Document:

WAIVER,
      RESCISSION AND

    SETTLEMENT
      AGREEMENT

    

    This
      Waiver, Rescission and Settlement Agreement (the “Agreement”),
      is
      made and entered into as of April 24, 2007 by and between Spatialight, Inc.,
      a
      New York corporation (“SpatiaLight”),
      and
      each investor identified on the signature pages hereto (referred to herein
      as
      the “Investors,”
      whether one or more).

    

    W
      I T N E S S E T H :

    

    WHEREAS,
      SpatiaLight, Bluegrass Growth Fund, L.P. and Bluegrass Growth Fund, Ltd. are
      parties to a Securities Purchase Agreement dated September 26, 2006 (the
“September
      2006 Securities Purchase Agreement”)
      pursuant to which SpatiaLight issued to Bluegrass Growth Fund, L.P. and
      Bluegrass Growth Fund, Ltd. an aggregate of 270,270 shares of its Common Stock,
      $.01 par value per share (the “Common
      Shares”)
      and
      warrants to purchase 89,189 Common Shares for $2.25 per share until September
      26, 2011 (the “September
      2006 Warrants”);
      and a
      Registration Rights Agreement dated September 26, 2006 (the “September
      2006 Registration Rights Agreement”)
      providing for the registration under the Securities Act of 1933, as amended
      (the
“Securities
      Act”)
      of the
      Common Shares issued pursuant to the September 2006 Securities Purchase
      Agreement and the Common Shares issuable upon exercise of the September 2006
      Warrants (the issuance of shares and warrants and other obligations of the
      parties pursuant to the September 2006 Securities Purchase Agreement, the
      September 2006 Warrants, and the September 2006 Registration Rights Agreement
      is
      sometimes referred to herein as the “September
      2006 Financing”)

    

    WHEREAS,
      SpatiaLight
      and Investors are parties to a Securities Purchase Agreement dated November
      29,
      2006 (the “November
      2006 Securities Purchase Agreement”)
      pursuant to which SpatiaLight issued to Investors an aggregate of 2,400,000
      Common Shares and warrants to purchase 4,800,000 Common Shares for $1.75 per
      share until November 29, 2011 (the “November
      2006 Warrants”);
      a
      Lockup Agreement dated November 29, 2006 (the “Lockup
      Agreement”)
      between SpatiaLight and its officers and directors, and a Registration Rights
      Agreement dated November 29, 2006 (the “November
      2006 Registration Rights Agreement”)
      providing for the registration under the Securities Act of the Common Shares
      issued pursuant to the November 2006 Securities Purchase Agreement and the
      Common Shares issuable upon exercise of the November 2006 Warrants (the issuance
      of shares and warrants and other obligations of the parties pursuant to the
      November 2006 Securities Purchase Agreement, the November 2006 Warrants, the
      Lockup Agreement and the November 2006 Registration Rights Agreement is
      sometimes referred to herein as the “November
      2006 Financing”);
      and

    

    WHEREAS,
      in
      connection with the November 2006 Financing, SpatiaLight, Bluegrass Growth
      Fund,
      L.P. and Bluegrass Growth Fund, Ltd. entered into a Waiver dated December 4,
      2006 (the “First
      Waiver”)
      under
      which SpatiaLight agreed to issue warrants to purchase up to 250,000 Common
      Shares (the “Waiver
      Warrants”)
      in
      exchange for a waiver and release of certain requirements under the September
      2006 Financing; and 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    WHEREAS,
      SpatiaLight
      and certain Investors are parties to a Securities Purchase Agreement dated
      February 23, 2007 (the “February
      2007 Securities Purchase Agreement”)
      pursuant to which SpatiaLight issued to Investors an aggregate of 2,190,476
      Common Shares pursuant to a registration statement on Form S-3 (File No.
      333-137100) (the “Registration
      Statement”)
      under
      the Securities Act (the issuance of shares and other obligations of the parties
      pursuant to the February 2007 Securities Purchase Agreement are sometimes
      referred to herein as the “February
      2007 Financing”);
      and

    

    WHEREAS,
      in
      connection with the February 2007 Financing, SpatiaLight and Investors executed
      a Waiver dated February 23, 2007 (the “February
      2007 Waiver”)
      pursuant to which SpatiaLight issued to Investors an aggregate of 600,000 Common
      Shares pursuant to the Registration Statement in exchange for the waiver and
      release of certain requirements under the November 2006 Financing;
      and

    

    WHEREAS,
      SpatiaLight, Bluegrass Growth Fund, L.P. and Bluegrass Growth Fund, Ltd. entered
      into a Second Waiver dated March 6, 2007 (the “Second
      Waiver”)
      under
      which the obligation to issue the Waiver Warrants was deleted from the First
      Waiver and a First Amendment to Registration Rights Agreement dated March 6,
      2007 (the “First
      Amendment”)
      under
      which certain obligations under the September 2006 Registration Rights Agreement
      were amended and accrued liquidated damages were forgiven in exchange for the
      issuance of 500,000 Common Shares pursuant to the Registration Statement and
      the
      application of the proceeds from the sale of such Common Shares to outstanding
      obligations of SpatiaLight (such Second Waiver and First Amendment are sometimes
      referred to herein as the “March
      2007 Amendments”);
      and

    

    WHEREAS,
      Investors
      claimed that the issuance of 500,000 Common Shares pursuant to the March 2007
      Amendments is a breach of the November 2006 Securities Purchase Agreement and
      is
      not within the scope of the February 2007 Waiver; and

    

    WHEREAS,
      SpatiaLight
      believes that the issuance of 500,000 Common Shares pursuant to the March 2007
      Amendments are permitted under the November 2006 Securities Purchase Agreement;
      

    

    NOW,
      THEREFORE, in
      consideration of the mutual covenants and undertakings contained herein the
      parties agree as follows:

     

    1. Rescission
      of November 2006 Financing. Subject
      to the terms and conditions of this Agreement, except as provided below,
      SpatiaLight and Investors agree to rescind and terminate ab
      initio the
      November 2006 Financing, including without limitation (a) the cancellation
      of
      any and all obligations under the November 2006 Securities Purchase Agreement,
      the November 2006 Registration Rights Agreement and the Lockup Agreement; (b)
      subject to the Escrow Agreement set forth below, the delivery into escrow of
      the
      2,400,000 Common Shares issued in the name of Investors under the November
      2006
      Securities Purchase Agreement; and (c) the return for cancellation of the
      November 2006 Warrants. 

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    2. Release
      and Settlement of Claims. Each
      of
      SpatiaLight and Investors agree to irrevocably and forever release, acquit
      and
      discharge the other; their respective affiliated or related partnerships,
      companies and corporations; and the past, present and future partners, managers,
      principals, directors, officers, employees, insurers, agents, attorneys and
      other representatives, administrators, trustees, successors, heirs,
      beneficiaries, servants, independent contractors and assigns of any of them,
      of
      and from any and all claims, based upon, arising from or relating to the
      November 2006 Financing or the execution, delivery or performance of the March
      2007 Amendments, including claims for liquidated or exemplary damages. The
      foregoing release is intended to be construed broadly and to include claims
      that
      are presently known or unknown, accrued or accruing in the future, or based
      on
      law or equity. 

