Document:

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                                                                   EXHIBIT 10.64

                                                      AMENDED AND RESTATED
                                            EMPLOYMENT AGREEMENT dated as of
                                            July 11, 2002 (this "Agreement"),
                                            among dj Orthopedics, LLC, a
                                            Delaware limited liability company
                                            (the "Company"), dj Orthopedics,
                                            Inc., a Delaware corporation (the
                                            "Public Company", together with the
                                            Company, the "Companies"), and Cyril
                                            Talbot III (the "Executive").

                Reference is made to the Employment Agreement, dated as of June
30, 1999, by and among the Company, DonJoy, L.L.C. and the Executive (as amended
by the sideletter dated as of June 12, 2002, the "Original Employment
Agreement").

                In order to induce the Executive to amend and restate the terms
and conditions of his employment with the Companies, the Companies desire to
provide the Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement. The Executive is willing to enter into
such employment and perform services for the Companies on the terms and
conditions set forth in this Agreement.

                In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

        1. EMPLOYMENT.

                The Companies shall employ the Executive, and the Executive
accepts employment with the Companies, upon the terms and conditions set forth
in this Agreement for the Employment Period (as defined in Paragraph 4(a)).

        2. POSITION AND DUTIES.

                (a) (i) During the Transition Period (as defined in Paragraph
        4(a)), the Executive shall be responsible for Corporate Affairs of the
        Companies and shall render advisory, consultative and other services to
        the Companies and the person hired to serve as the replacement Vice
        President of Finance, Chief Financial Officer and Secretary of the
        Companies (the "Successor CFO") in connection with (A) the transition of
        the duties, responsibilities and authority of the Executive as Senior
        Vice President of Finance, Chief Financial Officer and Secretary of the
        Companies to the Successor CFO and related matters, and (B) such other
        tasks or projects as the Companies may reasonably request, in each case
        subject to the power of the board of directors of the Public Company and
        the board of managers of the Company (together, the "Boards") (x) to
        expand or limit such duties, responsibilities and authority and (y) to
        override the actions of the Executive. The Executive shall perform such
        duties principally at the Companies' offices in Vista, CA or such other
        location as the Executive and the Boards shall agree. The Executive's
        service for the Companies as the individual responsible for Corporate
        Affairs during the

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Transition Period shall end on the Remaining Period Commencement Date (as
defined in Paragraph 4(a)).

                        (ii) During the Remaining Period (as defined in
        Paragraph 4(a)), the Executive shall become an inactive employee but
        shall be available to render advisory, consultative and other services
        to the Companies as are mutually agreeable to the Executive and the
        Companies in their respective sole and absolute judgments.

                (b) During the Transition Period, the Executive:

                        (i) shall report to the Boards and shall devote his best
        efforts and substantially all of his active business time and attention
        (except for permitted vacation periods and reasonable periods of illness
        or other incapacity) to the business and affairs of the Companies and
        their Affiliates and shall perform his duties and responsibilities to
        the best of his abilities in a diligent and professional manner; and

                        (ii) shall not engage in any business activity which, in
        the reasonable judgment of the Boards, conflicts or substantially
        interferes with the duties of the Executive hereunder, whether or not
        such activity is pursued for gain, profit or other pecuniary advantage.

                (c) The foregoing restrictions shall not limit or prohibit the
Executive from engaging in passive investment, inactive business ventures and
community, charitable and social activities not interfering with the Executive's
performance and obligations hereunder.

        3. BASE SALARY AND BENEFITS.

                (a) During the Employment Period, the Executive's base salary
shall be $200,011.44 per annum, or such higher rate as the Board of the Company
may designate from time to time (the "Base Salary"), which Base Salary shall be
payable in regular installments in accordance with the Company's general payroll
practices and subject to withholding and other payroll taxes. Subject to
Paragraph 11, the Base Salary shall continue as provided hereunder regardless of
any other employment, earnings or compensation obtained, earned or accrued by
the Executive both as provided herein and which the Executive may be entitled to
for occurrences or efforts during the Remaining Period. In addition, during the
Transition Period, the Executive shall be entitled to participate in all
employee benefit and insurance programs for which the Executive is currently
eligible. During the Remaining Period, the Executive shall be entitled to
participate in the health and dental programs for which the Executive is
currently eligible, including any renewal periods regarding existing plans and
including all successor plans providing the same or similar coverage.

                (b) During the Transition Period, the Company shall reimburse
the Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement, which are consistent with the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documenting of such expenses.

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                (c) During the Transition Period, the Executive shall be
entitled to continue to accrue vacation at a rate of three weeks paid vacation
during each 12-month period worked, which vacation period shall include all
vacation which has accrued during the Executive's current 12-month work period.
The Executive shall be entitled to receive payment for all accrued, unused
vacation pay through the last day of the Transition Period, and payment of said
sum shall be made to the Executive within five (5) business days after the end
of the Transition Period.

                (d) In addition to the Base Salary, during the Transition
Period, the Executive shall be eligible to continue to participate in the Public
Company's Management Bonus Plan in accordance with the terms thereof. As to any
such bonus and the computation thereof, the Executive shall be entitled to a pro
rata bonus payment, attributable to any bonus payment period during which the
Executive served the Companies as part of the Employment Period hereunder.

                (e) In addition to the other benefits provided herein, during
the Remaining Period, the Executive shall at the Companies' expense, be entitled
to outplacement counseling and services by and through a nationally-recognized
firm, to be designated by Executive. The expenses associated with said services,
shall not exceed the sum of $15,000.00, and shall not extend to any period of
time greater than six months following the end of the Remaining Period. As part
of said outplacement services, and within the monetary limits set forth herein,
the Executive shall have the right, at his sole discretion, to utilize the
consulting services of Dr. Tony Baron.

        4. TERM.

                (a) The "Employment Period" means the period of time which is
comprised of the Transition Period and the Remaining Period; provided, however,
that (x) the Employment Period shall terminate prior to the last date of the
Employment Period upon the Executive's resignation, death or Disability (as
defined below), and (y) the Employment Period may be terminated by the Companies
at any time prior to the last date of the Employment Period for Cause (as
defined below). For purposes of this Agreement:

                        (i) the term "Transition Period" means the period of
        time commencing on the date hereof and ending on the date (the
        "Remaining Period Commencement Date") immediately after the date on
        which the Companies deliver notice to the Executive, or the Executive
        delivers notice to the Companies, that it is the intention of the
        requesting party that the Transition Period end; provided, however, that
        (x) any such notice by the Executive shall not constitute, or be
        interpreted as a resignation, but rather shall be regarded as a status
        modification preserving intact all rights thereunder without
        intervention or cessation except as provided in this Agreement and (y)
        the Transition Period shall extend to a date no later than December 31,
        2002, even in the absence of any such notice, unless the parties
        mutually agree, in writing, to the contrary;

                        (ii) the term "Remaining Period" means the period of
        time commencing on the Remaining Period Commencement Date and ending on
        the date which is 365 days from such date; and

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                        (iii) the term "Disability" means any long-term
        disability or incapacity which (A) renders the Executive unable to
        substantially perform his duties hereunder for 120 days during any
        12-month period or (B) would reasonably be expected to render the
        Executive unable to substantially perform his duties for 120 days during
        any 12-month period, in each case as determined by the Boards in their
        good faith judgment and including a pro rated number of days thereof
        based on the number of days elapsed during such 12-month period;
        provided, however, that if the Executive disputes any determination of
        Disability made by the Boards pursuant to clause (B) above, the dispute
        shall be referred to three licensed physicians practicing within a
        100-mile radius of the city or township nearest to the Executive's place
        of employment by the Companies, one of whom shall be selected by the
        Boards, a second of whom shall be selected by the Executive and the
        third of whom shall be selected by the two physicians selected by the
        Boards and the Executive, respectively, and the opinion of the majority
        of such physicians shall be the determination of Disability, and shall
        be final and binding on both the Executive and the Companies.

