Exhibit 10.7


    
      Exhibit
        10.7
         

         

         

        NOTE
          PURCHASE AGREEMENT

         

         

        dated
          as of July 21, 2006

         

         

        by
          and between

         

         

        EMAGIN
          CORPORATION

         

         

        and

         

         

        STILLWATER
          LLC

         

         

         

                                                       

         

         

         

         

        6%
          SENIOR SECURED CONVERTIBLE NOTES DUE
          2007-2008

         

        AND

         

        COMMON
          STOCK PURCHASE WARRANTS

         

         

         

         

         

         

         

         

      

    

     

     

     

     

     

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    


    EMAGIN
      CORPORATION

     

    NOTE
      PURCHASE AGREEMENT

     

    6%
      SENIOR SECURED CONVERTIBLE NOTES DUE 2007-2008

     

     

    AND

     

    COMMON
      STOCK PURCHASE WARRANTS

     

     

     

    TABLE
      OF
      CONTENTS

     

    
      	 	 	
               Page

            
	 	 	 
	1.	DEFINITIONS 	
               5

            
	 	 	 	
               16

            
	2.	PURCHASE AND SALE; PURCHASE
              PRICE. 	
               16

            
	 	(a)	Purchase.	
               17

            
	 	(b)	Form of Payment.	
               17

            
	 	(c)	Closing.	
               17

            
	3.	REPRESENTATIONS, WARRANTIES,
              COVENANTS, ETC. OF THE BUYER. 	
               17

            
	 	(a)	Circumstances of Purchase.	
               18

            
	 	(b)	Accredited Investor; Residence	
               18

            
	 	(c)	Reoffers and Resales.	
               18

            
	 	(d)	Company Reliance.	
               18

            
	 	(e)	Information
              Provided.	
               19

            
	 	(f)	Absence of Approvals.	
               19

            
	 	(g)	Note Purchase Agreement.	
               19

            
	 	(h)	Buyer Status	
              20

            
	 	(i) 	Experience of the Buyer.	
              20

            
	 	(j) 	General
              Solicitation.	
              20

            
	 	(k)	Short Sales and Confidentiality Prior
              To The
              Date Hereof.	
              20

            
	4.	REPRESENTATIONS, WARRANTIES,
              COVENANTS, ETC. OF THE COMPANY. 	
              20

            
	 	(a)	Organization and Authority.	
               
                20 

            
	 	(b)	Qualifications.	
                21 

            
	 	(c)	Concerning the Shares and the Common
              Stock.	
              21

            
	 	(d) 	Corporate Authorization.	
              22 

            


    

     

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    
      	 	(e)	Non-contravention.	
              22 

            
	 	(f)	Approvals, Filings, Etc.	
              22

            
	 	(g)	Information Provided.	
              23

            
	 	(h)	Investment Company.	
              23

            
	 	(i)	Absence of Brokers, Finders, Etc.	
              23

            
	 	(j)	No Solicitation.	
              24

            
	 	(k)	No Integrated Offering	
              24

            
	 	(l)	Dilutive Effect.	
              24

            
	 	(m) 	Absence of Certain Changes.	
              24

            
	 	(n)	No Undisclosed Events, Liabilities,
              Developments or Circumstances.	
              25

            
	 	(o) 	Conduct of Business; Regulatory
              Permits.	
              25

            
	 	(p)	Indebtedness and Other Contracts.	
              26

            
	 	(q)	Absence of Litigation.	
               
                26 

            
	 	(r)	Insurance.	
              26

            
	 	(s) 	Employee Relations	
               
                26 

            
	 	(t)	Title.	
              27

            
	 	(u)	Intellectual Property.	
              27 

            
	 	(v)	Environmental Law	
              28

            
	 	(w)	Subsidiary Rights.	
              28

            
	 	(x)	Tax Status.	
              28

            
	 	(y)	Internal Accounting Controls; Financial
              Statements.	
              29

            
	 	(z)	Sarbanes-Oxley
              Act.	
              29

            
	 	(aa)	S-3 Eligibility.	
              29

            
	 	(bb)	Concerning
              the Collateral.	
              29

            
	 	(cc)	Disclosures.	
              30

            
	 	(dd)	Absence of Rights Agreement.	
              30

            
	5.	CERTAIN COVENANTS. 	
              30

            
	 	(a)	Transfer
              Restrictions.	
              30

            
	 	(b)	Restrictive Legends.	
              31

            
	 	(c)	Reporting
              Status.	
              33

            
	 	(d)	Form D.	
              33

            
	 	(e)	State Securities Laws	
              33

            
	 	(f) 	Limitation on Certain Actions.	
              34

            
	 	(g)	Use of Proceeds.	
              34

            
	 	(h) 	Best Efforts.	
              34

            
	 	(i)	Debt Obligation.	
              35

            
	 	(j)	Right of the Buyer to Participate in
              Future
              Transactions.	
              35

            
	 	(k)	Press Releases.	
              37

            
	 	(l) 	Form 8-K; Limitation on Information
              and Buyer
              Obligations.	
              38

            
	 	(m)	Limitation on Certain Transactions.	
              38

            
	 	(n)	Debt Obligation.	
              39

            
	 	(o)	Security Agreement; Financing Statements,
              Etc.	
              39

            
	 	(p)	Short Sales and Confidentiality After
              The
              Date Hereof.	
              39

            


    

     

     

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    
      	6.	CONDITIONS TO THE COMPANY’S
              OBLIGATION TO SELL.	
              40

            
	7.	CONDITIONS TO THE BUYER’S
              OBLIGATION TO PURCHASE	
              41

            
	
              8.

            	REGISTRATION RIGHTS. 	
              42

            
	
            	(a)	Mandatory Registration.	
              42

            
	
            	(b)	Obligations of the Company.	
              44

            
	 	(c)	Obligations of the Buyer and other
              Investors.	
              49

            
	 	(d)	Rule 144.	
              50

            
	9.	INDEMNIFICATION AND
              CONTRIBUTION.	
              50

            
	 	(a)	Indemnification.	
              50

            
	 	(b)	Contribution.	
              52

            
	 	(c)	Other
              Rights.	
              53

            
	10.	MISCELLANEOUS. 	
              53

            
	 	(a)	Governing Law.	
              53

            
	 	(b)	Headings.	
              53

            
	 	(c)	Severability.	
              53

            
	 	(d)	Notices	
              53

            
	 	(e)	Counterparts.	
              53

            
	 	(f)	Entire Agreement; Benefit.	
              54

            
	 	(g)	Waiver.	
              54

            
	 	(h)	Amendment.	
              54 

            
	 	(i)	Further Assurances.	
              55

            
	 	(j)	Assignment of Certain Rights and
              Obligations.	
              55

            
	 	(k) 	Expenses.	
              56

            
	 	(l)	Termination.	
              56

            
	 	(m)	Survival.	
              57

            
	 	(n)	Construction; Buyer Status.	
              57

            


    

     

     

    

      
        	
                Annex
                  I

              	
                Form
                  of 6% Senior Secured Convertible Note due 2007-2008

              
	
                Annex
                  II

              	
                Form
                  of Common Stock Purchase Warrant to be issued on the Closing Date
                  (Closing
                  Date Warrant)

              
	
                Annex
                  III

              	
                Form
                  of Patent and Trademark Security Agreement

              
	
                Annex
                  IV

              	
                Form
                  of Pledge and Security Agreement

              
	
                Annex
                  V

              	
                Form
                  of Lockbox Agreement

              
	
                Annex
                  VI

              	
                Form
                  of Press Release

              
	
                Annex
                  VII

              	
                Form
                  of Legal Opinion of Company Counsel

              
	
                Annex
                  VIII

              	
                Form
                  of Legal Opinion of Intellectual Property Counsel

              
	
                Annex
                  IX

              	
                Form
                  of Lock Up Agreement

              
	
                Annex
                  X

              	
                Form
                  of Company Put Notice

              
	
                Annex
                  XI

              	
                Form
                  of Common Stock Purchase Warrant to be issued on the closing date
                  of the
                  Other Note Purchase Agreement (July 2006
                  Warrant)

              


      

    

     

     

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    


      NOTE
        PURCHASE AGREEMENT

      


      THIS
        NOTE PURCHASE AGREEMENT,
        dated as
        of July 21, 2006 (this “Agreement”), by and between eMagin
        Corporation,
        a
        Delaware corporation (the “Company”), with headquarters located at 10500 N.E.
        8th
        Street,
        Suite 1400, Bellevue,
        Washington 98004, and
        Stillwater LLC (the
        “Buyer”)

      


      W I T N E S S E T H:

      


      WHEREAS,
        upon
        the terms and subject to the conditions of this Agreement, the Buyer wishes
        to
        agree to purchase from the Company and the Company wishes to agree to sell
        to
        the Buyer, which except as set forth herein shall be on the same terms and
        conditions as the securities sold pursuant to the Other Note Purchase Agreements
        (such capitalized term and all other capitalized terms used in this Agreement
        having the meanings provided in Section 1), the Note of the Company to be
        issued
        by the Company in the principal amount set forth on the signature page of
        this
        Agreement, which Note will be convertible into shares of Common Stock, and
        in
        connection with the sale and issuance of the Note the Company shall issue
        to the
        Buyer (i) a warrant to purchase shares of Common Stock on the closing date
        of
        the Other Note Purchase Agreement (Annex XI) and (ii) a warrant to purchase
        shares of Common Stock on the Closing Date (Annex II). 

      


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

      


      1. DEFINITIONS

      


      (a) As
        used
        in this Agreement, the terms “Agreement”, “Buyer” and “Company” shall have the
        respective meanings assigned to such terms in the introductory paragraph
        of this
        Agreement.

      


      (b) 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 Agreement.

      


      (c) 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):

      


      “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.

       

       

      
 

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      

      “AMEX”
        means the American Stock Exchange, Inc.

      


      “Blackout
        Period” means the period of up to twenty Trading Days (whether or not
        consecutive) during any period of 365 consecutive days after the date the
        Company notifies the Investors that they are required, pursuant to Section
        8(c)(4), to suspend offers and sales of Registrable Securities as a result
        of an
        event or circumstance described in Section 8(b)(5)(A), during which period,
        by
        reason of Section 8(b)(5)(B), the Company is not required to amend a particular
        Registration Statement or supplement the related Prospectus.

      


      “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.

      


      “Claims”
        means any losses, claims, damages, liabilities or expenses, including, without
        limitation, reasonable fees and expenses of legal counsel (joint or several),
        incurred by a Person.

      


      “Closing
        Date” means the date ten
        (10) Business Days after the Company Put Notice or such other
        mutually agreed to time by the Company and the Buyer.

      


      “Collateral”
        shall have the meaning to be provided or provided in each Security
        Agreement.

      


      “Collateral
        Agent” shall have the meaning to be provided or provided in each Security
        Agreement.

      


      “Common
        Stock” means the Common Stock, par value $.001 per share, of the
        Company.

      


      “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.

      


      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      

      “Company
        Put Notice” means the written notice required to be provided by the Company to
        the Buyer, in the form attached as Annex
        X,
        in
        accordance with the provisions of Section 2(a) of this Agreement to effectuate
        the purchase and sale of the Note and December Closing Date Warrant.


      


      “Company
        Put Notice Date” means December 14, 2006.

      


      “Conversion
        Price” shall have the meaning to be provided or provided in the
        Note.

      


      “Conversion
        Shares” means the shares of Common Stock or other securities issuable upon
        conversion of the Note.

      


      “December
        Closing Date Warrant” means the Common Stock Purchase Warrant in the form
        attached hereto as Annex
        II.

      


      “Encumbrance”
        means any mortgage, deed of trust, claim, security interest, lien, pledge,
        lease, sublease, charge, escrow, option, proxy, right of occupancy, right
        of
        first refusal, preemptive right, covenant, conditional limitation,
        hypothecation, prior assignment, easement, title retention agreement, indenture,
        security agreement or any other encumbrance of any kind.

      


      “Environmental
        Law” means any federal, state, local or foreign law relating to pollution or
        protection of human health or the environment (including, without limitation,
        ambient air, surface water, groundwater, land surface or subsurface strata),
        including, without limitation, laws relating to emissions, discharges, releases
        or threatened releases of Hazardous Materials into the environment, or otherwise
        relating to the manufacture, processing, distribution, use, treatment, storage,
        disposal, transport or handling of Hazardous Materials, as well as all
        authorizations, codes, decrees, demands or demand letters, injunctions,
        judgments, licenses, notices or notice letters, orders, permits, plans or
        regulations issued, entered, promulgated or approved thereunder.

      


      “ERISA”
        means the Employee Retirement Income Security Act of 1974, as amended, and
        the
        regulations thereunder and published interpretations thereof.

      


      “Exempt
        Issuance” shall have the meaning set forth in Section 5(m) of this
        Agreement.

      


      “Event
        of
        Default” shall have the meaning to be provided or provided in the
        Note.

      


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

       

       

      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      

      


      “Hazardous
        Material” means any chemical, pollutant, contaminant, or toxic or hazardous
        substance or waste.

      


      “Indebtedness”
        shall have the meaning to be provided or provided in the Note.

      


      “Indemnified
        Party” means the Company, each of its directors, each of its officers who signs
        the Registration Statement, each Person, if any, who controls the Company
        within
        the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
        stockholder selling securities pursuant to the Registration Statement or
        any of
        its directors or officers or any Person who controls such stockholder or
        underwriter within the meaning of the 1933 Act or the 1934 Act.

      


      “Indemnified
        Person” means the Buyer and any Investor and their respective investment
        advisers and investment managers, the directors, officers, employees and
        agents
        of the Buyer, any such Investor and any such investment adviser or investment
        manager, each Person, if any, who controls the Buyer, any such Investor or
        any
        such investment adviser or investment manager within the meaning of the 1933
        Act
        or the 1934 Act, any underwriter (as defined in the 1933 Act) acting on behalf
        of an Investor who participates in the offering of Registrable Securities
        of
        such Investor in accordance with the plan of distribution contained in the
        Prospectus, the directors, if any, of such underwriter and the officers,
        if any,
        of such underwriter, and each Person, if any, who controls any such underwriter
        within the meaning of the 1933 Act or the 1934 Act. 

      


      “Inspector”
        means any attorney, accountant or other agent retained by an Investor for
        the
        purposes provided in Section 8(b)(9).

      


      “Insolvent”
        means (i) the present fair saleable value of the Company's assets is less
        than
        the amount required to pay the Company's total indebtedness, contingent or
        otherwise, (ii) the Company is unable to pay its debts and liabilities,
        subordinated, contingent or otherwise, as such debts and liabilities become
        absolute and matured, (iii) the Company intends to incur debts beyond its
        ability to pay as such debts as they mature (taking into account the timing
        and
        amounts of cash to be payable on or in respect of its debt) or (iv) the Company
        has unreasonably small capital with which to conduct the business in which
        it is
        engaged for the current fiscal year as such business is now conducted and
        is
        proposed to be conducted.

      


      “Intellectual
        Property” means all franchises, patents, trademarks, service marks, trade names
        (whether registered or unregistered), copyrights, corporate names, licenses,
        trade secrets, proprietary software or hardware, proprietary technology,
        technical information, discoveries, designs and other proprietary rights,
        whether or not patentable, and confidential information (including, without
        limitation, know-how, processes and technology) used in the conduct of the
        business of the Company or any Subsidiary.

      


      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

      

      “Investor”
        means the Buyer and any transferee or assignee who agrees to become bound
        by the
        provisions of Sections 5(a), 5(b), 8, 9, and 10 of this Agreement.

      


      “July
        2006 Warrant” means the Common Stock Purchase Warrant in the form attached
        hereto as Annex
        XI.

      


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

      


      “Lockbox
        Agreement” means the Lockbox Agreement by and between the Company and the
        Lockbox Agent in the form attached as Annex
        V.

      


      “Liens”
        shall have the meaning to be provided or provided in the Note.

      


      “Margin
        Stock” shall have the meaning provided in Regulation U of the Board of Governors
        of the Federal Reserve System (12 C.F.R. Part 221).

      


      “Material
        Adverse Effect” means (i) a material adverse effect on (A) the business,
        properties, operations, condition (financial or other), results of operations
        or
        prospects of the Company and the Subsidiaries, taken as a whole; (B) the
        validity or enforceability of, or the ability of the Company to perform its
        obligations under, the Transaction Documents; (C) the existence, validity
        or
        priority of the Lien on and Security Interest in the Collateral granted pursuant
        to any Security Agreement; or (D) the rights and remedies of the Buyer under
        or
        in connection with the Transaction Documents or (ii) any event or circumstance
        that would cause any Registration Statement or Prospectus to contain any
        untrue
        statement of a material fact or omit to state any material fact necessary
        to
        make the statements made not misleading except if such untrue statement of
        a
        material fact in such Registration Statement or Prospectus or omission to
        state
        a material fact required to be stated in such Registration Statement or
        Prospectus in order to make the statements therein not misleading, results
        from
        a misstatement or omission made by the Buyer in written information it furnished
        to the Company specifically for inclusion in such Registration Statement
        or such
        Prospectus or in any amendment or supplement thereto, unless the Company
        shall
        have failed timely to amend or supplement such Registration Statement or
        Prospectus after the Buyer shall have corrected such misstatement or
        omission.

      


      “Nasdaq”
        means the Nasdaq Global Market.

       

       

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

      


      “Nasdaq
        Capital Market” means the Nasdaq Capital Market.

      


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

      


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

      


      “Note”
        means the 6% Senior Secured Convertible Note due 2007-2008 of the Company
        in the
        form attached as Annex I.

      


      “Other
        Note Purchase Agreements” means the several Note Purchase Agreements, dated as
        of even date herewith, by and between the Company and the buyers of the Other
        Notes.

      


      “Other
        Notes” means the Notes issued pursuant to the Other Note Purchase
        Agreements.

      


      “Other
        Warrants” means the Common Stock Purchase Warrants issued pursuant to the Other
        Note Purchase Agreements.

      


      “Patent
        and Trademark Security Agreement” means the Patent and Trademark Security
        Agreement from the Company to the Collateral Agent in the form attached as
        Annex
        III.

