-----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, QBytoMAYICokMbt9fkedpthkhWz+QO64fYIw2DMqyQOpN+m20QVuyajt0dlawXT3 TdBlC0d9r3gMYpO8R608EQ== 0001013762-04-001160.txt : 20041026 0001013762-04-001160.hdr.sgml : 20041026 20041026162557 ACCESSION NUMBER: 0001013762-04-001160 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20041025 ITEM INFORMATION: Entry into a Material Definitive Agreement FILED AS OF DATE: 20041026 DATE AS OF CHANGE: 20041026 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15751 FILM NUMBER: 041096968 BUSINESS ADDRESS: STREET 1: 2070 ROUTE 52 STREET 2: SUITE 2000 CITY: HOPEWELL JUNCTION STATE: NY ZIP: 12533 BUSINESS PHONE: 845 838 7900 MAIL ADDRESS: STREET 1: 2070 ROUTE 52 STREET 2: SUITE 2000 CITY: HOPEWELL JUNCITON STATE: NY ZIP: 12533 FORMER COMPANY: FORMER CONFORMED NAME: FASHION DYNAMICS CORP DATE OF NAME CHANGE: 19980805 8-K 1 oct2220048k.txt UNITED STATES 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): October 21, 2004 eMagin Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 000-24757 56-1764501 - ------------------------------- ------------------------ ---------------------- (State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer Incorporation) Identification Number) - -------------------------------------------------------------------------------- 2070 Route 52, Hopewell Junction, New York 12533 (Address of principal executive offices) (zip code) (845) 838-7900 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Copies to: Richard A. Friedman, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas New York, New York 10018 Phone: (212) 930-9700 Fax: (212) 930-9725 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01. Entry Into a Material Definitive Agreement. On October 21, 2004, eMagin Corporation ("eMagin," the "Company," "we," "us" or "our") entered into a Securities Purchase Agreement (the "Purchase Agreement"), pursuant to which we sold and issued 10,259,524 shares of common stock, par value $0.0001 per share (the "Common Shares"), and series F common stock purchase warrants (the "Series F Warrants") to purchase our common stock (the "Warrant Shares") to purchasers who are a party to the Purchase Agreement (each a "Purchaser" and, collectively, the "Purchasers") for an aggregate purchase price of $10,772,500. The Common Shares were priced at $1.05. The Common Shares, Warrants and Warrant Shares were drawn-down off of a shelf registration statement which was filed by us on May 5, 2004, and declared effective by the Securities and Exchange Commission (the "SEC") on June 10, 2004. The Purchase Agreement is attached hereto as Exhibit 10.1. The Series F Warrants are exercisable from April 25, 2005 until April 25, 2010 to purchase up to 5,129,762 shares of common stock at an exercise price of $1.21 per share, subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations or reclassifications of our common stock or distributions of cash or other assets. In addition, the Series F Warrants contain provisions protecting against dilution resulting from the sale of additional shares of our common stock for less than the exercise price of the Series F Warrants, or the market price of the common stock, on the date of such issuance or sale. The Series F Warrants do not entitle the holders to any voting or other rights as a stockholder until such Series F Warrants are exercised and common stock is issued. Under the terms of the offering, in no event shall any holder of the Series F Warrants become the beneficial owner of more than 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such issuance. An exercise that is limited by this provision may be permitted at a later date if, on such date, such exercise would not cause such beneficial ownership to exceed 4.99%. This limitation may be waived, in whole or in part, by a holder of the Series F Warrants upon, at the election of such holder, not less than 61 days' prior notice to us, and the provisions of this limitation shall continue to apply until such 61st day (or such later date, as determined by such holder, as may be specified in such notice of waiver); provided, however, that one of the investors in this offering delivered a waiver of this limitation to us prior to the closing date of this offering, which waiver took effect as of the closing date. In addition, in no event shall the Company issue to holders of the Series F Warrants, without first obtaining shareholder approval, shares of common stock which, in the aggregate, would exceed 19.9% of the number of shares outstanding on the closing date. The rights of the holder of the Series F Warrants are more fully set forth in the form of Warrant attached hereto as Exhibit 10.2. 2 W.R. Hambrecht + Co., LLC (the "Placement Agent") has entered into a placement agency agreement with us in which they have agreed to act as placement agent in connection with the offering. The Placement Agent has been engaged to use its best efforts to introduce us to selected accredited investors who will purchase the securities. The Placement Agent has no obligation to buy any of the securities from us. We have agreed to pay the Placement Agent a fee equal to 6% of the proceeds of this offering and to reimburse the Placement Agent for reasonable expenses up to $50,000 that it incurs in connection with the offering. In addition, we have agreed to indemnify the placement agent and other persons against specific liabilities under the Securities Act of 1933, as amended. The Placement Agency Agreement is attached hereto as Exhibit 10.3. In addition, we have engaged Larkspur Capital Corporation to act as an adviser in connection with the sale of these securities. For such services, we have agreed to pay Larkspur Capital Corporation a fee equal to 1% of the gross proceeds of this offering. Paul Cronson, a member of our board of directors, is a founder and shareholder of Larkspur Capital Corporation. In connection with this offering, we have agreed that, without the prior written consent of the Placement Agent, we will not, during the 60 days after the date of the prospectus supplement filed with the SEC in connection with this offering, sell, contract to sell or otherwise dispose of or issue any of our securities, except: o up to an additional $3 million of securities that may be directly placed by the Company with its existing shareholders, within 45 days from the date of the placement agency agreement, on the same terms and conditions as the sale of the securities pursuant to the Purchase Agreement; o securities issued pursuant to our contractual obligations in effect as of June 28, 2004 and disclosed to the Placement Agent prior to date of the prospectus supplement; o securities issued on a pro rata basis to all holders of a class of our outstanding equity securities; o securities that may be issued to our legal counsel for services rendered or to be rendered; o the issuance of shares of common stock upon the exercise of stock options and warrants outstanding as of the date of the placement agency agreement; or o equity securities issued pursuant to our employee benefit or purchase plans in effect as of June 28, 2004. In connection with this offering, all of our directors and executive officers have agreed that, without the prior written consent of the placement agent, they will not, during the 60 days after the date of the prospectus supplement: o offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or 3 o enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock; whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. These restrictions do not apply to: o transfers by gift, or to any trust for the direct or indirect benefit of the director or executive officer or his or her immediate family, provided that the transferee agrees to be bound by such restrictions; o transfers effected pursuant to an exchange of "underwater" options with us; o acquisitions or exercises of any stock option issued pursuant to our existing stock option plan; or o the establishment of any selling plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provided that the initial sale date under such plan ends after the end of the 60-day period. Notwithstanding the foregoing, during the 60-day period after the date of the prospectus supplement, Dr. K.C. Park, President of Virtual Vision, Inc., our wholly owned subsidiary, will be permitted to sell up to 150,000 shares of common stock. In addition, the lock-up restrictions described above shall not apply to sales of our common stock pursuant to Dr. Park's 10b5-1 sales plan outstanding on the date hereof. On October 25, 2004, we issued a press release announcing the transaction. A copy of this press release has been filed with this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference. - -------------------------------------------------------------------------------- 4 Item 9. Financial Statements and Exhibits. (c) Exhibits. Exhibit Number Description - ------- ----------- Exhibit 4.1 Form of Series F Warrant issued by eMagin to the Purchasers, dated as of October 25, 2004. Exhibit 10.1 Form of Securities Purchase Agreement, dated as of October 21, 2004, by and among eMagin and the Purchasers. Exhibit 10.2 Placement Agency Agreement, dated as of October 21, 2004, by and between eMagin and W.R. Hambrecht + Co., LLC. Exhibit 10.3 Agreement, dated as of June 29,2004, by and between eMagin and Larkspur Capital Corporation. Exhibit 99.1 Press Release of eMagin, dated October 25, 2004, announcing the sale of securities pursuant to the Securities Purchase Agreement. - -------------------------------------------------------------------------------- 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 Dated: October 25, 2004 By:/s/ Gary W. Jones ------------------------------- Name: Gary W. Jones Title: President and Chief Executive Officer EX-4 2 oct2220048kex41.txt SERIES F COMMON STOCK PURCHASE WARRANT To Purchase __________ Shares of Common Stock of eMAGIN CORPORATION THIS SERIES F COMMON STOCK PURCHASE WARRANT (the "Warrant") CERTIFIES that, for value received, _____________ (the "Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time and from time to time, in whole or in part, on or after April __, 2005 (the "Initial Exercise Date") and on or prior to the close of business on April __, 2010 (the "Termination Date") but not thereafter, to subscribe for and purchase from eMagin Corporation, a corporation incorporated in Delaware (the "Company"), up to ____________ shares (the "Warrant Shares") of common stock, par value $0.0001 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 $1.21, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the "Purchase Agreement"), dated October 21, 2004, between the Company and each purchaser signatory thereto. 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and Section 7 of this Warrant, 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. The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company. 2. Authorization of Warrant Shares. The Company represents and warrants 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 taxes in respect of any transfer occurring contemporaneously with such issue). 1 3. Exercise of Warrant. (a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before 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 (i) upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank (a "Cash Exercise") or (ii) by means of a cashless exercise pursuant to Section 3(d) (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 on or before the third (3rd) Business Day following the date on which this Warrant shall have been exercised as aforesaid (such third Business Day being referred to herein as a "Delivery Date"). As long as the Company's transfer agent ("Transfer Agent") participates in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program ("FAST"), and except as otherwise provided in the immediately following sentence, the Company shall effect delivery of Warrant Shares to the Holder by crediting the account of the Holder or its nominee at DTC (as specified in the applicable Exercise Notice) with the number of Warrant Shares required to be delivered, no later than the close of business on such Delivery Date. In the event that the Transfer Agent is not a participant in FAST, or if the Warrant Shares are not otherwise eligible for delivery through FAST, or if the Holder so specifies in an Exercise Notice or otherwise in writing on or before the Exercise Date, the Company shall effect delivery of Warrant Shares by delivering to the Holder or its nominee physical certificates representing such Warrant Shares, no later than the close of business on such Delivery Date. 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 on which (x) in the case of a Cash Exercise, the Holder has delivered a Notice of Exercise Form and payment to the Company of the Exercise Price or (y) in the case of a Cashless Exercise, the Holder has delivered a Notice of Exercise Form to the Company, and, in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, 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. If the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 3(a) by the applicable Delivery Date, then the Holder will have the right to rescind such exercise. In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise by the applicable Delivery Date and the Holder has not rescinded such exercise pursuant to this Section 3(a), and if after such applicable Delivery Date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of this Warrant and sale of the Warrant Shares issuable upon such exercise at an aggregate sale price of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company, and the Company shall pay such amounts on or before the second (2nd) Business Day following receipt of such evidence. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. 2 (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 the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical to this Warrant. The failure of the Company to deliver such new Warrant to the Holder shall not affect the Holder's right to exercise such new Warrant at any time following the exercise of the original Warrant. (c) The Company shall not effect any exercise of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 3(a) or otherwise, to the extent that after giving effect to such exercise, the Holder (together with the Holder's Affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this Section 3(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which portion of this Warrant is exercisable shall be the sole responsibility of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 3(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company's Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Holder, the Company shall within two Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to any issuance of Common Stock by the Company pursuant to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The provisions of this Section 3(c) may be waived (as to all or a portion of the Warrant Shares) by the Holder upon, at the election of the Holder, not less than 61 days' prior notice to the Company, and the provisions of this Section 3(c) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver); provided, however, that any such waiver delivered prior to or at the Closing Date will take effect as of the Closing Date. Any such waiver will apply only to such Holder and not to any other Holder. Notwithstanding the foregoing, a Holder may elect to have the limitations of this Section 3 in their entirety not apply to such Holder and its subsequent transferees at any and all times by delivering, or causing to be delivered, a written notice to such effect to the Company at or prior to the Closing Date. 3 (d) At any time during which a registration statement covering the issuance and sale of all of the Warrant Shares issuable under this Warrant (without giving effect to any restrictions on such exercise contained herein) is not effective and available for such issuance and sale, the Holder may effect a Cashless Exercise by surrendering this Warrant to the Company and noting on the Notice of Exercise that the Holder wishes to effect a Cashless Exercise, upon which the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y x (A-B)/A where: X = the number of Warrant Shares to be issued to the Holder; Y = the number of Warrant Shares with respect to which this Warrant is being exercised; A = the closing price on the Trading Day immediately preceding the date of such election; and B = the Exercise Price. For purposes of Rule 144, it is intended and acknowledged that the Warrant Shares issued in a Cashless Exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares required by Rule 144 shall be deemed to have been commenced, on the Closing Date. (e) Unless (i) Stockholder Approval (as defined below) has been obtained, or (ii) the applicable listing requirements of the applicable Trading Market are amended and the Holder has delivered to the Company a legal opinion reasonably acceptable to the Company that such approval is no longer required under the applicable listing requirements of the applicable Trading Market, then the number of Warrant Shares that such Holder would receive upon such exercise, when added to the number of Warrant Shares previously received by such Holder pursuant to this Warrant, may not exceed the product of (A) the Cap Amount (as defined below) multiplied by (B) a fraction, the numerator of which is the number of Warrant Shares originally issuable under this Warrant and the denominator of which is the sum of (i) the number of Warrant Shares originally issuable under this Warrant and (ii) the number of Warrant Shares originally issuable under the other Warrants issued under the Purchase Agreement (such product, the "Allocation Amount"). Further, subject to the exception set forth in the first sentence of this paragraph, the Company may not issue upon exercise of this Warrant and the other Series F Warrants, in the aggregate, shares of Common Stock in excess of the Cap Amount. In the event that any Purchaser to which this Warrant was originally issued shall sell or otherwise transfer any part of this Warrant, the remaining Warrant Shares constituting such transferring Purchaser's Allocation Amount shall be allocated between the transferring Purchaser and the transferee in proportion to amount of this Warrant being transferred; subsequent transfers by a transferee shall result in a similar allocation. In the event that, at any time, the aggregate number of Warrant Shares issuable under this Warrant (without regard to any restrictions on such issuance), exceeds eighty percent (80%) of the Holder's Allocation Amount, the Company shall, upon the written request of the Holder, hold as promptly as reasonably practicable (but in no event more than sixty (60) days following delivery of such notice) a special meeting of its stockholders for the purpose of obtaining, and use its best efforts to obtain, Stockholder Approval. In connection therewith, the Company shall use its best efforts to obtain the agreement of management and directors to vote all shares of Common Stock owned by each of them in favor of approval of such transactions, including, but not limited to, the issuance of Warrant Shares in excess of the Cap Amount. In addition, in the event that the stockholders of the Company do not approve such transactions at such meeting, the Company shall continue to use its best efforts to seek such approval as soon as practicable after such meeting, but no less frequently than annually thereafter. "Cap Amount" means 19.99% of the number of shares of Common Stock outstanding on the Trading Day immediately preceding the Closing Date (subject to adjustment upon a stock split, stock dividend or similar event). "Stockholder Approval" means the affirmative vote of the holders of a majority of the votes cast at a meeting of stockholders approving the issuance of shares of Common Stock in excess of the Cap Amount. 