Exhibit 10.2

NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), AND,
ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO CERTAIN EXCEPTIONS, A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A
PARTIAL CONVERSION. AS A RESULT, FOLLOWING ANY CONVERSION OF ANY PORTION OF THIS
NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN
THE PRINCIPAL AMOUNT SET FORTH BELOW.

EMAGIN CORPORATION

AMENDED AND RESTATED
8% SENIOR SECURED CONVERTIBLE NOTE DUE 2008

 No. ARN -                
 $                          
 New York, New York    July23, 2007  

FOR VALUE RECEIVED, EMAGIN CORPORATION, a Delaware corporation (hereinafter
called the “Company”), hereby promises to pay to [NAME OF HOLDER] [ADDRESS], or
registered assigns (the “Holder”), or order, the sum of
                              ($                   ), on the Maturity Date, and
to pay interest on the unpaid principal balance hereof at the Applicable Rate
from the Issuance Date, until the same becomes due and payable, whether at
maturity or upon acceleration or by repurchase in accordance with the terms
hereof or otherwise. Any amount, including, without limitation, principal of or
interest on this Note and the Repurchase Price, that is payable under this Note
that is not paid when due shall bear interest at the Default Rate from the due
date thereof until the same is paid (“Default Interest”). Regular interest shall
be payable in arrears on each Interest Payment Date, commencing on September 1,
2007, on the principal amount outstanding on such date. Regular interest on this
Note shall be computed on the basis of a 360-day year of 12 30-day months and
actual days elapsed. No regular interest shall be payable on an Interest Payment
Date on any portion of the principal amount of this Note which shall have been
redeemed prior to such Interest Payment Date so long as the Company shall have
complied in full with its obligations with respect to such redemption.

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All payments of principal of and premium, if any, interest, and other amounts on
this Note shall be made in lawful money of the United States of America. All
payments shall be made by wire transfer of immediately available funds to such
account as the Holder may from time to time designate by written notice in
accordance with the provisions of this Note. Whenever any amount expressed to be
due by the terms of this Note is due on any day which is not a Business Day, the
same shall instead be due on the next succeeding day which is a Business Day
and, in the case of any Interest Payment Date which is not the date on which
this Note is paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of interest due on
such date. Certain capitalized terms used in this Note are defined in Article I.

The obligations of the Company under this Note shall rank in right of payment on
a parity with all other unsubordinated obligations of the Company for
indebtedness for borrowed money or the purchase price of property. This Note is
entitled to the benefits of the Security Agreements and the Lockbox Agreement.

This Note amends and restates on the date hereof a 6% Senior Secured Convertible
Note due 2007-2008 issued on the Issuance Date pursuant to the Note Purchase
Agreement. This Note is one of a duly authorized issue of the Company’s Amended
and Restated 8% Senior Secured Convertible Notes due 2008 limited to an
aggregate principal amount of $6,500,000.00 (excluding Amended and Restated 8%
Senior Secured Convertible Notes due 2008 issued in replacement of lost, stolen,
destroyed or mutilated notes or issued on transfer of such notes).

The following terms shall apply to this Note:

ARTICLE I

DEFINITIONS

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

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

“Accredited Investor” means an “accredited investor” as that term is defined in
Rule 501 of Regulation D under the 1933 Act.

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

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“Aggregation Parties” shall have the meaning provided in Section 6.7(a).

“Alexandra” means Alexandra Global Master Fund Ltd., a British Virgin Islands
international business company.

“Amendment Agreement” means the Amendment Agreement, dated as of July 23, 2007,
by and between the Company and the original holder of the 6% Senior Secured
Convertible Note due 2007-2008 that was amended and restated by this Note or the
Note’s predecessor instrument.

“AMEX” means the American Stock Exchange, Inc.

“Applicable Rate” means 6 percent per annum, from the Issuance Date until July
21, 2007 and 8 percent per annum thereafter; provided, however, that if an Event
of Default shall have occurred, then the Applicable Rate shall be increased to
12 percent per annum during the period from the date of such Event of Default
until the date no Event of Default is continuing (or such lesser rate as shall
be the highest rate permitted by applicable law).

“Average Daily Trading Volume Threshold” means, with respect to any period, that
the average daily trading volume of the Common Stock during such period as
reported by Bloomberg, L.P. (or if such source ceases to be available, a
comparable source selected by the Holder and acceptable to the Company in its
reasonable judgment) shall be at least 500,000 shares (such amount to be subject
to equitable adjustment for stock splits, stock dividends and similar events
relating to the Common Stock that are reflected in the trading market for the
Common Stock on or before the last Trading Day in such period).

“Board of Directors” means the Board of Directors of the Company.

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

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

“Certificate of Designations” means the Certificate of Designations of the
Series A Senior Secured Convertible Preferred Stock as filed by the Company with
the Secretary of State of the State of Delaware.

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“Collateral” shall have the meaning provided in the Security Agreements or in
either of them.

“Collateral Agent” means Alexandra, as collateral agent under the Security
Agreements, or its successors.

“Common Stock” means the Common Stock, par value $.001 per share, or any shares
of capital stock of the Company into which such shares shall be changed or
reclassified after the Issuance Date.

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

“Company” shall have the meaning provided in the first paragraph of this Note.

“Company Certificate” means a certificate of the Company signed by an Officer.

“Company Notice” means a Company Notice in the form attached hereto as Exhibit
A.

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

“Conversion Date” means the date on which a Conversion Notice is given in
accordance with Section 6.2(a).

“Conversion Notice” means a duly executed Notice of Conversion of Amended and
Restated 8% Senior Secured Convertible Note Due 2008 substantially in the form
of Exhibit C to this Note.

“Conversion Price” means $0.75 [$0.35 for Stillwater Amended Note], subject to
adjustment as provided in Section 6.3.

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“Current Fair Market Value” when used with respect to the Common Stock as of a
specified date means with respect to each share of Common Stock the average of
the closing prices of the Common Stock sold on all securities exchanges
(including the OTCBB, the NYSE, the AMEX, the Nasdaq and the Nasdaq Capital
Market) on which the Common Stock may at the time be listed, or, if there have
been no sales on any such exchange on such day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of regular trading such
day, or, if on such day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m.,
New York City time, or, if on such day the Common Stock is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked price on such day
in the domestic over-the-counter market as reported by the Pink Sheets, LLC, or
any similar successor organization, in each such case averaged over a period of
five Trading Days consisting of the day as of which the Current Fair Market
Value of Common Stock is being determined (or if such day is not a Trading Day,
the Trading Day next preceding such day) and the four consecutive Trading Days
prior to such day. If on the date for which Current Fair Market Value is to be
determined the Common Stock is not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, the Current Fair Market
Value of Common Stock shall be the greater of (i) the highest price per share of
Common Stock at which the Company has sold shares of Common Stock or Common
Stock Equivalents during the 365 days prior to the date of such determination
and (ii) the highest price per share which the Company could then obtain from a
willing buyer (not an employee or director of the Company at the time of
determination) for shares of Common Stock sold by the Company, from authorized
but unissued shares, as determined in good faith by the Board of Directors.

“Current Market Price” shall mean the arithmetic average of the daily Market
Prices per share of Common Stock for the five consecutive Trading Days
immediately prior to the date in question; provided, however, that (1) if the
“ex” date (as hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 6.3(a), (b), (c), (d), (e) or (f), occurs
during such five consecutive Trading Days, the Market Price for each Trading Day
prior to the “ex” date for such other event shall be adjusted by multiplying
such Market Price by the same fraction by which the Conversion Price is so
required to be adjusted as a result of such other event, (2) if the “ex” date
for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
Section 6.3(a), (b), (c), (d), (e) or (f), occurs on or after the “ex” date for
the issuance or distribution requiring such computation and prior to the day in
question, the Market Price for each Trading Day on and after the “ex” date for
such other event shall be adjusted by multiplying such Market Price by the
reciprocal of the fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, and (3) if the “ex” date for the
issuance or distribution requiring such computation is prior to the day in
question, after taking into account any adjustment required pursuant to clause
(1) or (2) of this proviso, the Market Price for each Trading Day on or after
such “ex” date shall be adjusted by adding thereto the amount of any cash and
the fair market value (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of Section 6.3(d),
whose determination shall be conclusive and described in a Board Resolution) of
the evidences of indebtedness, shares of capital stock or assets being
distributed applicable to one share of Common Stock as of the close of business
on the day before such “ex” date. Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for pursuant to
Section 6.3, such adjustments shall be made to the Current Market Price as may
be necessary or appropriate to effectuate the intent of Section 6.3 and to avoid
unjust or inequitable results as determined in good faith by the Board of
Directors.

“Default Interest” shall have the meaning provided in the first paragraph of
this Note.

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“Default Rate” means 12 percent per annum (or such lesser rate equal to the
highest rate permitted by applicable law).

“Designated Person” means any of Mr. John Atherly, Mr. Gary Jones and Ms. Susan
Jones.

“DTC” shall have the meaning provided in Section 6.2(b).

“EBITDA” for any period shall mean the consolidated net income before taxes of
the Company and its Subsidiaries, as shown on its consolidated financial
statements filed with the SEC for such period and prepared in accordance with
Generally Accepted Accounting Principles, on a basis consistent with the
Company’s audited consolidated financial statements most recently filed with the
SEC prior to the Issuance Date, increased by the amount of depreciation,
amortization and interest expenses charged in computing such consolidated net
income for such period.

“EBITDA Positive Quarter” means a fiscal quarter of the Company during which its
EBITDA is greater than zero, as shown in the Company’s Quarterly Report on Form
10-Q filed with the SEC, in the case of the first three fiscal quarters of any
fiscal year, or as shown in the Company’s Annual Report on Form 10-K, in the
case of the fourth fiscal quarter of any fiscal year. In the case of the fourth
fiscal quarter of any year, an EBITDA Positive Quarter may be shown by the
quarterly financial data shown in the notes to the Company’s audited financial
statements included in the Company’s Annual Report on Form 10-K for such fiscal
year, if such information is presented in sufficient detail to make such
calculation, or by subtracting the EBITDA for the first three fiscal quarters of
such fiscal year from the EBITDA for such fiscal year.

“Eligible Bank” means a corporation organized or existing under the laws of the
United States or any other state, having combined capital and surplus of at
least $100 million and subject to supervision by federal or state authority and
which has a branch located in New York, New York.
 
“Event of Default” shall have the meaning provided in Section 4.1.

“Excluded Shares” shall have the meaning provided in Section 6.7.

“FAST” shall have the meaning provided in Section 6.2(b)

“Fundamental Change” means

(a) Any consolidation or merger of the Company or any Subsidiary with or into
another entity (other than a merger or consolidation of a Subsidiary into the
Company or a wholly-owned Subsidiary in connection with which no change in
outstanding Common Stock occurs) where the stockholders of the Company
immediately prior to such transaction do not collectively own at least 51% of
the outstanding voting securities of the surviving corporation of such
consolidation or merger immediately following such transaction; or the sale of
all or substantially all of the assets of the Company and the Subsidiaries in a
single transaction or a series of related transactions; or

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(b) The occurrence of any transaction or event in connection with which all or
substantially all the Common Stock shall be exchanged for, converted into,
acquired for or constitute the right to receive consideration (whether by means
of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) which is not all
or substantially all common stock which is (or, upon consummation of or
immediately following such transaction or event, will be) listed on a national
securities exchange or approved for quotation on Nasdaq or any similar United
States system of automated dissemination of transaction reporting of securities
prices; or

(c) The acquisition by a Person or entity or group of Persons or entities acting
in concert as a partnership, limited partnership, syndicate or group, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, of beneficial ownership of securities of the
Company representing 50% or more of the combined voting power of the outstanding
voting securities of the Company ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors
;provided, however, that (1) an acquisition by a group of unrelated and
unaffiliated Persons comprised solely of newly issued equity securities of the
Company which issuance results in the pro rata dilution of the equity interests
of the Persons who are holders of Common Stock immediately prior to such
acquisition and for which no consideration is paid to or for the benefit of any
holders of Common Stock or the Affiliates of such holders of Common Stock and
(2) the issuance of shares of Common Stock upon conversion, exercise or exchange
of Common Stock Equivalents outstanding as of the date hereof (including shares
issuable upon conversion of this Note and the Other Notes or exercise of the
Warrants and the Other Warrants) in accordance with the terms of such Common
Stock Equivalents in effect on the date hereof, shall not constitute a
Fundamental Change.