      


      “Payment
        Event” means any of the following events:

      


      (i) the
        Company fails to file with the SEC any Registration Statement meeting the
        requirements of this Agreement on or before the date by which the Company
        is
        required to file such Registration Statement pursuant to Section
        8(a),

      


      (ii) the
        SEC
        Effective Date of the Registration Statement required by Section 8(a)(1)
        covering Registrable Securities does not occur within 150 days following
        the
        Closing Date or the SEC Effective Date of any Registration Statement required
        by
        Section 8(a)(3) covering Registrable Securities does not occur within 90
        days
        following the date the Company shall become obligated to commence preparation
        of
        such Registration Statement: provided,
        however,
        that if
        any such Registration Statement shall be reviewed by the SEC staff a Payment
        Event shall not occur until 180 days following (x) the Closing Date, in the
        case
        of the Registration Statement required by Section 8(a)(1), or (y) such date
        as
        the Company becomes obligated to commence preparation of such Registration
        Statement, in the case of any Registration Statement required by Section
        8(a)(3),

      


      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

      (iii) The
        Company fails to file with the SEC a request for acceleration of effectiveness
        of a Registration Statement within three Trading Days after the date the
        Company
        learns that no review of such Registration Statement will be made by the
        staff
        of the SEC or that the staff of the SEC has no further comments on such
        Registration Statement, as the case may be, or any such request for acceleration
        fails to request acceleration of such Registration Statement to a time and
        date
        not more than 48 hours after the submission of such request,

      


      (iv) after
        the
        SEC Effective Date of any Registration Statement, sales cannot be made pursuant
        to such Registration Statement for any reason (including, without limitation,
        by
        reason of a stop order, any untrue statement of a material fact or omission
        of a
        material fact in such Registration Statement, or the Company’s failure to update
        such Registration Statement), except to the extent permitted pursuant to
        Section
        8(b)(5), 

      


      (v) the
        Common Stock generally or the Registrable Securities specifically are not
        listed
        or included for quotation on a Trading Market, or

      


      (vi) the
        Company fails, refuses or is otherwise unable timely to issue and deliver
        to or
        upon the order of the Person entitled thereto Conversion Shares upon conversion
        of the Note or shares of Common Stock issuable upon conversion of any Other
        Note, Warrant Shares upon exercise of the Warrants or shares of Common Stock
        issuable upon exercise of any Other Warrants in accordance with the terms
        of the
        Warrants or any Other Warrants, as the case may be, as and when required
        under
        the Transaction Documents, in any such case within five Trading Days after
        the
        due date thereof in accordance with the Note, Other Note, Warrants or Other
        Warrants or the Company fails, refuses or is otherwise unable timely to transfer
        any Shares as and when required by the Transaction Documents.

      


      “Payment
        Period” means any period following the Closing Date during which any Payment
        Event occurs and is continuing.

      


      “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.

      


      “Placement
        Agent” means Roth Capital Partners.

      


      “Pledge
        and Security Agreement” means the Pledge and Security Agreement from the Company
        to the Collateral Agent in the form attached as Annex
        IV.

      


      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

      “Pro
        Rata
        Share” means with respect to each capital raising transaction to which Section
        5(j) applies an amount equal to the product obtained by multiplying (x) an
        amount equal to one-half of the securities being issued in such capital raising
        transaction times
        (y) a
        fraction of which the numerator is the sum of (A) the total number of shares
        of
        Common Stock which would then be issuable upon conversion of the Note and
        upon
        exercise of the Warrants for cash plus
        (B) the
        number of outstanding Shares beneficially owned by the Buyer at the time
        the Pro
        Rata Share is being determined and the denominator is the sum of (C) the
        number
        of shares issuable upon conversion of the Note and the Other Notes at the
        time
        of original issuance thereof plus
        (D) the
        total number of shares of Common Stock issuable upon exercise of the Warrants
        and the Other Warrants for cash (in each case determined without regard to
        any
        limitation on conversion of exercise thereof), subject to adjustment of the
        amounts specified in the immediately preceding clauses (C) and (D) for stock
        splits, stock dividends and similar capital changes affecting the Common
        Stock
        that occur on or after the Closing Date and on or prior to the date Pro Rata
        Share is being determined.

      


      “Prospectus”
        means the prospectus forming part of the Registration Statement at the time
        the
        Registration Statement is declared effective and any amendment or supplement
        thereto (including any information or documents incorporated therein by
        reference).

      


      “PTO”
        means the United States Patent and Trademark Office.

      


      “Purchase
        Price” means up to [$500,000.] [Prior
        to execution of this NPA, please reduce the $500,000 amount by the difference,
        if any, between the principal amount of the Other Notes in this round of
        financing and $6.5 million].
        The
        Purchase Price will be adjusted downward in the event that (i) the Company
        obtains additional financing prior to the Closing Date, or (ii) all or a
        portion
        of any common stock purchase warrant of the Company owned by the Buyer is
        exercised prior to the Closing Date and the Company receives the exercise
        price
        of such warrants in cash. On the Closing Date, the Purchase Price will be
        the
        difference between [$500,000] [Prior
        to execution of this NPA, please reduce the $500,000 amount by the difference,
        if any, between the principal amount of the Other Notes in this round of
        financing and $6.5 million]and
        the
        sum of (i) the amount of additional financing raised by the Company prior
        to the
        Closing Date, and (ii) the aggregate exercise price paid by the Buyer to
        the
        Company upon exercise of all or a portion of any common stock purchase warrant
        owned by the Buyer prior to the Closing Date. 

      


      “QIB”
        means a “qualified institutional buyer” as defined in Rule 144A.

      


      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      

      “Record”
        means all pertinent financial and other records, pertinent corporate documents
        and properties of the Company subject to inspection for the purposes provided
        in
        Section 8(b)(9).

      


      “register,”
        “registered,” and “registration” refer to a registration effected by preparing
        and filing a Registration Statement or Statements in compliance with the
        1933
        Act and pursuant to Rule 415, and the declaration or ordering of effectiveness
        of such Registration Statement by the SEC.

      


      “Registrable
        Securities” means (1) the Shares, (2) if the Common Stock is changed, converted
        or exchanged by the Company or its successor, as the case may be, into any
        other
        stock or other securities on or after the date hereof, such other stock or
        other
        securities which are issued or issuable in respect of or in lieu of the Shares
        and (3) if any other securities are issued to holders of Common Stock (or
        such
        other shares or other securities into which or for which the Common Stock
        is so
        changed, converted or exchanged as described in the immediately preceding
        clause
        (2)) upon any reclassification, share combination, share subdivision, share
        dividend, merger, consolidation or similar transaction or event, such other
        securities which are issued or issuable in respect of or in lieu of the
        Shares.

      


      “Registration
        Period” means, with respect to each Registration Statement, the period from the
        SEC Effective Date for such Registration Statement, to the earlier of (A)
        the
        date which is five years after
        the
        Closing Date or such date after which each Investor may sell all of its
        Registrable Securities without registration under the 1933 Act pursuant to
        Rule
        144, free of any limitation on the volume of such securities which may be
        sold
        in any period) and (B) the date on which the Investors no longer own any
        Registrable Securities.

      


      “Registration
        Statement” means a registration statement on Form S-3 or such other form as may
        be available to the Company to be filed with the SEC under the 1933 Act relating
        to the Registrable Securities and which names any Investor as a selling
        stockholder.

      


      “Regulation
        D” means Regulation D under the 1933 Act.

      


      “Repurchase
        Event” shall have the meaning to be provided or provided in the
        Note.

      


      “Restricted
        Ownership Percentage” shall have the meaning provided in Section
        5(j)(2).

      


      “Reverse
        Stock Split” means a reverse split of the Common Stock of not less than one for
        each ten shares of Common Stock outstanding prior thereto.

      


      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

      “Rule
        144” means Rule 144 promulgated under the 1933 Act or any other similar rule or
        regulation of the SEC that may at any time provide a “safe harbor” exemption
        from registration under the 1933 Act so as to permit a holder to sell securities
        of the Company to the public without registration under the 1933
        Act.

      


      “Rule
        144A” means Rule 144A under the 1933 Act or any successor rule
        thereto.

      


      “SEC”
        means the Securities and Exchange Commission.

      


      “SEC
        Effective Date” means, with respect to any Registration Statement, the date such
        Registration Statement is first declared effective by the SEC.

      


      “SEC
        Filing Date” means the date the Registration Statement is first filed with the
        SEC pursuant to Section 8.

      


      “SEC
        Reports” means the Company’s (1) Annual Report on Form 10-K for the year ended
        December 31, 2005, (2) Quarterly Report on Form 10-Q
        for the
        quarter ended March 31, 2006, and
        (3)
        all other periodic and other reports filed by the Company with the SEC pursuant
        to the 1934 Act subsequent to December 31, 2005, and prior to the date hereof,
        in each case as filed with the SEC and including the information and documents
        (other than exhibits) incorporated therein by reference.

      


      “Securities”
        means, collectively, the Note, the Shares and the Warrants.

      


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

      


      “Security
        Interest” shall have the meaning to be provided or provided in each Security
        Agreement.

      


      “Shares”
        means collectively the Conversion Shares and the Warrant Shares;

       

      “Short
        Sales” shall have the meaning provided in Rule 200 of Regulation SHO under the
        1934 Act as in effect on the date of this Agreement (but shall not be deemed
        to
        include the location and/or reservation of borrowable shares of Common
        Stock).

       

      “Stockholder
        Approval” shall have the meaning provided in Section 5(p).

      


      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

      

      “Stockholder
        Meeting” shall have the meaning provided in Section 5(p).

      


      “Strategic
        Issuance” means the issuance by the Company for cash of Common Stock or Common
        Stock Equivalents in connection with a strategic alliance, collaboration,
        joint
        venture, partnership, manufacturing, marketing, distributing or similar
        arrangement of the Company with another Person which strategic alliance,
        collaboration, joint venture, partnership manufacturing, marketing, distributing
        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.

      


      “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.

      


      “Trading
        Day” means at any time a day on which any of a national securities exchange,
        Nasdaq, Nasdaq
        Capital Market
        or such
        other securities market as at such time constitutes the principal securities
        market for the Common Stock is open for general trading of
        securities.

      


      “Trading
        Market” means the AMEX, the Nasdaq, the Nasdaq
        Capital Market
        or the
        New York Stock Exchange, Inc.

      


      “Transaction
        Documents” means, collectively, this Agreement, the Security Agreement, the
        Securities, the Lockbox Agreement and the other agreements, instruments and
        documents contemplated hereby and thereby.

      


      “Transaction
        Form 8-K” shall have the meaning provided in Section 5(l).

      


      “Violation”
        means 

      


      (i) any
        untrue statement or alleged untrue statement of a material fact contained
        in a
        Registration Statement or any post-effective amendment thereof or the omission
        or alleged omission to state therein a material fact required to be stated
        therein or necessary to make the statements therein not misleading,


      


      (ii) any
        untrue statement or alleged untrue statement of a material fact contained
        in any
        Prospectus (as amended or supplemented, if the Company files any amendment
        thereof or supplement thereto with the SEC) or the omission or alleged omission
        to state therein any material fact necessary to make the statements made
        therein, in light of the circumstances under which the statements therein
        were
        made, not misleading, 

      


      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      

      (iii) any
        violation or alleged violation by the Company of the 1933 Act, the 1934 Act,
        any
        state securities law or any rule or regulation under the 1933 Act, the 1934
        Act
        or any state securities law, or 

      


      (iv) any
        breach or alleged breach by the Company of any representation, warranty,
        covenant, agreement or other term of any of the Transaction Documents.


      


      “Warrants”
        means both the December Closing Date Warrant and the July 2006
        Warrant.

      


      “Warrant
        Shares” means the shares of Common Stock and any other securities issuable upon
        exercise of the Warrants.

      


      2. PURCHASE
        AND SALE; PURCHASE PRICE.

      


      (a) Purchase.

      Upon
        the
        terms and subject to the conditions of this Agreement, the Buyer hereby agrees
        to purchase from the Company, and the Company hereby agrees to sell to the
        Buyer, on the Closing Date, the Note in the principal amount equal to the
        Purchase Price and having the terms and conditions as set forth in the form
        of
        the Note attached hereto as Annex
        I for
        the
        Purchase Price. The Company shall have the right to require the Buyer to
        purchase the Note by delivering to the Buyer a Company Put Notice on December
        14, 2006 by electronic mail and facsimile by the Company Put Notice Date
        and the
        Buyer shall be obligated to purchase the Notes specified in such Company
        Put
        Notice if the conditions to closing set forth in Section 7 are satisfied.
        In
        connection with the purchase of the Note by the Buyer, the Company shall
        issue
        to the Buyer at the closing on the Closing Date the December Closing Date
        Warrant initially entitling the holder to purchase the number of shares of
        Common Stock equal to seventy percent (70%) of the number of shares issuable
        upon conversion of the Note on the Closing Date. The Company shall not be
        obligated to sell the Note or issue such December Closing Date Warrant to
        the
        Buyer until the Company shall, in its sole discretion, have given the Company
        Put Notice to the Buyer, whereupon the Company shall be obligated to sell
        the
        Note and issue such December Closing Date Warrant to the Buyer upon the terms
        and subject to the conditions of this Agreement. The Buyer acknowledges and
        agrees that it will be irrevocably bound to purchase the Note and December
        Closing Date Warrant on the Closing Date so long as (i) the Company Put Notice
        has been delivered to the Buyer, and (ii) the conditions to closing as set
        forth
        in Section 7 of this Agreement have been satisfied by the Company. In
        consideration of the Buyer agreeing to enter into this Agreement, the Company
        shall also issue to the Buyer on the closing date of the Other Note Purchase
        Agreement the July 2006 Warrant, attached hereto as Annex XI.

      


      
        
          
          

        

        
          -16-

          
            

          

        

        
          
          

        

      

      (b) Form
        of Payment.

      Payment
        by the Buyer of the Purchase Price to the Company on the Closing Date shall
        be
        made by wire transfer of immediately available funds to:

      


      [INTENTIONALLY
        OMITTED]


      For
        credit to account No. 

      For
        credit to the account of 

      Reference:
        

      


      (c) Closing.

      The
        issuance and sale of the Note and the issuance of the December Closing Date
        Warrant shall occur on the Closing Date at Chadbourne & Parke LLP, 30
        Rockefeller Plaza, New York, New York 10112 or at such other location and
        time
        as the parties may agree. At the closing, upon the terms and subject to the
        conditions of this Agreement, (1) the Company shall issue and deliver to
        the
        Buyer the Note and the December Closing Date Warrant against payment by the
        Buyer to the Company of an amount equal to the Purchase Price, and (2) the
        Buyer
        shall pay to the Company an amount equal to the Purchase Price against delivery
        by the Company to the Buyer of the Note and the December Closing Date
        Warrant.

      


      3. REPRESENTATIONS,
        WARRANTIES, COVENANTS, ETC. OF THE BUYER.

      


      The
        Buyer
        represents and warrants to, and covenants and agrees with, the Company as
        follows:

      


      (a) Circumstances
        of Purchase.

      The
        Buyer
        is purchasing the Note and acquiring the Warrants for its own account and
        not
        with a view towards the public sale or distribution thereof within the meaning
        of the 1933 Act; and the Buyer will acquire any Shares issued to the Buyer
        prior
        to the SEC Effective Date of a Registration Statement covering the resale
        of
        such Shares by the Buyer for its own account and not with a view towards
        the
        public sale or distribution thereof within the meaning of the 1933 Act prior
        to
        such SEC Effective Date; and the Buyer has no intention of making any
        distribution, within the meaning of the 1933 Act, of the Shares except in
        compliance with the registration requirements of the 1933 Act or pursuant
        to an
        exemption therefrom. The Buyer is acquiring the Securities hereunder in the
        ordinary course of its business. 

      


      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

      

      (b) Accredited
        Investor; Residence.

      At
        the
        time the Buyer was offered the Securities, it was, and at the date hereof
        it is,
        and on each date on which it exercises any Warrants for cash it will be,
        an
“accredited investor” as that term is defined in Rule 501 of Regulation D under
        the 1933 Act by reason of Rule 501(a)(3) thereof. The office or offices of
        the
        Buyer in which its investment decision was made is located at the address
        or
        addresses of such Investor set forth on the signature page hereto.

      


      (c) Reoffers
        and Resales.

      The
        Buyer
        will not offer, sell, pledge, transfer or otherwise dispose of (or solicit
        any
        offers to buy, purchase or otherwise acquire or take a pledge of) any of
        the
        Securities unless registered under the 1933 Act, pursuant to an exemption
        from
        registration under the 1933 Act or in a transaction not requiring registration
        under the 1933 Act; provided,
        however,
        that
        the Securities may be pledged in connection with a bona fide margin account
        or
        other loan or financing arrangement secured by the Securities and such pledge
        of
        Securities shall not be deemed to be a transfer, sale or assignment of the
        Securities prohibited hereby, and in effecting any pledge of Securities the
        Buyer shall not be required to provide the Company with any notice thereof
        or
        otherwise make any delivery to the Company pursuant to this Agreement or
        any
        other Transaction Document, including, without limitation, this Section 3(c);
        provided,
        further,
        however,
        the
        Buyer acknowledges that in connection with any sale, transfer or assignment
        by
        the pledgee of such Securities, such pledgee may be required by applicable
        law
        to make such sale, transfer or assignment in accordance with, or pursuant
        to a
        registration statement or an exemption under, the 1933 Act.

      


      (d) Company
        Reliance.

      The
        Buyer
        understands that (1) the Note is being offered and sold and the Warrants
        are
        being issued to the Buyer, (2) upon conversion of the Note prior to two years
        after the Closing Date, the Conversion Shares will be issued to the Buyer
        upon
        such conversion and (3) upon exercise of the Warrants for cash, or upon cashless
        exercise of the Warrants prior to two years after the Closing Date, the Warrant
        Shares issued upon such exercise will be issued to the Buyer, in each such
        case
        in reliance on one or more exemptions from the registration requirements
        of the
        1933 Act, including, without limitation, Regulation D, and exemptions from
        state
        securities laws and that the Company is relying upon the truth and accuracy
        of,
        and the Buyer’s compliance with, the representations, warranties, agreements,
        acknowledgments and understandings of the Buyer set forth herein in order
        to
        determine the availability of such exemptions and the eligibility of the
        Buyer
        to acquire or receive an offer to acquire the Securities.

      


      (e) Information
        Provided.