    

    3. Consideration.
      SpatiaLight
      will issue to Investors Common Shares from time to time necessary for Investors
      to receive aggregate gross proceeds from the sale of Common Shares acquired
      by
      Investors in the November 2006 Financing, the February 2007 Financing, the
      February 2007 Waiver, and this Agreement equal to Four Million Five Hundred
      Eighty-two Thousand One Hundred Six and NO/100 United States Dollars
      ($4,582,106.00) (the “Settlement
      Amount”),
      subject to the following:

    

    
      	 	
              a.

            	
              All
                Common Shares issued to Investors shall be delivered to the Escrow
                Agent
                (as defined in the Escrow Agreement, as hereinafter defined) in escrow
                according to the terms of the Escrow Agreement in the form attached
                to
                this Agreement as Exhibit A (the “Escrow
                Agreement”)
                and delivered by the Escrow Agent to Investors or their nominees
                as set
                forth in the Escrow Agreement.

            

    

    

    
      	 	
              b.

            	
              The
                parties to this Agreement acknowledge that it is their intent that
                such
                Common Shares are not intended to be outstanding until they are
                distributed by the Escrow Agent to the Investors according to the
                terms of
                the Escrow Agreement and that no person shall be entitled to any
                rights as
                a stockholder with respect to such Common Shares until such distribution.
                

            

    

    

    
      	 	
              c.

            	
              All
                Common Shares issued to Investors in accordance with this Agreement
                shall
                be subject to and issued under the Registration Statement and SpatiaLight
                shall provide Investors and the Escrow Agent with a legal opinion
                from
                counsel acceptable to Investors relating to the transferability of
                such
                shares.

            

    

    

    
      	 	
              d.

            	
              All
                proceeds from the short sale of Common Shares which were or will
                be
                covered with securities issued in the November 2006 Financing, the
                February 2007 Financing, the February 2007 Waiver and this Agreement
                shall
                be deemed to be gross proceeds from the sale of securities issued
                in such
                transactions. 

            

    

    

    4. Closing.
      Simultaneously
      with the execution and delivery of this Agreement; 

    

    
      	
            	a.	
              The
                parties shall sign and deliver the Escrow
                Agreement;

            

    

    

    
      	
            	b.	
              The
                parties shall sign and deliver an Equity Credit Agreement in form
                acceptable to the parties;

            

    

    

    
      	
            	c.	
              Investors
                shall deliver to SpatiaLight an accounting of all transactions in
                Common
                Shares by Investors and all of their affiliates including the monthly
                statements and the transaction confirmations of all transactions
                since
                November 1, 2006 to the date of this Agreement;

            

    

    

    
      
        
        

      

      
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            	d.	
              Investors
                shall deliver to the Escrow Agent to be held according to the Escrow
                Agreement a certificate or certificates in 200,000 shares increments
                representing all Common Shares then owned or controlled by Investors
                that
                were acquired pursuant to the November 2006 Financing, the February
                2007
                Financing or the February 2007
                Waiver;

            

    

    

    
      	
            	e.	
              Investors
                shall deliver to SpatiaLight for cancellation all November 2006
                Warrants;

            

    

    

    
      	
            	f.	
              SpatiaLight
                shall deliver to the Escrow Agent to be held according to the Escrow
                Agreement, a certificate or certificates representing the number
                of Common
                Shares computed according to the Escrow Agreement (the “SpatiaLight
                Escrow Shares”);
                and 

            

    

    

    
      	
            	g.	
              SpatiaLight
                shall deliver to Investors a legal opinion of Franklin, Cardwell
&
                Jones regarding the registration and transferability of the SpatiaLight
                Escrow Shares.

            

    

    

    5. Representations
      of SpatiaLight. SpatiaLight
      represents to Investors that:

    

    
      	
            	a.	
              The
                SpatiaLight Escrow Shares shall not bear a restricted legend under
                applicable Federal and state securities
                laws.

            

    

    

    
      	
            	b.	
              This
                Agreement has been duly authorized, executed and delivered by SpatiaLight
                and constitutes a legal, valid and binding obligation of SpatiaLight,
                enforceable in accordance with its terms (subject, as to enforceability,
                to applicable bankruptcy, insolvency, reorganization or other similar
                laws
                and to general principles of
                equity).

            

    

    

    
      	
            	c.	
              SpatiaLight’s
                execution, delivery and performance of this Agreement does not (i)
                violate
                or conflict with, or constitute a default (or an event that with
                notice or
                lapse of time or both would become a default) under, result in the
                creation of any
                lien
                upon any of the properties or assets of SpatiaLight,
                or give to others any rights of termination, amendment, acceleration
                or
                cancellation (with or without notice, lapse of time or both) of,
                any
                agreement, credit facility, debt or other instrument or other
                understanding to which SpatiaLight
                is
                a party or by which any property or asset
                of SpatiaLight
                is
                bound or affected, (ii) conflict with SpatiaLight’s certificate of
                incorporation or bylaws or (iii) conflict with or result in a violation
                of
                any law, rule or regulation applicable to SpatiaLight, or any order
                or
                judgment of any court or other agency of government applicable to,
                or
                affecting SpatiaLight.

            

    

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    
      	
            	d.	
              SpatiaLight
                has filed all forms, reports and documents (the “SEC
                Documents”)
                required to be filed with the Securities and Exchange Commission
                (the
                “Commission”)
                pursuant to the Securities Act or the Securities Exchange Act of
                1934, as
                amended (the “Exchange
                Act”),
                as the case may be, and the rules and regulations of the Commission
                thereunder during the 12 month period ending on the date of this
                Agreement. Except as corrected by subsequent amendment, as of their
                respective filing dates, the SEC Documents complied in all material
                respects with the requirements of the Securities Act or the Exchange
                Act,
                as the case may be, and the rules and regulations of the Commission
                thereunder applicable to such SEC Documents, and none of the SEC
                Documents
                contained any untrue statement of a material fact or omitted to state
                a
                material fact required to be stated therein or necessary in order
                to make
                statements therein, in light of the circumstances under which they
                were
                made, not misleading. Except as corrected by subsequent amendment,
                as of
                their respective filing dates, the financial statements of SpatiaLight
                included in the SEC Documents complied as to form in all material
                respects
                with the applicable accounting requirements and the rules and regulations
                of the Commission thereunder and were prepared in accordance with
                generally accepted accounting principles and fairly presented, in
                all
                material respects, the financial position of SpatiaLight as at the
                dates
                thereof and the results of operations and cash flows of SpatiaLight
                for
                the periods then ended (subject, in the case of unaudited statements,
                to
                normal, recurring audit adjustments not material in scope or
                amount).

            

    

    

    
      	
            	e.	
              Neither
                the Commission nor any state regulatory authority has issued, or
                threatened to issue, any order preventing or suspending the use of
                the
                Registration Statement or the prospectus contained therein or has
                instituted or, to SpatiaLight’s knowledge, threatened to institute any
                proceedings with respect to such an order.

            

    

    

    
      	
            	f.	
              No
                consent, approval, authorization or order of, or filing or registration
                with, any court, regulatory authority or other governmental agency
                or body
                or third party is required in connection with the transactions
                contemplated herein.

            

    

    

    
      	
            	g.	
              SpatiaLight
                hereby confirms that neither it nor, to its knowledge, any other
                person
                acting on its behalf has provided Investors or their agents or counsel
                with any information that it believes constitutes or might constitute
                material, non-public information.

            

    

    

    
      	
              6.