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

“Holder” shall have the meaning provided in the first paragraph of this Note.

“Holder Notice” means a Holder Notice in the form attached hereto as Exhibit B.

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

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

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

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

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

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

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

“Interest Payment Dates” means each March 1, June 1, September 1 and December 1
and the Maturity Date.

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

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“Issuance Date” means the date the predecessor instrument to this Note was first
issued to the original Holder of this Note.

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

“Lockbox Agent” means the Person serving from time to time as Lockbox Agent
under the Lockbox Agreement.

“Lockbox Agreement” means that certain Lockbox Agreement, dated as of July 21,
2006, by and between the Company, the Lockbox Agent and the Collateral Agent as
amended by Amendment No. 1 to Lockbox Agreement, dated as of July 23, 2007, by
and between the Company, the Lockbox Agent and the Collateral Agent.

“Majority Holders” means, at any time, the holders of a majority of the
aggregate principal amount of this Note and the Other Notes outstanding at such
time.

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

“Maturity Date” means December 21, 2008.

“Measurement Date” for any sale, transfer or disposition (but not including the
cancellation or expiration) of Common Stock or Common Stock Equivalents by a
Designated Person means the date that is three Trading Days after the earlier of
(i) the date such Designated Person files a Form 4 with the SEC with respect to
such sale, transfer or disposition and (ii) the date such Designated Person is
required to file a Form 4 with the SEC with respect to such sale, transfer or
disposition; provided, however, that if such Designated Person is not required,
or is no longer required, to file a Form 4 with respect to such sale, transfer
or disposition, the Measurement Date shall be the date that is five Trading Days
after the date of such sale, transfer or disposition.

“Nasdaq” means the Nasdaq Global Market.

“Newly Issued Shares” shall have the meaning provided in Section 6.3(f).

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

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

“Note” means this instrument as originally executed, or if later amended or
supplemented in accordance with its terms, then as so amended or supplemented.

“Note Purchase Agreement” means the Note Purchase Agreement (including the
Annexes, Schedules and Exhibits thereto), dated as of July 21, 2006, [as amended
on March 28, 2007] [Added to Stillwater Amended Note only] by and between the
Company and the original Holder of this Note or its predecessor instrument, as
amended by the Amendment Agreement.

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

“Officer” means the Chairman of the Board, the Chief Executive Officer, the
President or the Chief Financial Officer of the Company.

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

“Other Note Purchase Agreements” means the several Note Purchase Agreements
(including the Annexes, Schedules and Exhibits thereto), dated as of July 21,
2006, as amended, by and between the Company and the respective original holders
of the Other Notes or their predecessor instruments.

“Other Notes” means the several Amended and Restated 8% Senior Secured
Convertible Notes due 2008 issued by the Company upon amendment and restatement
of the Company’s 6% Senior Secured Convertible Notes due 2007-2008 originally
issued by the Company pursuant to the Other Note Purchase Agreements and any or
all such instruments issued upon transfer or split-up thereof.

“Other Warrants” means the Amended and Restated Common Stock Purchase Warrants
issued by the Company upon amendment and restatement of the Common Stock
Purchase Warrants issued to the original holders of the Other Notes or their
respective predecessor instruments.

“Patent and Trademark Security Agreement” means the Patent and Trademark
Security Agreement, dated as of July 21, 2006, by and between the Company and
the Collateral Agent, as amended by Amendment No. 1 to Patent and Trademark
Security Agreement, dated as of July 23, 2007, by and between the Company and
the Collateral Agent.

“Pledge and Security Agreement” means the Pledge and Security Agreement, dated
as of July 21, 2006, by and between the Company and the Collateral Agent, as
amended by Amendment No. 1 to Pledge and Security Agreement, dated as of July
23, 2007, by and between the Company and the Collateral Agent.

“Permitted Designated Person Sale” means a sale by John Atherly, occurring on or
after January 1, 2007, of shares of Common Stock in an amount not to exceed
50,000 shares in the aggregate in any fiscal quarter of the Company (such number
of shares subject to equitable adjustments for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issuance Date).

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“Permitted Indebtedness” means

(1) Indebtedness outstanding on the Issuance Date prior to issuance of this Note
and reflected in the Company’s financial statements included in the SEC Reports;

(2) Indebtedness evidenced by this Note and the Other Notes;

(3) Indebtedness outstanding on, or incurred after, the Issuance Date in an
aggregate amount not to exceed $2,500,000 at any one time outstanding so long as
(A) such Indebtedness (x) is incurred for the purpose of acquiring equipment
owned or used or to be owned or used by the Company or any Subsidiary (or for
the purpose of acquiring the capital stock or similar equity interests of a
Subsidiary that is formed for the limited purpose of owning same and does not
own or hold any other material assets) and does not exceed the purchase price of
the equipment, capital stock or other equity interest so acquired plus
reasonable transaction expenses and (y) if secured, is secured solely by the
interest of the Company or one of its Subsidiaries in the equipment so acquired
and rights related thereto or (B) is the reimbursement obligations and other
liabilities (contingent or otherwise) of the Company or any Subsidiary with
respect to letters of credit issued in lieu of cash security deposits for leases
of real property or equipment used by the Company or any Subsidiary, or
commercial or standby letters of credit issued in the ordinary course of the
business of the Company and its Subsidiaries (the amount of which shall for this
purpose be deemed to be the maximum reimbursement obligations and other
liabilities (contingent or otherwise) with respect to such letters of credit,
whether or not a drawing thereunder has been made);

(4) Indebtedness incurred after the Issuance Date not to exceed $2,500,000 at
any one time outstanding that is secured solely by raw materials, works in
progress and finished goods inventory and accounts receivable in a financing by
a bank, finance company or other institutional lender providing receivables or
inventory financing;

(5) Indebtedness incurred after the Issuance Date which is unsecured,
subordinated to the Note and the Other Notes as to payment on terms approved in
advance of such incurrence by the Majority Holders as evidenced by the written
approval of the Majority Holders, and for which no payment of principal of such
Indebtedness is scheduled to be due prior to the date that is six months after
the Maturity Date;

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

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

in each such case so long as at the time of incurrence of such Indebtedness no
Event of Default has occurred and is continuing or would result from such
incurrence and no event which, with notice or passage of time, or both, would
become an Event of Default has occurred and is continuing or would result from
such incurrence and so long as in the case of such Indebtedness referred to in
the preceding clauses (3) through (5), inclusive, incurrence of such
Indebtedness shall have been approved by the Board of Directors prior to the
incurrence thereof.

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“Permitted Liens” means:

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

(b) purchase money Liens upon any property acquired by the Company or any
Subsidiary or Liens existing on such property at the time of acquisition and in
any such case securing Permitted Indebtedness described in clause (3) of the
definition of the term Permitted Indebtedness; provided that (i) no such Lien
shall extend to or cover any other property of the Company or any Subsidiary,
(ii) the principal amount of Indebtedness secured by each such Lien on any such
property shall not exceed the cost (including such principal amount of the
Indebtedness secured thereby) to the Company or the Subsidiary of the property
subject thereto, and (iii) the aggregate principal amount of all Indebtedness of
the Company and all Subsidiaries secured by all Liens described in this
subsection (b) and any extensions, renewals or replacements thereof, at any one
time outstanding, shall not exceed $2,500,000 for the Company and the
Subsidiaries; and any Lien securing Indebtedness that extends, renews or
replaces any Indebtedness secured by any Lien permitted by this subsection (b);
provided, however, that in any such case the Lien securing any Indebtedness so
extended, renewed or replaced shall not extend to or cover any other property of
the Company or any Subsidiary and the principal amount of such Indebtedness
extended, renewed or replaced shall not be increased;

(c) Liens securing Indebtedness permitted under clause (4) of the definition of
the term Permitted Indebtedness so long as in each such case such Lien does not
extend to any property of the Company or the Subsidiaries other than the
accounts receivables or inventory of the Company and the Subsidiaries so
financed;

(d) Liens securing this Note and the Other Notes ratably and not securing any
other Indebtedness;

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

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(f) Liens existing on the Issuance Date and listed in Schedule 4(t) to the Note
Purchase Agreement.

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

“Preferred Share Conversion Notice” means a duly executed Notice of Conversion
into Shares of Series A Senior Secured Convertible Preferred Stock under Section
6.8 of Amended and Restated 8% Senior Secured Convertible Note Due 2008
substantially in the form of Exhibit D to this Note.

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

“Qualifying Financing” means a single financing or series of related financings
of Common Stock or Common Stock Equivalents for which the aggregate cash
proceeds received by the Company are at least $2,500,000.00.

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

“Registration Statement” means the Registration Statement required to be filed
by the Company with the SEC pursuant to Section 8(a)(1) of the Note Purchase
Agreement.

“Repurchase Event” means the occurrence of any one or more of the following
events:

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(a) The Common Stock ceases to be traded on the OTCBB and is not listed for
trading on the Nasdaq, the Nasdaq Capital Market, the NYSE, the Pink Sheets, LLC
or any similar organization;

(b) Any Fundamental Change;

(c) The adoption of any amendment to the Company's Certificate of Incorporation
(other than any certificate designating a series of preferred stock of the
Company) which materially and adversely affects the rights of the Holder or the
taking of any other action by the Company which materially and adversely affects
the rights of the Holder in respect of the Holder’s interest in the Common Stock
in a different and more adverse manner than it affects the rights of holders of
Common Stock generally; or

(d) The inability of the Holder for 20 Trading Days (whether or not consecutive)
during any period of 365 consecutive days occurring on or after the SEC
Effective Date to sell shares of Common Stock issued or issuable upon conversion
of this Note or exercise of the Warrants pursuant to the Registration Statement
(1) by reason of the requirements of the 1933 Act, the 1934 Act or any of the
rules or regulations under either thereof or (2) due to the Registration
Statement containing any untrue statement of material fact or omitting to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or other failure of the Registration Statement
to comply with the rules and regulations of the SEC other than by reason of a
review by the SEC staff of the Registration Statement or a post effective
amendment to the Registration Statement excluding any such inability to sell
that results from an untrue statement of a material fact in such Registration
Statement or omission to state a material fact required to be stated in such
Registration Statement in order to make the statements therein not misleading,
which misstatement or omission was made by the Holder in written information it
furnished to the Company specifically for inclusion in such Registration
Statement which such information was substantially relied upon by the Company in
preparation of the Registration Statement or any amendment or supplement
thereto, unless the Company shall have failed timely to amend or supplement such
Registration Statement after the Holder shall have corrected such misstatement
or omission; or

(e) Any Event of Default specified in Article IV of this Note.