      The
        Buyer
        and its advisors, if any, have requested, received and considered all
        information relating to the business, properties, operations, condition
        (financial or other), results of operations or prospects of the Company and
        information relating to the offer and sale of the Note and the offer of the
        Warrants deemed relevant by them (assuming the accuracy and completeness
        of the
        SEC Reports and of the Company’s responses to the Buyer’s requests); the Buyer
        and its advisors, if any, have been afforded the opportunity to ask questions
        of
        the Company concerning the terms of the offering of the Securities and the
        business, properties, operations, condition (financial or other), results
        of
        operations and prospects of the Company and the Subsidiaries; without limiting
        the generality of the foregoing, the Buyer has had the opportunity to obtain
        and
        to review the SEC Reports; in connection with its decision to purchase the
        Note
        and to acquire the Warrants, the Buyer has relied solely upon the SEC Reports,
        the representations, warranties, covenants and agreements of the Company
        set
        forth in this Agreement and to be contained in the other Transaction Documents,
        as well as any investigation of the Company completed by the Buyer or its
        advisors; the Buyer understands that its investment in the Securities involves
        a
        high degree of risk; and the Buyer understands that the offering of the Note
        is
        being made to the Buyer as part of an offering without any minimum amount
        of the
        offering but subject to a maximum amount of $7 million aggregate principal
        amount of the Note and the Other Notes (subject, however, to the right of
        the
        Company at any time prior to execution and delivery of this Agreement by
        the
        Company, in its sole discretion, to accept or reject an offer by the Buyer
        to
        purchase the Note and to acquire the Warrants).

       

       

      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

      

      


      (f) Absence
        of Approvals.

      The
        Buyer
        understands that no United States federal or state agency or any other
        government or governmental agency has passed on or made any recommendation
        or
        endorsement of the Securities. 

      


      (g) Note
        Purchase Agreement.

      The
        Buyer
        has all requisite power and authority, corporate or otherwise, to execute,
        deliver and perform its obligations under this Agreement and the other
        agreements executed by the Buyer in connection herewith and to consummate
        the
        transactions on the Buyer’s part contemplated hereby and thereby; Buyer is an
        entity duly organized, validly existing and in good standing under the laws
        of
        the jurisdiction of its organization; and this Agreement and the Transaction
        Documents to which the Buyer is a party have been duly and validly authorized,
        duly executed and delivered by the Buyer and, assuming due execution and
        delivery by the Company, constitute valid and legally binding obligations
        of the
        Buyer enforceable in accordance with their terms, except as the enforceability
        hereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
        fraudulent conveyance or other similar laws now or hereafter in effect relating
        to or affecting creditors’ rights generally and general principles of equity,
        regardless of whether enforcement is considered in a proceeding in equity
        or at
        law.

      


      (h) Buyer
        Status.

      The
        Buyer
        is not a “broker” or “dealer” as those terms are defined in the 1934 Act, which
        is required to be registered with the SEC pursuant to Section 15 of the 1934
        Act.

      


      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

      

      (i) Experience
        of the Buyer.

      The
        Buyer, either alone or together with its representatives, has such knowledge,
        sophistication and experience in business and financial matters so as to
        be
        capable of evaluating the merits and risks of the prospective investment
        in the
        Securities, and has so evaluated the merits and risks of such investment.
        The
        Buyer is able to bear the economic risk of an investment in the Securities
        and,
        at the present time, is able to afford a complete loss of such investment.
        The
        Buyer has had the opportunity to ask questions of management of the
        Company.

      


      (j)) General
        Solicitation.

      The
        Buyer did
        not
        learn of the offering of the Securities through any public advertising or
        general solicitation (as these terms are used in Regulation D).

      


      (k) Short
        Sales and Confidentiality Prior To The Date Hereof.

      Other
        than the transaction contemplated hereunder, the Buyer has not directly or
        indirectly, nor has any Person acting on behalf of or pursuant to any
        understanding with the Buyer, executed any disposition, including Short Sales
        (but not including the location and/or reservation of borrowable shares of
        Common Stock), in the securities of the Company during the period
        commencing from
        the time
        that the
        Buyer
first
        received a term sheet from the Company or any other Person setting forth
        the
        material terms of the transactions contemplated hereunder until the date
        hereof
(the
        “Discussion Time”).
        Notwithstanding
        the foregoing, in the case of a Buyer
        that
        is a
        multi-managed investment vehicle whereby separate portfolio managers manage
        separate portions of such Buyer's
        assets
        and the portfolio managers have no direct knowledge of the investment decisions
        made by the portfolio managers managing other portions of such Buyer's
        assets, the representation set forth above shall only apply with respect
        to the
        portion of assets managed by the portfolio manager that made the investment
        decision to purchase the Securities covered by this Agreement. Other than
        to
        other Persons party to this Agreement and its professional advisors,
the
        Buyer
has
        maintained the confidentiality of all disclosures made to it in connection
        with
        this transaction (including the existence and terms of this
        transaction).

      


      4. REPRESENTATIONS,
        WARRANTIES, COVENANTS, ETC. OF THE COMPANY.

      


      The
        Company represents and warrants to, and covenants and agrees with, the Buyer
        as
        follows:

      


      (a) Organization
        and Authority.

      The
        Company and each of the Subsidiaries is a corporation duly organized, validly
        existing and in good standing under the laws of the jurisdiction of its
        incorporation, and (i) each of the Company and the Subsidiaries has all
        requisite corporate power and authority to own, lease and operate its properties
        and to carry on its business as described in the SEC Reports and as currently
        conducted, and (ii) the Company has all requisite corporate power and authority
        to execute, deliver and perform its obligations under this Agreement and
        the
        other Transaction Documents to be executed and delivered by the Company in
        connection herewith, and to consummate the transactions contemplated hereby
        and
        thereby; and the Company does not have any equity investment in any other
        Person
        other than (x) the Subsidiaries listed in the SEC Reports and (y) Subsidiaries
        which do not, individually or in the aggregate, have any material revenue,
        assets or liabilities.

      


      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

      

      (b) Qualifications.

       The
        Company and each of the Subsidiaries are duly qualified to do business as
        foreign corporations and are in good standing in all jurisdictions where
        such
        qualification is necessary and where failure so to qualify could have a Material
        Adverse Effect.

      


      (c) Concerning
        the Shares and the Common Stock.

      The
        Shares have been duly authorized and the Conversion Shares, when issued upon
        conversion of the Note, and the Warrant Shares, when issued upon exercise
        of the
        Warrants, in each such case will be duly and validly issued, fully paid and
        non-assessable and will not subject the holder thereof to personal liability
        by
        reason of being such holder. There are no unwaived preemptive or similar
        rights
        of any stockholder of the Company or any other Person to acquire any of the
        Securities issued or to be issued to the Buyer. The Company has duly reserved
        [40,000,000] shares of Common Stock exclusively for issuance upon conversion
        of
        the Note and the Other Notes and exercise of the Warrants and the Other
        Warrants, and such shares shall remain so reserved, and the Company shall
        from
        time to time reserve such additional shares of Common Stock as shall be required
        to be reserved pursuant to the Note, the Other Notes and the Warrants, so
        long
        as the Note, the Other Notes or the Warrants are outstanding. The Common
        Stock
        is listed for trading on the AMEX and, except as described on Schedule 4(c),
        (1)
        the Company and the Common Stock meet the criteria for continued listing
        and
        trading on the AMEX; (2) the Company has not been notified since December
        31,
        2004 by the AMEX of any failure or potential failure to meet the criteria
        for
        continued listing and trading on the AMEX and (3) no suspension of trading
        in
        the Common Stock is in effect. Except as described on Schedule
        4(c),
        the
        Company knows of no reason that the Shares will not be eligible for listing
        on
        the AMEX. The Company acknowledges that the Securities may be pledged in
        connection with a bona fide margin account or other loan or financing
        arrangement secured by the Securities and such pledge of Securities shall
        not be
        deemed to be a transfer, sale or assignment of the Securities hereunder,
        and the
        Buyer shall not be required to provide the Company with any notice thereof
        or
        otherwise make any delivery to the Company pursuant to this Agreement or
        any
        other Transaction Document; provided,
        however,
        that in
        order to make any sale, transfer or assignment of Securities in connection
        with
        a foreclosure or realization on such pledge, the Buyer or its pledgee shall
        make
        such disposition in accordance with, or pursuant to a registration statement
        or
        an exemption under, the 1933 Act.

      


      (d) Corporate
        Authorization.

      This
        Agreement and the other Transaction Documents to which the Company is or
        will be
        a party have been duly and validly authorized by the Company; this Agreement
        has
        been duly executed and delivered by the Company and, assuming due execution
        and
        delivery by the Buyer, this Agreement is, and the Note, and the Warrants
        will
        be, when executed and delivered by the Company, valid and binding obligations
        of
        the Company enforceable in accordance with their respective terms, except
        as the
        enforceability hereof or thereof may be limited by bankruptcy, insolvency,
        reorganization, moratorium or other similar laws now or hereafter in effect
        relating to or affecting creditors’ rights generally and general principles of
        equity, regardless of whether enforcement is considered in a proceeding in
        equity or at law.

      


      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

      

      (e) Non-contravention.

      The
        execution and delivery of the Transaction Documents by the Company and the
        consummation by the Company of the issuance of the Securities as contemplated
        by
        this Agreement and consummation by the Company of the other transactions
        contemplated by the Transaction Documents do not and will not, with or without
        the giving of notice or the lapse of time, or both, (i) result in any violation
        of any term or provision of the Certificate of Incorporation or Bylaws of
        the
        Company or any Subsidiary, (ii) conflict with or result in a breach by the
        Company or any Subsidiary of any of the terms or provisions of, or constitute
        a
        default under, or result in the modification of, or result in the creation
        or
        imposition of any lien, security interest, charge or encumbrance (other than
        pursuant to the Security Agreement) upon any of the properties or assets
        of the
        Company or any Subsidiary pursuant to, any indenture, mortgage, deed of trust
        or
        other agreement or instrument to which the Company or any Subsidiary is a
        party
        or by which the Company or any Subsidiary or any of their respective properties
        or assets are bound or affected, in any such case which would be reasonably
        likely to have a Material Adverse Effect, (iii) violate or contravene any
        applicable law, rule or regulation or any applicable decree, judgment or
        order
        of any court, United States federal or state regulatory body, administrative
        agency or other governmental body having jurisdiction over the Company or
        any
        Subsidiary or any of their respective properties or assets, in any such case
        which could have a Material Adverse Effect, or (iv) have any material adverse
        effect on any permit, certification, registration, approval, consent, license
        or
        franchise necessary for the Company or any Subsidiary to own or lease and
        operate any of its properties and to conduct any of its business or the ability
        of the Company or any Subsidiary to make use thereof.

      


      (f) Approvals,
        Filings, Etc.

      No
        authorization, approval or consent of, or filing with, any United States
        or
        foreign court, governmental body, regulatory agency, self-regulatory
        organization, or stock exchange or market or the stockholders of the Company
        is
        required to be obtained or made by the Company or any Subsidiary for (x)
        the
        execution, delivery and performance by the Company of the Transaction Documents,
        (y) the issuance and sale of the Securities as contemplated by this Agreement
        and the terms of the Note and the Warrants and (z) the performance by the
        Company of its obligations under the Transaction Documents, other than (1)
        registration of the resale of the Shares under the 1933 Act as contemplated
        by
        Section 8, (2) as may be required under applicable state securities or “blue
        sky” laws, (3) filing of one or more Forms D with respect to the Securities as
        required under Regulation D, (4) filing of financing statements as required
        under the
        Pledge and Security Agreement, (5) the filings with the PTO as required by
        the
        Patent and Trademark Security Agreement and (6) the filing of
        the Transaction Form 8-K.

      


      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

      

      (g) Information
        Provided.

      The
        SEC
        Reports (together with the press release issued by the Company), the Transaction
        Documents and the instruments delivered by the Company to the Buyer in
        connection with the execution and delivery of this Agreement and in connection
        with the closing on the Closing Date do not and will not on the date of
        execution and delivery of this Agreement, the date of delivery thereof to
        the
        Buyer and on the Closing Date contain any untrue statement of a material
        fact or
        omit to state any material fact necessary in order to make the statements
        therein, in the light of the circumstances under which they are made, not
        misleading, it being understood that for purposes of this Section 4(g), any
        statement contained in such information shall be deemed to be modified or
        superseded for purposes of this Section 4(g) to the extent that a statement
        in
        any document included in such information which was prepared and furnished
        to
        the Buyer on a later date (but on or before the date of this Agreement) or
        filed
        with the SEC on a later date (but on or before the date of this Agreement)
        modifies or replaces such statement, whether or not such later prepared or
        filed
        statement so states.

      


      (h) Investment
        Company.

       Neither
        the Company nor any Subsidiary is an “investment company” within the meaning of
        such term under the Investment Company Act of 1940, as amended, and the rules
        and regulations of the SEC thereunder.

      


      (i) Absence
        of Brokers, Finders, Etc.

      No
        broker, finder or similar Person is entitled to any commission, fee or other
        compensation by reason of action taken by or on behalf of the Company in
        connection with the transactions contemplated by this Agreement other than
        the
        Placement Agent (whose commissions, fees and compensation shall be payable
        solely by the Company in accordance with a written agreement between the
        Company
        and the Placement Agent), and the Company shall pay, and indemnify and hold
        harmless the Buyer from, any claim made against the Buyer by any Person for
        any
        such commission, fee or other compensation.

      


      (j) No
        Solicitation.

      Neither
        the Company nor, to the best of its knowledge, any other Person acting on
        behalf
        of the Company, used any form of general solicitation or general advertising
        in
        respect of the Securities or in connection with the offer and sale of the
        Securities. Neither the Company nor, to its knowledge, any Person acting
        on
        behalf of the Company has, either directly or indirectly, sold or offered
        for
        sale to any Person any of the Securities or, within the six months prior
        to the
        date hereof, any other similar security of the Company, except as contemplated
        by this Agreement and the Other Note Purchase Agreements; and neither the
        Company nor any Person authorized to act on its behalf will sell or offer
        for
        sale any promissory notes, warrants, shares of Common Stock or other securities
        to, or solicit any offers to buy any such security from, any Person so as
        thereby to cause the issuance or sale of any of the Securities to be in
        violation of any of the provisions of Section 5 of the 1933 Act.

      


      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

      

      (k) No
        Integrated Offering.

      None
        of
        the Company, any Subsidiary, any of their respective Affiliates, or any Person
        acting on behalf of any of them has, directly or indirectly, made any offers
        or
        sales of any security or solicited any offers to buy any security, under
        circumstances that would require registration of any of the Securities under
        the
        1933 Act or cause the offering of the Securities, the Other Notes and the
        Other
        Warrants to be integrated with prior offerings by the Company for purposes
        of
        the 1933 Act or any applicable stockholder approval provisions, including,
        without limitation, under the rules and regulations of any exchange or automated
        quotation system on which any of the securities of the Company are listed,
        quoted or designated. None of the Company, any Subsidiary, their respective
        Affiliates or any Person acting on behalf of any of them will take any action
        or
        steps referred to in the preceding sentence that would require registration
        of
        any of the Securities under the 1933 Act or cause the offering of the Securities
        to be integrated with other offerings. 

      


      (l) Dilutive
        Effect.

      The
        Company understands and acknowledges that the number of Shares issuable upon
        conversion of the Note and the Other Notes and upon exercise of the Warrants
        and
        the Other Warrants will be substantial and may increase in certain
        circumstances. The Company further acknowledges that, subject to the terms
        and
        conditions of the Transaction Documents, its obligation to issue Shares upon
        conversion of the Note and upon exercise of the Warrants in accordance with
        this
        Agreement, the Note and the Warrants are, in each case, absolute and
        unconditional regardless of the dilutive effect that such issuance may have
        on
        the ownership interests of other stockholders of the Company.

      


      (m) Absence
        of Certain Changes.

      Except
        as
        disclosed in the SEC Reports, since December 31, 2005, there has been no
        material adverse change and no material adverse development in the business,
        properties, operations, condition (financial or otherwise), results of
        operations or prospects of the Company and the Subsidiaries taken as a whole.
        Except as disclosed in the SEC Reports, since December 31, 2005, neither
        the
        Company nor any Subsidiary has (i) declared or paid any dividends, (ii) sold
        any
        assets, individually or in the aggregate, outside of the ordinary course
        of
        business, (iii) had capital expenditures outside of the ordinary course of
        business, (iv) engaged in any transaction with any Affiliate except as set
        forth
        in the SEC Reports or (v) engaged in any other transaction outside of the
        ordinary course of business. The Company has not taken any steps to seek
        protection pursuant to any bankruptcy law nor does the Company have any
        knowledge or reason to believe that its creditors intend to initiate involuntary
        bankruptcy proceedings or any actual knowledge of any fact that would reasonably
        lead a creditor to do so. The Company is not as of the date hereof, after
        giving
        effect to the transactions contemplated hereby to occur on the Closing Date
        and
        the transactions contemplated by the Other Note Purchase Agreements,
        Insolvent.

      


      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

        

      

      (n) No
        Undisclosed Events, Liabilities, Developments or
        Circumstances.

      No
        event,
        liability, development, circumstance or transaction has occurred or exists,
        with
        respect to the Company or any Subsidiary or their respective business,
        properties, operations, condition (financial or other), results of operations
        or
        prospects, that would be required to be disclosed by the Company under
        applicable securities laws (including pursuant to the anti-fraud provisions
        thereof) on a registration statement on Form S-3 filed with the SEC relating
        to
        an issuance and sale by the Company of its Common Stock and which has not
        been
        publicly disclosed.

      


      (o) Conduct
        of Business; Regulatory Permits.

      Neither
        the Company nor any Subsidiary is in violation of any term of or in default
        under its Certificate of Incorporation, or its Bylaws. Neither the Company
        nor
        any Subsidiary is in violation of any judgment, decree or order or any statute,
        ordinance, rule or regulation applicable to the Company or any Subsidiary
        which
        violation could have a Material Adverse Effect, and neither the Company nor
        any
        Subsidiary will conduct its business in violation of any of the foregoing,
        except for possible violations which could not, individually or in the
        aggregate, reasonably be expected to have a Material Adverse Effect. Without
        limiting the generality of the foregoing, the Company is not in violation
        of any
        of the rules, regulations or requirements of the AMEX and has no knowledge
        of
        any facts or circumstances that would be likely to lead to delisting or
        suspension of the Common Stock by the AMEX in the future. Since December
        31,
        2005, (i) the Common Stock has been listed on the AMEX, (ii) trading in the
        Common Stock has not been suspended by the SEC or the AMEX and (iii) the
        Company
        has received no communication, written or oral, from the SEC or the AMEX
        regarding the suspension or delisting of the Common Stock from the AMEX.
        The
        Company and the Subsidiaries possess all certificates, authorizations and
        permits issued by the appropriate federal, state or foreign regulatory
        authorities necessary to conduct their respective businesses, except where
        the
        failure to possess such certificates, authorizations or permits could not
        reasonably be expected to have, individually or in the aggregate, a Material
        Adverse Effect, and neither the Company nor any Subsidiary has received any
        notice of proceedings relating to the revocation or modification of any such
        certificate, authorization or permit.

