June 17, 2002

eMagin Corporation
2070 Route 52
Hopewell Junction, NY 12533

Ladies and Gentlemen:

The Travelers Insurance Company ("Travelers") hereby submits the following
proposal concerning the Convertible Promissory Note (the "Note") dated August
20, 2001, as amended to date, issued by eMagin Corporation ("eMagin") and the
Note Purchase Agreement (the "Note Purchase Agreement") entered into as of
August 20, 2001, between eMagin and Travelers:

1.   On or before June 21, 2002, eMagin will issue to Travelers in exchange for
the Note a new note (the "New Note") due August 30, 2002, in a principal amount
equal to the principal of and accrued interest on the Note as of the date of
issuance of the New Note. The New Note will be convertible into common stock of
eMagin ("Common Stock") or exchangeable for other securities of eMagin,
substantially as described in the proposed amendment to the Note (the "Proposed
Amendment") attached hereto. Without Travelers' consent, after the issuance of
the New Note, eMagin will not grant any additional security interests in any of
its assets, other than to lenders that extend additional financing (which is not
an extension of or issued in exchange for previously outstanding indebtedness).

2. eMagin will issue to Travelers or its nominee, concurrently with the issuance
of the New Note or as promptly thereafter as reasonably practicable, (i)
warrants covering the number of shares of Common Stock, having the exercise
prices and expiring three years after the issuance date, indicated on Schedule I
hereto, which the parties agree shall satisfy the obligations of the Borrower
pursuant to Section 1(d) of the Note Purchase Agreement, and (ii) five-year
warrants covering 1,200,000 shares of Common Stock, having an exercise price of
$0.5264 per share. All such warrants shall provide that they may not be
exercised by any holder that would be a Restricted Lender for purposes of the
New Note. The terms of all such warrants (including a provision permitting
"cashless" exercise) shall be reasonably acceptable to the parties.

3.  In order to enable the parties to document the transactions described above,
the Maturity Date of the Note is extended until June 21, 2002. During the period
until the new Maturity Date, eMagin and Travelers will endeavor to complete the
necessary documentation in a form reasonably acceptable to Travelers.

<PAGE>


If the foregoing is acceptable to you, please countersign this letter in the
space provided below, whereupon this letter will represent the agreement of
eMagin and Travelers as of the date first written above.

                                            Very truly yours,

                                            THE TRAVELERS INSURANCE COMPANY



                                            By: ________________________


Accepted and agreed to:

EMAGIN CORPORATION



By: _______________________


                                       2

<PAGE>


                               PROPOSED AMENDMENT

(1)  Section 1 of the Note is hereby  amended by  deleting  "June 21,  2002" and
inserting in the place of such deletion "August 30, 2002."

(2) Section 4 of the Note is hereby  deleted in its entirety  and the  following
text shall be inserted in the place of such deletion:

"OPTIONAL CONVERSION OR EXCHANGE. (a) Subject to the provisions of paragraph (b)
of this Section 4, at any time before the Maturity  Date,  the Lender shall have
the right,  at its  option,  to convert (a  "Voluntary  Conversion")  all or any
portion of the outstanding principal amount of and accrued interest on this Note
into such number of fully paid and  nonassessable  shares of common stock of the
Borrower  ("Common Stock," which term shall also include any other securities or
consideration  that may be issuable on such conversion as provided herein) as is
obtained by dividing (i) the outstanding  principal  amount and accrued interest
on the Note or portion  thereof to be  converted  by (ii)  $0.5264  (subject  to
adjustment as provided herein, the "Conversion Price"). Such right of conversion
shall be exercised by the Lender by giving written notice that the Lender elects
to convert the outstanding principal amount and accrued interest on the Note, or
a specified  portion  thereof,  into shares of Common Stock, and by surrender of
the Note to be converted,  to the  Corporation at its principal  office (or such
other office or agency of the  Corporation as the  Corporation  may designate by
notice in writing) at any time during its usual  business  hours on the date set
forth in such  notice,  together  with a  statement  of the name or names  (with
address) in which the certificates for such securities shall be issued.

