-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXgpHmHTGSPiUp6AMpJX1PUxNGlriNHF5fQX8ShiQkhfDsAo53jc0OZoMPTNRwfj d11Yj1ove/B+Ywj6lylZ1Q== 0000950127-01-500556.txt : 20020413 0000950127-01-500556.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950127-01-500556 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011218 ITEM INFORMATION: Other events FILED AS OF DATE: 20011218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMAGIN CORP CENTRAL INDEX KEY: 0001046995 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 880378451 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15751 FILM NUMBER: 1816848 BUSINESS ADDRESS: STREET 1: 1580 ROUTE 52 STREET 2: SUITE 2000 V6E 2K3 CITY: HOPEWELL JUNCTION STATE: NY ZIP: 12533 BUSINESS PHONE: 9148921900 MAIL ADDRESS: STREET 1: 1580 ROUTE 52 STREET 2: SUITE 2000 V6E 2K3 CITY: HOPEWELL JUNCITON STATE: NY ZIP: 12533 FORMER COMPANY: FORMER CONFORMED NAME: FASHION DYNAMICS CORP DATE OF NAME CHANGE: 19980805 8-K 1 a8k.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): November 27, 2001 eMagin Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 000-24757 88-0378451 - -------------------------------------- ------------------------------------- ---------------------------------- (State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Identification Incorporation) Number)
2070 Route 52, Hopewell Junction, New York 12533 - -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) (845) 892-1900 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS. On November 27, 2001 (the "Closing Date"), eMagin Corporation ("eMagin") and an Investor Group ("Investors") entered into a Secured Note Purchase Agreement (the "Secured Note Agreement") whereby Investors agreed to lend eMagin $875,000 in exchange for (i) $875,000 9.00% per annum Secured Convertible Promissory Note due on August 30, 2002 (the "Secured Note") and (ii) Warrants (the "Warrants") exercisable for a period of three (3) years to purchase 359,589 shares of common stock of eMagin. In order to induce the Investors to enter in to the Secured Note and Warrants, The Travelers Insurance Company ("Travelers") agreed to cap the warrants issuable under the August 20, 2001 Note Purchase Agreement to 451,842 shares of common stock of eMagin. The Secured Note Agreement provides for eMagin to issue up to $1,500,000 aggregate amount of Secured Notes. Interest is payable on the Debentures at a rate of 9% per annum and is payable at maturity or on the effective date of an early termination. The full amount of the Secured Note is secured by a general interest in the assets of eMagin pursuant to a Security Agreement (the "Security Agreement") dated November 20, 2001. The Secured Note is convertible into common stock of eMagin at a price of 105% of the closing price of the Secured Note upon the issuance of a minimum of $10,000,000 of convertible debt or equity securities prior to the maturity of the Secured Note, and registration under The Securities Act of 1933 of the underlying common stock to be issued pursuant to such conversion. The Investors may convert the Secured Note and accrued interest into common stock of eMagin at any time. Upon a change in control of eMagin, eMagin may call the Secured Note and purchase all of the aggregate principal amount of the Secured Note at a price equal to 250% of the principal amount plus accrued and unpaid interest. If eMagin does not call the Secured Note within thirty (30) days of the event of a change in control, the Investors may put the Secured Note to eMagin at a price equal to 250% of the aggregate principal amount for a period of thirty days following the call period. The foregoing is not intended to be a full and complete description of the transaction. Terms of the transaction are more fully described in the copies of the Secured Note Purchase Agreement, the form of Secured Convertible Promissory Note, the form of Stock Purchase Warrant and the Registration Rights Agreement attached as exhibits to this Form 8-K. The Company disseminated the attached press release on December 4, 2001, announcing a corporate restructuring and reduction of the Company's workforce to 26 people. On December 10, 2001, Mr. N. Dadomar Reddy and Mr. Martin Solomon announced their resignation from the Board of Directors of eMagin Corporation, effective December 10, 2001. Both Mr. Reddy and Mr. Solomon cited the heavy burden of time required to participate in eMagin Corporation's business affairs. Mr. Reddy and Solomon cited no issues with management policy or procedures. ITEM 7. EXHIBITS. Exhibit Number Description 4.1 Secured Note Purchase Agreement entered into as of November 27, 2001, by and among eMagin Corporation and Investors. 4.2 Form of Secured Convertible Promissory Note due August 30, 2002. 4.3 Form of Stock Purchase Warrant to purchase common stock of eMagin Corporation. 4.4 Registration Rights Agreement dated November 27, 2001 by and between eMagin Corporation and Initial Investors. 4.5 Security Agreement dated as of November 20, 2001, by and between eMagin Corporation, Verus International Ltd and the Initial Investors. 99.1 Press Release of the Company dated December 4, 2001, announc- ing a corporate restructuring. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EMAGIN CORPORATION By: ----------------------------------------- Name: Andrew P. Savadelis Title: Executive Vice President and Chief Financial Officer Dated: December 18, 2001 EX-4 3 a841015x41.txt EXHIBIT 4.1 EMAGIN CORPORATION SECURED NOTE PURCHASE AGREEMENT THIS SECURED NOTE PURCHASE AGREEMENT (this "Agreement") is entered into as of November 27, 2001, by and among eMagin Corporation, a Delaware corporation (the "Company"), and each of the investors as may be listed, from time to time, on Schedule A attached hereto (each an "Investor" or collectively, the "Investors"). The parties hereby agree as follows: 1. Purchase and Sale of Secured Notes; Issuance of Warrants. (a) (i) The Company has duly authorized for sale, issue and delivery the secured convertible notes (the "Notes") for a total aggregate principal amount not to exceed $1,500,000 (the "Maximum Note Amount"), all such Notes shall be due and payable on August 30, 2002 (the "Maturity Date") (unless prepaid or converted prior to such date pursuant to the terms of such Notes) and shall otherwise be substantially in the form attached to this Agreement as Exhibit A. Each Note shall be issued to an Investor pursuant to this Agreement in the principal amounts set forth on Schedule A opposite each such Investor's name. The total aggregate principal amount of Notes to be sold, issued and delivered by the Company at the Initial Closing (as such term is defined below) shall not exceed $875,000. (ii) The Company has duly authorized for sale, issue and delivery the three year warrants (the "Warrants" and together with the Notes and any Common Stock (defined below) issued thereunder, the "Securities") to purchase up to 652,176 shares, subject to adjustment (the "Maximum Warrant Amount") of the Company's common stock, par value $.001 per share (the "Common Stock"), such Warrants to be substantially in the form attached to this Agreement as Exhibit B. The total aggregate amount of shares of Common Stock to be issued pursuant to the Warrants to be sold, issued and delivered by the Company at the Initial Closing shall not exceed 359,590 shares of Common Stock. (b) Subject to the terms of this Agreement, each Investor agrees to purchase, and the Company agrees to issue to each Investor, a Note and Warrants for a purchase price and amount as set out on Schedule A attached hereto. (c) The initial purchase and sale of the Notes and Warrants shall take place concurrently with the execution of this Agreement (the "Initial Closing"). At the Initial Closing, the Company shall deliver to each Investor (i) an executed counterpart to this Agreement and (ii) a Note in the respective principal amount specified opposite each Investor's name under the heading "Commitment" on Schedule A attached hereto, in all cases against delivery to the Company by the Investor of (x) an executed counterpart to this Agreement and (y) the respective purchase price of each such Note and the Warrants in the amount described in the preceding clause (ii) by bank wire transfer of immediately available funds to an account designated in writing by the Company. (d) At the Initial Closing, the Company will promptly issue to each Investor a Warrant to purchase such number of shares, subject to adjustment, as specified opposite each Investor's name under the heading "Warrant Amount" on Schedule A attached hereto, each such Warrant to have an exercise price per share equal to 120% closing price of the Common Stock on the American Stock Exchange (or the over-the-counter market) for the trading day immediately preceding the date of the Initial Closing (the "Warrant Exercise Price") as reported by the Wall Street Journal, New York City edition; provided, however, that at no time shall the Company be obligated to issue Warrants if such issuance would result in any Investor being able to acquire more than 19.9% of the Company's outstanding Common Stock upon exercise of the Warrants in contravention of the rules of the American Stock Exchange or any other self-regulatory organization constituting the principal trading market for the Common Stock. The Warrants shall be substantially in the form attached to this Agreement as Exhibit B. (e) Subsequent to the Initial Closing and prior to the Maturity Date, provided that the respective Maximum Note Amount and Maximum Warrant Amount have not been issued by the Company and subject to the last sentence of this Section 1(e), the Company may, at its sole discretion, agree to permit Investors or additional Investors to subscribe for additional Notes (provided each such additional Note shall have a principal amount of not less than $25,000) and related Warrants, substantially on the same terms as Sections 1(c) and (d) (and provided that each such additional Note and Warrant, as the case may be, shall be issued on the same terms (other than recipient, date and amount) as the Notes and Warrants issued by the Company at the Initial Closing) until the Maximum Note Amount and the Maximum Warrant Amount have been issued by the Company; provided further that no additional Notes or Warrants shall be issued under this Section 1(e) unless each transferee thereof shall have concurrently with the entering into of this Agreement, entered into the Security Agreement (as defined in Section 4(a)). The closing of each additional subscription of Notes and Warrants (the "Additional Closings") pursuant to this Section 1(e) shall occur at such place and time as may be agreed upon by such additional Investors and the Company; provided that no Additional Closings shall occur after January 31, 2002. Any additional Notes or Warrants issued up to the Maximum Note Amount or the Maximum Warrant Amount, as the case may be, under this Section 1(e) shall be restricted to issuances to shareholders of record of the Company on the date of the Initial Closing unless such issuance is approved by 75% (in dollar terms of the principal amount) of the holders of Notes as of the Initial Closing date. (f) Notwithstanding anything to the contrary contained in this Agreement or any Notes issued hereunder, if each of the initial Investors shall not have delivered to the Company wire directions or other evidence satisfactory to the Company, acting reasonably, of irrevocable instruction to its respective banking or financial institutions to transfer and deliver to the Company's account, by wire transfer or otherwise, the amounts due from each such initial Investor at the Initial Closing pursuant to Section 1(a) above (and amounting to, in the aggregate, $750,000, in immediately available funds), by the close of business on November 28, 2001, then this Agreement and any Notes issued hereby (including any schedules or exhibits attached -2- hereto) shall be null and void, and of no further force and effect, and any amounts, if any, received by the Company from any initial Investor pursuant to this Agreement or such Notes shall be promptly (and in any case no later than the close of business on the immediately following business day) returned by the Company to such respective initial Investors in such amounts as may have transferred to the Company by such initial Investors; provided, that, any Notes or Warrants issuable hereunder to such initial Investors shall not be required to be released or issued by the Company to each such initial Investor unless and until the respective amounts due in respect of such Notes and Warrants shall have been actually received by the Company. 2. Representations and Warranties of the Investors. As of the date of Initial Closing or of the Additional Closing, as the case may be, each Investor severally as to itself and not jointly hereby represents and warrants to the Company as follows: (a) Such Investor is acquiring its respective Note and will acquire its respective Warrants for the Investor's own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). By executing this Agreement, such Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any such person or to any third person, with respect to the Securities. (b) Such Investor understands that (i) the Securities have not been registered under either the Securities Act or the securities laws of any state of the United States by reason of specific exemptions therefrom, (ii) the Securities must be held by the Investor indefinitely, and, therefore, such Investor must bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act and the securities laws of any applicable state or is exempt from such registrations; (iii) each certificate that represents the Securities will be endorsed with legends as required by applicable securities laws; and (iv) the Company will instruct any transfer agent not to register the transfer of any of the Securities unless the conditions specified in the foregoing legend are satisfied. For greater certainty, the restrictive legend referred to in clause (iii) shall be substantially in the following form: THIS SECURITY (A) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS, AND (B) MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED. (c) Such Investor has been furnished with such materials and has been given access to such information relating to the Company as the Investor has requested. Such Investor has been afforded the opportunity to ask questions regarding the Company and the Securities as -3- the Investor has found necessary to make an informed investment decision. Such Investor has been solely responsible for its own due diligence investigation of the Company and its business, for its own analysis of the merits and risks of its investment made pursuant to this Agreement and for its own analysis of the terms of its investment. (d) Such Investor is an "accredited investor" within the meaning of Rule 501 under the Securities Act. The Investor is in a financial position to hold the Securities and is able to bear the economic risk and withstand a complete loss of the Investor's investment in the Securities. The Investor recognizes that the Securities involve a high degree of risk. The Investor is a sophisticated investor, is able to fend for itself in the transaction contemplated by this Agreement, and has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of the prospective investment in the Securities. (e) (i) Such Investor has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement, (ii) the execution and delivery of this Agreement by the Investor and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Investor or its Board of Directors or stockholders is required, and (iii) this Agreement has been duly executed and delivered by such Investor and constitutes a valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except, in each case, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. (f) During the period such Investor holds any Note, neither such Investor nor any person acting on its behalf (i) has the intention of entering, or will enter into, any put option, short position or other similar instrument or position with respect to the Common Stock that may be acquired upon exercise of the Warrants or the conversion of the Notes or (ii) will use shares of Common Stock that may be acquired upon exercise of the Warrants or the conversion of the Notes to settle any put option, short position or other similar instrument or position that may have been entered into prior to the execution of this Agreement. 3. Representations and Warranties of the Company. The Company represents and warrants to each of the Investors as follows: (a) Organization, Good Standing and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect. As used in this Agreement, a "Material Adverse Effect" shall mean any adverse effect on the business, operations, properties, or financial condition of the Company that is material and adverse to the -4- Company and its subsidiaries, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its material obligations under this Agreement or the Securities. (b) Authorization, Enforcement. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement and the Securities, pursuant to their respective terms, (ii) the execution and delivery of this Agreement and the Securities by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required, and (iii) each of this Agreement, the Notes, and the Warrants when executed and delivered by the Company will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except, in each case, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. (c) Capitalization. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, of which 25,171,183 shares are issued and outstanding and 10,000,000 shares of preferred stock, par value $.001 per share, of which no shares are issued and outstanding. All of the outstanding shares of the Company's Common Stock have been duly authorized and validly issued and are fully paid and non-assessable and were issued in accordance with the registration or qualification provisions of the Securities Act and any relevant state securities laws or pursuant to valid exemptions therefrom. Except as set forth in this Agreement and as set forth in the SEC Documents and the attached Schedule 3(c), no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrant, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement and as set forth in the SEC Documents and the attached Schedule 3(c), there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the SEC Documents, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Initial Closing complied with all applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a Material Adverse Effect. The Company has filed as exhibits to the SEC Documents true and correct copies of the Company's articles or certificate of incorporation as in effect on the date hereof (the "Charter"), and the Company's bylaws as in effect on the date hereof (the "Bylaws"). The Company has not received any notice from the AMEX questioning or threatening the continued inclusion of the Common Stock on such market. -5- (d) Issuance of Securities. The Notes and Warrants (and the shares of Common Stock underlying such Warrants) to be issued under this Agreement have been duly authorized by all necessary corporate action and, when paid for and issued in accordance with the terms of the Notes and Warrants, the Common Stock issued on exercise of the Warrants and the conversion of the Notes shall be validly issued and outstanding, fully paid and non-assessable. (e) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated herein do not and will not (i) violate any provision of the Company's Charter or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party, (iii) create or impose a lien, charge or encumbrance on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, or local statute, rule, regulation, order, judgment or decree (including any federal or state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries are bound or affected. To the knowledge of the Company, the business of the Company and its subsidiaries is not being conducted in violation of any laws, ordinances or regulations of any governmental entity, except for possible violations which singularly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under any federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement, or issue and sell the Securities in accordance with the terms hereof (other than any filings which may be required to be made by the Company with the SEC or state securities administrators subsequent to the Initial Closing and any registration statement which may be filed pursuant hereto); provided that, for purpose of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of each Investor herein. (f) SEC Documents, Financial Statements. The Common Stock is registered pursuant to Section 12 of the Exchange Act, and, except as disclosed in the SEC Documents, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the U.S. Securities and Exchange Commission (the "SEC") pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the "SEC Documents"). The Company has directed the Investor to accurate and readily accessible sources of true and correct copies of the SEC Documents. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as applicable, and the rules and regulations of the SEC promulgated thereunder applicable to such documents, and, as of their respective filing dates, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not -6- misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements under the United States Generally Accepted Accounting Principles, as those conventions, rules and procedures are determined by the Financial Accounting Standards Board ("GAAP"), and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (g) Disclosure. The Company has provided each Investor with all the information reasonably available to it without undue expense that such Investor has requested for deciding whether to purchase the Notes and Warrants. To the best of the Company's knowledge, none of this Agreement, other agreements, written statements or certificates made or delivered in connection herewith and the SEC Documents, when taken in the aggregate, as of the date of the Initial Closing contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. (h) No Liens. Other than in respect of leased tangible equipment used by the Company in the ordinary course of business, the Company is, as of the Closing, the owner of all Collateral (as such term is defined in the Security Agreement referred to in Section 4(a) of this Agreement) free from any security interest, deed of trust, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on the Company's property (other than Permitted Liens, as such term is defined in the Security Agreement) and the Company has not issued or committed to issue any indebtedness ranking equal to or higher in priority to the security interests to be granted in the Collateral under the Security Agreement to secure the obligations under the Notes. (i) Creditor Actions. The Company has not received any written notice of foreclosure, involuntary bankruptcy or other material adverse creditor actions against the Company and has no actual knowledge of potential foreclosure, involuntary bankruptcy or other material adverse creditor actions affecting the Company. (j) Patents. To the best of the Company's knowledge, (i) the Company has not received any written notice of any claim from any third party (including, without limitation, any governmental or regulatory entity) and no such third party claims are pending challenging the right of the Company to use the patents (collectively, the "Security Agreement Patents") listed on Annex G to the Security Agreement (as defined in Section 4(a)) or alleging any violation or infringement by the Company thereof, and (ii) each Security Agreement Patent shown as registered, filed, issued or applied for, has been duly and validly registered in, filed in or issued by, the official governmental registrars and/or issuers of patents and trademarks and remain in full force and effect as of the date of the Initial Closing without any material defect. -7- (k) Litigation. The Company is not party to or aware of any actual or asserted litigation claims filed in any court that in the aggregate could result in damages in excess of $500,000. 