      


      (p) Indebtedness
        and Other Contracts.

      Except
        as
        set forth on the SEC Reports, neither the Company nor any Subsidiary (i)
        has any
        outstanding Indebtedness, (ii) is a party to any contract, agreement or
        instrument, the violation of which, or default under which, by any other
        party
        to such contract, agreement or instrument could reasonably be expected to
        result
        in a Material Adverse Effect, (iii) is in violation of any term of or in
        default
        under any contract, agreement or instrument, except where such violations
        and
        defaults could not reasonably be expected to result, individually or in the
        aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
        agreement or instrument, the performance of which, in the judgment of the
        Company's officers, has or is expected to have a Material Adverse Effect.
        The
        Company has filed all material contracts required to be filed in accordance
        with
        the applicable requirements of the SEC Reports as exhibits to such reports.
        

      


      
        
          
          

        

        
          -25-

          
            

          

        

        
          
          

        

      

      (q) Absence
        of Litigation.

      Except
        as
        set forth in the SEC Reports, there is no action, suit, proceeding, inquiry
        or
        investigation, whether criminal, civil or otherwise, before or by the AMEX,
        any
        court, arbitrational body, public board, government agency, self-regulatory
        organization or body pending or, to the knowledge of the Company, threatened
        against or affecting the Company, the Common Stock or any of the Subsidiaries
        or
        any of the Company's or any Subsidiary's officers or directors in their
        capacities as such. To the knowledge of the Company, none of the directors
        or
        officers of the Company has been a party to any securities related litigation
        during the past ten years, other than as disclosed in the SEC
        Reports.

      


      (r) Insurance.

      The
        Company and each Subsidiary is insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as management
        of the Company believes to be prudent and customary in the businesses in
        which
        the Company and the Subsidiaries are engaged. Neither the Company nor any
        Subsidiary has been refused any insurance coverage sought or applied for
        and
        neither the Company nor any Subsidiary has any reason to believe that it
        will
        not be able to renew its existing insurance coverage as and when such coverage
        expires or to obtain similar coverage from similar insurers as may be necessary
        to continue its business at a cost that could not have a Material Adverse
        Effect.

      


      (s) Employee
        Relations.

      Neither
        the Company nor any Subsidiary is a party to any collective bargaining agreement
        or employs any member of a union. No executive officer of the Company (as
        defined in Rule 405 under the 1933 Act) has notified the Company that such
        officer intends to leave the Company or otherwise terminate such officer's
        employment with the Company. No executive officer of the Company, to the
        knowledge of the Company, is, or is now expected to be, in violation of any
        material term of any employment contract, confidentiality, disclosure or
        proprietary information agreement, non-competition agreement, or any other
        contract or agreement or any restrictive covenant, and, to the knowledge
        of the
        Company, the continued employment of each such executive officer does not
        subject the Company or any Subsidiary to any material liability with respect
        to
        any of the foregoing matters. The Company and the Subsidiaries are in compliance
        with all federal, state, local and foreign laws and regulations respecting
        employment and employment practices, terms and conditions of employment and
        wages and hours, except where failure to be in compliance could not, either
        individually or in the aggregate, reasonably be expected to result in a Material
        Adverse Effect.

      


      (t) Title.

      The
        Company and the Subsidiaries have good and marketable title to all personal
        property owned by them which is material to the business of the Company and
        the
        Subsidiaries, in each case free and clear of all Liens except (i) immaterial
        Liens for taxes not yet delinquent, (ii) immaterial carriers’, warehousemen’s,
        mechanics', materialmen's, repairmen’s, landlord’s Liens (and other similar
        Liens), and immaterial Liens under operating and similar agreements, to the
        extent the same relate to expenses incurred in the ordinary course of business
        consistent with past practice and that are not yet due, (iii) that are routine
        governmental approvals, or (iv) such as do not materially affect the value
        of
        such property and do not interfere with the use made and proposed to be made
        of
        such property by the Company and any of its Subsidiaries. Neither the Company
        nor any Subsidiary owns any real property. Any real property and facilities
        held
        under lease by the Company or any Subsidiary are held by it under valid,
        subsisting and enforceable leases with such exceptions as are not material
        and
        do not interfere with the use made and proposed to be made of such property
        and
        buildings by the Company and the Subsidiaries.

      


      (u) Intellectual
        Property.

      Except
        as
        provided in the Security Agreement, (1) the Company and each Subsidiary holds
        all Intellectual Property that it owns free and clear of all Encumbrances
        and
        restrictions on use or transfer, whether or not recorded, and has sole title
        to
        and ownership of or has the full, exclusive (subject to the rights of its
        licensees) right to use in its field of business such Intellectual Property;
        and
        the Company and each Subsidiary holds all Intellectual Property that it uses
        but
        does not own under valid licenses or sub-licenses from others; (2) the use
        of
        the Intellectual Property by the Company or any Subsidiary does not, to the
        knowledge of the Company, violate or infringe on the rights of any other
        Person;
        (3) neither the Company nor any Subsidiary has received any notice of any
        conflict between the asserted rights of others and the Company or any Subsidiary
        with respect to any Intellectual Property; (4) the Company and each Subsidiary
        has used its commercially reasonable best efforts to protect its rights in
        and
        to all Intellectual Property; (5) the Company and each Subsidiary are in
        compliance with all material terms and conditions of its agreements relating
        to
        the Intellectual Property; (6) neither the Company nor any Subsidiary is,
        or
        since December 31, 2005 has been, a defendant in any action, suit, investigation
        or proceeding relating to infringement or misappropriation by the Company
        or any
        Subsidiary of any Intellectual Property nor has the Company or any Subsidiary
        been notified of any alleged claim of infringement or misappropriation by
        the
        Company or any Subsidiary of any Intellectual Property; (7) to the knowledge
        of
        the Company, none of the products or services the Company and the Subsidiaries
        are researching, developing, propose to research and develop, make, have
        made,
        use, or sell, infringes or misappropriates any Intellectual Property right
        of
        any third party; (8) none of the trademarks and service marks used by the
        Company or any Subsidiary, to the knowledge of the Company, infringes the
        trademark or service mark rights of any third party; and (9) to the Company’s
        knowledge none of the material processes and formulae, research and development
        results and other know-how relating to the Company's or the Subsidiaries'
        respective businesses, the value of which to the Company or any Subsidiary
        is
        contingent upon maintenance of the confidentiality thereof, has been disclosed
        to any Person other than Persons bound by written confidentiality
        agreements.

      


      (v) Environmental
        Laws.

      To
        the
        Company’s knowledge, the Company and the Subsidiaries (i) are in compliance with
        all Environmental Laws, (ii) have received all permits, licenses or other
        approvals required of them under applicable Environmental Laws to conduct
        their
        respective businesses and (iii) are in compliance with all terms and conditions
        of any such permit, license or approval where, in any such case in the foregoing
        clauses (i), (ii) or (iii), the failure to so comply could be reasonably
        expected to have, individually or in the aggregate, a Material Adverse
        Effect.

      


      (w) Subsidiary
        Rights.

      The
        Company or one of the Subsidiaries has the unrestricted right to vote, and
        (subject to limitations imposed by the applicable corporation or company
        law
        under which each Subsidiary is formed) to receive dividends and distributions
        on, all stock of the Subsidiaries that is owned by the Company or such other
        Subsidiary as owns such stock.

      


      
        
          
          

        

        
          -26-

          
            

          

        

        
          
          

        

      

      (x) Tax
        Status.

      The
        Company and each Subsidiary (i) has made or filed all federal and state income
        and all other tax returns, reports and declarations required by any jurisdiction
        to which it is subject, (ii) has paid all taxes and other governmental
        assessments and charges that are shown or determined to be due on such returns,
        reports and declarations, except those being contested in good faith and
        for
        which it has set aside on its books a provision in the amount of such taxes
        being contested in good faith and (iii) has set aside on its books provisions
        reasonably adequate for the payment of all taxes for periods subsequent to
        the
        periods to which such returns, reports or declarations apply. There are no
        unpaid taxes claimed to be due by the taxing authority of any jurisdiction,
        and
        the officers of the Company know of no basis for any such claim.

      


      (y) Internal
        Accounting Controls; Financial Statements.

      The
        Company maintains disclosure controls and procedures (as such term is defined
        in
        Rule 13a-15 under the 1934 Act) that are effective in ensuring that information
        required to be disclosed by the Company in the reports that it files or submits
        under the 1934 Act is recorded, processed, summarized and reported, within
        the
        time periods specified in the rules and forms of the SEC, including, without
        limitation, controls and procedures designed to ensure that information required
        to be disclosed by the Company in the reports that it files or submits under
        the
        1934 Act is accumulated and communicated to the Company's management, including
        its principal executive officer or officers and its principal financial officer
        or officers, as appropriate, to allow timely decisions regarding required
        disclosure. The consolidated financial statements, if any, included in each
        SEC
        Report present fairly and accurately in all material respects the consolidated
        financial position of the Company and the Subsidiaries as of the dates reported
        and the consolidated results of operations, changes in stockholders' equity
        and
        cash flows for the periods reported, all in conformity with Generally Accepted
        Accounting Principles applied on a consistent basis and in conformity with
        the
        rules and regulations of the SEC under the 1934 Act applicable to the Company,
        subject, in the case of unaudited financial statements, to (1) normal recurring
        year-end adjustments, all of which that are necessary for a fair presentation
        of
        such financial statements have been included, and (2) the absence of all
        required notes thereto. Except as set forth in the consolidated financial
        statements of the Company included in the SEC Reports, neither the Company
        nor
        any Subsidiary has any liabilities, contingent or otherwise, except those
        which
        individually or in the aggregate are not material to the financial condition
        or
        operating results of the Company and the Subsidiaries, taken as a
        whole.

      


      (z) Sarbanes-Oxley
        Act.

      The
        Company is in compliance with any and all applicable requirements of the
        Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
        any and
        all applicable rules and regulations promulgated by the SEC thereunder that
        are
        effective as of the date hereof.

      


      (aa) S-3
        Eligibility.

      The
        Company meets the requirements of Form S-3 for the registration of the resale
        of
        the Registrable Securities.

      


      (bb) Concerning
        the Collateral.

       Upon
        execution and delivery of the Security Agreement by the Company and the
        Collateral Agent and completion of the filings referred to in Schedule
        I to
        the
        Pledge and Security Agreement and Exhibit
        C
        to the
        Patent and Trademark Security Agreement, the Collateral Agent will have a
        first
        priority perfected security interest in the Collateral for the ratable benefit
        of the holders of the Other Notes and, when issued by the Company to the
        Buyer,
        this Note. 

      


      
        
          
          

        

        
          -27-

          
            

          

        

        
          
          

        

      

      (cc) Disclosures.

      For
        purposes of this Agreement and the transactions contemplated hereby, none
        of the
        representations or warranties made by the Company under any of the Transaction
        Documents and no written information furnished by the Company pursuant hereto,
        or in any other document, certificate or written statement furnished by the
        Company to the Buyer or any authorized representative of the Buyer, pursuant
        to
        the Transaction Documents or in connection therewith, contains any untrue
        statement of a material fact or omits to state a material fact necessary
        in
        order to make the statements contained herein and therein, in light of the
        circumstances under which they were made, not misleading.

      


      (dd) Absence
        of Rights Agreement.

      The
        Company has not adopted a shareholder rights plan or similar arrangement
        relating to accumulations of beneficial ownership of Common Stock or a change
        of
        control in the Company.

      


      5. CERTAIN
        COVENANTS.

      


      (a) Transfer
        Restrictions.

      The
        Buyer
        acknowledges and agrees that (1) the Note and the Warrants have not been
        and are
        not being registered under the provisions of the 1933 Act or any state
        securities laws and, except as provided in Section 8, the Shares have not
        been
        and are not being registered under the 1933 Act or any state securities laws,
        and that the Note and the Warrants may not be transferred unless the Buyer
        shall
        have delivered to the Company an opinion of counsel, reasonably satisfactory
        in
        form, scope and substance to the Company, to the effect that the Note or
        the
        Warrants to be transferred may be transferred without such registration;
        (2) no
        sale, conveyance assignment or other transfer of the Note or the Warrants
        or any
        interest therein may be made except in accordance with the terms hereof and
        thereof; (3) the Shares may not be resold by the Buyer unless the resale
        has
        been registered under the 1933 Act or is made pursuant to an applicable
        exemption from such registration and the Company shall have received the
        opinion
        of counsel provided for in the second to last sentence of this Section 5(a);
        (4)
        any sale of Shares under a Registration Statement shall be made only in
        compliance with the terms of this Section 5(a) and Section 8 (including,
        without
        limitation, Section 8(c)(4)); (5) any sale of the Securities made in reliance
        on
        Rule 144 may be made only in accordance with the terms of Rule 144 and further,
        if the exemption provided by Rule 144 is not available, any resale of the
        Securities under circumstances in which the seller, or the Person through
        whom
        the sale is made, may be deemed to be an underwriter, as that term is used
        in
        the 1933 Act, may require compliance with some other exemption under the
        1933
        Act or the rules and regulations of the SEC thereunder; and (6) the Company
        is
        under no obligation to register the Securities (other than registration of
        the
        resale of the Registrable Securities in accordance with Section 8) under
        the
        1933 Act or, except as provided in Section 5(d) and Section 8, to comply
        with
        the terms and conditions of any exemption thereunder. Prior to the time
        particular Shares are eligible for resale under Rule 144(k), the Buyer may
        not
        sell the Shares in a transaction which does not constitute a sale thereof
        pursuant to the applicable Registration Statement in accordance with the
        plan of
        distribution set forth therein or in any supplement to the related Prospectus
        unless the Buyer shall have delivered to the Company an opinion of counsel,
        reasonably satisfactory in form, scope and substance to the Company, that
        such
        Shares may be so sold without registration under the 1933 Act. Nothing in
        any of
        the Transaction Documents shall limit the right of a holder of the Securities
        to
        make a bona fide pledge thereof to an institutional lender and the Company
        agrees to cooperate with any Investor who seeks to effect any such pledge
        by
        providing such information and making such confirmations as reasonably
        requested. The Buyer agrees that any sale by the Buyer of Shares pursuant
        to a
        particular Registration Statement shall be sold in a manner described in
        the
        plan of distribution set forth in the related Prospectus and, if the prospectus
        delivery requirement cannot be satisfied by compliance with Rule 153 or 172
        under the 1933 Act, (A) if such sale is made through a broker, the Buyer
        shall
        instruct its broker to deliver the Prospectus to the purchaser or purchasers
        (or
        the broker or brokers therefor) in connection with such sale, shall supply
        copies of the Prospectus to its broker or brokers and shall instruct its
        broker
        or brokers to deliver such Prospectus to the purchaser in such sale or such
        purchaser’s broker, (B) if such sale is made in a transaction directly with a
        purchaser and not through the facilities of any securities exchange or market,
        the Buyer shall deliver, or cause to be delivered, the Prospectus to such
        purchaser; and (C) if such sale is made by any means other than those described
        in the immediately preceding clauses (A) and (B), the Buyer shall otherwise
        use
        its best efforts to comply with the prospectus delivery requirements of the
        1933
        Act applicable to such sale.

      


      
        
          
          

        

        
          -28-

          
            

          

        

        
          
          

        

      

      (b) Restrictive
        Legends.

      (1)
        The
        Buyer acknowledges and agrees that the Note shall bear a restrictive legend
        in
        substantially the following form (and a stop-transfer order may be placed
        against transfer of the Note):

      


      NEITHER
        THE ISSUANCE OF THIS NOTE NOR THE ISSUANCE OF THE SECURITIES INTO WHICH THIS
        NOTE IS CONVERTIBLE HAVE BEEN 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 1933 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.

      


      (2) The
        Buyer
        further acknowledges and agrees that the Warrants shall bear a restrictive
        legend in substantially the following form (and a stop-transfer order may
        be
        placed against transfer of the Warrants):

      


      NEITHER
        THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE
        BEEN
        REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        REGULATORS OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION 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 1933 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.

      


      (3) The
        Buyer
        further acknowledges and agrees that until such time as the Shares have been
        registered for resale under the 1933 Act as contemplated by Section 8 or
        are
        eligible for resale under Rule 144(k) under the 1933 Act, the certificates
        for
        the Shares may bear a restrictive legend in substantially the following form
        (and a stop-transfer order may be placed against transfer of the certificates
        for the Shares):

      


      The
        securities represented by this certificate have not been registered under
        the
        Securities Act of 1933, as amended (the “1933 Act”). The securities have been
        acquired for investment and may not be resold, transferred or assigned in
        the
        absence of an effective registration statement for the securities under the
        1933
        Act or an opinion of counsel that registration is not required under the
        1933
        Act.

      


      
        
          
          

        

        
          -29-

          
            

          

        

        
          
          

        

      

      (4) Certificates
        evidencing the Shares shall not contain any legend (including the legend
        set
        forth in Section 5(b)(3) hereof): (i) while a registration statement (including
        the Registration Statement) covering the resale of such Security is effective
        under the 1933 Act, or (ii) following any sale of such Shares pursuant to
        Rule
        144, or (iii) if such Shares are eligible for sale under Rule 144(k), or
        (iv) if
        such legend is not required under applicable requirements of the 1933Act
        (including judicial interpretations and pronouncements issued by the SEC).
        The
        Company shall cause its counsel to issue a legal opinion to the Company’s
        transfer agent promptly after the SEC Effective Date if required by the
        Company’s transfer agent to effect the removal of the legend hereunder. If all
        or any portion of a Securities are converted or exercised (as applicable)
        at a
        time when there is an effective registration statement to cover the resale
        of
        the Shares, or if such Shares may be sold under Rule 144(k) or if such legend
        is
        not otherwise required under applicable requirements of the 1933 Act (including
        judicial interpretations thereof) then such Shares shall be issued free of
        all
        legends. The Company agrees that following the SEC Effective Date or at such
        time as such legend is no longer required under this Section 5(b)(4), it
        will,
        no later than five Trading Days following the delivery by a Buyer to the
        Company
        or the Company’s transfer agent of a certificate representing Shares, as
        applicable, deliver or cause to be delivered to such Buyer a certificate
        representing such shares that is free from all restrictive and other legends.
        The Company may not make any notation on its records or give instructions
        to any
        transfer agent of the Company that enlarge the restrictions on transfer set
        forth in this Section. Certificates for Securities subject to legend removal
        hereunder shall be transmitted by the transfer agent of the Company to the
        Buyers by crediting the account of the Buyer’s prime broker with the Depository
        Trust Company System.

