Exhibit 10.1

EXECUTION VERSION

NOTE PURCHASE AGREEMENT

NOTE PURCHASE AGREEMENT (this “Agreement”) dated as of January 19, 2007 by and
among LC Capital Master Fund, Ltd., a Cayman Islands exempt company,
(the “Purchaser”), Castlerigg Master Investments Ltd., a British Virgin Islands
company (the “Seller”), and DayStar Technologies, Inc., a Delaware corporation
(the “Issuer”).

WHEREAS, the Seller and the Issuer entered into the Securities Purchase
Agreement dated as of May 25, 2006 (the “Securities Purchase Agreement”),
pursuant to which the Seller purchased, upon the terms and conditions thereto
(i) a senior convertible note in the original principal amount of $15,000,000
(the “Note”), which may be converted into shares of common stock, par value
$0.01 per share, of the Issuer (the “Common Stock”) pursuant to the terms of the
Note (as converted, collectively, the “Conversion Shares”) and (ii) Class A
Warrants and Class B Warrants (the “Class B Warrants”, and together with the
Class Warrants, the “Warrants”), to acquire that number of shares of Common
Stock (as exercised, collectively, the “Warrant Shares”) as set forth in the
Warrants;

WHEREAS, in accordance with Section 15(e) of the Note, the Issuer, the Seller
and KeyBank National Association (the “Escrow Agent”) entered into the Escrow
Agreement dated as of May 25, 2006 (the “Escrow Agreement”), pursuant to which
as of the date hereof $2,575,061.70 is deposited in accordance with the terms
thereof (the “Escrowed Funds”);

WHEREAS, in connection with and as an inducement to execute and deliver the
Securities Purchase Agreement, the Issuer agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
“1933 Act”), and applicable state securities laws, pursuant to the Registration
Rights Agreement dated as of May 25, 2006 between the Issuer and the Seller
(the “Registration Rights Agreement”);

WHEREAS, simultaneously on the Closing Date and as an inducement to execute and
deliver this Agreement, the Issuer (i) is entering into a Securities Purchase
Agreement with the investors listed on Exhibit A thereto (collectively,
the “Co-Investors”), dated the date hereof (the “Co-Investment Agreement”),
pursuant to which, among other things, the Co-Investors will purchase, upon the
terms and conditions set forth therein, 2,500,000 shares of Common Stock,
(ii) is entering into the First Amendment to Securities Purchase Agreement with
the Seller dated the date hereof (the “First Amendment”), pursuant to which the
parties thereto will agree to, among other things, amend and waive certain
provisions of the Securities Purchase Agreement, (iii) is entering into the Note
Terms Agreement with the Purchaser dated the date hereof (the “Note Terms
Agreement”), pursuant to which the Issuer will exchange the note issued to the
Purchaser

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pursuant to Section 19(d) of the Note for such number of shares of Common Stock
in accordance with the terms and subject to the conditions of the Note Terms
Agreement (as converted, collectively, the “Purchaser Conversion Shares”),
(iv) has agreed to provide certain registration rights under the 1933 Act and
applicable state securities laws to the Purchaser to cover the resale of the
Purchaser Conversion Shares pursuant to the Registration Rights Agreement dated
the date hereof between the Issuer and the Purchaser (the “2007 Registration
Rights Agreement”; for the avoidance of doubt, it being understood that the
Warrant Shares issuable upon exercise of the Class B Warrant shall be covered by
the Registration Rights Agreement); (v) is entering into a Mutual Release with
the Seller, in the form attached hereto as Exhibit C, pursuant to which the
Issuer and the Seller will release each other from certain claims (the “Mutual
Release”); (vi) is issuing to the Seller (A) a new Class A Warrant, in the same
form as the existing Class A Warrant, with an exercise price equal to the
exercise price as of the date hereof in the existing Class A Warrant, initially
exercisable for 317,394 shares of Common Stock (the “New Class A Warrant”) and
(B) 825,181 registered, freely tradable shares of Common Stock (the “Additional
Stock”), as set forth in Schedule 1 attached hereto; and (vii) has agreed to
provide certain registration rights under the 1933 Act and applicable state
securities laws to the Seller to cover the resale of the shares of Common Stock
issued or issuable upon exercise of the New Class A Warrant pursuant to the
Registration Rights Agreement dated the date hereof between the Issuer and the
Seller (the “Warrant Shares Registration Rights Agreement”);

WHEREAS, pursuant to the terms and subject to the conditions of this Agreement,
the Purchaser wishes to purchase from the Seller, and the Seller wishes to
transfer, assign and sell to the Purchaser, the Assigned Interest (as defined
below);

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1. Purchase and Sale; Closing; Issuer Covenants.

1.1 Purchase and Sale.

(a) The Seller agrees to sell, transfer, assign and convey to the Purchaser, and
the Purchaser agrees to purchase from the Seller, all of the right, title and
interest of the Seller in and to the Assigned Interest at the Closing on the
terms and subject to the conditions set forth in this Agreement.

(b) The Purchaser assumes no obligations other than the Assumed Obligations.
Effective as of the Closing, the Purchaser hereby assumes the Assumed
Obligations.