                (b) If the Employment Period is terminated by the Companies for
Cause, or by reason of the Executive's resignation, death or Disability, the
Executive shall be entitled to receive only his Base Salary, but only to the
extent such amount has accrued through the termination date.

                (c) Except as otherwise required by law (e.g., COBRA) or as
specifically provided herein, all of the Executive's rights to salary,
severance, fringe benefits and bonuses hereunder (if any) accruing after the
termination of the Employment Period shall cease upon termination of the
Employment Period. If the Employment Period is terminated at the end of such
period, neither the Executive nor his successors, assigns, heirs,
representatives and estate shall be entitled to any additional payments (whether
severance or otherwise) or other benefits (including, without limitation, the
acceleration of any of the Executive's then-unvested options), other than such
payments or benefits which have accrued through such termination date. In the
event the Executive is terminated by the Companies for Cause or by reason of the
Executive's death, Disability or resignation, the sole remedy of the Executive
and his successors, assigns, heirs, representatives and estate shall be to
receive the payment described in Paragraph 4(b).

                For purposes of this Agreement, "Cause" means (i) during the
Transition Period, (A) the failure by the Executive to perform such duties as
are reasonably requested by the Board as documented in writing to the Executive
and (B) chronic absenteeism and (ii) during the entire Employment Period (which
for purposes of this Paragraph (b)(ii) only shall include the period of the
Executive's employment with the Companies pursuant to the Original Employment
Agreement), (A) the Executive's willful disregard of his duties or failure to
act, where such action would be in the ordinary course of the Executive's
duties, (B) the failure by the Executive to observe all material policies of the
Companies and their Affiliates generally applicable to executives of the
Companies and their Affiliates, (C) gross negligence or willful misconduct by
the Executive in the performance of his duties, (D) the commission by the
Executive of any act of fraud, theft or financial dishonesty with respect to the
Companies or any of their Affiliates, or any felony or criminal act involving
moral turpitude, (E) the material breach by the Executive of this Agreement,
including, without limitation, any breach by the Executive of the provisions of
Paragraph 5, Paragraph 6, Paragraph 7 or Paragraph 8, or of any Management
Related Document

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(as defined in Paragraph 15(b)), or (F) subject to Paragraph 2(c), the Executive
directly or indirectly (1) engaging in, representing in any way, or being
connected with, any Competing Business, whether such engagement shall be as an
officer, director, owner, employee, partner, affiliate or other participant in
any Competing business or (2) assisting others in engaging in any Competing
Business in the manner described in the foregoing clause (1). For purposes of
this Agreement, (i) "Affiliates" means the Companies (or their respective
successors or assigns) and all subsidiaries thereof and (ii) "Competing
Business" means any business or activity which manufactures, markets or sells
knee braces and other products for the knee which are competitive with the
Company's knee brace products as of the date hereof. As of the date of this
Agreement, the Companies are not aware of any facts or circumstances which would
constitute "Cause" under this Agreement. The changes to the Executive's
employment with the Companies as reflected in this Agreement have not been as a
result of any actions which would constitute "Cause" under either the Original
Employment Agreement or this Agreement.

        5. NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION.

                (a) The Executive will not disclose or use at any time, either
during the Employment Period or thereafter, any Confidential Information (as
defined in Paragraph 5(b)) of which the Executive is or becomes aware, whether
or not such information is developed by him, except to the extent that such
disclosure or use is directly related to and required by the Executive's
performance in good faith of duties assigned to the Executive by the Boards. The
Executive will take all appropriate steps to safeguard Confidential Information
and to protect it against disclosure, misuse, espionage, loss and theft. The
Executive shall deliver to the Companies on or prior to the last day of the
Transition Period, or at any time the Companies may request, all memoranda,
notes, plans, records, reports, computer tapes and software and other documents
and data (and copies thereof) relating to the Confidential Information, Work
Product (as defined in Paragraph 6) of the business of the Companies or any of
their Affiliates which the Executive may then possess or have under his control.

                (b) As used in this Agreement, the term "Confidential
Information" means information that is not generally known to the public and
that is used, developed or obtained by the Companies in connection with their
businesses, including but not limited to (i) information, observations and data
obtained by the Executive while employed by the Companies or any predecessors
thereof (including those obtained prior to the date of this Agreement)
concerning the business or affairs of the Companies (or such predecessors), (ii)
products or services, (iii) fees, costs and pricing structures, (iv) designs,
(v) analyses, (vi) drawings, photographs and reports, (vii) computer software,
including operating systems, applications and program listings, (viii) flow
charts, manuals and documentation, (ix) data bases, (x) accounting and business
methods, (xi) inventions, devices, new developments, methods and processes,
whether patentable or unpatentable and whether or not reduced to practice, (xii)
customers and clients and customer or client lists, (xiii) copyrightable works,
(xiv) all production methods, processes, technology and trade secrets and (xv)
all similar and related information in whatever form. Confidential Information
will not include any information that has been published in a form generally
available to the public prior to the date the Executive proposes to disclose or
use such information.

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        6. INVENTIONS AND PATENTS.

                The Executive agrees that all inventions, innovations,
improvements, technical information, systems, software developments, methods,
designs, analyses, drawings, reports, service marks, trademarks, trade names,
logos and all similar or related information (whether patentable or
unpatentable) which relate to the Companies' or any of their Affiliates' actual
or anticipated business, research and development or existing or future products
or services and which are conceived, developed or made by the Executive (whether
or not during usual business hours and whether or not alone or in conjunction
with any other person) while employed by the Companies (including those
conceived, developed or made prior to the date of this Agreement) together with
all patent applications, letters patent, trademark, tradename and service mark
applications or registrations, copyrights and reissues thereof that may be
granted for or upon any of the foregoing (collectively referred to herein as,
the "Work Product"), belong in all instances to the Companies or any such
Affiliates. The Executive will promptly disclose such Work Product to the Boards
and perform (at the Companies' expense, except for any fees, costs or expenses
associated with the Executive's time) all actions reasonably requested by the
Board (whether during or after the Employment Period) to establish and confirm
the Companies' ownership of such Work Product (including, without limitation,
the execution and delivery of assignments, consents, powers of attorney and
other instruments) and to provide (at the Companies' expense) reasonable
assistance to the Companies or any of their Affiliates in connection with the
prosecution of any applications for patents, trademarks, trade names, service
marks or reissues thereof or in the prosecution or defense of interferences
relating to any Work Product.