            	
              Representations
                of Investors. Each
                of the Investors represents and warrants to SpatiaLight
                that:

            

    

    

    
      	
            	a.	
              It
                is duly organized, validly existing and in good standing under the
                laws of
                its jurisdiction of organization and it has full right, power and
                authority to enter into this Agreement and to perform its obligations
                hereunder in accordance with the terms of this Agreement and has
                taken all
                necessary action to authorize the execution, delivery and performance
                of
                this Agreement;

            

    

    

    
      	
            	b.	
              The
                Investors and all of their affiliates have been compliant to all
                SEC laws
                and regulations regarding any transactions involving Common
                Shares;

            

    

    

    
      	
            	c.	
              All
                records provided to SpatiaLight relating to transactions in Common
                Shares
                are complete, true and accurate and contain all transactions in Common
                Shares that were issued (or deemed to be issued) pursuant to the
                November
                2006 Financing, the February 2007 Financing, and the February
                Waiver;

            

    

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    
      	
            	d.	
              This
                Agreement has been duly authorized, executed and delivered by it
                and
                constitutes a legal, valid and binding obligation of it, enforceable
                in
                accordance with its terms (subject, as to enforceability, to applicable
                bankruptcy, insolvency, reorganization or other similar laws and
                to
                general principles of equity);

            

    

    

    
      	
            	e.	
              Its
                execution, delivery and performance of this Agreement does not violate
                or
                conflict with its governing documents or any law, rule or regulation
                applicable to it, or any order or judgment of any court or other
                agency of
                government applicable to or affecting
                it.

            

    

    

    7. Indemnification.

    

    
      	
            	a.	
              SpatiaLight
                shall indemnify and hold harmless Investors, the officers, directors,
                agents, investment advisors and employees of Investors, each person
                who
                controls any such person (within the meaning of Section 15 of the
                Securities Act or Section 20 of the Exchange Act) and the officers,
                directors, agents and employees of each such controlling person,
                to the
                fullest extent permitted by applicable law, from and against any
                and all
                losses, claims, damages, liabilities, costs (including, without
                limitation, reasonable costs of preparation and reasonable attorneys’
                fees) and expenses (collectively, “Losses”),
                as incurred, arising out of or relating to (i) any untrue statement
                or
                alleged untrue statement of a material fact contained in the Registration
                Statement, any prospectus contained therein or in any amendment or
                supplement thereto or arising out of or relating to any omission
                or
                alleged omission of a material fact required to be stated therein
                or
                necessary to make the statements therein (in the case of any prospectus
                or
                supplement thereto, in light of the circumstances under which they
                were
                made) not misleading, (ii) the inaccuracy in any representation or
                breach
                of any warranty of SpatiaLight contained herein, or (iii) any third
                party
                claim arising from or based in whole or in part upon the November
                2006
                Financing. 

            

    

    

    
      	
            	b.	
              Investors
                shall indemnify and hold harmless SpatiaLight, its current and former
                directors, officers, agents and employees, each person who controls
                SpatiaLight (within the meaning of Section 15 of the Securities Act
                and
                Section 20 of the Exchange Act), and the directors, officers, agents
                or
                employees of such controlling person, to the fullest extent permitted
                by
                applicable law, from and against all Losses, as incurred, to the
                extent
                arising out of or based solely upon: (i) any untrue statement or
                alleged
                untrue statement of a material fact contained in the Registration
                Statement, any prospectus or in any amendment or supplement thereto
                or
                arising out of or relating to any omission or alleged omission of
                a
                material fact required to be stated therein or necessary to make
                the
                statements therein (in the case of any prospectus or supplement thereto,
                in light of the circumstances under which they were made) not misleading
                to the extent, but only to the extent, that such untrue statement
                or
                omission or alleged untrue statement or omission is contained in
                any
                information so furnished in writing by Investors to SpatiaLight
                specifically for inclusion in the Registration Statement or such
                prospectus, amendment or supplement, or (ii) the inaccuracy in any
                representation or breach of any warranty of Investors contained
                herein.

            

    

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    
      	
            	c.	
              If
                any proceeding shall be brought or asserted against any person entitled
                to
                indemnity hereunder (an “Indemnified
                Party”),
                such Indemnified Party shall promptly notify the party from whom
                indemnity
                is due (for purposes of this Section 7, such notified party shall
                be
                referred to as the “Indemnifying
                Party”)
                in writing, and the Indemnifying Party shall have the right to assume
                the
                defense thereof, including the employment of counsel reasonably
                satisfactory to the Indemnified Party and the payment of all reasonable
                fees and expenses incurred in connection with the defense thereof;
                provided, that the failure of any Indemnified Party to give such
                notice
                shall not relieve the Indemnifying Party of its obligations or liabilities
                pursuant to this Agreement, except (and only) to the extent that
                it shall
                be finally determined by a court of competent jurisdiction (which
                determination is not subject to appeal or further review) that such
                failure shall have proximately and materially adversely prejudiced
                the
                Indemnifying Party.

            

    

    

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party unless: (i)
      the Indemnifying Party has agreed in writing to pay such fees and expenses;
      (ii)
      the Indemnifying Party shall have failed promptly to assume the defense of
      such
      proceeding and to employ counsel reasonably satisfactory to such Indemnified
      Party in any such proceeding; or (iii) the named parties to any such proceeding
      (including any impleaded parties) include both such Indemnified Party and the
      Indemnifying Party, and such Indemnified Party shall have been advised by
      counsel that a conflict of interest is likely to exist if the same counsel
      were
      to represent such Indemnified Party and the Indemnifying Party (in which case,
      if such Indemnified Party notifies the Indemnifying Party in writing that it
      elects to employ separate counsel at the expense of the Indemnifying Party,
      the
      Indemnifying Party shall not have the right to assume the defense thereof and
      the reasonable fees and expenses of one separate counsel, (but no more than
      one
      separate counsel on behalf of all of the Indemnified Parties) shall be at the
      expense of the Indemnifying Party). The Indemnifying Party shall not be liable
      for any settlement of any such proceeding affected without its written consent,
      which consent shall not be unreasonably withheld or delayed. No Indemnifying
      Party shall, without the prior written consent of the Indemnified Party, effect
      any settlement of any pending proceeding in respect of which any Indemnified
      Party is a party, unless such settlement includes an unconditional release
      of
      such Indemnified Party from all liability on claims that are the subject matter
      of such proceeding. 

    

    
      	
            	d.	
              All
                reasonable fees and expenses of the Indemnified Party (including
                reasonable fees and expenses to the extent incurred in connection
                with
                investigating or preparing to defend such proceeding in a manner
                not
                inconsistent with this Section) shall be paid to the Indemnified
                Party, as
                incurred (regardless of whether it is ultimately determined that
                an
                Indemnified Party is not entitled to indemnification hereunder; provided,
                that the Indemnifying Party may require such Indemnified Party to
                undertake to reimburse all such fees and expenses to the extent it
                is
                finally judicially determined that such Indemnified Party is not
                entitled
                to indemnification hereunder).

