Document:

Exhibit 10.1

    
      Exhibit
        10.1

 

    

     

    

    AMENDMENT
      AGREEMENT

    

    Dated
      as of July 23, 2007

    

    
 

    

    by
      and between

    

    

    EMAGIN
      CORPORATION

    

    and

    

    [NAME
      OF INVESTOR]

    

    

    

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

    

    

    

    

    EMAGIN
      CORPORATION

    

    AMENDMENT
      AGREEMENT

    

    TABLE
      OF CONTENTS

    

    

    

      
        	 	 	 Page
	1.	Definitions.	
                1

              
	 	
                2.

              	
                Amendments;
                  Exchange.

              	
                1

              
	 	
                (a)

              	
                Amendments.

              	
                1

              
	 	
                (b)

              	
                Exchange.

              	
                1

              
	3.	
                Amendments
                  to Note Purchase Agreement.

              	
                1

              
	4.	
                Representations
                  and Warranties of the Company.

              	
                1

              
	 	
                (a)

              	
                Organization
                  and Authority.

              	
                1

              
	 	
                (b)

              	
                Qualifications.

              	
                1

              
	 	
                (c)

              	
                Agreement,
                  Amended Transaction Documents.

              	
                1

              
	 	
                (d)

              	
                Concerning
                  the Shares and the Common Stock.

              	
                1

              
	 	
                (e)

              	
                Non-contravention.

              	
                1

              
	 	
                (f)

              	
                Approvals.

              	
                1

              
	 	
                (g)

              	
                Absence
                  of Certain Proceedings.

              	
                1

              
	 	
                (h)

              	
                Information
                  Provided.

              	
                1

              
	 	
                (i)

              	
                Absence
                  of Certain Changes.

              	
                1

              
	 	
                (j)

              	
                Dilutive
                  Effect.

              	
                1

              
	 	
                (k)

              	
                No
                  Undisclosed Events, Liabilities, Developments or
                  Circumstances.

              	
                1

              
	 	
                (l)

              	
                Absence
                  of Rights Agreement.

              	
                1

              
	 	
                (m)

              	
                Absence
                  of Brokers, Finders, Etc.

              	
                1

              
	 	
                (n)

              	
                SEC
                  Filings.

              	
                1

              
	5.	Representations
                and Warranties of the Holder.	
                1

              
	 	
                (a)

              	
                Authorization.

              	
                1

              
	 	
                (b)

              	
                Acquisition
                  Entirely for Own Account.

              	
                1

              
	 	
                (c)

              	
                Accredited
                  Investor.

              	
                1

              
	6.	Certain
                Covenants.	
                1

              
	 	
                (a)

              	
                Press
                  Releases.

              	
                1

              
	 	
                (b)

              	
                Form
                  8-K; Limitation on Information and Holder Obligations.

              	
                1

              
	 	
                (c)

              	
                SEC
                  Registration Matters.

              	
                1

              
	 	
                (d)

              	
                Certificate
                  of Designations.

              	
                1

              
	 	
                (e)

              	
                Certain
                  Waivers.

              	
                1

              
	 	
                (f)

              	
                Certain
                  Acknowledgments.

              	
                1

              
	7.	
                Effectiveness.

              	
                1

              
	8.	
                Confirmation
                  of Agreements; Entire Agreement.

              	
                1

              
	9.	
                Miscellaneous.

              	
                1

              
	 	
                (a)

              	
                Governing
                  Law.

              	
                1

              
	 	
                (b)

              	
                Counterparts.

              	
                1

              
	 	
                (c)

              	
                Headings,
                  etc.

              	
                1

              
	 	
                (d)

              	
                Severability.

              	
                1

              
	 	
                (e)

              	
                Amendments.

              	
                1

              
	 	
                (f)

              	
                Waivers.

              	
                1

              
	 	
                (g)

              	
                Notices.

              	
                1

              
	 	
                (h)

              	
                Certain
                  Expenses and Fees.

              	
                1

              
	 	
                (i)

              	
                Survival.

              	
                1

              
	 	
                (j)

              	
                Further
                  Assurances.

              	
                1

              
	 	
                (k)

              	
                Construction;
                  Holder Status.

              	
                1

              

      

    

      
        	
                ANNEXES

              	 	 
	 	 	 
	
                Annex
                  I

              	 	
                Form
                  of Amended and Restated 8% Senior Secured Convertible Note due
                  2008

              
	
                Annex
                  II

              	 	
                Form
                  of Amended and Restated Common Stock Purchase Warrant

              
	
                Annex
                  III

              	 	
                Form
                  of Amendment No. 1 to Patent and Trademark Security
                  Agreement

              
	
                Annex
                  IV

              	 	
                Form
                  of Amendment No. 1 to Pledge and Security Agreement

              
	
                Annex
                  V

              	 	
                Form
                  of Amendment No. 1 to Lockbox Agreement

              
	
                Annex
                  VI 

              	 	
                Form
                  of Certificate of Designation of Series A Senior Secured Convertible
                  Preferred Stock

              
	
                Annex
                  VII

              	 	
                Form
                  of Press Release

              

      

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    AMENDMENT
      AGREEMENT

    

    THIS
      AMENDMENT AGREEMENT,
      dated
      as of July 23, 2007 (this “Agreement”), by and between EMAGIN
      CORPORATION,
      INC.,
      a
      Delaware corporation with headquarters located at 10500 N.E. 8th Street, Suite
      1400, Bellevue, Washington 98004 (the “Company”), and [NAME
      OF HOLDER],
      a
                                   
      located
      at                  
      (the
“Holder”).