4. Miscellaneous. (a) Security. The Notes shall be secured by a general security interest under a Security Agreement (the "Security Agreement"), dated as of November 20, 2001, between the Company, as assignor of the security interest and Verus Support Services Inc., as collateral agent for the Investors, with such security granted for the ratable benefit of all of the Investors as holders of the Notes. Reference is hereby made to the Security Agreement for a statement of the rights and obligations of the Investors, and the nature and extent of the security for, the Notes. (b) Fees and Expenses. Each party shall pay all of its own fees and expenses related to the transactions contemplated by this Agreement. (c) Survival. The representations, warranties, covenants and agreements made herein shall survive the date of the Initial Closing or the date of Additional Closing, as the case may be. (d) Entire Agreement; Amendment. This Agreement, including but not limited to the form of Note (attached hereto as Exhibit A), the form of Warrant (attached hereto as Exhibit B), the form of Security Agreement (attached hereto as Exhibit C), the form of Registration Rights Agreement (attached hereto as Exhibit D) and the other schedules and exhibits attached hereto, all of which form a part of this Agreement, contain the entire understanding of the parties with respect to the matters covered hereby and, except as specifically set forth herein, neither the Company nor any Investor make any representations, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought; provided that the addition of additional Investors as per Section 1(e) of this Agreement and any requisite related amendments to Schedule A may be effected by the Company without the consent of the Investors. (e) Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (i) upon hand delivery, overnight mail or courier service at the address or number designated on the signature pages hereof (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be as set forth on the signature pages hereof. Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other parties hereto in accordance herewith. -8- (f) Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. (g) Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof. (h) No Third Party Beneficiaries; Assignment. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. Each Investor may assign any of its rights under this Agreement to any permitted assignee of the Securities. The Company may not assign any of its rights or obligations under this Agreement without the written consent of each Investor. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the choice of law provisions. The Company and each Investor waives any right to a jury trial with respect to any dispute arising out of this Agreement. (j) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution of counterparts may be by facsimile. (k) Publicity. The Company and the Investors may agree upon a press release to be issued by the Company immediately upon execution of this Agreement describing this Agreement and the transactions contemplated hereby. Thereafter, any party may make a public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement; provided, however, that prior to issuing any such press release, making any such public statement or announcement, such party must obtain the prior consent of each other party, which consent shall not be unreasonably withheld or delayed. (l) Severability. The provisions of this Agreement are severable and, in the event that any court shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible, so long as such construction does not materially adversely effect the economic rights of either party hereto. -9- (m) Further Assurances. From and after the date of this Agreement, upon the request of the Investors or the Company, each of the Company and the Investors shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. 5. Conditions to Initial Closing. It shall be a condition to the consummation of the transactions contemplated by this Agreement at the Initial Closing that the Company shall have, concurrently with the execution of this Agreement by the Investors, executed and delivered: (a) A copy of an agreement of The Travelers Insurance Company ("Travelers") with the Company limiting the amount of warrants to be issued to Travelers by the Company pursuant to the Note Purchase Agreement, entered into as of August 21, 2001 by the Company and Travelers, to seventy percent (70%) of the relevant indebtedness issued under such agreement; (b) to the Collateral Agent (as such term is defined therein) the Security Agreement (as defined in Section 4(a)) in the form attached to this Agreement as Exhibit C, and two completed originals of a UCC Form 1 suitable for filing and the applicable federal assignment forms executed by the Company sufficient for the Collateral Agent to perfect the security interests created therein; (c) the Registration Rights Agreement, dated as of November 27, 2001, by and among the Company and the Investors (the "Registration Rights Agreement") in the form attached to this Agreement as Exhibit D; (d) the Warrants, each such Warrant to be in the amount required to be issued to each Investor on the date of the Initial Closing pursuant to Section 1(d) and in the form attached to this Agreement as Exhibit B; and (e) a legal opinion of Company's counsel to the effect that the entering into of this Agreement by the Company has been duly authorized by all necessary corporate action of the Company and that the execution, delivery and performance of this Agreement by the Company will not violate or conflict with the Amended and Restated Articles of Incorporation or Bylaws of the Company. 6. Additional Covenants of Company. The Company covenants and agrees with the Investors that the Company shall not issue any secured debt (excluding tangible equipment leased in the ordinary course of business and Permitted Liens, as defined in the Security Agreement) or any other security (excluding Permitted Liens, as defined in the Security Agreement) which in form or substance represent or are equal to or senior to the secured interests granted under the Security Agreement without the approval of holders of such Notes who hold in the aggregate seventy-five (75%) or more of such Notes (in terms of the aggregate dollar value of the principal of the Notes then issued under this -10- Agreement); provided that nothing in this Section 6 shall require the Company to obtain such approval to issue additional Notes pursuant to Section 1(e) of this Agreement. [Signature Pages Follow] -11- This Agreement has been duly executed as of the date and year first written above. EMAGIN CORPORATION By ------------------------- Name: Title: INVESTORS: RAINBOW GATE CORPORATION By ------------------------- Name: Title: MORTIMER D.A. SACKLER --------------------------- Mortimer D. A. Sackler Address: MARTIN SOLOMON --------------------------- Mr. Martin Solomon Address: -12- SOVEREIGN BANCORP LTD. By ------------------------- Name: Title: JAMES M. ARKOOSH --------------------------- Mr. James M. Arkoosh Address: JACK RIVKIN --------------------------- Mr. Jack Rivkin Address: -13- Schedule A - INVESTORS
Name and Address of Investor Commitment Warrant Amount (and Principal Note Amout) - ---------------------------------------------------------------------------------------------- Rainbow Gate Corporation $ 300,000 123,288 c/o Mundipharma House 14 Par-la-Ville Road Hamilton HMJX, Bermuda Attn: Mr. Douglas Docherty Mr. Mortimer D.A. Sackler $ 200,000 82,192 Address: Mr. Martin Solomon $ 125,000 51,370 Address: Sovereign Bancorp Ltd. $ 100,000 41,096 Bldg. #2 Chelston Pk., Ground Floor St. Michael Barbados, West Indies (246) 436-1002 Mr. James M. Arkoosh $ 25,000 10,274 Address:
Schedule A Page 2 Mr. Jack Rivkin $ 125,000 51,370 Address:
Schedule 3(c) -- Capitalization The Company has outstanding commitments in respect of its shares of Common Stock ("shares") pursuant to: (i) various warrants granted prior to March, 2000 at exercise prices per share ranging from $1.72 to $26.25, of which an aggregate of 730,172 shares are issuable; (ii) the Company's 1994 Stock Option Plan of which an aggregate of 1,286,000 shares are reserved for issuance; (iii) the Company's 2000 Stock Option Plan of which a maximum of 5,900,000 shares are authorized and available for issuance thereunder; (iv) the Company's 2001 Employee Stock Purchase Plan of which a maximum of 750,000 shares are authorized and available for issuance thereunder; (v) the potential issuance of up to 954,417 shares to The Travelers Insurance Company pursuant to the exercise of certain warrants and/or a promissory note issued under a Note Purchase Agreement dated as of August 20, 2001; and (vi) the potential issuance of up to 2,909,229 shares to SK Corporation pursuant to the exercise of certain warrants and/or a promissory note issued under a Securities Purchase Agreement dated as of September 18, 2001 (the "SK Purchase Agreement"). Exhibit A - Form of Note [See Attached] Exhibit B - Form of Warrant [See Attached] Exhibit C - Form of Security Agreement [See Attached] Exhibit D - Form of Registration Rights Agreement [See Attached] EX-4 4 a841011.txt EXHIBIT 4.2 EXHIBIT A [FORM OF PROMISSORY NOTE] THIS SECURED CONVERTIBLE PROMISSORY NOTE (A) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS, AND (B) MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED. SECURED CONVERTIBLE PROMISSORY NOTE $[_________] November 27, 2001 Hopewell Junction, New York For value received, eMagin Corporation, a Delaware corporation (the "Borrower"), hereby unconditionally promises to pay to the order of [_____________________] or its assigns (the "Lender"), subject to the provisions set forth below, in lawful money of the United States of America and in immediately available funds, the principal sum of $[_________], plus interest, payable on the dates and in the manner set forth below. This Convertible Secured Promissory Note (the "Note") is one of the notes (the "Notes") referred to in that certain Secured Note Purchase Agreement, dated as of November 27, 2001 (the "Closing Date"), by and between the Borrower and the other Investors as may be from time to time listed therein (as the same may from time to time be amended, modified or supplemented, the "Note Purchase Agreement"), which have been or are to be issued by the Borrower pursuant to, and subject to the terms of, the Note Purchase Agreement, and this Note is entitled to the benefits provided for therein. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Security Agreement (as defined below). 1. PRINCIPAL REPAYMENT. The outstanding principal amount of this Note shall be payable on August 30, 2002 (the "Maturity Date"), unless this Note has been converted or redeemed as described in Section 5, Section 9 or Section 10 below (each such event, an "Early Termination Event"). 2. INTEREST RATE. The Borrower further promises to pay interest on the sum of the unpaid principal amount of this Note outstanding on each day, from the date of this Note until all of the principal shall have been repaid in full or pursuant to an Early Termination Event. Interest shall accrue at the rate of 9% per annum. Interest shall be payable on the Maturity Date (or on the effective date of an Early Termination Event) and shall be calculated on the basis of a 360-day year for the actual number of days elapsed. Any principal payment or interest payment on the unpaid principal amount of this Note not paid when due, whether at the Maturity Date, on the effective date of an Early Termination Event, by acceleration or otherwise, shall bear interest at eleven percent (11%) or the maximum rate permissible by law, whichever is less. 3. SECURITY. The full amount of the Notes are secured by a general security interest under a Security Agreement (the "Security Agreement"), dated as of November 20, 2001, between the Borrower, as Assignor, and Verus Support Services Inc., as collateral agent for the benefit of the holders of Notes, with such security interest granted for the ratable benefit of the holders of the Notes. Reference is hereby made to the Security Agreement for a statement of the rights and obligations of the holder of, and the nature and extent of the security for, this Note. Borrower shall not, directly or indirectly create, permit or suffer to exist, and shall defend the Collateral against and take such further action as is necessary to remove any Liens (excluding Permitted Liens) on or in the Collateral, or in any portion thereof, except as permitted pursuant to the Security Agreement. 4. PLACE OF PAYMENT. All amounts payable hereunder shall be payable to the Lender in the manner specified by the Lender to the Borrower in writing. In the event that payment is to be made by wire transfer, such payment shall be made on a day that banks are open for business in New York, New York (each, a "Business Day"). If any payment becomes due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension shall be included in computing interest in connection with such payment. 5. MANDATORY CONVERSION. Subject to the last sentence of this Section 5, at any time after the closing of a bona fide sale of convertible debt securities or equity securities of the Borrower, on terms, and considering all material terms of such transaction, that are equal to or are accretive or no less favorable to the Company to those of the transactions represented by the Note Purchase Agreement under which this Note is issued and in which the gross proceeds received by the Borrower are, in the aggregate, in the minimum amount of $10 million, prior to the Maturity Date (collectively, the "Next Round of Financing"), the aggregate principal amount of and accrued interest (subject to the following) on this Note, at the Company's option, shall be converted (the "Mandatory Conversion") at the Conversion Price into an amount of shares of the common stock of the Borrower (the "Common Stock"). The "Conversion Price" shall be equal to 105% of the average of the closing prices of the shares of the Common Stock of the Company as reported on The American Stock Exchange by the Wall Street Journal, New York City edition, for the ten (10) trading days immediately preceding the Closing Date (subject to adjustment for any stock-split, stock dividends, stock combination, recapitalization and like occurrences to occur after the date hereof). Notwithstanding anything to the contrary, the Company shall not be entitled to convert the Notes pursuant to a Mandatory Conversion unless the shares of Common Stock to be issued to the Lender pursuant to such conversion (i) have been registered under the Securities Act of 1933, as amended, and (ii) are listed on the principal stock exchange or automated quotation system on which the Common Stock is then listed. -2- 6. MECHANICS OF CONVERSION. Upon any conversion of this Note, (i) the entire principal balance of and all accrued but unpaid interest under this Note shall be converted and this Note shall become fully paid and satisfied, (ii) the Lender shall surrender and deliver this Note, duly endorsed, to the Borrower's office or such other address which the Borrower shall designate against delivery of the certificates representing the new securities of the Borrower, and (iii) in exchange for the surrendered Note described in the preceding clause 6(ii), the Company shall provide the Lender with irrevocable instructions addressed to the Company's transfer and exchange agent to issue such number of unrestricted, freely tradeable shares of Common Stock and listed on the principal stock exchange or automated quotation system on which the Common Stock is then listed. 7. ISSUE TAXES. The Borrower shall pay any and all issue and other taxes that may be payable with respect to any issue or delivery of shares of capital stock on conversion of this Note pursuant hereto; provided, however, that the Borrower shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. 8. DEFAULT. It shall be an event of default ("Event of Default") and the entire unpaid principal of this Note, together with accrued interest, shall become immediately due and payable, automatically and without presentment, protest, demand or notice of any kind, all of which are expressly waived by the undersigned, in the case of those events described in paragraphs (d), (e), (f) and (k), and in the case of any other such event at the election of Lender, upon the occurrence of any of the following events: (a) Any failure on the part of Borrower to make any payment in respect of this Note when due, whether by acceleration or otherwise (including without limitation in connection with any repurchase obligation); (b) Borrower shall default in the performance or compliance with any other covenant or agreement of Borrower contained in this Note or the Note Purchase Agreement, and the continuation of such default for a period of 30 days; (c) Any representation or warranty of Borrower contained in the Note Purchase Agreement shall prove to have been untrue in any material respect as of the date of the Note Purchase Agreement; (d) Borrower shall default in the payment of principal, premium or interest on any material indebtedness for borrowed money, or shall default in the performance of or compliance with the terms of any related documentation, and in connection with any such default such indebtedness becomes due and payable prior to its stated maturity; (e) Borrower shall commence or consent to any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute; (f) A proceeding shall be commenced against Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute, and such proceeding is not stayed or dismissed within 45 days after the commencement thereof; -3- (g) Borrower consents to or suffers the appointment of a guardian, receiver, trustee or custodian to any substantial and material part of its assets that is not vacated within 45 days; (h) Final judgment in excess of $250,000 (excluding insured portions) is entered against Borrower and is not stayed, bonded or discharged within 30 days; (i) The dissolution or termination of existence of Borrower; (j) Any material default by the Company under the Security Agreement; or (k) The failure by the Company prior to November 30, 2001 to execute the reduction of monthly expenditures by approximately two-thirds for a targeted post-November 30, 2001 monthly "burn rate" of $350,000 or less; provided, however, that this Section 8(k) shall have no force and effect should the Company conclude (by the execution of transaction documents and receipt of funds) an equity or convertible debt securities financing of at least $10 million dollars prior to November 30, 2001. So long as an Event of Default exists, the Lender may declare the entire principal and unpaid accrued interest herein immediately due and payable, without any cure period thereof, by notice in writing to the Borrower. 9. OPTIONAL CONVERSION BY HOLDER. Upon twenty (20) calendar days' notice to the Borrower, the Lender may convert the aggregate principal amount of and accrued interest outstanding (as of the date for such conversion provided in such notice) on this Note at the Conversion Price into an amount of shares of the Common Stock. 10. CHANGE OF CONTROL OF BORROWER. (a) Upon the occurrence of a Change of Control, the Borrower will have the right (the "Call Right"), at its sole option, upon five day's written notice to the Lender delivered not more than 30 days after the effective date of such Change of Control (the "Call Period") to purchase all (but not less than all) of the aggregate principal amount of this Note from the Lender at a price equal to 250% of the principal amount hereof, plus all accrued and unpaid interest thereon through, but not including the date on which this Note is repurchased (the "Repurchase Price"). If the Borrower shall not have exercised such right within the Call Period, the Lender shall have the right (the "Put Right"), at its sole option, for a period of 30 days commencing on the expiry of such Call Period (the "Put Period"), to require the Lender purchase all (but not less than all) of the aggregate principal amount of this Note at the applicable Repurchase Price. (b) Immediately upon the occurrence of any Change of Control, the Borrower shall provide notice to the Lender stating that a Change of Control has occurred and the applicable expiry dates for the Call Period and the Put Period. (c) If the Borrower shall elect to exercise its Call Right, the Borrower shall provide written notice thereof to the Lender before the expiry of the Call Period, such notice to include the repurchase date for this Note which shall be no earlier than 15 days nor later than 30 days from the date such notice is delivered. Notwithstanding anything to the contrary set forth herein, -4- any Note called for repurchase by the Borrower may be voluntarily converted by the Lender at any time prior to the repurchase date specified in the Borrower's call notice. (d) If the Lender shall elect to exercise its Put Right after the expiry of the Borrower's Call Right, the Lender shall provide written notice thereof to the Borrower (the "Put Notice") before the expiry of the Put Period and upon receipt thereof, the Borrower shall provide notice to the Lender of the applicable repurchase date for this Note which shall be no earlier than 15 days nor later than 30 days from the date such Put Notice is delivered to the Borrower. (e) On any purchase date of a redemption of this Note under this Section 10, the Borrower shall deliver to the Lender the Repurchase Price and the Lender shall deliver to the Borrower this Note for cancellation. (e) As used in this Section 10, the following capitalized terms shall have the following meanings: "Change of Control" shall mean the occurrence of any of the following events: (i) a majority of the Board of Directors of the Borrower shall consist of persons who are not Continuing Directors of the Borrower; or (ii) the acquisition by any person or Group of the power, directly or indirectly, to vote or direct the voting of Common Stock having a majority of the ordinary voting power for the election of directors of the Borrower. "Continuing Director" means, as of the date of determination, any person who (i) was a member of the Board of Directors of the Borrower on the Closing Date or (ii) was nominated for election or elected to the Board of Directors of the Borrower with the affirmative vote of a majority of the Continuing Directors of the Borrower who were members of such Board of Directors at the time of such nomination or election. "Group" shall mean any "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. 