Good Reason’ for purposes of this Agreement,
(A) the Executive must notify the Company via Notice of Termination within 90
days following the initial occurrence of the event(s) that the Executive intends
to terminate his employment with the Company because of the occurrence of Good
Reason (which event must be described by the Executive in reasonable detail in
the Notice of Termination) and (B) within 60 days after receiving such Notice of
Termination from the Executive (the ‘Correction Period’), the Company must fail
to reinstate the Executive to the position he was 

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      in, or
otherwise cure the circumstances giving rise to Good
Reason.  Executive’s termination for Good Reason may occur only within
60 days following the expiration of the Correction Period.”

       

      3. Section
4(a)(i)(A) of the Employment Agreement is hereby amended to read as
follows:

       

       

      “A.           in
a lump sum in cash, within 10 days after the Date of Termination, an amount
equal to the sum of (1) the Executive’s Annual Base Salary through the Date of
Termination, (2) any deferred compensation previously awarded to or earned by
the Executive (together with any accrued interest or earnings thereon) subject
to the terms and conditions of any plan or arrangement providing such deferred
compensation and (3) any compensation for unused vacation time for which the
Executive is eligible in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies, in each case
to the extent not theretofore paid (the sum of the amounts described in clauses
(1), (2) and (3) shall be hereinafter referred to as (the ‘Accrued
Obligation’);”

       

      4. Section
4(a)(i)(E) of the Employment Agreement is hereby amended to read as
follows:

       

       

      “E.           as
soon as practicable following the calendar year of the date of termination, an
amount equal to the product of (x) the Annual Bonus that would have been paid to
the Executive with respect to the year of termination had the Date of
Termination not occurred and (y) a fraction, the numerator of which is the
number of days in the fiscal year through the Date of Termination and the
denominator of which is 365.  Such amount shall be paid at the same
time as the annual bonuses are paid to other executives, but in no event later
than the end of the calendar year following the year in which such bonus is
earned.”

       

      5. The
paragraph immediately following Section 4(a)(i)(E) of the Employment Agreement
is hereby amended to read as follows:

       

       

      “Anything
in this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive’s employment with the Company is terminated within 12
months prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment or
cessation of service as an officer (x) was at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control or (y)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement, the ‘date a Change of Control occurs’
shall mean the date immediately prior to the date of such termination of
employment; provided,
however, that the additional Change of Control severance will be paid
within 5 days following the occurrence of the Change of Control.”

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      6. Section
4(b) of the Employment Agreement is hereby amended to read as
follows:

       

       

      “(b) Death (except during a
Window Period). If the Executive’s employment is terminated by reason of
the Executive’s death during the Employment Period and other than during a
Window Period in which event the provisions of Section 4(a) shall govern, this
Agreement shall terminate without further obligations to the Executive’s legal
representatives under this Agreement, other than (i) the payment of Accrued
Obligations (which shall be paid to the Executive’s estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(ii) the payment of an amount equal to the Annual Salary that would have been
paid to the Executive pursuant to this Agreement during the Remaining Employment
Period if the Executive’s employment had not terminated by reason of death
(which shall be paid to the Executive’s estate or beneficiary, as applicable, in
a lump sum in cash within 30 days of the Date of Termination) reduced by the
amount payable in respect of Executive’s death under any life insurance policy
(other than accidental death and dismemberment or travel accident policies) but
only to the extent such amounts are attributable to premiums paid by the
Company, (iii) during the period beginning on the Date of Termination and ending
on the first anniversary thereof medical benefits coverage determined as if
Executive’s employment had not terminated by reason of death, (iv) as soon as
practicable following the fiscal year in which death occurs, payment of an
amount equal to the product of (x) the Annual Bonus that would have been paid to
Executive with respect to the year of termination had the Date of Termination
not occurred and (y) a fraction, the numerator of which is the number of days in
the fiscal year through the Date of Termination and the denominator of which is
365 and (v) effective as of the Date of Termination, (A) immediate vesting and
exercisability of, and termination of any restrictions on sale or transfer
(other than any such restriction arising by operation of law) with respect to,
each and every Compensatory Award outstanding as of a time immediately prior to
the Date of Termination and (B) the extension of the term during which each and
every Compensatory Award may be exercised or purchased by the Executive until
the earlier of (1) the first anniversary of the Date of Termination or (2) the
date upon which the right to exercise or purchase any Compensatory Award would
have expired if the Executive had continued to be employed by the Company under
the terms of this Agreement until the Final Expiration Date.”

       

      7. The last
sentence of Section 7(b) of the Employment Agreement is hereby amended to read
as follows:

       

       

      “In the
event that the Company exhausts its remedies pursuant to the following
provisions of this Section 7 and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive no later than the time
such tax is due.”

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      8. A new
Section 13 is hereby added to the Employment Agreement to read as
follows:

       

       

      “13.           Section
409A.

       

       

      (a)           This
Agreement is intended to provide payments that are exempt from or compliant with
the provisions of Section 409A of the Internal Revenue Code and related
regulations and Treasury pronouncements (‘Section 409A’), and the Agreement
shall be interpreted accordingly.  Notwithstanding any provision of
this Agreement to the contrary, the parties agree that any benefit or benefits
under this Agreement that the Company determines are subject to the suspension
period under Code Section 409A(a)(2)(B) shall not be paid or commence until a
date following six months after the Executive’s termination date, or if earlier,
the Executive’s death.

       

       

      (b)           Each
payment under this Agreement is intended to be (i) excepted from Section 409A,
including, but not limited to, by compliance with the short-term deferral
exception as specified in Treasury Regulation § 1.409A-1(b)(4) and the
involuntary separation pay exception within the meaning of Treasury Regulation §
1.409A-1(b)(9)(iii), or (ii) in the event any Gross Up Payment is made pursuant
to Section 7(a) herein, in compliance with Section 409A, including, but not
limited to, being paid pursuant to a fixed schedule or specified date pursuant
to Treasury Regulation § 1.409A-3(i)(1)(v), and the provisions of this Agreement
will be administered, interpreted and construed accordingly (or disregarded to
the extent such provision cannot be so administered, interpreted, or
construed).  In the event that any additional tax is imposed on the
Executive pursuant to Section 409A, the Company agrees to reimburse the
Executive for any such tax imposed by Section 409A, together with any taxes
imposed on such reimbursement.  Such reimbursement shall be promptly
paid by the Company to or for the benefit of the Executive no later than the
time such tax is due.

       

       

      (c)           All
reimbursements or provision of in-kind benefits pursuant to this Agreement shall
be made in accordance with Treasury Regulation § 1.409A-3(i)(1)(iv) such that
the reimbursement or provision will be deemed payable at a specified time or on
a fixed schedule relative to a permissible payment
event.  Specifically, the amount reimbursed or in-kind benefits
provided under this Agreement during Executive’s taxable year may not affect the
amounts reimbursed or provided in any other taxable year (except that total
reimbursements may be limited by a lifetime maximum under a group health plan),
the reimbursement of an eligible expense shall be made on or before the last day
of Executive’s taxable year following the taxable year in which the expense was
incurred, and the right to reimbursement or provision of in-kind benefit is not
subject to liquidation or exchange for another benefit.”

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      IN
WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.

      

      CARRIZO
OIL & GAS, INC.

      

      

      

      By:        /s/Paul
F. Boling

      Name:   Paul
F. Boling

      Title:      VP
& CFO

      

      

      

      

      EXECUTIVE

      

      /s/S.
P. Johnson, IV

      S. P.
Johnson, IV

      

      
        
          
          

        

        
          5

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