    

    W I T N E S S E T H:

    

    WHEREAS,
      the
      Holder is the registered holder of one or more Notes (such capitalized term
      and
      all other capitalized terms used herein have the respective meanings provided
      in
      this Agreement) issued by the Company pursuant to the Note Purchase Agreement;
      

    

    WHEREAS,
      the
      Holder and the Company wish to amend and restate the Notes and the Warrants,
      upon the terms and subject to the conditions of this Agreement; and

    

    WHEREAS,
      the
      Holder and the Company wish to amend certain terms of the Note Purchase
      Agreement, Pledge and Security Agreement, Patent and Trademark Agreement and
      Lockbox Agreement as provided in this Agreement;

    

    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”, “Company” and “Holder” shall have the
      respective meanings assigned to such terms in the introductory paragraph of
      this
      Agreement. Capitalized terms used in this Agreement and not defined in this
      Agreement shall have the respective meanings provided in the Note Purchase
      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):

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

    

    “Amended
      Lockbox Agreement” means the Lockbox Agreement, as amended by Amendment No. 1 to
      Lockbox Agreement. 

    

    “Amended
      Note” means the Amended and Restated 8% Senior Secured Convertible Note due 2008
      of the Company in the form of Annex
      I
      to this
      Agreement.

    

    “Amended
      Patent and Trademark Security Agreement” means the Patent and Trademark Security
      Agreement, as amended by Amendment No. 1 to Patent and Trademark Security
      Agreement. 

    

    “Amended
      Pledge and Security Agreement” means the Pledge and Security Agreement, as
      amended by Amendment No. 1 to Pledge and Security Agreement. 

    

    “Amended
      Security Agreements” means the Amended Pledge and Security Agreement, the
      Amended Patent and Trademark Security Agreement and the Amended Lockbox
      Agreement. 

    

    “Amended
      Warrant” means the Amended and Restated Common Stock Purchase Warrant in the
      form of Annex
      II
      to this
      Agreement.

    

    “Amendment
      Effective Date” means 5 p.m., New York City time, on July 23, 2007, or such
      other date as mutually agreed by the parties hereto. 

    

    “Amendment
      No. 1 to Lockbox Agreement” means the Amendment No. 1 to Lockbox Agreement by
      and between the Company, the Lockbox Agent and the Collateral Agent in the
      form
      of Annex
      V
      to this
      Agreement.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Amendment
      No. 1 to Patent and Trademark Security Agreement” means the Amendment No. 1 to
      Patent and Trademark Security Agreement by and between the Company and the
      Collateral Agent in the form of Annex
      III
      to this
      Agreement.

    

    “Amendment
      No. 1 to Pledge and Security Agreement” means the Amendment No. 1 to Pledge and
      Security Agreement by and between the Company and the Collateral Agent in the
      form of Annex
      IV
      to this
      Agreement.

    

    “Amendment
      Transaction Documents” means the Note Purchase Agreement as amended by this
      Agreement, this Agreement, the Amended Note, the Amended Warrant, the
      Certificate Designations, the Amended Security Agreements and
      the
      other agreements, instruments and documents contemplated hereby and
      thereby.

    

    “Certificate
      of Designations” means the Certificate of Designations of Series A Senior
      Secured Convertible Preferred Stock in the form of Annex
      VI
      to this
      Agreement, as the same is filed with the Secretary of State of the State of
      Delaware.

    

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

    

    “Effective
      Time” shall have the meaning provided in Section 7.

    

    “Existing
      Registration Statement” means the Company’s Registration Statement on Form S-3
      (Registration No. 333-136748) ordered effective by the SEC on August 30, 2006.
      

    

    “Note
      Purchase Agreement” means the Note Purchase Agreement (including the Annexes,
      Schedules and Exhibits thereto), dated as of July 21, 2006, [as amended on
      March
      28, 2007] [Add
      to Stillwater Amendment Agreement only] (including
      the Annexes, Schedules and Exhibits thereto) by and between the Company and
      the
      original holder of the Note, including, without limitation, the Stillwater
      Note
      Purchase Agreement.

    

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

    

    “Other
      Amendment Agreements” shall have the meaning provided in Section
      7(k).

    

    “Other
      Amendment Transaction Documents” means the Other Note Purchase Agreement as
      amended by the Other Amendment Agreements, the Other Amended Note, the Other
      Amended Warrant, the Certificate Designations, the Amended Security
      Agreements and
      the
      other agreements, instruments and documents contemplated hereby and
      thereby.

    

    “Other
      Amended Notes” shall have the meaning provided in the Amended Note.

    

    “Other
      Amended Warrants” shall have the meaning provided in the Amended
      Note.

    

    “Preferred
      Shares” means the shares of Series A Preferred Stock issued or issuable upon
      conversion of up to 50% of the outstanding principal amount of the Amended
      Notes.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “SEC
      Reports” means the
      Company’s (1) Annual Report on Form 10-K for the fiscal year ended December 31,
      2006 (2) Quarterly Report on Form 10-Q for the quarter ended March 31, 2007
      and
      (3) Current Reports on Form 8-K filed with the SEC on May 16, 2007, May 23,
      2007
      and June 8, 2007.

    

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

    

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

    

    “Transaction
      Form 8-K” shall have the meaning provided in Section 6(b).

    

    “Underlying
      Shares” means the shares of Common Stock issued or issuable upon conversion of
      the Series A Preferred Stock.

    

    2. Amendments;
      Exchange.

    

    (a) Amendments. 

    Upon
      the
      terms and subject to the conditions of this Agreement, the Holder and the
      Company hereby agree that:

    

    (1) At
      the
      Effective Time, the Note shall be amended and restated to read in its entirety
      as set forth in the Amended Note and have an outstanding principal amount equal
      to the principal amount of the Note outstanding immediately prior to the
      Effective Time.

    

    (2) At
      the
      Effective Time, the Warrant shall be amended to read in its entirety as set
      forth in the Amended Warrant.