11. WAIVER. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorney's fees, costs and other expenses. 12. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, excluding conflict of law principles that would cause the application of laws of any other jurisdiction. 13. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to the Borrower and shall extend to any permitted holder hereof. The Borrower may not assign or transfer this Note or any of its obligations under this Note without the prior written consent of the Lender unless such transfer is to an institutional "accredited investor" within the meaning of Rule 501 under the Securities Act of 1933, as amended and provided that the transferee of such transfer is not a competitor, directly or indirectly, of the Borrower. -5- 14. NOTICES. Any notices required to be delivered under this Note shall be delivered pursuant to the notice procedures set forth in the Note Purchase Agreement. 15. MODIFICATION. This Note may be altered only by prior written agreement signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. [Signature Page Follows] -6- IN WITNESS WHEREOF, the undersigned has executed this Note as of date first written above. EMAGIN CORPORATION By: -------------------------- Name: Title: EX-4 5 a841013.txt EXHIBIT 4.3 [Exhibit B - FORM OF WARRANT] NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS. THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE LAWS. STOCK PURCHASE WARRANT November 27, 2001 To Purchase [--------------] Shares of Common Stock of eMAGIN CORPORATION THIS CERTIFIES that, for value received, --------------, a [corporation] [organized under the laws of] ----------- (the "Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after November 27, 2001 (the "Initial Exercise Date") and on or prior to the close of business on November 26, 2004 (the "Termination Date") but not thereafter, to subscribe for and purchase from eMagin Corporation, a corporation incorporated in the State of Delaware (the "Company"), up to [-----------] shares (the "Warrant Shares") of Common Stock, $.001 par value per share, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $1.67. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Secured Note Purchase Agreement dated as of November 27, 2001 pursuant to which this Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than (x) taxes in respect of any transfer occurring contemporaneously with such issue) and (y) liens and charges created by the then-current Holder, or any former Holder of this Warrant). 3. Exercise of Warrant. ------------------- (a) Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made by the Holder at any time or times on or after the Initial Exercise Date and on or before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and upon payment on or before the Termination Date of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, or by means of a cashless exercise, the Holder shall be entitled to receive a certificate for the number of Warrant Shares so purchased. Certificates for shares purchased hereunder shall be delivered to the Holder within three (3) business days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. (b) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. 2 (c) This Warrant shall also be exercisable by means of a "cashless exercise" in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the closing price per share of Common Stock (as reported by the American Stock Exchange (or principal market in terms of volume)) on the trading day preceding the date of such election on the American Stock Exchange, or if the Common Stock is not traded on the American Stock Exchange, then the principal market (in terms of volume); (B) = the Exercise Price of this Warrant; and (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant and the Notice of Exercise. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Mandatory Exercise and Redemption by Company. In the event that on any date of determination (such date, the "Determination Date") the closing price per share of Common Stock (as reported by the American Stock Exchange (or principal market in terms of volume)) for the ten (10) consecutive trading days preceding such Determination Date shall equal or exceed two hundred percent (200%) of the Exercise Price for each such consecutive trading day, then the Company may, at its sole option and upon seven (7) calendar days notice to the registered Holder of the Warrant, demand the immediate exercise of this Warrant by the Holder within ten (10) business days of such Determination Date. Unless the Holder shall indicate within five (5) calendar days of receipt of the forgoing notice (the "Response Date") that it wishes to pay the respective Exercise Price amounts due for the exercise of the Warrant in cash, such mandatory exercise shall be made pursuant to the cashless exercise provisions of Section 3 and the Holder shall make no payment therefore and the Holder hereby authorizes the Company to exercise the Warrant on its behalf in accordance with the cashless exercise provisions of Section 3. If the registered Holder does not provide notice that it wishes to pay cash for the exercise of the Warrant within the time period specified in the preceding sentence, 3 the stock certificates for the shares of Common Stock to be purchased pursuant to a cashless exercise under this Section 6 shall be issued and delivered in the name and address of the Holder according to the securities register of the Company unless otherwise requested in writing by the registered Holder. Certificates for shares hereunder shall be delivered to the Holder within ten (10) business days after the Response Date. Not withstanding the above, the mandatory exercise and redemption of this Warrant by the Company pursuant to this Section 6 shall apply only to the extent that the registration statement contemplated by the Registration Rights Agreement is effective and the Warrant Shares are listed or the Warrant Shares are otherwise freely tradeable. 7. Transfer, Division and Combination. ---------------------------------- (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. In the event that the Holder wishes to transfer a portion of this Warrant, the Holder shall transfer at least 25,000 shares (provided that if the Warrant is for less than 25,000 shares then the entire Warrant may be transferred) underlying this Warrant to any such transferee. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. Notwithstanding the above, the Holder shall not transfer this warrant or any rights hereunder to any person or entity which is engaged in a business that is in the reasonable judgment of the Company in competition with the Company. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price or 4 by means of a cashless exercise, the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares for Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. 12. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, 5 consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to elect to receive, (i) upon exercise of this Warrant at the Exercise Price written herein and consummation of the applicable event, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event, or (ii) cash equal to the value of this Warrant as determined in accordance with the Black-Scholes option pricing formula. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 6 13. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 14. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the Holder notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 15. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder, if lawful and practicable to do so, (i) at least 10 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 10 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d). 7 16. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company represents that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the principal market (in terms of volume) upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) use commercially reasonable efforts to take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 17. Miscellaneous. ------------- (a) Jurisdiction. This Warrant shall constitute a contract under the laws of New York, without regard to its conflict of law, principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses 8 including, but not limited to, reasonable attorneys' fees, including those of appellate proceeding and out of pocket costs and expensess, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws and the provisions of this Warrant, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (i) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (j) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 9 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: November 27, 2001 eMAGIN CORPORATION By:-------------------------------- Name: Title: 10 NOTICE OF EXERCISE To: eMagin Corporation (1) The undersigned hereby elects to purchase _____ Warrant Shares (the "Common Stock"), of eMagin Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: ----------------------------------------- The Warrant Shares shall be delivered to the following: ----------------------------------------- ----------------------------------------- ----------------------------------------- [PURCHASER] By:------------------------------- Name: Title: Dated:---------------------------- NOTICE OF EXERCISE OF COMMON STOCK WARRANT PURSUANT TO CASHLESS EXERCISE PROVISIONS To: eMagin Corporation Aggregate Price of Warrant Before Exercise: $----------------------- Aggregate Price Being Exercised: $---------------- Exercise Price: $-------- per share Number of Shares of Common Stock to be Issued Under this Notice: ---------- Remaining Aggregate Price (if any) After Issuance: $---------- Gentlemen: The undersigned, registered Holder of the Warrant delivered herewith, hereby irrevocably exercises such Warrant for, and purchases thereunder, shares of the Common Stock of eMagin Corporation, a Delaware corporation, as provided below. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given in the Warrant. Holder hereby exercises this Warrant for an aggregate of ------------ shares, leaving ------------ shares remaining to be exercised. Such exercise shall be pursuant to the cashless exercise provisions of Section 3 of the Warrant; therefore, Holder makes no payment with this Notice of Exercise and authorizes the Company to reduce the number of shares of Common Stock to be delivered pursuant to the immediately preceding sentence in accordance with Section 3. Holder requests that the certificates for the purchased shares of Common Stock be issued in the name of - ------------------------ and delivered to ------------------------------------. To the extent the foregoing exercise is for less than the full Aggregate Price of the Warrant, a replacement Warrant representing the remainder of the Aggregate Price (and otherwise of like form, tenor and effect) shall be delivered to Holder along with the share certificate evidencing the Common Stock issued in response to this Notice of Exercise. [Purchaser] By:------------------------------- Name: Title: Date: NOTE The execution to the foregoing Notice of Exercise must exactly correspond to the name of the Holder on the Warrant 2 ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to - ----------------------------------------------- whose address is - ---------------------------------------------------------------. - --------------------------------------------------------------- Dated: ------------------, ---- Holder's Signature: --------------------------------- Holder's Address: --------------------------------- --------------------------------- Signature Guaranteed: ------------------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-4.4 6 a841012.txt REGISTRATION RIGHTS AGMT Exhibit 4.4 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT, dated as of November 27, 2001 (this "Agreement"), by and between eMagin Corporation, a Delaware corporation, with principal executive offices located at 2070 Route 52, Hopewell Junction, NY 12533 (the "Company"), and each of the undersigned investors, from time to time, a signatory hereto pursuant to the terms of this Agreement (each an "Initial Investor" or collectively, the "Initial Investors"). Whereas, upon the terms and subject to the conditions of the Secured Note Purchase Agreement dated as of November 27, 2001, by and between the Initial Investors and the Company (the "Note Purchase Agreement"), the Company has agreed to issue and sell to each Initial Investor (i) the Company's secured convertible Notes in an aggregate principal amount of up to $1,500,000 (the "Notes"), which, upon the terms and subject to the conditions thereof, are convertible into shares of the Company's common stock, par value $.001 per share (the "Common Stock"), and (ii) three year Warrants (the "Warrants") to purchase shares of Common Stock; and Whereas, to induce each of the Initial Investors, and as may become a party to this Agreement, from time to time, to execute and deliver the Note Purchase Agreement, the Company has agreed to provide with respect to the Common Stock issued or issuable in lieu of cash interest payments on the Notes, upon conversion of the Notes and/or exercise of the Warrants, certain registration rights under the Securities Act; Now, Therefore, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions (a) As used in this Agreement, the following terms shall have the meanings: (i) "Affiliate," of any specified Person means any other Person who directly, or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such specified Person. For purposes of this definition, control of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract, securities, ownership or otherwise; and the terms "controlling" and "controlled" have the respective meanings correlative to the foregoing. (ii) "Closing Date" means the date and time of the issuance and sale of the Notes and the Warrants. (iii) "Commission" means the Securities and Exchange Commission. (iv) "Current Market Price" on any date of determination means the closing price of a share of the Common Stock in the regular day session on such day as reported on the American Stock Exchange ("Amex"); provided, if such security is not listed or admitted to trading on the Amex, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing price of such security on the over-the-counter market in the regular day session on the day in question as reported by Bloomberg LP, or a similar generally accepted reporting service, as the case may be. If such security has no quotes or listing as defined in this section 1 (iv), then the Current Market Price shall be the price per Common Share on any date of determination as determined by an independent third party appointed by mutual agreement of the Company and the Holder. (v) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (vi) "Investor" means each of the Initial Investors and as may become a party to this Agreement, from time to time, and any transferee or assignee of Registrable Securities which agrees to become bound by all of the terms and provisions of this Agreement in accordance with Section 9 hereof. (vii) "Person" means any individual, partnership, corporation, limited liability company, joint stock company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. (viii) "Prospectus" means the prospectus (including, with- out limitation, any preliminary prospectus and any final prospectus filed pursuant to Rule 424(b) under the Securities Act, including any prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance on Rule 430A under the Securities Act) included in the Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to such prospectus, including all material incorporated by reference in such prospectus and all documents filed after the date of such prospectus by the Company under the Exchange Act and incorporated by reference therein. (ix) "Public Offering" means an offer registered with the Commission and the appropriate state securities commissions by the Company of its Common Stock and made pursuant to the Securities Act. (x) "Registrable Securities" means the Common Stock issued or issuable (i) in lieu of cash interest payments on the Notes, (ii) upon conversion, redemption or prepayment of the Notes or (iii) upon exercise of the Warrants; provided, 2 however, a share of Common Stock shall cease to be a Registrable Security for purposes of this Agreement when it no longer is a Restricted Security. (xi) "Registration Statement" means a registration statement of the Company filed on an appropriate form under the Securities Act providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act, including the Prospectus contained therein and forming a part thereof, any amendments to such registration statement and supplements to such Prospectus, and all exhibits to and other material incorporated by reference in such registration statement and Prospectus. (xii) "Restricted Security" means any share of Common Stock converted, issued or issuable in lieu of cash interest payments on the Notes, upon conversion, redemption or prepayment of the Notes or exercise of the Warrants except any such share that (i) has been registered pursuant to an effective registration statement under the Securities Act and sold in a manner contemplated by the prospectus included in such registration statement, (ii) has been transferred in compliance with the resale provisions of Rule 144 under the Securities Act (or any successor provision thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision thereto), or (iii) otherwise has been transferred and a new share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company. (xiii) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (b) All capitalized terms used and not defined herein have the respective meaning assigned to them in the Note Purchase Agreement. 2. Registration (a) Filing and Effectiveness of Registration Statement. The Company shall prepare and file with the Commission not later than 90 days after the Closing Date, a Registration Statement relating to the offer and sale of the Registrable Securities and shall use its reasonable best efforts to cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but in no event later than five (5) months after the Closing Date; provided that if the Commission shall review such Registration Statement the Company shall have an additional 30 days period to amend such Registration Statement. The Company shall promptly (and, in any event, no more than 48 hours after it receives comments from the Commission), notify each of the Investors when and if it receives any comments from the Commission on the Registration Statement and promptly forward a copy of such comments, if they are in writing, to the Investors. At such time after the filing of the Registration Statement pursuant to this Section 2(a) as the Commission indicates, either orally or in writing, that it has no further comments with respect to such Registration Statement or that it is willing to entertain appropriate requests 3 for acceleration of effectiveness of such Registration Statement, the Company shall promptly, and in no event later than five (5) days after receipt of such indication from the Commission, request that the effectiveness of such Registration Statement be accelerated within 48 hours of the Commission's receipt of such request. The Company shall notify the Investors by written notice that such Registration Statement has been declared effective by the Commission within 24 hours of such declaration by the Commission. (b) Eligibility for Use of Form S-3. The Company agrees that at such time as it meets all the requirements for the use of Securities Act Registration Statement on Form S-3 it shall use its reasonable best efforts to file all reports and information required to be filed by it with the Commission in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. To the extent the Company is not eligible for use of a Registration Statement on Form S-3, it agrees to file a Registration Statement on the form it is eligible to use within the time periods set forth in paragraph 2(a) above. 