4 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. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant pursuant to the terms hereof. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws and the conditions set forth in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the Purchase Agreement, the Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in part. In order to transfer ownership of this Warrant, the Holder shall surrender 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. 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 (without any restrictive or other legend thereon), 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. (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. (e) Notwithstanding anything herein to the contrary, in the event that this Warrant is transferred to a Person other than an Affiliate of the Holder, such transfer shall not, without the prior written consent of the Company, include the rights of the Holder under Section 11(c) below. 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 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. 5 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, in the case of the Warrant, 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. Business Day. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be other than a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day. 11. Anti-Dilution Adjustments; Distributions; Other Events. The Exercise Price and the number of Warrant Shares issuable hereunder shall be subject to adjustment from time to time as provided in this Section 11. In the event that any adjustment of the Exercise Price required herein results in a fraction of a cent, the Exercise Price shall be rounded up or down to the nearest one hundredth of a cent. (a) Subdivision or Combination of Common Stock. If the Company, at any time after the Closing Date, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the outstanding shares of Common Stock into a greater number of shares, then effective upon the close of business on the record date for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time after the Closing Date, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the outstanding shares of Common Stock into a smaller number of shares, then, effective upon the close of business on the record date for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionally increased. (b) Distributions. If the Company shall declare or make any distribution of cash or any other assets (or rights to acquire such assets) to holders of Common Stock, as a partial liquidating dividend or otherwise, including without limitation any dividend or distribution to the Company's stockholders in shares (or rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"), the Company shall deliver written notice of such Distribution (a "Distribution Notice") to the Holder at least thirty (30) days prior to the earlier to occur of (i) the record date for determining stockholders entitled to such Distribution (the "Record Date") and (ii) the date on which such Distribution is made (the "Distribution Date"). In the Distribution Notice to a Holder, the Company must indicate whether the Company has elected (A) to deliver to such Holder the same amount and type of assets being distributed in such Distribution as though the Holder were a holder on the applicable Determination Date of a number of shares of Common Stock into which the this Warrant is exercisable as of such Determination Date (such number of shares to be determined at the Exercise Price then in effect and without giving effect to any limitations on such exercise) or (B) to reduce the Exercise Price as of such Determination Date by an amount equal to the fair market value of the assets to be distributed divided by the number of shares of Common Stock as to which such Distribution is to be made. If the Company does not notify the Holders of its election pursuant to the preceding sentence on or prior to the Determination Date, the Company shall be deemed to have elected clause (A) of the preceding sentence. For purposes of this Warrant, the "fair market value" of any property means (i) in the case of cash, the face amount thereof, (ii) in the case of publicly-traded securities, the average closing price for such securities on the five (5) Trading Days occurring immediately prior to the date of determination and (iii) in the case of any other types of property, the fair market value thereof as determined reasonably and in good faith by the independent members of the Company's Board of Directors, using standard commercial valuation methods appropriate for valuing such property. 6 (c) Dilutive Issuances. (i) Adjustment Upon Dilutive Issuance. If, at any time after the Closing Date, the Company issues or sells, or in accordance with subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any shares of Common Stock for per share consideration less than the Exercise Price on the date of such issuance or sale (a "Dilutive Issuance"), then the Exercise Price shall be adjusted so as to equal an amount determined by multiplying such Exercise Price by the following fraction: N0 + N1 ------- N0 + N2 where: N0 = the number of shares of Common Stock outstanding immediately prior to the issuance, sale or deemed issuance or sale of such additional shares of Common Stock in such Dilutive Issuance (without taking into account any shares of Common Stock issuable upon conversion, exchange or exercise of any securities or other instruments which are convertible into or exercisable or exchangeable for Common Stock ("Convertible Securities") or options, warrants or other rights to purchase or subscribe for Common Stock or Convertible Securities ("Purchase Rights"); N1 = the number of shares of Common Stock which the aggregate consideration, if any, received or receivable by the Company for the total number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Dilutive Issuance (which, in the case of a deemed issuance or sale, shall be calculated in accordance with subparagraph (iii) below) would purchase at the Exercise Price in effect immediately prior to such Dilutive Issuance; and N2 = the number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Dilutive Issuance. Notwithstanding the foregoing, no adjustment shall be made pursuant hereto if such adjustment would result in an increase in the Exercise Price. (ii) Adjustment Upon Below Market Issuance. If, at any time after the Closing Date, the Company issues or sells, or in accordance with subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any shares of Common Stock for per share consideration less than the Market Price on the date of such issuance or sale (or deemed issuance or sale) (a "Below Market Issuance"), then the Exercise Price shall be adjusted so as to equal an amount determined by multiplying such Exercise Price by the following fraction: N0 + N1 ------- N0 + N2 where: N0 = the number of shares of Common Stock outstanding immediately prior to the issuance, sale or deemed issuance or sale of such additional shares of Common Stock in such Below Market Issuance (without taking into account any shares of Common Stock issuable upon conversion, exchange or exercise of any Convertible Securities or Purchase Rights); N1 = the number of shares of Common Stock which the aggregate consideration, if any, received or receivable by the Company for the total number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Below Market Issuance (which, in the case of a deemed issuance or sale, shall be calculated in accordance with subparagraph (iii) below) would purchase at the Market Price in effect on the date of such Below Market Issuance; and N2 = the number of such additional shares of Common Stock so issued, sold or deemed issued or sold in such Below Market Issuance. 7 Notwithstanding the foregoing, no adjustment shall be made pursuant to this paragraph (c)(ii) if such adjustment would result in an increase in the Exercise Price. In the event that the Company issues or is deemed to issue Common Stock in a transaction that is both a Dilutive Issuance and a Below Market Issuance, the Exercise Price will be adjusted to the lower of the prices calculated pursuant to subparagraphs (i) and (ii) of this paragraph (c). For purposes hereof, "Market Price" as of a particular date means the average closing price for the Common Stock on the five (5) Trading Days occurring immediately prior to such date. (iii) Effect On Exercise Price Of Certain Events. For purposes of determining the adjusted Exercise Price under subparagraph (i) or (ii) of this paragraph (c), the following will be applicable: (A) Issuance Of Purchase Rights. If the Company issues or sells any Purchase Rights, whether or not immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Purchase Rights (and the price of any conversion of Convertible Securities, if applicable) is less than the Market Price or Exercise Price in effect on the date of the issuance or sale of such Purchase Rights, then the maximum total number of shares of Common Stock issuable upon the exercise of all such Purchase Rights (assuming full conversion, exercise or exchange of Convertible Securities, if applicable) shall, as of the date of the issuance or sale of such Purchase Rights, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Purchase Rights" shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Purchase Rights, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Purchase Rights, plus, in the case of Convertible Securities issuable upon the exercise of such Purchase Rights, the minimum aggregate amount of additional consideration payable upon the conversion, exercise or exchange thereof (determined in accordance with the calculation method set forth in subparagraph (iii)(B) below) at the time such Convertible Securities first become convertible, exercisable or exchangeable, by (y) the maximum total number of shares of Common Stock issuable upon the exercise of all such Purchase Rights (assuming full conversion, exercise or exchange of Convertible Securities, if applicable). No further adjustment to the Exercise Price shall be made upon the actual issuance of such Common Stock upon the exercise of such Purchase Rights or upon the conversion, exercise or exchange of Convertible Securities issuable upon exercise of such Purchase Rights. To the extent that shares of Common Stock or Convertible Securities are not delivered pursuant to such Purchase Rights, upon the expiration or termination of such Purchase Rights, the Exercise Price shall be readjusted to the Exercise Price that would then be in effect had the adjustments made upon the issuance of such Purchase Rights been made on the basis of delivery of only the number of shares of Common Stock actually delivered. 8 (B) Issuance Of Convertible Securities. If the Company issues or sells any Convertible Securities, whether or not immediately convertible, exercisable or exchangeable, and the price per share for which Common Stock is issuable upon such conversion, exercise or exchange is less than the Market Price or Exercise Price in effect on the date of issuance or sale of such Convertible Securities, then the maximum total number of shares of Common Stock issuable upon the conversion, exercise or exchange of all such Convertible Securities shall, as of the date of the issuance or sale of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. If the Convertible Securities so issued or sold do not have a fluctuating conversion or exercise price or exchange ratio, then for the purposes of the immediately preceding sentence, the "price per share for which Common Stock is issuable upon such conversion, exercise or exchange" shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion, exercise or exchange thereof (determined in accordance with the calculation method set forth in this subparagraph (iii)(B)), by (y) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities. If the Convertible Securities so issued or sold have a fluctuating conversion or exercise price or exchange ratio (a "Variable Rate Convertible Security") (provided, however, that if the conversion or exercise price or exchange ratio of a Convertible Security may fluctuate solely as a result of provisions designed to protect against dilution, such Convertible Security shall not be deemed to be a Variable Rate Convertible Security), then for purposes of the first sentence of this subparagraph (B), the "price per share for which Common Stock is issuable upon such conversion, exercise or exchange" shall be deemed to be the lowest price per share which would be applicable (assuming all holding period and other conditions to any discounts contained in such Variable Rate Convertible Security have been satisfied) if the conversion price of such Variable Rate Convertible Security on the date of issuance or sale thereof were seventy-five percent (75%) of the actual conversion price on such date (the "Assumed Variable Market Price"), and, further, if the conversion price of such Variable Rate Convertible Security at any time or times thereafter is less than or equal to the Assumed Variable Market Price last used for making any adjustment under this paragraph (c) with respect to any Variable Rate Convertible Security, the Exercise Price in effect at such time shall be readjusted to equal the Exercise Price which would have resulted if the Assumed Variable Market Price at the time of issuance of the Variable Rate Convertible Security had been seventy-five percent (75%) of the actual conversion price of such Variable Rate Convertible Security existing at the time of the adjustment required by this sentence. No further adjustment to the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. To the extent that shares of Common Stock are not delivered pursuant to conversion of such Convertible Securities into Common Stock, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such Convertible Securities been made on the basis of delivery of only the number of shares of Common Stock actually delivered. (C) Change In Option Price Or Conversion Rate. If, following an adjustment to the Exercise Price upon the issuance of Purchase Rights or Convertible Securities pursuant to a Below Market Issuance or a Dilutive Issuance, there is a change at any time in (x) the amount of additional consideration payable to the Company upon the exercise of any Purchase Rights; (y) the amount of additional consideration, if any, payable to the Company upon the conversion, exercise or exchange of any Convertible Securities; or (z) the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock (in each such case, other than under or by reason of provisions designed to protect against dilution), then in any such case, the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such Purchase Rights or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion, exercise or exchange rate, as the case may be, at the time initially issued or sold. 9 (D) Calculation Of