    

    (3) At
      the
      Effective Time, the Pledge and Security Agreement shall be amended to read
      in
      its entirety as set forth in the Amended Pledge and Security
      Agreement.

    

    (4) At
      the
      Effective Time, the Patent and Trademark Security Agreement shall be amended
      to
      read in its entirety as set forth in the Amended Patent and Trademark Security
      Agreement.

    

    (5) At
      the
      Effective Time, the Lockbox Agreement shall be amended to read in its entirety
      as set forth in the Amended Lockbox Agreement.

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (6) At
      and
      after the Effective Time, the Amendment Effective Date, all references in the
      Transaction Documents to “Note”, “Warrant”, “Pledge and Security Agreement”,
“Patent and Trademark Agreement” and “Lockbox Agreement”, as the case may be,
      shall be deemed references to the Amended Note, the Amended Warrant, the Amended
      Pledge and Security Agreement, the Amended Patent and Trademark Agreement and
      the Amended Lockbox Agreement, as the case may be.

    

    (b) Exchange.

     
      At the
      Effective Time, or as promptly as practicable thereafter, upon the terms and
      subject to the conditions of this Agreement, 

    

    (1) the
      Company shall issue and deliver to the Holder (i) the Amended Note, duly
      executed by the Company, against surrender of the Note to the Company; and
      (ii)
      the Amended Warrant, duly executed by the Company, against surrender of the
      Warrant to the Company; and 

    

    (2) the
      Holder shall surrender to the Company (i)the Note, against issuance and delivery
      by the Company to the Holder of the Amended Note, duly executed by the Company;
      and (ii) the Warrant, against issuance and delivery by the Company to the Holder
      of the Amended Warrant, duly executed by the Company.

    

    3. Amendments
      to Note Purchase Agreement.

     The
      Note
      Purchase Agreement is hereby amended as follows:

    

    (a) Section
      1(c) of the Note Purchase Agreement is hereby amended by deleting the following
      terms “Lockbox Agreement”, “Note”, “Patent and Trademark Security Agreement”,
“Pledge and Security Agreement”, “Shares”, “Trading Market” and “Warrant” and
      their definitions.

    

    (b) Section
      1(c) of the Note Purchase Agreement is hereby amended by adding the following
      terms and definitions in appropriate alphabetical order:

    

    “Amendment
      Agreement” means the Amendment Agreement, dated as of July 23, 2007, by and
      between the Company and the Buyer.

    

    “Amendment
      Effective Date” shall have the meaning provided in the Amendment
      Agreement.

    

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

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    “Effective
      Time” shall have the meaning provided in the Amendment Agreement.

    

    “Lockbox
      Agreement” means the Lockbox Agreement by and between the Company and the
      Lockbox Agent in the form attached as Annex
      V,
      and with
      respect to any time at or after the Effective Time on the Amendment Effective
      Date, the Lockbox Agreement as amended by Amendment No. 1 to the Lockbox
      Agreement by and between the Company and the Lockbox Agent in the form attached
      as Annex
      V to
      the
      Amendment Agreement.

    

    “Non-Registered
      Shares” shall have the meaning provided in Section 8(a)(4).

    

    “Note”
      means the 6% Senior Secured Convertible Note due 2007-2008 of the Company in
      the
      form attached as Annex
      I,
      and
      with respect to any time at or after the Effective Time on the Amendment
      Effective Date, the Amended and Restated 8% Senior Secured Convertible Note
      due
      2008 as amended and restated pursuant to the Amendment Agreement in the form
      attached as Annex
      I
      to the
      Amendment Agreement.

    

    “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,
      and
      with respect to any time at or after the Effective Time on the Amendment
      Effective Date, the Patent and Trademark Security Agreement as amended by
      Amendment No. 1 to the Patent and Trademark Security Agreement from the Company
      to the Collateral Agent in the form attached as Annex
      III
      to the
      Amendment Agreement.

    

    “Pledge
      and Security Agreement” means the Pledge and Security Agreement from the Company
      to the Collateral Agent in the form attached as Annex
      IV,
      and
      with respect to any time at or after the Effective Time on the Amendment
      Effective Date, the Pledge and Security Agreement as amended by Amendment No.
      1
      to the Pledge and Security Agreement from the Company to the Collateral Agent
      in
      the form attached as Annex
      IV
      to the
      Amendment Agreement.

    

    “Preferred
      Shares” means the shares of Series A Preferred Stock issued or issuable pursuant
      to the terms of the Notes.

    

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

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “Shares”
      means the Conversion Shares, the Warrant Shares, the Preferred Shares and the
      Underlying Shares.

    

    “Trading
      Market” means the AMEX, the Nasdaq, the Nasdaq Capital Market, the New York
      Stock Exchange, Inc. or the Over-The-Counter Bulletin Board.

    

    “Underlying
      Shares” means the shares of Common Stock issued or issuable upon conversion of
      the Preferred Shares.

    

    “Warrant”
      means the Common Stock Purchase Warrant in the form attached hereto
      as
      Annex II,
      and
      with respect to any time after the Effective Time on the Amendment Effective
      Date, the Amended and Restated Common Stock Purchase Warrant as amended and
      restated pursuant to the Amendment Agreement in the form attached as
Annex
      II
      to the
      Amendment Agreement.