3. Obligations of the Company In connection with the registration of the Registrable Securities, the Company shall subject to the Investors assistance and cooperation, as reasonably required: (a) (i) Shall prepare and file with the Commission such amendments (including post-effective amendments) to the Registration Statement and supplements to the Prospectus as may be necessary to keep the Registration Statement continuously effective and in compliance with the provisions of the Securities Act applicable thereto so as to permit the Prospectus forming part thereof to be current and useable by Investors for resales of the Registrable Securities for a period of three (3) years from the date on which the Registration Statement is first declared effective by the Commission (the "Effective Time") or such shorter period that will terminate upon the earlier of there ceasing to be any Registrable Securities outstanding or when all the Registrable Securities covered by the Registration Statement have been sold pursuant thereto in accordance with the plan of distribution provided in the Prospectus, transferred pursuant to Rule 144 under the Securities Act or otherwise transferred in a manner that results in the delivery of new securities not subject to transfer restrictions under the Securities Act (the "Registration Period") and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (b) During the Registration Period, use its reasonable best efforts to comply with the provisions of the Securities Act with respect to the Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Investors as set forth in the Prospectus forming part of the Registration Statement; 4 (c) (i) Prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any Prospectus (including any supplements thereto), provide (A) draft copies thereof to the Investors and give reasonable consideration to all such comments as the Investors (and their counsel) reasonably may propose and (B) to the Investors a copy of the accountant's consent letter to be included in the filing and (ii) furnish to each Investor whose Registrable Securities are included in the Registration Statement and its legal counsel identified to the Company, (A) promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, one copy of the Registration Statement, each Prospectus, and each amendment or supplement thereto, and (B) such number of copies of the Prospectus and all amendments and supplements thereto and such other documents, as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor; (d) (i) Use its reasonable best efforts to register or qualify the Registrable Securities covered by the Registration Statement under such securities or "blue sky" laws of such jurisdictions as the Investors who hold a majority-in-interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in such jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (B) subject itself to general taxation in any such jurisdiction or (C) file a general consent to service of process in any such jurisdiction; (e) As promptly as practicable after becoming aware of such event, notify each Investor of the occurrence of any event, as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare an amendment to the Registration Statement and supplement to the Prospectus to correct such untrue statement or omission, and deliver a number of copies of such supplement and amendment to each Investor as such Investor may reasonably request; (f) As promptly as practicable after becoming aware of such event, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) Use its reasonable best efforts to cause all the Registrable Securities covered by the Registration Statement to be listed on the principal national securities exchange, and 5 included in an inter-dealer quotation system of a registered national securities association, on or in which securities of the same class or series issued by the Company are then listed or included; (h) Use its reasonable best efforts to maintain a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement and to cause such transfer agent to remove restrictive legends on the Registered Securities, as may be appropriate and in compliance with the Securities Act; (i) Use its reasonable best efforts to take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Investors of their Registrable Securities in accordance with the intended methods therefor provided in the Prospectus which are customary under the circumstances; (j) Make generally available to its security holders as soon as practicable, but in any event not later than three (3) months after (i) the effective date (as defined in Rule 158(c) under the Securities Act) of the Registration Statement, and (ii) the effective date of each post-effective amendment to the Registration Statement, as the case may be, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); and (k) (i) Make reasonably available for inspection by Investors, and any attorney, accountant or other agent retained by such Investors all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and (ii) use reasonable best efforts to cause the Company's officers, directors and employees to supply all information reasonably requested by such Investors or any such attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material nonpublic information shall be kept confidential by such Investors and any such attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided, further, that, if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Investors and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of Investors and other parties. 4. Obligations of the Investors In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: 6 (a) As long as the Company complies with the notice procedures herein, it shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. As least fourteen days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company reasonably requires from each such Investor (the "Requested Information") if such Investor elects to have any of its Registrable Securities included in the Registration Statement. Such notice shall be clearly marked (on the envelope containing such notice, upon the facsimile cover sheet, or as may otherwise be required) as follows: "URGENT ATTENTION REQUIRED". If at least two business days prior to the anticipated filing date the Company has not received the Requested Information from an Investor (a "Non-Responsive Investor"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Investor and have no further obligations to the Non-Responsive Investor; (b) Each Investor by its acceptance of the Registrable Securities agrees to use its reasonable best efforts to cooperate with the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from the Registration Statement; and (c) Each Investor agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 3(e) or 3(f), it shall immediately discontinue its disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(e) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. 5. Right to Suspend Registration Statement So long as the Company has maintained the initial registration for a minimum period of 90 days, the Company shall have the right for up to 120 days, in the aggregate, in any consecutive 360-day period to suspend any Registration Statement in the event that the Company determines, in good faith, that it is in the best interest of the Company for the Company to proceed with its own offering of equity securities. The Company may so proceed by delivering written notice of such intention to the Investors. The Company may exercise the right to suspend a Registration Statement only twice in any 360-day period, provided that such exercises shall not exceed 120 days, in the aggregate, in any 360-day period. 7 6. Expenses of Registration All expenses, other than underwriting discounts and commissions or similar fees relating to the Registrable Securities, incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualifications fees, printing and engraving fees, accounting fees, and the fees and disbursements of counsel for the Company (but not of the Investors) shall be borne by the Company. 7. Indemnification and Contribution (a) The Company shall indemnify and hold harmless each Investor and each of their respective officers and directors and each person who controls such Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act(each such person being sometimes hereinafter referred to as an "Indemnified Person")from and against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, or arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Prospectus or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company hereby agrees to reimburse such Indemnified Person for all reasonable legal and other expenses incurred by them in connection with investigating or defending any such action or claim as and when such expenses are incurred; provided, however, that the Company shall not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement made in, or an omission or alleged omission from, such Registration Statement or Prospectus in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person expressly for use therein or (ii) in the case of the occurrence of an event of the type specified in Section 3(e), the use by the Indemnified Person of an outdated or defective Prospectus after the Company has provided to such Indemnified Person an updated Prospectus correcting the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage or liability. The indemnity provided for in this Section 7(a) shall not apply to amounts paid in settlement of any losses, claims, damages or liabilities if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld. (b) Indemnification by the Investors. Each Investor agrees, as a consequence of the inclusion of any of its Registrable Securities in a Registration Statement, to (i) indemnify and hold harmless the Company, its directors (including any person who, with his or her consent, is named in the Registration Statement as a director nominee of the Company), its officers who sign any Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company or such other persons may become 8 subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement of a material fact contained in such Registration Statement or Prospectus or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made, in the case of the Prospectus), not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Investor expressly for use therein; provided, however, that absent fraud, no Investor shall be liable under this Section 7(b) for any amount in excess of the net proceeds paid to such Investor in respect of shares sold by it, and (ii) reimburse the Company for any legal or other expenses incurred by the Company in connection with investigating or defending any such action or claim as and when such expenses are incurred. The indemnity provided for in this Section 7(b) shall not apply to amounts paid in settlement of any losses, claims, damages or liabilities if such settlement is effected without the consent of the Investors, which consent shall not be unreasonably withheld. (c) Notice of Claims, etc. Promptly after receipt by a party seeking indemnification pursuant to this Section 7 (an "Indemnified Party") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "Claim"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Section 7 is being sought (the "Indemnifying Party") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is actually prejudiced by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of one such separate legal counsel for all Indemnified Parties in connection with any one action or series of substantially related actions if (and only if): (x) the Indemnifying Party shall have agreed in writing to pay such fees, costs and expenses, (y) the named parties to any such action (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have been advised by such counsel in writing that there may be one or more legal defenses available to the Indemnifying Party different from or in conflict with any legal defenses which may be available to the Indemnified Party (in which case the Indemnifying Party shall not have the right to assume the defense of such action on behalf of the Indemnified Party, or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of counsel for the Indemnified Party (together with appropriate local counsel). The Indemnified Party shall not, without the prior 9 written consent of the Indemnifying Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnifying Party from all liabilities with respect to such Claim or judgment. (d) Contribution. If the indemnification provided for in this Section 7 is unavailable to or insufficient to hold harmless an Indemnified Person under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Investors were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7(d). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Notwithstanding any other provision of this Section 7, in no event shall any Investor be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the proceeds to be received by such Investor from the sale of such Investor's Registrable Securities pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act. (f) The obligations of the Company under this Section 7 shall be in addition to any liability which the Company may otherwise have to any Indemnified Person and the obligations of any Indemnified Person under this Section 7 shall be in addition to any liability which such Indemnified Person may otherwise have to the Company. The remedies provided in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity. 8. Rule 144 With a view to making available to the Investors the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time 10 permit the Investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to use its reasonable best efforts to: (a) comply with the provisions of paragraph (c) (1) of Rule 144; (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Investor, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144; and (c) Provide within a reasonable period of time of a written request of the Investor and at the Company's expense, a legal opinion addressed to the Company's transfer agent verifying the transferability of the Shares in accordance with Rule 144. 9. Assignment The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Investors to any permitted transferee of all or a portion (which portion shall exceed 10% of the Registrable Securities on an as-converted basis) of such Registrable Securities (or all or a portion (which portion shall exceed 10% of the Registrable Securities on an as-converted basis) of any Notes or Warrant of the Company which is convertible into such securities) only if: (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within ten (10) Business Days of such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment, the securities so transferred or assigned to the transferee or assignee constitute Restricted Securities, and (d) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein. 10. Amendment and Waiver Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who hold at least two-thirds (66 2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. 11. Changes in Common Stock If, and as often as, there are any changes in the Common Stock by way of stock split, stock dividend, reverse split, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment 11 shall be made in the provisions hereof, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 12. Miscellaneous (a) A person or entity shall be deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) If, after the date hereof and prior to the Commission declaring the Registration Statement to be filed pursuant to Section 2(a) effective under the Securities Act, the Company grants to any Person any registration rights with respect to any Company securities which are more favorable to such other Person than those provided in this Agreement, then the Company forthwith shall grant (by means of an amendment to this Agreement or otherwise) identical registration rights to all Investors hereunder. (c) Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified mail, postage prepaid, or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally or by overnight courier service, or, if mailed, three days after the date of deposit in the United States mails, as follows: (i) if to the Company, to: eMagin Corporation 2070 Route 52 Hopewell Junction, NY 12533 Attention: Gary W. Jones (845) 892-1900 (845) 892-1901 (Fax) with a copy to: White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Attention: S. Ward Atterbury Tel: (212) 819-8200 Fax: (212) 354-8113; (ii) if to an Initial Investor, to the address set out for such Initial Investor on Schedule A attached hereto; and 12 (iii) if to any other Investor, at such address as such Investor shall have provided in writing to the Company. The Company, the Initial Investors or any Investor may change the foregoing address by notice given pursuant to this Section 12(c). (d) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (e) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. (f) The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (g) The Company agrees with the Investors that irreparable damage would occur in the event that any of the material provisions of this Agreement were not performed in accordance with their terms or were otherwise materially breached by the Company. Accordingly, the Investors shall be entitled to an injunction or injunctions to prevent material breaches of this Agreement and to enforce specifically the material terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity and that the Company shall reimburse the Investors for all reasonable costs relating thereto. In addition to the injunctive relief provided pursuant to the immediately preceding sentence, if the Registration Statement relating to the offer and sale of the Registrable Securities shall not be declared effective by the Commission within six (6) months of the Closing Date and the Company shall have been shown to have failed to use its reasonable best efforts to cause the Commission to declare such Registration Statement effective, the Company shall be entitled to liquidated damages at a rate of five percent (5%) per month (calculated to the nearest calendar day) of the value of the Registrable Securities not so declared effective until, and to the extent, such Registrable Securities shall be declared effective. The value of the Registrable Securities pursuant to the preceding sentence shall be determined by the average closing price of the Common Stock on its principal exchange (in terms of volume) at the time of determination for 13 the twenty (20) consecutive trading days commencing on the first trading day occurring six (6) months after the Closing Date. (h) The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. (i) This Agreement, the Note Purchase Agreement, the Security Agreement, the Notes and the Warrants constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement, the Note Purchase Agreement, the Security Agreement, the Notes and the Warrants supersede all prior agreements and undertakings among the parties hereto with respect to the subject matter hereof. (j) Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (k) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (l) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof. (m) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. (n) Notwithstanding anything to the contrary in this Agreement, the parties hereto expressly agree that additional parties may join this Agreement as Initial Investors, from time to time (and prior to January 30, 2002) and become a party hereto provided, that, each such additional party shall agree to be bound by the terms and conditions of this Agreement and shall agree to assume the rights and obligations of an Initial Investor hereunder as if such additional party was an original signatory hereto as of the date of this Agreement, and, provided, further, that such additional party shall be permitted under Section 1(e) of the Note Purchase Agreement to join the Note Purchase Agreement as an additional Investor (as such term is defined in the Note Purchase Agreement). [SIGNATURE PAGE FOLLOWS.] 14 In Witness Whereof, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. EMAGIN CORPORATION By:-------------------------------- Name: Title: INITIAL INVESTORS: RAINBOW GATE CORPORATION By:-------------------------------- Name: Title: MORTIMER D.A. SACKLER ----------------------------------- Mortimer D.A. Sackler Address: 15 MARTIN SOLOMON ----------------------------------- Mr. Martin Solomon Address: SOVEREIGN BANCORP LTD. By:-------------------------------- Name: Title: JAMES M. ARKOOSH ----------------------------------- Mr. James M. Arkoosh Address: 16 JACK RIVKIN ----------------------------------- Mr. Jack Rivkin Address: 17 EX-4.5 7 a841014.txt SECURITY AGMT ================================================================================ Exhibit 4.5 SECURITY AGREEMENT among EMAGIN CORPORATION, the SECURED CREDITORS set out herein and VERUS SUPPORT SERVICES INC., as COLLATERAL AGENT -------------------------------- Dated as of November 20, 2001 -------------------------------- ================================================================================ SECURITY AGREEMENT SECURITY AGREEMENT, dated as of November 20, 2001, made by and among each of the undersigned assignor (the "Assignor") in favor of the undersigned Verus Support Services Inc., as Collateral Agent, together with any successor collateral agent appointed hereunder pursuant to Section 8.10 (collectively, the "Collateral Agent"), for the benefit of the undersigned Secured Creditors (the "Secured Creditors") and as such Secured Creditors may become a party to this Agreement from time to time. Except as otherwise defined herein, capitalized terms used herein and defined in the Note Purchase Agreement (as defined below) shall be used herein as so defined. W I T N E S S E T H: WHEREAS, the Assignor proposes to enter into a Note Purchase Agreement, dated as of November 27, 2001, together with each of the investors from time to time a party thereto (and each such investor a Secured Creditor under this Agreement), providing for the issuance of secured convertible notes (the "Notes") by the Assignor as contemplated therein (the "Note Purchase Agreement"); WHEREAS, the obligations accruing under the Notes to the Assignor shall be secured by the Collateral upon the terms and conditions set out in this Agreement; WHEREAS, it is a condition precedent to execution on delivery of the Note Purchase Agreement that the Assignor shall have executed and delivered to the Collateral Agent this Agreement; and WHEREAS, it is a condition precedent to the delivery of this Agreement that the Assignor provide to the Collateral Agent completed copies of UCC form 1 documentation suitable for filing and applicable federal assignment forms required to perfect the security interests granted by the Assignors herein, and NOW, THEREFORE, in consideration of the benefits accruing to the Assignor, the receipt and sufficiency of which are hereby acknowledged, the Assignor hereby makes the following representations and warranties to the Collateral Agent for the benefit of the Secured Creditors and hereby covenants and agrees with the Collateral Agent for the benefit of the Secured Creditors as follows: ARTICLE I SECURITY INTERESTS 1.1 Grant of Security Interests. (a) As security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all of its Obligations, in order to induce the Secured Creditors to enter into the Note Purchase Agreement the Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent, for the benefit of the Secured Creditors, a continuing security interest in all of the right, title and interest of the Assignor in, to and under all of the following (in each case whether now existing or hereafter from time to time acquired): (i) each and every Account; (ii) all cash; (iii) the Cash Collateral Account and all monies, securities, Instruments and other investments deposited or required to be deposited in the Cash Collateral Account; (iv) all computer programs of the Assignor and all intel- lectual property rights therein and all other proprietary information of the Assignor, including but not limited to Trade Secret Rights; (v) all Contracts, together with all Contract Rights arising thereunder, including, without limitation, joint venture agreements, partnership agreements, and limited liability company agreements); (vi) all Copyrights; (vii) all Equipment; (viii) all Documents; (ix) all Equipment; (x) all General Intangibles; (xi) all Goods; (xii) all Instruments; (xiii) all Inventory; (xiv) all Investment Property; (xv) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the business of the Assignor symbolized by the Marks; (xvi) all Patents; (xvii) all Permits; (xviii) all Software and all Software licensing rights, all writings, plans, specifications and schematics, all engineering drawings, customer lists, goodwill -2- and licenses, and all recorded data of any kind or nature, regardless of the medium of recording; (xix) all Supporting Obligations; (xx) all manuals, training material, diagrams, know how and other necessary or useful materials to utilize the Compan's trade secrets and other business intangibles; and (xxi) all Proceeds and products of any and all of the foregoing (all of the above, the "Collateral"). (b) The security interest of the Collateral Agent under this Agreement extends to all Collateral which the Assignor may acquire, or with respect to which the Assignor may obtain rights, at any time during the term of this Agreement. 1.2 Power of Attorney. The Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of an Event of Default (in the name of the Assignor or otherwise) to act, require, demand, receive, compound and give acquaintance for any and all moneys and claims for moneys due or to become due to the Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be necessary or advisable to protect the interests of the Secured Creditors, which appointment as attorney is coupled with an interest. ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS The Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2.1 Necessary Filings. All filings, registrations, recordings and other actions necessary or appropriate to create, preserve and perfect the security interest granted by the Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished and the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral creates a valid and, together with all such filings, registrations, recordings and other actions, a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Permitted Liens) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests, in each case to the extent that the Collateral consists of the type of property in which a security interest may be perfected by possession or control (within the meaning of the UCC as in effect on the date hereof in the State of New York), by filing a financing statement under the Uniform Commercial Code as enacted in any relevant jurisdiction or by a filing of a Grant of Security Interest in the respective form attached hereto in the United States Patent and Trademark Office or in the United States Copyright Office. -3- 2.2 No Liens. The Assignor is, and as to all Collateral acquired by it from time to time after the date hereof the Assignor will be, the owner of all Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens), and the Assignor shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent. 2.3 Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other than financing statements filed in respect of Permitted Liens), and so long as the Termination Date has not occurred, the Assignor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except financing statements filed or to be filed in respect of and covering the security interests granted hereby by the Assignor or in connection with Permitted Liens. 2.4 Chief Executive Office, Record Locations. The chief executive office of the Assignor is, on the date of this Agreement, located at the address indicated on Annex A hereto for the Assignor. During the period of the four calendar month preceding the date of this Agreement, the chief executive office of the Assignor has not been located at any address other than that indicated on Annex A in accordance with the immediately preceding sentence, in each case unless each such other address is also indicated on Annex A hereto for the Assignor. 2.5 Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof, or held at any time during the four calendar months prior to the date hereof, by the Assignor is located at one of the locations shown on Annex B hereto for the Assignor. 2.6 Legal Names; Type of Organization; Jurisdiction of Organization; Location; Organizational Identification Numbers; Changes Thereto; etc. The exact legal name of the Assignor, the type of organization of the Assignor, the jurisdiction of organization of the Assignor, and the Assignor's Location, is listed on Annex C hereto for the Assignor. The Assignor shall not change its legal name, its type of organization, its jurisdiction of organization, its Location or its organizational identification number (if any) from that listed on Annex C hereto for the Assignor or those that may have been established after the date of this Agreement in accordance with the immediately succeeding sentence of this Section 2.6. The Assignor shall not change its legal name, its type of organization, its jurisdiction of organization, its Location, or its organizational identification number (if any), except that any such changes shall be permitted if (i) it shall have given to the Collateral Agent not less than 15 days' prior written notice of each change to the information listed on Annex C (as adjusted for any subsequent changes thereto previously made in accordance with this sentence), together with a supplement to Annex C which shall correct all information contained therein for the Assignor, and (ii) in connection with the respective such change or changes, it shall have taken all action reasonably requested by the Collateral Agent to maintain the security interests of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. In addition, to the extent that the Assignor does not have an organizational identification number on the date hereof and later obtains one, the Assignor shall promptly thereafter notify the Collateral Agent of such organizational identification number and shall take all actions -4- reasonably satisfactory to the Collateral Agent to the extent necessary to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby fully perfected and in full force and effect. 2.7 Trade Names; Etc. The Assignor has not nor operates in any jurisdiction under, or in the preceding five years has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name as specified in Annex C and such other trade or fictitious names as are listed on Annex D hereto for the Assignor. The Assignor shall not assume or operate in any jurisdiction under any new trade, fictitious or other name until (i) it shall have given to the Collateral Agent not less than 15 days' written notice of its intention so to do, clearly describing such new name and the jurisdictions in which such new name will be used and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new name, it shall have taken all action reasonably requested by the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.8 Certain Significant Transactions. During the one year period preceding the date of this Agreement, no Person shall have merged or consolidated with or into the Assignor, and no Person shall have liquidated into, or transferred all or substantially all of its assets to, the Assignor, in each case except as described in Annex E hereto. With respect to any transactions so described in Annex E hereto, the Assignor shall have furnished such information with respect to the Person (and the assets of the Person and locations thereof) which merged with or into or consolidated with the Assignor, or was liquidated into or transferred all or substantially all of its assets to the Assignor, and shall have furnished to the Collateral Agent such UCC lien searches as may have been requested with respect to such Person and its assets, to establish that no security interest (excluding Permitted Liens) continues perfected on the date hereof with respect to any Person described above (or the assets transferred to the Assignor by such Person), including without limitation pursuant to Section 9-316(a)(3) of the UCC. 2.9 Recourse. This Agreement is made with full recourse to the Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of the Assignor contained herein and otherwise in writing in connection herewith. ARTICLE III SPECIAL PROVISIONS CONCERNING ACCOUNTS; CONTRACT RIGHTS; INSTRUMENTS; AND CERTAIN OTHER COLLATERAL 3.1 Additional Representations and Warranties. As of the time when each of its Accounts arises, the Assignor shall be deemed to have represented and warranted that each such Account, and all records, papers and documents relating thereto (if any) are genuine and what they purport to be, and that all papers and documents (if any) relating thereto (i) will, to the knowledge of the Assignor, represent the genuine, legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by the respective account debtor arising out of the performance of labor or services or the sale or lease and delivery of the merchandise listed therein, or both, (ii) will be the only original writings evidencing and -5- embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes), (iii) will, to the knowledge of the Assignor, evidence true and valid obligations, enforceable in accordance with their respective terms, and (iv) will be in compliance and will conform in all material respects with all applicable federal, state and local laws and applicable laws of any relevant foreign jurisdiction. 3.2 Maintenance of Records. The Assignor will keep and maintain at its own cost and expense accurate records of its Accounts and Contracts, including, but not limited to, originals of all documentation (including each Contract) with respect thereto, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and the Assignor will make the same available on the Assignor's premises to the Collateral Agent for inspection, at the Assignor's own cost and expense, at any and all reasonable times upon prior notice to the Assignor. Upon the occurrence and during the continuance of an Event of Default and at the request of the Collateral Agent, the Assignor shall, at its own cost and expense, deliver all tangible evidence of its Accounts and Contract Rights (including, without limitation, all documents evidencing the Accounts and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of which evidence and books and records may be retained by the Assignor). Upon the occurrence and during the continuance of an Event of Default and if the Collateral Agent so directs, the Assignor shall legend, in form and manner satisfactory to the Collateral Agent, the Accounts and the Contracts, as well as books, records and documents (if any) of the Assignor evidencing or pertaining to such Accounts and Contracts with an appropriate reference to the fact that such Accounts and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. 3.3 Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of an Event of Default, if the Collateral Agent so directs the Assignor, the Assignor agrees (x) to cause all payments on account of the Accounts and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Accounts and/or under any Contracts to make payments with respect thereto as provided in the preceding clause (x), and (z) that the Collateral Agent may enforce collection of any such Accounts and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as the Assignor. Without notice to or assent by the Assignor, the Collateral Agent may, upon the occurrence and during the continuance of an Event of Default, apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account toward the payment of the Obligations in the manner provided in Section 7.4 of this Agreement. The reasonable costs and expenses of collection (including reasonable attorneys' fees), whether incurred by an Assignor or the Collateral Agent, shall be borne by the Assignor. The Collateral Agent shall deliver a copy of each notice referred to in the preceding clause (y) to the Assignor, provided that the failure by the Collateral Agent to so notify the Assignor shall not affect the effectiveness of such notice or the other rights of the Collateral Agent created by this Section 3.3. 3.4 Modification of Terms; etc. Except in accordance with the Assignor's ordinary course of business and consistent with reasonable business judgment, the Assignor shall not rescind nor cancel any indebtedness evidenced by any Account or under any Contract, or modify any material term thereof or make any material adjustment with respect thereto, nor extend or renew the same, nor compromise or settle any material dispute, claim, suit or legal -6- proceeding relating thereto, nor sell any Account or Contract, or interest therein, without the prior written consent of the Collateral Agent. The Assignor will not do anything to impair the rights of the Collateral Agent in the Accounts or Contracts. 3.5 Collection. The Assignor shall endeavor in accordance with reasonable business practices to cause to be collected from the account debtor named in each of its Accounts or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Account or Contract, and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Account or under such Contract. Except as otherwise directed by the Collateral Agent after the occurrence and during the continuation of an Event of Default, the Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Accounts and Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which the Assignor finds appropriate in accordance with reasonable business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which the Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the Assignor. 3.6 Instruments. If the Assignor owns or acquires any Instrument in excess of $1,000,000 constituting Collateral (other than checks and other payment instruments received and collected in the ordinary course of business), the Assignor will within 10 Business Days notify the Collateral Agent thereof. 3.7 Assignors Remain Liable Under Accounts. Anything herein to the contrary notwithstanding, the Assignors shall remain liable under each of the Accounts to observe and perform all of the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to such Accounts. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such Account pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of the Assignor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by them or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. 3.8 Assignors Remain Liable Under Contracts. Anything herein to the contrary notwithstanding, the Assignors shall remain liable under each of the Contracts to observe and perform all of the conditions and obligations to be observed and performed by them thereunder, all in accordance with and pursuant to the terms and provisions of each Contract. Neither the Collateral Agent nor any other Secured Creditor shall have any obligation or liability under any -7- Contract by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any other Secured Creditor of any payment relating to such Contract pursuant hereto, nor shall the Collateral Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of the Assignor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to them or to which they may be entitled at any time or times. 3.9 Further Actions. The Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, certificates, reports and other assurances or instruments and take such further steps, including any and all actions as may be necessary or required under the Federal Assignment of Claims Act, relating to its Receivables, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require. ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS 4.1 Additional Representations and Warranties. The Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use the registered Marks listed in Annex F hereto for the Assignor and that said listed Marks include all United States marks and applications for United States marks registered in the United States Patent and Trademark Office that the Assignor owns or uses in connection with its business as of the date hereof and that Assignor has not granted security interest in the listed Marks to any other Person. The Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use, all Marks that it uses. The Assignor further warrants that it has no knowledge of any third party claim received by it that any aspect of the Assignor's present or contemplated business operations infringes or will infringe any trademark, service mark or trade name of any other Person other than as could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use all U.S. trademark registrations and applications listed in Annex F hereto and that said registrations are valid, subsisting, have not been canceled and that the Assignor is not aware of any third-party claim that any of said registrations is invalid or unenforceable, and is not aware that there is any reason that any of said registrations is invalid or unenforceable. The Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of an Event of Default, any document which may be required by the United States Patent and Trademark Office in order to effect an absolute assignment of all right, title and interest in each Mark, and record the same. 4.2 Licenses and Assignments. The Assignor hereby agrees not to divest itself of any right under any Mark absent prior written approval of the Collateral Agent. -8- 4.3 Infringements. The Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who the Assignor believes is infringing or diluting or otherwise violating any of the Assignor's rights in and to any Mark in any manner that could reasonably be expected to have a Material Adverse Effect, or with respect to any party claiming that the Assignor's use of any Mark material to the Assignor's business violates in any material respect any property right of that party. The Assignor further agrees to prosecute in accordance with reasonable business practices any Person infringing any Mark in any manner that could reasonably be expected to have a Material Adverse Effect. 4.4 Preservation of Marks. The Assignor agrees to use its Marks which are material to the Assignor's business in interstate commerce during the time in which this Agreement is in effect and to take all such other actions as are reasonably necessary to preserve such Marks as trademarks or service marks under the laws of the United States (other than any such Marks which are no longer used or useful in its business or operations). 4.5 Maintenance of Registration. The Assignor shall, at its own expense, diligently process all documents reasonably required to maintain trademark registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office for all of its material registered Marks, and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent (other than with respect to registrations and applications deemed by the Assignor to be no longer prudent to pursue). 4.6 Future Registered Marks. If any Mark registration is issued hereafter to the Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office, within 30 days of receipt of such certificate, the Assignor shall deliver to the Collateral Agent a copy of such certificate, and an assignment for security in such Mark, to the Collateral Agent and at the expense of the Assignor, confirming the assignment for security in such Mark to the Collateral Agent hereunder, the form of such security to be substantially in the form of Annex I hereto or in such other form as may be reasonably satisfactory to the Collateral Agent. 4.7 Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the Assignor, take any or all of the following actions: (i) declare the entire right, title and interest of the Assignor in and to each of the Marks, together with all trademark rights and rights of protection to the same, vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such rights, title and interest shall immediately vest, in the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged and notarized and record said absolute assignment with the applicable agency; (ii) take and use or sell the Marks and the goodwill of the Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of the Assignor in connection with which the Marks have been used; and (iii) direct the Assignor to refrain, in which event the Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and the Assignor shall execute such further documents that the Collateral Agent -9- may reasonably request to further confirm this and to transfer ownership of the Marks and registrations and any pending trademark application in the United States Patent and Trademark Office to the Collateral Agent. ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS 5.1 Additional Representations and Warranties. The Assignor represents and warrants that it is the true and lawful owner of all rights in (i) all United States trade secrets and proprietary information necessary to operate the business of the Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex G hereto for the Assignor and that said Patents include all the United States patents and applications for United States patents that the Assignor owns as of the date hereof and (iii) the Copyrights listed in Annex H hereto for the Assignor and that said Copyrights constitute all the United States copyrights registered with the United States Copyright Office and applications to United States copyrights that the Assignor owns as of the date hereof, and has not granted a security interest in the Trade Secret Rights, Patents or Copyrights to any other Person. The Assignor further warrants that it has no knowledge of any third party claim that any aspect of the Assignor's present or contemplated business operations infringes or will infringe any patent of any other Person or the Assignor has misappropriated any trade secret or proprietary information which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Patent and Trademark Office in order to effect an absolute assignment of all right, title and interest in each Patent, and to record the same. 5.2 Licenses and Assignments. The Assignor hereby agrees not to divest itself of any right under any Patent or Copyright absent prior written approval of the Collateral Agent. 5.3 Infringements. The Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to the Assignor with respect to any infringement, contributing infringement or active inducement to infringe in any Patent or Copyright or to any claim that the practice of any Patent or use of any Copyright violates any property right of a third party, or with respect to any misappropriation of any Trade Secret Right or any claim that practice of any Trade Secret Right violates any property right of a third party, in each case, in any manner which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. The Assignor further agrees, absent direction of the Collateral Agent to the contrary, to diligently prosecute, in accordance with its reasonable business judgment, any Person infringing any Patent or Copyright or any Person misappropriating any Trade Secret Right, in each case to the extent that such infringement or misappropriation, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.4 Maintenance of Patents or Copyright. At its own expense, the Assignor shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. Section 41 to maintain in -10- force its rights under each Patent or Copyright, absent prior written consent of the Collateral Agent (other than any such Patents or Copyrights which are no longer used or useful in its business or operations). 5.5 Prosecution of Patent Applications. At its own expense, the Assignor shall diligently prosecute all material applications for (i) United States Patents listed in Annex G hereto and (ii) Copyrights listed on Annex H hereto, in each case for the Assignor and shall not abandon any such application prior to exhaustion of all administrative and judicial remedies (other than applications deemed by the Assignor to be no longer prudent to pursue), absent written consent of the Collateral Agent. 5.6 Other Patents and Copyrights. Within 30 days of the acquisition or issuance of a United States Patent, registration of a Copyright, or acquisition of a registered Copyright, or of filing of an application for a United States Patent or Copyright, the Assignor shall deliver to the Collateral Agent a copy of said Copyright or Patent, or certificate or registration of, or application therefor, as the case may be, with an assignment for security as to such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of the Assignor, confirming the assignment for security, the form of such assignment for security to be substantially in the form of Annex J or K hereto, as appropriate, or in such other form as may be reasonably satisfactory to the Collateral Agent. 