            

    

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    
      	
            	e.	
              If
                a claim for indemnification hereunder is unavailable to an Indemnified
                Party (by reason of public policy or otherwise), then each Indemnifying
                Party, in lieu of indemnifying such Indemnified Party, shall contribute
                to
                the amount paid or payable by such Indemnified Party as a result
                of such
                Losses, in such proportion as is appropriate to reflect the relative
                fault
                of the Indemnifying Party and Indemnified Party in connection with
                the
                actions, statements or omissions or alleged actions, statements or
                omissions that resulted in such Losses as well as any other relevant
                equitable considerations. The relative fault of such Indemnifying
                Party
                and Indemnified Party shall be determined by reference to, among
                other
                things, whether any action in question, including any untrue statement
                or
                alleged untrue statement of a material fact or omission or alleged
                omission of a material fact, has been taken or made by, or relates
                to
                information supplied by, such Indemnifying Party or Indemnified Party,
                and
                the parties’ relative intent, knowledge, access to information and
                opportunity to correct or prevent such action, statement or omission
                or
                alleged action, statement or omission. The amount paid or payable
                by a
                party as a result of any Losses shall be deemed to include, subject
                to the
                limitations set forth in Section 7(c), any reasonable attorneys’ or other
                reasonable fees or expenses incurred by such party in connection
                with any
                proceeding to the extent such party would have been indemnified for
                such
                fees or expenses if the indemnification provided for in this Section
                was
                available to such party in accordance with its terms.
                

            

    

    

    
      	
            	f.	
              The
                parties hereto agree that it would not be just and equitable if
                contribution pursuant to this Section 7 were determined by pro rata
                allocation or by any other method of allocation that does not take
                into
                account the equitable considerations referred to in the immediately
                preceding paragraph. Notwithstanding the provisions of Section 7(e),
                the
                Investors and the other Indemnified Parties shall not be required
                to
                contribute, in the aggregate, any amount in excess of the amount
                by which
                the proceeds actually received by such person from the sale of the
                Escrow
                Shares subject to such dispute exceeds the amount of any damages
                that such
                person has otherwise been required to pay by reason of such untrue
                statement or omission or alleged untrue statement or omission, except
                in
                the case of fraud by such person

            

    

    

    
      	
            	g.	
              The
                indemnification obligations set forth in (i) Section 7(a)(i) and
                Section
                7(b)(i) shall survive the transactions contemplated herein and shall
                remain operative and in full force until the expiration of the applicable
                statute of limitations and (ii) Section 7(a)(ii) and Section 7(b)(ii)
                shall survive forever. Any claim pending on the expiration date of
                any
                applicable survival period for which notice has been given to the
                Indemnifying Party in accordance with this Agreement may continue
                to be
                asserted and indemnified against until finally
                resolved.

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    
      	
              8.

            	
              Miscellaneous.

            

    

    

    
      	 	
              a.

            	
              Expenses.
                Each of the Investors and SpatiaLight agrees to pay its own expenses
                and
                disbursements incident to the performance of its obligations hereunder;
                provided
                however
                that SpatiaLight shall pay the fees and expenses of Investors’ counsel and
                other expenses of Investors as set forth in the Equity Credit Agreement
                of
                even date with this Agreement.

            

    

    

    
      	 	
              b.

            	
              Rights
                Cumulative; Waivers. The rights of each of the parties under this
                Agreement are cumulative. The rights of each of the parties hereunder
                shall not be capable of being waived or varied other than by an express
                waiver or variation in writing. Any failure to exercise or any delay
                in
                exercising any of such rights shall not operate as a waiver or variation
                of that or any other such right. Any defective or partial exercise
                of any
                of such rights shall not preclude any other or further exercise of
                that or
                any other such right. No act or course of conduct or negotiation
                on the
                part of any party shall in any way preclude such party from exercising
                any
                such right or constitute a suspension or any variation of any such
                right.

            

    

    

    
      	 	
              c.

            	
              Benefit;
                Successors Bound. This Agreement and the terms, covenants, conditions,
                provisions, obligations, undertakings, rights, and benefits hereof,
                shall
                be binding upon, and shall inure to the benefit of, the undersigned
                parties and their heirs, executors, administrators, representatives,
                successors, and permitted assigns.

            

    

    

    
      	 	
              d.

            	
              Amendment.
                Neither this Agreement nor any term hereof may be amended, waived,
                discharged or terminated other than by a written instrument signed
                by the
                party against whom enforcement of any such amendment, waiver, discharge
                or
                termination is sought. 

            

    

    

    
      	 	
              e.

            	
              Remedies.
                In addition to being entitled to exercise all rights provided herein
                or
                granted by law, including recovery of damages, each of the parties
                will be
                entitled to specific performance under this Agreement and the Escrow
                Agreement. The parties agree that monetary damages may not be adequate
                compensation for any loss incurred by reason of any breach of obligations
                contained herein or in the Escrow Agreement and hereby agree to waive
                and
                not to assert in any action for specific performance of any such
                obligation the defense that a remedy at law would be adequate. In
                the
                event of a default by SpatiaLight pursuant to this Agreement or the
                Escrow
                Agreement, or the termination of the Escrow Agreement at any time
                while
                the Remaining Settlement Liability is greater than zero, the Investor
                shall be entitled to liquidated damages in an amount equal to the
                Remaining Settlement Liability.

            

    

    

    
      	 	
              f.

            	
              Authorized
                Shares. SpatiaLight agrees to include on the agenda of the next regular
                meeting of its stockholders a proposal to increase the authorized
                Common
                Shares and to use reasonable efforts, including a recommendation
                by its
                board of directors, to cause such proposal to be adopted by the
                stockholders and shall promptly after the approval of any such proposal
                file with such documents as are necessary to amend its Certificate
                of
                Incorporation to increase its authorized Common Shares. In the event
                that
                the SpatiaLight Additional Contributed Shares are limited at any
                time by
                the authorized Common Shares, SpatiaLight shall promptly call a special
                meeting of its stockholders for the purpose of increasing its authorized
                capital and will use reasonable efforts to cause the adoption of
                such
                increase. Notwithstanding the foregoing, in the event that SpatiaLight
                has
                not caused the number of authorized shares to be increased within
                150 days
                of the requirement therefor, then such failure to authorize such
                additional shares shall be an event of default hereunder.
                

            

    

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    
      	 	
              g.

            	
              Severability.
                Each part of this Agreement is intended to be severable. In the event
                that
                any provision of this Agreement is found by any court or other authority
                of competent jurisdiction to be illegal or unenforceable, such provision
                shall be severed or modified to the extent necessary to render it
                enforceable and as so severed or modified, this Agreement shall continue
                in full force and effect. 

            

    

    

    
      	 	
              h.

            	
              Notices.
                All notices, requests, demands or other communications which are
                required
                or may be given pursuant to the terms of this Agreement shall be
                in
                writing and shall be deemed to have been duly given: (i) on the date
                of
                delivery if delivered by hand, (ii) upon the third day after such
                notice
                is (a) deposited in the United States mail, if mailed by registered
                or
                certified mail, postage prepaid, return receipt requested, or (b)
                sent by
                a nationally recognized overnight express courier, or (iii) by facsimile
                upon written confirmation (other than the automatic confirmation
                that is
                received from the recipient’s facsimile machine) of receipt by the
                recipient of such notice: (i) if to Investors at the address of Investors
                on the signature page hereof; and (ii) if to SpatiaLight, at Five
                Hamilton
                Landing, Novato CA 94949, Facsimile No.
                (415) 883-3363

            

    

    

    
      	 	
              i.

            	
              Governing
                Law. This Agreement shall be governed by, and construed in accordance
                with, the laws of the State of New York without giving effect to
                the
                principles regarding conflicts of laws. The parties irrevocably consent
                to
                the exclusive jurisdiction of any State or Federal Court located
                within
                the County of New York, State of New York, in connection with any
                action
                or proceeding arising out of or relating to this Agreement. If
                either party shall commence an action or proceeding to enforce any
                provisions of this Agreement, the prevailing party in such action
                or
                proceeding shall be reimbursed by the other party for its reasonable
                attorneys' fees and other costs and expenses incurred with the
                investigation, preparation and prosecution of such action or
                proceeding.