    

    (c) Section
      8(a)(3) is hereby amended by adding the following to the end
      thereof:

    

    Notwithstanding
      anything contained herein to the contrary, in the event that the SEC limits
      the
      amount of Registrable Securities that may be sold by selling security holders
      in
      a particular Registration Statement, the Company may scale back from such
      registration statement such number of Registrable Securities on behalf of all
      the selling security holders on a pro-rata basis based on the total number
      of
      Registrable Securities held by such selling security holders. In such event
      the
      Company shall give the Holder prompt notice of the number of the Registrable
      Securities excluded. Further, and in addition to the foregoing, the Company
      will not be liable for payment of partial liquidated damages described in
      Section 8(a)(4) of this Agreement for any delay in registration of the
      Registrable Securities in the event that such delay is due to the fact that
      the
      SEC has limited the amount of Registrable Securities that may be included and
      sold by selling security holders in the Registration Statement pursuant to
      Rule
      415 promulgated under the 1933 Act or any other basis. Finally, in the
      event of any such delay, the Company shall use its best efforts to register
      such
      excluded Registrable Securities as promptly as practicable, but in any event
      no
      later than 30 days after the first opportunity that is permitted by the SEC
      to
      register for resale the Registrable Securities that have been cut back from
      being registered.

    

    (d) Section
      8(a)(4) is hereby amended by adding the following to the end
      thereof:

    

    Notwithstanding
      anything to the contrary contained in this Section 8(a)(4), to the extent that
      registration of any shares underlying the Notes, the Series A Preferred Stock
      or
      the Warrants is prohibited (the “Non-Registered Shares”) as a result of rules,
      regulations, positions or releases issued or actions taken by the SEC pursuant
      to its authority with respect to Rule 415 and the Company has sought to register
      at such time the maximum number of Registrable Securities permissible upon
      consultation with the SEC, then the partial liquidated damages described in
      the
      this Section 8(a)(4) shall not be applicable to such Non-Registered
      Shares.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    4. Representations
      and Warranties of the Company.

    The
      Company hereby represents and warrants to, and covenants and agrees with, the
      Holder that:

    

    (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 the Amendment 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.

    

    (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) Amendment
      Transaction Documents.

    The
      Amendment Transaction Documents 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 Holder, this Agreement is, and the
      Amended Security Agreements will be, when duly executed and delivered by the
      Company, and the Amended Note and Amended Warrant 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 thereof 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.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     (d) Concerning
      the Shares and the Common Stock.

    The
      Shares have been duly authorized and the Conversion Shares and the Preferred
      Shares, if any, when issued upon conversion of the Amended Note, and the Warrant
      Shares, when issued upon exercise of the Amended Warrant and the Underlying
      Shares when issued upon conversion of the Preferred Shares, 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.
      The Company has duly reserved 13,207,564 shares of Common Stock exclusively
      for
      issuance upon conversion of the Amended Note and the Other Amended Notes or
      the
      Preferred Shares, as the case may be, and exercise of the Amended Warrant and
      the Other Amended 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 Amended Note, the Other
      Amended Notes, the Certificate of Designations, and the Amended Warrant, so
      long
      as the Amended Note, the Other Amended Notes or the Amended Warrant are
      outstanding. The Common Stock is trading on the OTCBB. The Company knows of
      no
      reason that the Shares will not be eligible for quotation on the OTCBB. 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 Holder shall not be
      required to provide the Company with any notice thereof or otherwise make any
      delivery to the Company pursuant to the Amendment Transaction Documents;
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 Holder or its pledgee shall
      make
      such disposition in accordance with, or pursuant to a registration statement
      or
      an exemption under, the 1933 Act.

    

    (e) Non-contravention.

    The
      execution and delivery of the Amendment Transaction Documents by the Company
      and
      the consummation by the Company of the issuance of the Securities and the other
      transactions contemplated by the Amendment 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 provision of the certificate of incorporation
      or
      by-laws 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 Agreements) 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. 

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (f) Approvals.

    No
      authorization, approval or consent of, or filing with, any court, governmental
      body, regulatory agency, self-regulatory organization, or stock exchange or
      market or the stockholders of the Company is necessary to be obtained or made
      by
      the Company in connection with the execution, delivery and performance of the
      Amendment Transaction Documents and the consummation of the other transactions
      contemplated by the Amendment Transaction Documents other than (1) such as
      have
      been obtained and are in effect, (2) the requirement for the SEC to declare
      effective any registration statement required to be filed pursuant to this
      Agreement, (3) the filing of the Certificate of Designations with the Secretary
      of State of the State of Delaware and (4) the filing of the Transaction
      Form 8-K.

    

    (g) Absence
      of Certain Proceedings.

    Except
      as
      described in the SEC Reports, there is no action, suit, proceeding, inquiry
      or
      investigation before or by the OTCBB, any court, public board or body pending
      or, to the knowledge of the Company, threatened against or affecting the
      Company, the Common Stock or any of the Subsidiary or any of the Company’s or
      Subsidiary’s officers or directors in their capacity as such wherein an
      unfavorable decision, ruling or finding would have a material adverse effect
      on
      the business, properties, operations, financial condition or results of
      operations of the Company or the transactions contemplated by the Amendment
      Transaction Documents or which could adversely affect the validity or
      enforceability of, or the authority or ability of the Company to perform its
      obligations under, this Agreement or any of the other Amendment Transaction
      Documents.

    

    (h) Information
      Provided.

    The
      information provided by or on behalf of the Company to the Holder in connection
      with the transactions contemplated by this Agreement does not 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 in
      which
      they were made, not misleading.

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (i) Absence
      of Certain Changes.

    Except
      as
      disclosed in the SEC Reports, since December 31, 2006, 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, 2006, 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 Amendment
      Effective Date and the transactions contemplated by the Amendment Transaction
      Documents and the Other Amendment Transaction Documents, Insolvent.

    

    (j) Dilutive
      Effect.

     
      The
      Company understands and acknowledges that the number of Shares issuable upon
      conversion of the Note and the Other Notes and the Preferred Shares, as the
      case
      may be, and upon exercise of the Warrant 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 Amendment
      Transaction Documents, its obligation to issue Shares upon conversion of the
      Note and the Preferred Shares, as the case may be, and upon exercise of the
      Warrant in accordance with this Agreement, the Note Purchase Agreement, the
      Note, the Certificate of Designations and the Warrant is, 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.