        7. NON-SOLICITATION.

                The Executive agrees that, for the period that includes (i) the
Employment Period and (ii) four (4) years after the termination of the
Employment Period (the "Non-Solicit Period"), the Executive shall not directly
or indirectly through another person or entity (i) induce or attempt to induce
any employee of the Companies or any of their Affiliates to leave the employ of
the Companies or such Affiliates, or in any way interfere with the relationship
between the Companies or any such Affiliates, on the one hand, and any employee
thereof, on the other hand, (ii) hire any person who was an employee of the
Companies, until six months after such individual's employment relationship with
the Companies or any of their Affiliates has been terminated or (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Companies or any of their Affiliates to cease doing business with the
Companies or any such Affiliates, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation, on the one
hand, and the Companies or any of their Affiliates, on the other hand.

        8. OTHER COVENANTS OF THE EXECUTIVE AND THE COMPANIES.

                (a) Cooperation with Litigation Proceedings. During the
Employment Period and thereafter, the Executive agrees to provide any assistance
and cooperate fully with the Companies and their counsel with respect to any
matter (including any litigation, investigation or proceeding) which relates to
matters over which the Executive may have knowledge, information or expertise,
including, without limitation, matters related to In re DJ Orthopedics, Inc.

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Securities Litigation, Case No. 01-CV-2238-K (LSP) (S.D. Cal.), the "Medi"
litigation, Case No. 02-CV-0279-K (LAB) (S.D. Cal.), and the "I-Flow"
litigation, Case No. 02-CC-0620 (Sup. Ct. Cal.). Such assistance and cooperation
shall include, but not be limited to, appearing from time to time at the offices
of the Companies or their counsel for conferences and interviews and in general
providing the officers of the Companies and their counsel with the full benefit
of Executive's knowledge with respect to any such matter. Executive agrees to
render such cooperation in a timely fashion and at such times as may be mutually
agreeable to the parties. The Companies shall reimburse the Executive for any
reasonable out-of-pocket costs and expenses incurred by the Executive in
compliance with specific requests made by the Companies pursuant this Paragraph
8(a), except for any fees, costs or expenses associated with the Executive's
time; provided, however, that following the expiration of the Employment Period,
the Company shall pay the Executive for his time given to the matters set forth
in this Paragraph 8(a) at an hourly rate based upon the Executive's highest Base
Salary during the term of the Employment Period.

                (b) No Disparagement.

                        (i) During the Employment Period and thereafter, the
        Executive agrees not to make any disparaging remarks or take any actions
        which would, or could reasonably be expected, to be detrimental in any
        way to the Companies, their Affiliates or any of their respective,
        officers, directors or employees. Notwithstanding the foregoing, the
        provisions contained in this Paragraph 8(b)(i) shall in no way prevent
        or inhibit the Executive from providing truthful testimony in connection
        with any legal or administrative proceeding, including without
        limitation, any testimony provided under penalty of perjury by way of
        deposition, trial or administrative or official investigative hearing.

                        (ii) During the Employment Period and thereafter,
        neither Company shall make any disparaging remarks or take any actions
        which would, or could reasonably be expected, to be detrimental in any
        way to the Executive. Notwithstanding the foregoing, the provisions
        contained in this Paragraph 8(b)(ii) shall in no way prevent or inhibit
        the ability of the Companies from making any accurate statement
        contained in any press release or any filing required under applicable
        federal and state securities laws relating to the decision to hire the
        Successor CFO and the transition of the Executive as contemplated
        hereunder.

        9. ENFORCEMENT.

                Because the Executive's services are unique and because the
Executive has access to Confidential Information and Work Product, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
this Agreement. Therefore, in the event of a breach or threatened breach of this
Agreement, the Companies or their respective successors or assigns may, in
addition to other rights and remedies existing in their favor, apply to any
court of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce, or prevent any violations of, the provisions
hereof (without posting a bond or other security), or require the Executive to
account for and pay over to the Companies all compensation, profits, moneys,
accruals, increments or other benefits derived from or received as

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a result of any transactions constituting a breach of the covenants contained in
this Agreement, if and when final judgment of a court of competent jurisdiction
is so entered against the Executive.

        10. INSURANCE.

                The Companies may, for their own benefit, maintain "keyman" life
and disability insurance policies covering the Executive. The Executive will
cooperate with the Companies and provide such information or other assistance as
the Companies may reasonably request in connection with the Companies obtaining
and maintaining such policies.

        11. TERMINATION OF PAYMENTS.

                In addition to the foregoing, and not in any way in limitation
thereof, or in limitation of any right or remedy otherwise available to the
Companies, if the Executive violates any provision of the foregoing Paragraph 5,
Paragraph 6, Paragraph 7 or Paragraph 8, any payments then or thereafter due
from the Company to the Executive shall be terminated forthwith and the
Company's obligation to pay and the Executive's right to receive such payments
shall terminate and be of no further force or effect, if and when determined by
a court of competent jurisdiction, in each case without limiting or affecting
the Executive's obligations under such Paragraph 5, Paragraph 6, Paragraph 7 and
Paragraph 8 or the Companies' other rights and remedies available at law or
equity.

        12. REPRESENTATIONS AND WARRANTIES.

                (a) The Executive hereby represents and warrants to the
Companies that (i) the execution, delivery and performance of this Agreement by
the Executive does not and will not conflict with, breach, violate or cause a
default under any agreement, contract or instrument to which the Executive is a
party or any judgment, order or decree to which the Executive is subject, (ii)
the Executive is not a party to or bound by any employment agreement (other than
the Original Employment Agreement, which shall terminate immediately upon
execution of this Agreement pursuant to Paragraph 13), consulting agreement,
non-compete agreement or confidentiality agreement or similar agreement with any
other person or entity and (iii) upon the execution and delivery of this
Agreement by the Companies and the Executive, this Agreement will be a valid and
binding obligation of the Executive, enforceable in accordance with its terms.

                (b) Each of the Companies hereby represents and warrants to the
Executive that (i) this Agreement has been duly authorized by all necessary
limited liability company or corporate action on the part of each of the
Companies, (ii) the execution, delivery and performance of this Agreement by
each of the Companies does not and will not conflict with, breach, violate or
cause a default under any agreement, contract or instrument to which the
Companies are a party or any judgment, order or decree to which the Companies
are subject, and (iii) upon the execution and delivery of this Agreement by the
Companies and the Executive, this Agreement will be a valid and binding
obligation of the Companies.

        13. TERMINATION OF EXISTING EMPLOYMENT ARRANGEMENT.

                Effective upon the signing of this Agreement (i) the Original
Employment Agreement shall be terminated and shall be of no further force or
effect and the Executive hereby

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agrees to take all action necessary to affect such termination and (ii) the
Executive's duties shall be changed from Senior Vice President of Finance, Chief
Financial Officer and Secretary of the Companies (which position the Executive
held pursuant to the Original Employment Agreement) to those set forth in
Paragraph 2.