            

    

    

    
      	 	
              j.

            	
              Further
                Assurances. In addition to the instruments and documents to be made,
                executed and delivered pursuant to this Agreement, the parties hereto
                agree to make, execute and deliver or cause to be made, executed
                and
                delivered, to the requesting party such other instruments and to
                take such
                other actions as the requesting party may reasonably require to carry
                out
                the terms of this Agreement and the transactions contemplated
                hereby.

            

    

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    
      	 	
              k.

            	
              Section
                Headings. The Section headings in this Agreement are for reference
                purposes only and shall not affect in any way the meaning or
                interpretation of this Agreement.

            

    

    

    
      	 	
              l.

            	
              Construction.
                Unless the context otherwise requires, when used herein, the singular
                shall be deemed to include the plural, the plural shall be deemed
                to
                include each of the singular, and pronouns of one or no gender shall
                be
                deemed to include the equivalent pronoun of the other or no
                gender.

            

    

    

    
      	 	
              m.

            	
              Execution
                in Counterparts. This Agreement may be executed in two or more
                counterparts, each of which shall be deemed an original but all of
                which
                shall constitute one and the same agreement. This Agreement, once
                executed
                by a party, may be delivered to the other party hereto in portable
                document format (“PDF”)
                by telephone line facsimile transmission of a copy of this Agreement
                bearing the signature of the party so delivering this Agreement.
                A
                facsimile or PDF transmission of this signed Agreement shall be legal
                and
                binding on all parties hereto.

            

    

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    IN
      WITNESS WHEREOF,
      the
      parties have caused this Agreement to be duly executed by their respective
      officers thereunto duly authorized as of the day and year first above
      written.

     

    
      	 	
              SPATIALIGHT:

               

              SPATIALIGHT
                INC.

               

              By: 
                /s/ David F. Hakala

              
                

              

              
              

              Name: 
                David F. Hakala

              Title: 
                CEO

              
 

              INVESTORS:
                

               

              SOUTHRIDGE
                PARTNERS LP 

               

              By: 
                /s/ Steve Hicks

              
                

              

              Name: 
                Steve Hicks

              Title:

              Address:   
                Southridge Partners LP 

              90
                Grove Street

              Ridgefield,
                CT 06877 

               

               

              SOUTHSHORE
                CAPITAL FUND LTD. 

               

              By: 
                /s/ David Sims

              
                

              

              Name: 
                David Sims

              Title:

              Address:   
                Southshore Capital Fund Ltd.

              Harbour
                House, 2nd
                Floor

              Waterfront
                Drive

              P.O.
                Box 972

              Road
                Town, Tortola

              BVI

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      	 	
              PIERCE
                DIVERSIFIED STRATEGY

              MASTER
                FUND, LLC, ENA 

               

              By: 
                /s/ Brendan O' Neil

              
                

              

              Name: 
                Brendan O' Neil

              Title:

              Address:   
                Enable Capital Management 

              One
                Ferry Building, Suite 255

              San
                Francisco, CA 94111

              
    

              ENABLE
                OPPORTUNITY PARTNERS LP 

              

              By: 
                /s/ Brendan O' Neil

              
                

              

              Name: 
                Brendan O' Neil

              Title:

              Address:   
                Enable Capital Management

              One
                Ferry Building, Suite 255

              San
                Francisco, CA 94111

               

               

              ENABLE
                GROWTH PARTNERS LP 

               

              By: 
                /s/ Brendan O' Neil

              
                

              

              Name: 
                Brendan O' Neil

              Title:

              Address:   
                Enable Capital Management

              One
                Ferry Building, Suite 255

              San
                Francisco, CA 94111

               

               

              IROQUOIS
                MASTER FUND LTD.

               

              By: 
                /s/ Joshua Silverman

              
                

              

              Name: 
                Joshua Silverman

              Title:

              Address:   
                Iroquois Master Fund Ltd. 

              641
                Lexington Avenue, 

              26th
                Floor

              New
                York, New York 10022

            

    

     

    
      
        
        

      

      
        13April
      24,
      2007

    

    McLaughlin
      & Stern, LLP

    260
      Madison Avenue

    New
      York,
      NY 10016

    

    Gentlemen:

    

    Each
      of
      the undersigned hereby request that you act as escrow agent (the “Escrow
      Agent”)
      in
      connection with the Waiver, Rescission and Settlement Agreement the
      (“Settlement
      Agreement”)
      dated
      the date hereof by and between the undersigned (the “Investors”)
      and
      Spatialight, Inc., a New York corporation (“SpatiaLight”).
      Except as otherwise specifically provided herein, the obligations of the
      Investors hereunder shall be several and not joint. Unless otherwise defined
      herein, the capitalized terms utilized herein shall have the meanings ascribed
      to such terms in the Settlement Agreement. 

    

    As
      used
      in this Escrow Agreement, the following terms have the meanings set forth
      below:

    

    “Common
      Shares” means the common stock, $.01 par value per share, of
      SpatiaLight.

    

    “Remaining
      Settlement Liability” means, on any date, the difference between the Settlement
      Amount (as set forth in the Settlement Agreement) and the gross proceeds
      received as of that date by an Investor from the sale of Common Shares
      originally acquired by an Investor pursuant to the November 2006 Financing,
      the
      February 2007 Financing, or the February 2007 Wavier.

    

    “VWAP”
      means, on any date, the five day volume weighted average price of the Common
      Shares for transactions on the NASDAQ Stock Market if the Common Shares are
      then
      trading on the NASDAQ Stock Market or the OTC Bulletin Board if the Common
      Shares are not then traded on the NASDAQ Stock Market but are traded on the
      OTC
      Bulletin Board for the five (5) trading days immediately preceding such date,
      or
      if the Common Shares are not then traded on the NASDAQ Stock Market or the
      OTC
      Bulletin Board, the most recent bid price for the Common Shares as reported
      by
      the Pink Sheets, LLC. 

    

    Each
      Investor and SpatiaLight will deliver to the Escrow Agent and the Escrow Agent
      is hereby authorized and directed to receive and hold the following Common
      Shares (the “Escrow
      Shares”)
      and to
      distribute the Escrow Shares as set forth in this Escrow Agreement:

    

    
      	 	
              a.

            	
              On
                the date of this Escrow Agreement, each Investor has delivered to
                Escrow
                Agent a certificate or certificates in the name of such Investor
                representing the number of Common Shares set forth on Exhibit A (the
                “Investor
                Contributed Shares”),
                representing all of the Common Shares acquired by such Investor pursuant
                to the November 2006 Financing, the February 2007 Financing or the
                February 2007 Waiver that have not previously been sold by such Investor
                

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          2

      

       

    

    
      	 	
              b.

            	
              On
                the date of this Escrow Agreement, SpatiaLight has delivered to the
                Escrow
                Agent a certificate or certificates in the name of each Investor
                representing the number of Common Shares (the “Initial
                SpatiaLight Contributed Shares”)
                equal to the difference between (i) the Remaining Settlement Liability
                with respect to each Investor, divided
                by
                the VWAP on the date of this Escrow Agreement, and (ii) the Investor
                Contributed Shares from such Investor.

            

    

    

    
      	 	
              c.