    

    (k) 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.

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (l) 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.

    

    (m) 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.

    

    (n) SEC
      Filings.

    The
      Company has filed all required forms, reports and other documents with the
      SEC
      since December 31, 2005. All of such forms, reports and other documents
      complied, when filed, in all material respects, with all applicable requirements
      of the 1933 Act and the 1934 Act. 

    

    5. Representations
      and Warranties of the Holder.

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

    

    (a) Authorization.

    The
      Holder has full power and authority to enter into this Agreement. This Agreement
      constitutes such Investor’s legal, valid and binding obligation, enforceable
      against such Investor in accordance with its 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.

    

    (b) Acquisition
      Entirely for Own Account.

    The
      Preferred Shares which may be acquired by the Holder upon conversion of the
      Amended Notes, will be acquired for the Holder’s own account and not with a view
      towards the public resale or distribution thereof within the meaning of the
      1933
      Act; and the Holder will acquire any Shares issued to the Holder prior to the
      SEC Effective Date of a Registration Statement covering the resale of such
      Shares by the Holder for its own account and not with a view towards the public
      resale or distribution thereof within the meaning of the 1933 Act prior to
      such
      SEC Effective Date; and the Holder 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.

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (c) Accredited
      Investor.

    The
      Holder is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D under the 1933 Act.

    

    6. Certain
      Covenants.

    

    (a) Press
      Releases.

     
      Any
      press release or other publicity concerning this Agreement or the transactions
      contemplated by this Agreement shall be submitted to the Holder 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 Effective Time on the Amendment
      Effective Date or as promptly as possible thereafter on the Amendment Effective
      Date, issue a press release, in the form of Annex
      VII
      hereto,
      concerning the transactions contemplated hereby. The Company's other press
      releases and other public information, to the extent concerning the Amendment
      Transaction Documents, shall contain such information as reasonably requested
      by
      the Holder and be reasonably approved by the Holder prior to issuance.

    

    (b) Form
      8-K; Limitation on Information and Holder
      Obligations.

    (1)
      Within two Business Days after the Amendment Effective Date, the Company will
      publicly report the transaction contemplated by this Agreement and the Other
      Amendment Agreements entered into on or before the Amendment Effective 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
      Holder shall not be in possession of any material nonpublic information received
      from the Company, or, to its knowledge, from 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 Holder 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 Holder.

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (c) SEC
      Registration Matters.

    (1)
      The
      Company shall, not later than August 31, 2007, file with the SEC a Registration
      Statement covering the resale by the Holder of a number of shares of Common
      Stock equal to 100% of the sum of (A) the number of Conversion Shares issuable
      upon conversion of the Amended Notes and Underlying Shares issuable upon
      conversion of the Preferred Shares, as the case may be, and one quarter-year
      of
      accrued and unpaid interest and dividends thereon at the rate specified in
      the
      Note or the Certificate of Designations, as the case may be, plus
      (B) the
      number of Warrant Shares issuable upon exercise of the Amended Warrant
      (determined without regard to any limitation on the number of shares of Common
      Stock issuable upon such conversion or exercise) to the extent such number
      of
      shares are not available for resale under the Existing Registration Statement
      (the “Additional Registration Statement”). The Additional Registration Statement
      shall be prepared, filed and otherwise treated for purposes of the Note Purchase
      Agreement as a “Registration Statement” under and as defined in the Note
      Purchase Agreement, as amended by this Agreement.

    

    (2) The
      Company shall, as promptly as practicable, prepare and file with the SEC
      pursuant to Rule 424 under the 1933 Act a prospectus supplement or amended
      prospectus for the prospectus forming part of the Existing Registration
      Statement that includes all information relating to this Agreement and the
      transactions contemplated hereby that is required to be disclosed in such
      prospectus.

    

    (d) Certificate
      of Designations.

    The
      Company shall, as promptly as practicable but in no event later than five
      Business Days after the Amendment Effective Date, file the Certificate of
      Designations with the Secretary of State of the State of Delaware and provide
      confirmation of such filing to the Holder.

    

    (e) Certain
      Waivers.

     The
      Holder and the holders of the Other Notes have previously delivered to the
      Company certain waivers with respect to certain Events of Default and Repurchase
      Events that may otherwise have arisen by reason of the delisting of the
      Company’s Common Stock from trading on the AMEX, the obligation to maintain
      certain Cash and Cash Equivalent Balances under the Notes and the transfer
      of
      patent number 6,337,492 to Kodak Corporation. Although such previously granted
      waivers remain in full force and effect, at the request of the Company, the
      Holder agrees to reconfirm such waivers hereunder. In order to reconfirm such
      waivers, to the extent not otherwise already waived, the Holder hereby
      waives:

    

    (1) any
      Event
      of Default or Repurchase Event under the Notes or any of the other Transaction
      Documents that have arisen or may arise by reason of the delisting of the
      Company’s Common Stock from trading on the AMEX;

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (2) the
      accrual and payment of any partial liquidated damages required to be paid by
      the
      Company to the Holder under Section 8(a)(4) of the Note Purchase Agreement
      arising by reason of the delisting of the Company’s Common Stock from trading on
      the AMEX;

    

    (3) any
      Event
      of Default or Repurchase Event under the Notes or any of the other Transaction
      Documents that have arisen or may arise by reason of the Company’s failure to
      maintain Cash and Cash Equivalents Balances of $600,000.00 under the Notes;
      and

    

    (4) any
      Event
      of Default or Repurchase Event under the Notes or any of the other Transaction
      Documents that have arisen or may arise by reason of the Company entering into
      that certain Royalty Agreement with Kodak Corporation (“Kodak”), the transfer of
      patent number 6,337,492 related to Serially-connected organic light emitting
      diode stack having conductors sandwiching each light emitting layer (the “Kodak
      Patent”), the release of the Kodak Patent from the Collateral (as defined in the
      Security Agreements) and the removal of the Lien (as defined in the Security
      Agreements) on the Kodak Patent.