      


      (c) Reporting
        Status.

       
        During
        the Registration Period, the Company shall timely file all reports required
        to
        be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and
        the
        Company shall not terminate its status as an issuer required to file reports
        under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
        would permit such termination.

      


      (d) Form
        D.

      The
        Company agrees to file with the SEC on a timely basis one or more Forms D
        with
        respect to the Securities as required under Regulation D to claim the exemption
        provided by Rule 506 of Regulation D and to provide a copy thereof to the
        Buyer
        within five Business Days after Buyer requests in writing a copy of such
        filing.

      


      (e) State
        Securities Laws.

      On
        or
        before the Closing Date, the Company shall take such action as shall be
        necessary to qualify, or to obtain an exemption for, the offer and sale of
        the
        Securities to the Buyer as contemplated by the Transaction Documents under
        such
        of the securities laws of jurisdictions in the United States as shall be
        applicable thereto. Notwithstanding the foregoing obligations of the Company
        in
        this Section 5(e), the Company shall not be required (1) to qualify to do
        business in any jurisdiction where it would not otherwise be required to
        qualify
        but for this Section 5(e), (2) to subject itself to general taxation in any
        such
        jurisdiction, (3) to file a general consent to service of process in any
        such
        jurisdiction, (4) to provide any undertakings that cause more than nominal
        expense or burden to the Company or (5) to make any change in its certificate
        or
        articles of incorporation or by-laws which the Company determines to be contrary
        to the best interests of the Company and its stockholders. The Company shall
        furnish the Buyer with copies of all filings, applications, orders and grants
        or
        confirmations of exemptions relating to such securities laws on or before
        the
        Closing Date.

      


      
        
          
          

        

        
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      (f) Limitation
        on Certain Actions.

      From
        the
        date of execution and delivery of this Agreement by the parties hereto to the
        date of issuance of the Note, the Company (1) shall comply with Article III
        of
        the Note as if the Note were outstanding, (2) shall not take any action which,
        if the Note were outstanding, (A) would constitute an Event of Default or,
        with
        the giving of notice or the passage of time or both, would constitute an
        Event
        of Default or (B) would constitute a Repurchase Event or, with the giving
        of
        notice or the passage of time or both, would constitute a Repurchase
        Event.

      


      (g) Use
        of Proceeds.

      The
        Company represents and warrants to the Buyer, and covenants and agrees with
        the
        Buyer, that: (1) it does not own or have any present intention of acquiring
        any
        Margin Stock; (2) the proceeds of sale of the Note and the Warrant Shares
        will
        be used for general working capital purposes and in the operation of the
        Company’s business;
        provided, however,
        that up
        to $100,000 of the proceeds of this Note and the Other Notes may be used
        in
        connection with the search for an additional member of senior management
        described in Section 3.17(b) of the Note; (3) none of such proceeds will
        be
        used, directly or indirectly (A) to pay any existing debt obligations (other
        than normal payables), (B) to make any loan to or investment in any other
        Person
        or (C) for the purpose, whether immediate, incidental or ultimate, of purchasing
        or carrying any margin stock or for the purpose of maintaining, reducing
        or
        retiring any indebtedness which was originally incurred to purchase or carry
        any
        stock that is currently a Margin Stock or for any other purpose which might
        constitute the transactions contemplated by this Agreement a “purpose credit”
within the meaning of such Regulation U of the Board of Governors of the
        Federal
        Reserve System; and (4) neither the Company nor any agent acting on its behalf
        has taken or will take any action which might cause this Agreement or the
        transactions contemplated hereby to violate Regulation T, Regulation U or
        any
        other regulation of the Board of Governors of the Federal Reserve System
        or to
        violate the 1934 Act, in each case as in effect now or as the same may hereafter
        be in effect.

      


      (h) Best
        Efforts.

      Each
        of
        the Company, on the one hand, and the Buyer, on the other hand, agree to
        use
        their best efforts timely to satisfy each of the conditions to the other’s
        obligations to sell and purchase the Note set forth in Section 6 or 7, as
        the
        case may be, of this Agreement on or before the Closing Date.

      


      (i) Debt
        Obligation.

       So
        long
        as any portion of the Note is outstanding, the Company shall cause its books
        and
        records to reflect the Note as a debt of the Company in its unpaid principal
        amount, shall cause its financial statements to reflect the Note as a debt
        of
        the Company in such amount as shall be the greatest amount permitted in
        accordance with Generally Accepted Accounting Principles and, whenever
        appropriate, as a valid senior debt obligation of the Company for money
        borrowed.

      


      
        
          
          

        

        
          -31-

          
            

          

        

        
          
          

        

      

      (j) Right
        of the Buyer to Participate in Future Transactions.

      


      (1) Right
        to Participate.
        The
        Buyer will have a right to participate, on the terms and conditions set forth
        in
        this Section 5(j), in all sales by the Company of any of the Company’s equity
        securities or other securities that are convertible into or exchangeable
        for any
        of the Company’s equity securities in each capital raising transaction, if any,
        that occurs at any time when the Note, or any instrument issued upon transfer
        or
        split up thereof, remains outstanding (in whole or in part), other than any
        such
        sale that is a public offering underwritten on a firm commitment basis and
        registered with the SEC under the 1933 Act and other than a Strategic Issuance;
        provided,
        however,
        that if
        under legal requirements applicable to a particular transaction the only
        Persons
        eligible to purchase securities in such transaction are “accredited investors,”
as defined in Regulation D, then the Buyer must be an accredited investor
        in
        order to purchase securities in such transaction. For any such transaction
        during such period, the Company shall give at least four Business Days advance
        written notice to the Buyer prior to any offer or sale of any of the Company's
        securities in such transaction by providing to the Buyer a term sheet which
        (A)
        contains all significant business terms of such proposed transaction, (B)
        is
        sufficiently detailed so as to reasonably permit the Buyer the opportunity
        to
        determine whether or not to exercise its rights under this Section 5(j) and
        (C)
        is at least as detailed as the term sheet or summary of such transaction
        as the
        Company shall furnish to any offeree or broker in such transaction. The Buyer
        shall have the right to participate in such proposed transaction and to purchase
        its Pro Rata Share of
        such
        securities which are the subject of such proposed transaction for the same
        consideration and on the same terms and conditions as contemplated for sales
        to
        third parties in such transaction (or such lesser portion thereof as specified
        by the Buyer). If the Buyer elects to exercise its rights hereunder for a
        particular transaction, it shall deliver written notice to the Company within
        four Business Days following receipt from the Company of the notice and term
        sheet meeting the requirements of this Section 5(j), which notice from the
        Buyer
        shall be conditional upon (A) the Buyer’s receipt of satisfactory definitive
        documents for such transaction from the Company if the Company has not furnished
        final, definitive documents for such transaction to the Buyer at or before
        the
        time the Company gives such notice of such transaction to the Buyer, and
        (B) the
        satisfaction of the other conditions precedent to the obligations of buyers
        generally in such transaction to complete such transaction. If, subsequent
        to
        the Company giving notice to the Buyer hereunder but prior to any of (i)
        the
        Buyer exercising its right to participate, (ii) the expiration of the four
        Business Day period without response from the Buyer or (iii) the rejection
        of
        such offer for such financing by the Buyer, the terms and conditions of the
        proposed sale to third parties in such transaction are changed from those
        disclosed in the term sheet provided to the Buyer, the Company shall be required
        to provide a new notice and term sheet meeting the requirements of this Section
        5(j), reflecting such revised terms, to the Buyer hereunder and the Buyer
        shall
        have the right, which must be exercised within four Business Days of the
        date
        the Buyer receives such new notice and such revised term sheet, to exercise
        its
        rights to purchase the securities on such changed terms and conditions and
        otherwise as provided hereunder. If the Buyer does not exercise its rights
        hereunder with respect to a proposed transaction within the period or periods
        provided, or affirmatively declines to engage in such proposed transaction
        with
        the Company, then the Company may proceed with such proposed transaction
        on the
        same terms and conditions as noticed to the Buyer (assuming the Buyer has
        consented to the transaction, if required, pursuant to Section 5(n) and such
        transaction does not violate any other term or provision of the Transaction
        Documents), provided
        that if
        such proposed transaction is not consummated within 75 days following the
        Company’s notice hereunder, then the rights hereunder shall again be afforded to
        the Buyer for such proposed transaction. The rights and obligations of this
        Section 5(j) shall in no way limit or restrict the other rights of the Buyer
        pursuant to this Section 5. Notwithstanding anything herein to the contrary,
        failure of the Buyer to affirmatively elect in writing to participate in
        any
        proposed transaction within the required time frames shall be deemed to be
        the
        equivalent of Buyer’s decision not to participate in such proposed transaction.
        Notwithstanding the foregoing, this Section 5(j)(1) shall not apply in respect
        of an Exempt Issuance.

       

       

      
        
          
          

        

        
          -32-

          
            

          

        

        
          
          

        

      

      


      (2) Limitation
        on Right of Participation.
        Notwithstanding
        anything to the contrary contained herein, the number of shares of Common
        Stock
        that may be acquired directly or through acquisition of Common Stock Equivalents
        by the Buyer pursuant to any transaction to which this Section 5(j) applies
        shall not at any one time exceed a number that, when added to the total number
        of shares of Common Stock deemed beneficially owned by the Buyer (other than
        by
        virtue of the ownership of securities or rights to acquire securities (including
        the Note and the Warrants) that have limitations on the Buyer’s right to
        convert, exercise or purchase similar to the limitation set forth herein
        (the
“Excluded Shares”)), together with all shares of Common Stock deemed
        beneficially owned at such time (other than by virtue of ownership of Excluded
        Shares) by Persons whose beneficial ownership of Common Stock would be
        aggregated with the beneficial ownership of the Buyer for purposes of
        determining whether a group exists or for purposes of determining the Buyer’s
        beneficial ownership, in either such case for purposes of Section 13(d) of
        the
        1934 Act and Regulation 13D-G thereunder, would result in beneficial ownership
        by the Buyer or such group of more than 9.9% of the shares of the Company's
        Common Stock (the “Restricted Ownership Percentage”), computed in accordance
        with Regulation 13D-G. The Buyer shall have the right (x) 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 the Buyer shall have,
        by
        written instrument delivered to the Company, irrevocably waived its rights
        to so
        increase its Restricted Ownership Percentage. If the Buyer would otherwise
        be
        unable by reason of the Restricted Ownership Percentage to acquire the full
        amount of securities which the Buyer would otherwise be entitled to acquire
        in a
        particular transaction pursuant to this Section 5(j) then (A) the Company
        shall
        include in the terms of the securities which the Buyer is entitled to purchase
        in such transaction under this Section 5(j) a provision comparable to Section
        6.7 of
        the
        Note and (B) if, notwithstanding the inclusion of the provision required
        by the
        immediately preceding clause (1), the Buyer remains unable to acquire the
        full
        amount of securities which the Buyer would otherwise be entitled to acquire
        under this Section 5(j), the Buyer’s right to acquire such securities shall be
        deferred and if thereafter, at any time or from time to time the Buyer could
        acquire all or any part of such securities without exceeding its Restricted
        Ownership Percentage, then the Buyer shall be entitled to acquire such
        securities at such time or form time to time. The Buyer will provide notice
        to
        the Company when it becomes able to purchase all or any part of such securities
        and the closing of each such purchase shall occur on the date that is five
        Business Days after the Buyer gives such notice.

      


      (3) Right
        Applicable to Successive Transactions. The
        rights of the Buyer under this Section 5(j) shall apply to all capital raising
        transactions described in Section 5(j)(1) that occur during the period specified
        in Section 5(j)(1).

      


      (k) Press
        Releases.

      Any
        press
        release or other publicity concerning this Agreement or the transactions
        contemplated by this Agreement shall be submitted to the Buyer for comment
        at
        least one Business Day prior to issuance, unless the release is required
        to be
        issued within a shorter period of time pursuant to this Agreement or by law
        or
        pursuant to the rules of the securities exchange or market which at the time
        constitutes the principal market for the Common Stock.  The
        Company shall, contemporaneously with the Closing on the Closing Date or
        as
        promptly as possible thereafter on the Closing Date, issue a press release,
        in
        the form of Annex
        VI
        hereto,
        concerning the transactions contemplated hereby. The Company's other press
        releases and other public information, to the extent concerning the Transaction
        Documents, shall contain such information as reasonably requested by the
        Buyer
        and be reasonably approved by the Buyer prior to issuance. 

      


      (l) Form
        8-K; Limitation on Information and Buyer Obligations.

      (1)
        Within two Business Days after the Closing Date, the Company will publicly
        report the issue and sale of the Note and Warrants and the securities issued
        pursuant to the Other Purchase Agreements entered into on or before the Closing
        Date by filing with the SEC a Current Report on Form 8-K under the 1934 Act,
        which report shall describe the material terms of the transactions contemplated
        hereby and thereby and include copies of the forms of the Transaction Documents
        as exhibits to such report (the “Transaction Form 8-K”). The Company
        acknowledges and agrees that, upon the filing of the Transaction Form 8-K
        with
        the SEC, the Buyer shall not be in possession of any material nonpublic
        information received from the Company, any Subsidiary or any of their respective
        officers, directors, employees or agents.

      


      (2) The
        Company shall not provide, and shall cause each Subsidiary and the respective
        officers, directors, employees and agents of the Company and the Subsidiaries
        not to provide, the Buyer any material nonpublic information regarding the
        Company or any Subsidiary from and after the date the Company files, or is
        required by this Agreement to file, the Transaction Form 8-K with the SEC
        without the prior express written consent of the Buyer. 

      


      
        
          
          

        

        
          -33-

          
            

          

        

        
          
          

        

      

      (m) Limitation
        on Certain Transactions.

      From
        the
        date of this Agreement until after the SEC Effective Date of the Registration
        Statement contemplated by Section 8(a)(1), without the prior written consent
        of
        the Buyer (which consent may be withheld in the Buyer’s sole discretion), the
        Company shall not issue or sell or agree to issue or sell any securities
        (aside
        from the Other Notes and the Other Warrants and the shares of Common Stock
        issuable upon conversion or exercise thereof) in a capital raising transaction,
        unless such securities will not be, and are not, registered for sale or resale
        under the 1933 Act until on or after such SEC Effective Date; provided, however,
        that the limitation of this Section 5(m) shall not apply to (a) shares of
        Common
        Stock or options to employees, officers, directors or consultants of the
        Company
        pursuant to any stock or option plan duly adopted by a majority of the
        non-employee members of the Board of Directors of the Company or a majority
        of
        the members of a committee of non-employee directors established for such
        purpose, (b) securities upon the exercise or exchange of or conversion of
        any
        Securities issued hereunder and/or securities exercisable or exchangeable
        for or
        convertible into shares of Common Stock issued and outstanding on the date
        of
        this Agreement, provided that such securities have not been amended since
        the
        date of this Agreement to increase the number of such securities or to decrease
        the exercise, exchange or conversion price of any such securities, and (c)
        securities issued pursuant to acquisitions or strategic transactions, provided
        any such issuance shall only be to a Person which is, itself or through its
        subsidiaries, an operating company in a business synergistic with the business
        of the Company and in which the Company receives benefits in addition to
        the
        investment of funds, but shall not include a transaction in which the Company
        is
        issuing securities primarily for the purpose of raising capital or to an
        entity
        whose primary business is investing in securities (collectively, an “Exempt
        Issuance”). The Company agrees that, except for the amounts of securities to be
        purchased and the name of the buyer and the Restricted Ownership Percentage,
        the
        terms and provisions of the Other Notes and the Other Warrants shall be
        identical to the Note and the Warrants.

      


      (n) Debt
        Obligation.

       So
        long
        as any portion of the Note is outstanding, the Company shall cause its books
        and
        records to reflect the Note as a debt of the Company in its unpaid principal
        amount, shall cause its financial statements to reflect the Note as a debt
        of
        the Company in accordance with Generally Accepted Accounting Principles and
        as a
        valid senior debt obligation of the Company for money borrowed that is secured
        by the Collateral (unless all Collateral shall have been released pursuant
        to
        the Security Agreement and the security interest thereunder shall have
        terminated).

      


      (o) Security
        Agreement; Financing Statements, Etc.

      The
        Company agrees to execute and deliver to the Collateral Agent at or before
        the
        Closing the Patent and Trademark Security Agreement in the form attached
        hereto
        as Annex
        III
        and the
        Pledge and Security Agreement in the form attached hereto as Annex
        IV.
        The
        Company shall prepare and at or before the Closing Date file with the
        appropriate officials, Uniform Commercial Code financing statements on Form
        UCC-1 relating to the Collateral in which the Company is granting a security
        interest to the Collateral Agent for the benefit of the holders of the Note
        and
        the Other Notes pursuant to the Pledge and Security Agreement; and prepare
        and
        file with the PTO appropriate documents relating to the Collateral in which
        the
        Company is granting a security interest to the Collateral Agent for the benefit
        of the holders of the Note and the Other Notes pursuant to the Patent and
        Trademark Security Agreement. Prior to the Closing, the Company shall provide
        to
        the Buyer evidence of such filings and customary, current search reports
        of the
        relevant Uniform Commercial Code filing offices and the PTO.

      


      (p) Short
        Sales and Confidentiality After The Date Hereof.

      The
        Buyer
        covenants that neither it nor any affiliates acting on its behalf or pursuant
        to
        any understanding with it will execute any Short Sales during the period
        commencing
        from
        the time
        that the Buyer first received a term sheet from the Company or any other
        Person
        setting forth the material terms of the transactions contemplated hereunder
        and
        ending on the earlier of (i) the date that the transactions contemplated
        by this
        Agreement are first publicly announced subsequent to the Closing Date as
        described in Section 5(k) and (ii) the date, if applicable, that this Agreement
        is terminated pursuant to Section 10(l). The Buyer covenants that until such
        time as the transactions contemplated by this Agreement are publicly disclosed
        by the Company as described in Section 5(k) or the earlier termination of
        this
        Agreement, the Buyer will maintain the confidentiality of all disclosures
        made
        to it in connection with this transaction (including the existence and terms
        of
        this transaction). The Buyer understands and acknowledges that the SEC currently
        takes the position that coverage of short sales of shares of the Common Stock
        “against the box” prior to the effective date of the Registration Statement with
        the Securities is a violation of Section 5 of the 1933 Act, as set forth
        in Item
        65, Section 5 under Section A, of the Manual of Publicly Available Telephone
        Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
        Division of Corporation Finance. Notwithstanding the foregoing, the Buyer
        does
        not make any representation, warranty or covenant hereby that it will not
        engage
        in Short Sales in the securities of the Company after the earlier of (i)
        the
        date that the transactions contemplated by this Agreement are first publicly
        announced subsequent to the Closing Date as described in Section 5(k) and
        (ii)
        the date, if applicable, that this Agreement is terminated pursuant to Section
        10(l). Notwithstanding the foregoing, in the case of a Buyer that is a
        multi-managed investment vehicle whereby separate portfolio managers manage
        separate portions of such Buyer's assets and the portfolio managers have
        no
        direct knowledge of the investment decisions made by the portfolio managers
        managing other portions of such Buyer's assets, the covenant set forth above
        shall only apply with respect to the portion of assets managed by the portfolio
        manager that made the investment decision to purchase the Securities covered
        by
        this Agreement.