“Repurchase Price” means with respect to any repurchase pursuant to Sections 5.1
and 5.2 an amount in cash equal to the sum of (1) 100% of the outstanding
principal amount of this Note that the Holder has elected to be repurchased plus
(2) accrued and unpaid interest on such principal amount to the date of such
repurchase plus (3) accrued and unpaid Default Interest, if any, thereon at the
rate provided in this Note to the date of such repurchase.

“Restricted Ownership Percentage” shall have the meaning provided in Section
6.7(a).

“Rule 144A” means Rule 144A as promulgated under the 1933 Act.

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“SEC” means the Securities and Exchange Commission.

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

“SEC Reports” shall have the meaning provided in the Note Purchase Agreement.

“Security Agreement” means either or both of the Pledge and Security Agreement
and the Patent and Trademark Security Agreement.

“Series A Preferred Stock” means the shares of Series A Senior Secured
Convertible Preferred Stock, par value $0.001 per share, of the Company.

“Series A Conversion Price” means the Stated Value (as defined in the
Certificate of Designations) of a share of the Series A Preferred Stock,
initially $1,000.

“Stockholder Approval” shall have the meaning provided in the Note Purchase
Agreement.

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

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

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

“Transaction Documents” means this Note, the Note Purchase Agreement, the Other
Note Purchase Agreements, the Amendment Agreement, the Certificate of
Designations, the Security Agreements, the Lockbox Agreement, the Warrants and
the other agreements, instruments and documents contemplated hereby and thereby.

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

“Trigger Event” shall have the meaning provided in Section 6.3(d).

“VWAP” of any security on any Trading Day means the volume-weighted average
price of such security on such Trading Day on the Principal Market, as reported
by Bloomberg Financial, L.P., based on a Trading Day from 9:30 a.m., Eastern
Time, to 4:00 p.m., Eastern Time, using the AQR Function, for such Trading Day;
provided, however, that during any period the VWAP is being determined, the VWAP
shall be subject to equitable adjustments from time to time on terms consistent
with Section 6.3 and otherwise reasonably acceptable to the Majority Holders for
(i) stock splits, (ii) stock dividends, (iii) combinations, (iv) capital
reorganizations, (v) issuance to all holders of Common Stock of rights or
warrants to purchase shares of Common Stock, (vi) distribution by the Company to
all holders of Common Stock of evidences of indebtedness of the Company or cash
(other than regular quarterly cash dividends), and (vii) similar events relating
to the Common Stock, in each case which occur, or with respect to which the “ex”
date occurs, during such period.

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“Warrants” means the Amended and Restated Common Stock Purchase Warrants of the
Company issued to the original Holder of this Note or its predecessor instrument
upon amendment and restatement of the Common Stock Purchase Warrant originally
issued pursuant to the Note Purchase Agreement or any such instrument issued
upon transfer or split up thereof.

ARTICLE II

NO REDEMPTION AT THE OPTION
OF THE COMPANY

2.1 No Prepayment, Redemption. This Note may not be prepaid, redeemed or
repurchased at the option of the Company prior to the Maturity Date without the
consent of the Majority Holders. Notwithstanding the foregoing, the Company
shall not repurchase or otherwise acquire any of the Other Notes unless the
Company offers simultaneously to redeem, repurchase or otherwise acquire a pro
rata portion of this Note for cash at the same price per unit of outstanding
principal amount as the Other Note or Other Notes.

ARTICLE III

CERTAIN COVENANTS

So long as the Company shall have any obligation under this Note, unless
otherwise consented to in advance by the Majority Holders:

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

3.2 No Fundamental Change Without Consent. The Company shall not take any action
or engage in any transaction, or enter into any agreement, arrangement or
understanding to take any action or engage in any transaction, which would
constitute a Fundamental Change.

3.3 Payment of Obligations. The Company will pay and discharge, and will cause
each Subsidiary to pay and discharge, all their respective material obligations
and liabilities, including, without limitation, tax liabilities, except where
the same may be contested in good faith by appropriate proceedings and the
Company shall have established adequate reserves therefor on its books.

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3.4 Maintenance of Property; Insurance. (a) The Company will keep, and will
cause each Subsidiary to keep, all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted.

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

3.5 Conduct of Business and Maintenance of Existence. The Company will continue,
and will cause each Subsidiary to continue, to engage in business of the same
general type as now conducted by the Company, and will preserve, renew and keep
in full force and effect, and will cause each Subsidiary to preserve, renew and
keep in full force and effect their respective corporate existence and their
respective rights, privileges and franchises necessary or desirable in the
normal conduct of business except where (other than the Company’s corporate
existence) the failure to do so would not have a material adverse effect on (i)
the business, properties, operations, condition (financial or other), results of
operation or prospects of the Company and the Subsidiaries, taken as a whole,
(ii) the ability of the Company to perform and comply with its obligations under
the Transaction Documents or (iii) the rights and remedies of the Holder or the
Collateral Agent under or in connection with the Transaction Documents.

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

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

3.8 Limitations on Asset Sales, Liquidations, Etc.; Certain Matters. The Company
shall not

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

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

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(c) liquidate, dissolve or otherwise wind up the affairs of the Company.

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

3.10 Transactions with Affiliates. The Company will not, and will not permit any
Subsidiary, directly or indirectly, to pay any funds to or for the account of,
make any investment (whether by acquisition of stock or Indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, any Indebtedness, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with, any joint
enterprise or other joint arrangement with, any Affiliate of the Company,
except, on terms to the Company or such Subsidiary no less favorable than terms
that could be obtained by the Company or such Subsidiary from a Person that is
not an Affiliate of the Company, as determined in good faith by the Board of
Directors.
 
3.11 Rule 144A Information Requirement.  Within the period prior to the
expiration of the holding period applicable to sales hereof under Rule 144(k)
under the 1933 Act (or any successor provision), the Company shall, during any
period in which it is not subject to Section 13 or 15(d) under the 1934 Act,
make available to the Holder and any prospective purchaser of this Note from the
Holder, the information required pursuant to Rule 144A(d)(4) under the 1933 Act
upon the request of the Holder and it will take such further action as the
Holder may reasonably request, all to the extent required from time to time to
enable the Holder to sell this Note without registration under the 1933 Act
within the limitation of the exemption provided by Rule 144A, as Rule 144A may
be amended from time to time. Upon the request of the Holder, the Company will
deliver to the Holder a written statement as to whether it has complied with
such requirements.

3.12 Limitation on Certain Issuances.  The Company shall not offer, sell or
issue, or enter into any agreement, arrangement or understanding to offer, sell
or issue, any Common Stock or Common Stock Equivalent (A) that is convertible
into, exchangeable or exercisable for, or includes the right to receive
additional shares of Common Stock either (x) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the Common Stock at any time after the initial
issuance of such Common Stock or Common Stock Equivalent, or (y) with a fixed
conversion, exercise, exchange or purchase price that is subject to being reset
at some future date after the initial issuance of such Common Stock or Common
Stock Equivalent or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock (but excluding customary stock split, reverse stock split,
stock dividend and similar anti-dilution provisions substantially similar to
those set forth in clauses (a) through (f) of Section 6.3), or (B) pursuant to
an “equity line” structure in which one or more Persons commits to provide
capital to the Company by the purchase of securities of the Company from time to
time, whether at specified times, times determined by the Company or by such
Person(s) or by mutual agreement between the Company and such Person(s), at
prices based on the market prices of the Common Stock at or near the time of
each purchase, which securities are registered for sale or resale pursuant to
the 1933 Act; provided, however, that nothing in this Section 3.12 shall
prohibit the Company from issuing shares of Common Stock for cash for the
account of the Company in an offering that is underwritten on a firm commitment
basis and registered with the SEC under the 1933 Act.

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3.13 Certain Obligations. The Company shall not enter into any agreement which
would adversely affect the Collateral Agent's Lien on and Security Interest in
the Collateral. The Company shall perform, and comply in all material respects
with each agreement it enters into relating to the Collateral, the failure to
comply with which could affect the Collateral Agent's lien on and security
interest in the Collateral.

3.14 Notice of Defaults. The Company shall notify the Holder promptly, but in
any event not later than five days after the Company becomes aware of the fact,
of any failure by the Company to comply with this Article III.

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

3.16 Designation of Directors. (a) So long as any principal amount of this Note
or the Other Notes remains outstanding, the Majority Holders shall be entitled,
from time to time, to select a Person who shall not be an Affiliate of Alexandra
and who shall have the right to designate by notice to the Company up to two
persons (the first of whom shall initially be David Gottfried) to serve from
time to time as members of the Board of Directors, provided, that each of such
person(s) designated to serve as a member of the Board of Directors (1) so long
as Alexandra holds all or any portion of this Note or any Other Note, is
reasonably acceptable to Alexandra and at least one other holder of this Note or
any Other Notes and (2) is not an Affiliate of Alexandra. Any person(s) so
designated for election to the Board of Directors shall enter into an agreement
with Alexandra on such terms as shall be acceptable to Alexandra pursuant to
which such person(s) shall agree not to share or convey any non-public
information such person(s) learns in its role as a director. The Company shall,
from time to time, use its best efforts to cause the election of the person(s)
so designated to serve as members of the Board of Directors as promptly as
possible. If for any reason under applicable law or the Company’s By-laws any
such designee cannot immediately be elected to the Board of Directors, then
until such time as such person(s) is elected to the Board of Directors (i) the
person(s) so designated shall have the right to be present at all meetings of
the Board of Directors, but shall not be entitled to vote on any action taken at
such meeting, (ii) the Company shall provide notice to such person(s) of the
date, place and time of each such meeting at least the same period in advance as
the shortest such notice provided to any member of the Board of Directors, (iii)
the Company shall provide such person(s) all agendas and other information and
materials provided to the Board of Directors contemporaneously with the time the
Company provides the same to the Board of Directors and (iv) the Company shall
provide to such person(s) copies of each proposed unanimous written consent of
the Board of Directors which consent is given to all members of the Board of
Directors for execution by the directors during such period, at the same time
such written consent is given to all members of the Board of Directors. In case
any person designated as a member of the Board of Directors pursuant to this
Section 3.16 shall resign, die, be removed from office or otherwise be unable to
serve, the Majority Holders shall be entitled to appoint a Person to designate a
replacement pursuant to, and in accordance with, this Section 3.16.

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(b) In the event that approval of the stockholders of the Company shall be
required to elect the person(s) designated to serve as a member of the Board of
Directors pursuant to this Section 3.16, the Company shall call a meeting of
stockholders to be held within 90 days after the date such person(s) is so
designated, shall prepare and file with the SEC as promptly as practical, but in
no event later than 30 days after such date, preliminary proxy materials which
set forth a proposal to seek the approval of the election of such designee(s),
and the Board of Directors shall recommend approval thereof by the Company’s
stockholders. The Company shall mail and distribute its proxy materials for such
stockholder meeting to its stockholders at least 30 days prior to the date of
such stockholder meeting and shall actively solicit proxies to vote for the
election of such designee(s).

(c) Notwithstanding anything herein to the contrary, so long as Alexandra holds
all or any portion of this Note or any Other Note, the rights and obligations
under this Section 3.16 may not be waived or amended without the consent of
Alexandra.