Consideration Received. If any Common Stock, Purchase Rights or Convertible Securities are issued or sold for cash, the consideration received for such rights or securities will be the amount actually received by the Company. In case any Common Stock, Purchase Rights or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, including in the case of a strategic or similar arrangement in which the other entity will provide services to the Company, purchase services from the Company or otherwise provide intangible consideration to the Company, the amount of the consideration other than cash received by the Company (including the net present value of the consideration expected by the Company for the provided or purchased services) shall be the fair market value of such consideration. In case any Common Stock, Purchase Rights or Convertible Securities are issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Purchase Rights or Convertible Securities, as the case may be. Notwithstanding anything else herein to the contrary, if Common Stock Purchase Rights or Convertible Securities are issued or sold in conjunction with each other as part of a single transaction or in a series of related transactions, the Holder may elect to determine the amount of consideration deemed to be received by the Company therefor by deducting the fair market value of any type of securities (the "Disregarded Securities") issued or sold in such transaction or series of transactions. If the Holder makes an election pursuant to the immediately preceding sentence, no adjustment to the Exercise Price shall be made pursuant to this paragraph (c) for the issuance of the Disregarded Securities or upon any conversion, exercise or exchange thereof. (E) Issuances Without Consideration Pursuant to Existing Securities. If the Company issues (or becomes obligated to issue) shares of Common Stock pursuant to any anti-dilution or similar adjustments (other than as a result of stock splits, stock dividends and the like) contained in any Convertible Securities or Purchase Rights outstanding as of the date hereof but not included in the Disclosure Schedule to the Securities Purchase Agreement, whether as a result of the issuance of the Warrants or otherwise, then all shares of Common Stock so issued shall be deemed to have been issued for no consideration. If the Company issues (or becomes obligated to issue) shares of Common Stock pursuant to any anti-dilution or similar adjustments contained in any Convertible Securities or Purchase Rights disclosed in a schedule to the Securities Purchase Agreement as a result of the issuance of the Warrants and the number of shares that the Company issues (or is obligated to issue) as a result of such initial issuance exceeds the amount specified in such schedule, such excess shares shall be deemed to have been issued for no consideration. (iv) Exceptions To Adjustment Of Exercise Price. Notwithstanding the foregoing, no adjustment to the Exercise Price shall be made pursuant to this paragraph (c) upon the issuance of any Excluded Securities. For purposes hereof, "Excluded Securities" means (I) securities purchased under the Purchase Agreement; (II) securities issued upon exercise of the Warrants; (III) securities issued upon the exercise of stock options and warrants outstanding as of the date hereof, (IV) shares of Common Stock issuable or issued to (x) employees or directors from time to time either directly or upon the exercise of options, in such case granted or to be granted in the discretion of the Board of Directors, as approved by the independent members of the Board, pursuant to one or more stock option plans or restricted stock plans or stock purchase plans in effect as of the Closing Date, or (y) consultants, either directly or pursuant to warrants to purchase Common Stock that are outstanding on the date hereof or issued hereafter, provided such issuances are approved by the independent members of the Board of Directors or by the Company's shareholders; (V) shares of Common Stock issued to a Person in connection with a joint venture, strategic alliance or other commercial relationship with such Person relating to the operation of the Company's business and not for the purpose of raising equity capital, (VI) up to an additional $3 million of securities that may be directly placed by the Company with its existing shareholders, within 45 days from the date hereof, on the same terms and conditions as the sale of the Securities pursuant to the Purchase Agreement, and (VII) the issuance of up to 100,000 shares to legal counsel for services rendered or to be rendered in connection with the transactions contemplated by this Agreement. 10 (d) Additional Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this Section 11, the Holder of this Warrant shall, upon exercise of this Warrant, become entitled to receive securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 11. Any adjustment made herein that results in a decrease in the Exercise Price shall also effect a proportional increase in the number of shares of Common Stock into which this Warrant is exercisable. 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, 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, the Company shall give the Holder at least ten (10) Business Days' prior written notice of such transaction, and the Holder shall have the right thereafter (whether or not the Company delivers such notice) to receive, at the option of the Holder following notice to the Company at any time, (a) upon exercise of this Warrant, 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 (b) 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. 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 give written notice thereof to the Holder promptly following such adjustment, which notice shall state 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. 11 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 the Holder (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, recapitalization, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, recapitalization, 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, recapitalization, 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 the Holder at the last address of the Holder appearing on the books of the Company and delivered in accordance with Section 17(c). 16. Authorized Shares; Certain Actions. (a) Reservation of 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 further covenants 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, including without limitation obtaining such consents and authorizations, to ensure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. (b) No Adverse Action. Except and to the extent as waived or consented to by the Holder, 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 the Holder as set forth in this Warrant 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) 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. 12 17. Miscellaneous. (a) Jurisdiction. This Warrant shall be deemed to constitute a contract made and to be performed entirely within the State of New York and shall be governed by and construed in accordance with the laws of New York, without regard to its conflict of law, principles or rules. (b) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the 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 the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (c) 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. (d) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (e) 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. (f) 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. ******************** [Signature Page to Follow] 13 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: October __, 2004 eMAGIN CORPORATION By:_________________________________ Name: Title: 14 NOTICE OF EXERCISE The undersigned Holder hereby irrevocably exercises the right to purchase_______________ of the shares of Common Stock ("Warrant Shares") of _____________ evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. 1. Form of Exercise. The Holder intends that the Exercise of this Warrant shall be made as: ______ a Cash Exercise with respect to _________________ Warrant Shares; and/or ______ a Cashless Exercise with respect to _________________ Warrant Shares, as permitted by Section 3(d) of the attached Warrant. 2. Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the sum of $________________ to the Company in accordance with the terms of the Warrant. Date:_______________________ ____________________________ Name of Registered Holder By:_________________________ Name: Title: 15 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: ___________________________ ___________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-10 3 oct2220048kex101.txt SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this "Agreement") is dated as of October 21, 2004, between eMagin Corporation, a Delaware corporation (the "Company"), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a "Purchaser" and collectively the "Purchasers"); and WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, shares of Common Stock and a Warrant on the Closing Date pursuant to an effective Registration Statement on Form S-3, registration file no. 333-115161. The Company has engaged W.R. Hambrecht + Co., LLC as its placement agent (the "Placement Agent") in connection with such issuance and sale to the Purchasers. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1: "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. "Closing" means the closing of the purchase and sale of the Common Stock and the Warrants pursuant to Section 2.1. "Closing Date" means the Business Day on which the purchase and sale of the Securities contemplated by this Agreement occurs. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock of the Company, $0.001 par value per share, and any securities into which such common stock may hereafter be reclassified. "Company Counsel" means Sichenzia Ross Friedman Ference LLP. 1 "Escrow Agent" means JP Morgan Chase Bank. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation the Commission and any stock exchange, securities market or self-regulatory organization. "Lien" means, with respect to any property, any mortgage or mortgages, pledge, hypothecation, assignment, deposit arrangement, security interest, tax lien, financing statement, pledge, charge, or other lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). "Per Share Purchase Price" means $1.05, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement and prior to the Closing. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Registration Statement" has the meaning set forth in Section 3.1(a). "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as Rule 144. "SEC Reports" shall have the meaning ascribed to such term in Section 3.1(i). "Securities" means the Shares, the Warrants and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement. "Subscription Amount" means, as to each Purchaser, the amount set forth below such Purchaser's signature block on the signature page hereto, in United States dollars and in immediately available funds. "Subsidiary" means, with respect to the Company, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (regardless of whether, in the case of a corporation, stock of any other class or classes of such corporation shall or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned or controlled by the Company and/or one or more of its Affiliates. 2 "Trading Market" means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange ("AMEX"), the New York Stock Exchange, Nasdaq National Market or the Nasdaq SmallCap Market. "Transaction Documents" means this Agreement, the Warrants, the Escrow Agreement, and any other documents or agreements executed in connection with the transactions contemplated hereunder. "Warrants" means the Series F common stock purchase warrants, in the form of Exhibit A, issuable to the Purchasers at the Closing. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II. PURCHASE AND SALE 2.1 Closing. At the Closing, each Purchaser shall purchase from the Company, severally and not jointly with the other Purchasers, and the Company shall issue and sell to each Purchaser, (a) a number of Shares equal to such Purchaser's Subscription Amount divided by the Per Share Purchase Price and (b) a Warrant covering the number of Warrant Shares and with an exercise price as determined pursuant to Section 2.2(a)(iii). The maximum aggregate number of Shares to be sold to the Purchasers hereunder shall not exceed 13,000,000 Shares and, if such number of Shares would exceed 13,000,000, (i) each Purchaser's Subscription Amount shall be reduced on a pro rata basis so that such aggregate number of Shares will equal 13,000,000 Shares and (ii) to the extent that any Purchaser has delivered to the Company funds in excess of such Purchaser's Subscription Amount after giving effect to such reduction, the Company shall remit such excess to such Purchaser as promptly as reasonably practicable (but in no event later than the Business Day following the Closing). Upon satisfaction, or waiver by the appropriate party, of the conditions set forth in Section 2.2, the Closing shall occur at the offices of the Company Counsel, or such other location as the parties shall mutually agree. 2.2 Closing Conditions. (a) At the Closing the Company shall deliver or cause to be delivered to each Purchaser the following: (i) this Agreement duly executed by the Company; (ii) a number of Shares determined in accordance with Section 2.1 above, registered in the name of such Purchaser, such delivery to be made by crediting the account of such Purchaser or its nominee at the Depository Trust Company with the number of Shares required by this Agreement to be delivered (without any restriction on further transfer or resale); provided, however, that if a Purchaser so notifies the Company in writing on or before the Closing Date, the Company shall effect delivery of the Shares by delivering to such Purchaser or its nominee physical certificates representing such Shares (without any restrictive or other legend thereon); 3 (iii) a Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to purchase up to a number of shares of Common Stock equal to 50% of the Shares to be issued to such Purchaser at the Closing, which Warrant shall have an exercise price equal to $1.21 per share of Common Stock, subject to adjustment as described therein, and be exercisable on or after the six month anniversary of the Closing Date until five (5) years from anniversary date; (iv) an opinion of Company Counsel, dated as of the Closing Date, in substantially the form set forth on Exhibit B; (v) a certificate, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying that the conditions specified in paragraphs (a) and (d) of this Section 2.2 have been fulfilled as of the Closing Date, it being understood that such Purchaser may rely on such certificate as a representation and warranty of the Company made herein; and (vi) a certificate, signed by the Secretary or an Assistant Secretary of the Company, attaching (i) the Certificate of Incorporation and By-Laws of the Company, and (ii) resolutions passed by its Board of Directors to authorize the transactions contemplated hereby and by the other Transaction Documents, and certifying that such documents are true and complete copies of the originals and that such resolutions have not been amended or superseded, it being understood that such Purchaser may rely on such certificate as a representation and warranty of the Company made herein. (b) At or prior to the Closing each Purchaser shall deliver or cause to be delivered to the Company the following: (i) this Agreement duly executed by such Purchaser; and (ii) such Purchaser's Subscription Amount by wire transfer, either directly or pursuant to an escrow agreement (the "Escrow Agreement") (it being understood that such delivery shall be deemed to have been made upon receipt by the Company from such Purchaser of a fed wire number for such transfer). (c) The Company's obligations to effect the Closing with each Purchaser are conditioned upon the fulfillment (or waiver by the Company in its sole and absolute discretion) of each of the following events as of the Closing Date: 4 (i) such Purchaser shall have made the deliveries required by Section 2.2(b); (ii) the Closing shall have occurred on or prior to October 25, 2004; (iii) the representations and warranties of such Purchaser set forthI in this Agreement shall be true and correct in all material respects as of such date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, in which case such representation or warranty shall be true and correct in all respects as of that particular date); (iv) such Purchaser shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by such Purchaser on or before the Closing; and (v) there shall be no injunction, restraining order or decree of any nature of any court or Government Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby or by the other Transaction Documents; (d) Each Purchaser's obligations to effect the Closing, including without limitation its obligation to purchase Shares and a Warrant at the Closing, are conditioned upon the fulfillment (or waiver by such Purchaser in its sole and absolute discretion) of each of the following events as of the Closing Date: (i) the Company shall have made the deliveries required by Section 2.2(a); (ii) the Closing shall have occurred on or prior to October 25, 2004; (iii) the representations and warranties of the Company set forth in this Agreement and in the other Transaction Documents shall be true and correct in all material respects as of such date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, in which case such representation or warranty shall be true and correct in all material respects as of that particular date); (iv) the Company shall have filed the Prospectus (as defined below) with the Commission pursuant to Rule 424(b) of the Rules and Regulations (as defined below), and provided such Purchaser with a copy thereof; (v) the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement or the other Transaction Documents that are required to be complied with or performed by the Company on or before such date; (vi) the Company and the Placement Agent shall have executed a placement agency agreement (the "Placement Agency Agreement"); 5 (vii) the Company, the Placement Agent, and the Escrow Agent, shall have entered into an escrow agreement for the benefit of the Purchasers (the "Escrow Agreement"); (viii) there shall have occurred no material adverse change in the Company's consolidated business or financial condition since the date of the Company's most recent financial statements contained in the SEC Reports; (ix) the Common Stock shall be listed on the AMEX and the Company shall have made or obtained any applications, filings or approvals required in order for the Shares and Warrant Shares to be traded on such exchange, and reasonable evidence thereof shall have been provided to such Purchaser at or prior to the Closing; (x) there shall be no injunction, restraining order or decree of any nature of any court or Government Authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby or by the other Transaction Documents; and (xi) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the American Stock Exchange (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally or on any Trading Market, as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Shares and the Warrants at the Closing. 