(c) For the purposes of this Section, the following terms have the following
meanings:

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(i) “Assigned Interest” shall mean the Note and the Class B Warrant, any and all
rights, claims and causes of action of the Seller (and their successors and
assigns) against the Issuer or any of its affiliates (collectively, the “Issuer
Parties”) and any other person that directly arise under, from, in, to or in
connection with the Note or Class B Warrant and, to the extent the Transaction
Documents relate thereto, the Transaction Documents, in each case to the extent
permitted to be assigned under applicable law, including, without limitation,
(A) all rights as a Buyer under the Securities Purchase Agreement to the extent
related to the Note, the Conversion Shares, the Interest Shares (as defined in
the Securities Purchase Agreement, the “Interest Shares”) or the Warrant Shares
(solely with respect to the exercise of the Class B Warrant) issued or to be
issued after the Closing Date and (B) all rights as an Investor (as defined in
the Registration Rights Agreement) to the extent related to the Registrable
Securities (as defined in the Registration Rights Agreement) issued or issuable
after the Closing Date with respect to the Note or the Class B Warrant. For the
avoidance of doubt, “Assigned Interest” shall not include the (i) Class A
Warrants, Warrant Shares issued upon exercise of the Class A Warrants or any
other cash, securities or other property issued or otherwise paid to the Seller
solely in respect of the Class A Warrants or the New Class A Warrant, or
(ii) Interest Shares, any cash interest payments, any payments of Installment
Amounts (in cash or shares) and any other cash, securities or other property
paid to the Seller solely in respect of the Note, in the case of clause (ii),
issued or otherwise paid prior to the Closing Date.

(ii) “Assumed Obligations” shall mean all obligations and liabilities of the
Seller or otherwise as a holder of the Note or Class B Warrant with respect to,
or in connection with, the Assigned Interest resulting from facts, events or
circumstances arising or occurring on or after the Closing Date and any
obligations for a breach or other violation of its representations, warranties
or covenants hereunder.

(iii) “Transaction Documents” shall mean the Note, the Securities Purchase
Agreement, the Registration Rights Agreement, the Escrow Agreement and all other
documents and agreements under which the Assigned Interest or any part thereof
has been created and all material documents and agreements relating thereto, and
all amendments, waivers and consents thereto.

(d) From and after the Closing Date, other than pursuant to the Escrow Letter,
the Seller shall not assert any right or take any action with respect to the
Escrow Agreement.

1.2 Purchase Price; Deliveries on the Closing Date.

(a) Subject to the conditions set forth in this Agreement, on the Closing Date,
the Purchaser will pay the purchase price for the Assigned Interests, which
purchase price shall equal $7,564,267 (the “Purchase Price”), by wire transfer
of immediately available U.S. funds in accordance with the Seller’s written wire
instructions.

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(b) Simultaneously, on the Closing Date:

(i) in furtherance of the foregoing, the Sellers will, upon such receipt of the
Purchase Price, (A) without the necessity of any further action, assign and
transfer to the Purchaser all of its right, title and interest in and to the
Assigned Interest, (B) deliver to the Purchaser the Note, duly assigned and
endorsed for transfer to the Purchaser in accordance with Section 19 of the Note
and (C) surrender the Class B Warrant to the Issuer in accordance with
Section 7(a) of the Class B Warrant;

(ii) The Issuer will register the transfer of the Note and Class B Warrant by
the Seller to the Purchaser pursuant to Section 5(a) of the Securities Purchase
Agreement and the Issuer shall issue (A) a new note registered in the name of
the Purchaser pursuant to Section 19(d) of the Note and (B) a new Class B
Warrant in the name of the Purchaser pursuant to Sections 7(a) and (d) of the
Class B Warrant;

(iii) the Seller and the Issuer shall have executed (A) a joint instruction
letter addressed to the Escrow Agent in the form attached hereto as Exhibit A
(the “Escrow Letter”), pursuant to which such parties shall instruct the Escrow
Agent to disburse the Escrow Fund as provided for in the Escrow Letter and (B) a
request for the consent to the assignment of the Escrow Agreement to the
Purchaser in the form attached hereto as Exhibit B;

(iv) the Issuer and the Co-Investors shall have executed the Co-Investment
Agreement;

(v) the Seller and the Issuer shall have executed the First Amendment;

(vi) the Purchaser and the Issuer shall have executed the Note Terms Agreement;

(vii) the Issuer and the Purchaser shall have executed 2007 Registration Rights
Agreement;

(viii) the Issuer and the Seller shall have executed and delivered the Mutual
Release;

(ix) the Issuer and the Seller shall have executed and delivered the Warrant
Shares Registration Rights Agreement;

(x) the Issuer shall have executed and delivered to the Seller stock
certificates representing the Additional Stock registered in the name of the
Seller (without any Securities Act or other legends thereon); and

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(xi) the Issuer shall have paid to the Seller all of the Seller’s costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and the negotiations in connection herewith and past
negotiations between the Seller and the Issuer.

1.3 Closing. The closing (the “Closing”) of the transactions contemplated by
this Agreement shall be consummated on January 19, 2007, or such later date as
the parties hereto shall mutually agree (the “Closing Date”). The Closing shall
take place at 10:00 a.m. on the Closing Date at the offices of Milbank, Tweed,
Hadley & MCCloy LLP, 1 Chase Manhattan Plaza, New York, NY 10005.