5.7 Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the Assignor, take any or all of the following actions: (i) declare the entire right, title, and interest of the Assignor in each of the Patents and Copyrights vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) take and practice or sell the Patents and Copyrights; and (iii) direct the Assignor to refrain, in which event the Assignor shall refrain, from practicing the Patents and using the Copyrights directly or indirectly, and the Assignor shall execute such further documents as the Collateral Agent may reasonably request further to confirm this and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors. ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL 6.1 Protection of Collateral Agent's Security. The Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral. The Assignor will at all times maintain insurance, at the Assignor's own expense, to the extent and in a manner consistent with commercially reasonable business practice. Except to the extent otherwise permitted to be retained by the Assignor, the Collateral Agent shall, at the time any proceeds of such insurance are distributed to the Secured Creditors, apply such proceeds in accordance with Section 7.4 hereof. The Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of the Assignor to pay the Obligations shall in no way be affected -11- or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to the Assignor. 6.2 Warehouse Receipts Non-negotiable. To the extent practicable, the Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, the Assignor shall request that such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law). 6.3 Additional Information. The Assignor will, at its own expense, from time to time upon the reasonable request of the Collateral Agent, promptly (and in any event within 10 days after its receipt of the respective request) furnish to the Collateral Agent such information with respect to the Collateral (including the identity of the Collateral or such components thereof as may have been requested by the Collateral Agent, the value and location of such Collateral, etc.) as may be requested by the Collateral Agent. Without limiting the forgoing, the Assignor agrees that it shall promptly (and in any event within 10 days after its receipt of the respective request) furnish to the Collateral Agent such updated Annexes hereto as may from time to time be reasonably requested by the Collateral Agent. 6.4 Further Actions. The Assignor will, at its own expense and upon the reasonable request of the Collateral Agent, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Collateral. 6.5 Financing Statements. The Assignor agrees to execute and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time reasonably request or as are reasonably necessary or desirable in the opinion of the Collateral Agent to establish and maintain a valid, enforceable, perfected security interest in the Collateral as provided herein and the other rights and security contemplated hereby. The Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. The Assignor hereby authorizes the Collateral Agent to file any such financing statements without the signature of the Assignor where permitted by law (and such authorization includes describing the Collateral as "all assets" of the Assignor). ARTICLE VII REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT 7.1 Remedies; Obtaining the Collateral Upon Default. The Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law and -12- under the other provisions of this Agreement, shall have all rights as a secured creditor under any UCC, and such additional rights and remedies to which a secured creditor is entitled under the laws in effect in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from the Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon the Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of the Assignor; (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Accounts and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent and may exercise any and all remedies of the Assignor in respect of such Collateral; (iii) instruct all banks which have entered into a control agreement with the Collateral Agent to transfer all monies, securities and instruments held by such depositary bank to the Cash Collateral Account; (iv) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (v) take possession of the Collateral or any part thereof, by directing the Assignor in writing to deliver the same to the Collateral Agent at any reasonable place or places designated by the Collateral Agent, in which event the Assignor shall at its own expense: (x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent; (y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; and (z) while the Collateral shall be so stored and kept, provide such security and maintenance services as shall be reasonably necessary to protect the same and to preserve and maintain it in good condition; (vi) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents or Copyrights included in the Collateral for such term and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine; (vii) apply any monies constituting Collateral or proceeds thereof in accordance with the provisions of Section 7.4; and -13- (viii) take any other action as specified in clauses (1) through (5), inclusive, of Section 9-607 of the UCC; it being understood that the Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by the Assignor of said obligation. By accepting the benefits of this Agreement, the Secured Creditors expressly acknowledge and agree that this Agreement may be enforced only by the action of the Collateral Agent acting upon the written instructions of all of the Secured Creditors and that no Secured Creditor shall have any right individually to seek to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Collateral Agent for the benefit of the Secured Creditors upon the terms of this Agreement. 7.2 Remedies; Disposition of the Collateral. If any Event of Default shall have occurred and be continuing, then any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the Assignor which the Collateral Agent shall determine to be commercially reasonable. Any such sale, lease or other disposition may be effected by means of a public disposition or private disposition, effected in accordance with the applicable requirements (in each case if and to the extent applicable) of Sections 9-610 through 9-613 of the UCC and/or such other mandatory requirements of applicable law as may apply to the respective disposition. The Collateral Agent may, without notice or publication, adjourn any public or private disposition or cause the same to be adjourned from time to time by announcement at the time and place fixed for the disposition, and such disposition may be made at any time or place to which the disposition may be so adjourned. To the extent permitted by any such requirement of law, the Collateral Agent may bid for and become the purchaser (and may pay all or any portion of the purchase price by crediting Obligations against the purchase price) of the Collateral or any item thereof, offered for disposition in accordance with this Section 7.2 without accountability to the Assignor. If, under applicable law, the Collateral Agent shall be permitted to make disposition of the Collateral within a period of time which does not permit the giving of notice to the Assignor as herein above specified, the Collateral Agent need give the Assignor only such notice of disposition as shall be required by such applicable law. The Assignor agrees to do or cause to be done all such other acts and things as may be reasonably necessary to make such disposition or dispositions of all or any portion of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Assignor's expense. -14- 7.3 Waiver of Claims. Except as otherwise provided in this Agreement, THE ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES, and the Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession or any such disposition except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision); (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and the Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against the Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under the Assignor. 7.4 Application of Proceeds. (a) All moneys collected by the Collateral Agent upon any sale or other disposition of the Collateral, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: (i) first, to the payment of all amounts owing the Collateral Agent of the type described in clauses (iii) and (iv) of the definition of "Obligations"; (ii) second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Obligations shall be paid to the Secured Creditors, with each Secured Creditor receiving an amount equal to its outstanding Obligations or, if the proceeds are insufficient to pay in full all such Obligations, its Pro Rata Share of the amount remaining to be distributed; and (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) through (iii), inclusive, and following the termination of this Agreement pursuant to Section 10.8(a) hereof, to the Assignor or to whomever may be lawfully entitled to receive such surplus. -15- (b) For purposes of this Agreement, (x) "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Obligations and the denominator of which is the then outstanding amount of all Obligations. (c) This Agreement is made with full recourse to the Assignor (including, without limitation, with full recourse to all assets of the Assignor) and pursuant to and upon all the warranties, representations, covenants and agreements on the part of the Assignor contained herein, and otherwise in writing in connection herewith. 7.5 Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given to the Collateral Agent under this Agreement, or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence thereof. No notice to or demand on the Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable expenses, including reasonable attorneys' fees, and the amounts thereof shall be included in such judgment. 7.6 Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. ARTICLE VIII INDEMNITY; APPOINTMENT OF COLLATERAL AGENT BY SECURED PARTIES 8.1 Indemnity.(a) Indemnity by Assignor. The Assignor agrees to indemnify, reimburse and hold the Collateral Agent, each Secured Creditor and their respective successors, assigns, employees, affiliates and agents (hereinafter in this Section 8.1 referred to individually as "Indemnitee," and collectively as "Indemnitees") harmless from any and all liabilities, -16- obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs, expenses or disbursements (including reasonable attorneys' fees and expenses) (for the purposes of this Section 8.1 and Section 8.5(b) the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Agreement or any other document executed in connection herewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Indemnitee (as determined by a court of competent jurisdiction in a final and non-appealable decision). The Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, suit or judgment, the Assignor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its best efforts to promptly notify the Assignor of any such assertion of which such Indemnitee has knowledge. (b) Without limiting the application of Section 8.1(a) hereof, the Assignor agrees to pay or reimburse the Collateral Agent for any and all reasonable fees, costs and expenses incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) If and to the extent that the obligations of the Assignor under this Section 8.1 are unenforceable for any reason, the Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 8.2 Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of the Assignor contained in this Section 8.1 and 8.2 shall continue in full force and effect notwithstanding the full payment of all of the other Obligations and notwithstanding the full payment of all the Notes issued under the Note Purchase Agreement. 8.3 Appointment and Authorization of Collateral Agent. -17- Each Secured Creditor hereby irrevocably (subject to Section 8.10) appoints, designates and authorizes the Collateral Agent to take such action on its behalf under the provisions of this Agreement and the Notes and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or the Notes, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or the Notes, the Collateral Agent shall not have any duty or responsibility except those expressly set forth herein, nor shall the Collateral Agent have or be deemed to have any fiduciary relationship with any Secured Creditor, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the Notes or otherwise exist against the Collateral Agent. 8.4 Delegation of Duties. The Collateral Agent may execute any of its duties under this Agreement or the Notes by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Collateral Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 8.5 Liability of Collateral Agent. (a) None of the Collateral Agent nor any of its directors, officers, employees or agents shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or the Notes or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Secured Creditors for any recital, statement, representation or warranty made by the Assignor or any subsidiary or affiliate of the Assignor, or any officer thereof, contained in this Agreement or in the Notes , or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, this Agreement or the Notes, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes, or for any failure of the Assignor or any other party to this Agreement or the Notes to perform its obligations hereunder or thereunder. The Collateral Agent shall not be under any obligation to any Secured Creditor to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the Notes, or to inspect the properties, books or records of the Assignor or any of the Assignor's subsidiaries or affiliates. (b) The Secured Creditors hereby agree to indemnify, reimburse and hold the Collateral Agent and its respective successors, assigns and employees (hereinafter in this Section 8.5(b) referred to individually as an "Agent Indemnitee," and collectively as "Agent Indemnitees") harmless from any and all expenses of whatsoever kind and nature imposed on, asserted against or incurred by any of the Agent Indemnitees relating to or arising out of the performance by the Collateral Agent of its obligations under this Agreement as collateral agent or other document executed in connection herewith or in any other way connected with the administration of the transactions contemplated hereby or thereby by the Collateral Agent as the collateral agent or the enforcement of any of the terms of, or the preservation of any rights under -18- any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Agent Indemnitee), or property damage), or contract claim; provided that no Agent Indemnitee shall be indemnified pursuant to this Section 8.5(b) for losses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Agent Indemnitee (as determined by a court of competent jurisdiction in a final and non-appealable decision). 8.6 Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons, and upon advice and statements of legal counsel (including counsel to the Assignor), independent accountants and other experts selected by the Collateral Agent. The Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement or the Notes unless it shall first receive such advice or concurrence of the Secured Creditors as it deems appropriate and, if it so requests, confirmation from the Secured Creditors of their obligation to indemnify the Collateral Agent against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or the Notes in accordance with a request or consent of the Secured Creditors and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Secured Creditors. 8.7 Notice of Default. The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Collateral Agent shall have received written notice from a Secured Creditor or the Assignor referring to this Agreement, describing such Default and stating that such notice is a "notice of default". The Collateral Agent will notify the Secured Creditors of its receipt of any such notice. The Collateral Agent shall take such action with respect to such Default as may be requested by the Secured Creditors; provided that unless and until the Collateral Agent has received any such request, the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to Default as it shall deem advisable or in the best interest of the Secured Creditors. 8.8 Credit Decision. -19- Each Secured Creditor acknowledges that the Collateral Agent has not made any representation or warranty to it, and that no act by the Collateral Agent hereafter taken, including any review of the affairs of the Assignor, shall be deemed to constitute any representation or warranty by the Collateral Agent to any Secured Creditor. Each Secured Creditor represents to the Collateral Agent that it has, independently and without reliance upon the Collateral Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Assignor, and made its own decision to enter into this Agreement and the Notes and to complete the transactions contemplated hereunder and thereunder. Each Secured Creditor also represents that it will, independently and without reliance upon the Collateral Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis, appraisals and decisions in taking or not taking action under this Agreement, the Notes and the transactions contemplated thereby , and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Assignor. The Collateral Agent shall not have any duty or responsibility to provide any Secured Creditor with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of the Assignor which may come into the possession of the Collateral Agent. 8.9 Reimbursement. To the extent the Assignor does not reimburse the Collateral Agent within 60 days of billing, each Secured Creditor shall reimburse the Collateral Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including attorneys fees and costs) incurred by the Collateral Agent to the extent such costs or out-of-pocket expenses arise in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, , or any document contemplated by or referred to herein, to the extent that the Collateral Agent is not reimbursed for such expenses by or on behalf of the Assignor; provided that the Collateral Agent will use its reasonable efforts to obtain the approval of the Secured Creditors before incurring any material reimbursable costs or expenses. The undertaking in this Section shall survive the cancellation and/or conversion of the Notes, any foreclosure under, or modification, release or discharge of, any or all of the documents contemplated by the Notes, termination of this Agreement and the resignation or replacement of the Collateral Agent. 8.10 Successor Agent. The Collateral Agent may resign as Collateral Agent at any time, and shall resign as Collateral Agent if requested to do so by Secured Creditors who in aggregate hold 75% or more of the outstanding debt, upon 30 days' notice to the Company and the Secured Creditors. If the Collateral Agent resigns under this Agreement, the Note holders shall agree by the effective date of the resignation notice to appoint a new Collateral Agent by 75% or more of the holders of the outstanding Notes. If such holders fail to elect a new collateral agent by the requisite majority by the effective date of the resignation Notice then the party holding the -20- largest proportion of the outstanding Note balances shall become the Collateral Agent. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Collateral Agent and the term "Collateral Agent" shall mean such successor agent, and the retiring Collateral Agent's appointment, powers and duties as Collateral Agent shall be terminated. After any retiring Collateral Agent's resignation hereunder as Collateral Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Agreement. If no successor agent has accepted appointment as Collateral Agent by the date which is 30 days following a retiring Collateral Agent's notice of resignation, the retiring Collateral Agent's resignation shall nevertheless thereupon become effective and the Secured Creditors shall perform all of the duties of the Collateral Agent hereunder until such time, if any, as the Secured Creditors shall appoint a successor agent as provided for above. 