6 ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser, as of the date of this Agreement, as set forth below. (a) The Company has filed with the Commission, on May 5, 2004, a "shelf" registration statement on Form S-3 (Registration No. 333-115161), relating to the Common Stock and certain other securities of the Company, under the Securities Act, and the rules and regulations (collectively, the "Rules and Regulations") of the Commission promulgated thereunder. Such registration statement, as amended at the time it became effective, including the exhibits and information (if any) deemed to be part of such registration statement at the time of effectiveness pursuant to Rule 430A or 434(d) under the Securities Act, is hereinafter referred to as the "Registration Statement." The Registration Statement was declared effective by the Commission on June 10, 2004, and no stop order suspending the effectiveness of the Registration Statement has been issued and, to the Company's knowledge, no proceeding for that purpose has been initiated or threatened by the Commission. The Company proposes to file the Prospectus (as defined below) with the Commission pursuant to Rule 424(b) of the Rules and Regulations. The Prospectus, in the form in which it is to be filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is hereinafter referred to as the "Prospectus," except that if any revised prospectus or prospectus supplement shall be provided to the Placement Agent by the Company for use in connection with the offering and sale of the Securities which differs from the Prospectus (whether or not such revised prospectus or prospectus supplement is required to be filed by the Company pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to such revised prospectus or prospectus supplement, as the case may be, from and after the time it is first provided to the Placement Agent for such use. Any preliminary prospectus or prospectus subject to completion included in the Registration Statement or filed with the Commission pursuant to Rule 424 under the Act is hereafter called a "Preliminary Prospectus." Any reference herein to the Registration Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on or before the last to occur of the effective date of the Registration Statement, the date of the Preliminary Prospectus, or the date of the Prospectus, and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include (i) the filing of any document under the Exchange Act after the effective date of the Registration Statement, the date of such Preliminary Prospectus or the date of the Prospectus, as the case may be, which is incorporated therein by reference and (ii) any such document so filed. (b) When the Registration Statement became effective, upon the filing or first delivery to the Purchasers of the Prospectus, as of the date hereof, and at the Closing Date, the Registration Statement (and any post-effective amendment thereto) and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement to the Registration Statement or the Prospectus) contained and will contain all statements which are required to be stated therein in accordance with the Securities Act and the Rules and Regulations, complied and will comply in all material respects with the Securities Act and the Rules and Regulations, and did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein (in the light of the circumstances under which they were made, in the case of the Prospectus) not misleading; each Preliminary Prospectus, as of the date filed with the Commission, did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that no representation or warranty is made in this Section 3.1(b) with respect to statements or omissions made in reliance upon and in conformity with written information furnished to the Company expressly for inclusion in the Prospectus by a Purchaser. The Company has not distributed any offering material in connection with the offering and sale of the Securities, other than the Registration Statement, the Preliminary Prospectus and the Prospectus. 7 (c) Subsidiaries. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. (d) Organization and Qualification. Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate: (i) adversely affect the legality, validity or enforceability of any Transaction Document, (ii) have or result in or be reasonably likely to have or result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company's ability to perform fully on a timely basis its obligations under any of the Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse Effect"). (e) Authorization; Enforcement. The Company has the requisite legal and corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder or thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby or thereby have been duly authorized by all necessary action on the part of the Company and no further consent or action is required by the Company. Each of the Transaction Documents has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and general principles of equity. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, by-laws or other organizational or charter documents. 8 (f) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that 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 (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result, in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or Governmental Authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected. (g) Issuance of the Securities. The Shares, the Warrants and the Warrant Shares are duly authorized and, when issued and paid for in accordance with this Agreement and the other the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock such number of shares of Common Stock as are issuable pursuant to this Agreement and the Warrants. (h) Capitalization. The capitalization of the Company is as described in the Company's Quarterly Report on Form 10-QSB filed with the Commission on August 16, 2004. The Company has not issued any capital stock since such filing other than pursuant to the exercise of employee stock options under the Company's stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company's employee stock purchase plan and pursuant to the conversion or exercise of outstanding options, warrants or other securities or rights convertible or exercisable into shares of Common Stock, the issuance of shares of Common Stock to consultants, professionals and service providers pursuant to the Company's 2004 non-employee compensation plan and that were specifically disclosed in such SEC Report. Except for rights of participation granted to the persons that participated in (i) the private placement offering completed in January 2004, and (ii) the conversion of secured convertible notes completed pursuant to the Master Amendment Agreement, dated as of February 17, 2004 (as amended by Letter Agreement dated March 1, 2004), no shares of the capital stock of the Company are subject to preemptive rights or any other similar rights of security holders of the Company or any Liens created by or through the Company. Except as specifically disclosed in such SEC Report, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company, or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or any of the Subsidiaries (whether pursuant to anti-dilution, "reset" or other similar provisions). 9 (i) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials being collectively referred to herein as the "SEC Reports") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. The Company has identified and made available to the Purchasers a copy of all SEC Reports filed within the 10 days preceding the date hereof. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, 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 misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes ---- thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for 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, immaterial, year-end audit adjustments. (j) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports filed with the Commission since such date and publicly available at least two (2) Business Days prior to the date hereof through the Commission's EDGAR database: (i) there has been no event, occurrence or development that has had or that could result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option or similar plans, and (v) neither the Company nor Subsidiary has sustained or will sustain any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or Governmental Authority. (k) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, or Governmental Authority (federal, state, county, local or foreign) (collectively, an "Action") which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. The Company does not have pending before the Commission any request for confidential treatment of information. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 10 (l) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. (m) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any Governmental Authority, except in each case as could not, individually or in the aggregate, have or result in a Material Adverse Effect. (n) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. (o) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (p) Patents and Trademarks. The Company and the Subsidiaries have, or have obtained valid and enforceable licenses or options or rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the "Intellectual Property Rights"). The Company is in compliance with its license agreement with Eastman Kodak, is not in receipt of any notices from Eastman Kodak as to any failure to be in compliance and, to its knowledge, Eastman Kodak has not licensed the OLED technology to any other party other than the Company. Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. (q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. To the best of Company's knowledge, such insurance contracts and policies are accurate, complete and in full force and effect. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. 11 (r) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $200,000 in the aggregate other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan duly adopted by the Company. (s) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the date of this Agreement. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosures controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company's most recently filed periodic report under the Exchange Act was being prepared. The Company's certifying officers have evaluated the effectiveness of the Company's controls and procedures as of the date prior to the filing date of the most recently filed periodic report under the Exchange Act (such date, the "Evaluation Date"). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers regarding the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no material changes in the Company's internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge, in other factors that could materially affect the Company's internal controls. (t) Certain Fees. Except for W.R. Hambrecht + Co., LLC and Larkspur Capital Corporation, no brokerage or finder's fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, and the Company has not taken any action that would cause any Purchaser to be liable for any such fees or commissions. The Company agrees that the Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Person for fees of the type contemplated by this Section in connection with the transactions contemplated by this Agreement. (u) Compliance with Securities Act; Listing Requirements; Registration Rights. (i) The offer and sale of the Shares and the Warrants by the Company to the Purchasers at the Closing, and the Warrant Shares upon exercise of the Warrants, will be made pursuant to the Registration Statement and the Prospectus, and will comply in all material respects with the requirements of the Securities Act, the Exchange Act and the Rules and Regulations. 12 (ii) At the Closing, the Shares and the Warrants, and upon exercise of the Warrants, the Warrant Shares shall be issued to each Purchaser without any restrictive or other legend and, at all times following the Closing, there shall exist no restriction on, or any requirement imposed by the Company or its transfer agent with respect to, the offer or sale of Shares, the Warrants or the Warrant Shares by any Purchaser, regardless of whether such offer or sale is made to the public, on an exchange (in which the case the rules of such exchange shall apply), in a private transaction, or otherwise. (iii) The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on the American Stock Exchange. Except as set forth in the SEC Reports, the Company currently meets the continuing eligibility requirements for listing on the American Stock Exchange and has not received any notice from such market that it does not currently satisfy such requirements or that such continued listing is in any way threatened. The Company has taken no action designed to, or which, to the knowledge of the Company, would reasonably be expected to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the American Stock Exchange. The issuance and sale of the Securities hereunder does not and will not contravene the rules and regulations, or any listing criteria, of the American Stock Exchange. (iv) The Company has not granted or agreed to grant to any person or entity any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other Governmental Authority which has not been satisfied in full prior to the date hereof; provided, however that in the event that any of the Company's currently effective registration statements do not remain effective or current, certain of the persons with rights thereunder will have additional rights to registration. (v) Investment Company. The Company is not, and is not an Affiliate of, and will not be immediately following the Closing, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (w) Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, and shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, statue or local tax. None of the Company's tax returns is presently being audited by any taxing authority. (x) Disclosure. The Company confirms that, neither the Company nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information and that, following the issuance of the press release or Form 8-K described in Section 4.3 below, no Purchaser shall be in possession of any material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, furnished by or on behalf of the Company with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. 13 (y) No Integrated Offering. Assuming the accuracy of the Purchasers' representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. (z) Solvency. Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company's fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company's assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). (aa) Acknowledgment Regarding Purchasers' Purchase of Securities. The Company acknowledges and agrees that the Purchasers are acting solely in the capacity of arm's length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Purchasers' purchase of the Securities. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives. (bb) Certificates. No statement, representation or warranty made by the Company in this Agreement or made in any certificate or document required by the Transaction Documents to be delivered was or will be, when made, inaccurate, untrue or incorrect in any material respect. (cc) No Stabilization. The Company and its directors, officers or controlling persons have not taken, directly or indirectly, any action intended, or which might reasonably be expected, to cause or result in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (dd) Compliance with Environmental Laws. The business and operations of the Company have been and are being conducted in compliance with all applicable laws, ordinances, rules, regulations, licenses, permits, approvals, plans, authorizations or requirements relating to occupational safety and health, or pollution, or protection of health or the environment (including, without limitation, those relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous or toxic substances, materials or wastes into ambient air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of chemical substances, pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, gaseous or liquid in nature) of any governmental department, commission, board, bureau, agency or instrumentality of the United States, any state or political subdivision thereof, or any foreign jurisdiction, and all applicable judicial or administrative agency or regulatory decrees, awards, judgments and orders relating thereto, except where the failure to be in such compliance will not, individually or in the aggregate, have a Material Adverse Effect; and the Company has not received any notice from any governmental instrumentality or any third party alleging any material violation thereof or liability thereunder (including, without limitation, liability for costs of investigating or remediating sites containing hazardous substances and/or damages to natural resources). 14 (ee) No Unlawful Payments. The Company and Subsidiary have not at any time since their respective incorporations, directly or indirectly, (i) made any unlawful contribution to any candidate for public office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. (ff) Compliance with ERISA. Each material employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and Subsidiary has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred which would result in a material liability to the Company with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption; and for each such plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated funding deficiency" as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeds the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions. 3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows: (a) Organization; Authority. Such Purchaser, if applicable, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Such Purchaser has the full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary action on the part of such Purchaser. Each Transaction Document to which it is party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (b) Experience of such Purchaser. Such Purchaser, alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (c) Residence. If such Purchaser is an individual, then such Purchaser resides in the state or province identified in the address of such Purchaser set forth on the signature page hereto; if such Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of such Purchaser in which its investment decision was made is located at the address or addresses of such Purchaser set forth on the signature page hereto. 15 ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES 4.1 No Transfer Restrictions. Certificates evidencing the Shares, the Warrants and the Warrant Shares shall not contain any legend restricting their transferability by the Purchaser. The Company shall cause its counsel to issue a legal opinion to the Company's transfer agent if required by the Company's transfer agent to effect a transfer of any of the Securities. 4.2 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants (the "Reserved Amount"). The Reserved Amount shall be allocated pro rata among the Purchasers on the basis of the number of Shares purchased by each Purchaser at the Closing. In the event that a Purchaser shall sell or otherwise transfer any of such Purchaser's Warrant, each transferee shall be allocated a pro rata portion of such transferor's Reserved Amount. Any portion of the Reserved Amount allocated to a Purchaser or other Person which no longer holds any Warrants shall be reallocated to the remaining Purchasers pro rata based on the number of Warrant Shares issuable to each such Purchaser at such time. In the event that the Reserved Amount is insufficient at any time to cover one hundred percent 100% of the Warrant Shares issuable upon exercise of the Warrants (without regard to any restriction on such exercise), the Company shall take such action (including without limitation holding a meeting of its stockholders) to increase the Reserved Amount to cover 100% of such Warrant Shares, such increase to be effective not later than the thirtieth (30th) day (or sixtieth (60th) day, in the event stockholder approval is required for such increase) following the Company's receipt of written notice of such deficiency. While any Warrants are outstanding, the Company shall not reduce the Reserved Amount without obtaining the prior written consent of each Purchaser then holding a Warrant. 4.3 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. eastern time on the first (1st) Business Day following the Closing Date, issue a press release or file a Current Report on Form 8-K reasonably acceptable to each Purchaser disclosing all material terms of the transactions contemplated hereby. 4.4 Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information in which such Purchaser specifically agrees to receive such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenants in effecting transactions in securities of the Company. 4.5 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities in the ordinary course of its business and consistent with past practice; provided, however, that the Company shall not use such proceeds (i) to pay down, repurchase or redeem any debt or securities issued by the Company or any Subsidiary, (ii) to pay any dividend or make any distribution on any such securities, or (iii) to repay any loan made to or incurred by any employee or Affiliate of the Company. 16 4.6 Indemnification. (a) The Company shall indemnify and hold harmless each Purchaser, each officer, director, employee, agent and representative of such Purchaser, and each person, if any, who controls such Purchaser within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages, liabilities or reasonable out-of-pocket expenses (whether joint or several) (collectively, including legal or other expenses reasonably incurred in connection with investigating or defending same, "Losses"), insofar as any such Losses arise out of or are based upon (i) any misrepresentation, breach or inaccuracy, or any allegation by a third party that, if true, would constitute a breach or inaccuracy, of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or any other Transaction Document; (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (iii) the omission or alleged omission to state therein a material fact required to be stated in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Subject to the provisions of paragraph (c) below, the Company will reimburse such Purchaser, and each such officer, director, employee, agent, representative or controlling person, for any legal or other out-of-pocket expenses reasonably incurred by any such entity or person in connection with investigating or defending any Loss as such expenses are incurred. The foregoing indemnity shall not apply to amounts paid in settlement of any Loss if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be obligated to indemnify any person for any Loss to the extent that such Loss is (x) based upon and is in conformity with written information furnished by such person expressly for use in the Registration Statement or (y) based on a failure of such person to deliver or cause to be delivered the final prospectus contained in the Registration Statement and made available by the Company, if such delivery is required by applicable law. The Company shall not enter into any settlement of a Loss that does not provide for the unconditional release of such Purchaser from all liabilities and obligations relating to such Loss. (b) To the extent permitted by law, each Purchaser, acting severally and not jointly, shall indemnify and hold harmless the Company, each officer, director, employee, agent and representative of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any Losses to the extent (and only to the extent) that any such Losses arise out of or are based upon (i) any misrepresentation, breach or inaccuracy, or any allegation by a third party that, if true, would constitute a breach or inaccuracy, of any of the representations, warranties, covenants or agreements made by such Purchaser in this Agreement; or (ii) written information furnished by such Purchaser expressly for use in the Registration Statement. Subject to the provisions of paragraph (c) below, such Purchaser will reimburse any legal or other expenses as reasonably incurred by the Company and any such officer, director, employee, agent, representative, or controlling person, in connection with investigating or defending any such Loss; provided, however, that the foregoing indemnity shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of such Purchaser (which consent shall not be unreasonably withheld); and provided, further, that, in no event shall any indemnity under clause (ii) of this paragraph exceed the net proceeds resulting from the sale of Warrant Shares sold by such Purchaser under the Registration Statement. 17 (c) Promptly after receipt by an indemnified party under this Section 4.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 4.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of one such counsel for all indemnified parties to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 4.6 with respect to such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 4.6 or with respect to any other action unless the indemnifying party is materially prejudiced as a result of not receiving such notice. (d) In the event that the indemnity provided in paragraph (a)(ii) or (iii) or paragraph (b)(ii) of this Section 4.6 is unavailable or insufficient to hold harmless an indemnified party for any reason, the Company and each Purchaser agree, severally and not jointly, to contribute to the aggregate Losses to which the Company or such Purchaser may be subject in such proportion as is appropriate to reflect the relative fault of the Company and such Purchaser in connection with the statements or omissions which resulted in such Losses; provided, however, that in no case shall such Purchaser be responsible for any amount in excess of the net proceeds resulting from the sale of the Warrant Shares sold by it under the Registration Statement. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or by such Purchaser. The Company and each Purchaser agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), 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 is not guilty of such fraudulent misrepresentation. For purposes of this Section 4.6, each person who controls a Purchaser within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee, agent or representative of such Purchaser shall have the same rights to contribution as such Purchaser, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee, agent or representative of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 4.7 Registration Statement. (a) The Company will maintain the effectiveness of the Registration Statement until the earlier to occur of (i) the date that is five and a half years from the Closing Date, and (ii) the date on which no Warrants are outstanding. (b) While any Warrants are outstanding, the Company will: (i) use commercially reasonable efforts to register or qualify the Warrant Shares under the securities or "blue sky" laws of the State of New York and such other jurisdictions within the United States as shall be reasonably requested from time to time by a Purchaser, and do any and all other acts or things which may be necessary or advisable to enable such Purchaser to consummate the public sale or other disposition of the Warrant Shares in such jurisdictions; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction; 18 (ii) notify each Purchaser immediately after becoming aware of the occurrence of any event (but shall not, without the prior written consent of such Purchaser, disclose to such Purchaser any facts or circumstances constituting material non-public information) as a result of which the prospectus included in the Registration Statement, as then in effect, contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and as promptly as practicable prepare and file with the Commission and furnish to each Purchaser a reasonable number of copies of a supplement or an amendment to such prospectus as may be necessary so that such prospectus does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (iii) use commercially reasonable efforts to prevent the issuance of any stop order or other order suspending the effectiveness of the Registration Statement and, if such an order is issued, to obtain the withdrawal thereof at the earliest possible time and to notify each Purchaser of the issuance of such order and the resolution thereof; (iv) permit counsel for each Purchaser to review the Registration Statement and all amendments and supplements thereto, and any comments made by the staff of the Commission with respect thereto, and the Company's responses thereto, within a reasonable period of time prior to the filing thereof with the Commission (or, in the case of comments made by the staff of the Commission, within a reasonable period of time following the receipt thereof by the Company), but only to the extent that such comments concern such Purchaser and/or the transactions contemplated by the Transaction Documents; and (v) in the event that, at any time, the number of shares available under the Registration Statement is insufficient to cover all of the Warrant Shares issuable under the Warrants (without regard to any restriction on the exercise thereof) the Company shall promptly amend the Registration Statement or file a new registration statement, in any event as soon as practicable, but not later than the tenth (10th) day following notice from a Purchaser of the occurrence of such event, so that the Registration Statement or such new registration statement, or both, covers no less than one hundred percent (100%) of the Warrant Shares issuable under the Warrants (without regard to any restriction on the exercise of such Warrants). The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. 19 ARTICLE V. MISCELLANEOUS 5.1 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 5.2 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 6:30 p.m. (New York City time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 6:30 p.m. (New York City time) on any Business Day, (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given, addressed as follows: If to the Company: 2070 Route 52 Hopewell Junction, NY 12533 Attn: Chief Financial Officer Tel: (845) 838-7900 Fax: (914) 892-1901 With a copy to: Richard A. Friedman, Esq. Darrin M. Ocasio, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of Americas New York, NY 10018 and if to a Purchaser, to such Purchaser's address appearing on the signature page hereof executed by such Purchaser, or as shall be designated by such Purchaser in writing to the Company in accordance with this Section 5.2. 5.3 Amendments; Waivers; Assignment. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver 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 subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. Upon the transfer of any Warrant or Warrant Shares by a Purchaser, the rights of such Purchaser hereunder with respect to the securities so transferred shall be assigned automatically to the transferee thereof, and such transferee shall thereupon be deemed to be a "Purchaser" for purposes of this Agreement, as long as: (i) the Company is, within a reasonable period of time following such transfer, furnished with written notice of the name and address of such transferee, (ii) the transferee agrees in writing with the Company to be bound by all of the provisions hereof, and (iii) such transfer is made in accordance with the applicable requirements of the Securities Purchase Agreement. 5.4 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 20 5.5 Governing Law; Venue; Waiver of Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney's fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 5.6 Survival. The representations, warranties and covenants contained herein shall survive the Closing and delivery and/or exercise of the Securities, as applicable. 5.7 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 5.8 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 5.9 Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser hereunder are several and not joint with the obligations of the other Purchasers hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other investor hereunder. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute any Purchasers as a partnership, an association, a joint venture or any other kind of entity, or a "group" as described in Section 13(d) of the Exchange Act, or create a presumption that any Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled individually to protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 5.10 Injunctive Relief. The parties hereto acknowledge and agree that a breach by either of their obligations hereunder will cause irreparable harm the other party and that the remedy or remedies at law for any such breach will be inadequate and agrees, in the event of any such breach, in addition to all other available remedies, the non-breaching party shall be entitled to an injunction restraining any breach and requiring immediate and specific performance of such obligations without the necessity of showing economic loss. (Signature Pages Follow) 21 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. EMAGIN CORPORATION By: -------------------- Name: JOHN ATHERLY Title: Chief Financial Officer PURCHASER By: ADDRESS: ________________________ ________________________ With a copy to: ________________________ ________________________ Number of Shares to be Purchased: Number of Warrants to be Purchased: 22 EX-10 4 oct2220048kex102v3.txt PLACEMENT AGENCY AGREEMENT THIS AGREEMENT ("AGREEMENT") is made as of the 21st day of October 2004, by and between eMagin Corporation (the "COMPANY") and W.R. Hambrecht + Co., LLC (the "AGENT"). WITNESSETH: WHEREAS, the Company desires to consider strategic alternatives available to it which include, but are not limited to, issuing and selling equity of the Company in the amount of $10,772,500. WHEREAS, the Agent has offered to assist the Company in identifying potential purchasers of 10,259,524 shares (the "Shares") of the Company's common stock, $0.001 par value per share (the "Common Stock"), and warrants to purchase 5,129,762 shares of Common Stock (the "Warrants", and together with the Shares, the "Securities") and the Company desires to secure the services of the Agent on the terms and conditions hereinafter set forth. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual promises, conditions and covenants herein contained, the parties hereto do hereby agree as follows: All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of October 21, 2004, between the Company and the Purchasers identified on the signature pages thereto. 1. ENGAGEMENT OF AGENT. The Company hereby appoints the Agent as exclusive agent to procure potential purchasers of the Company's Securities. The Agent, on the basis of the representations and warranties contained herein and in the Securities Purchase Agreement, but subject to the terms and conditions herein and therein set forth, accepts such appointment. This appointment shall be irrevocable for the period commencing as of the date hereof and ending upon the termination of the Agreement in accordance with Section 8 hereof. 2. DELIVERY AND PAYMENT. Concurrently with the execution and delivery of this Agreement, the Company, the Agent, and JP Morgan Chase Bank as escrow agent (the "Escrow Agent"), shall enter into an Escrow Agreement substantially in the form of Exhibit A attached hereto (the "Escrow Agreement"), pursuant to which an escrow account will be established, at the Company's expense, for the benefit of the Purchasers (the "Escrow Account"). Prior to the Closing Date, (i) each of the Purchasers will deposit an amount equal to the price per Share as shown on the cover page of the Prospectus multiplied by the number of Shares purchased by it in the Escrow Account, and (ii) the Escrow Agent will notify the Company and the Agent in writing whether the Purchasers have deposited in the Escrow Account funds in the amount equal to the number of Shares purchased by them (the "Subscriber's Funds") into the Escrow Account. At the Closing Date, or at such other time on such other date as may be agreed upon by the Company and the Agent but in no event prior to the date on which the Escrow Agent shall have received any or all of the Subscriber's Funds, the Escrow Agent will release the Subscriber's Funds that have been received from the Escrow Account for collection by the Company and the Agent as provided in the Escrow Agreement and the Company shall deliver the Securities to the Purchasers, which delivery may be made through the facilities of the Depository Trust Company. 1 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce the Agent to enter into this Agreement, the Company hereby represents and warrants to and agrees with the Agent as follows: (a) ACCURACY OF INFORMATION. All information provided by the Company to the Agent regarding the Company is true and does not omit any material fact necessary to make such information, in light of the circumstances under which it was made, not misleading. If, prior to Closing, any event occurs or any event known to the Company relating to or affecting the Company and/or the Agent shall occur as a result of which the information provided to the Agent becomes incorrect or misleading, the Company shall inform the Agent of such occurrence promptly, and will, if requested, confirm such notification in writing. (b) NO DEFAULTS. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated herein, and compliance with the terms of this Agreement do not and will not (i) conflict with or violate any provision of the Company's or the Subsidiary's certificate or articles of incorporation, by-laws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that 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 (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or Subsidiary is a party or by which any property or asset of the Company or Subsidiary is bound or affected, or (iii) result, in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or Governmental Authority to which the Company or Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or Subsidiary is bound or affected. (c) INCORPORATION AND AUTHORIZATION. The Company is duly formed and validly existing and in good standing as a corporation under the laws of the State of its incorporation. The execution and delivery by the Company of this Agreement and the Escrow Agreement and the consummation by it of the transaction contemplated hereby have been duly authorized by all necessary action, and no further consent or action is required by the Company. This Agreement and the Escrow Agreement are the valid, binding and legally enforceable obligations of the Company. 2 (d) RELIANCE BY AGENT. The Company hereby acknowledges that the Agent may rely on the representations, warranties and covenants set forth in Articles III and V of the Securities Purchase Agreement as if such representations, warranties and covenants were made to the Agent directly. 4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the Agent as follows: (a) The Registration Statement has become effective, and if Rule 430A is used or the filing of the Prospectus is otherwise required under Rule 424(b), the Company will file the Prospectus (properly completed if Rule 430A has been used) pursuant to Rule 424(b) within the prescribed time period and will provide a copy of such filing to the Agent promptly following such filing. (b) The Company will not, during such period as the Prospectus would be required by law to be delivered in connection with sales of the Securities by an underwriter or dealer in connection with the offering contemplated by this Agreement and the Securities Purchase Agreement, file any amendment or supplement to the Registration Statement or the Prospectus, except as required by law, unless a copy thereof shall first have been submitted to the Agent within a reasonable period of time prior to the filing thereof and the Agent shall not have reasonably objected thereto in good faith. (c) The Company will notify the Agent promptly, and will, if requested, confirm such notification in writing, (1) when any post-effective amendment to the Registration Statement becomes effective, but only during the period mentioned in Section 4(b); (2) of any request by the Commission for any amendments to the Registration Statement or any amendment or supplements to the Prospectus or for additional information, but only during the period mentioned in Section 4(b); (3) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, but only during the period mentioned in Section 4(b); (4) of becoming aware of the occurrence of any event during the period mentioned in Section 4(b) that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue in any material respect or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances in which they are made, not misleading; and (5) of receipt by the Company of any notification with respect to any suspension of the qualification of the Securities for offer and sale in any jurisdiction, but only during the period commencing on the date of this Agreement and ending on the fifth anniversary following the date of this Agreement. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement in connection with the offering contemplated hereby, the Company will make every reasonable effort to obtain the withdrawal of any such order at the earliest possible moment. If the Company has omitted any information from the Registration Statement, pursuant to Rule 430A, it will use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to said Rule 430A and to notify the Agent promptly of all such filings. 3 (d) If, at any time when a Prospectus relating to the Securities is required to be delivered under the Act, the Company becomes aware of the occurrence of any event as a result of which the Prospectus, as then amended or supplemented, would, in the reasonable judgment of counsel to the Company or counsel to the Agent, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or the Registration Statement, as then amended or supplemented, would, in the reasonable judgment of counsel to the Company or counsel to the Agent, include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, or if for any other reason it is necessary, in the reasonable judgment of counsel to the Company or counsel to the Agent, at any time to amend or supplement the Prospectus or the Registration Statement to comply with the Act or the Rules and Regulations, the Company will promptly notify the Agent and, subject to Section 4(b) hereof, will promptly prepare and file with the Commission, at the Company's expense, an amendment to the Registration Statement or an amendment or supplement to the Prospectus that corrects such statement or omission or effects such compliance and will deliver to the Agent, without charge, such number of copies thereof as the Agent may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the Agent, and the Agent agrees to provide to each Purchaser, prior to the Closing, a copy of the Prospectus and any amendments or supplements thereto. (e) The Company will furnish to the Agent and its counsel, without charge, with (i) one copy of the Registration Statement, including financial statements and schedules, and all exhibits thereto and (ii) so long as a prospectus relating to the Securities is required to be delivered under the Act, as many copies of each Preliminary Prospectus or the Prospectus or any amendment or supplement thereto as the Agent may reasonably request. (f) The Company will comply with all the undertakings contained in the Registration Statement. (g) Prior to the sale of the Securities to the Purchasers, the Company will cooperate with the Agent and its counsel in connection with the registration or qualification of the Securities for offer and sale under the state securities or blue sky laws of such jurisdictions as the Agent may reasonably request; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (h) The Company will apply the net proceeds from the offering and sale of the Securities in the manner set forth in the Prospectus under the caption "Use of Proceeds." 4 (i) The Company will use its best efforts to ensure that the Securities are listed on AMEX at the time of the Closing. (j) For a period of two years from the Closing Date, the Company will furnish to the Agent, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Securities, other than any such reports or communications filed with the Commission pursuant to the Commission's EDGAR system. (k) The Company will not at any time, directly or indirectly, take any action intended, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of the Common Stock to facilitate the sale or resale of any of the Securities. 5. AGENT'S FEE; EXPENSES. (a) The Company shall pay the Agent a cash fee equal to six percent (6%) of the gross proceeds received by the Company from the sale of the Securities as set forth on the cover page of the Prospectus; provided such subscriptions are accepted by the Company. (b) Whether or not the transactions contemplated by this Agreement or the Securities Purchase Agreement are consummated or this Agreement is terminated, the Company will pay all costs and expenses incident to the performance of the obligations of the Company under this Agreement or the Securities Purchase Agreement, including but not limited to costs and expenses of or relating to (1) the preparation, printing and filing of the Registration Statement (including each pre- and post-effective amendment thereto) and exhibits thereto, each Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, including all fees, disbursements and other charges of counsel to the Company, (2) the preparation and delivery of the Warrants and the certificates representing the Warrant Shares and the Shares, (3) furnishing (including costs of shipping and mailing) such copies of the Registration Statement (including all pre- and post-effective amendments thereto), the Prospectus and any Preliminary Prospectus, and all amendments and supplements to the Prospectus, as may be requested for use in connection with the direct placement of the Securities, (4) the listing of the Securities on AMEX, (5) any filings required to be made by the Agent with the NASD, and the fees, disbursements and other reasonable charges of counsel for the Agent in connection therewith (6) the registration or qualification of the Securities for offer and sale under the securities or blue sky laws of such jurisdictions designated by the Agent, including the reasonable fees, disbursements and other charges of counsel to the Agent in connection therewith and the preparation and printing of preliminary, supplemental and final blue sky memoranda, (7) fees, disbursements and other charges of counsel to the Company, and (8) fees and disbursements of the Accountants incurred in delivering the letter(s) described in Section 6(f) below and the fees of the Escrow Agent. The Company shall reimburse the Agent, on a fully accountable basis, for all reasonable travel, legal and other out-of-pocket expenses; provided, however that the Company shall not be obligated to reimburse the Agent for any costs and expenses to the extent that the aggregate amount of such costs and expenses exceeds $50,000 without the Company's prior written consent. 5 6. CONDITIONS TO THE OBLIGATIONS OF THE AGENT. The obligations of the Agent hereunder are subject to the following conditions: (a) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued, and no proceedings for that purpose shall be pending or threatened by any securities or other governmental authority (including, without limitation, the Commission), (ii) no order suspending the effectiveness of the Registration Statement or the qualification or registration of the Securities under the securities or blue sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by any securities or other governmental authority (including, without limitation, the Commission), (iii) any request for additional information on the part of the staff of any securities or other governmental authority (including, without limitation, the Commission) shall have been complied with to the satisfaction of the staff of the Commission or such authorities and (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Agent and the Agent did not object thereto in good faith, and the Agent shall have received certificates of the Company, dated the Closing Date and signed by the President and Chief Executive Officer or the Chairman of the Board of Directors of the Company, and the Chief Financial Officer of the Company, to the effect of clauses (i), (ii) and (iii). (b) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) there shall not have been a material adverse change, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth in or contemplated by the Registration Statement and the Prospectus and (ii) the Company shall not have sustained any material loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Registration Statement and the Prospectus, if in the judgment of the Agent any such development makes it impracticable or inadvisable to consummate the sale and delivery of the Securities to Purchasers at the public offering price. (c) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company or any of its officers or directors in their capacities as such, before or by any Federal, state or local court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, which litigation or proceeding is reasonably expected by management to have a Material Adverse Effect. (d) Each of the representations and warranties of the Company contained herein and in the Securities Purchase Agreement shall be true and correct in all material respects at the Closing Date, as if made on such date, and all covenants and agreements herein contained and in the Securities Purchase Agreement to be performed on the part of the Company and all conditions herein contained and in the Securities Purchase Agreement to be fulfilled or complied with by the Company at or prior to the Closing Date shall have been duly performed, fulfilled or complied with in all material respects. 