2. Representations and Warranties of the Seller. The Seller hereby represents
and warrants to the Purchaser as follows:

2.1 Ownership of the Assigned Interests, etc. The Seller will have at the
Closing good and marketable title to the Note and has good and valid title to
the balance of the Assigned Interests, free and clear of any liens, claims,
security interests, mortgages, encumbrances, pledges, equities and charges of
any kind and will have transferred to the Purchaser, upon the consummation of
the transactions contemplated hereby, and the Purchaser will have acquired, good
and valid title to the Note and to the balance of the Assigned Interests, free
and clear of all liens, claims and encumbrances. The Seller is the sole owner,
beneficially and of record, of the Note and the Seller has owned the Note since
issuance on May 25, 2006.

2.2 Organization; Authorization, etc. The Seller is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has full organizational power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby including without limitation to own, hold, sell
and transfer (pursuant to this Agreement) the Note and the other Assigned
Interests. The Seller has full power and authority to execute and deliver this
Agreement and to carry out the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Seller. This Agreement constitutes a
valid and binding agreement of the Seller, assuming the due execution of the
Agreement by the Purchaser and the Issuer, enforceable against the Seller in
accordance with its terms, except that (i) such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors’ rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.

2.3 No Conflict. The execution and delivery of this Agreement by the Seller and
the consummation by the Seller of the transactions contemplated hereby will not
(i) violate any law applicable to the Seller or (ii) conflict with, violate or
constitute a breach or default under any material agreements as to which Seller
is a party.

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2.4 No Consents. Except for any consent or waiver of the Issuer under the
Transaction Documents or stockholder approval for the issuance of Purchaser
Conversion Shares, no consents, notices, filings, approvals or authorizations
are required to be made to or with or received from any person, entity, or
governmental body (nor are any of the foregoing required under any Transaction
Documents) for the sale by the Seller hereunder and consummation by the Seller
of the transactions contemplated by this Agreement.

2.5 No Proceedings. To the Seller’s knowledge, no proceedings are pending
against the Seller or threatened against the Seller before any court, arbitrator
or administrative or governmental body which relate to the Seller’s capacity as
holder of the Assigned Interests or which, individually or in the aggregate,
would materially and adversely affect any action taken by the Seller under this
Agreement.

2.6 Adequate Information. The Seller is a sophisticated person with respect to
the sale of the Assigned Interest, the Seller has adequate information
concerning the business and financial condition of the Issuer to make an
informed decision regarding the sale of the Note, the Class B Warrant and other
Assigned Interests and has independently and without reliance upon the Purchaser
or its agents made its own analysis and decision to sell the Note, the Class B
Warrant and the other Assigned Interests. The Seller has relied solely upon this
Agreement and independent investigations made by it or its representatives with
respect to the Note, the Class B Warrant and the other Assigned Interests.

2.7 No Fraudulent Transfer, etc. To the knowledge of the Seller, it has not
received any written notice that (i) any payment or other transfer made to or
for the account of the Seller from or on account of the Issuer or other obligor
with respect to the Assigned Interest is or may be void or voidable as an actual
or constructive fraudulent transfer or as a preferential transfer, (ii) the
Assigned Interest, or any portion thereof, is void, voidable unenforceable or
subject to any impairment, or (iii) any suits, claims or otherwise liabilities
exist or have been asserted by any person in any way relating to the Assigned
Interest or the ownership thereof.

2.8 Compliance with Transaction Documents. The Seller has complied with and
performed in all material respects with all of its obligations required to be
complied with or performed by it under the Transaction Documents, and the Seller
has not breached in any material respect any of its representations, warranties,
obligations or covenants under any of the Transaction Documents.

2.9 Further Action. The Seller agrees to take, or cause to be taken, from and
after the Closing Date, such further actions to execute, deliver and file, or
cause to be executed, delivered and filed, such further documents and
instruments as may be reasonably necessary in order to fully effectuate the
purposes, terms and conditions of this Agreement and the transactions
contemplated hereby.

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2.10 1933 Act. To the knowledge of the Seller, the Seller is not currently and
has not been an “affiliate” (as defined in Rule 144 promulgated under the
1933 Act) of the Issuer and neither the Seller nor anyone acting on the Seller’s
behalf has taken any action which would subject the sale of the Assigned
Interests to the registration provisions of Section 5 of the 1933 Act.

3. Representations and Warranties of the Issuer. The Issuer hereby represents
and warrants to the Purchaser and the Seller as follows:

3.1 Organization; Authorization, etc. The Issuer is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has full organizational power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby, including without limitation to execute and
deliver the Mutual Release and to issue the Additional Stock and the Class A
Warrant and other agreements and documents to be provided to the Seller in
connection herewith (collectively, the “Seller Documents”). The Issuer has full
power and authority to execute and deliver this Agreement and the Seller
Documents and to carry out the transactions contemplated hereby and thereby.
This Agreement and the Seller Documents have been duly executed and delivered by
the Issuer. This Agreement and each Seller Document constitutes a valid and
binding agreement of the Issuer, assuming the due execution of the Agreement by
the Purchaser and the Seller (as applicable), enforceable against the Issuer in
accordance with its terms, except that (i) such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors’ rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.