3.17 Management Covenants.  (a) Commencing on the Issuance Date, the Company
shall withhold 10% of all cash compensation payable to each of its Chief
Executive Officer, President and Chief Strategy Officer until such time as the
Company shall have reported an EBITDA Positive Quarter. The Company shall give
notice to the holder of the occurrence of the EBITDA Positive Quarter and once
it shall have given such notice shall pay the amounts so withheld, without
interest, to the respective officers in equal monthly installments during the
12-month period following such EBITDA Positive Quarter so long as such officer
continues to be employed by the Company during such 12-month period. The Company
shall not increase the compensation payable in any form to any of its Chief
Executive Officer, President and Chief Strategy Officer from the Issuance Date
until the EBITDA Positive Quarter has occurred. Notwithstanding anything to the
contrary contained herein, if (1) at any time during any period of 45
consecutive Trading Days commencing after the Issuance Date on each such Trading
Day (i) the Market Price of the Common Stock shall be at least 250% of the
Conversion Price in effect on each such Trading Day, (ii) the Average Daily
Trading Volume Threshold is met, (iii) no Event of Default shall have occurred
or be continuing and no Repurchase Event shall have occurred with respect to
which the Holder has the right to require repurchase of this Note pursuant to
Article V or with respect to which the Holder has exercised such right and the
Company shall not have paid or deposited in accordance with Section 7.10 the
applicable Repurchase Price and (iv) the Registration Statement shall be
effective and available for use by the Holder and the holders of the Warrants
for the resale of shares of Common Stock issued or issuable upon conversion of
this Note and upon exercise of the Warrants and is reasonably expected to remain
effective and available for a reasonable period after such period of 45 Trading
Days, and (2) the Company shall have furnished to the Holder a Company
Certificate certifying the matters set forth in the immediately preceding clause
(1), then thereafter the Company shall no longer be obligated to comply with
this Section 3.17(a) and the Company shall pay the amounts withheld by reason of
this Section 3.17(a), without interest, to the respective officers in equal
monthly installments during the 12-month period following the date the Company
Certificate described in the immediately preceding clause (2) was delivered to
the Holder so long as such officer continues to serve in such position during
such 12-month period. Concurrent with the signing of the Amended and Restated
Note the Company will no longer be obligated to comply with Section 3.17(a) and
the Company shall pay the amounts withheld by reason of this Section 3.17(a),
without interest, to the respective officers in equal monthly installments
during the 12-month period following the date so long as such officer continues
to serve in such position during such 12-month period.

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ARTICLE IV

EVENTS OF DEFAULT

4.1 If any of the following events of default (each, an “Event of Default”)
shall occur:

(a) Failure to Pay Principal, Interest, Etc. The Company fails (1) to pay the
principal or the Repurchase Price hereof when due, whether at maturity, upon
acceleration or otherwise, as applicable, or (2) to pay any installment of
interest hereon when due and, in the case of this clause (2) of this
Section 4.1(a) only, such failure continues for a period of five Business Days
after the due date thereof; or

(b) Conversion and the Shares. The Company fails to issue or cause to be issued
shares of Common Stock or Series A Preferred Stock to the Holder or the holder
of any Other Note upon exercise of the conversion rights of the Holder or such
holder or fails to issue or cause to be issued shares of Common Stock to the
holder of any Warrant or Other Warrant upon exercise of the purchase rights of
the holder thereof or to the holder of any shares of Series A Preferred Stock
upon exercise of the conversion rights of the holder thereof, in any such case
within five Trading Days after the due date therefor in accordance with the
terms of this Note, any Other Note or any Warrant or Other Warrant or the
Certificate of Designations or fails to transfer any certificate for any such
shares of Common Stock or any shares of Common Stock issued in payment of
interest on this Note or any Other Note as and when required by this Note and
the Note Purchase Agreement or any Other Note or Other Note Purchase Agreement,
as the case may be; or

(c) Breach of Covenant. The Company (1) fails to comply with Sections 3.1, 3.2,
3.8, 3.9, 3.12, 3.13, 3.15, 3.16 or 3.17(a) (2) fails to comply in any material
respect with any provision of Article III of this Note (other than Sections 3.1,
3.2, 3.8, 3.9, 3.12, 3.13, 3.15, 3.16 or 3.17(a)) or breaches any other material
covenant or other material term or condition of this Note or any of the other
Transaction Documents (other than as specifically provided in clauses (a), (b)
or (c)(1) of this Section 4.1), and in the case of this clause (2) of this
Section 4.1(c) only, such breach continues for a period of ten days after
written notice thereof to the Company from the Holder, provided, however, that,
it shall not be deemed an Event of Default pursuant to this Section 4.1(c) if
the Company breaches the covenants set forth in Sections 4(c) or 4(o) of the
Note Purchase Agreement or the Other Note Purchase Agreements in the event that
the Common Stock ceases to be listed on any of Nasdaq Capital Market, Nasdaq,
the NYSE or the AMEX; or

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(d) Breach of Representations and Warranties. Any representation or warranty of
the Company made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith (including, without
limitation, the Transaction Documents) shall be false or misleading in any
material respect when made; or

(e) Certain Voluntary Proceedings. The Company or any Subsidiary shall commence
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due or shall admit in writing its inability generally
to pay its debts as they become due; or

(f) Certain Involuntary Proceedings. An involuntary case or other proceeding
shall be commenced against the Company or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 consecutive days; or

(g) Judgments. Any court of competent jurisdiction shall enter one or more final
judgments against the Company or any Subsidiary or any of their respective
properties or other assets in an aggregate amount in excess of $250,000, which
is not vacated, bonded, stayed, discharged, satisfied or waived for a period of
30 consecutive days; or

(h) Default Under Other Agreements and Instruments. (1) The Company or any
Subsidiary shall (i) default in any payment with respect to any Indebtedness for
borrowed money (other than this Note) which Indebtedness has an outstanding
principal amount in excess of $250,000, individually or $500,000 in the
aggregate, for the Company and its Subsidiaries, beyond the period of grace, if
any, provided in the instrument or agreement under which such Indebtedness was
created or (ii) default in the observance or performance of any agreement,
covenant or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, any such Indebtedness to become due prior to its stated maturity and such
default or event shall continue beyond the period of grace, if any, provided in
the instrument or agreement under which such Indebtedness was created (after
giving effect to any consent or waiver obtained and then in effect thereunder);
or (2) any Indebtedness of the Company or any Subsidiary which has an
outstanding principal amount in excess of $250,000, individually or $500,000 in
the aggregate, shall, in accordance with its terms, be declared to be due and
payable, or required to be prepaid other than by a regularly scheduled or
required payment prior to the stated maturity thereof; or

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(i) Security Agreements. The occurrence of any “Event of Default” as defined in
the Security Agreements or any breach or failure by the Company to perform its
obligations under the Lockbox Agreement; or

(j) Delisting of Common Stock. The Common Stock shall cease to be listed on any
of Nasdaq Capital Market, Nasdaq, the NYSE, the AMEX, the OTCBB, the Pink
Sheets, LLC or any similar organization;

then, (W) upon the occurrence and during the continuation of any Event of
Default specified in clause (a), (b), (c), (d), (g), (h), (i) or (j) of this
Section 4.1, at the option of the Holder the Company shall, and upon the
occurrence of any Event of Default specified in clause (e) or (f) of this
Section 4.1, the Company shall, in any such case, pay to the Holder an amount
equal to the sum of (1) the outstanding principal amount of this Note plus (2)
accrued and unpaid interest on such principal amount to the date of payment plus
(3) accrued and unpaid Default Interest, if any, thereon at the rate provided in
this Note to the date of payment, (X) all other amounts payable hereunder or
under any of the other Transaction Documents shall immediately become due and
payable, all without demand, presentment or notice, all of which hereby are
expressly waived, together with all costs, including, without limitation,
reasonable legal fees and expenses, of collection, (Y) the Collateral Agent
shall be entitled to exercise all rights and remedies under the Security
Agreement, and (Z) the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity.

ARTICLE V

REPURCHASE UPON A REPURCHASE EVENT

5.1 Repurchase Right Upon Repurchase Event. If a Repurchase Event occurs, in
addition to any other right of the Holder, the Holder shall have the right, at
the Holder’s option, to require the Company to repurchase all of this Note, or
any portion hereof on the repurchase date that is five Business Days after the
date of the Holder Notice delivered with respect to such Repurchase Event. The
Holder shall have the right to require the Company to repurchase all or any such
portion of this Note if a Repurchase Event occurs at any time while any portion
of the principal amount of this Note is outstanding at a price equal to the
Repurchase Price.

5.2 Notices; Method of Exercising Repurchase Rights, Etc. (a) On or before the
fifth Business Day after the occurrence of a Repurchase Event, the Company shall
give to the Holder a Company Notice of the occurrence of the Repurchase Event
and of the repurchase right set forth herein arising as a result thereof. Such
Company Notice shall set forth:

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(i) the date by which the repurchase right must be exercised, and

(ii) a description of the procedure (set forth in this Section 5.2) which the
Holder must follow to exercise the repurchase right.

No failure of the Company to give a Company Notice or defect therein shall limit
the Holder’s right to exercise the repurchase right or affect the validity of
the proceedings for the repurchase of this Note or portion hereof.

(b) To exercise the repurchase right, the Holder shall deliver to the Company on
or before the 30th day after a Company Notice (or if no such Company Notice has
been given, within 40 days after the Holder first learns of the Repurchase
Event) (i) a Holder Notice setting forth the name of the Holder and the
principal amount of this Note to be repurchased and (ii) this Note, duly
endorsed for transfer to the Company of the portion of the outstanding principal
amount of this Note to be repurchased. A Holder Notice may be revoked by the
Holder at any time prior to the time the Company pays the applicable Repurchase
Price to the Holder.

(c) If the Holder shall have given a Holder Notice, then on the date which is
five Business Days after the date such Holder Notice is given (or such later
date as the Holder surrenders this Note) the Company shall make payment in
immediately available funds of the applicable Repurchase Price to such account
as specified by the Holder in writing to the Company at least one Business Day
prior to the applicable repurchase date.

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5.3 Other. (a) If the Company fails to repurchase on the applicable repurchase
date this Note (or portion hereof) as to which the repurchase right has been
properly exercised pursuant to this Article V, then the Repurchase Price for the
portion (which, if applicable, may be all) of this Note which is required to
have been so repurchased shall bear interest to the extent not prohibited by
applicable law from the applicable repurchase date until paid at the Default
Rate.
 
(b) If a portion of this Note is to be repurchased, upon surrender of this Note
to the Company in accordance with the terms of this Article V, the Company shall
execute and deliver to the Holder without service charge, a new Note or Notes,
having the same date hereof and containing identical terms and conditions, in
such denomination or denominations as requested by the Holder in aggregate
principal amount equal to, and in exchange for, the unrepurchased portion of the
principal amount of the Note so surrendered.
 
(c) A Holder Notice given by the Holder shall be deemed for all purposes to be
in proper form unless the Company notifies the Holder within three Business Days
after such Holder Notice has been given (which notice shall specify all defects
in such Holder Notice), and any Holder Notice containing any such defect shall
nonetheless be effective on the date given if the Holder promptly undertakes to
correct all such defects. No such claim of defect shall limit or delay
performance of the Company's obligation to repurchase any portion of this Note,
the repurchase of which is not in dispute.