        14. NOTICES.

                All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim or other
communication hereunder shall be delivered personally to the recipient,
delivered by United States Post Office mail, telecopied to the intended
recipient at the telecopy number set forth therefor below (with hard copy to
follow), or sent to the recipient by reputable express courier service (charges
prepaid) and addressed to the intended recipient as set forth below:

                If to the Companies to:

                       dj Orthopedics, LLC
                       dj Orthopedics, Inc.
                       2985 Scott St.
                       Vista, CA 92083
                       Attention: Les Cross, President and CEO
                       Telephone:  (760) 727-1280
                       Telecopy:  (760) 734-3536;

                with a copy to:

                       O'Sullivan LLP
                       30 Rockefeller Plaza, 41st Floor
                       New York, New York 10112
                       Attention:  Gregory A. Gilbert, Esq.
                       Telephone:  (212) 408-2400
                       Telecopy:   (212) 408-2420.

                If to the Executive, to:

                       Cyril Talbot III
                       [Personal Address]
                       [Telephone]

or such other address as the recipient party to whom notice is to be given may
have furnished to the other party in writing in accordance herewith. Any such
communication shall deemed to have been delivered and received (a) when
delivered, if personally delivered, sent by telecopier or sent by overnight
courier, and (b) on the fifth business day following the date posted, if sent by
mail.

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        15. GENERAL PROVISIONS.

                (a) Severability. It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.

                (b) Complete Agreement. This Agreement, those documents
expressly referred to herein and each of (i) the Public Company's Fifth Amended
and Restated 1999 Option Plan and related option agreements between the Public
Company and the Executive, (ii) the Secured Promissory Notes issued by the
Executive to the Public Company (as successor-in-interest to DonJoy, L.L.C.),
(v) the Third Amended and Restated Pledge Agreement, dated June 11, 2001,
between the Executive and the Public Company (as successor-in-interest to
DonJoy, L.L.C.) and (b) the Note and Pledge Agreements Sideletter, dated
November 20, 2001, between the Executive and the Public Company, in each case as
such agreements may be amended, restated, supplemented or otherwise modified
(collectively, the "Management Related Documents") embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way
(including, without limitation, the Original Employment Agreement which is
hereby terminated and shall be of no further force or effect).

                (c) Right of Set Off. In the event of a breach by the Executive
of the provisions of any of the Management Related Documents, the Companies are
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all amounts at any time held by
the Companies on behalf of the Executive and all indebtedness and other
obligations at any time owing by the Companies to the Executive against any and
all of the obligations of the Executive now or hereafter existing under the
Management Related Documents.

                (d) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Executive and the Companies and their respective successors, assigns, heirs,
representatives and estate; provided, however, that the rights and obligations
of the Executive under this Agreement shall not be assigned without the prior
written consent of the Companies.

                (e) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE
(WHETHER OF THE STATE OF DELAWARE OR

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ANY OTHER JURISDICTION), THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF CALIFORNIA TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE
INTERNAL LAW OF THE STATE OF CALIFORNIA WILL CONTROL THE INTERPRETATION AND
CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW
OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION
WOULD ORDINARILY APPLY.

                (f) Jurisdiction and Venue.

                        (i) The Companies and the Executive hereby irrevocably
        and unconditionally submit, for themselves and their property, to the
        non-exclusive jurisdiction of the Superior Court of the State of
        California in and for the County of San Diego, in any action or
        proceeding arising out of or relating to this Agreement or for
        recognition or enforcement of any judgment, and the Companies and the
        Executive hereby irrevocably and unconditionally agree that all claims
        in respect of any such action or proceeding may be heard and determined
        in any such California State court. The Companies and the Executive
        agree that a final judgment in any such action or proceeding shall be
        conclusive and may be enforced in other jurisdictions by suit on the
        judgment or in any other manner provided by law.

                        (ii) The Companies and the Executive irrevocably and
        unconditionally waive, to the fullest extent they may legally and
        effectively do so, any objection that they may now or hereafter have to
        the laying of venue of any suit, action or proceeding arising out of or
        relating to this Agreement in the Superior Court of the State of
        California in and for the County of San Diego. The Companies and the
        Executive irrevocably waive, to the fullest extent permitted by law, the
        defense of an inconvenient forum to the maintenance of such action or
        proceeding in any such court.

                        (iii) The Companies and the Executive further agree that
        the mailing by certified or registered mail, return receipt requested,
        of any process required by any such court shall constitute valid and
        lawful service of process against them, without the necessity for
        service by any other means provided by law.

                (g) Amendment and Waiver. The provisions of this Agreement may
be amended and waived only with the prior written consent of the Companies and
the Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement or any provision hereof.

                (h) Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

                (i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

                                       11
<PAGE>

                (j) Attorney's Fees. The Company agrees to pay reasonable and
substantiated fees and out-of-pocket expenses of counsel to the Executive for
such counsel's review of this Agreement.

                (k) No Limitation on Indemnification. Nothing in this Agreement
shall diminish, reduce or eliminate in any manner the rights to indemnification
provided by the Companies to the Executive in his capacity as an officer of the
Companies as provided (i) in the Amended and Restated Certificate of
Incorporation of the Public Company dated November 19, 2001, (ii) in the Amended
and Restated Operating Agreement of the Company dated as of June 30, 1999 and
(iii) under Delaware law.

                                     * * * *

                                       12
<PAGE>

                IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Employment Agreement as of the date first written above.

                                        DJ ORTHOPEDICS, LLC

                                        By: /s/ LESLIE H. CROSS
                                           -------------------------------------
                                           Name:  Leslie H. Cross
                                           Title: President and Chief
                                                  Executive Officer

                                        DJ ORTHOPEDICS, INC

                                        By: /s/ LESLIE H. CROSS
                                           -------------------------------------
                                           Name:  Leslie H. Cross
                                           Title: President and Chief
                                                  Executive Officer

                                        /s/ CYRIL TALBOT III
                                        ----------------------------------------
                                        CYRIL TALBOT IIITHIS  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED (THE  "SECURITIES  ACT"),  OR THE SECURITIES  LAWS OF ANY STATE,  AND IS
BEING  OFFERED  AND  SOLD  PURSUANT  TO  AN  EXEMPTION  FROM  THE   REGISTRATION
REQUIREMENTS  OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE
SECURITIES  ACT OR  PURSUANT TO AN  AVAILABLE  EXEMPTION  FROM THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.

[THIS NOTE WILL BE CONSIDERED TO HAVE BEEN ISSUED WITH ORIGINAL  ISSUE  DISCOUNT
("OID") FOR PURPOSES OF SECTIONS  1271 ET. SEQ. OF THE INTERNAL  REVENUE CODE OF
1986,  AS  AMENDED.  THE  ISSUE  DATE  OF THIS  NOTE IS  AUGUST  21,  2002.  FOR
INFORMATION  REGARDING  THE ISSUE  PRICE,  AMOUNT OF OID PER $1,000 OF PRINCIPAL
AMOUNT AND YIELD TO MATURITY OF THIS NOTE FOR PURPOSES OF THE OID RULES,  PLEASE
CONTACT GARY JONES AT eMAGIN CORPORATION.