3.2 No Conflict. The execution and delivery of this Agreement and each Seller
Document by the Issuer and the consummation by the Issuer of the transactions
contemplated hereby and thereby will not (i) violate any law applicable to the
Issuer or (ii) conflict with, violate or constitute a breach or default under
any material agreements as to which the Issuer is a party.

3.3 No Consents. Except for stockholder approval for the issuance of Purchaser
Conversion Shares, no consents, notices, filings, approvals or authorizations
are required to be made to or with or received from any person, entity, or
governmental body (nor are any of the foregoing required under any Transaction
Documents) for the sale of the Note or Class B Warrant hereunder and
consummation by the Issuer of the transactions contemplated by this Agreement
and the Seller Documents.

3.4 No Proceedings. To the Issuer’s knowledge, no proceedings are pending
against the Issuer or threatened against the Issuer before any court, arbitrator
or administrative or governmental body which relate to the Issuer or the
Assigned Interests or which, individually or in the aggregate, would materially
and adversely affect any action taken by the Issuer under this Agreement or any
Seller Document.

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3.5 Transaction Documents. The Issuer has provided to the Purchaser complete and
accurate copies of the Transaction Documents, and the Issuer and the Seller are
not a party to any other documents or agreements which could materially and
adversely affect the Assigned Interest.

3.6 1933 Act. The Seller is not currently and has not been an “affiliate” (as
defined in Rule 144 promulgated under the 1933 Act) of the Issuer. The offer and
sale of the Assigned Interests has not been registered under the 1933 Act and
the Assigned Interests are being sold to the Purchaser pursuant to an exemption
from registration under the provisions of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.

3.7 No Fraudulent Transfer, etc. The Issuer has not received any written or oral
notice, or otherwise has any knowledge, that (i) any payment or other transfer
made to or for the account of the Seller from or on account of the Issuer or
other obligor with respect to the Assigned Interest is or may be void or
voidable as an actual or constructive fraudulent transfer or as a preferential
transfer, (ii) the Assigned Interest, or any portion thereof, is void, voidable
unenforceable or subject to any impairment, or (iii) any suits, claims or
otherwise liabilities exist or have been asserted by any person in any way
relating to the Assigned Interest or the ownership thereof.

3.8 Compliance with Transaction Documents. The Issuer has complied with and
performed in all material respects with all of its obligations required to be
complied with or performed by it under the Transaction Documents, and the Issuer
has not breached in any material respect any of its representations, warranties,
obligations or covenants under any of the Transaction Documents.

3.9 Certain Representations Concerning the Note. As of the Closing Date:

(a) the outstanding principal amount of the Note is $8,547,556.00;

(b) the Conversion Price (as defined in the Note) immediately prior to the
execution of this Agreement is $11.50;

(c) no Other Note (as defined in the Note) is issued and outstanding; and

(d) the amount of the Escrowed Funds is $2,575,061.70;

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3.10 Certain Representations Concerning the Additional Stock and New Class A
Warrant. The issuance to the Seller of the Additional Stock and the New Class A
Warrant are duly authorized and are free from all taxes, liens and charges with
respect to the issue thereof. As of the Closing, the Issuer shall have reserved
from its duly authorized capital stock not less than 100% of the maximum number
of shares of Common Stock issuable upon exercise of the New Class A Warrant
(without taking into account any limitations on the exercise of the New Class A
Warrant set forth therein). The Additional Stock is, and upon issuance in
accordance with the New Class A Warrant, the shares of Common Stock issuable
upon exercise thereof, respectively, will be, duly authorized, validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the Seller
being entitled to all rights accorded to a holder of Common Stock. The offer and
issuance by the Issuer of the Additional Stock and the New Class A Warrant is
exempt from registration under the 1933 Act, and the Additional Stock is freely
tradable under the 1933 Act and applicable states securities laws without
further registration under the 1933 Act.

3.11 Maximum Percentage. The shares of Additional Stock to be delivered or
credited to the Seller’s or its designee’s balance account with The Depository
Trust Company through its Deposit Withdrawal Agent Commission system on the date
hereof pursuant to Section 1.2(b)(x) and Schedule 1 attached hereto do not and
will not exceed the Maximum Percentage (as defined in, and calculated in
accordance with, Schedule 1 attached hereto).

4. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Seller as follows:

4.1 Organization; Authorization, etc. The Purchaser is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has full organizational power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby, including without limitation, the acquisition
(pursuant to this Agreement) of the Note and the other Assigned Interests. The
Purchaser has full power and authority to execute and deliver this Agreement and
to carry out the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Purchaser. This Agreement constitutes a valid and
binding agreement of the Purchaser, assuming the due execution of the Agreement
by the Seller and the Issuer, enforceable against the Purchaser in accordance
with its terms, except that (i) such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors’ rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