ARTICLE VI

CONVERSION

6.1 Right to Convert. Subject to and upon compliance with the provisions of this
Note, the Holder shall have the right, at the Holder's option, at any time prior
to the close of business on the Maturity Date (except that, if the Holder shall
have exercised repurchase rights under Sections 5.1 and 5.2, such conversion
right shall terminate with respect to the portion of this Note to be
repurchased, at the close of business on the last Trading Day prior to the later
of (x) the date the Company is required to make such repurchase and (y) the date
the Company pays or deposits in accordance with Section 7.10 the applicable
Repurchase Price unless in any such case the Company shall default in payment
due upon repurchase or) to convert the principal amount of this Note, or any
portion of such principal amount which is at least $1,000 (or such lesser
principal amount of this Note as shall be outstanding at such time), plus
accrued and unpaid interest, into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) obtained by
dividing (1) the sum of (x) the principal amount of this Note or portion thereof
being converted plus (y) accrued and unpaid interest on the portion of the
principal amount of this Note being converted to the applicable Conversion Date
plus (z) accrued and unpaid Default Interest, if any, on the amount referred to
in the immediately preceding clause (y) to the applicable Conversion Date by (2)
the Conversion Price in effect on the applicable Conversion Date, by giving a
Conversion Notice in the manner provided in Section 6.2; provided, however,
that, if at any time this Note is converted in whole or in part pursuant to this
Section 6.1, the Company does not have available for issuance upon such
conversion as authorized and unissued shares or in its treasury at least the
number of shares of Common Stock required to be issued pursuant hereto, then, at
the election of the Holder made by notice from the Holder to the Company, this
Note (or portion hereof as to which conversion has been requested), to the
extent that sufficient shares of Common Stock are not then available for
issuance upon conversion, shall be converted into the right to receive from the
Company, in lieu of the shares of Common Stock into which this Note or such
portion hereof would otherwise be converted and which the Company is unable to
issue, payment in an amount equal to the product obtained by multiplying (x) the
number of shares of Common Stock which the Company is unable to issue times (y)
the arithmetic average of the Market Price for the Common Stock during the five
consecutive Trading Days immediately prior to the applicable Conversion Date.
Any such payment shall, for all purposes of this Note, be deemed to be a payment
of principal plus a premium equal to the total amount payable less the principal
portion of this Note converted as to which such payment is required to be made
because shares of Common Stock are not then available for issuance upon such
conversion. The Holder is not entitled to any rights of a holder of Common Stock
until the Holder has converted this Note to Common Stock, and only to the extent
this Note is deemed to have been converted to Common Stock under this Article
VI. For purposes of Sections 6.5 and 6.6, whenever a provision references the
shares of Common Stock into which this Note (or a portion hereof) is convertible
or the shares of Common Stock issuable upon conversion of this Note (or a
portion hereof) or words of similar import, any determination required by such
provision shall be made as if a sufficient number of shares of Common Stock were
then available for issuance upon conversion in full of this Note.

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6.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No
Adjustment for Interest or Dividends. (a) In order to exercise the conversion
privilege with respect to this Note, the Holder shall give a Conversion Notice
(or such other notice which is acceptable to the Company) to the Company and the
Transfer Agent or to the office or agency designated by the Company for such
purpose by notice to the Holder. A Conversion Notice may be given by telephone
line facsimile transmission to the numbers set forth on the form of Conversion
Notice.

(b) As promptly as practicable, but in no event later than three Trading Days,
after a Conversion Notice is given, the Company shall issue and shall deliver to
the Holder or the Holder's designee the number of full shares of Common Stock
issuable upon such conversion of this Note or portion hereof in accordance with
the provisions of this Article and deliver a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 6.2(f) and, if applicable, any cash payment
required pursuant to the proviso to the first sentence of Section 6.1 (which
payment, if any, shall be paid no later than three Trading Days after the
applicable Conversion Date). In lieu of delivering physical certificates for the
shares of Common Stock issuable upon any conversion of this Note, provided the
Company's transfer agent is participating in the Depository Trust Company
(“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the
Holder, the Company shall use commercially reasonable efforts to cause its
transfer agent electronically to transmit such shares of Common Stock issuable
upon conversion to the Holder (or its designee), by crediting the account of the
Holder’s (or such designee’s) broker with DTC through its Deposit Withdrawal
Agent Commission system (provided that the same time periods herein as for stock
certificates shall apply).

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

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

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(e) (1) If the Holder shall have given a Conversion Notice in accordance with
the terms of this Note, the Company's obligation to issue and deliver the shares
of Common Stock upon such conversion shall be absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Company to the Holder,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with such
conversion; provided, however, that nothing herein shall limit or prejudice the
right of the Company to pursue any such claim in any other manner permitted by
applicable law. The occurrence of an event which requires an adjustment of the
Conversion Price as contemplated by Section 6.3 shall in no way restrict or
delay the right of the Holder to receive certificates for Common Stock upon
conversion of this Note and the Company shall use its best efforts to implement
such adjustment on terms reasonably acceptable to the Holder within two Trading
Days of such occurrence.

(2) If in any case the Company shall fail to issue and deliver the shares of
Common Stock to the Holder in connection with a particular conversion of this
Note within five Trading Days after the Holder gives the Conversion Notice for
such conversion, in addition to any other liabilities the Company may have
hereunder and under applicable law (A) the Company shall pay or reimburse the
Holder on demand for all out-of-pocket expenses, including, without limitation,
reasonable fees and expenses of legal counsel, incurred by the Holder as a
result of such failure, (B) if as a result of such failure the Holder shall
suffer any direct damages or liabilities from such failure (including, without
limitation, margin interest and the cost of purchasing securities to cover a
sale (whether by the Holder or the Holder's securities broker) or borrowing of
shares of Common Stock by the Holder for purposes of settling any trade
involving a sale of shares of Common Stock made by the Holder during the period
beginning on the Issuance Date and ending on the date the Company delivers or
causes to be delivered to the Holder such shares of Common Stock), then the
Company shall upon demand of the Holder pay to the Holder an amount equal to the
actual direct, out-of-pocket damages and liabilities suffered by the Holder by
reason thereof which the Holder documents to the reasonable satisfaction of the
Company, and (C) the Holder may by written notice (which may be given by mail,
courier, personal service or telephone line facsimile transmission), given at
any time prior to delivery to the Holder of the shares of Common Stock issuable
in connection with such exercise of the Holder's conversion right, rescind such
exercise and the Conversion Notice relating thereto, in which case the Holder
shall thereafter be entitled to convert that portion of this Note as to which
such exercise is so rescinded and to exercise its other rights and remedies with
respect to such failure by the Company. Notwithstanding the foregoing the
Company shall not be liable to the Holder under clause (B) of the immediately
preceding sentence to the extent the failure of the Company to deliver or to
cause to be delivered such shares of Common Stock results from fire, flood,
storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, or any similar event outside the
control of the Company (it being understood that the action or failure to act of
the Transfer Agent shall not be deemed an event outside the control of the
Company except to the extent resulting from fire, flood, storm, earthquake,
shipwreck, strike, war, acts of terrorism, crash involving facilities of a
common carrier, acts of God, or any similar event outside the control of the
Transfer Agent or the bankruptcy, liquidation or reorganization of the Transfer
Agent under any bankruptcy, insolvency or other similar law). In the case of the
Company’s failure to issue and deliver or cause to be delivered the shares of
Common Stock to the Holder within three Trading Days of a particular conversion
of the Note, the amount payable by the Company pursuant to clause (B) of this
Section 6.2(e)(2) with respect to such conversion shall be reduced by the amount
of payments previously paid by the Company to the Holder pursuant to Section
8(a)(4) of the Purchase Agreement with respect to such conversion. The Holder
shall notify the Company in writing (or by telephone conversation, confirmed in
writing) as promptly as practicable following the third Trading Day after the
Holder gives a Conversion Notice if the Holder becomes aware that such shares of
Common Stock so issuable have not been received as provided herein, but any
failure so to give such notice shall not affect the Holder's rights under this
Note or otherwise. If the Holder shall have exercised the conversion right in
any particular instance and either (1) the Company shall notify the Holder on or
after the date the Holder gives such Conversion Notice that the shares of Common
Stock issuable upon such conversion might not be delivered within three Trading
Days after the date the Holder gives such Conversion Notice or (2) the Holder
learns after the date which is three Trading Days after the date the Holder
gives such Conversion Notice that the Holder has not received such shares of
Common Stock, then, without releasing the Company of its obligations with
respect thereto, from and after the Trading Day next succeeding the earlier of
the events described in the preceding clauses (1) and (2) of this sentence the
Holder shall make reasonable efforts not to sell shares of Common Stock in
anticipation of receipt of such shares of Common Stock in a manner which is
likely to increase materially the liability of the Company under clause (B) of
the first sentence of this Section 6.2(e)(2).

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(f) No fractional shares of Common Stock shall be issued upon conversion of this
Note but, in lieu of any fraction of a share of Common Stock which would
otherwise be issuable in respect of such conversion, the Company may round the
number of shares of Common Stock issued on such conversion up to the next
highest whole share or may pay lawful money of the United States of America for
such fractional share, based on a value of one share of Common Stock being equal
to the Market Price of the Common Stock on the applicable Conversion Date.

6.3 Adjustment of Conversion Price. The Conversion Price shall be adjusted from
time to time by the Company as follows:

(a) Adjustments for Certain Dividends and Distributions in Common Stock. In case
the Company shall on or after the Issuance Date pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the Record Date
fixed for such determination and the denominator shall be the sum of such number
of shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the Record Date. If any dividend or
distribution of the type described in this Section 6.3(a) is declared but not so
paid or made, the Conversion Price shall again be adjusted to the Conversion
Price which would then be in effect if such dividend or distribution had not
been declared.

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(b) Weighted Adjustments for Certain Issuances of Rights or Warrants. In case
the Company shall on or after the Issuance Date issue rights or warrants (other
than any rights or warrants referred to in Section 6.3(d)) to all holders of its
outstanding shares of Common Stock entitling them (for a period expiring within
45 days after the date fixed for the determination of stockholders entitled to
receive such rights or warrants) to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price on the Record Date
fixed for the determination of stockholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect at the
opening of business on the date after such Record Date by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at the
close of business on the Record Date plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Current Market Price, and the denominator shall be the number of shares
of Common Stock outstanding on the close of business on the Record Date plus the
total number of additional shares of Common Stock so offered for subscription or
purchase. Such adjustment shall become effective immediately after the opening
of business on the day following the Record Date fixed for determination of
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered pursuant to such rights or warrants,
upon the expiration or termination of such rights or warrants, the Conversion
Price shall be readjusted to the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such rights or warrants been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such date fixed for the determination of stockholders
entitled to receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holder to subscribe for or purchase
shares of Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received for such rights or
warrants, the value of such consideration, if other than cash, to be determined
by the Board of Directors.

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

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(d) Adjustments for Certain Dividends and Distributions. In case the Company
shall on or after the Issuance Date, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the Company
(other than any dividends or distributions to which Section 6.3(a) applies) or
evidences of its indebtedness, cash or other assets (including securities, but
excluding any rights or warrants referred to in Section 6.3(b) and dividends and
distributions paid exclusively in cash and excluding any capital stock,
evidences of indebtedness, cash or assets distributed upon a merger or
consolidation to which Section 6.6 applies) (the foregoing hereinafter in this
Section 6.3(d) called the “Securities”)), then, in each such case, subject to
the second paragraph of this Section 6.3(d), the Conversion Price shall be
reduced so that the same shall be equal to the price determined by multiplying
the Conversion Price in effect immediately prior to the close of business on the
Record Date with respect to such distribution by a fraction of which the
numerator shall be the Current Market Price on such date less the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution) on such date of the portion of
the Securities so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following the
Record Date; provided, however, that in the event the then fair market value (as
so determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price on
the Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that the Holder shall have the right to receive upon conversion of
this Note (or any portion hereof) the amount of Securities such holder would
have received had such holder converted this Note (or portion hereof)
immediately prior to such Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 6.3(d) by reference to the actual or when issued trading market for any
Securities comprising all or part of such distribution, it must in doing so
consider the prices in such market over the same period used in computing the
Current Market Price, to the extent possible.