"(b) Notwithstanding anything to the contrary in the foregoing, at any time when
the Lender (i) is The  Travelers  Insurance  Company or any entity  controlling,
controlled by or under common control with The Travelers Insurance Company,  and
(ii) is directly or indirectly the  beneficial  owner of more than 10 percent of
the Common Stock for purposes of Section 16 of the  Securities  Act of 1934,  as
amended (a Lender  described  in clauses  (i) and (ii)  being  referred  to as a
"Restricted Lender"), then the Lender may not convert all or any portion of this
Note into Common Stock as provided in  paragraph  (a) of this Section 4, but may
instead elect, at any time and in the same manner as such conversion right could
otherwise be exercised,  to exchange all or a portion of the principal amount of
and accrued  interest on this Note into one of the  following,  as designated by
the Borrower (collectively,  "Exchange Securities"):  (x) a number of fully paid
and  nonassessable  shares  of  convertible   preferred  stock  of  the  Company
("Exchange  Preferred"),  each  having a  liquidation  preference  of $0.001 per
share,  equivalent to the amount obtained by dividing the outstanding  principal
amount and accrued  interest on the Note or portion  thereof to be  exchanged by
the Conversion Price, or (y) a ten-year, non-interest bearing note (an "Exchange
Note"),  in a principal  amount equal to the  outstanding  principal  amount and
accrued  interest  on the Note or  portion  thereof to be  exchanged.  Shares of
Exchange  Preferred  shall be convertible at the holder's  election at any time,
provided that the holder is not a Restricted Lender, into a number of fully paid
and  nonassessable  shares of Common Stock  initially  equal to one per share of
Exchange


<PAGE>

Preferred, but subject to adjustment in the same manner as the Conversion Price.
An Exchange  Note shall be  convertible  at the  holder's  election at any time,
provided that the holder is not a Restricted Lender, into a number of fully paid
and  nonassessable  shares of Common Stock equal to the principal  amount of the
Exchange Note divided by the Conversion Price. At maturity, provided that it has
not been converted,  the principal  amount of the Exchange Note shall be payable
in a number  of  shares of Common  Stock  equal to the  principal  amount of the
Exchange Note divided by the Conversion Price.

"(c) The Borrower shall, as soon as practicable  after the date of conversion or
exchange,  issue and deliver at the office described above to the Lender,  or to
its nominees,  a certificate  or  certificates  for the Common Stock or Exchange
Securities to which such Lender shall be entitled, together with cash in lieu of
any  fraction  of a share.  The  Borrower  shall at all times  reserve  and keep
available out of its authorized but unissued stock, for the purpose of effecting
the  conversion  or  exchange of the Note,  such  number of its duly  authorized
shares of Common  Stock as shall from time to time be  sufficient  to effect the
conversion of the Note or any outstanding Exchange Securities.

"(d) In the event the  Borrower  at any time or from time to time  after May 31,
2002 shall make or issue, or fix a record date for the  determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional  shares of Common Stock, then and in each such event Conversion Price
then in effect  immediately  before such event shall be decreased as of the time
of such  issuance or, in the event such a record date shall have been fixed,  as
of the close of  business  on such  record  date,  by  multiplying  the Series A
Conversion Price then in effect by a fraction:

          (1) the  numerator  of which  shall be the  total  number of shares of
Common  Stock  issued  and  outstanding  immediately  prior  to the time of such
issuance or the close of business on such record date, and

          (2) the  denominator  of which shall be the total  number of shares of
Common  Stock  issued  and  outstanding  immediately  prior  to the time of such
issuance  or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution;

provided,  however,  if such record date shall have been fixed and such dividend
is not fully  paid or if such  distribution  is not fully made on the date fixed
therefor,  the Conversion Price shall be recomputed  accordingly as of the close
of business on such record date and  thereafter  the  Conversion  Price shall be
adjusted  pursuant to this  paragraph  as of the time of actual  payment of such
dividend or distribution.

"(e) In the event the  Borrower  at any time or from time to time  after May 31,
2002 shall make or issue, or fix a record date for the  determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation  (other than shares of Common Stock) or in cash or
other  property  (other  than cash out of current  earnings  or earned  surplus,
determined in accordance with generally accepted  accounting  principles),  then
and in each such event  provision shall be made so that the Lender shall receive
upon conversion of the Note, in addition to the number of

                                       2
<PAGE>

shares of Common Stock receivable  thereupon,  the kind and amount of securities
of the Borrower,  cash or other  property which they would have been entitled to
receive had the Note been  converted into Common Stock on the date of such event
and had they  thereafter,  during the period  from the date of such event to and
including the conversion date, retained such securities receivable by the Lender
as aforesaid during such period,  giving  application to all adjustments  called
for during such period  under this  paragraph  with respect to the rights of the
holder of the Note.