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4.2 Purchase, etc. The Purchaser (i) is an “accredited investor” as such term is
defined under Rule 501 under the 1933 Act and has such knowledge and experience
in business and financial matters as to be capable of evaluating the merits and
risks of the investment in the Note; (ii) is capable of bearing the economic
risks associated with the investment in the Note, and has been provided access
to such information and documents regarding the Issuer as are necessary in order
to make a fully informed decision on whether or not to purchase the Note;
(iii) has been afforded an opportunity to ask questions of, and receive answers
from, both the Seller and the representatives of the Issuer concerning the Note
and the Purchaser has performed its own due diligence in making the decision to
invest in the Note; (iv) acknowledges that the offer and sale of the Assigned
Interests have not been registered under the 1933 Act and the Assigned Interests
are being sold to the Purchaser pursuant to an exemption from registration under
the provisions of the 1933 Act and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder and will not sell the Note in
violation of the 1933 Act and will require any purchaser of the Note to
represent to it and the Issuer that it is not acquiring the Note with a view to
any “distribution” thereof within the meaning of the 1933 Act; (v) has been
advised that the Note has not been and is not being registered under the
1933 Act, and that the Seller, in transferring the Note, and the Issuer, in
permitting the transfer of the Note, is relying upon, among other things, the
representations and warranties of the Purchaser in this Agreement in concluding
that the transfer of the Note will be exempt from the provisions of the 1933 Act
and the rules and regulations promulgated thereunder; and (vi) understands that
the Note is subject to certain restrictions on transfer and that the Issuer may,
as a condition to a permitted transfer of the Note, require that the request for
transfer be accompanied by an opinion of counsel, in form and substance
satisfactory to the Issuer, to the effect that the proposed transfer does not
result in a violation of the 1933 Act, unless such transfer is covered by an
effective registration statement under the 1933 Act or by Rule 144 under the
1933 Act.

4.3 No Conflict. The execution and delivery of this Agreement by the Purchaser
and the consummation of the transactions contemplated hereby will not
(i) violate any law applicable to the Seller or (ii) conflict with, violate or
constitute a breach or default under any material agreements as to which the
Purchaser is a party.

4.4. No Consents. Except for any consent or waiver of the Issuer under the
Transaction Documents and stockholder approval for the issuance of Purchaser
Conversion Shares, no consents, notices, filings, approvals or authorizations
are required to be made to or with or received from any person, entity, or
governmental body (nor are any of the foregoing required under any Transaction
Documents) for the purchase by the Purchaser hereunder and consummation by the
Purchaser of the transactions contemplated by this Agreement.

4.5 No Proceedings. To the Purchaser’s knowledge, no proceedings are pending
against the Purchaser or threatened against the Purchaser before any court,
arbitrator or administrative or governmental body which relate to the Purchaser

or which, individually or in the aggregate, would materially and adversely
affect any action taken by the Purchaser under this Agreement.

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4.6 Adequate Funds. The Purchaser has adequate funds available to pay the
purchase price for the Note hereunder and to satisfy any other payments
obligations it may have hereunder or under the other agreements executed or
delivered by it in connection herewith.

5. The Closing.

5.1 Purchaser Closing Documents. On the Closing Date, the Purchaser will deliver
the Purchase Price to the Seller as set forth in Section 1.1 and shall execute
such documents as set forth in Section 1.2.

5.2 Seller Closing Documents. With receipt of the foregoing, the Seller will,
without the necessity of any further action, assign and transfer to the
Purchaser all of its right, title and interest in and to the Assigned Interest.
In addition, the Seller shall execute such documents as set forth in
Section 1.2, and the Issuer shall execute and deliver such documents as set
forth in Section 1.2, including the Seller Documents, and pay the Seller’s costs
and expenses, as set forth in Section 1.2.

5.3 Waiver of Opinion of Counsel, etc. The Issuer hereby agrees to waive (i) any
requirement that it receive, in connection with the transfer of the Note to the
Purchaser as contemplated by this Agreement, an opinion of counsel that such
transfer is exempt from the registration requirements under the 1933 Act, and
any relevant state securities laws and (ii) any other requirements under any
documents to which the Issuer or the Seller is a party and which, under such
agreement, they have the discretion to waive. The Issuer hereby consents to the
sale, transfer and assignment of the Note, Class B Warrant and the other
Assigned Interests hereunder and acknowledges that the Seller has no further
obligations thereunder. The Issuer acknowledges that the terms and conditions of
Section 9 of the Registration Rights Agreement have been satisfied to the extent
necessary to permit the transactions contemplated by this Agreement. The Issuer
hereby agrees that it will immediately after the Closing Date take such action
as shall be necessary to substitute the Purchaser for the Seller as the holder
of the Note in such a manner as to permit the Seller to utilize the Issuer’s
Form S-3 Registration Statement filed with the Securities and Exchange
Commission on June 8, 2006 (File No. 333-134825) for the resale of the Purchaser
Conversion Shares.

5.4 Publicity. Except as may be required by applicable law or any rule,
regulation or ordinance to which such person is subject, the parties hereto
agree that no public announcement or other publicity regarding the transactions
referred to herein shall be made without the consent of the other parties
hereto.

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6. Miscellaneous.

6.1 Counterparts. This Agreement may be executed in one or more counterparts,
but all such counterparts shall constitute one and the same instrument.

6.2 Amendments. This Agreement may be amended only with the prior written
consent of the parties hereto.

6.3 Communications and Notices. Except as otherwise provided in this Agreement,
all communications and notices provided for in this Agreement shall be in
writing, and:

if to the Purchaser:

LC Capital Master Fund, Ltd.

c/o Lampe, Conway & Co. LLC

680 Fifth Avenue – 12th Floor

New York, NY 10019-5429

Facsimile: 212-581-8999

Attn: Richard F. Conway

With a copy, which shall not constitute notice, to:

Milbank, Tweed, Hadley & McCloy LLP

1 Chase Manhattan Plaza

New York, NY 10005

Facsimile: 212-822-5735

Attn: Roland Hlawaty

if to the Seller:

Castlerigg Master Investments Ltd.

c/o Sandell Asset Management Corp.