8.11 Collateral Matters. The Secured Creditors irrevocably authorize the Collateral Agent, at its option and in its discretion, to release any Lien or security interest granted to or held by the Collateral Agent under the Security Agreements (a) upon cancellation of the Notes and payment in full of all obligations of the Assignor thereunder; (b) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted by this Agreement or the Notes; or (c) if approved, authorized or ratified in writing by the Secured Creditors. Upon request by the Collateral Agent at any time, the Secured Creditors will confirm in writing the Collateral Agent's authority to release, or subordinate its interest in, particular types or items of collateral pursuant to this Section 8.11. ARTICLE IX DEFINITIONS The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Account" shall mean any "account" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, and in any event shall include but shall not be limited to, all rights to payment of any monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State. -21- "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assignor" shall have the meaning provided in the first paragraph of this Agreement. "Cash Collateral Account" shall mean a cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors. "Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Contract Rights" shall mean all rights of the Assignor under each Contract, including, without limitation, (i) any and all rights to receive and demand payments under any or all Contracts, (ii) any and all rights to receive and compel performance under any or all Contracts and (iii) any and all other rights, interests and claims now existing or in the future arising in connection with any or all Contracts. "Contracts" shall mean all contracts between the Assignor and one or more additional parties (including, without limitation, licensing agreements and any partnership agreements, joint venture agreements and limited liability company agreements). "Copyrights" shall mean any United States copyright owned by the Assignor, including any registrations of any copyrights, in the United States Copyright Office or any foreign equivalent office, as well as any application for a copyright registration now or hereafter made with the United States Copyright Office or any foreign equivalent office by the Assignor. "Default" shall mean any event which with notice or lapse of time, or both, would constitute an Event of Default. "Documents" shall mean "documents" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Equipment" shall mean any "equipment" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, and in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, fixtures and vehicles now or hereafter owned by the Assignor and any and all additions, substitutions and replacements of any of the foregoing and all accessions thereto, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Event of Default" shall mean any payment default on any of the Obligations after the expiration of any applicable grace period. -22- "General Intangibles" shall mean "general intangibles" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Goods" shall mean "goods" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Indemnitee" shall have the meaning provided in Section 8.1(a) of this Agreement. "Instrument" shall mean "instruments" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof and all accessions thereto, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same, in all stages of production from raw materials through work in process to finished goods, and all products and proceeds of whatever sort and wherever located any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from the Assignor's customers, and shall specifically include all "inventory" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Investment Property" shall mean "investment property" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Liens" shall mean any security interest, deed of trust, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on the Assignor's property. "Location" of the Assignor, shall mean the Assignor's "location" as determined pursuant to Section 9-307 of the UCC. "Marks" shall mean all right, title and interest in and to any trademarks, service marks and trade names now held or hereafter acquired by the Assignor, including any registration of any trademarks and service marks in the United States Patent and Trademark Office or in any equivalent foreign office and any trade dress including logos and/or designs used by the Assignor. "Material Adverse Effect" shall mean a material adverse effect on the business, property, assets, liabilities (actual or contingent), operations or condition (financial or otherwise) of the Assignor and its Subsidiaries taken as a whole. "Obligations" shall mean (i) the full and prompt payment when due of all obligations and indebtedness (including, without limitation, indemnities, fees and interest thereon) of the Assignor to the Investors, whether now existing or hereafter incurred under, arising out of, or in connection with the Note Purchase Agreement and the Notes issued thereunder and the due performance and compliance by the Assignor with all of the terms, conditions and agreements contained in the Note Purchase Agreement and the Notes issued thereunder; (ii) any and all sums advanced by the Assignee in order to preserve the Collateral or -23- preserve its security interest in the Collateral; (iii) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of the Assignor after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Assignee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (iv) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement. "Patents" shall mean any patent to which the Assignor now or hereafter has any right, title or interest therein, and any divisions, continuations (including, but not limited to, continuations-in-parts) and improvements thereof, as well as any application for a patent now or hereafter made by the Assignor. "Permits" shall mean, to the extent permitted to be assigned by the terms thereof or by applicable law, all licenses, permits, rights, orders, variances, franchises or authorizations of or from any governmental authority or agency. "Permitted Liens" shall mean (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles; (ii) Liens in respect of property or assets of the Assignor or any of its subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of Assignor's or such subsidiary's property or assets or materially impair the use thereof in the operation of the business of Assignor or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) leases or subleases granted to other Persons not materially interfering with the conduct or value of the business of Assignor or any of its subsidiaries and non-assignable, non-exclusive licenses and sub-licenses to third parties; (iv) Liens upon assets of the Assignor or any of its subsidiaries subject to capitalized lease obligations, provided that (x) such Liens only serve to secure the payment of indebtedness arising under such capitalized lease obligation and (y) the Lien encumbering the asset giving rise to the capitalized lease obligation does not encumber any asset of Assignor or any subsidiary of the Assignor; (v) Liens placed upon equipment or machinery and used in the ordinary course of business of the Assignor or any of its subsidiaries and placed at the time of the acquisition thereof by the Assignor or such subsidiary or -24- within 90 days thereafter to secure indebtedness incurred to pay all or a portion of the purchase price thereof or to secure indebtedness incurred solely for the purpose of financing the acquisition of any such equipment or machinery or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; (vi) easements, rights-of-way, restrictions, encroachments and other similar charges or encumbrances, and minor title deficiencies, in each case not securing indebtedness and not materially interfering with the conduct or value of the business of Assignor or any of its subsidiaries; (vii) Liens arising from precautionary UCC financing statement filings regarding operating leases or bailee arrangements entered into in the ordinary course of business; (viii) Liens arising out of the existence of judgments or awards in respect of which Assignor or any of its subsidiaries shall in good faith be prosecuting an appeal or proceedings for review and in respect of which there shall have been secured a subsisting stay of execution pending such appeal or proceedings, provided that the aggregate amount of all cash and the fair market value of all other property subject to such Liens does not exceed $125,000 at any time outstanding; (ix) statutory and common law landlords' liens under leases to which the Assignor or any of its subsidiaries is a party; (x) Liens incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance and social security benefits and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business and consistent with past practice (exclusive of obligations in respect of the payment for borrowed money), provided that the aggregate amount of all cash and the fair market value of all other property subject to all Liens permitted by this clause (xii) shall not at any time exceed $125,000; and (xi) other Liens incidental to the conduct of the business of the Assignor or any of its subsidiaries that (i) were not incurred in connection with indebtedness, (ii) do not materially detract from the value of the assets subject to such Liens or materially impair the use thereof in the operation of such business (provided to the extent that any such Liens attach to any Collateral such Liens shall be junior to the Liens created in favor of the Collateral Agent) and (iii) do not at any time for all such Liens encumber cash and other property having an aggregate value in excess of, or secure outstanding obligations in the aggregate in excess of, $100,000. "Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement. "Proceeds" shall mean all "proceeds" as such term is defined in the Uniform Commercial Code as in effect in the State of New York on the date hereof and, in any event, shall also include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or the Assignor from time to time with respect to any of the -25- Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Software" shall mean "software" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Supporting Obligations" shall mean any "supporting obligation" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by the Assignor, or in which the Assignor has any rights, and, in any event, shall include, but shall not be limited to all of the Assignor's rights in any letter-of-credit right or secondary obligation that supports the payment or performance of, and all security for, any Account, Document, General Intangible, Instrument or Investment Property. "Termination Date" shall have the meaning provided in Section 10.9(a) of this Agreement. "Trade Secret Rights" shall have the meaning provided in Section 5.1 of this Agreement. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the relevant jurisdiction. ARTICLE X MISCELLANEOUS 10.1 Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be sent or delivered by hand, overnight mail or courier service and all such notices and communications shall, when mailed, delivered or sent by courier, be effective when deposited in the mails, delivered or overnight courier, as the case may be, except that notices and communications to the Collateral Agent or the Assignor shall not be effective until received by the Collateral Agent or the Assignor, as the case may be. All notices and other communications shall be in writing and addressed as follows: -26- (a) if to the Assignor,: eMagin Corporation 2070 Route 52 Hopewell Junction, NY 12533 Attention: Chief Financial Officer Telephone No.: (845) 892-1900 Telecopier No.: (845) 892-1901 (b) if to the Collateral Agent, at: Verus Support Services Inc. 520 Madison Avenue, 38th Floor New York, New York 10016 Attention: Chief Operating Officer Telephone No.: (212) 588-0865 Fax. No. (212) 588-0869; and (c) if to any Secured Creditor, at such address as such Secured Creditor shall have specified in the Note Purchase Agreement; or at such other address or addressed to such other individual as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 10.2 Waiver; Amendment. Except as provided in Sections 10.8 and 10.13, none of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Assignor and the Collateral Agent (with the written consent of the Secured Creditors. 10.3 Obligations Absolute. The obligations of the Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement; or (c) any amendment to or modification of any security for any of the Obligations; whether or not the Assignor shall have notice or knowledge of any of the foregoing. 10.4 Unequal Payment:. Each Secured Creditor agrees that if it shall, through the exercise of any right granted to the Secured Creditors under this Agreement, under the Note Purchase Agreement, the Notes or by applicable law, including, but not limited to any right of set-off, any secured claim under Section 506 of the Bankruptcy Code or any other security or interest arising from, or in lieu of such secured claim, and received by such Secured Creditor under any applicable bankruptcy, insolvency, or other similar law, or otherwise, obtain payment in respect of its Note as a result of which the unpaid portion of its Note is proportionately less than the unpaid portion of the Notes of the other Secured Creditors, then (a) it shall promptly purchase at par (and shall be deemed to have thereupon purchased) from such other Secured Creditors a participation in the Notes of each such other Secured Creditor, so that the -27- amount of such Secured Creditor's Note in the total participation in the Notes of the other Secured Creditors shall be in the same proportion to all Notes then outstanding as the amount of its Note prior to the obtaining of such payment was to the amount all Notes outstanding prior to the obtaining such payment and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that Secured Creditors share the benefits of such payment pro rata. The term "Note" as used in this paragraph shall include accrued interest thereon. 10.5 Successors and Assigns. This Agreement shall be binding upon the Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and the other Secured Creditors and their respective successors and assigns. All agreements, statements, representations and warranties made by the Assignor herein or in any certificate or other instrument delivered by the Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement regardless of any investigation made by the Secured Creditors or on their behalf. 10.6 Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 10.7 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE ASSIGNOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE ASSIGNOR HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER THE ASSIGNOR, AND AGREES NOT TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT LACKS JURISDICTION OVER THE ASSIGNOR. THE ASSIGNOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY THE ASSIGNOR AT ITS ADDRESS FOR NOTICES AS PROVIDED IN SECTION 10.1 ABOVE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. THE ASSIGNOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER THAT SUCH SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT UNDER THIS AGREEMENT, OR ANY SECURED CREDITOR, TO SERVE PROCESS IN ANY OTHER MANNER -28- PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE ASSIGNOR IN ANY OTHER JURISDICTION. (b) THE ASSIGNOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.8 Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that the Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of the Assignor under or with respect to any Collateral. 10.9 Termination; Release. (a) After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation in Section 8.1 hereof, shall survive such termination) and the Collateral Agent, at the request and expense of the Assignor, will promptly execute and deliver to the Assignor a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to the Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which no Note issued under the Note Purchase Agreement is outstanding (including the cancellation of such Notes by way of the conversion of the Notes to common shares pursuant to the terms of such Notes) and all Obligations then due and payable have been paid in full. (b) At any time that the Assignor desires that the Collateral Agent take any action to acknowledge or give effect to any release of Collateral pursuant to the foregoing Section 10.9(a), the Assignor shall deliver to the Collateral Agent a certificate signed by a senior officer of the Assignor stating that the release of the respective Collateral is permitted pursuant to such Section 10.9(a). 10.10 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which -29- shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Assignor and the Collateral Agent. 10.11 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.12 The Collateral Agent and the other Secured Creditors. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Collateral Agent shall act hereunder on the terms and conditions set forth herein. 10.13 Benefit of Agreement. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of and be enforceable by each of the parties hereto and its successors and assigns. 10.14 Joinder by Additional Secured Creditors Notwithstanding anything to the contrary in this Agreement, the parties hereto expressly agree that additional parties may join this Agreement as Secured Creditors, from time to time (and prior to January 30, 2002) and become a party hereto provided, that, each such additional party shall agree to be bound by the terms and conditions of this Agreement and shall agree to assume the rights and obligations of a Secured Creditor hereunder as if such additional party was an original signatory hereto as of the date of this Agreement, and, provided, further, that such additional party shall be permitted under Section 1(e) of the Note Purchase Agreement to join the Note Purchase Agreement as an additional Investor (as such term is defined in the Note Purchase Agreement). [Remainder of this page intentionally left blank; signature page follows] -30- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. ASSIGNOR: EMAGIN CORPORATION, as Assignor By: /s/ ---------------------------------- Name: Title: SECURED PARTIES: RAINBOW GATE CORPORATION By /s/ ---------------------------------- Name: Title: MORTIMER D. A. SACKLER By ---------------------------------- Mortimer D. A. Sackler Address: MARTIN SOLOMON ------------------------------------------ Mr. Martin Solomon Address: SOVEREIGN BANCORP LTD. By ----------------------------------------- Name: Title: JAMES M. ARKOOSH --------------------------------------------- Mr. James M. Arkoosh Address: JACK RIVKIN --------------------------------------------- Mr. Jack Rivkin Address: Accepted and Agreed to: VERUS SUPPORT SERVICES INC., as Collateral Agent By: -------------------------------------- Name: Mr. James M. Arkoosh Title: Chief Operating Officer ANNEX A to SECURITY AGREEMENT SCHEDULE OF CHIEF EXECUTIVE OFFICES Name Address(es) of Chief Executive Office eMagin Corporation 2070 Route 52, Hopewell Junction New York, NY 12533 ANNEX B to SECURITY AGREEMENT SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS Assignor Location eMagin Corporation 2070 Route 52, Hopewell Junction New York, NY 12533 ANNEX C to SECURITY AGREEMENT SCHEDULE OF LEGAL NAMES, TYPE OF ORGANIZATION (AND WHETHER A REGISTERED ORGANIZATION AND/OR A TRANSMITTING UTILITY), JURISDICTION OF ORGANIZATION, LOCATION AND ORGANIZATIONAL IDENTIFICATION NUMBERS Assignor's Type of Assignor's Organization Organization (or Location (for Identification Exact Legal if the Assignor is Registered Purposes of NY Number (or, if it Transmitting Name of an Individual, so Organization? Jurisidiction of UCC has none, so Utility? Assignor indicate) (Yes/No) Organization Section 9-307) indicate) (Yes/No) - ------------------------------------------------------------------------------------------------------------------------------------ eMagin Corporation A Delaware No Delaware Delaware None No corporation
ANNEX D to SECURITY AGREEMENT SCHEDULE OF TRADE AND FICTITIOUS NAMES Name of Trade and/or Assignor Fictitious Names --------- ---------------- eMagin Corporation f/k/a FED Corporation ANNEX E to SECURITY AGREEMENT DESCRIPTION OF CERTAIN SIGNIFICANT TRANSACTIONS OCCURRING WITHIN ONE YEAR PRIOR TO THE DATE OF THE SECURITY AGREEMENT Name of Assigor Description of any Transactions as required by Section 2.8 of the Security Agreement eMargin Corporation Merger of predecessor, eMargin Corporation a Nevada corporation, on July 16, 2001 with wholly owned subsidiary, FED Corporation (a Delaware corporation). The Assignor has since continued business as eMagin Corporation, a Delaware corporation. ANNEX F to SECURITY AGREEMENT SCHEDULE OF U.S. MARKS MARK SERIAL NO. FILING DATE EGLASS 75/739,315 6/99 LUMINATOR 75/739,316 6/99 POCKET MONITOR 75/739,318 6/99 SPECTRA 75/739,317 6/99 VISIONARY 75/739,319 6/99 EMAGIN 75/856,770 11/99 EVANTEC 75/853,675 11/99 EVANTIC 75/853,676 11/99 LUMIC 75/853,894 11/99 ELUMIC 75/853,679 11/99 ANNEX G to SECURITY AGREEMENT SCHEDULE OF PATENTS
Title or Topic US Patent No. Self-Aligned Electron Emitter Fabrication & Devices Formed 5,126,287 Horizontal Microelectronic Field Emission Devices & Method 5,144,191 Vertical Microelectronic Field Emission Devices Including Elongate 5,371,431 Vertical Pillars Having Resistive Bottom Portions Vertical microelectronic field emission devices 5,475,280 Vertical Microelectronic Field Emission Devices & Method 5,647,785 Method of Forming a Spacer in Display Panels 5,529,524 Field Emission Electron Beam Source and Isolation Structure 5,534,743 Field Emission Device Comprising Dielectric Overlayer 5,548,181 Field Emission Array Magnetic Field Sensor 5,561,339 Selectively Shaped Field Emission Source and Phosphor Array 5,583,393 Field Emitter Structure and Method of Making (Divisional) 5,587,623 Panel Display with Dielectric Spacer Structure 5,619,097 Field Emitter Display Using Photoformed Spacers 5,629,583 Field Emission Electron Beam Source and Isolation Structure (Divisional) 5,663,608 Light emission device comprising light emitting organic material and 5,672,938 electron injection enhancement structure Planarizing Process for Field Emitter Displays 5,688,158 Laser Interference Lithographic System with Automatic Fringe Spacing 5,771,098 Field Emitter Display Using Photoformed Spacers (Divisional) 5,788,550 Field Emitter Device with a Current Limiter Structure 5,828,163 Pedestal Edge Emitter and Non-Linear Current Limiters for Field Emitter 5,828,288 Displays and Other Electron Source Applications Field Emitter Device, and Veil Process for the Fabrication Thereof 5,844,351 Matrix Getter for Use in Vacuum Panels 5,866,978 Microstructural Surgical Instruments 5,619,889 Field Emission Device Having Multiplicity of Through Conductive Vias and 5,903,098 a Backside Connector Large Area Energy Beam Intensity Profiler 5,959,725 Emissive Display Using Organic Light Emitting Diodes 5,920,080
Annex G Page 2 Passive Matrix OLED Display 6,069,443 An Electrode Structure for High Resolution Organic Light Emitting Diode 6,016,033 Displays and Method for Making Same OLED Active Matrix Using a Single Transistor Current Mode Design 6,023,259 High Aspect Ratio Field Emitter Tips and Method of Making 5,965,898 Field Emitter Device, and Veil Process for the Fabrication Thereof 5,886,460 (Divisional) Multilayer Emitter Element And Display Comprising Same 5,869,169 Compact, Body-Mountable Field Emission Display Device, And Display Panel 5,903,243 Having Utility For Use Therewith Lithographic Structure & Method for Making Field Emitters 6,027,388 Wand Optics Column And Associated Array Wand and Charged Particle Source 4,902,898 Portable interface unit for a head-up display system (VV) D359,729 Head-mounted display system (VV) 5,539,422 Head-mounted display system with aspheric optics (VV) 5,543,816 Head-mounted display system with light blocking structure (VV) 5,546,099 Head-mounted display system (VV) D380,482 Binocular head mounted display system (VV) 5,708,449 Support for a Head Mounted Display System (VV) 5,796,374 Speech Recognition Manager (VV) 5,867,817 Reflective Micro-Display System (VV) 6,005,720 Gate Electrode Structure for Field emission Devices and Method of Making 6,010,918 Organic Light Emitting Device Structure and Process 6,060,728 High Aspect Ratio Field Emitter Tips and Method of Making (Divisional of 6,136,621 Patent #5,965,898) Miniature microscope 6,101,028 Head-Mounted Display System (VV) 6,157,291 Laser Interferometric Lithographic System Providing Automatic Change Of 6,166,820 Fringe Spacing Flashover Control Structures for Field Emitter Displays 6,169,358 High Performance Field Emitter & Method of Producing the Same 6,144,145 Convertible Right Eye/Left Eye Monocular Head Mounted Display System (VV) 6,181,304 Reflective Micro-Display System (VV) 6,204,975 B1 Large Area Spacerless Field Emissive Display Package 6,198,214 B1 Sealing Structure for OLEDs 6,198,220 B1