6 (e) The Agent shall have received an opinion, dated the Closing Date (or such other date as may be set forth in a representation or warranty), of Sichenzia Ross Friedman Ference LLP, as counsel to the Company, in form and substance reasonably satisfactory to the Agent. (f) At the Closing Date, the Accountants shall have furnished to the Agent a letter, dated the date of its delivery (the "Letter"), addressed to the Agent and in form and substance satisfactory to the Agent, confirming that (i) they are independent public accountants with respect to the Company within the meaning of the Act and the Rules and Regulations; (ii) in their opinion, the financial statements and any supplementary financial information included in the Registration Statement and examined by them comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations; (iii) on the basis of procedures, not constituting an examination in accordance with generally accepted auditing standards, set forth in detail in the Original Letter, a reading of the latest available interim financial statements of the Company, inspections of the minute books of the Company since the latest audited financial statements included in the Prospectus, inquiries of officials of the Company responsible for financial and accounting matters and such other inquiries and procedures as may be specified in the Letter to a date not more than five days prior to the date of the Letter, nothing came to their attention that caused them to believe that: (A) as of a specified date not more than five days prior to the date of the Letter, there have been any changes in the capital stock of the Company or any increase in the long-term debt of the Company, or any decreases in net current assets or net assets or other items specified by the Agent, or any increases in any items specified by the Agent, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in the Letter; and (B) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in Clause (A), there were any decreases in revenues or the total or per share amounts of net income or other items specified by the Agent, or any increases in any items specified by the Agent, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Agent, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in the Original Letter; and (iv) in addition to the examination referred to in their reports included in the Prospectus and the procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Agent, which are derived from the general accounting, financial or other records of the Company, as the case may be, which appear in the Prospectus or in Part II of, or in exhibits or schedules to, the Registration Statement, and have compared such amounts, percentages and financial information with such accounting, financial and other records and have found them to be in agreement. 7 (g) At the Closing Date, there shall be furnished to the Agent a certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Agent to the effect that each signer has carefully examined the Registration Statement and that to each of such person's knowledge: (i) As of the date of such certificate, (x) the Registration Statement does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (y) the Prospectus does not contain any untrue statement of a material fact or omit 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 misleading and (B) no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading in any material respect. (ii) Each of the representations and warranties of the Company contained in this Agreement and the Securities Purchase Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects. (iii) Each of the covenants required herein and in the Securities Purchase Agreement to be performed by the Company on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be complied with by the Company on or prior to the delivery of such certificate has been duly, timely and fully complied with. (iv) No stop order suspending the effectiveness of the Registration Statement or of any part thereof has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission. (v) Subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change. (h) The Securities shall be qualified for sale in such states as the Agent may reasonably request, and each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to taxation or general service of process in any jurisdiction where it is not now so subject. (i) The Company shall have furnished or caused to be furnished to the Agent such certificates, in addition to those specifically mentioned herein, as the Agent may have reasonably requested as to the accuracy and completeness at the Closing Date of any statement in the Registration Statement or the Prospectus, as to the accuracy at the Closing Date of the representations and warranties of the Company as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Agent. 8 (j) Each officer and director of the Company listed on Exhibit B hereto has delivered to the Agent an agreement in the form of Attachment A hereto to the effect that he or she will not, for a period of 60 days after the date hereof, without the prior written consent of the Agent, offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of any option to purchase or other disposition) of any shares of capital stock, directly or indirectly, of the Company or securities convertible into, or exchangeable or exercisable for, shares of capital stock of the Company; provided, however, that K.C. Park may sell 150,000 shares. (k) The Company has delivered to the Agent an agreement in the form of Attachment B hereto to the effect that it will not, for a period of 60 days after the date hereof, without the prior written consent of the Agent, offer to sell, sell, contract to sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of any option to purchase or other disposition) of any shares of capital stock of the Company or securities convertible into, or exchangeable or exercisable for, shares of capital stock of the Company, except with respect to (i) up to an additional $3 million of securities that may be directly placed by the Company with its existing shareholders, within 45 days from the date hereof, on the same terms and conditions as the sale of the Securities pursuant to the Securities Purchase Agreement, (ii) the issuance of shares to legal counsel for services rendered or to be rendered, and (iii) the issuance of shares of Common Stock upon the exercise of stock options and warrants outstanding as of the date hereof the and the issuance of Common Stock or stock options under any benefit plan of the Company. 7. NON-CIRCUMVENTION. The Company agrees to maintain the confidentiality of the Agent's clients, except as required by applicable law. Such clients shall be those entities or individuals that the Agent has procured for investment in the Company, which are identified on Schedule 7 hereto. 9 8. INDEMNIFICATION. (a) The Company shall indemnify and hold harmless the Agent, the directors, officers, employees and agents of the Agent and each person, if any, who controls the Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, liabilities, expenses and damages, joint or several, (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which it, or any of them, may become subject under the Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (i) any untrue statement or alleged untrue statement made by the Company in Section 3 of this Agreement or the Securities Purchase Agreement, (ii) any untrue statement or alleged untrue statement of any material fact contained in (A) any Preliminary Prospectus, the Registration Statement or the Prospectus or any amendment or supplement to the Registration Statement or the Prospectus and (B) any application or other document, or any amendment or supplement thereto, executed by the Company based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Securities under the securities or blue sky laws thereof or filed with the Commission or any securities association or securities exchange (each, an "Application"), or (iii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus or any supplement to the Registration Statement or the Prospectus or any Application a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Securities in the public offering to any person and is based solely on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Agent furnished in writing to the Company by the Agent expressly for inclusion in the Registration Statement, any Preliminary Prospectus or the Prospectus; and provided further, that such indemnity with respect to any Preliminary Prospectus shall not inure to the benefit of any Agent (or any person controlling such Agent) from whom the person asserting any such loss, claim, damage, liability or action purchased Securities which are the subject thereof to the extent that any such loss, claim, damage or liability (i) results from the fact that such Agent failed to send or give a copy of the Prospectus (as amended or supplemented) to such person at or prior to the confirmation of the sale of such Securities to such person in any case where such delivery is required by the Act and (ii) arises out of or is based upon an untrue statement or omission of a material fact contained in such Preliminary Prospectus that was corrected in the Prospectus (or any amendment or supplement thereto), unless such failure to deliver the Prospectus (as amended or supplemented) was the result of noncompliance by the Company with Section 4(d). This indemnity agreement will be in addition to any liability which the Company may otherwise have. The Company will not, without the prior written consent of the Agent (which will not be unreasonably withheld), settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not such Agent or any person who controls such Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to each claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Agent and each such controlling person from all liability arising out of such claim, action, suit or proceeding. (b) The Agent will indemnify and hold harmless the directors, officers, employees and agents of the Company, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to the Agent, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Agent furnished in writing to the Company by the Agent expressly for use in the Registration Statement, any Preliminary Prospectus or the Prospectus. This indemnity agreement will be in addition to any liability that the Agent might otherwise have. The Company acknowledges that, for all purposes under this Agreement, the statements set forth under the heading "Plan of Distribution" in any Preliminary Prospectus and the Prospectus constitute the only information relating to the Agent furnished in writing to the Company by the Agent expressly for inclusion in the Registration Statement, any Preliminary Prospectus or the Prospectus. 10 (c) Any party that proposes to assert the right to be indemnified under this Section 8 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 8, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 8 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel) that a conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party that would prevent the counsel selected by the indemnifying party from representing the indemnified party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (3) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. The Company will not, without the prior written consent of the Agent (which consent will not be unreasonably withheld), settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification has been sought hereunder (whether or not the Agent or any person who controls the Agent within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Agent and each such controlling person from all liability arising out of such claim, action, suit or proceeding. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld). 11 (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 8 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or the Agent, the Company and the Agent will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the Agent such as persons who control the Company within the meaning of the Act or the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) to which the Company and the Agent may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Agent on the other. The relative benefits received by the Company on the one hand and the Agent on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting Company expenses) received by the Company as set forth in the table on the cover page of the Prospectus bear to the fee received by the Agent hereunder. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and the Agent on the other, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to 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 the Company or the Agent, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Agent agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 8(d) shall be deemed to include, for purpose of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), the Agent shall not be required to contribute any amount in excess of the fee received by it, and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8(d), any person who controls a party to this Agreement within the meaning of the Act or the Exchange Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 8(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 8(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld). 12 7. TERMINATION. (a) The obligations of the Agent under this Agreement may be terminated at any time prior to the Closing Date, by notice to the Company from the Agent, without liability on the part of the Agent to the Company if, prior to delivery and payment for the Securities, in the sole judgment of the Agent (i) trading in the Common Stock of the Company shall have been suspended by the Commission or by the AMEX, (ii) trading in securities generally on the AMEX shall have been suspended or limited or minimum or maximum prices shall have been generally established on any of such exchanges, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by any of such exchanges or by order of the Commission or any court or other governmental authority, (iii) a general banking moratorium shall have been declared by Federal or New York State authorities, or (iv) any material adverse change in the financial or securities markets in the United States or any outbreak or material escalation of hostilities or declaration by the United States of a national emergency or war or other calamity or crisis shall have occurred, the effect of any of which is such as to make it, in the sole judgment of the Agent, impracticable or inadvisable to market the Securities on the terms and in the manner contemplated by the Prospectus. (b) The obligations of the parties under this Agreement shall be automatically terminated in the event that notice is given to the Escrow Agent as determination prior to the close of business on the date scheduled for receipt of the Subscriber's Funds, that the Subscriber's Funds have not been deposited by the Purchasers into the Escrow Account by the close of business on the Closing Date. (c) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to Section 8(b)), or if the sale of the Securities provided for herein and in the Securities Purchase Agreement is not consummated because any condition to the obligations of the Agent set forth herein or therein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or therein or comply with any provision hereof or thereof, the Company will, subject to demand by the Agent, reimburse the Agent for all out-of-pocket expenses incurred in connection herewith. 13 8. BEST EFFORTS. The Company expressly acknowledges and agrees that Agent's obligations hereunder are on a reasonable best efforts basis only and that the execution of this Agreement does not constitute a commitment by Agent to purchase any securities and does not ensure the successful placement of any securities or any portion thereof or the success of Agent with respect to securing any other financing on behalf of the Company. 