Rights or warrants distributed by the Company to all holders of Common Stock
entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events (a
“Trigger Event”): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall not be deemed to have been distributed for
purposes of this Section 6.3 (and no adjustment to the Conversion Price under
this Section 6.3 will be required) until the occurrence of the earliest Trigger
Event. If any such rights or warrants, including any such existing rights or
warrants distributed prior to the Issuance Date, are subject to Trigger Events,
upon the satisfaction of each of which such rights or warrants shall become
exercisable to purchase different securities, evidences of indebtedness or other
assets, then the occurrence of each such Trigger Event shall be deemed to be
such date of issuance and record date with respect to new rights or warrants
(and a termination or expiration of the existing rights or warrants without
exercise by the holder thereof) (so that, by way of illustration and not
limitation, the dates of issuance of any such rights shall be deemed to be the
dates on which such rights become exercisable to purchase capital stock of the
Company, and not the date on which such rights may be issued, or may become
evidenced by separate certificates, if such rights are not then so exercisable).
In addition, in the event of any distribution of rights or warrants, or any
Trigger Event with respect thereto, that was counted for purposes of calculating
a distribution amount for which an adjustment to the Conversion Price under this
Section 6.3 was made (1) in the case of any such rights or warrants which shall
all have been redeemed or repurchased without exercise by any holders thereof,
the Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as the case may
be, as though it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with respect to
such rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such redemption
or repurchase, and (2) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not been
issued.

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For purposes of this Section 6.3(d) and Sections 6.3(a) and (b), any dividend or
distribution to which this Section 6.3(d) is applicable that also includes
shares of Common Stock, or rights or warrants to subscribe for or purchase
shares of Common Stock to which Section 6.3(b) applies (or both), shall be
deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 6.3(b)
applies (and any Conversion Price reduction required by this Section 6.3(d) with
respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 6.3(a) and (b) with respect to such dividend or distribution shall then
be made), except (A) the Record Date of such dividend or distribution shall be
substituted as “the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution”, “Record Date fixed for such
determination” and “Record Date” within the meaning of Section 6.3(a) and as
“the date fixed for the determination of stockholders entitled to receive such
rights or warrants”, “the Record Date fixed for the determination of the
stockholders entitled to receive such rights or warrants” and “such Record Date”
within the meaning of Section 6.3(b) and (B) any shares of Common Stock included
in such dividend or distribution shall not be deemed “outstanding at the close
of business on the Record Date fixed for such determination” within the meaning
of Section 6.3(a).

(e) Adjustments for Certain Cash Dividends. In case the Company shall on or
after the Issuance Date, by dividend or otherwise, distribute to all holders of
its Common Stock cash (excluding any cash that is distributed upon a merger or
consolidation to which Section 6.5 applies or as part of a distribution referred
to in Section 6.3(d)) in an aggregate amount that, combined with (1) the
aggregate amount of any other such distributions to all holders of its Common
Stock made exclusively in cash within the 12 months preceding the date of
payment of such distribution, and in respect of which no adjustment pursuant to
this Section 6.3(e) has been made, and (2) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and set forth in a Board Resolution) of consideration
payable in respect of any Tender Offer by the Company or any Subsidiary for all
or any portion of the Common Stock concluded within the 12 months preceding the
date of payment of such distribution, exceeds 1% of the product of (x) the
Current Market Price on the Record Date with respect to such distribution times
(y) the number of shares of Common Stock outstanding on such date, then, and in
each such case, immediately after the close of business on such date, unless the
Company elects to reserve such cash for distribution to the Holder upon the
conversion of this Note (and shall have made adequate provision) so that the
Holder will receive upon such conversion, in addition to the shares of Common
Stock to which the Holder is entitled, the amount of cash which the Holder would
have received if the Holder had, immediately prior to the Record Date for such
distribution of cash, converted this Note into Common Stock, the Conversion
Price shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on such Record Date by a fraction (i) the numerator of which shall be
equal to the Current Market Price on the Record Date less an amount equal to the
quotient of (x) the excess of such combined amount over such 1% and (y) the
number of shares of Common Stock outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on the Record
Date; provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price of the Common Stock on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that the Holder shall
have the right to receive upon conversion of this Note (or any portion hereof)
the amount of cash the Holder would have received had the Holder converted this
Note (or portion hereof) immediately prior to such Record Date. In the event
that such dividend or distribution is not so paid or made, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be in effect
if such dividend or distribution had not been declared.

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(f) Adjustments for Certain Issuances of Newly Issued Shares. (1) In case at any
time on or after the Issuance Date the Company issues shares of Common Stock or
Common Stock Equivalents (collectively, the “Newly Issued Shares”) at a price
per share at which the Company sells such shares of Common Stock or the price
per share at which the holders of such Common Stock Equivalents are entitled to
acquire shares of Common Stock upon conversion or exercise thereof which is less
than the Conversion Price in effect at the time of such issuance, then following
such issuance the Conversion Price shall be reduced to the lowest price per
share at which such shares of Common Stock are issued or at which such Common
Stock Equivalents may be exercised, if the same is lower than the Conversion
Price in effect immediately prior to such issuance.

(2) Notwithstanding the foregoing, no adjustment shall be made under this
Section 6.3(f) by reason of:

(A) the issuance by the Company of shares of Common Stock pro rata to all
holders of the Common Stock so long as (i) any adjustment required by Section
6.3(a) is made and (ii) the Company shall have given notice thereof to the
Holder pursuant to Section 6.6;

(B) the issuance by the Company of the Notes, the Other Notes, the Warrants or
the Other Warrants or the issuance by the Company of shares of Common Stock upon
conversion of this Note or the Other Notes or upon exercise of the Warrants or
the Other Warrants in accordance with the terms hereof and thereof;

(C) the issuance by the Company of shares of Series A Preferred Stock upon
conversion of the Notes or Other Notes or shares of Common Stock upon conversion
of the Series A Preferred Stock in accordance with the terms thereof;

(D) the issuance by the Company of Newly Issued Shares upon grant or exercise of
options for employees, directors and consultants under the 2003 Stock Option
Plan, 2004 Non-Employee Stock Compensation Plan and the 2005 Employee Stock
Purchase Plan or any other stock compensation plan that has been duly adopted by
the Board of Directors and duly approved by the Company’s stockholders;

(E) the issuance by the Company of Newly Issued Shares upon conversion or
exercise of Common Stock Equivalents that are outstanding on the Issuance Date
in accordance with the sum of such Common Stock Equivalents in effect on the
Issuance Date; or

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(F) the issuance by the Company of Newly Issued Shares in connection with a
strategic alliance, collaboration, joint venture, partnership or similar
arrangement of the Company with another Person which strategic alliance,
collaboration, joint venture, partnership or similar arrangement relates to the
Company’s business as conducted immediately prior thereto and which Person is
engaged in a business similar or related to the business of the Company so long
as (x) the price per Newly Issued Share is not less than 85 percent of the
Current Fair Market Value of the Common Stock on the date of issuance of such
Newly Issued Shares and (y) the consideration other than cash which the Company
receives in connection with such strategic alliance, collaboration, joint
venture, partnership or similar arrangement has a value, as determined by the
Board of Directors in its reasonable judgment and set forth in a Board
Resolution, at least equal to the amount by which (i) the product of the Newly
Issued Shares so issued times the Current Fair Market Value of the Common Stock
on the date such Newly issued Shares are issued exceeds (ii) the aggregate cash
consideration received by the Company for such Newly Issued Shares at the time
of issuance thereof and (z) such issuance has been duly approved by the Board of
Directors as set forth in a Board Resolution.

(g) Adjustment in Connection Sales by a Designated Person. (1) If at any time on
or after the Issuance Date any Designated Person, directly or indirectly, sells,
transfers or disposes of shares of Common Stock or Common Stock Equivalents
other than a Permitted Designated Person Sale and on the Measurement Date for
such sale, transfer or disposition the Conversion Price in effect on such
Measurement Date is greater than the Computed Market Price on such Measurement
Date, then, subject to the next succeeding sentence, the Conversion Price shall
be reduced to such Computed Market Price, such adjustment to become effective
immediately after the opening of business on the day following the Measurement
Date.

(2) The Company shall enter into an agreement with each Designated Person, on or
before the date that is 30 days after the Issuance Date, pursuant to which each
Designated Person shall agree that upon the written request of the Company or
any Holder, the Designated Person shall provide the Company and such Holder, a
written statement setting forth the dates, if any, upon which the Designated
Person has sold, transferred or disposed of any shares of Common Stock or Common
Stock Equivalents during such period as shall be reasonably requested by the
Company or such Holder to determine whether or not a sale, transfer or
disposition that requires an adjustment pursuant to Section 6.3(g)(1) has
occurred. The Company shall instruct the Transfer Agent to inform the Company
immediately upon the sale, transfer or disposition of any shares of Common Stock
or Common Stock Equivalents by any Designated Person. The Company shall inform
the Holder immediately by phone and electronic transmission upon becoming aware
of any sale, transfer or disposition of any shares of Common Stock or Common
Stock Equivalents by any Designated Person and will follow up with formal
written notice to the Holder pursuant to Section 7.2.

(h) Additional Reductions in Conversion Price. The Company may make such
reductions in the Conversion Price, in addition to those required by Sections
6.3(a), (b), (c), (d), (e), (f) and (g), as the Board of Directors considers to
be advisable to avoid or diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes.

(i) De Minimus Adjustments. No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which by reason
of this Section 6.3(i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article VI shall be made by the Company and shall be made to the nearest cent or
to the nearest one hundredth of a share, as the case may be.

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No adjustment need be made for a change in the par value of the Common Stock or
from par value to no par value or from no par value to par value.

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

(k) Effectiveness of Certain Adjustments. In any case in which this Section 6.3
provides that an adjustment shall become effective immediately after a Record
Date for an event, the Company may defer until the occurrence of such event (i)
issuing to the Holder in connection with any conversion of this Note after such
Record Date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment and (ii) paying to such holder any
amount in cash in lieu of any fraction pursuant to Section 6.2(f).

(l) Outstanding Shares. For purposes of this Section 6.3, the number of shares
of Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
will not pay any dividend or make any distribution on shares of Common Stock
held in the treasury of the Company other than dividends or distributions
payable only in shares of Common Stock.

6.4 Effect of Reclassification, Consolidation, Merger or Sale.  (a) If any of
the following events occur, namely:

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

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

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

then the Company or the successor or purchasing Person, as the case may be,
shall execute with the Holder a written agreement providing that:

(w) this Note shall be convertible into the kind and amount of shares of stock
and other securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, statutory exchange,
combination, sale or conveyance by the holder of the number of shares of Common
Stock issuable upon conversion of this Note in full (assuming, for such
purposes, a sufficient number of authorized shares of Common Stock available to
convert this Note) immediately prior to such reclassification, change,
consolidation, merger, statutory exchange, combination, sale or conveyance
assuming such holder of Common Stock did not exercise such holder's rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, combination,
sale or conveyance (provided that, if the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance is not the same for each share of Common Stock in respect of
which such rights of election shall not have been exercised (“non-electing
share”), then for the purposes of this Section 6.4 the kind and amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, combination, sale or conveyance for each non-electing share
shall be deemed to be the kind and amount so receivable per share by a plurality
of the non-electing shares),

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

(y) in the case of any such successor or purchasing Person, upon such
consolidation, merger, statutory exchange, combination, sale or conveyance such
successor or purchasing Person shall be jointly and severally liable with the
Company for the performance of all of the Company's obligations under this Note
and the Note Purchase Agreement, and

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

Such written agreement shall provide for adjustments in the Conversion Price
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article. If, in the case of any such reclassification,
change, consolidation, merger, statutory exchange, combination, sale or
conveyance, the stock or other securities and assets receivable thereupon by a
holder of shares of Common Stock includes shares of stock or other securities
and assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, consolidation, merger,
statutory exchange, combination, sale or conveyance, then such written agreement
shall also be executed by such other corporation and shall contain such
additional provisions to protect the interests of the Holder as the Board of
Directors shall reasonably consider necessary by reason of the foregoing,
including, to the extent practicable, the provisions providing for the
repurchase rights set forth in Article V herein.