    

    (f) Certain
      Acknowledgments.

     The
      Company acknowledges that, for purposes of determining the holding period under
      Rule 144 under the 1933 Act (1) for the Amended Note, the holding period of
      the
      Amended Note shall be tacked to the holding period of the Note, and (2) for
      the
      Amended Warrant, the holding period of the Amended Warrant shall be tacked
      to
      the holding period of the Warrant. The Company agrees not to take a position
      contrary thereto unless the SEC or its staff by rule or interpretation changes
      its rules and interpretations thereof in effect on the date of this Agreement
      or
      such rules or interpretations are held invalid or incorrect by a court of
      competent jurisdiction. Nothing in this Section 6(f) shall affect the
      requirement in Section 5(a) of the Note Purchase Agreement for delivery of
      an
      opinion of counsel as and when required thereby.

    

    7. Effectiveness.

    

    The
      amendment of the Note and the Warrant pursuant to this Agreement shall only
      become effective at the time (the “Effective Time”) on the Amendment Effective
      Date when all of the following conditions are satisfied:

    

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

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (b) The
      representations and warranties of the Company contained in this Agreement and
      the other Amendment Transaction Documents shall be true and correct as of the
      date of this Agreement and as of the Amendment Effective Date, as though made
      on
      and as of the Amendment Effective 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 Amendment Effective Date the Company shall have performed
      all covenants and agreements of the Company contained herein and in the other
      Amendment Transaction Documents that are required to be performed by the Company
      on or before the Amendment Effective Date;

    

    (c) No
      event
      which would constitute an Event of Default under the Note or the Amended Note
      or
      which, with the giving of notice or the passage of time, or both, would
      constitute such an Event of Default, that has not been waived by the Holders
      in
      writing, shall have occurred and be continuing; and no event which would
      constitute a Repurchase Event under the Note or the Amended Note or which,
      with
      the giving of notice or passage of time, or both, would constitute such a
      Repurchase Event, that has not been waived by the Holders in writing, shall
      have
      occurred and be continuing;

    

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

    

    (e) The
      Holder shall have received a certificate, dated the Amendment Effective Date,
      of
      the Secretary of the Company certifying (1) the Certificate of Incorporation
      and
      By-Laws of the Company as in effect on such date, (2) all resolutions of the
      Board of Directors (and committees thereof) of the Company relating to this
      Agreement and the transactions contemplated hereby and (3) such other matters
      as
      reasonably requested by the Holder;

    

    (f) All
      approvals of the Company’s Board of Directors and Stockholders necessary for
      performance of the transactions contemplated by this Agreement shall have been
      obtained;

    

    (g) The
      Collateral Agent shall have received Acknowledgment and Consents, in the forms
      attached as Exhibit A to each of Amendment No. 1 to Pledge and Security
      Agreement, Amendment No. 1 to Patent and Trademark Security Agreement and
      Amendment No. 1 to Lockbox Agreement, from each of the holders of
      Notes;

    

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (h) The
      Collateral Agent shall have executed and delivered to the Company the Amended
      Pledge and Security Agreement and a copy thereof duly executed and delivered
      by
      the Company, shall have been furnished to the Holder;

    

    (i) The
      Collateral Agent shall have executed and delivered to the Company the Amended
      Patent and Trademark Security Agreement and
      a
      copy thereof duly executed and delivered by the Company, shall have been
      furnished to the Holder;

    

    (j) The
      Lockbox Agent shall have executed and delivered to the Company the Amended
      Lockbox Agreement and a copy thereof duly executed and delivered by the Company
      shall have been furnished to the Holder;

    

    (k) The
      Company and each holder of Notes shall have executed and delivered, one to
      the
      other, an amendment agreement substantially in the form of this Agreement (the
      “Other Amendment Agreements”); and

    

    (l) The
      “Effective Time” under all of the Other Amendment Agreements shall have occurred
      simultaneously with the Effective Time under this Agreement.

    

    8. Confirmation
      of Agreements; Entire Agreement.

    

    On
      and
      after the Effective Time, each reference in the Note Purchase Agreement to
“this
      Agreement”, “hereof”, “herein”, “herewith”, “hereunder” and words of similar
      import will, unless otherwise stated, be construed to refer to the Note Purchase
      Agreement as amended by this Agreement. No reference to this Agreement need
      be
      made in any instrument or document at any time referring to the Note Purchase
      Agreement, a reference to the Note Purchase Agreement in any such instrument
      or
      document to be deemed to be a reference to the Note Purchase Agreement as
      amended by this Agreement. Additionally, except as amended by this Agreement,
      the Amendment No. 1 to Pledge and Security Agreement, the Amendment No. 1 to
      Patent and Trademark Security Agreement and the Amendment No. 1 to Lockbox
      Agreement, the Transaction Documents shall remain in full force and effect
      in
      accordance with their respective terms. This Agreement and the annexes attached
      hereto set forth the entire agreement between the parties with respect to the
      subject matter hereof. The execution, delivery and effectiveness of this
      Agreement shall not, except as expressly provided herein, operate as a waiver
      of
      any right, power or remedy of the Company or the Holders under the Transaction
      Documents, nor constitute a waiver or amendment of any other provision of the
      Transaction Documents or for any purpose except as expressly set forth
      herein.

    

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    9. Miscellaneous.

    

    (a) Governing
      Law.

    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New York.

    

    (b) Counterparts.

    This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. An electronic or telephone line facsimile copy of this Agreement
      bearing a signature on behalf of a party hereto shall be legal and binding
      on
      such party.