9. MISCELLANEOUS. (a) NOTICE. Whenever notice is required by the provisions of this Agreement to be given to the Company, such notice shall be in writing, addressed to the Company, at: If to Company: eMagin Corporation 2070 Route 52 Hopewell Junction, New York 12533 Attn: Gary Jones Fax: (845) 838-7901 Whenever notice is required by the provisions of this Agreement to be given to the Agent, such notice shall be given in writing, addressed to the Agent, at: If to the Agent: W.R. Hambrecht + Co., LLC 539 Bryant Street, Suite 100 San Francisco, CA 94107 Attn: John Schneider Fax: (415) 551-3242 (b) GOVERNING LAW. The validity, interpretation, and construction of this Agreement will be governed by the laws of the State of New York. (c) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be deemed an original and all of which together will constitute one and the same instrument. (d) CONFIDENTIAL INFORMATION. All confidential financial or business information (except publicly available or freely usable material otherwise obtained from another source) respecting either party will be used solely by the other party in connection with the within transactions, be revealed only to employees or contractors of such other party who are necessary to the conduct of such transactions, and be otherwise held in strict confidence. [signature page follows] 14 IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed as of the day and year first above written. EMAGIN CORPORATION. By: /s/John Atherly ------------------------------------ Name: John Atherly Title: Chief Financial Officer W.R. HAMBRECHT + CO., LLC By: Kenneth Bochat ------------------------------------ Name:Kenneth Bochat Title:Senior Managing Director 15 EX-10 5 oct2220048kex103.txt LARKSPUR CAPITAL CORPORATION June 29th, 2004 Mr. Gary Jones eMagin Corporation 2070 Route 52 Building 334 Hopewell Junction, NY 12533 Dear Mr. Jones: This will confirm the understanding and agreement (the "Agreement") between Larkspur Capital Corporation (the "Agents") and eMagin Corporation and its related subsidiaries and affiliates (collectively, the "Company") as follows: 1. The Company hereby engages the Agents as its adviser in the placement ( the "Transaction") of equity and equity linked securities (the "Securities"), to a limited number of institutional, accredited individual and/or strategic investors (the "Investors") contemplated in the separate agreement between the Company and WRHambrecht & Co., (The "WRH Agreement") . 2. The Agents hereby accept the engagement and in that connection agree to: (a) Assist in the preparation, in consultation with the Company and WR Hambrecht, of a Placement Memorandum (the "Memorandum") describing the Company and the Securities, which Memorandum shall not be made available to potential Investors until its use has been approved by the Company. Prior to its release, the Company will also represent to the Agents that the Memorandum does not contain any untrue statement or alleged untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make any statement not misleading; (b) Assist the Company in the preparation and approval of the Company, any other communications to be used in placing the Securities whether in the form of letter, circular, notice or otherwise; (c) Advise the Company as to the structure and pricing of the Transaction; (d) Assist the Company in the negotiation of the sale of the Securities to the Investors; (e) Provide such other financial advisory and investment banking services as are customary for similar engagements. 2 3. In connection with the Agents' engagement, the Company will furnish the Agents with any information concerning the Company, which the Agents reasonably deem appropriate and will provide the Agents with access to the Company's officers, directors, accountants, counsel, and other advisors. The Company represents and warrants to the Agents that all such information concerning the Company will be true and accurate in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which such statements are made. In addition, the Agents shall be kept fully informed of any events, which might have a material effect on the financial condition of the Company. The Company acknowledges and agrees that the Agents will be using and relying upon such information supplied by the Company and its officers, agents and others and any other publicly available information concerning the Company without any independent investigation or verification thereof or independent appraisal by the agents of the Company or its business assets. 4. As compensation for the services to be rendered by the Agents hereunder, the Company shall pay to the Agents, the following: (a) Upon the closing of the sale of Securities to Investors (the "Closing") in the Transaction contemplated in paragraph 1 hereof: (i) A fee for advisory and coordination of the offering equal to one percent (1.0 %) of the Aggregate Consideration Received by the Company of the common stock sold to investors; 5. There shall be a special fee (Veritas Fee) paid for any investment made by Veritas equal to 6 % of the amounts invested by Veritas that shall be in addition to the amounts cited above, provided that the investment by Veritas is in excess of $5 million. In the event that the Veritas Fee is paid, Larkspur hereby instructs eMagin to redirect 3.5% of the 6% Veritas Fee to WR Hambrecht. 6. For purposes of calculating the Agents' Transaction Fee under paragraphs 4(b) and 4(c) above and paragraph 8 below, "Aggregate Consideration" shall be deemed to include the total value of Securities sold directly or indirectly, by the Company in connection with the Transaction and any amounts paid into escrow. 7. The Company shall reimburse the Agents monthly for their reasonable travel and other out-of-pocket expenses incurred in performing their services hereunder during the term of its engagement hereunder, including the reasonable fees and expenses of their outside legal counsel, upon submission by the Agents of appropriate vouchers and expense account reports. The Agents will agree to get prior approval from the Company for any expense that is expected to amount to over $500. Such reimbursement shall be within 30 days after submission by the Agent of invoices for such expenses. 8. Since the Agents will be acting on behalf of the Company in connection with this engagement, the Company agrees to indemnify the Agents as set forth in Annex A to this Agreement. 3 9. If a Transaction has been consummated and one or more additional Transactions of the type contemplated in paragraph 1 hereof ("Additional Transactions") are consummated by the Company (or by any affiliate thereof) within six (6) months from the date of Closing of the Transaction, with any party (or any affiliate thereof) who has been contacted by the Agents (including Investors in the Transaction and Co-Placement Agents in the Transaction), the Company shall pay to the Agents in accordance with the provisions in 4 above. . 10. The Company acknowledges that the Agents and their affiliates are in the business of providing financial services and consulting advice. Nothing herein contained shall be construed to limit or restrict the Agents in conducting such business with respect to others, or in rendering such advice to others, except as such advice may relate to matters relating to the Company's business and properties. 11. The Company agrees that the Agents have the right to place advertisements in financial and other newspapers and journals at their own expense describing their services to the Company hereunder upon the successful conclusion of this engagement. 12. Subject to the provisions of paragraphs 4 through 11 and 13 through 16, which shall survive any termination of this Agreement, either party may terminate the Agents' engagement hereunder at any time, with or without cause, including the failure to receive board approval, by giving the other party at least 10 days prior written notice. The Company shall have no liability for any expenses of the Agents, which are incurred subsequent to the date of such termination. 13. The Memorandum to be provided to Investors and any advice given to the Company by the Agents under this Agreement shall not be publicly disclosed or made available to third parties without the Agents' prior written consent except as required under securities laws and other regulations. 14. The Company represents and warrants to the Agents that there are no brokers, representatives or other persons who have an interest in compensation due to the Agents from any transaction contemplated herein except for WR Hambrecht, as set forth in the WHR Agreement. 15. The benefits of this Agreement, together with the separate indemnification provisions contained in Annex A hereto, shall inure to the benefit of the respective successors and assigns of the parties hereto and of the indemnified parties hereunder and their successors and assigns and representatives, and the obligations and liabilities assumed in this Agreement by the parties hereto shall be binding upon their respective successors and assigns. 16. This Agreement may not be amended or modified except in writing and shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed and to be wholly performed therein without giving effects to its conflicts of laws principles or rules. Any dispute hereunder shall be brought in a court in the state of New York. 17. LARKSPUR CAPITAL AND THE COMPANY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. 4 We are delighted to accept this engagement and look forward to working with you. Please confirm that the foregoing correctly sets forth our agreement by signing the enclosed duplicate of this letter in the space provided and returning it, whereupon this letter shall constitute a binding agreement as of the date first above written. LARKSPUR CAPITAL CORPORATION /s/ Paul Cronson ---------------- Paul Cronson ACCEPTED AND AGREED /s/ Gary Jones - -------------- Gary Jones eMagin Corporation. Date: 5 ANNEX A INDEMNIFICATION PROVISIONS In connection with the engagement by letter agreement of even date of Larkspur Capital Corporation to assist us with the Placement, including modifications or future additions to such engagement and related activities prior to the date of this agreement (the "engagement"), we agree that we will indemnify and hold harmless you and your respective directors, officers, agents and employees (collectively, the "indemnified parties"), to the full extent lawful, from and against any losses, expenses, claims or proceedings (collectively, "losses") related to or arising out of (A) oral or written information provided by us, our employees or our other agents, which information either we or you provide to any actual or potential buyers, sellers, investors or offerees, or (B) any other action or failure to act by us, our directors, officers, agents or employees or by you or any indemnified party at our request or with our consent; provided that this paragraph shall not apply with respect to any losses that have resulted primarily from the gross negligence or willful misconduct of such indemnified party. In the event that the foregoing indemnity is unavailable to any indemnified party for any reason other than for the gross negligence or willful misconduct of such indemnified party as referred to in the preceding paragraph, we agree to contribute to any losses related to or arising out of the engagement or any transaction or conduct in connection therewith as follows. With respect to such losses referred to in the preceding paragraph, each of us shall contribute in such proportion as is appropriate to reflect (i) the relative benefits received (or anticipated to be received) by you, on the one hand, and by us and our security holders, on the other hand, from the actual or proposed transaction arising in connection with the engagement and (ii) the relative fault of each of us in connection with the statements, omissions or other conduct that resulted in such losses, as well as any other relevant equitable considerations. Benefits received (or anticipated to be received) by us and our security holders shall be deemed to be equal to the aggregate cash consideration and value of securities or any other property payable, issuable, exchangeable or transferable in such transaction or proposed transaction, and benefits received by you shall be deemed to be equal to the compensation paid by us to you in connection with the engagement (exclusive of amounts paid for reimbursement of expenses or paid under this agreement). Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by us or other conduct by us (or our employees or other agents), on the one hand, or by you (or your employees or other agents), on the other hand. You and we agree that it would not be just and equitable if contribution were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding anything to the contrary in this paragraph, in no event shall either of us be responsible for any amounts in excess of the amount of the compensation actually paid by us to you in connection with the engagement (exclusive of amounts paid for reimbursement of expenses or paid under this agreement). We agree that we will not, without prior written consent of Larkspur, settle any pending or threatened claim or proceeding related to or arising out of the engagement or any actual or proposed transactions or other conduct in connection therewith (whether or not you or any indemnified party is a party to such claim or proceeding) which settlement imposes any obligations on the indemnified party (other than the payment of money which is made by us on behalf of the indemnified party) or is prejudicial to the indemnified party. The 6 indemnified party shall cooperate with us in the defense of any such claim or proceeding, and we shall reimburse the indemnified party for such indemnified party's expenses with respect thereto, including counsel fees. We further agree that no indemnified party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to us or any of our creditors or security holders for or in connection with the engagement or any actual or proposed transactions or other conduct in connection therewith except for losses incurred by us that are finally judicially determined to have resulted primarily from the gross negligence or willful misconduct of such indemnified party. The foregoing agreement is in addition to any rights you may have at common law or otherwise and shall be binding on and inure to the benefit of any successors, assigns, and personal representatives of each indemnified party and us. This agreement is governed by the laws of the State of New York, without regard to such state's rules concerning conflicts of laws. Solely for purposes of enforcing this agreement, we hereby consent to personal jurisdiction, service of process and venue in any court in which any claim or proceeding that is subject to this agreement is brought against you. Any right to trial by jury with respect to any claim or proceeding related to or arising out of the engagement, or any transaction or conduct in connection therewith or this agreement is waived. This agreement shall remain in full force and effect notwithstanding the completion or termination of the engagement. EX-99 6 oct2220048kex991.txt Media Contact: Joe Runde, 845-838-7905 jrunde@emagin.com Investor Contact: John Atherly, 425-882-7878 jatherly@emagin.com eMagin To Raise Approximately $10.8 Million Through Direct Equity Placement Hopewell Junction, New York -- October 25, 2004 -- eMagin Corporation (AMEX:EMA) today announced that it has entered into definitive agreements with new and existing accredited investors for the purchase of approximately $10.8 million of common stock and warrants. The net proceeds from this offering will be used for general corporate purposes, including the purchase of inventory, capital equipment, and hiring of additional sales and support personnel. Under the agreement, investors agreed to purchase 10,259,524 shares of common stock at a price of $1.05 per share and Series F Common Stock Purchase Warrants to purchase 5,129,762 shares of common stock at an exercise price of $1.21 per share. The Series F Warrants are exercisable from April 25, 2005 until April 25, 2010. The transaction share price represents a fixed price agreed to by the investors on October 21, 2004. WR Hambrecht + Co served as placement agent for the transaction and Larkspur Capital Corporation served as an advisor. The shares were offered through a prospectus supplement pursuant to the Company's effective shelf registration statement. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. About eMagin Corporation A leader in virtual imaging technologies and products, eMagin integrates high-resolution OLED microdisplays, magnifying optics, and systems technologies to create a virtual image that appears comparable to that of a computer monitor or a large-screen television. With unique technology for producing high-performance OLED-on-silicon microdisplays and related optical systems, eMagin is the only company to sample and supply these displays in commercial quantities to OEMs. In addition, the company sells integrated modules to military, industrial and medical customers. eMagin's corporate headquarters and microdisplay operations are co-located with IBM on its campus in East Fishkill, N.Y. Optics and system design facilities are located at its wholly owned subsidiary, Virtual Vision, Inc., in Redmond, WA. For more information, visit http://www.emagin.com. Forward Looking Statements This press 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, including those regarding eMagin Corporation and its subsidiaries' expectations, intentions, strategies and beliefs pertaining to future events or future financial performance. All statements contained herein are based upon information available to eMagin's management as of the date hereof, and actual results may vary based upon future events, both within and without eMagin management's control. 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. Contact: eMagin Corporation Media Contact: Joe Runde, 845-838-7905 jrunde@emagin.com or Business Contact: Susan Jones, 845-838-7900 sjones@emagin.com or Investor Contact: John Atherly, 425-882-7878 jatherly@emagin.com -----END PRIVACY-ENHANCED MESSAGE-----