(b) The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, statutory exchanges,
combinations, sales and conveyances.

(c) If this Section 6.4 applies to any event or occurrence, Section 6.3 shall
not apply.

6.5 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock.

(a) The Company shall reserve and keep available, free from preemptive rights,
out of its authorized but unissued shares of Common Stock or shares of Common
Stock held in treasury, solely for issuance upon conversion of this Note, and in
addition to the shares of Common Stock required to be reserved by the terms of
the Other Notes, Warrants and the Other Warrants, sufficient shares to provide
for the conversion of this Note from time to time as this Note is converted.

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

(c) The Company covenants that all shares of Common Stock issued upon conversion
of this Note will be fully paid and non-assessable by the Company and free from
all taxes, liens and charges with respect to the issue thereof.

(d) The Company covenants that if any shares of Common Stock to be provided for
the purpose of conversion of, or payment of interest on, this Note hereunder
require registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued upon conversion or
in payment of interest, the Company will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may be.

(e) The Company covenants that, in the event the Common Stock shall be listed on
the Nasdaq, the Nasdaq Capital Market, the NYSE, the AMEX, the OTCBB or any
other national securities exchange, the Company shall obtain, to the extent
required by such market or exchange and, so long as the Common Stock shall be so
listed on such market or exchange, maintain approval for listing thereon of all
Common Stock issuable upon conversion of or in payment of interest on this Note.

6.6 Notice to Holder Prior to Certain Actions. In case on or after the Issuance
Date:

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

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

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

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

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

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6.7 Restricted Ownership Percentage Limitation. (a) Notwithstanding anything to
the contrary contained herein, the number of shares of Common Stock that may be
acquired at any time by the Holder upon conversion of the Note shall not exceed
a number that, when added to the total number of shares of Common Stock deemed
beneficially owned by such Holder (other than by virtue of the ownership of
securities or rights to acquire securities (including the Warrants) that have
limitations on the holder's right to convert, exercise or purchase similar to
the limitation set forth herein (the “Excluded Shares”)), together with all
shares of Common Stock beneficially owned at such time (other than by virtue of
the ownership of Excluded Shares) by Persons whose beneficial ownership of
Common Stock would be aggregated with the beneficial ownership by the Holder for
purposes of determining whether a group exists or for purposes of determining
the Holder’s beneficial ownership (the “Aggregation Parties”), in either such
case for purposes of Section 13(d) of the 1934 Act and Regulation 13D-G
thereunder (including, without limitation, as the same is made applicable to
Section 16 of the 1934 Act and the rules promulgated thereunder), would result
in beneficial ownership by the Holder or such group of more than 9.9% of the
shares of Common Stock for purposes of Section 13(d) or Section 16 of the 1934
Act and the rules promulgated thereunder (as the same may be modified by a
particular Holder as provided herein, the “Restricted Ownership Percentage”).
The Holder shall have the right at any time and from time to time to reduce its
Restricted Ownership Percentage immediately upon notice to the Company in the
event and only to the extent that Section 16 of the 1934 Act or the rules
promulgated thereunder (or any successor statute or rules) is changed to reduce
the beneficial ownership percentage threshold thereunder to a percentage less
than 10% and (y) at any time and from time to time, to increase its Restricted
Ownership Percentage unless such Holder shall have, by written instrument
delivered to the Company, irrevocably waived its rights to so increase its
Restricted Ownership Percentage]. If at any time the limits in this Section 6.7
make the Note inconvertible in whole or in part, the Company shall not by reason
thereof be relieved of its obligation to issue shares of Common Stock at any
time or from time to time thereafter upon conversion of the Note as and when
shares of Common Stock may be issued in compliance with such restrictions.

(b) For purposes of this Section 6.7, in determining the number of outstanding
shares of Common Stock at any time the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's then most
recent Form 10-Q, Form 10-K or other public filing with the SEC, as the case may
be, (2) a public announcement by the Company that is later than any such filing
referred to in the preceding clause (1) or (3) any other notice by the Company
or its transfer agent setting forth the number shares of Common Stock
outstanding and knowledge the Holder may have about the number of shares of
Common Stock issued upon conversions or exercises of this Note, the Other Notes,
the Warrants, the Other Warrants or other Common Stock Equivalents by any
Person, including the Holder, which are not reflected in the information
referred to in the preceding clauses (1) through (3). Upon the written request
of any Holder, the Company shall within three Business Days confirm in writing
to such Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of Common Stock Equivalents,
including the Notes and the Warrants, by the Holder or its Affiliates, in each
such case subsequent to, the date as of which such number of outstanding shares
of Common Stock was reported.

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6.8 Series A Preferred Conversion Right. Notwithstanding anything to the
contrary contained herein, in addition to the conversion right provided in
Section 6.1, at any time prior to the earlier of (i) the close of business on
the Maturity Date or (ii) the consummation of a Qualifying Financing, up to 50%
of the outstanding principal amount of this Note together with any accrued and
unpaid interest on such portion of this Note unpaid up to the date of
conversion, may at the option of the Holder, be converted into shares of Series
A Preferred Stock at the Series A Conversion Price. The number of shares of
Series A Preferred Stock that the Holder shall be entitled to receive on any
such conversion of this Note shall be the quotient obtained by dividing (x) the
sum of (1) the principal amount of the portion of this Note being converted plus
(2) accrued and unpaid interest on such principal amount to the date of
conversion, computed at the Applicable Rate, to the date of such conversion by
(y) the Series A Conversion Price in effect on the date of such conversion. In
order for the Holder to convert such portion of this Note into shares of Series
A Preferred Stock and to thereby be entitled to shares of Series A Preferred
Stock the Holder shall give a Preferred Share Conversion Notice (or such other
notice which is acceptable to the Company) to the Company stating therein the
principal amount of this Note to be converted. A Preferred Share Conversion
Notice may be given by telephone line facsimile transmission to the numbers set
forth on the form of Preferred Share Conversion Notice. to the Company The
Company shall, promptly thereafter, but in no event later than three Trading
Days issue and deliver to the Holder at the address specified by the Holder, a
certificate for the shares of Series A Preferred Stock to which the Holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date the Company receives
notice of such conversion as provided above, and the Person entitled to receive
the shares of Series A Preferred Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Series A
Preferred Stock as of such date. The Holder shall not be required to deliver the
original Note in order to effect a conversion hereunder. Execution and delivery
of the Preferred Share Conversion Notice shall have the same effect as
cancellation of the original Note and issuance of a new Note representing the
remaining outstanding principal amount. Upon surrender of this Note following
one or more partial conversions, the Company shall promptly deliver to the
Holder a new Note representing the remaining outstanding principal amount.

ARTICLE VII

MISCELLANEOUS

7.1 Failure or Indulgency Not Waiver. No failure or delay on the part of the
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privileges. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
The Company stipulates that the remedies at law of the Holder in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Note are not and will not be adequate,
and that such terms may be specifically enforced (x) by a decree for the
specific performance of any agreement contained herein, including, without
limitation, a decree for issuance of the shares of Common Stock (or other
securities) issuable upon conversion of this Note or (y) by an injunction
against a violation of any of the terms hereof or (z) otherwise.

7.2 Notices. Except as otherwise specifically provided herein, any notice herein
required or permitted to be given shall be in writing and may be personally
served, sent by telephone line facsimile transmission or delivered by courier or
sent by United States mail and shall be deemed to have been given upon receipt
if personally served, sent by telephone line facsimile transmission or sent by
courier or three days after being deposited in the facilities of the United
States Postal Service, certified, with postage pre-paid and properly addressed,
if sent by mail. For the purposes hereof, the address and facsimile line
transmission number of the Holder shall be as furnished by the Holder for such
purpose and shown on the records of the Company; and the address of the Company
shall be eMagin Corporation, 10500 N.E. 8th Street, Suite 1400, Bellevue,
Washington 98004, Attention: Chief Financial Officer (telephone line facsimile
number (425) 749-3601. The Holder or the Company may change its address for
notice by service of written notice to the other as herein provided.

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7.3 Amendment, Waiver. (a) Neither this Note or any Other Note nor any terms
hereof or thereof may be changed, amended, discharged or terminated unless such
change, amendment, discharge or termination is in writing signed by the Company
and the Majority Holders, provided that no such change, amendment, discharge or
termination shall, without the consent of the Holder and the holders of the
Other Notes affected thereby (i) extend the Maturity Date of this Note or any
Other Note, or reduce the rate or extend the time of payment of interest (other
than as a result of waiving the applicability of any post-default increase in
interest rates) hereon or thereon or reduce the principal amount hereof or
thereof or the Repurchase Price hereof or thereof, (ii) increase or decrease the
Conversion Price except as set forth in this Note, (iii) release the Collateral
or reduce the amount of Collateral required to be deposited or maintained by the
Company pursuant to the Security Agreement, except as expressly provided in the
Security Agreement, (iv) amend, modify or waive any provision of this
Section 7.3 or (v) reduce any percentage specified in, or otherwise modify, the
definition of Majority Holders. Notwithstanding anything to the contrary
contained herein, no amendment or waiver shall increase or eliminate the
Restricted Ownership Percentage, whether permanently or temporarily, unless, in
addition to complying with the other requirements of this Note, such amendment
or waiver shall have been approved in accordance with the General Corporation
Law of the State of Delaware and the Company's By-laws by holders of the
outstanding shares of Common Stock entitled to vote at a meeting or by written
consent in lieu of such meeting.]

(b) Any term or condition of this Note may be waived by the Holder or the
Company at any time if the waiving party is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Note, in any one or more
instances, will be deemed to be or construed as a waiver of the same or any
other term or condition of this Note on any future occasion.

7.4 Assignability. This Note shall be binding upon the Company and its
successors, and shall inure to the benefit of and be binding upon the Holder and
its successors and permitted assigns. The Company may not assign its rights or
obligations under this Note.

7.5 Certain Expenses.  The Company shall pay on demand all expenses incurred by
the Holder, including reasonable attorneys' fees and expenses, as a consequence
of, or in connection with (x) any amendment or waiver of this Note or any other
Transaction Document, (y) any default or breach of any of the Company’s
obligations set forth in the Transaction Documents and (z) the enforcement or
restructuring of any right of, including the collection of any payments due, the
Holder under the Transaction Documents, including any action or proceeding
relating to such enforcement or any order, injunction or other process seeking
to restrain the Company from paying any amount due the Holder.

7.6 Governing Law. This Note shall be governed by the internal laws of the State
of New York, without regard to the principles of conflict of laws.