                        8% SERIES B CONVERTIBLE DEBENTURE
                               Due August 21, 2004

$121,739                                                         August 21, 2002

          EMAGIN  CORPORATION,  a Delaware  corporation with principal executive
offices  located  at 2070  Route 52,  Hopewell  Junction,  NY  12533,  for value
received, hereby promises to pay to the Holder (as defined below), or such other
Person upon order of the Holder, on August 21, 2004 (the "Maturity  Date"),  the
principal sum of One Hundred  Twenty-One  Thousand Seven Hundred and Thirty-Nine
Dollars  ($121,739)  and to pay  interest  thereon  from  the  date of  original
issuance to, with respect to all or any portion of this  Debenture,  the earlier
of the date of maturity or prepayment  of all or such portion of this  Debenture
(each an "Interest Payment Due Date" and collectively, the "Interest Payment Due
Dates"), at the rate of 8% per annum (the "Debenture Interest Rate"),  until all
of the principal of this Debenture has been paid in full or duly and irrevocably
provided  for.  The interest  payable on any Interest  Payment Due Date shall be
paid to the Holder at the close of business on the applicable  Interest  Payment
Due Date and all  interest  payable on the  Principal  Amount of this  Debenture
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.

                                      -1-
<PAGE>
                                    ARTICLE 1
                                   DEFINITIONS

     Section 1.1 Definitions. The terms defined in this Article whenever used in
this Debenture have the following respective meanings:

          "Affiliate" has the meaning  ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.

          "Amex" means The American Stock Exchange, Inc.

          "Bankruptcy  Code" means the United States Bankruptcy Code of 1986, as
amended (11 U.S.C.ss.ss.101 et seq.).

          "Business Day" means a day other than  Saturday,  Sunday or any day on
which banks  located in the state of New York are  authorized  or  obligated  to
close.

          "Closing Date" means August 21, 2002.

          "Common  Shares" or "Common  Stock" means shares of the common  stock,
par value $.001 per share, of the Company.

          "Common Stock Issued At  Conversion"  when used with  reference to the
securities  issuable upon conversion of this Debenture,  means all Common Shares
now or hereafter  Outstanding  and  securities of any other class or series into
which the Debenture  hereafter shall have been changed or  substituted,  whether
now or hereafter created and however designated.

          "Company" means eMagin Corporation,  a Delaware  corporation,  and any
successor  or resulting  corporation  by way of merger,  consolidation,  sale or
exchange of all or substantially all of the Company's assets, or otherwise.

          "Conversion" or "conversion" means the repayment by the Company of the
Principal  Amount of this  Debenture  (and to the extent  the  Holder  elects as
permitted  by Section 3.2 hereof,  accrued and unpaid  interest  thereon) by the
delivery  of Common  Stock on the terms  provided  in Section  3.2  hereof,  and
"convert," "converted,"  "convertible" and like words shall have a corresponding
meaning.

          "Conversion  Date"  means any day on which all or any  portion  of the
Principal  Amount  of  this  Debenture  is  converted  in  accordance  with  the
provisions hereof.

          "Conversion Notice" means a written notice of conversion substantially
in the form annexed hereto as Exhibit A.

          "Conversion   Price"  means  $0.18  (subject  to  adjustment  for  any
stock-split or stock combination to occur after the date hereof).

                                      -2-
<PAGE>
          "Current Market Price" means on any date of determination  the closing
price of a Common  Share in the  regular  day session on such day as reported on
Amex if quoted or listed or  admitted  to  trading  on Amex;  provided,  if such
security  is not  listed or  admitted  to trading on Amex,  as  reported  on the
principal  national security exchange or quotation system on which such security
is quoted  or listed or  admitted  to  trading,  or, if not  quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing price of such security on the over-the-counter market in the regular day
session  on the day in  question  as  reported  by  Bloomberg  LP,  or a similar
generally accepted  reporting service,  as the case may be. If such security has
no quotes or  listing as defined in this  definition,  then the  Current  Market
Price  shall be the  price  per  Common  Share on any date of  determination  as
determined by an independent  third party  appointed by mutual  agreement of the
Company and the Holder.

          "Debenture"  or  "Debentures"  means  this  8%  Series  B  Convertible
Debenture  due  August  21,  2004  of the  Company  or  such  other  convertible
subordinated debentures or Debentures exchanged therefore as provided in Section
2.1.

          "Debenture  Interest  Rate" has the  meaning  set forth in the opening
paragraph hereof.

          "Default Interest Rate" shall be equal to the Debenture  Interest Rate
plus an additional 2% per annum.

          "Event of Default" has the meaning set forth in Section 6.1.

          "Holder" means Mid-Century  Insurance Company,  any successor thereto,
or any Person to whom this Debenture is  subsequently  transferred in accordance
with the provisions hereof.

          "Interest  Payment  Due Date" has the meaning set forth in the opening
paragraph hereof.

          "liability"  of any Person  means (in each case,  whether with full or
limited  recourse) any  indebtedness,  liability,  obligation,  covenant or duty
binding upon,  or any term or condition to be observed by or binding upon,  such
Person  or any of its  assets  of any kind,  nature  or  description,  direct or
indirect,  absolute or  contingent,  due or not due,  contractual  or  tortious,
liquidated or  unliquidated,  whether arising under contract,  applicable law or
otherwise,  whether  now  existing  or  hereafter  arising,  and whether for the
payment of money or the performance or non-performance of any act.

          "Maturity  Date" has the meaning  set forth in the  opening  paragraph
hereof.

          "Maximum Rate" has the meaning set forth in Section 6.3.

          "Optional  Prepayment  Price" means, with respect to any prepayment of
this  Debenture  by the Company  pursuant  to Section 3.5 prior to the  Maturity
Date, an amount equal to one hundred  percent (105%) of the Principal  Amount of
this Debenture being prepaid.

                                      -3-
<PAGE>
          "Outstanding" when used with reference to Common Shares (collectively,
"Shares")  means,  on any date of  determination,  all  issued  and  outstanding
Shares, and includes all such Shares issuable in respect of outstanding scrip or
any certificates  representing  fractional  interests in such Shares;  provided,
however, that any such Shares directly or indirectly owned or held by or for the
account of the  Company or any  Subsidiary  of the  Company  shall not be deemed
"Outstanding" for purposes hereof.

          "Person"  means  an  individual,  a  corporation,  a  partnership,  an
association,   a  limited  liability   company,   an   unincorporated   business
organization,  a trust or other entity or  organization,  and any  government or
political subdivision or any agency or instrumentality thereof.

          "Principal  Amount" means, for any date of calculation,  the principal
sum set forth in the first  paragraph of this Debenture (but only such principal
amount as to which  the  Holder  has not  theretofore  either  (x)  furnished  a
Conversion  Notice in compliance  with Section 3.2 or (y) surrendered in payment
of product orders placed pursuant to the Foundry  Agreement  pursuant to Section
3.7).

          "SEC" means the United States Securities and Exchange Commission.

          "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.

          "Subsidiary"  means any entity of which  securities or other ownership
interests  having  ordinary  voting  power to elect a  majority  of the board of
directors or other persons  performing  similar  functions are owned directly or
indirectly by the Company.

          All  references  to "cash" or "$" herein  mean  currency of the United
States of America.