40 West 57th Street, 26th Floor

New York, New York 10019

Facsimile: (212) 603-5710

Attention: Cem Hacioglu

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With a copy, which shall not constitute notice, to:

McDermott Will & Emery LLP

340 Madison Avenue

New York, New York 10173-1922

Facsimile: (212) 547-5444

Attention: Stephen E. Older, Esq.

and if to the Issuer

DayStar Technologies, Inc.

13 Corporate Drive

Halfmoon, New York 12065

Facsimile: (518) 383-7900

Attention: Thomas A. Polich, Esq.

General Counsel/Assistant Secretary

With a copy, which shall not constitute notice, to:

Goodwin Procter LLP

Exchange Place

53 State Street

Boston, MA 02109

Facsimile: (617) 523-1231

Attention: Stephen T. Adams

6.4 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without regard to the conflicts
of laws and rules thereof that would result in the application of the laws of a
jurisdiction other than the State of New York.

6.5 Integration and Severability; Assignment. This Agreement embodies the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. In case
any one or more of the provisions contained in this Agreement or in any
instrument contemplated hereby, or any application thereof, shall be invalid,
illegal or unenforceable in any respect, under the laws of any jurisdiction, the
validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby or under the laws of any other jurisdiction.
Subject to compliance with all applicable laws, rules or regulations, including
without limitation, any applicable securities laws, rules or regulations, and
obtaining any consents necessary under the Transaction Documents, the Purchaser,
after the Closing, shall have the right to sell, assign and transfer the
Assigned Interest without the consent of the Seller.

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6.6 Headings. The headings of the articles, sections and subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.

6.8 Survival. All representations, warranties and covenants contained in this
Agreement shall survive indefinitely.

6.9 Specific Performance. The parties hereto agree that irreparable damage would
occur if any provision of this Agreement were not performed in accordance with
the terms hereof and that the parties shall be entitled, without posting a bond
or similar indemnity, to an injunction or injunctions to prevent breaches of
this Agreement or to enforce specifically the performance of the terms and
provisions hereof in any federal court located in the State of New York or any
New York state court, in addition to any other remedy to which they are entitled
at law or in equity.

[Signature page follows]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above stated.

 

PURCHASER: LC CAPITAL MASTER FUND, LTD. By:  

/s/ Richard F. Conway

Name:   Richard F. Conway Title:   Director SELLER: CASTLERIGG MASTER
INVESTMENTS LTD. By:  

/s/ Patrick T. Burke

Name:   Patrick T. Burke Title:   Senior Managing Director ISSUER: DAYSTAR
TECHNOLOGIES, INC. By:  

Stephan DeLuca

Name:   Stephan DeLuca Title:   Chief Executive Officer

[SIGNATURE PAGE FOR NOTE PURCHASE AGREEMENT]

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Schedule 1

Capitalized terms used but not otherwise defined in this Schedule 1 have the
meanings ascribed to such terms in the Note Purchase Agreement dated as of
January 19, 2006 (the “Agreement”) to which this Schedule 1 is attached.

On the Closing Date, the Issuer shall deliver, or cause to be delivered to the
Seller (by causing such aggregate number of shares of Additional Stock to be
credited to the Seller’s or its designee’s balance account with The Depository
Trust Company through its Deposit Withdrawal Agent Commission system), 400,000
shares of Additional Stock.

At any time and from time to time following the Closing Date, promptly upon the
written request of the Seller (and in any event no later than three business
days after any such request), the Issuer shall deliver, or cause to be
delivered, to the Seller (by causing such aggregate number of shares of
Additional Stock to be credited to the Seller’s or its designee’s balance
account with The Depository Trust Company through its Deposit Withdrawal Agent
Commission system) such number of shares of Additional Stock as the Seller shall
request.

Notwithstanding anything to the contrary contained in this Schedule 1, the
Agreement or any other agreement or document executed or delivered in connection
therewith, the Issuer shall not deliver or cause to be delivered to the Seller,
and the Seller shall not have the right to receive, any shares of Additional
Stock to the extent that after giving effect to such delivery of shares, such
person (together with such person’s affiliates) would beneficially own (directly
or indirectly through shares issuable upon exercise of any warrants of the
Issuer (“Warrant Shares”) or otherwise) in the aggregate, including all shares
of stock of the Issuer issued to the Seller in connection with the Transaction
Documents, in excess of 4.99% (the “Maximum Percentage”), of the shares of
Common Stock outstanding immediately after giving effect to such delivery. For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned (directly or indirectly through Warrant Shares or
otherwise) by such person and its affiliates shall include the number of shares
of Common Stock issuable upon exercise of any warrants of the Issuer
beneficially owned by the Seller or its affiliates, but shall exclude shares of
Common Stock which would be issuable upon exercise or conversion of the
unexercised or unconverted portion of any other securities of the Issuer
beneficially owned by such person and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes
hereof, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
hereof, in determining the number of outstanding shares of Common Stock, the
Seller may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Issuer’s most recent Form 10 K, Form 10-KSB, Form 10 Q, Form 10-QSB,
Current Report on Form 8-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public announcement
by the Issuer or (3) any other notice by the Issuer or its transfer agent
setting forth the number of shares of Common Stock outstanding. For any reason
at any time, upon the written or oral request of the Seller, the Issuer shall
within one business day confirm orally and in writing to the Seller the

--------------------------------------------------------------------------------

number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Issuer, including any warrants
of the Issuer, by the Seller and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. By written notice to
the Issuer, the Seller may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the 61st day after such notice
is delivered to the Issuer, and (ii) any such increase or decrease will apply
only to the Seller.