    

    (c) Headings,
      etc.

    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.

    

    (d) 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.

    

    (e) Amendments.

     
      No
      amendment, modification, waiver, discharge or termination of any provision
      of
      this Agreement nor consent to any departure by the Holder or the Company
      therefrom shall in any event be effective unless the same shall be in writing
      and signed by the party to be charged with enforcement, and then shall be
      effective only in the specific instance and for the purpose for which given.
      No
      course of dealing between the parties hereto shall operate as an amendment
      of
      this Agreement.

    

    (f) Waivers.

    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
      dealings 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.

    

    (g) Notices.

    Any
      notices required or permitted to be given under the terms of this Agreement
      shall be delivered in accordance with the notice provisions of the Note Purchase
      Agreement.

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (h) Certain
      Expenses and Fees.

    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. Whether or not the Effective Time on the Amendment Effective Date
      occurs, the Company shall be obligated to pay or reimburse the legal fees and
      expenses and out-of-pocket due diligence expenses of AGMF, not in excess of
      $40,000, in connection with the negotiation and execution of, and transactions
      contemplated by, this Agreement. 

    

    (i) Survival.

     
      The
      respective representations, warranties, covenants, and agreements of the Holder
      and the Company contained in this Agreement or made by or on behalf of them,
      respectively, pursuant to this Agreement shall survive the Amendment Effective
      Date and the transactions contemplated hereby and shall remain in full force
      and
      effect regardless of any investigation made by or on behalf of them or any
      person controlling or advising any of them.

    

    (j) 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.

    

    (k) Construction;
      Holder 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 Holder 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
      a party to any Note Purchase Agreement or Amendment Agreement, or who holds
      any
      Notes or Warrants, in negotiating and entering into this Agreement or acquiring,
      disposing of or voting any of the Shares. The Company hereby confirms that
      it
      understands and agrees that the Holder is not acting as part of any such group.
      If the Holder is other than AGMF, such Holder acknowledges and agrees that
      such
      Holder is not relying on AGMF or AGMF’s legal counsel in making a decision to
      enter into this Agreement or otherwise in connection with the Amendment
      Transaction Documents, and such legal counsel are not acting as the Holder’s
      legal counsel in connection therewith.

    

    [Signature
      Pages Follow]

     

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      parties have caused this Agreement to be duly executed by their respective
      officers or other representatives thereunto duly authorized as of the date
      first
      set forth above.

    
      	 	 	 
	 	EMAGIN
              CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              

              Name:

              Title:

            
	 	 

    
      	 	 	 
	 	
              HOLDER

            
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              

              Name:

            
	 	Title:
	 	Address:
	 	Facsimile
              No.: 
	 	 

    

     

     

     

    
 

    

    21Exhibit 10.2

    
      Exhibit
        10.2

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

    

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

    

    EMAGIN
      CORPORATION

    

    AMENDED
      AND RESTATED

    8%
      SENIOR SECURED CONVERTIBLE NOTE DUE 2008

    

    
      	 No. ARN -                	
               $                          

            
	 New York, New York	 
	 July23, 2007	 

    

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

    The
      following terms shall apply to this Note:

    

    

    ARTICLE
      I

    

    DEFINITIONS

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

    “AMEX”
      means the American Stock Exchange, Inc.

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

     

    “Event
      of
      Default” shall have the meaning provided in Section 4.1.

    

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

    

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

    

    “Fundamental
      Change” means

    

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

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

    “Maturity
      Date” means December 21, 2008.

    

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

    

    “Nasdaq”
      means the Nasdaq Global Market.

    

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

    

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

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    “Permitted
      Indebtedness” means 

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    “Permitted
      Liens” means:

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

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

    

    (b) Any
      Fundamental Change; 

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    “SEC”
      means the Securities and Exchange Commission.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

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

    

    

    ARTICLE
      II

    

    NO
      REDEMPTION AT THE OPTION

    OF
      THE COMPANY

    

    

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

    

    

    ARTICLE
      III

    

    CERTAIN
      COVENANTS

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

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

    

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

    

    3.10 Transactions
      with Affiliates. The
      Company will not, and will not permit any Subsidiary, directly or indirectly,
      to
      pay any funds to or for the account of, make any investment (whether by
      acquisition of stock or Indebtedness, by loan, advance, transfer of property,
      guarantee or other agreement to pay, purchase or service, directly or
      indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or
      otherwise dispose of any assets, tangible or intangible, to, or participate
      in,
      or effect any transaction in connection with, any joint enterprise or other
      joint arrangement with, any Affiliate of the Company, except, on terms to the
      Company or such Subsidiary no less favorable than terms that could be obtained
      by the Company or such Subsidiary from a Person that is not an Affiliate of
      the
      Company, as determined in good faith by the Board of Directors.

     

    3.11 Rule
      144A Information Requirement. 
      Within
      the period prior to the expiration of the holding period applicable to sales
      hereof under Rule 144(k) under the 1933 Act (or any successor provision), the
      Company shall, during any period in which it is not subject to Section 13 or
      15(d) under the 1934 Act, make available to the Holder and any prospective
      purchaser of this Note from the Holder, the information required pursuant to
      Rule 144A(d)(4) under the 1933 Act upon the request of the Holder and it will
      take such further action as the Holder may reasonably request, all to the extent
      required from time to time to enable the Holder to sell this Note without
      registration under the 1933 Act within the limitation of the exemption provided
      by Rule 144A, as Rule 144A may be amended from time to time. Upon the request
      of
      the Holder, the Company will deliver to the Holder a written statement as to
      whether it has complied with such requirements.