                                    ARTICLE 2
                             EXCHANGES AND TRANSFER

     Section 2.1 Exchange and Registration of Transfer of Debentures. The Holder
may, at its option,  surrender this Debenture at the principal executive offices
of the Company and receive in exchange therefore a Debenture or Debentures, each
in integral multiple of $100,000 in excess thereof, dated as of the date of this
Debenture,  and,  subject to Section 4.2, payable to such Person or order as may
be designated by such Holder. The aggregate Principal Amount of the Debenture or
Debentures  exchanged  in  accordance  with this  Section  2.1  shall  equal the
aggregate  unpaid  Principal  Amount  of this  Debenture  as of the date of such
surrender;  provided,  however,  that upon any exchange pursuant to this Section
2.1 there shall be filed with the Company the name and address for all  purposes
hereof of the Holder or Holders of the Debenture or Debentures delivered in such
exchange.  The debenture  exchanged in accordance with this Section 2.1 shall be
in substantially the same form as this Debenture. This Debenture, when presented
for  registration  of  transfer  or for  exchange  or  conversion,  shall (if so
required  by the  Company)  be duly  endorsed,  or be  accompanied  by a written
instrument  of  transfer in form  reasonably

                                      -4-
<PAGE>
satisfactory  to the Company duly  executed,  by the Holder duly  authorized  in
writing. Notwithstanding the above, the Holder shall not transfer this Debenture
or any rights  hereunder  to any person or entity which is engaged in a business
that in the  reasonable  judgment  of the  Company  is in  competition  with the
Company.

     Section 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of evidence
satisfactory  to the Company of the loss,  theft,  destruction  or mutilation of
this Debenture  and, in the case of any such loss,  theft or  destruction,  upon
receipt of indemnity or security reasonably  satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of the entirety
of this Debenture,  the Company shall make,  issue and deliver,  in lieu of such
lost, stolen,  destroyed or mutilated  Debenture,  a new Debenture of like tenor
and unpaid  Principal  Amount  dated as of the date hereof  (which  shall accrue
interest  from the most  recent  Interest  Payment Due Date on which an interest
payment  was made in full).  This  Debenture  shall be held and  owned  upon the
express  condition  that the  provisions of this Section 2.2 are exclusive  with
respect to the replacement of a mutilated,  destroyed,  lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding any law
or statute  existing or hereafter  enacted to the  contrary  with respect to the
replacement of negotiable  instruments or other securities without the surrender
thereof.

     Section 2.3 Who Deemed Absolute  Owner.  The Company may deem the Person in
whose name this  Debenture  shall be registered  upon the registry  books of the
Company  to be,  and may  treat it as,  the  absolute  owner  of this  Debenture
(whether or not this  Debenture  shall be overdue)  for the purpose of receiving
payment  of or on  account  of the  Principal  Amount of this  Debenture  or the
interest  thereon,  for the conversion or maturity of this Debenture and for all
other  purposes,  and the  Company  shall not be  affected  by any notice to the
contrary. All such payments and such conversions shall be valid and effectual to
satisfy and discharge the liability upon this Debenture to the extent of the sum
or sums so paid or the conversion or conversions so made.

     Section 2.4 Repayment at Maturity.  At the Maturity Date, the Company shall
repay the outstanding Principal Amount of this Debenture in whole at one hundred
percent (100%) of the outstanding  Principal  Amount thereof,  together with all
accrued and unpaid interest thereon, to the Maturity Date.

                                    ARTICLE 3
                             CONVERSION OF DEBENTURE

     Section 3.1 Conversion.  At the option of the Holder, this Debenture may be
converted,  either in whole or in part, up to the full  Principal  Amount hereof
(in  increments  of $100,000 in  Principal  Amount or any  integral  multiple of
$100,000 in excess  thereof)  into  Common  Shares  (calculated  as to each such
conversion to the nearest 1/100th of a share), at any time and from time to time
on any  Business  Day after the Closing Date (the  "Initial  Conversion  Date"),
subject to the limitations in the next sentence and compliance with Section 3.2.
The number of Common Shares into which this  Debenture may be converted is equal
to (x) the Principal  Amount of the Debenture  being converted at the Conversion
Date (plus any accrued  and unpaid  interest on the  Debenture  being  converted
through  the  Conversion  Date)  divided  by

                                      -5-
<PAGE>
(y) the Conversion  Price.  At the Company's  option,  the amount of accrued and
unpaid interest as of the Conversion Date shall not be subject to conversion but
instead may be paid in cash as of the Conversion  Date; if the Company elects to
convert the amount of accrued and unpaid  interest at the  Conversion  Date into
Common  Stock,  the Common  Stock  issued to the  Holder  shall be valued at the
Conversion Price.

     Section  3.1  Automatic  Conversion.  At the  option of the  Company,  this
Debenture including any accrued interest may be converted, either in whole or in
part, on any Business Day at the Conversion price to Common Stock if the average
closing  price of the shares traded  exceeds $0.49 per share for 10  consecutive
trading days.

     Section 3.2 Exercise of Conversion Privilege. Conversion of this Debenture,
as the case may be, may be  exercised,  in whole or in part, on any Business Day
by the Holder by delivering an executed and completed  Conversion  Notice to the
Company  along  with  the  Debenture  or  Debentures  to  be so  converted.  The
Conversion Notice shall specify the aggregate  principal amount of Debentures to
be converted. Each date on which a Conversion Notice is delivered to the Company
in  accordance  with the  provisions  of this  Section  3.2 shall  constitute  a
Conversion  Date.  The Company  shall convert the Debenture and issue the Common
Stock Issued At Conversion in the manner provided below in this Section 3.2, and
all voting and other  rights  associated  with the  beneficial  ownership of the
Common Stock Issued At  Conversion  shall vest with the Holder,  effective as of
the Conversion Date at the time specified in the applicable  Conversion  Notice.
The Conversion Notice also shall state the name or names (with addresses) of the
Persons who are to become the holders of the Common Stock Issued At  Conversion,
if any, in connection with such conversion.  Upon surrender for conversion, this
Debenture shall be accompanied by a proper  assignment  hereof to the Company or
be  endorsed  in blank.  As  promptly  as  practicable  after the receipt of the
Conversion Notice as aforesaid, but in any event not more than five (5) Business
Days after the Company's  receipt of the  applicable  Conversion  Notice and all
associated  Debentures,  the Company  shall (i) issue the Common Stock Issued At
Conversion in accordance  with the  provisions of this Article 3, and (ii) cause
to be mailed for delivery by  overnight  courier or transmit to the Holder (x) a
certificate or certificate(s) representing the number of whole Common Shares, if
any, to which the Holder is entitled by virtue of such Conversion,  (y) cash, as
provided in Section 3.3, in respect of any  fraction of a Common Share  issuable
upon such Conversion and (z) if, upon any Conversion, the Company chooses to pay
accrued and unpaid  interest  in cash,  cash in the amount of accrued and unpaid
interest on the  Debenture  being  converted  as of the  Conversion  Date.  Such
conversion  shall be  deemed  to have  been  effected  at the time at which  the
Conversion   Notice  indicates  so  long  as  this  Debenture  shall  have  been
surrendered as aforesaid at such time, and at such time the rights of the Holder
of this  Debenture,  as such  (except  if and to the extent  that any  Principal
Amount thereof  remains  unconverted),  shall cease and the Person or Persons in
whose name or names the Common  Stock,  if any,  Issued at  Conversion  shall be
issuable  shall be deemed to have  become the holder or holders of record of the
Common Shares  represented  thereby,  and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such  Person or Persons.  The  Conversion  Notice  shall  constitute  a contract
between  the  Holder and the  Company,  whereby  the  Holder  shall be deemed to
subscribe  for the number of Common  Shares which it will be entitled to receive
upon such conversion and, in payment and satisfaction of such  subscription (and
for any cash  adjustment  to which it is entitled  pursuant to

                                      -6-
<PAGE>
Section  3.4), to surrender  this  Debenture and to release the Company from all
liability thereon (except if and to the extent that any Principal Amount thereof
remains  unconverted).  No cash  payment  aggregating  less than $1.00  shall be
required to be given.