            	
              If
                at the end of any calendar month during the term of the Escrow Agreement,
                the number of Escrow Shares (excluding for the purposes of this
                computation, the Escrow Shares that are then saleable pursuant to
                an
                effective registration statement or Rule 144(k)) multiplied
                by
                the VWAP on that date is less than the greater of (i) $300,000 or
                (ii) 50%
                of the Remaining Settlement Liability for any Investor, SpatiaLight
                will
                deliver to the Escrow Agent a certificate or certificates in the
                name of
                such Investor representing the number of Common Shares (the “Additional
                SpatiaLight Contributed Shares”)
                necessary so that the total number of Escrow Shares plus the number
                of
                previously distributed Escrow Shares then held by such Investor shall
                be
                equal to the Remaining Settlement Liability for such Investor,
                divided
                by the
                VWAP on such date; provided,
                however, that
                SpatiaLight shall not have any obligation under this paragraph to
                issue
                Additional SpatiaLight Contributed Shares in excess of the number
                of
                authorized and unissued and unreserved Common Shares on the date
                of the
                issuance. 

            

    

    

    
      	 	
              d.

            	
              The
                number of Investor Contributed Shares, SpatiaLight Contributed Shares
                and
                Remaining Settlement Liability, as of the date hereof, for each Investor
                is set forth on Exhibit A.

            

    

    

    
      	 	
              e.

            	
              The
                certificates under paragraphs b and c above shall be in denominations
                of
                200,000 shares unless a certificate for a lesser denomination is
                required
                to be delivered in order for the correct number of Escrow Shares
                to be
                held in escrow pursuant to this Escrow Agreement.
                

            

    

    

    It
      is a
      condition of this Escrow Agreement that the Escrow Shares shall be held and
      delivered according to the following terms:

    

    1. (a)
      From
      time to time after the date of this Escrow Agreement, within three (3) business
      days (four (4) business days commencing after the delivery of the Remaining
      Settlement Liability Notice, as described below) after written notice from
      an
      Investor to SpatiaLight and the Escrow Agent (each, a “Distribution
      Notice”),
      the
      Escrow Agent shall deliver a certificate or certificate(s) to or at the
      direction of such Investor for the number of Escrow Shares specified in the
      Distribution Notice; provided
      however, that
      an
      Investor shall not be entitled to request and the Escrow Agent shall not deliver
      to an Investor Common Shares with an aggregate value (based on the VWAP on
      the
      date of the Distribution Notice and the number of shares requested) in excess
      of
      the Remaining Settlement Liability, except as described in paragraph (b) below
      or which, when added to all other Common Shares then owned by such Investor
      would exceed 9.99% of the total Common Shares then outstanding. Each
      Distribution Notice shall state: (i) the number of Common Shares then
      outstanding based upon the SEC Documents and the number of shares issued
      pursuant to this Escrow Agreement and the Equity Credit Agreement since the
      last
      SEC Document; (ii) the number of previously delivered Escrow Shares then
      beneficially owned by such Investor and all its affiliates and a certification
      that after the distribution the Investor will not beneficially own more than
      9.99% of the total outstanding Common Stock; (iii) an accounting of all sales
      of
      Common Shares by such Investor and all of its affiliates (including transaction
      confirmations and monthly statements) since the date of this Agreement or the
      date of the last Distribution Notice if later; (iv) the number of Escrow Shares
      to be distributed and the date of the proposed distribution; and (v) the
      Remaining Settlement Liability as of the date of the notice, showing the
      computation of the same. The Escrow Agent may conclusively rely on the
      Distribution Notice and shall have no duty of investigation in connection
      therewith. 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          3

      

       

    

    (b)
      Each
      Distribution Notice, shall be in the form annexed hereto as Exhibit B and shall
      be for a minimum of the lesser of (i) 200,000 shares or (ii) the Maximum Share
      Distribution set forth on Exhibit A with respect to the Investor submitting
      such
      Distribution Notice; provided
      however
      in the
      event that the Remaining Settlement Liability is less than the product of the
      lesser of the two forgoing amounts and the VWAP, then the Distribution Notice
      may be for such lesser number of shares. In the event that the Escrow Agent
      holds certificates in denominations in excess of the amount set forth in the
      Distribution Notice, then the Escrow Agent may deliver a certificate for shares
      in excess of the amount set forth in the Distribution Notice and the Investor
      shall promptly deliver a certificate for such excess to
      SpatiaLight.

    

    (c)
      In
      the event that the number of Escrow Shares then held by the Escrow Agent is
      less
      than the number of shares set forth in the Distribution Notice, then the Escrow
      Agent shall deliver to the Investor the number of Escrow Shares, then held
      in
      escrow by the Escrow Agent. The Escrow Agent shall not deliver the Investor
      Contributed Shares to an Investor pursuant to this paragraph until such time
      as
      such shares are eligible for resale pursuant to Rule 144(k) or an effective
      registration statement.

    

    (d)
      If at
      the end of any calendar month during the term of the Escrow Agreement, the
      number of Escrow Shares then held by the Escrow Agent plus the number of Escrow
      Shares previously distributed to each Investor that remain in the possession
      of
      such Investors multiplied
      by
      the
      VWAP on that date is greater than 150% of the Remaining Settlement Liability,
      then within five (5) Trading Days of the receipt of written notice (the
“Excess
      Share Notice”),
      as
      described below, and provided that the Escrow Agent has not received a written
      objection thereto by the applicable Investor, the Escrow Agent shall deliver
      to
      SpatiaLight a certificate or certificates in the name of such Investor
      representing the number of Common Shares necessary so that the total number
      of
      Escrow Shares that do not bear a restrictive legend then held by the Escrow
      Agent plus the number of previously distributed Escrow Shares then held by
      such
      Investor shall be equal to the Remaining Settlement Liability for such Investor,
      divided
      by the
      VWAP
      on such date (the “Excess
      Shares”).
      The
      Excess Share Notice shall contain the calculation of Excess Shares set forth
      in
      this Section 1(d) and shall be sent by SpatiaLight to the Investor and the
      Escrow Agent. In the event of an objection by an Investor within three (3)
      Trading Days of the receipt of the Excess Share Notice, the Escrow Agent shall
      continue to hold the number of disputed Excess Shares and shall return to
      SpatiaLight the number of undisputed Excess Shares. In the event that the
      certificates held by the Escrow Agent are not in the exact denomination of
      the
      number of Excess Shares, then the Escrow Agent shall deliver to SpatiaLight
      an
      approximate the number of Excess Shares and SpatiaLight shall cause the Transfer
      Agent to deliver to the Escrow Agent certificates in smaller denominations
      such
      that the Escrow Agent can deliver to SpatiaLight the appropriate number of
      Excess Shares. 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          4

      

       

    

    2. At
      anytime after the Remaining Settlement Liability for an Investor is less than
      $200,000, SpatiaLight may send to the Escrow Agent a notice (the “Remaining
      Settlement Liability
      Notice”).
      The
      Remaining Settlement Liability Notice shall contain instructions to the Escrow
      Agent not to release Escrow Shares until the third (3rd)
      business day following the Escrow Agent’s receipt of the Remaining Settlement
      Liability Notice. Following the delivery of the Remaining Settlement Liability
      Notice, if SpatiaLight does not provide the Escrow Agent with written objection
      to any proposed distribution as set forth in a Distribution Notice, within
      two
      (2) business days of receiving the Distribution Notice, the Escrow Agent shall
      distribute Escrow Shares to an Investor in the amount and on the date set forth
      in the Distribution Notice. If SpatiaLight provides the Escrow Agent with a
      written objection to the distribution of Escrow Shares, within two (2) business
      days of receiving the Distribution Notice, the Escrow Agent shall not make
      any
      distribution of Escrow Shares (or shall make a distribution of such lesser
      amount that SpatiaLight indicates would not be objectionable) and the dispute
      shall be resolved in accordance with paragraph 12 below.