       

       

      
        
          
          

        

        
          -34-

          
            

          

        

        
          
          

        

      

      


      6. CONDITIONS
        TO THE COMPANY’S OBLIGATION TO SELL.

      


      The
        Buyer
        understands that the Company’s obligation to sell the Note and issue the
        December Closing Date Warrant to the Buyer pursuant to this Agreement is
        conditioned upon satisfaction of the following conditions precedent on or
        before
        the Closing Date (any or all of which may be waived by the Company in its
        sole
        discretion):

      


      (a) On
        the
        Closing Date, no legal action, suit or proceeding shall be pending or threatened
        which seeks to restrain or prohibit the transactions contemplated by this
        Agreement; and

      


      (b) The
        representations and warranties of the Buyer contained in this Agreement shall
        have been true and correct on the date of this Agreement and on the Closing
        Date
        as if made on the Closing Date and on or before the Closing Date the Buyer
        shall
        have performed all covenants and agreements of the Buyer contained in this
        Agreement and required to be performed by the Buyer on or before the Closing
        Date.

      


      7. CONDITIONS
        TO THE BUYER’S OBLIGATION TO PURCHASE. 

      


      The
        Company understands that the Buyer’s obligation to purchase the Note and acquire
        the December Closing Date Warrant is conditioned upon satisfaction of the
        following conditions precedent on or before the Closing Date (any or all
        of
        which may be waived by the Buyer in its sole discretion):

      


      (a) No
        legal
        action, suit or proceeding shall be pending or threatened which seeks to
        restrain or prohibit the transactions contemplated by this
        Agreement;

      


      (b) The
        representations and warranties of the Company contained in this Agreement
        shall
        have been true and correct on the date of this Agreement and shall be true
        and
        correct on the Closing Date as if given on and as of the Closing Date (except
        for representations given as of a specific date, which representations shall
        be
        true and correct as of such date), and on or before the Closing Date the
        Company
        shall have performed all covenants and agreements of the Company contained
        herein or in any of the other Transaction Documents required to be performed
        by
        the Company on or before the Closing Date;

      


      (c) No
        event
        which, if the Note were outstanding, (1) would constitute an Event of Default
        or
        which, with the giving of notice or the passage of time, or both, would
        constitute an Event of Default shall have occurred and be continuing or (2)
        would constitute a Repurchase Event or which, with the giving of notice or
        the
        passage of time, or both, would constitute a Repurchase Event shall have
        occurred and be continuing;

      


      (d) The
        Company shall have delivered to the Buyer a certificate, dated the Closing
        Date,
        duly executed by its Chief Executive Officer or Chief Financial Officer,
        to the
        effect set forth in subparagraphs (a), (b) and (c) of this Section
        7;

      


      
        
          
          

        

        
          -35-

          
            

          

        

        
          
          

        

      

      (e)
        The
        Company shall have delivered to the Buyer an appropriate certificate, dated
        the
        Closing Date, of the Secretary of the Company certifying (1) the Certificate
        of
        Incorporation and By-Laws of the Company as in effect on the Closing Date,
        and
        (2) all resolutions of the Board of Directors (and committees thereof) of
        the
        Company relating to this Agreement and the other Transaction Documents and
        the
        transactions contemplated hereby and thereby; 

      


      (f)
        The
        closings under the Other Note Purchase Agreements shall have
        occurred;

      


      (g) The
        Conversion Shares and the Warrant Shares shall have been approved for listing,
        subject only to official notice of issuance, by the AMEX and the Buyer shall
        have received written evidence of such approval by the AMEX; 

      


      (h) On
        the
        Closing Date, the Buyer shall have received an opinion of Sichenzia Ross
        Friedman Ference LLP, counsel for the Company, dated the Closing Date, addressed
        to the Buyer, in the form substantially similar to the attached as Annex
        VII
        and an
        opinion of Epstein Drangel Bazerman & James, LLP, intellectual property
        counsel for the Company, dated the Closing Date, addressed to the Buyer,
        in the
        form substantially similar to the attached as Annex
        VIII;
        and

      


      (i) On
        the
        Closing Date, (i) trading in securities on the New York Stock Exchange, Inc.,
        the AMEX, Nasdaq or the Nasdaq Capital Market shall not have been suspended
        or
        materially limited and (ii) a general moratorium on commercial banking
        activities in the State of New York shall not have been declared by either
        federal or state authorities.

      


      (j)
        All
        filings of financing statements necessary or appropriate under the Uniform
        Commercial Code in connection with the Pledge and Security Agreement shall
        have
        been made, and the Buyer shall have received satisfactory evidence of such
        filings; and

      


      (k)
        None
        of the Other Notes shall have been redeemed by the Company;

      


      8. REGISTRATION
        RIGHTS.

      


      
        
          
          

        

        
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      (a) Mandatory
        Registration.

      (1)
        The
        Company shall prepare and, as expeditiously as possible, but in no event
        later
        than the date which is 90 days after the Closing Date, file with the SEC
        a
        Registration Statement which covers the resale by the Buyer of a number of
        shares of Common Stock equal to the sum of (A) the number of Conversion Shares
        issuable upon conversion of the Note plus
        (B) the
        number of Warrant Shares issuable upon exercise of the Warrants, as Registrable
        Securities, and which Registration Statement shall state that, in accordance
        with Rule 416 under the 1933 Act, such Registration Statement also covers
        such
        indeterminate number of additional shares of Common Stock as may become issuable
        upon conversion of the Note or exercise of the Warrants to prevent dilution
        resulting from stock splits, stock dividends or similar transactions. Such
        Registration Statement may also cover the resale by other holders of shares
        of
        Common Stock issued or issuable by the Company pursuant to any equity or
        convertible debt financing completed by the Company prior to the SEC Filing
        Date.

      


      (2) Prior
        to
        the earlier of the (i) SEC Effective Date, or (ii) two (2) years from the
        date
        hereof, the Company shall not file any other registration statement or any
        amendment thereto with the SEC under the 1933 Act or request the acceleration
        of
        the effectiveness of any other registration statement previously filed with
        the
        SEC, other than (A) any registration statement on Form S-8 and (B) any
        registration statement or amendment which the Company is required to file,
        or as
        to which the Company is required to request acceleration, pursuant to any
        obligation in effect on the date of execution and delivery of this
        Agreement.

      


      (3) If
        at any
        time or from time to time after the Closing Date any Investor shall hold
        or be
        the beneficial owner of any Registrable Securities, other than those Registrable
        Securities included in the Registration Statement that the Company is required
        to file under Section 8(a)(1), which Registrable Securities are not covered
        by a
        Registration Statement, then promptly following the written demand of any
        Investor following the issuance of such additional Registrable Securities
        or the
        issuance of any securities convertible into, exchangeable for, or otherwise
        entitling an Investor to acquire, such additional Registrable Securities,
        and in
        any event within 30 days following such demand, the Company shall prepare
        and
        file with the SEC a new Registration Statement on Form S-3 (or, if Form S-3
        is
        not then available to the Company, on such form of registration statement
        as is
        then available to effect a registration for resale of such additional
        Registrable Securities) covering the resale by such Investor of such additional
        Registrable Securities. Such Registration Statement also shall cover, to
        the
        extent permitted by the 1933 Act and the rules promulgated thereunder (including
        Rule 416), such indeterminate number of additional securities resulting from
        stock splits, stock dividends or similar transactions with respect to such
        additional Registrable Securities. Nothing herein shall limit the Company’s
        obligations or any Investor’s rights under Section 6.4 of the Note or Section 9
        of the Warrants.

      


      (4) If
        a
        Payment Event occurs, then the Company will make payments to the Buyer, in
        immediately available funds in lawful money of the United States, as partial
        liquidated damages for the minimum amount of damages to the Buyer by reason
        thereof, and not as a penalty, which payments shall accrue at the rate of
        1.0%
        per month of the principal amount of the Note at the time outstanding during
        each Payment Period. Each such payment shall be due and payable within five
        Business Days after the end of each calendar month during which any Payment
        Period occurs until the termination of such Payment Period and within five
        Business Days after such termination. Such payments shall be in partial
        compensation to the Buyer, and shall not constitute the Buyer’s exclusive remedy
        for any Payment Event. A particular Payment Period shall terminate upon (u)
        the
        filing of the applicable Registration Statement, in the case of clause (i)
        of
        the definition of “Payment Event”; (v) the applicable SEC Effective Date for the
        particular Registration Statement, in the case of clause (ii) or (iii) of
        the
        definition of “Payment Event”; (w) the ability of the Buyer to effect sales
        pursuant to the applicable Registration Statement, in the case of clause
        (iv) of
        the definition of “Payment Event”; (x) the listing or inclusion and/or trading
        of the Common Stock on a Trading Market, as the case may be, in the case
        of
        clause (v) of the definition of “Payment Event”; (y) the issuance and delivery
        of the shares, in the case of clause (vi) of the definition of “Payment Event”;
        and (z) in the case of the events described in clauses (ii), (iii) and (iv)
        of
        the definition of “Payment Event”, the earlier termination of the Registration
        Period, and in each such case in the preceding clauses (u) thorough (z),
        any
        Payment Period that commenced by reason of the occurrence of any Payment
        Event
        shall terminate if at the time (1) no other Payment Event is continuing or
        (2)
        subject to the rights of any transferee under Section 10(j), the Buyer no
        longer
        holds any portion of the Note or any Registrable Securities. Notwithstanding
        any
        other provision of this Section 8(a)(4) to the contrary, the Company shall
        not
        be obligated to make any payments hereunder for Payment Periods in excess
        of an
        aggregate of 548 days. If the Company fails to pay any liquidated damages
        pursuant to this Section in full within three days after the date payable,
        the
        Company will pay interest thereon at a rate of 16% per annum (or such lesser
        rate as is the highest rate permitted by applicable law) to the Buyer, accruing
        daily from the date such liquidated damages are due until such amounts, plus
        all
        such interest thereon, are paid in full.

       

                  (5)
        Notwithstanding
        the foregoing, the registration rights set forth in this Section 8 apply
        to the
        Note and December Closing Date Warrant. The July 2006 Warrant shall have
        the
        same registration rights mutatis
        mutandis
        as, and
        be registered with, the Other Warrants pursuant to the registration rights
        set
        forth in the Other Note Purchase Agreement. 

      


      
        
          
          

        

        
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      (b) Obligations
        of the Company.

      In
        connection with the registration of the Registrable Securities, the Company
        shall:

      


      (1) use
        its
        best efforts to cause each Registration Statement to become effective as
        promptly as possible after the filing thereof and
        to
        keep such Registration Statement effective at all times during the Registration
        Period. The Company shall submit to the SEC, within three Business Days after
        the Company learns that no review of such Registration Statement will be
        made by
        the staff of the SEC or that the staff of the SEC has no further comments
        on
        such Registration Statement, as the case may be, a request for acceleration
        of
        effectiveness of such Registration Statement to a time and date not later
        than
        48 hours after the submission of such request. The Company represents and
        warrants to the Investors that (a) each Registration Statement (including
        any
        amendment or supplement thereto and prospectus contained therein), at the
        time
        it is first filed with the SEC, at the time it is ordered effective by the
        SEC
        and at all times during which it is required to be effective hereunder (and
        each
        such amendment and supplement at the time it is filed with the SEC and at
        all
        times during which it is available for use in connection with the offer and
        sale
        of the Registrable Securities) shall not contain any untrue statement of
        a
        material fact or omit to state a material fact required to be stated therein
        or
        necessary to make the statements therein not misleading and (b) each Prospectus,
        at the time the related Registration Statement is declared effective by the
        SEC
        and at all times that such Prospectus is required by this Agreement to be
        available for use by any Investor and, in accordance with Section 8(c)(4),
        any
        Investor is entitled to sell Registrable Securities pursuant to such Prospectus,
        shall not contain any untrue statement of a material fact or omit to state
        a
        material fact required to be stated therein, or necessary to make the statements
        therein, in light of the circumstances in which they were made, not
        misleading;

      


      (2) subject
        to Section 8(b)(5), prepare and file with the SEC such amendments (including
        post-effective amendments) and supplements to each Registration Statement
        and
        Prospectus as may be necessary to keep such Registration Statement effective,
        and such Prospectus current, at all times during the Registration Period,
        and,
        during the Registration Period (other than during any Blackout Period during
        which the provisions of Section 8(b)(5)(B) are applicable), comply with the
        provisions of the 1933 Act applicable to the Company in order to permit the
        disposition by the Investors of all Registrable Securities covered by such
        Registration Statement;

      


      (3) furnish
        to Investors whose Registrable Securities are included in a particular
        Registration Statement and such Investors’ respective legal counsel, promptly
        after the same is prepared and publicly distributed, filed with the SEC or
        received by the Company, (1) one conformed copy of such Registration Statement
        and any amendment thereto and the related Prospectus and each amendment or
        supplement thereto and (2) such number of copies of such Prospectus and all
        amendments and supplements thereto and such other documents, as such Investor
        may reasonably request in order to facilitate the disposition of the Registrable
        Securities owned by such Investor; and notify the Investor and its legal
        counsel
        within one Business Day after the same is filed with the SEC, or received
        by the
        Company, of the filing or receipt of each letter written by or on behalf
        on the
        Company to the SEC or the staff of the SEC, and each item of correspondence
        from
        the SEC or the staff of the SEC, in each case relating to such Registration
        Statement (other than any portion of any thereof which contains information
        for
        which the Company has sought confidential treatment), and permit counsel
        designed by the Investor to review letters and items of correspondence upon
        the
        request of such counsel;

      


      (4) subject
        to Section 8(b)(5), use its best efforts (i) to register and qualify the
        Registrable Securities covered by each Registration Statement under the
        securities or blue sky laws of such jurisdictions as any Investor who owns
        or
        holds any Registrable Securities reasonably requests, (ii) to prepare and
        to
        file in those jurisdictions such amendments (including post-effective
        amendments) and supplements to such registrations and qualifications as may
        be
        necessary to maintain the effectiveness thereof at all times during the
        Registration Period and (iii) to take all other actions reasonably necessary
        or
        advisable to qualify the Registrable Securities for sale by the Investors
        in
        such jurisdictions; provided,
        however,
        that the
        Company shall not be required in connection therewith or as a condition thereto
        (I) to qualify to do business in any jurisdiction where it would not otherwise
        be required to qualify but for this Section 8(b)(4), (II) to subject itself
        to
        general taxation in any such jurisdiction, (III) to file a general consent
        to
        service of process in any such jurisdiction, (IV) to provide any undertakings
        that cause more than nominal expense or burden to the Company or (V) to make
        any
        change in its certificate or article of incorporation or by-laws which the
        Board
        of Directors of the Company determines to be contrary to the best interests
        of
        the Company and its stockholders;

      


      
        
          
          

        

        
          -38-

          
            

          

        

        
          
          

        

      

      (5) (A)
        as
        promptly as practicable after becoming aware of such event or circumstance,
        notify each Investor of the occurrence of any event or circumstance of which
        the
        Company has knowledge (x) as a result of which any Prospectus, as then in
        effect, includes an untrue statement of a material fact or omits to state
        a
        material fact required to be stated therein or necessary to make the statements
        therein, in light of the circumstances under which they were made, not
        misleading, (y) which requires the Company to amend or supplement any
        Registration Statement due to the receipt from an Investor or any other selling
        stockholder named in the Prospectus of new or additional information about
        such
        Investor or selling stockholder or its intended plan of distribution of its
        Registrable Securities or other securities covered by such Registration
        Statement, or (z) which requires the Company to amend or supplement any
        Registration Statement pursuant to the Company’s undertakings as set forth in
        the Registration Statement and in Item 512 of Regulation S-K under the 1933
        Act,
        and use its best efforts promptly to prepare a supplement or amendment to
        such
        Registration Statement and Prospectus to correct such untrue statement or
        omission or to add any new or additional information, and deliver a number
        of
        copies of such supplement or amendment to each Investor as such Investor
        may
        reasonably request;

      


      (B) notwithstanding
        Section 8(b)(5)(A) above, if at any time the Company notifies the Investors
        as
        contemplated by Section 8(b)(5)(A) with respect to a particular Registration
        Statement or Prospectus the Company also notifies the Investors that the
        event
        giving rise to such notice relates to a development involving the Company
        which
        occurred subsequent to the later of (x) the SEC Effective Date of the applicable
        Registration Statement and (y) the latest date prior to such notice on which
        the
        Company has amended or supplemented such Registration Statement, then the
        Company shall not be required to use best efforts to make such amendment
        during
        a Blackout Period; provided,
        however,
        that in
        any period of 365 consecutive days the Company shall not be entitled to avail
        itself of its rights under this Section 8(b)(5)(B) with respect to more than
        two
        Blackout Periods; and provided
        further, however, that
        no
        Blackout Period may commence sooner than 90 days after the end of an earlier
        Blackout Period;

      


      (6) as
        promptly as practicable after becoming aware of such event, notify each Investor
        who holds Registrable Securities being offered or sold pursuant to a particular
        Registration Statement of the issuance by the SEC of any stop order or other
        suspension of effectiveness of such Registration Statement at the earliest
        possible time;

      


      (7) permit
        the Investors who hold Registrable Securities being included in a particular
        Registration Statement (or their designee) and their counsel to review and
        have
        a reasonable opportunity to comment on such Registration Statement and any
        related Prospectus and all amendments and supplements thereto at least two
        Business Days prior to their filing with the SEC;

      


      (8) make
        generally available to its security holders as soon as practical, but not
        later
        than 90 days after the close of the period covered thereby, an earning statement
        (in form complying with the provisions of Rule 158 under the 1933 Act) covering
        a 12-month period beginning not later than the first day of the Company’s fiscal
        quarter next following the SEC Effective Date of each Registration
        Statement;

      


      
        
          
          

        