     Section  3.3  Fractional  Shares.  No  fractional  Common  Shares  or scrip
representing fractional Common Shares shall be delivered upon conversion of this
Debenture.  Instead of any  fractional  Common Shares which  otherwise  would be
delivered  upon  conversion  of this  Debenture,  the  Company  shall pay a cash
adjustment  in respect of such  fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the  Conversion  Date. No cash payment
of less than $1.00 shall be required to be given.

         Section 3.4       Adjustments.

          (a) In case the Company shall  reorganize its capital,  reclassify its
capital  stock,  consolidate  or merge with or into  another  Person  (where the
Company is not the survivor or where there is a change in or  distribution  with
respect to the Common Stock of the Company), sell, convey, transfer or otherwise
dispose of all or substantially all its property,  assets or business to another
Person,  or effectuate a transaction or series of related  transactions in which
more than 50% of the  voting  power of the  Company  is  disposed  of  (each,  a
"Fundamental  Corporate  Change") and, pursuant to the terms of such Fundamental
Corporate  Change,  shares  of  common  stock  of  the  successor  or  acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever  (including warrants or other subscription or purchase rights)
in  addition  to or in  lieu of  common  stock  of the  successor  or  acquiring
corporation  ("Other  Property"),  are to be received by or  distributed  to the
holders of Common Stock of the Company,  then the Holder of this Debenture Stock
shall have the right thereafter,  at its sole option,  either (x) to receive the
number of shares of common stock of the successor or acquiring corporation or of
the  Company,  if it is the  surviving  corporation,  and Other  Property  as is
receivable upon or as a result of such Fundamental  Corporate Change by a holder
of the number of shares of Common Stock into which such the outstanding  portion
of the Debenture may be converted at the Conversion Price applicable immediately
prior to such Fundamental  Corporate Change or (y) require the Company,  or such
successor,  resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefore, to execute and deliver to the
Holder a  debenture  with  substantial  identical  rights,  privileges,  powers,
restrictions  and other terms as this Debenture in an amount equal to the amount
this  Debenture  which is  outstanding  immediately  prior  to such  Fundamental
Corporate  Change.  For purposes of this Section  3.4(b),  "common  stock of the
successor or acquiring  corporation"  shall include stock of such corporation of
any class which is not  preferred as to dividends or assets over any other class
of stock of such  corporation  and which is not subject to prepayment  and shall
also include any evidences of indebtedness,  shares of stock or other securities
which  are  convertible  into  or  exchangeable  for  any  such  stock,   either
immediately  or upon the  arrival  of a  specified  date or the  happening  of a
specified  event and any warrants or other  rights to subscribe  for or purchase
any such stock. The foregoing  provisions of this Section 3.4(a) shall similarly
apply to successive Fundamental Corporate Changes.

          (b)  If  the  Company  shall  hereafter  pay  a  dividend  or  make  a
distribution to Holders of the  Outstanding  shares of Common Stock in shares of
Common Stock,  the

                                      -7-
<PAGE>
Conversion  Price in effect at the opening of business on the date following the
date fixed for the  determination  of  shareholders  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 such record date. If any dividend or  distribution of the type
described  in this  Section  3.4(b)  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;

          (c) If the  Outstanding  shares of Common Stock shall be subdivided or
reclassified  into a greater  number of shares of Common Stock,  the  Conversion
Price in effect at the  opening of business  on the day  following  the day upon
which such subdivision becomes effective shall be proportionately  reduced, and,
conversely,  if the 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 day  following  the day upon which such  combination
becomes  effective  shall  be  proportionately   increased,  such  reduction  or
increase,  as the case may be, to become effective immediately after the opening
of  business  on the day  following  the day  upon  which  such  subdivision  or
combination becomes effective

     Section 3.5 Optional  Prepayment.  At any time after the Effective Date and
prior to the Maturity Date, the Company,  upon notice delivered to the Holder as
provided in Section  3.6,  may prepay this  Debenture in whole or in part at the
Optional Prepayment Price, together with all accrued and unpaid interest thereon
to the date of prepayment.

     Section 3.6 Notice of Prepayment. Notice of optional prepayment pursuant to
Section 3.5 ("Notice of Optional  Prepayment")  shall be provided by the Company
to the Holder in writing at the Holder's last address appearing in the Company's
security  registry  not  less  than  thirty  (30)  Business  Days  prior  to the
prepayment  date and no more than  forty  five (45)  Business  Days prior to the
prepayment date,  which notice shall be in  substantially  the form of Exhibit B
hereto,  specify the  prepayment  date and refer to Section 3.5 and this Section
3.6. Notwithstanding any sending of a Notice of Optional Prepayment,  the Holder
shall have the right to convert all or any portion of the Debentures pursuant to
Section 3.2 until the applicable prepayment date.

     Section 3.8 Surrender of Debentures.  Upon any prepayment of this Debenture
pursuant to Section 3.5, or upon  maturity  pursuant to Section 2.4, or upon the
Company'  demand  pursuant to Section 3.7, the Holder shall either  deliver this
Debenture by hand to the Company at its principal executive offices or surrender
the same to the  Company at such  address  by  nationally  recognized  overnight
courier. Payment of the prepayment price pursuant to Sections 3.5, or the amount
due on maturity  specified in Section  2.4,  shall be made by the Company to the
Holder  against  receipt of this  Debenture (as provided in this Section 3.8) by
wire transfer of immediately  available  funds to such  account(s) as the Holder
shall specify by written  notice to the Company.  If payment of such  prepayment
price is not made in full by the prepayment  date, or the amount

                                      -8-
<PAGE>
due on maturity is not paid in full by the Maturity Date, the Holder shall again
have the right to convert  this  Debenture as provided in Article 3 hereof or to
declare an Event of Default.

                                    ARTICLE 4
                        STATUS; RESTRICTIONS ON TRANSFER

     Section 4.1 Status of Debenture.  This Debenture is an unsecured obligation
of the Company,  and  constitutes a legal,  valid and binding  obligation of the
Company, enforceable in accordance with its terms subject, as to enforceability,
to general  principles of equity and to principles  of  bankruptcy,  insolvency,
reorganization  and other similar laws of general  applicability  relating to or
affecting creditors' rights and remedies generally.