    

    3. Notwithstanding
      any other provision of this Escrow Agreement, except in the event of a default
      by SpatiaLight under this Escrow Agreement or the Settlement Agreement, no
      Investor shall submit to the Escrow Agent a Distribution Notice relating to
      a
      number of Escrow Shares in excess of the amount which, when added to all
      previous Escrow Shares distributed pursuant to this Escrow Agreement that are
      then beneficially owned by such Investor, would exceed the Maximum Share
      Distribution set forth on Exhibit A with respect to such Investor. 

    

    4. Except
      as
      expressly set forth in this Escrow Agreement, the Escrow Agent shall disregard
      any and all instructions and warnings given by any of the parties hereto or
      by
      any other person or corporation, excepting only orders or process of courts
      of
      law, and is authorized to comply with and obey orders, judgments or decrees
      of
      any court. In case the Escrow Agent obeys or complies with any such order,
      judgment or decree, the Escrow Agent shall not be liable to any of the parties
      hereto or to any other person, firm or corporation by reason of such decree
      being subsequently reversed, modified, annulled, set aside, vacated or found
      to
      have been entered without jurisdiction.

    

    5. The
      Escrow Agent shall be obligated only for the performance of such duties as
      are
      specifically set forth herein and may rely upon and shall be protected in
      relying upon or refraining from acting upon any instrument reasonably believed
      by the Escrow Agent to be genuine and to have been signed or presented by the
      proper party or parties. The Escrow Agent shall not be liable in any respect
      on
      account of the identity, authorities or rights of the parties executing or
      delivering or purporting to execute or deliver any documents or papers deposited
      or called for hereunder. The Escrow Agent shall not be personally liable for
      any
      act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
      acting in good faith, except for fraud or willful misconduct and any act done
      or
      omitted by the Escrow Agent pursuant to the advice of the Escrow
      Agent=s
      attorney shall be evidence of such good faith; provided
      that, such
      attorney is not a member or affiliate of the Escrow Agent. Any expense of the
      Escrow Agent in connection with obtaining any such advice shall be paid by
      SpatiaLight and the Investors, jointly and severally. 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          5

      

       

    

    6. In
      the
      event of a dispute regarding the distribution of the Escrow Shares, the Escrow
      Agent shall be entitled to employ such legal counsel and other experts as the
      Escrow Agent may deem necessary to properly advise the Escrow Agent in
      connection with the Escrow Agent=s
      duties
      hereunder, may rely upon the advice of such counsel, and may pay such counsel
      reasonable compensation therefor.

    

    7. The
      Escrow Agent=s
      duties
      hereunder may be altered, amended, modified or revoked only by a writing signed
      by each of the parties hereto and the Escrow Agent.

     

    8. This
      Escrow Agreement shall terminate and the Escrow Agent shall deliver to
      SpatiaLight’s transfer agent any Escrow Shares then in the possession of the
      Escrow Agent and the Investor shall deliver to SpatiaLight any previously
      distributed Escrow Shares in Investor’s possession upon the acknowledgement by
      an Investor or the entry of an order, decree, judgment or other determination
      by
      a court or other judicial body with jurisdiction over the parties that the
      Remaining Settlement Liability is zero. Upon delivery of such remaining Escrow
      Shares to SpatiaLight, the Escrow Agent’s responsibilities hereunder shall
      terminate.

    

    9.
       This
      Escrow Agreement shall terminate and the Escrow Agent shall deliver to
      SpatiaLight’s transfer agent any Escrow Shares then in the possession of the
      Escrow Agent if SpatiaLight (a) makes an assignment for the benefit of
      creditors; (b) files a voluntary bankruptcy petition; (c) becomes the subject
      of
      an order for relief or is declared insolvent in any federal or state bankruptcy
      or insolvency proceedings; (d) files a petition or answer seeking
      reorganization, arrangement, composition, readjustment, liquidation,
      dissolution, termination, or similar relief under any law; (e) files an answer
      or other pleading admitting or fails to contest the material allegations of
      a
      petition filed against it in a proceeding of the type described in clauses
      (a)
      through (d); (e) seeks, consents to, or acquiesces in the appointment of a
      trustee, receiver, or liquidator of all or any substantial part of its
      properties; or (f) has commenced against it a proceeding seeking reorganization,
      arrangement, composition, readjustment, liquidation, dissolution, or similar
      relief under any law and one hundred twenty (120) days have expired without
      dismissal thereof or with respect to which, without SpatiaLight's consent or
      acquiescence, a trustee, receiver, or liquidator of all or any substantial
      part
      of its properties has been appointed and ninety (90) days have expired without
      the appointment's having been vacated or stayed, or ninety (90) days have
      expired after the date of expiration of a stay, if the appointment has not
      previously been vacated.

    

    10. The
      Escrow Agent may resign, with respect to any individual Investor, by written
      notice to such Investor and SpatiaLight. In the event of any such resignation,
      such Investor and SpatiaLight shall appoint a successor escrow agent with
      respect to such Investor and shall notify the Escrow Agent of such appointment.
      Upon receipt of the notice of appointment of a successor escrow agent, the
      Escrow Agent shall promptly deliver to such successor escrow agent all Escrow
      Shares relating to such Investor, whereupon the Escrow Agent=s
      responsibilities hereunder shall terminate with respect to such
      Investor.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          6

      

       

    

    11. If
      the
      Escrow Agent reasonably requires other or further instruments in connection
      with
      this Escrow Agreement or obligations in respect hereto, the necessary parties
      hereto shall join in furnishing such instruments.

    

    12. If
      any
      dispute arises with respect to the delivery and/or ownership or right of
      possession of the Escrow Shares or in the event that the Escrow Agent resigns
      and a successor escrow agent is not appointed within five (5) days after written
      notice, the Escrow Agent is authorized and directed in the Escrow
      Agent=s
      sole
      discretion (a) to retain in the Escrow Agent=s
      possession without liability to anyone, all or any part of said Escrow Shares
      until (i) a successor escrow agent is appointed or (ii) such disputes shall
      have
      been settled either by mutual written agreement of the parties concerned or
      by a
      final order, decree or judgment of a court of competent jurisdiction after
      the
      time for appeal has expired and no appeal has been perfected, but the Escrow
      Agent shall be under no duty whatsoever to institute or defend any such
      proceedings, as the case may be or (b) to deliver the Escrow Shares to a state
      or federal court having competent subject matter jurisdiction and located in
      the
      State and City of New York in accordance with the applicable procedure therefor
      and interplead the parties to determine to whom the disputed Escrow Shares
      should be delivered, whereupon the Escrow Agent shall have no further obligation
      with respect to such Escrow Shares.

    

    13. Each
      of
      the parties hereto agree jointly and severally to indemnify and hold harmless
      the Escrow Agent from any and all claims, liabilities, costs or expenses in
      any
      way arising from or relating to the duties or performance of the Escrow Agent
      hereunder other than any such claim, liability, cost or expense to the extent
      same shall have been determined by final, unappealable judgment of a court
      of
      competent jurisdiction to have resulted from fraud, gross negligence or willful
      misconduct of the Escrow Agent.