"(f) If there shall occur any reorganization, recapitalization, consolidation or
merger  involving  the Borrower in which the Common  Stock is converted  into or
exchanged  for  securities,  cash or other  property  (other than a  transaction
covered by  paragraphs  (d) or (e) of this Section 4), then,  following any such
reorganization,  recapitalization,  consolidation or merger,  this Note shall be
convertible into the kind and amount of securities, cash or other property which
a holder of the number of shares of Common Stock of the Borrower  issuable  upon
conversion   of   the   Note   immediately   prior   to   such   reorganization,
recapitalization,  consolidation  or merger would have been  entitled to receive
pursuant to such  transaction;  and, in such case,  appropriate  adjustment  (as
determined  in good faith by the Board of  Directors of the  Borrower)  shall be
made in the  application  of the  provisions  in this  Section 4 set forth  with
respect to the rights and interest  thereafter  of the holders of this Note,  to
the end that the  provisions  set forth in this Section 4 (including  provisions
with respect to changes in and other  adjustments of the Conversion Price) shall
thereafter be  applicable,  as nearly as  reasonably  may be, in relation to any
shares of stock or other property thereafter  deliverable upon the conversion of
this Note.

"(g) The Borrower will not, by amendment of its Certificate of  Incorporation or
through  any  reorganization,   transfer  of  assets,   consolidation,   merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the  observance or  performance of any of the terms to be observed
or  performed  hereunder  by the  Borrower,  but will at all times in good faith
assist in the  carrying out of all the  provisions  of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion or exchange rights of the Lender against impairment."

(3) Section 8 of the Note is hereby  deleted in its entirety  and the  following
text shall be inserted in the place of such deletion:  "PREPAYMENT. The Borrower
may pre-pay the Note in full,  including all interest  owed thereon  through the
date of payment,  at any time prior to the Maturity Date without penalty,  on at
least 15 days' written  notice to the Lender.  If at any time after May 31, 2002
and prior to the Maturity  Date the Borrower has raised an aggregate of at least
$5 million  through the sale of debt or equity  securities or by borrowing  from
one or more lenders,  then the Borrower  shall offer the Lender the right,  on a
Business  Day not more than 15 or less  than 5 days  after the date the offer is
received by the Lender,  to tender at least 50% in principal  amount of the Note
in exchange for payment from the Borrower of the principal  amount  tendered and
all interest owed thereon through the date of payment.  If at any time after May
31, 2002 and prior to the Maturity  Date the Borrower has raised an aggregate of
at least  $10  million  through  the  sale of debt or  equity  securities  or by
borrowing from one or more lenders, then the Borrower shall offer the Lender the
right, on a Business Day not more than 15 or

                                       3

<PAGE>

less than 5 days after the date the offer is received  by the Lender,  to tender
the  entire  principal  amount  of the Note in  exchange  for  payment  from the
Borrower of the principal  amount and all interest owed thereon through the date
of payment."

                                       4

<PAGE>

<TABLE>
<CAPTION>

                                                            Schedule I
                                                       eMagin Corporation
                                                       Citi Bridge Financing
                                                       Warrant Pricing