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Exhibit A

Escrow Letter

JOINT INSTRUCTION

to

KEYBANK NATIONAL ASSOCIATION,

as Escrow Agent

The undersigned, Castlerigg Master Investments Ltd., a British Virgin Islands
company (the “Seller”), and DayStar Technologies, Inc., a Delaware corporation
(the “Issuer”), pursuant to Section 2(b) of the Escrow Agreement dated as of
May 25, 2006 among the Seller, the Issuer and you (terms defined in said Escrow
Agreement have the same meanings when used herein), hereby instruct you to pay
to the Issuer and Purchaser, LC Capital Master Fund, Ltd. (the “Purchaser”), all
of the Escrowed Funds, by wire transfer of immediately available U.S. funds as
follows:

 

  1. $1,500,000, to Purchaser’s account at Citibank NA, ABA# 021-000-089, AC:
Bear Stearns Securities Corp, AC#: 09253186 FBO: LC Capital Master Fund Ltd,
AC#: 102-27738-22; and

 

  2. $1,075,061.70 to the Issuer’s account at Keybank, Route 9 Clifton Park, NY
12065, ABA # 021-300-077, Account No.: 325590064409.

 

CASTLERIGG MASTER INVESTMENTS LTD.

By:  

/s/ Patrick T. Burke

Name:   Patrick T. Burke Title:   Senior Managing Director

DAYSTAR TECHNOLOGIES, INC.

By:  

/s/ Stephan DeLuca

Name:   Stephan DeLuca Title:   Chief Executive Officer

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Exhibit B

NOTICE OF ASSIGNMENT OF ESCROW AGREEMENT

Pursuant to the Note Purchase Agreement dated as of January 19, 2007 (the “Note
Purchase Agreement”) by and among Castlerigg Master Investments Ltd., a British
Virgin Islands company (the “Seller”), LC Capital Master Fund, Ltd., a Cayman
Islands exempt company (the “Purchaser”), and DayStar Technologies, Inc., a
Delaware corporation (the “Issuer”), the undersigned Seller has assigned all of
its rights, title and interest in, to and under the Escrow Agreement dated as of
May 25, 2006 by and among the Issuer, the Seller and you, as Escrow Agent
(the “Escrow Agreement”).

As Escrow Agent, please indicate your consent to the Seller’s assignment of its
rights, title and interest in, to and under the Escrow Agreement to the
Purchaser by signing below.

 

CASTLERIGG MASTER INVESTMENTS LTD.

By:  

 

Name:   Patrick T. Burke Title:   Senior Managing Director

 

Consented to by: KEYBANK NATIONAL ASSOCIATION By:  

 

Name:   Cathy Goodwin Title:   DAYSTAR TECHNOLOGIES, INC. By:  

 

Name:   Stephan DeLuca Title:   Chief Executive Officer

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Exhibit C

MUTUAL RELEASE

This MUTUAL RELEASE is made as of January 19, 2007 (this “Mutual Release”) by
and between Castlerigg Master Investments Ltd., a British Virgin Islands company
(the “Investor”), and DayStar Technologies, Inc., a Delaware corporation
(the “Company”).

WHEREAS, it is a condition to that certain Note Purchase Agreement dated as of
the date hereof (the “Note Purchase Agreement,” together with the First
Amendment, the New Class A Warrant, the Warrant Shares Registration Rights
Agreement, the Additional Stock and each of the other agreements, certificates,
instruments and other documents entered into in connection with the Note
Purchase Agreement, the “Note Purchase Documents”), by and among the Company,
the Investor and LC Capital Master Fund, Ltd., that the Company and the Investor
enter into this Mutual Release; and

WHEREAS, each of the Company and the Investor desires to release and to be
released from any and all Claims (as defined below), in accordance with the
terms hereof.

WHEREAS, capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to such terms in the Note Purchase Agreement.

NOW, THEREFORE, in consideration of the premises herein contained and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Mutual Release.