Annex G Page 3 Field Emission Display Spacer with Guard Electrode 6,218,777 B1 Method and Apparatus for Sequential Memory Addressing 6,215,840 B1 Binocular Head Mounted Display System (VV) 6,232,934 B1 Heat Removal System for HighBrightness OLEDs 6,265,820 Flashover Control Structure for Field Emitter Displays 6,255,771 Laterally Structured, High Resolution Multicolor OLED Device 6,278,237 Vertical Sidewall Current Limiter for Field Emission Displays 08/958,925 10/28/97 High Brightness, High Efficiency Stacked Organic Light Emitting Diodes NOA 8/01 Gate Electrode Design for Coplanar Focusing in FEDs 08/958,926 7/11/97 Organic Electroluminescent Device with Improved Anode Stability 09/313,285 5/99 Fabrication Method for High Resolution Full Color Organic LED Displays 09/384,201 9/99 Field Emitter Device, and Veil Process for the Fabrication Thereof 08/290,238 8/95 Flat Panel Display Assembly Comprising Photoformed Spacer Structure, And 08/280,355 3/96 Method Of Making The Same Head-Mounted Video Display System with Portable Video Interface Unit (VV) 07/986,422 5/94 Head-Mounted Display System With Light Blocking Structure (VV) 08/101,553 8/93 Improved Color Organic Light Emitting Diode Cell Design for Miniature 09/335,852 6/99 Displays Lithography Using Blue OLEDs to Expose Resist 09/403,282 10/99 Bonded Active Matrix OLED Display & Method of Making 09/462,463 1/00 Current Limiter for High Resolution Field Emission Structure 09/463,137 1999 Anhydrous Method of Packaging Organic Light Emitting Displays 09/462,462 1/00 Laser Ablation Fabrication of Color OLED Displays 09/462,646 1/00 Organic Electroluminescence Devices with High Efficiency Reflecting 09/559,435 4/00 Element Active Matrix Organic Light Emitting Diode with Doped Organic Layer 09/555,016 5/00 Having Increased Thickness Nanocrystal-based CCM for Color OLED Devices 09/530,604 5/00 Color Conversion Media (CCM) Integrated on Emitter Array 09/530,563 5/00 Up-Emitting OLED Structure With Refractory Compound Anode 09/554,066 5/00 Hermetic Metal-to-Silicon Seals Using a Parallel Seam Sealer 09/619,617 7/00 Gray Scale Pixel Drivers 09/600,813 7/00 Method of Packaging for Si-based OLEDs 09/582,878 7/00
Annex G Page 4 Fabrication of Novel Structure for Performance Improvement of Color 60/225,403 8/00 Organic Light Emitting Devices Organic Light Emitting Diode Device Having High Work Function Metal-Oxide 09/642,012 8/00 Anode Layer and Method of Making An Improved Anode Structure for OLEDs Using Molybdenum 09/700,173 2/99 Improved Pixel Driver for Accurate and Finer Gray Scale Resolution 09/647,429 11/00 Sputter Protection Layer for Up-Emitting OLED Structures 2/01 Thin Film Encapsulation of Organic Light Emitting Diode Devices 2/01 Display Method and System 2/01 Twin Capacitor Pixel Driver Circuit for Microdisplays 09/784,020 2/01 Method of Solder-Sealing Active Matrix Organic Light Emitting Diode 09/778,797 2/01 Synthesis of Pyrazolinylnaphthalic Acid Derivatives 6,288,232 B1 9/01 Gray Scale Pixel Driver for Active Matrix OLED Displays 09/765,582 1/01 Light Extraction from Color Changing Medium Layers in Organic Light 09/814,853 3/01 Emitting Diodes Green Organic Luminophor 09/827,184 4/01 Portable Communication Device with Virtual Image Display Module TBD 5/01 Virtual Imaging System for Small Font Text 09/805,712 3/01 Thin Film Encapsulation of Organic Light Emitting Diode Devices 09/860,155 5/01 Field Sequential Reflective Liquid Crystal Displays Without External 09/786,417 3/01 Frame Buffer Improvement of Color OLED Fabrication Process TBD 4/01 Portable Communication Device w/Virtual Image Display Module TBD 5/01 New Organic Aromatic Amines with High and Tunable Tg Values as 09/894,744 6/01 Hole-Injection or Hole-Transport Materials in OLED Technology Organic Light Emitting Diode Devices Using Thermostable Hole-Injection 09/894,502 6/01 and Hole-Transport Compounds A Current-Type Driver for Organic Light Emitting Diode Displays 09/908,044 7/01 Grayscale Static Pixel Cell for OLED Active Matrix Display 09/933,419 8/01 Organic Light Emitting Diode Devices With Improved Anode Stability 09/919,467 7/01 Means of Stabilizing Thin Film Transistor Amoleds TBD 9/01 Gate Electrode Structure for Field Emission Devices and Method of Making 09/436,215 Method of Patterning Color Changing Media for Organic Light Emitting 60/222,325 8/00 Diode Display Devices
ANNEX H to SECURITY AGREEMENT SCHEDULE OF COPYRIGHTS NUMBERS PUBLICATION COPYRIGHT REGISTRATION DATE TITLE NONE NONE NONE ANNEX I to SECURITY AGREEMENT GRANT OF SECURITY INTEREST IN UNITED STATES TRADEMARKS FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, EMAGIN CORPORATION, a Delaware corporation (the "Grantor") with principal offices at 2070 Route 52, Hopewell Junction, New York 12533, hereby assigns and grants to [Name of Collateral Agent], as Collateral Agent, with principal offices at [Address] (the "Grantee"), a security interest in (i) all of the Grantor's right, title and interest in and to the United States trademarks, trademark registrations and trademark applications (the "Marks") set forth on Schedule A attached hereto, (ii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Marks, (iii) the goodwill of the businesses with which the Marks are associated and (iv) all causes of action arising prior to or after the date hereof for infringement of any of the Marks or unfair competition regarding the same. THIS GRANT is made to secure the satisfactory performance and payment of all the Obligations of the Grantor, as such term is defined in the Security Agreement among the Grantor, the other assignors from time to time party thereto and the Grantee, dated as of _________, 200__ (as amended from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Grantee shall execute, acknowledge, and deliver to the Grantor an instrument in writing releasing the security interest in the Marks acquired under this Grant. This Grant has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are as set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Grant Annex I Page 2 are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. [Remainder of this page intentionally left blank; signature page follows] Annex I Page 3 IN WITNESS WHEREOF, the undersigned have executed this Grant as of the ____ day of November, 2001. EMAGIN CORPORATION, Grantor By ------------------------------------ Name: Title: [NAME OF COLLATERAL AGENT], as Collateral Agent and Grantee By ------------------------------------ Name: Title: STATE OF ______________ ) ) ss.: COUNTY OF ____________ ) On this ____ day of _________, ____, before me personally came ________ _____________ who, being by me duly sworn, did state as follows: that [s]he is ____________ of [Name of Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of said ____________ and that [s]he did so by authority of the [Board of Directors] of said ____________. ---------------------------- Notary Public STATE OF ______________ ) ) ss.: COUNTY OF ____________ ) On this ____ day of _________, ____, before me personally came ________ ________________ who, being by me duly sworn, did state as follows: that [s]he is _______________ of [Name of Collateral Agent], N.A., that [s]he is authorized to execute the foregoing Grant on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ---------------------------- Notary Public SCHEDULE A MARK REG. NO. REG. DATE ANNEX J to SECURITY AGREEMENT GRANT OF SECURITY INTEREST IN UNITED STATES PATENTS FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, eMagin Corporation, a Delaware corporation (the "Grantor") with principal offices at 2070 Route 52, Hopewell Junction, New York 12533, hereby assigns and grants to [Name of Collateral Agent], as Collateral Agent, with principal offices at [address], (the "Grantee"), a security interest in (i) all of the Grantor's rights, title and interest in and to the United States patents (the "Patents") set forth on Schedule A attached hereto, in each case together with (ii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Patents, and (iii) all causes of action arising prior to or after the date hereof for infringement of any of the Patents or unfair competition regarding the same. THIS GRANT is made to secure the satisfactory performance and payment of all the Obligations of the Grantor, as such term is defined in the Security Agreement among the Grantor, the other assignors from time to time party thereto and the Grantee, dated as of November __, 2001 (as amended from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Grantee shall execute, acknowledge, and deliver to the Grantor an instrument in writing releasing the security interest in the Patents acquired under this Grant. Annex J Page 2 This Grant has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are as set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Grant are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. [Remainder of this page intentionally left blank; signature page follows] Annex J Page 3 IN WITNESS WHEREOF, the undersigned have executed this Grant as of the ____ day of November, 2001. EMAGIN CORPORATION, Grantor By --------------------------------- Name: Title: [NAME OF COLLATERAL AGENT], as Collateral Agent and Grantee By --------------------------------- Name: Title: STATE OF ) ) ss: COUNTY OF ) On this ____ day of _________, ____, before me personally came ________ _____________ who, being by me duly sworn, did state as follows: that [s]he is ____________ of [Name of Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of said ____________ and that [s]he did so by authority of the Board of Directors of said ____________. ----------------------------- Notary Public STATE OF ) ) ss: COUNTY OF ) On this ____ day of _________, ____, before me personally came ________ ________________ who, being by me duly sworn, did state as follows: that [s]he is ________________ of [Name of Collateral Agent], that [s]he is authorized to execute the foregoing Grant on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ----------------------------- Notary Public SCHEDULE A PATENT PATENT NO. ISSUE DATE ------ ---------- ---------- ANNEX K to SECURITY AGREEMENT GRANT OF SECURITY INTEREST IN UNITED STATES COPYRIGHTS WHEREAS, eMagin Corporation, a Delaware corporation (the "Grantor"), having its chief executive office at 2070 Route 52, Hopewell Junction, New York 12533, is the owner of all right, title and interest in and to the United States copyrights and associated United States copyright registrations and applications for registration set forth in Schedule A attached hereto; WHEREAS, [NAME OF COLLATERAL AGENT], as Collateral Agent, having its principal offices at [address] (the "Grantee"), desires to acquire a security interest in said copyrights and copyright registrations and applications therefor; and WHEREAS, the Grantor is willing to assign to the Grantee, and to grant to the Grantee a security interest in and lien upon the copyrights and copyright registrations and applications therefor described above. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and subject to the terms and conditions of the Security Agreement, dated as of November __, 2001, made by the Grantor, the other assignors from time to time party thereto and the Grantee (as amended from time to time, the "Security Agreement"), the Grantor hereby assigns to the Grantee as collateral security, and grants to the Grantee a security interest in, the copyrights and copyright registrations and applications therefor set forth in Schedule A attached hereto. This Grant has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are as set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Grant are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. [Remainder of this page intentionally left blank; signature page follows] Annex K Page 2 IN WITNESS WHEREOF, the undersigned have executed this Grant as of the 20th day of November, 2001. EMAGIN CORPORATION, Grantor By ---------------------------------------- Name: Title: [NAME OF COLLATERAL AGENT], as Collateral Agent and Grantee ---------------------------------------- Name: Title: STATE OF ) ) ss: COUNTY OF ) On this __ day of _________, ____, before me personally came ___________ _____________, who being duly sworn, did depose and say that [s]he is ___________________ of [Name of Grantor], that [s]he is authorized to execute the foregoing Grant on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ----------------------------- Notary Public STATE OF ) ) ss: COUNTY OF ) On this ____ day of _________, ____, before me personally came ________ _______________ who, being by me duly sworn, did state as follows: that [s]he is _______________ of [Name of Collateral Agent], that [s]he is authorized to execute the foregoing Grant on behalf of said __________ and that [s]he did so by authority of the Board of Directors of said _____________. ----------------------------- Notary Public ARTICLE I SECURITY INTERESTS............................................................................1 1.1 Grant of Security Interests...................................................................1 1.2 Power of Attorney.............................................................................3 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS................................................................................3 2.1 Necessary Filings.............................................................................3 2.2 No Liens......................................................................................4 2.3 Other Financing Statements....................................................................4 2.4 Chief Executive Office, Record Locations......................................................4 2.5 Location of Inventory and Equipment...........................................................4 2.6 Legal Names; Type of Organization; Jurisdiction of Organization; Location; Organizational Identification Numbers; Changes Thereto; etc.........................4 2.7 Trade Names; Etc..............................................................................5 2.8 Certain Significant Transactions..............................................................5 2.9 Recourse......................................................................................6 ARTICLE III SPECIAL PROVISIONS CONCERNING ACCOUNTS; CONTRACT RIGHTS; INSTRUMENTS; AND CERTAIN OTHER COLLATERAL.........................................................................6 3.1 Additional Representations and Warranties.....................................................6 3.2 Maintenance of Records........................................................................6 3.3 Direction to Account Debtors; Contracting Parties; etc........................................6 3.4 Modification of Terms; etc....................................................................7 3.5 Collection....................................................................................7 3.6 Instruments...................................................................................8 3.7 Assignors Remain Liable Under Accounts........................................................8 3.8 Assignors Remain Liable Under Contracts.......................................................8 3.9 Further Actions...............................................................................8 ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS......................................................9 4.1 Additional Representations and Warranties.....................................................9 4.2 Licenses and Assignments......................................................................9 4.3 Infringements.................................................................................9 4.4 Preservation of Marks.........................................................................9 4.5 Maintenance of Registration..................................................................10 4.6 Future Registered Marks......................................................................10 4.7 Remedies.....................................................................................10 ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS.......................................................................11 5.1 Additional Representations and Warranties....................................................11 5.2 Licenses and Assignments.....................................................................11 5.3 Infringements................................................................................11 (i) 5.4 Maintenance of Patents or Copyright..........................................................11 5.5 Prosecution of Patent Applications...........................................................12 5.6 Other Patents and Copyrights.................................................................12 5.7 Remedies.....................................................................................12 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL.........................................................12 6.1 Protection of Collateral Agent's Security....................................................12 6.2 Warehouse Receipts Non-negotiable............................................................13 6.3 Additional Information.......................................................................13 6.4 Further Actions..............................................................................13 6.5 Financing Statements.........................................................................13 ARTICLE VII REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT..............................................14 7.1 Remedies; Obtaining the Collateral Upon Default..............................................14 7.2 Remedies; Disposition of the Collateral......................................................15 7.3 Waiver of Claims.............................................................................16 7.4 Application of Proceeds......................................................................16 7.5 Remedies Cumulative..........................................................................17 7.6 Discontinuance of Proceedings................................................................18 ARTICLE VIII INDEMNITY....................................................................................18 8.1 Indemnity....................................................................................18 8.2 Indemnity Obligations Secured by Collateral; Survival........................................19 ARTICLE IX DEFINITIONS..................................................................................23 ARTICLE X MISCELLANEOUS................................................................................28 10.1 Notices......................................................................................28 10.2 Waiver; Amendment............................................................................28 10.3 Obligations Absolute.........................................................................28 [10.4 Unequal Payment by Collateral Agent..........................................................29 10.5 Successors and Assigns.......................................................................29 10.6 Headings Descriptive.........................................................................29 10.7 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.......................29 10.8 Assignor's Duties............................................................................30 10.9 Termination; Release.........................................................................31 10.10 Counterparts.................................................................................31 10.11 Severability.................................................................................31 10.12 The Collateral Agent and the other Secured Creditors.........................................31 10.13 Benefit of Agreement.........................................................................31 ANNEX A Schedule of Chief Executive Offices Address(es) of Chief Executive Office ANNEX B Schedule of Inventory and Equipment Locations (ii) ANNEX C Schedule of Legal Names, Type of Organization (and Whether a Registered Organization and/or a Transmitting Utility), Jurisdiction of Organization, Location and Organizational Identification Numbers ANNEX D Schedule of Trade and Fictitious Names ANNEX E Description of Certain Significant Transactions Occurring Within One Year Prior to the Date of the Security Agreement ANNEX F Schedule of Deposit Accounts ANNEX G Form of Control Agreement Regarding Deposit Accounts ANNEX H Schedule of Commercial Tort Claims ANNEX I Schedule of Marks ANNEX J Schedule of Patents ANNEX K Schedule of Copyrights ANNEX L Grant of Security Interest in United States Trademarks ANNEX M Grant of Security Interest in United States Patents ANNEX N Grant of Security Interest in United States Copyrights [Remainder of this page intentionally left blank] (iii)
EX-99.1 8 a841016.txt PRESS RELEASE eMagin Corporation Announces Workforce Reduction Hopewell Junction, N.Y., December 4, 2001 -- eMagin Corporation (AMEX:EMA), today announced a corporate restructuring. The company will be reducing its work force by approximately two-thirds to 26 people, in order to conserve cash while operating its fabrication plant to maximize potential cash flows. While the company continues to seek additional funding, the Board of Directors is considering all of the company's options, including filing for bankruptcy protection. eMagin President and Chief Executive Officer Gary Jones commented "We believe we are taking the best possible action in the interest of all the stakeholders. These are difficult financial times. We believe that our OLED display technology has breakthrough possibilities, but we will need to properly fund the company to realize that potential." About eMagin A leading developer of virtual imaging technology, eMagin combines integrated circuits, microdisplays, and optics to create a virtual image similar to the real image of a computer monitor or large screen TV. These miniature, high-performance, modules provide access to information-rich text, data, and video which can facilitate the opening of new mass markets for wearable personal computers, wireless Internet appliances, portable DVD-viewers, digital cameras, and other emerging applications. eMagin's intellectual property portfolio is leveraged by key OLED technology licensed from Eastman Kodak and joint development programs with IBM and Covion, among others. OLEDs are emissive devices (i.e., they create light), as opposed to liquid crystal displays (LCDs) that require a separate light source. OLED devices use less power and are capable of high brightness and color. Because the light they emit appears equally bright from all directions, they are ideal for near to the eye applications since a small movement in the eye does not change the image. According to Stanford Resources, a leading market research firm focusing on the global electronic display industry, the worldwide market for OLED displays will grow to $1.6 billion in 2007, or 63% a year over that period. eMagin's corporate headquarters and microdisplay operations are co-located with IBM on its campus in East Fishkill, N.Y. Further information about eMagin and its virtual imaging solutions can be accessed at www.emagin.com. Forward Looking Statements This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors, including those described in the Company's most recent filings with the SEC. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved. The business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in forward-looking statements. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements. Note to editors: eMagin is properly spelled beginning with a lower case e. CONTACT: INVESTORS: Andrew P. Savadelis Chief Financial Officer phone: 845-892-1968 email: asavadelis@emagin.com Shannon Burns, Investor Relations Weber Shandwick Worldwide phone: 952-346-6173 email: sburns@shandwick.com MEDIA: Ted Mills Weber Shandwick Worldwide phone: (310) 203-0550 email: tmills@webershandwick.com Rita Chaires, Corporate Communications email: info@emagin.com -----END PRIVACY-ENHANCED MESSAGE-----