        
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      (9) make
        available for inspection by any Investor and any Inspector retained by such
        Investor, at such Investor’s sole expense, all Records as shall be reasonably
        necessary or appropriate to enable such Investor to exercise due diligence
        for
        purposes of the 1933 Act and the 1934 Act as it relates to the Registration
        Statement and cause the Company’s and the Subsidiaries officers, directors and
        employees to supply all information which such Investor or Inspector may
        reasonably request for purposes of such due diligence; provided,
        however, that
        such
        Investor shall hold in confidence and shall not make any disclosure of any
        Record or other information which the Company determines in good faith to
        be
        confidential, and of which determination such Investor is so notified, unless
        (i) the disclosure of such Record is necessary to avoid or correct a
        misstatement or omission in a Registration Statement or Prospectus and a
        reasonable time prior to such disclosure the Investor shall have notified
        the
        Company of the need to so correct such misstatement or omission and the Company
        shall have failed to correct such misstatement or omission, (ii) the release
        of
        such Record is ordered pursuant to a subpoena or other order from a court
        or
        governmental body of competent jurisdiction or (iii) the information in such
        Record has been made generally available to the public other than by disclosure
        in violation of this or any other agreement. The Company shall not be required
        to disclose any confidential information in such Records to any Inspector
        until
        and unless such Inspector shall have entered into a confidentiality agreement
        with the Company with respect thereto, substantially in the form of this
        Section
        8(b)(9), which agreement shall permit such Inspector to disclose Records
        to the
        Investor who has retained such Inspector. Each Investor agrees that it shall,
        upon learning that disclosure of such Records is sought in or by a court
        or
        governmental body of competent jurisdiction or through other means, give
        prompt
        notice to the Company and allow the Company, at the Company’s expense, to
        undertake appropriate action to prevent disclosure of, or to obtain a protective
        order for, the Records deemed confidential. The Company shall hold in confidence
        and shall not make any disclosure of information concerning an Investor provided
        to the Company pursuant to this Agreement unless (i) the disclosure of such
        information is necessary to comply with federal or state securities laws,
        (ii)
        the disclosure of such information is necessary to avoid or correct a
        misstatement or omission in a Registration Statement or the related Prospectus,
        (iii) the release of such information is ordered pursuant to a subpoena or
        other
        order from a court or governmental body of competent jurisdiction, or (iv)
        such
        information has been made generally available to the public other than by
        disclosure in violation of this or any other agreement. The Company agrees
        that
        it shall, upon learning that disclosure of such information concerning an
        Investor is sought in or by a court or governmental body of competent
        jurisdiction or through other means, give prompt notice to such Investor
        and
        allow such Investor, at such Investor’s expense, to undertake appropriate action
        to prevent disclosure of, or to obtain a protective order for, such
        information;

      


      (10) use
        its
        best efforts to cause all the Registrable Securities covered by a particular
        Registration Statement as of the SEC Effective Date of such Registration
        Statement to be listed, quoted or traded on the principal securities market
        on
        which securities of the same class or series issued by the Company are then
        listed, quoted or traded;

      


      (11) provide
        a
        transfer agent and registrar, which may be a single entity, for the Registrable
        Securities at all times;

      


      (12) cooperate
        with the Investors who hold Registrable Securities being offered pursuant
        to a
        particular Registration Statement to facilitate the timely preparation and
        delivery of certificates (not bearing any restrictive legends) representing
        Registrable Securities to be offered pursuant to such Registration Statement
        and
        enable such certificates to be in such denominations or amounts as the Investors
        may reasonably request and registered in such names as the Investors may
        request; and, not later than the SEC Effective Date of such Registration
        Statement, the Company shall cause legal counsel selected by the Company
        to
        deliver to the Investors whose Registrable Securities are included in the
        Registration Statement opinions of counsel in form and substance as is
        customarily given to underwriters in an underwritten public offering;


      


      (13) advise
        the Investors in writing on the date that the Registration Statement is declared
        effective by the SEC that the form of Prospectus contained in the Registration
        Statement at the time of effectiveness meets the requirements of Section
        10(a)
        of the 1933 Act or that it intends to file a Prospectus pursuant to Rule
        424(b)
        that meets the requirements of Section 10(a) of the 1933 Act;

      


      (14) during
        the Registration Period, the Company shall not bid for or purchase any Common
        Stock or any right to purchase Common Stock or attempt to induce any Person
        to
        purchase any such security or right if such bid, purchase or attempt would
        in
        any way limit the right of the Investors to sell Registrable Securities by
        reason of the limitations set forth in Regulation M under the 1934 Act;
        and

      


      (15) take
        all
        other reasonable actions necessary to expedite and facilitate disposition
        by the
        Investors of the Registrable Securities pursuant to the Registration Statement
        relating thereto.

      


      (c) Obligations
        of the Buyer and other Investors.

      In
        connection with the registration of the Registrable Securities, the Investors
        shall have the following obligations:

      


      (1) It
        shall
        be a condition precedent to the obligations of the Company to complete the
        registration pursuant to this Agreement with respect to the Registrable
        Securities of a particular Investor that such Investor shall furnish to the
        Company completed Selling Securityholder Questionnaire in the form attached
        hereto as Exhibit
        A
        and
        shall execute such other documents in connection with such registration as
        the
        Company may reasonably request.

      


      (2) Each
        Investor by such Investor’s acceptance of the Registrable Securities agrees to
        cooperate with the Company as reasonably requested by the Company in connection
        with the preparation and filing of each Registration Statement hereunder
        that
        covers such Registrable Securities, unless such Investor has notified the
        Company of such Investor’s election to exclude all of such Investor’s
        Registrable Securities from such Registration Statement;

      


      
        
          
          

        

        
          -40-

          
            

          

        

        
          
          

        

      

      (3) Each
        Investor agrees that it will not effect any disposition of the Registrable
        Securities except as contemplated in the applicable Registration Statement
        or
        Prospectus or as otherwise is in compliance with applicable securities laws
        and
        that it will promptly notify the Company of any material changes in the
        information set forth in the Registration Statement regarding such Investor
        or
        its plan of distribution before selling any Registrable Securities pursuant
        to
        such Registration Statement or Prospectus subsequent to such material change;
        each Investor agrees (a) to notify the Company in writing in the event that
        such
        Investor enters into any material agreement with a broker or a dealer for
        the
        sale pursuant to a Registration Statement of Registrable Securities through
        a
        block trade, special offering, exchange distribution or a purchase by a broker
        or dealer and (b) in connection with such agreement, to provide to the Company
        in writing the information necessary to prepare any supplemental Prospectus
        pursuant to Rule 424(c) under the 1933 Act which is required with respect
        to
        such transaction; and

      


      (4) Each
        Investor acknowledges that there may occasionally be times as specified in
        Section 8(b)(5) or 8(b)(6) when the Company must suspend the use of a Prospectus
        until such time as an amendment to the related Registration Statement has
        been
        filed by the Company and declared effective by the SEC, the Company has prepared
        a supplement to such Prospectus or the Company has filed an appropriate report
        with the SEC pursuant to the 1934 Act. Each Investor hereby covenants that
        it
        will not sell any Registrable Securities pursuant to such Prospectus during
        the
        period commencing at the time at which the Company gives such Investor notice
        of
        the suspension of the use of such Prospectus in accordance with Section 8(b)(5)
        or 8(b)(6) and ending at the time the Company gives such Investor notice
        that
        such Investor may thereafter effect sales pursuant to the Prospectus, or
        until
        the Company delivers to such Investor or files with the SEC an amended or
        supplemented Prospectus.

      


      (d) Rule
        144.

       With
        a
        view to making available to each Investor the benefits of Rule 144, the Company
        agrees:

      


      (1) so
        long
        as any Investor owns Registrable Securities, promptly upon request of such
        Investor, to furnish to such Investor such information as may be necessary
        to
        permit such Investor to sell Registrable Securities pursuant to Rule 144
        without
        registration and otherwise reasonably to cooperate with such Investor
        and

      


      (2) if
        at any
        time the Company is not required by applicable law or this Agreement to file
        reports with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, to
        use its
        best efforts, upon the request of an Investor, to make publicly available
        other
        information so long as is necessary to permit publication by brokers and
        dealers
        of quotations for the Common Stock and sales of the Registrable Securities
        in
        accordance with Rule 15c2-11 under the 1934 Act.

      


      9. INDEMNIFICATION
        AND CONTRIBUTION.

      


      (a) Indemnification.

      (1)
        To
        the extent not prohibited by applicable law, the Company will indemnify and
        hold
        harmless each Indemnified Person against any Claims to which any of them
        may
        become subject under the 1933 Act, the 1934 Act or otherwise, insofar as
        such
        Claims (or actions or proceedings, whether commenced or threatened, in respect
        thereof) arise out of or are based upon any Violation. Subject to the
        restrictions set forth in Section 9(a)(3) with respect to the number of legal
        counsel, the Company shall reimburse the Investors and each such controlling
        Person, promptly as such expenses are incurred and are due and payable, for
        any
        documented reasonable legal fees or other documented and reasonable expenses
        incurred by them in connection with investigating or defending any such Claim.
        Notwithstanding anything to the contrary contained herein, the indemnification
        agreement contained in this Section 9(a)(1) shall not apply to: (I) a Claim
        arising out of or based upon a Violation which occurs in reliance upon and
        in
        conformity with information relating to an Indemnified Person furnished in
        writing to the Company by such Indemnified Person or an underwriter for such
        Indemnified Person expressly for use in connection with the preparation of
        any
        Registration Statement or any such amendment thereof or supplement thereto;
        (II)
        any Claim arising out of or based on any statement or omission in any
        Prospectus, which statement or omission was corrected in any subsequent
        Prospectus that was delivered to the Indemnified Person prior to the pertinent
        sale or sales of Registrable Securities by such Indemnified Person; and (III)
        amounts paid in settlement of any Claim if such settlement is effected without
        the prior written consent of the Company. Such indemnity shall remain in
        full
        force and effect regardless of any investigation made by or on behalf of
        the
        Indemnified Person and shall survive the transfer of the Registrable Securities
        by the Investors.

      


      (2) In
        connection with each Registration Statement, each Investor who is named as
        a
        selling stockholder in such Registration Statement agrees to indemnify and
        hold
        harmless, to the same extent and in the same manner set forth in Section
        9(a)(1), each Indemnified Party against any Claim to which any of them may
        become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as
        such
        Claim arises out of or is based upon any Violation, in each case to the extent
        (and only to the extent) that such Violation occurs in reliance upon and
        in
        conformity with written information furnished to the Company by such Investor
        expressly for use in connection with such Registration Statement or any
        amendment thereof or supplement thereto; and such Investor will reimburse
        any
        legal or other expenses reasonably incurred by them in connection with
        investigating or defending any such Claim; provided,
        however,
        that
        the indemnity agreement contained in this Section 9(a)(2) shall not apply
        to
        amounts paid in settlement of any Claim if such settlement is effected without
        the prior written consent of such Investor; provided,
        further,
        however,
        that an
        Investor shall be liable under this Section 9(a)(2) for only that amount
        of all
        Claims in the aggregate as does not exceed the amount by which the proceeds
        to
        such Investor as a result of the sale of Registrable Securities pursuant
        to such
        Registration Statement exceeds the amount paid by such Investor for such
        Registrable Securities or for the Common Stock Equivalents pursuant to which
        such Registrable Securities were issued, as the case may be. Such indemnity
        shall remain in full force and effect regardless of any investigation made
        by or
        on behalf of such Indemnified Party and shall survive the transfer of the
        Registrable Securities by the Investors. Notwithstanding anything to the
        contrary contained herein, the indemnification agreement contained in this
        Section 9(a)(2) with respect to any preliminary prospectus shall not inure
        to
        the benefit of any Indemnified Party if the untrue statement or omission
        of
        material fact contained in such preliminary prospectus was corrected on a
        timely
        basis in the related Prospectus, as then amended or supplemented.

      


      
        
          
          

        

        
          -41-

          
            

          

        

        
          
          

        

      

      (3) Promptly
        after receipt by an Indemnified Person or Indemnified Party under this Section
        9(a) of notice of the commencement of any action (including any governmental
        action), such Indemnified Person or Indemnified Party shall, if a Claim in
        respect thereof is to be made against any indemnifying party under this Section
        9(a), deliver to the indemnifying party a notice of the commencement thereof
        and
        the indemnifying party shall have the right to participate in, and, to the
        extent the indemnifying party so desires, jointly with any other indemnifying
        party similarly noticed, to assume control of the defense thereof with counsel
        reasonably satisfactory to the Indemnified Person or the Indemnified Party,
        as
        the case may be; provided,
        however,
        that an
        Indemnified Person or Indemnified Party shall have the right to retain its
        own
        counsel with the fees and expenses to be paid by the indemnifying party,
        if, in
        the reasonable opinion of counsel retained by the indemnifying party, the
        representation by such counsel of the Indemnified Person or Indemnified Party
        and the indemnifying party would be inappropriate due to actual or potential
        differing interests between such Indemnified Person or Indemnified Party
        and any
        other party represented by such counsel in such proceeding, in which case
        the
        indemnifying party shall not be responsible for more than one such separate
        counsel, and one local counsel in each jurisdiction in which an action is
        pending, for all Indemnified Persons or Indemnified Parties, as the case
        may be.
        The failure to deliver notice to the indemnifying party within a reasonable
        time
        of the commencement of any such action shall not relieve such indemnifying
        party
        of any liability to the Indemnified Person or Indemnified Party under this
        Section 9(a), except to the extent that the indemnifying party is prejudiced
        in
        its ability to defend such action. The indemnification required by this Section
        9(a) shall be made by periodic payments of the amount thereof during the
        course
        of the investigation or defense, as such expense, loss, damage or liability
        is
        incurred and is due and payable.

      


      (b) Contribution.

      To
        the
        extent any indemnification by an indemnifying party as set forth in Section
        9(a)
        above is applicable by its terms but is prohibited or limited by law, the
        indemnifying party agrees to make the maximum contribution with respect to
        any
        amounts for which it would otherwise be liable under Section 9(a) to the
        fullest
        extent permitted by law. In determining the amount of contribution to which
        the
        respective parties are entitled, there shall be considered the relative fault
        of
        each party, the parties’ relative knowledge of and access to information
        concerning the matter with respect to which the claim was asserted, the
        opportunity to correct and prevent any statement or omission and any other
        equitable considerations appropriate under the circumstances; provided,
        however,
        that
        (a) no contribution shall be made under circumstances where the maker would
        not
        have been liable for indemnification under the fault standards set forth
        in
        Section 9(a), (b) no Person guilty of fraudulent misrepresentation (within
        the
        meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
        from
        any other Person who was not guilty of such fraudulent misrepresentation
        and (c)
        the aggregate contribution by any seller of Registrable Securities shall
        be
        limited to the amount by which the proceeds received by such seller from
        the
        sale of such Registrable Securities exceeds the amount paid by such Investor
        for
        such Registrable Securities or for the Common Stock Equivalents pursuant
        to
        which such Registrable Securities were issued, as the case may be.

      


      (c) Other
        Rights.

      The
        indemnification and contribution provided in this Section shall be in addition
        to any other rights and remedies available at law or in equity.

      


      
        
          
          

        

        
          -42-

          
            

          

        

        
          
          

        

      

      10. MISCELLANEOUS.

      


      (a)
         Governing
        Law.

      THIS
        AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
        OF
        THE STATE OF NEW YORK.

      


      (b) Headings.

       The
        headings, captions and footers of this Agreement are for convenience of
        reference and shall not form part of, or affect the interpretation of, this
        Agreement.

      


      (c) Severability.

       If
        any
        provision of this Agreement shall be invalid or unenforceable in any
        jurisdiction, such invalidity or unenforceability shall not affect the validity
        or enforceability of the remainder of this Agreement or the validity or
        enforceability of this Agreement in any other jurisdiction.

      


      (d) Notices.

       Any
        notices required or permitted to be given under the terms of this Agreement
        shall be in writing and shall be sent by certified mail, personal delivery,
        telephone line facsimile transmission or courier and shall be effective five
        days after being placed in the mail, if mailed, or upon receipt, if delivered
        personally, by telephone line facsimile transmission or by courier, in each
        case
        addressed to a party at such party’s address (or telephone line facsimile
        transmission number) shown in the introductory paragraph or on the signature
        page of this Agreement or such other address (or telephone line facsimile
        transmission number) as a party shall have provided by notice to the other
        party
        in accordance with this provision. In the case of any notice to the Company,
        such notice shall be addressed to the Company at its address shown in the
        introductory paragraph of this Agreement, Attention: Chief Executive Officer
        (telephone line facsimile number (425) 749-3601).

      


      (e) Counterparts.

      This
        Agreement may be executed in counterparts and by the parties hereto on separate
        counterparts, each of which shall be deemed to be an original and all of
        which
        together shall constitute one and the same instrument. A telephone line
        facsimile transmission of this Agreement bearing a signature on behalf of
        a
        party hereto shall be legal and binding on such party. Although this Agreement
        is dated as of the date first set forth above, the actual date of execution
        and
        delivery of this Agreement by each party is the date set forth below such
        party’s signature on the signature page hereof. Any reference in this Agreement
        or in any of the documents executed and delivered by the parties hereto in
        connection herewith to (1) the date of execution and delivery of this Agreement
        by the Buyer shall be deemed a reference to the date set forth below the
        Buyer’s
        signature on the signature page hereof, (2) the date of execution and delivery
        of this Agreement by the Company shall be deemed a reference to the date
        set
        forth below the Company’s signature on the signature page hereof and (3) the
        date of execution and delivery of this Agreement, or the date of execution
        and
        delivery of this Agreement by the Buyer and the Company, shall be deemed
        a
        reference to the later of the dates set forth below the signatures of the
        parties on the signature page hereof.

      


      
        
          
          

        

        
          -43-

          
            

          

        

        
          
          

        

      

      (f) Entire
        Agreement; Benefit.

      This
        Agreement, including the Annexes, Schedules and Exhibits hereto, and Section
        8
        of the Other Note Purchase Agreement with regard to the registration rights
        for
        the July 2006 Warrant set forth in Section 8(a)(5) of this Agreement,
        constitutes the entire agreement between the parties hereto with respect
        to the
        subject matter hereof. There are no restrictions, promises, warranties, or
        undertakings, other than those set forth or referred to herein and in the
        Annexes and Exhibits. This Agreement, including the Annexes and Exhibits,
        supersedes all prior agreements and understandings, whether written or oral,
        between the parties hereto with respect to the subject matter hereof. This
        Agreement and the terms and provisions hereof are for the sole benefit of
        only
        the Company, the Buyer and their respective successors and permitted
        assigns.

      


      (g) Waiver.