    

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

    

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

    
      
        
        

      

      
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    ARTICLE
      IV

    

    EVENTS
      OF DEFAULT

    

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

    

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

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

    

    ARTICLE
      V

    

    REPURCHASE
      UPON A REPURCHASE EVENT 

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
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    5.3 Other. (a)
      If
      the Company fails to repurchase on the applicable repurchase date this Note
      (or
      portion hereof) as to which the repurchase right has been properly exercised
      pursuant to this Article V, then the Repurchase Price for the portion (which,
      if
      applicable, may be all) of this Note which is required to have been so
      repurchased shall bear interest to the extent not prohibited by applicable
      law
      from the applicable repurchase date until paid at the Default Rate.

     

    (b) If
      a
      portion of this Note is to be repurchased, upon surrender of this Note to the
      Company in accordance with the terms of this Article V, the Company shall
      execute and deliver to the Holder without service charge, a new Note or Notes,
      having the same date hereof and containing identical terms and conditions,
      in
      such denomination or denominations as requested by the Holder in aggregate
      principal amount equal to, and in exchange for, the unrepurchased portion of
      the
      principal amount of the Note so surrendered.

     

    (c) A
      Holder
      Notice given by the Holder shall be deemed for all purposes to be in proper
      form
      unless the Company notifies the Holder within three Business Days after such
      Holder Notice has been given (which notice shall specify all defects in such
      Holder Notice), and any Holder Notice containing any such defect shall
      nonetheless be effective on the date given if the Holder promptly undertakes
      to
      correct all such defects. No such claim of defect shall limit or delay
      performance of the Company's obligation to repurchase any portion of this Note,
      the repurchase of which is not in dispute.

    

    ARTICLE
      VI

    

    CONVERSION

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

    
      
        
        

      

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

    

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

    

    
      
        
        

      

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

    

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

    

    
      
        
        

      

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

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

    

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

    

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

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

    

    ARTICLE
      VII

    

    MISCELLANEOUS

    

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

    

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

    

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

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

    

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

    

    

    [Remainder
      of Page Intentionally Left Blank]

    

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	EMAGIN
              CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              

              Name:

              Title:

            
	 	 

    

    

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    ASSIGNMENT

    

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

    

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

    

    
      	 	
              [

            	
              ]

            	
              To
                the Company or a subsidiary thereof;
                or

            

    

    

    
      	 	
              [

            	
              ]

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

            

    

    

    
      	 	
              [

            	
              ]

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

            

    

    

    
      	 	
              [

            	
              ]

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

            

    

    

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

    

    [ ] The
      transferee is an Affiliate of the Company.

    

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

    

    

    
      	Dated:	 	NAME:
	 	 	 
	 	 	 
	 	 	 
	 	 	
              Signature(s)

            

    

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    

    

    COMPANY
      NOTICE

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

    

    TO:                        
          

    (Name
      of
      Holder)

    

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      	 	 	 
	 	EMAGIN
              CORPORATION
	 
 	 
 	 
 
	Date: 	By:  	/s/ 
	 	
              

            
	 	Title 

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    Exhibit
      B

    

    HOLDER
      NOTICE

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

    

    TO: EMAGIN
      CORPORATION

    

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

    

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

     

    
      	 	 	 
	 	NAME
              OF
              HOLDER:
	 
 	 
 	 
 
	Date: 	By:  	/s/ 
	 	
              
Signature
              of Registered Holder
	 	
              (Must
                be signed exactly as name appears
                in the Note.)

            

    

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    

    

    

    Exhibit
      C

    

    NOTICE
      OF CONVERSION

    OF
      AMENDED AND RESTATED 8% SENIOR SECURED

    CONVERTIBLE
      NOTE DUE 2008

    OF
      EMAGIN CORPORATION

     

    
      
        	To:	
                eMagin
                  Corporation

              

      

      10500
        N.E. 8th
        Street,
        Suite 1400 

      Bellevue,
        Washington 98004

      Attention:
        Chief Financial Officer 

      Facsimile
        No.: (425) 749-3601

    

    

    
      	
               

            	 
	 	 

    

    

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

    

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

    

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

    

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

    

     

    
      	 	 	 
	 	NAME:  
	 
 	 
 	 
 
	Date: 	By:  	/s/ 
	 	
              
Signature
              of Registered Holder
	 	
              (Must
                be signed exactly as name appears
                in the Note.)

            

    

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

    Exhibit
      D

    

    NOTICE
      OF CONVERSION

    INTO
      SERIES A SENIOR SECURED CONVERTIBLE PREFERRED STOCK

    UNDER
      SECTION 6.8

    OF
      AMENDED AND RESTATED 8% SENIOR SECURED

    CONVERTIBLE
      NOTE DUE 2008

    OF
      EMAGIN CORPORATION

    

    
      	
              To: 
eMagin
                Corporation

              10500
                N.E. 8th
                Street, Suite 1400 

              Bellevue,
                Washington 98004

               

              Attention:
                Chief Financial Officer 

               

              Facsimile
                No.: (425) 749-3601

               

            	 
	 	 

    

    

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

    

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

    

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

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

      

      
         

        
          	 	 	 
	 	NAME:  
	 
 	 
 	 
 
	Date: 	By:  	/s/ 
	 	
                  
Signature
                  of Registered Holder
	 	
                  (Must
                    be signed exactly as name appears
                    in the Note.)

                

        

         

      

    

     

    

 

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    Exhibit
      E

    

    

    EMAGIN
      CORPORATION

    

    CONVERSION
      SCHEDULE

    

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

    

    

    
      	 	
              Date
                of Conversion 

              (or
                for first entry, the Issuance Date)

            	
              Principal

              Amount
                of Conversion 

              (if
                applicable)

            	
              Principal
                Amount Remaining 

              Subsequent
                to Conversion 

              (or
                original Principal Amount)

            
	
              1.

            	
              7/_/06

            	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

    

    [continue
      as necessary]

    

     

     

     

     

    
47

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