7.7 Transfer of Note. This Note has not been and is not being registered under
the provisions of the 1933 Act or any state securities laws and this Note may
not be transferred prior to the end of the holding period applicable to sales
hereof under Rule 144(k) unless (1) the transferee is an “accredited investor”
(as defined in Regulation D under the 1933 Act) and (2) the Holder shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that this Note may be sold or
transferred without registration under the 1933 Act. Prior to any such transfer,
such transferee shall have represented in writing to the Company that such
transferee has requested and received from the Company all information relating
to the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company and the Subsidiaries deemed relevant
by such transferee; that such transferee has been afforded the opportunity to
ask questions of the Company concerning the foregoing and has had the
opportunity to obtain and review the reports and other information concerning
the Company which at the time of such transfer have been filed by the Company
with the SEC pursuant to the 1934 Act. If such transfer is intended to assign
the rights and obligations under Section 5, 8, 9 and 10 of the Note Purchase
Agreement, such transfer shall otherwise be made in compliance with Section
10(j) of the Note Purchase Agreement.

38

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7.8 Enforceable Obligation. The Company represents and warrants that at the time
of the original issuance of this Note it received the full purchase price
payable pursuant to the Note Purchase Agreement in an amount at least equal to
the original principal amount of this Note, and that this Note is an enforceable
obligation of the Company which is not subject to any offset, reduction,
counterclaim or disallowance of any sort.

7.9 Note Register; Replacement of Notes. The Company shall maintain a register
showing the names, addresses and telephone line facsimile numbers of the Holder
and the registered holders of the Other Notes. The Company shall also maintain a
facility for the registration of transfers of this Note and the Other Notes and
at which this Note and the Other Notes may be surrendered for split up into
instruments of smaller denominations or for combination into instruments of
larger denominations. Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Note and (a) in the case of loss, theft or destruction, of
indemnity from the Holder reasonably satisfactory in form to the Company (and
without the requirement to post any bond or other security) or (b) in the case
of mutilation, upon surrender and cancellation of this Note, the Company will
execute and deliver to the Holder a new Note of like tenor without charge to the
Holder.

7.10 Payment of Note on Repurchase; Deposit of Repurchase Price, Etc. (a) If
this Note or any portion of this Note is to be repurchased as provided in
Sections 5.1 and 5.2 and any notice required in connection therewith shall have
been given as provided therein and the Company shall have otherwise complied
with the requirements of this Note with respect thereto, then this Note or the
portion of this Note to be so repurchased and with respect to which any such
notice has been given shall become due and payable on the date stated in such
notice at the Repurchase Price. On and after the repurchase date so stated in
such notice, provided that the Company shall have deposited with an Eligible
Bank on or prior to such repurchase date, an amount in cash sufficient to pay
the Repurchase Price, interest on this Note or the portion of this Note to be so
repurchased shall cease to accrue, and this Note or such portion hereof shall be
deemed not to be outstanding and shall not be entitled to any benefit with
respect to principal of or interest on the portion to be so repurchased except
to receive payment of the Repurchase Price. On presentation and surrender of
this Note or such portion hereof, this Note or the specified portion hereof
shall be paid and repurchased at the Repurchase Price. If a portion of this Note
is to be repurchased, upon surrender of this Note to the Company in accordance
with the terms hereof, the Company shall execute and deliver to the Holder
without service charge, a new Note or Notes, having the same date hereof and
containing identical terms and conditions, in such denomination or denominations
as requested by the Holder in aggregate principal amount equal to, and in
exchange for, the unrepurchased portion of the principal amount of this Note so
surrendered.

(b) Upon the payment in full of all amounts payable by the Company under this
Note or the deposit thereof as provided in Section 7.10(a), thereafter the
obligations of the Company under this Note shall be as set forth in this Article
VII, and, in the case of such deposit, to pay the Repurchase Price, from the
funds so deposited. Upon such payment or deposit, any Event of Default which
occurred prior to such payment or deposit by reason of one or more provisions of
this Note with which the Company thereafter is no longer obligated to comply,
then shall no longer exist.

39

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7.11 Conversion Schedule. Promptly after each conversion of this Note pursuant
to Section 6, the Holder shall record on a schedule, in substantially the form
attached as Exhibit E, the amount by which the outstanding principal of this
Note has been reduced by reason of such conversion. Such schedule shall be
conclusive and binding on the Company and the Holder, in the absence of manifest
error. The Holder shall from time to time, upon request made by notice from the
Company, furnish a copy of such schedule to the Company. The Holder shall also
furnish a copy of such schedule upon request to any proposed transferee of this
Note.

7.12 Construction. The language used in this Note will be deemed to be the
language chosen by the Company and the original Holder of this Note (or its
predecessor instrument) to express their mutual intent, and no rules of strict
construction will be applied against the Company or the Holder.

[Remainder of Page Intentionally Left Blank]

40

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IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by
its duly authorized officer on of the day and in the year first above written.
 

        EMAGIN CORPORATION  
   
   
    By:   /s/   

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

Name:
Title:
   

41

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ASSIGNMENT

FOR VALUE RECEIVED, _________________________ hereby sell(s), assign(s) and
transfer(s) unto _________________________ (Please insert social security or
other Taxpayer Identification Number of assignee:
______________________________) the within Note, and hereby irrevocably
constitutes and appoints _________________________ attorney to transfer the said
Note on the books of eMagin Corporation, a Delaware corporation (the “Company”),
with full power of substitution in the premises.

In connection with any transfer of the Note within the period prior to the
expiration of the holding period applicable to sales thereof under Rule 144(k)
under the 1933 Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
1933 Act), the undersigned confirms that such Note is being transferred:

 
[
]
To the Company or a subsidiary thereof; or

 
[
]
To a “qualified institutional buyer” pursuant to and in compliance with Rule
144A; or

 
[
]
To an Accredited Investor pursuant to and in compliance with the 1933 Act; or

 
[
]
Pursuant to and in compliance with Rule 144 under the 1933 Act;

and unless the box below is checked, the undersigned confirms that, to the
knowledge of the undersigned, such Note is not being transferred to an Affiliate
of the Company.

[ ] The transferee is an Affiliate of the Company.

Capitalized terms used in this Assignment and not defined in this Assignment
shall have the respective meanings provided in the Note.

Dated:   NAME:                      
Signature(s)

 
42

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Exhibit A

COMPANY NOTICE
(Section 5.2(a) of Amended and Restated 8% Senior Secured Convertible Note due
2008)

TO:                             
(Name of Holder)

(1) A Repurchase Event described in the Amended and Restated 8% Senior Secured
Convertible Note due 2008 (the “Note”) of eMagin Corporation, a Delaware
corporation (the “Company”), occurred on                     ,       . As a
result of such Repurchase Event, the Holder is entitled to exercise its
repurchase rights pursuant to Section 5.2 of the Note.

(2) The Holder’s repurchase right must be exercised on or before               ,
       .

(3) At or before the date set forth in the preceding paragraph (2), the Holder
must:

(a) deliver to the Company a Holder Notice, in the form attached as Exhibit B to
the Note; and

(b) the Note, duly endorsed for transfer to the Company of the portion of the
principal amount to be repurchased.

(4) Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Note.
 

        EMAGIN CORPORATION  
   
   
  Date:  By:   /s/   

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

  Title 

43

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Exhibit B

HOLDER NOTICE
(Section 5.2(b) of Amended and Restated 8% Senior Secured Convertible Note due
2008)

TO: EMAGIN CORPORATION

(1) Pursuant to the terms of the Amended and Restated 8% Senior Secured
Convertible Note due 2008 (the “Note”), the undersigned Holder hereby elects to
exercise its right to require repurchase by the Company pursuant to Sections
5.2(a) and 5.2(b) of $                          of the Note, equal to the sum of
$                     principal amount of the Note, $                     of
accrued and unpaid interest on such principal amount and $                    
of Default Interest on the Note at the Repurchase Price provided in the Note.

(2) Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Note.
 

        NAME OF HOLDER:  
   
   
  Date:  By:   /s/   

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

Signature of Registered Holder  
(Must be signed exactly as name appears in the Note.)

44

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Exhibit C

NOTICE OF CONVERSION
OF AMENDED AND RESTATED 8% SENIOR SECURED
CONVERTIBLE NOTE DUE 2008
OF EMAGIN CORPORATION
 

To:
eMagin Corporation

10500 N.E. 8th Street, Suite 1400
Bellevue, Washington 98004
Attention: Chief Financial Officer
Facsimile No.: (425) 749-3601

 
     

1. Pursuant to the terms of the Amended and Restated 8% Senior Secured
Convertible Note Due 2008 (the “Note”), the undersigned hereby elects to convert
$_______________ of the Note, equal to the sum of $_______________ principal
amount of the Note, $_______________ of accrued and unpaid interest on such
principal amount and $_______________ of Default Interest on such interest into
shares of Common Stock of eMagin Corporation, a Delaware corporation (the
“Company”), at a Conversion Price per share equal to $_______________.
Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Note.

2. The number of shares of Common Stock issuable upon the conversion of the Note
to which this Notice relates is _______________ (the “Conversion Shares”).

3. Please issue a certificate or certificates for _______________ shares of
Common Stock in the name(s) specified immediately below or, if additional space
is necessary, on an attachment hereto:

      Name   Name             Address    Address             SS or Tax ID
Number    SS or Tax ID Number             Delivery Instructions for Common
Stock:     

 

        NAME:    
   
   
  Date:  By:   /s/   

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

Signature of Registered Holder  
(Must be signed exactly as name appears in the Note.)

 
45

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Exhibit D

NOTICE OF CONVERSION
INTO SERIES A SENIOR SECURED CONVERTIBLE PREFERRED STOCK
UNDER SECTION 6.8
OF AMENDED AND RESTATED 8% SENIOR SECURED
CONVERTIBLE NOTE DUE 2008
OF EMAGIN CORPORATION

To:  eMagin Corporation
10500 N.E. 8th Street, Suite 1400
Bellevue, Washington 98004
 
Attention: Chief Financial Officer
 
Facsimile No.: (425) 749-3601
 
     

1. Pursuant to the terms of Section 6.8 of the Amended and Restated 8% Senior
Secured Convertible Note Due 2008 (the “Note”), the undersigned hereby elects to
convert $_______________ of the Note, equal to the sum of $_______________
principal amount of the Note, $_______________ of accrued and unpaid interest on
such principal amount and $_______________ of Default Interest on such interest
into shares of Series A Senior Secured Convertible Preferred Stock of eMagin
Corporation, a Delaware corporation (the “Company”), at a Conversion Price per
share equal to $1,000. Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Note.

2. The number of shares of Series A Senior Secured Convertible Preferred Stock
issuable upon the conversion of the Note to which this Notice relates is
_______________ (the “Preferred Shares”).

3. Please issue a certificate or certificates for _______________ shares of
Series A Senior Secured Convertible Preferred Stock in the name(s) specified
immediately below or, if additional space is necessary, on an attachment hereto:

      Name   Name             Address    Address             SS or Tax ID
Number    SS or Tax ID Number             Delivery Instructions for Common
Stock:     

 

        NAME:    
   
   
  Date:  By:   /s/   

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

Signature of Registered Holder  
(Must be signed exactly as name appears in the Note.)

 
 

 
46

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Exhibit E

EMAGIN CORPORATION

CONVERSION SCHEDULE

This Conversion Schedule shows reductions in the outstanding principal amount of
the Amended and Restated 8% Senior Secured Convertible Note due 2008 (the
“Note”) of eMagin Corporation, a Delaware corporation, upon conversions pursuant
to Section 6 of the Note. Capitalized terms used in this Schedule and not
otherwise defined herein shall have the respective meanings provided in the
Note.

 
Date of Conversion
(or for first entry, the Issuance Date)
Principal
Amount of Conversion
(if applicable)
Principal Amount Remaining
Subsequent to Conversion
(or original Principal Amount)
1.
7/_/06
                                                                               
   

[continue as necessary]

 
 
 
 

47