    

    14. Notwithstanding
      anything contained herein to the contrary, the parties acknowledge that the
      Escrow Agent is counsel for one of the Investors and nothing herein contained
      shall affect or impair the Escrow Agent’s ability to act as counsel for any of
      the Investors in connection with any dispute with SpatiaLight in connection
      with
      the transactions contemplated hereby or otherwise.

    

    15. Any
      notice required or permitted hereunder shall be given in writing.

    

    16. By
      signing this Escrow Agreement, the Escrow Agent does not become a party to
      any
      other agreement.

    

    17. This
      instrument shall be binding upon and inure to the benefit of the parties hereto,
      and their respective successors and permitted assigns and shall be governed
      by
      the laws of the State of New York without giving effect to principles governing
      the conflicts of laws. A facsimile transmission of these instructions or a
      Distribution Notice, which may be signed in counterpart, shall be legal and
      binding on all parties hereto.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          7

      

       

    

    18. Any
      reference to the number of shares or the VWAP for the Common Shares in this
      Agreement shall be adjusted from time to time as necessary to reflect the effect
      of any stock splits, stock dividends, reverse splits, combinations, exchanges,
      or other similar transactions. 

    

    19. In
      connection with the Escrow Agent’s performance of services hereunder, the Escrow
      Agent shall receive an escrow fee in an amount equal to the product of: (i)
      0.5%
      and (ii) the proceeds from the sale of Escrow Shares distributed during each
      month. The escrow fee shall be payable monthly by SpatiaLight and the failure
      of
      SpatiaLight to pay the invoice, which failure shall continue for a period of
      thirty (30) days after the payment is due, the Escrow Agent may recover the
      full
      amount of such fee from SpatiaLight. 

     

    
      	 	
              SPATIALIGHT:

               

              SPATIALIGHT
                INC.

               

              

              By: 
                David F. Hakala

              
                

              

              Name:
                David F. Hakala

              Title: 
                CEO

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
        McLaughlin
          & Stern, LLP

        April
          24,
          2007

        Page
          8

      

    

     

    
      	 	
              INVESTORS:
                

               

              SOUTHRIDGE
                PARTNERS LP 

               

              By: 
                /s/ Steve Hicks

              
                

              

              Name: 
                Steve Hicks

              Title:

              Address:   
                Southridge Partners LP 

              90
                Grove Street

              Ridgefield,
                CT 06877 

              
 

              SOUTHSHORE
                CAPITAL FUND LTD. 

               

              By: 
                /s/ David Sims

              
                

              

              Name: 
                David Sims

              Title:

              Address:   
                Southshore Capital Fund Ltd.

              Harbour
                House, 2nd
                Floor 

              Waterfront
                Drive

              P.O.
                Box 972

              Road
                Town, Tortola

              BVI

              

               

              PIERCE
                DIVERSIFIED STRATEGY

              MASTER
                FUND, LLC, ENA 

               

              By: 
                /s/ Brendan O' Neil

              
                

              

              
              

              Name: 
                Brendan O' Neil

              Title:

              Address:   
                Enable Capital Management 

              One
                Ferry Building, Suite 255

              San
                Francisco, CA 94111

                  

               

              ENABLE
                OPPORTUNITY PARTNERS LP 

              

              By: 
                Brendan O' Neil

              
                

              

              
              

              Name: 
                Brendan O' Neil

              Title:

              Address:   
                Enable Capital Management

              One
                Ferry Building, Suite 255

              San
                Francisco, CA 94111

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      McLaughlin
        & Stern, LLP

      April
        24,
        2007

      Page
        9

      
        	 	
                ENABLE
                  GROWTH PARTNERS LP 

                

                By: 
                  /s/ Brendan O' Neil

                
                  

                

                
                

                Name: 
                  Brendan O' Neil

                Title:

                Address:   
                  Enable Capital Management

                One
                  Ferry Building, Suite 255

                San
                  Francisco, CA 94111

                

                 

                IROQUOIS
                  MASTER FUND LTD.

                

                By: 
                  /s/ Joshua Silverman

                
                  

                

                
                

                Name: 
                  Joshua Silverman

                Title:

                Address:   
                  Iroquois Master Fund Ltd. 

                641
                  Lexington Avenue, 

                26th
                  Floor 

                New
                  York, New York 10022

              

      

    

     

    
      ACCEPTED
        BY:

      ESCROW
        AGENT

      

      MCLAUGHLIN
        & STERN, LLP

      

      By: 
        _________________________________

      Name:

      Title:

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

    NUMBER
      OF CONTRIBUTED SHARES AND

    REMAINING
      LIABILITY

    

    

    

    
      	
              Investor

            	
              Investor
                Contributed Shares

            	
              SpatiaLight
                Contributed Shares

            	
              Remaining
                Settlement Liability

            	
              Maximum

              Share

              Distribution

            
	 	 	 	 	 
	
              Southridge
                Partners LP 

            	
              1,521,361

            	
              2,194,388

            	
              $1,523,457 

            	
              375,000

            
	
              Southshore
                Capital Fund Ltd.

            	
              213,787

            	
              1,025,030

            	
              $507,915 

            	
              125,000

            
	
              Pierce
                Diversified Strategy Master Fund, LLC, ENA

            	
              73,358

            	
              111,369

            	
              $75,738 

            	
              25,000

            
	
              Enable
                Opportunity Partners LP

            	
              146,716

            	
              222,740

            	
              $151,477 

            	
              50,000

            
	
              Enable
                Growth Partners LP

            	
              1,247,085

            	
              1,893,291

            	
              $1,287,554 

            	
              425,000

            
	
              Iroquois
                Master Fund Ltd.

            	
              800,000

            	
              1,171,090

            	
              $808,147 

            	
              500,000

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    

    FORM
      OF DISTRIBUTION NOTICE

    

    Pursuant
      to Paragraph 1 of that certain Escrow Agreement by and among the undersigned,
      SpatiaLight, Inc., a New York corporation (“SpatiaLight”), and McLaughlin &
Stern as escrow agent, the undersigned hereby requests the distribution of
      ________________ (the “Distribution Amount”) shares of SpatiaLight common stock,
      $.01 par value per share (the “Common Shares”) on ______________,
      20__.

    

    
      	
              Number
                of Common Shares Outstanding

            	
              __________________

            
	
              Number
                of Common Shares Issued Since Last SEC Report

            	
              __________________

            
	
              Total
                Common Shares Outstanding

            	
              __________________

            
	 	 
	
              Previously
                Delivered Common Shares Presently Owned

            	
              __________________

            
	
              Shares
                to be Issued under this Distribution Notice

            	
              __________________

            
	
              Other
                Shares Owned

            	
              __________________

            
	
              Total

            	
              __________________

            
	 	 
	
              Initial
                Settlement Liability

            	
              $__________________

            
	
              Proceeds
                from Sale of Common Shares

            	
              $__________________

            
	
              Remaining
                Settlement Liability

            	
              $__________________

            

    

    

    The
      undersigned represents and warrants that the number of Common Shares presently
      owned plus the Distribution Amount will be less than 9.99% of the outstanding
      Common Shares as of the date hereof. In addition, the undersigned represents
      and
      warrants that the aggregate VWAP of the Distribution Amount is less than the
      Remaining Settlement Liability.

     

    
      	 	
              INVESTOR:
                

              

              ___________________________________

              

              

              By: 
                ________________________________

              Name:

              Title:

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