      Failure
        of any party to exercise any right or remedy under this Agreement or otherwise,
        or delay by a party in exercising such right or remedy, or any course of
        dealing
        between the parties, shall not operate as a waiver thereof or an amendment
        hereof, nor shall any single or partial exercise of any such right or power,
        or
        any abandonment or discontinuance of steps to enforce such a right or power,
        preclude any other or further exercise thereof or exercise of any other right
        or
        power. 

      


      (h) Amendment.

      (1) No
        amendment, modification, waiver, discharge or termination of any provision
        of
        this Agreement on or prior to the Closing Date nor consent to any departure
        by
        the Buyer or the Company therefrom on or prior to the Closing Date shall
        in any
        event be effective unless the same shall be in writing and signed by the
        party
        to be charged with enforcement, and in any such case shall be effective only
        in
        the specific instance and for the purpose for which given.

      


      (2) No
        amendment, modification, waiver, discharge or termination of any provision
        of
        this Agreement after the Closing Date nor consent to any departure by the
        Company therefrom after the Closing Date shall in any event be effective
        unless
        the same shall be in writing and signed (x) by the Company, if the Company
        is to
        be charged with enforcement or (y) by the Majority Holders, if the Buyer
        is to
        be charged with enforcement, and in any such case shall be effective only
        in the
        specific instance and for the purpose for which given but shall nonethless
        bind
        the Buyer and its transferees, successors and assigns; provided,
        however,
        that no
        such amendment modification, waiver, discharge or termination which (i)
        increases the Buyer’s liability, (ii) amends this Section 10(h) or (iii)
        adversely affects the Buyer’s rights under Sections 5(a), 5(b), 5(c), 5(d),
        5(e), 5(f), 5(j), 5(k), 5(l), 5(m), 8(a), 8(b) and 9, shall be effective
        unless
        in writing signed by the Buyer. 

      


      (3) No
        course
        of dealing between the parties hereto shall operate as an amendment of this
        Agreement.

      


      (i) Further
        Assurances.

      Each
        party to this Agreement will perform any and all acts and execute any and
        all
        documents as may be necessary and proper under the circumstances in order
        to
        accomplish the intents and purposes of this Agreement and to carry out its
        provisions.

      


      (j) Assignment
        of Certain Rights and Obligations.

      The
        rights of an Investor under Sections 5(a), 5(b), 8, 9, and 10 of this Agreement
        shall be automatically assigned by such Investor to any transferee of all
        or any
        portion of such Investor’s Registrable Securities (or all or any portion of the
        Note or the Warrants) if: (1) such Investor agrees in writing with such
        transferee to assign such rights, and a copy of such agreement is furnished
        to
        the Company within a reasonable time after such assignment, (2) the Company
        is,
        within a reasonable time after such transfer, furnished with notice of (A)
        the
        name and address of such transferee and (B) the securities with respect to
        which
        such rights and obligations are being transferred, (3) in the case of assignment
        of rights under Section 8, immediately following such transfer or assignment
        the
        further disposition of Registrable Securities by the transferee or assignee
        is
        restricted under the 1933 Act and applicable state securities laws, (4) at
        or
        before the time the Company received the notice contemplated by clause (2)
        of
        this sentence the transferee agrees in writing with the Company to be bound
        with
        respect to such assigned securities by such of the provisions contained in
        Sections 5(a), 5(b), 8, 9, and 10 hereof as shall have been so assigned to
        such
        transferee and (5) if Section 5(a) shall be applicable to such transfer,
        such
        Investor shall have complied with Section 5(a). Upon any such transfer, the
        Company shall be obligated to such transferee to perform all of its covenants
        under Sections 5(a), 5(b), 8, 9, and 10 of this Agreement, to the extent
        the
        same have been so assigned to such transferee, as if such transferee were
        the
        Buyer. In connection with any such transfer the Company shall, at its sole
        cost
        and expense, promptly after such transfer take such actions as shall be
        reasonably acceptable to the transferring Investor and such transferee to
        assure
        that each Registration Statement and related Prospectus for which the
        transferring Investor is a selling stockholder are or become available for
        use
        by such transferee for sales of the Registrable Securities in respect of
        which
        such rights and obligations have been so transferred. 

      


      
        
          
          

        

        
          -44-

          
            

          

        

        
          
          

        

      

      (k) Expenses.

      The
        Company shall be responsible for its expenses (including, without limitation,
        the legal fees and expenses of its counsel), incurred by it in connection
        with
        the negotiation and execution of, and closing under, and performance of,
        this
        Agreement. All expenses incurred in connection with registrations, filings
        or
        qualifications pursuant to Sections 5(d), 5(e), 5(g) and
        8 of
        this Agreement shall be paid by the Company, including, without limitation,
        all
        registration, listing and qualifications fees, printers and accounting fees
        and
        the fees and disbursements of counsel for the Company but excluding (a) fees
        and
        expenses of investment bankers or other advisors retained by any Investor
        and
        (b) brokerage commissions incurred by any Investor. The Company shall pay
        promptly upon demand all expenses incurred by the Buyer after the Closing
        Date,
        including reasonable attorneys’ fees and expenses, as a consequence of, or in
        connection with (1) the negotiation, preparation or execution of any amendment,
        modification or waiver of any of the Transaction Documents, (2) any default
        or
        breach of any of the Company’s representations, warranties, covenants or
        obligations set forth in any of the Transaction Documents, and (3) the
        enforcement or restructuring of any right of, including the collection of
        any
        payments due, the Buyer under any of the Transaction Documents, including,
        without limitation, 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 Buyer. Except as otherwise provided in Section 9 and this
        Section 10(k), each of the Company and the Buyer shall bear its own expenses
        in
        connection with this Agreement and the transactions contemplated hereby.
        

      


      (l) Termination.

      (1)
        The
        Buyer shall have the right to terminate this Agreement by giving notice to
        the
        Company at any time at or prior to the Closing Date if:

      


      (A) the
        Company shall have failed, refused, or been unable at or prior to the date
        of
        such termination of this Agreement to perform any of its obligations hereunder
        required to be performed prior to the time of such termination;

      


      (B) any
        condition to the Buyer’s obligations hereunder is not fulfilled at or prior to
        the time such condition is required to be satisfied; or

      


      (C) the
        closing shall not have occurred on a Closing Date on or before December 29,
        2006, other than solely by reason of a breach of this Agreement by the
        Buyer.

       

      Any
        such
        termination shall be effective upon the giving of notice thereof by the Buyer.
        Upon such termination, the Buyer shall have no further obligation to the
        Company
        hereunder and the Company shall remain liable for any breach of this Agreement
        or the other documents contemplated hereby which occurred on or prior to
        the
        date of such termination.

      


      (2) The
        Company shall have the right to terminate this Agreement by giving notice
        to the
        Buyer at any times at or prior to the Closing Date if the closing shall not
        have
        occurred on a Closing Date on or before December 29, 2006, other than solely
        by
        reason of a breach of this Agreement by the Company, so long as the Company
        is
        not in breach of this Agreement at the time it gives such notice. Any such
        termination shall be effective upon the giving of notice thereof by the Company.
        Upon such termination, neither the Company nor the Buyer shall have any further
        obligation to one another hereunder, except for the Company’s liability for the
        Buyer’s expenses as provided in Section 10(k).

      


      (m) Survival.

      The
        respective representations, warranties, covenants and agreements of the Company
        and the Buyer contained in this Agreement and the documents delivered in
        connection with this Agreement shall survive the execution and delivery of
        this
        Agreement and the other Transaction Documents and the closing hereunder and
        delivery of and payment for the Note and the issuance of the Warrants, and
        shall
        remain in full force and effect regardless of any investigation made by or
        on
        behalf of the Buyer or any Person controlling or acting on behalf of the
        Buyer
        or by the Company or any Person controlling or acting on behalf of the
        Company.

      


      (n) Construction;
        Buyer Status.

      The
        language used in this Agreement will be deemed to be the language chosen
        by the
        parties to express their mutual intent, and no rules of strict construction
        will
        be applied against any party. The Buyer is not acting as part of a “group” (as
        that term is used in Section 13(d) of the 1934 Act) with any other Person
        who is
        or proposes to become a party to any Other Note Purchase Agreement, or who
        is
        acquiring or holds any Other Note or Other Warrant, in negotiating and entering
        into this Agreement or purchasing the Note and the Warrants or acquiring,
        disposing of or voting any of the Shares. The Company hereby confirms that
        it
        understands and agrees that the Buyer is not acting as part of any such group.
        If the Buyer is other than AGMF, such Buyer acknowledges and agrees that
        such
        Buyer is not relying on AGMF or AGMF’s legal counsel in making a decision to
        enter into this Agreement, purchase the Note, acquire the Warrants or otherwise
        in connection with the Transaction Documents, and such legal counsel are
        not
        acting as the Buyer’s legal counsel in connection therewith.

      


      


      [Signature
        pages follow]

       

       

      
        
          
          

        

        
          -45-

          
            

          

        

        
          
          

        

      



      IN
        WITNESS WHEREOF,
        the
        parties hereto have caused this Agreement to be duly executed by their
        respective officers or other representatives thereunto duly authorized on
        the
        respective dates set forth below their signatures hereto.

      


      Purchase
        Price: See
        defined term in this Agreement

      Principal
        Amount of Note: TBD

      Initial
        Conversion Price of Note: TBD

      December
        Closing Date Warrant Shares

      Initially
        Issuable Upon Exercise of Warrant: TBD

      Initial
        Exercise Price of December Closing 

      Date
        Warrant: TBD

      July
        2006
        Warrant Shares Initially Issuable

      Upon
        Exercise of Warrant: 1,923,076

      Initial
        Exercise Price of July 2006 Warrant: $0.26

       

       

      
        	 	 	 
	 	

                EMAGIN
                  CORPORATION

              
	 
 	 
 	 
 
	
              	By:  	/s/ Gary
                W. Jones
	 	
                
Name:
                Gary W. Jones
	 	
                Title:
                  Chief Executive Officer

              
	 	
                Date:
                  July 21, 2006 

              
	 	 
	 	
                With
                  a copy to: 

              
	 	 
	 	
                Sichenzia
                  Ross Friedman Ference LLP 

              
	 	
                1065
                  Avenue of the Americas, 21st
                  Floor 

              
	 	
                New
                  York, New York 10018 

              
	 	
                Attention:
                  Richard A. Friedman, Esq. 

              
	 	 
	 	
                Facsimile
                  No: (212) 930-9725 

              


      

       

       

      
        	 	 	 
	 	
                STILLWATER
                  LLC 

              
	 
 	 
 	 
 
	 	By:  	/s/ Mortimer
                D.A. Sackler
	 	
                
Name:
                Mortimer D.A. Sackler
	 	
                Title:
                  President

              
	 	 
	 	
                Date:
                  July 21, 2006 

              
	 	
                Address
                  for Notices: 

              
	 	 




      


      
        
          
          

        

        
          -46-

          
            

          

        

        
          
          

        

      



      eMagin
        Corporation

       

      Selling
        Securityholder Questionnaire

       

      The
        undersigned beneficial owner (the “Selling Securityholder”) of Common Stock, par
        value $.001 per share, of eMagin Corporation, a Delaware corporation (the
        “Company”), understands that the Company intends to file with the Securities and
        Exchange Commission (the “SEC”) a registration statement (the “Registration
        Statement”) for registration of the resale under the Securities Act of 1933, as
        amended (the “Securities Act”), of such securities (the “Registrable
        Securities”). This Questionnaire is delivered pursuant to the terms of the Note
        Purchase Agreement, dated as of July 21, 2006
        (the
“Purchase Agreement”), between the Company and the Buyer named therein. All
        capitalized terms not otherwise defined herein shall have the meanings ascribed
        thereto in the Purchase Agreement.

       

      Certain
        legal consequences arise from being named as a selling securityholder in
        the
        Registration Statement and the related prospectus. Accordingly, the Selling
        Securityholder is advised to consult its own securities law counsel regarding
        the consequences of being named or not being named as a selling securityholder
        in the Registration Statement and the related prospectus.

       

      The
        Selling Securityholder hereby provides the following information to the Company
        in connection with the Company’s preparation of the Registration
        Statement:

       

      1. Name.

       

      
        	 	
                (a)

              	
                Full
                  Legal Name of Selling
                  Securityholder

              


      

       

      
        

      

      
        	 


      

      
        	 	
                (b)

              	
                Full
                  Legal Name of Registered Holder (if not the same as (a) above)
                  through
                  which Registrable Securities listed in Item 3 below are
                  held:

              


      

       

      
        

      

      
        	 


      

      
        	 	
                (c)

              	
                Full
                  Legal Name of the natural person who directly or indirectly has
                  power to
                  vote or dispose of the Registrable Securities listed in Item 3
                  below:

              


      

       

      
        	 
	 


      

      


       

       

      
        
          
          

        

        
          -47-

          
            

          

        

        
          
          

        

      

       

      2. Address
        for Notices to Selling Securityholder:

       

      Complete
        the following only if the Selling Securityholder wishes to receive notices
        relating to the Registration at a different address or to a different person
        than the current notice address for purposes of the Purchase
        Agreement.

       

      
        

        

        



      Telephone:_______________________________________

      Fax:_____________________________________________  

      Contact
        Person:____________________________________  

      


      3. Beneficial
        Ownership of Registrable Securities:

       

      
        	 	
                (a)

              	
                Number
                  of Registrable Securities (all of which are shares of Common Stock)
                  beneficially owned:

              


      

       

    

    
      
        

      

      
      

      
        

        
 

      4. Broker-Dealer
        Status:

       

      
        	 	
                (a)

              	
                Are
                  you a broker-dealer?

              


      

       

      Yes
        __ No
        __

       

      
        	 	
                Note:

              	
                If
                  yes, the SEC staff has indicated that you should be identified
                  as an
                  underwriter in the Registration
                  Statement.

              


      

       

      
        	 	
                (b)

              	
                Are
                  you an affiliate of a
                  broker-dealer?

              


      

       

      Yes
        __ No
        __

       

      
        	 	
                (c)

              	
                If
                  you are an affiliate of a broker-dealer, do you certify that you
                  bought
                  the Registrable Securities in the ordinary course of business,
                  and at the
                  time of the purchase of the Registrable Securities to be resold,
                  you had
                  no agreements or understandings, directly or indirectly, with any
                  person
                  to distribute the Registrable
                  Securities?

              


      

       

      Yes
        __ No
        __

       

      
        	 	
                Note:

              	
                If
                  no, the SEC staff has indicated that you should be identified as
                  an
                  underwriter in the Registration
                  Statement.

              


      

       

       

      
        
          
          

        

        
          -48-

          
            

          

        

        
          
          

        

      

       

      
        	
                5.

              	
                Other
                  Beneficial Ownership of Common Stock by the Selling
                  Securityholder.

              


      

       

      Except
        as set forth below in this Item 5, the Selling Securityholder is not the
        beneficial or registered owner of any shares of Common Stock of the Company
        other than the Registrable Securities listed above in Item 3.

       

      
        	 	
                (a)

              	
                Number
                  of other shares of Common Stock held of record or beneficially
                  owned by
                  the Selling Securityholder:

              


      

       

      
        

      

      
        

      

       

      
      

      6. Relationships
        with the Company:

       

      Except
        for the Purchase Agreement and transactions related thereto and except as
        set
        forth below, the Selling Securityholder has not held any position or office
        or
        had any other material relationship with the Company (or its predecessors
        or
        affiliates) during the past three years.

       

      State
        any
        exceptions here:

       

      
        

      

    

    
      
 

    
      The
        Selling Securityholder’s obligations with respect to the information it provides
        in response to this Questionnaire are set forth in Section 8(c) of the Purchase
        Agreement.

       

      IN
        WITNESS WHEREOF the undersigned, by authority duly given, has caused this
        Questionnaire to be executed and delivered either in person or by its duly
        authorized agent.

       

       

       
        
          	 Dated:____________________________________________	
                  Beneficial
                    Owner:  _____________________________________________

                
	 	 
	 	
                  By: 

                
	 	
                  Name: 

                
	 	Title: 


        
 

       

      


      PLEASE
        FAX OR E-MAIL THE COMPLETED

      AND
        EXECUTED QUESTIONNAIRE TO:

      


      Sichenzia
        Ross Friedman Ference LLP

      1065
        Avenue of the Americas, 21st
        Floor

      New
        York,
        New York 10018

      Attention:
        Richard A. Friedman, Esq.

      e-Mail
        address: rfriedman@srff.com

      
        
          
          

        

        
          -49-

          
            

          

        

        
          
          

        

      



      Annex
        X

      to

      Note
        Purchase

      Agreement

      


      


      COMPANY
        PUT NOTICE

      (6%
        Senior Secured Convertible Notes due 2007-2008

      of
        eMagin Corporation)

      


      TO:
        [NAME
        OF BUYER] [FACSIMILE
        NO.]

      


      (1) Pursuant
        to the terms of the Note Purchase Agreement, dated as of July __,
        2006
        (the "Note Purchase Agreement"), by and between eMagin Corporation, a Delaware
        corporation (the “Company”), and ______________________, a _______________
        organized and existing under the laws of the State of _____________ (the
        “Buyer”), the Company hereby exercises its right to sell the Securities to the
        Buyer, subject to the closing conditions set forth in Sections 6 and 7 of
        the
        Note Purchase Agreement being satisfied prior to the Closing Date.

      


      (2) The
        principal amount of the Notes to be sold to the Buyer is $[INSERT
        AN AMOUNT UP TO [$500,000] BASED ON THE PURCHASE PRICE ADJUSTMENTS - SEE
        DEFINITION OF PURCHASE PRICE
        [Prior to execution of this NPA, please reduce the $500,000 amount by the
        difference, if any, between the principal amount of the Other Notes in this
        round of financing and $6.5 million]]
        ____________________.

      


      (3) Subject
        to the closing conditions set forth in Sections 6 and 7 of the Note Purchase
        Agreement being satisfied, the Closing Date for the sale and purchase of
        Notes
        will be December __,
        2006 [INSERT DATE WHICH IS TEN BUSINESS DAYS AFTER THE DATE THIS NOTICE IS
        GIVEN],
        

      or such
        other mutually agreed to time by the Company and the Buyer.

      


      (4) Capitalized
        terms used in this Notice and not defined in this Notice have the respective
        meanings provided in the Note Purchase Agreement.

      


      Dated:
        December _____, 2006

       

      
        	 	 	 
	 	
                EMAGIN
                  CORPORATION 

              
	 
 	 
 	 
 
	Date: 	By:  	/s/ 
	 	
                

              
	 	Title