(a) The Company, on behalf of itself and each and all of its past and present
predecessors, successors, parents, subsidiaries, affiliates and assigns, and
each and all of its and their respective stockholders, partners, managers,
members, officers, directors, insurers, attorneys, accountants, employees,
representatives and agents, and each and all of their respective heirs,
successors, legal representatives and assigns (the “Company Releasing Parties”),
fully, unconditionally, irrevocably and without reserve, hereby remises,
releases and forever discharges the Investor and each and all of its past and
present predecessors, successors, parents, subsidiaries, affiliates and assigns,
and each and all of its and their respective stockholders, partners, managers,
members, officers, directors, insurers, attorneys, accountants, employees,
representatives and agents, and each and all of their respective heirs,
successors, legal representatives and assigns (the “Investor Released Parties”)
from any and all claims, demands, losses, costs, expenses (including attorneys’
fees and expenses), actions, suits, causes of action, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
executions, judgments, demands, debts, obligations, liabilities, sums of money,
accounts, deficiencies and/or damages of every kind and nature whatsoever,
whether or not now existing or known, suspected or unsuspected, in law or at
equity (“Claims”), which any or all of the Company Releasing Parties ever had,
now have or hereafter can, shall or may have against any or

--------------------------------------------------------------------------------

all of the Investor Released Parties arising out of, relating to or as a result
of any or all of the Assigned Interests or any or all of the Assumed
Obligations; provided, however, that this release shall not remise, release or
discharge any or all of the Investor Released Parties from any Claim based
solely on any of the Note Purchase Documents or Other Documents (as defined
below).

(b) The Investor, on behalf of itself and each and all of its past and present
predecessors, successors, parents, subsidiaries, affiliates and assigns, and
each and all of its and their respective stockholders, partners, managers,
members, officers, directors, insurers, attorneys, accountants, employees,
representatives and agents, and each and all of their respective heirs,
successors, legal representatives and assigns (the “Investor Releasing
Parties”), fully, unconditionally, irrevocably and without reserve, hereby
remises, releases and forever discharges the Company and each and all of its
past and present predecessors, successors, parents, subsidiaries, affiliates and
assigns, and each and all of its and their respective stockholders, partners,
managers, members, officers, directors, insurers, attorneys, accountants,
employees, representatives and agents, and each and all of their respective
heirs, successors, legal representatives and assigns (the “Company Released
Parties”) from any and all Claims which any or all of the Investor Releasing
Parties ever had, now have or hereafter can, shall or may have against any or
all of the Company Released Parties arising out of, relating to or as a result
of any or all of the Assigned Interests or any or all of the Assumed
Obligations; provided, however, that this release shall not remise, release or
discharge any or all of the Company Released Parties from any Claim based solely
on any of the Note Purchase Documents or Other Documents.

2. Mutual Acknowledgment. Nothing contained in this Mutual Release shall limit
or release (i) any presently existing or hereafter arising indebtedness,
liability or obligation of the Company to the Investor arising under or incurred
pursuant to any of the Note Purchase Documents, the Securities Purchase
Agreement (as amended on the date hereof), the Registration Rights Agreement or
any Class A Warrants issued to the Investor (collectively, the “Other
Documents”) or (ii) any presently existing or hereafter arising indebtedness,
liability or obligation of the Investor to the Company arising under or incurred
pursuant to any of the Note Purchase Documents or Other Documents.

3. Miscellaneous.

(a) This Mutual Release may be executed in counterparts, each of which will be
deemed an original but all of which together will constitute one and the same
instrument. This Mutual Release will become effective when one or more
counterparts have been signed by each of the parties hereto and delivered to the
other party hereto.

(b) This Mutual Release shall be construed in accordance with and governed by
the laws of the State of New York, without regard to the conflicts of laws and
rules thereof that would result in the application of the laws of a jurisdiction
other than the State of New York. Any dispute arising out of or relating to this
Mutual Release, including any alleged breach hereof, shall be heard and
determined exclusively by a federal or state court located in the County, City
and State of New York. The parties hereto consent to the exclusive jurisdiction
and venue of such courts and hereby agree not to object or contest the
jurisdiction or venue of any such court.

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(c) No party hereto may assign either this Mutual Release or any of its rights,
interests or obligations hereunder without the prior written consent of the
other party hereto. All of the terms, agreements, covenants, representations,
warranties and conditions of this Mutual Release are binding upon, and inure to
the benefit of and are enforceable by, the parties hereto and their respective
successors and permitted assigns.

(d) This Mutual Release embodies the entire agreement and understanding between
the parties hereto, and supersedes all prior agreements and understandings,
relating to the subject matter hereof. In case any one or more of the provisions
contained in this Mutual Release or in any instrument contemplated hereby, or
any application thereof, shall be invalid, illegal or unenforceable in any
respect, under the laws of any jurisdiction, the validity, legality and
enforceability of the remaining provisions contained herein and therein, and any
other application thereof, shall not in any way be affected or impaired thereby
or under the laws of any other jurisdiction.

(e) The headings of the articles, sections and subsections of this Mutual
Release are inserted for convenience only and shall not be deemed to constitute
a part of this Mutual Release.

(f) This Mutual Release has been freely and fairly negotiated between the
parties hereto. If an ambiguity or question of intent or interpretation arises,
this Mutual Release will be construed as if drafted jointly by the parties
hereto and no presumption or burden of proof will arise favoring or disfavoring
any party hereto because of the authorship of any provision of this Mutual
Release.

(g) The releases contained in this Mutual Release are in satisfaction of the
conditions precedent contained in Sections 1.2(b)(viii) and 5.2 of the Note
Purchase Agreement.

[Signature page follows]

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CASTLERIGG MASTER INVESTMENTS LTD.

By:  

 

Name:   Patrick T. Burke Title:   Senior Managing Director DAYSTAR TECHNOLOGIES,
INC. By:  

 

Name:   Stephan DeLuca Title:   Chief Executive Officer