                                                                    20 day Wtg
                 Close                                                Avg Vol     106%
     Date        Price             Volume                              Price    Pricing                            Warrants
   ---------     ------  ----------------                          ------------ -------                            -----------------
   <S>            <C>              <C>            <C>              <C>          <C>                                <C>
   7/23/2001      1.94             22,800          44,232
   7/24/2001      1.91             69,100         131,981
   7/25/2001      1.86             67,900         126,294
   7/26/2001      1.85             26,100          48,285
   7/27/2001      1.90             12,200          23,180
   7/28/2001
   7/29/2001
   7/30/2001      1.95             54,100         105,495
   7/31/2001      2.00            129,600         259,200
    8/1/2001      1.99             26,100          51,939
    8/2/2001      2.05             78,400         160,720
    8/3/2001      2.10             21,900          45,990
    8/4/2001
    8/5/2001
    8/6/2001      2.09             13,800          28,842
    8/7/2001      2.00             48,600          97,200
    8/8/2001      1.85             27,100          50,135
    8/9/2001      1.80             28,000          50,400
   8/10/2001      1.76             36,500          64,240
   8/11/2001
   8/12/2001
   8/13/2001      1.80             18,600          33,480
   8/14/2001      1.90             12,600          23,940
   8/15/2001      1.82             24,300          44,226
   8/16/2001      1.69             69,600         117,624
   8/17/2001      1.65             63,000         103,950
   8/18/2001
   8/19/2001
   8/20/2001      1.61             52,600          84,686
   8/21/2001      1.61             50,400          81,144
   8/22/2001      1.55             10,900          16,895
   8/23/2001      1.45             46,800          67,860
   8/24/2001      1.55             21,300          33,015          $   1.82     $   1.93      $     50,000            25,907
   8/25/2001
   8/26/2001
   8/27/2001      1.55             18,000          27,900
   8/28/2001      1.50             31,300          46,950
   8/29/2001      1.42             37,800          53,676
   8/30/2001      1.29             37,900          48,891
   8/31/2001      1.30             25,900          33,670          $   1.64     $   1.74      $     50,000            28,736
    9/1/2001
    9/2/2001
    9/3/2001
    9/4/2001      1.14             90,900         103,626
    9/5/2001      1.10            143,300         157,630
    9/6/2001      1.12             38,000          42,560
    9/7/2001      1.15             53,400          61,410          $   1.41     $   1.50      $     50,000            33,333
    9/8/2001
    9/9/2001
   9/10/2001      1.27             48,200          61,214          $   1.39     $   1.47      $     50,000            34,014
   9/11/2001
   9/12/2001
   9/13/2001
   9/14/2001
   9/15/2001
   9/16/2001
   9/17/2001      1.30            106,500         138,450
   9/18/2001      1.75            173,500         303,625
   9/19/2001      1.95            249,200         485,940
   9/20/2001      1.77             61,500         108,855
   9/21/2001      1.50             75,000         112,500          $   1.51     $   1.60      $     50,000            31,250
   9/22/2001
   9/23/2001
   9/24/2001      1.70             75,500         128,350
   9/25/2001      1.69             49,800          84,162
   9/26/2001      1.66             18,600          30,876
   9/27/2001      1.70             24,700          41,990
   9/28/2001      1.67             52,100          87,007          $   1.53     $   1.62      $     50,000            30,864
   9/29/2001
   9/30/2001
   10/1/2001      1.65             12,800          21,120
   10/2/2001      1.56             10,000          15,600
   10/3/2001      1.65             32,000          52,800
   10/4/2001      1.55             34,900          54,095
   10/5/2001      1.57              3,200           5,024          $   1.55     $   1.64      $     50,000            30,488
   10/6/2001
   10/7/2001
   10/8/2001      1.48             23,500          34,780
   10/9/2001      1.29             71,900          92,751
  10/10/2001      1.17             68,200          79,794
  10/11/2001      1.33            113,900         151,487
  10/12/2001      1.35             47,400          63,990          $   1.60     $   1.70      $     50,000            29,412
  10/13/2001
  10/14/2001
  10/15/2001      1.40             14,900          20,860
  10/16/2001      1.55             34,300          53,165
  10/17/2001      1.37             27,100          37,127
  10/18/2001      1.35             41,000          55,350
  10/19/2001      1.31             25,400          33,274          $   1.46     $   1.55      $     50,000            32,258
  10/20/2001
  10/21/2001
  10/22/2001      1.30             14,000          18,200
  10/23/2001      1.26             15,900          20,034
  10/24/2001      1.36             17,700          24,072
  10/25/2001      1.30             22,200          28,860
  10/26/2001      1.28             17,400          22,272          $   1.37     $   1.45      $     50,000            34,483
  10/27/2001
  10/28/2001
  10/29/2001      1.22             37,100          45,262
  10/30/2001      1.30             95,500         124,150
  10/31/2001      1.45             49,300          71,485
   11/1/2001      1.50             12,800          19,200
   11/2/2001      1.40             39,600          55,440          $   1.33     $   1.41      $     50,000            35,461
   11/3/2001
   11/4/2001
   11/5/2001      1.35             24,400          32,940
   11/6/2001      1.30             37,800          49,140
   11/7/2001      1.26             13,100          16,506
   11/8/2001      1.29             67,400          86,946
   11/9/2001      1.26             22,400          28,224          $   1.34     $   1.42      $     50,000            35,211
  11/10/2001
  11/11/2001
  11/12/2001      1.29             34,300          44,247
  11/13/2001      1.29             62,100          80,109
  11/14/2001      1.26             44,900          56,574
  11/15/2001      1.39             56,800          78,952
  11/16/2001      1.41             90,700         127,887          $   1.33     $   1.41      $     50,000            35,461
  11/17/2001
  11/18/2001
  11/19/2001      1.37             30,500          41,785
  11/20/2001      1.44             64,400          92,736
  11/21/2001      1.49              4,500           6,705
  11/22/2001
  11/23/2001      1.47             13,900          20,433          $   1.35     $   1.43      $     50,000            34,965
                                                                                              ----------------- ----------------

                                                                                      Total   $    700,000           451,842

</TABLE>