     Section 4.2 Restrictions on Transfer. This Debenture, and any Common Shares
deliverable  upon the  conversion  hereof,  have not been  registered  under the
Securities Act. The Holder by accepting this Debenture agrees that the Debenture
and the shares of Common Stock to be acquired as interest on and upon conversion
of this Debenture may not be assigned or otherwise  transferred unless and until
(i) the  Company  has  received  the  opinion of counsel for the Holder that the
Debenture or such shares may be sold pursuant to an exemption from  registration
under  the  Securities  Act or (ii) a  registration  statement  relating  to the
Debenture or such shares has been filed by the Company and declared effective by
the SEC.

          Each  certificate  for shares of Common  Stock  deliverable  hereunder
shall bear a legend as follows unless and until such  securities  have been sold
pursuant to an effective registration statement under the Securities Act:

          "The  securities  represented by this  certificate  have not
          been  registered  under  the  Securities  Act of  1933  (the
          "Act").  The securities may not be offered for sale, sold or
          otherwise  transferred  except (i)  pursuant to an effective
          registration  statement under the Act or (ii) pursuant to an
          exemption  from  registration  under the Act in  respect  of
          which the issuer of this certificate has received an opinion
          of counsel satisfactory to the issuer of this certificate to
          such  effect.  Copies  of the  agreement  covering  both the
          purchase of the  securities and  restricting  their transfer
          may be  obtained at no cost by written  request  made by the
          holder of record of this certificate to the Secretary of the
          issuer  of  this  certificate  at  the  principal  executive
          offices of the issuer of this certificate."

          This  note  will be  considered  to have  been  issued  with
          Original  Issue  Discount  ("OID") for  purposes of sections
          1271 et.  seq.  of the  Internal  Revenue  Code of 1986,  as
          amended. The issue date of this note is August 21, 2002. For
          information  regarding  the issue  price,  amount of OID per
          $1,000 of  principal  amount and yield to  maturity  of this
          note for  purposes  of the OID rules,  please  contact  Gary
          Jones at eMagin Corporation.

                                 -9-
<PAGE>
     Notwithstanding  the above, the Holder shall not transfer this Debenture or
any Common  Shares  issueable  or any rights  hereunder  to any person or entity
which is engaged in a business that in the reasonable judgment of the Company is
in competition with the Company.

                                    ARTICLE 5
                                    COVENANTS

     Section  5.1  Notice of  Default.  If any one or more  events  occur  which
constitute or which,  with notice,  lapse of time, or both,  would constitute an
Event of Default, or if the Holder shall demand the delivery of Common Shares or
take any  other  action  permitted  upon  the  occurrence  of any such  Event of
Default,  the Company shall forthwith give notice to the Holder,  specifying the
nature and status of the Event of  Default or other  event or of such  demand or
action, as the case may be.

     Section  5.2 Payment of  Obligations.  So long as this  Debenture  shall be
outstanding,  the Company shall pay, extend, or discharge at or before maturity,
all its respective  material  obligations and  liabilities,  including,  without
limitation,  tax  liabilities,  except  where the same may be  contested in good
faith by appropriate proceedings.

     Section  5.3  Compliance  with  Laws.  So long as this  Debenture  shall be
outstanding,  the Company  shall comply with all  applicable  laws,  ordinances,
rules,  regulations,  and requirements of governmental  authorities,  except for
such  noncompliance  which  would  not have a  material  adverse  effect  on the
business,  properties,  prospects, condition (financial or otherwise) or results
of operations of the Company.

     Section 5.4  Inspection  of Property,  Books and  Records.  So long as this
Debenture  shall be  outstanding,  the Company shall keep proper books of record
and  account  in which  full,  true  and  correct  entries  shall be made of all
material  dealings and  transactions  in relation to its business and activities
and shall permit  representatives of the Holder at the Holder's expense to visit
and inspect any of its respective properties, to examine and make abstracts from
any of its respective books and records,  not reasonably deemed  confidential by
the Company,  and to discuss its respective affairs,  finances and accounts with
its  respective  officers  and  independent  public  accountants,  all  at  such
reasonable times and as often as may reasonably be desired.

                                    ARTICLE 6
                                    REMEDIES

     Section 6.1 Events of  Default.  "Event of  Default"  wherever  used herein
means any one of the following events:

          (a) the  Company  shall  default  in the  payment of  principal  of or
interest on this Debenture as and when the same shall be due and payable and, in
the case of an interest  payment  default,  such default shall continue for five
(5) Business Days after the date such  interest  payment was due, or the Company
shall fail to perform or observe in any  material  respect  any other  covenant,
agreement,  term, provision,  undertaking or commitment under this Debenture

                                      -10-
<PAGE>
and such default shall  continue for a period of twenty (20) Business Days after
the  delivery  to the  Company of written  notice that the Company is in default
hereunder; or

          (b) any of the  representations  or  warranties  made  by the  Company
herein or in the Securities  Purchase  Agreement  shall be false in any material
respect on the Closing Date; or

          (c) the entry of a decree or order by a court having  jurisdiction  in
the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving  as properly  filed a petition  seeking  reorganization,  arrangement,
adjustment or  composition  of or in respect of the Company under the Bankruptcy
Code or any other  applicable  Federal or state law, or  appointing  a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial  part of its property,  or ordering the winding-up
or  liquidation  of its affairs,  and any such decree or order  continues and is
unstayed and in effect for a period of 60 calendar days; or

          (d) the institution by the Company or any Subsidiary of proceedings to
be adjudicated a bankrupt or insolvent,  or the consent by it to the institution
of  bankruptcy or  insolvency  proceedings  against it, or the filing by it of a
petition  or answer  or  consent  seeking  reorganization  or  relief  under the
Bankruptcy Code or any other applicable  federal or state law, or the consent by
it to the  filing of any such  petition  or to the  appointment  of a  receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company  of any  substantial  part of its  property,  or the  making by it of an
assignment  for the benefit of  creditors,  or the admission by it in writing of
its  inability  to pay its debts  generally  as and when they become due, or the
taking of corporate action by the Company in furtherance of any such action; or

          (e) a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent  jurisdiction  against the
Company and remains  undischarged  for a period (during which execution shall be
effectively  stayed) of thirty (30) days,  provided that the aggregate amount of
all such  judgments  at any time  outstanding  (to the  extent not paid or to be
paid, as evidenced by a written communication to that effect from the applicable
insurer, by insurance) exceeds $1,000,000; or

          (f) it becomes  unlawful for the Company to perform or comply with its
obligations under this Debenture in any material respect; or

          (g) the Company shall default  (giving effect to any applicable  grace
period)  in the  payment of  principal  or  interest  as and when the same shall
become  due and  payable,  under  any  indebtedness,  individually  of more than
$1,000,000.

     Section 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing,  then and in every such case any Holder may
rescind  any  outstanding  Conversion  Notice and obtain  payment for the entire
outstanding  Principal Amount of the Debenture which remains  unconverted,  by a
notice in  writing  to the  Company,  and upon any such  declaration  the entire
Principal  Amount of this  Debenture,  plus accrued but unpaid  interest,  shall
become  immediately  due and  payable  by virtue of such  rescission;  provided,
however,  in the case of any Event of Default described in paragraphs (c) or (d)
above, the entire

                                      -11-
<PAGE>
then outstanding  Principal Amount of this Debenture,  together with all accrued
and unpaid  interest  thereon,  automatically  shall become  immediately due and
payable without the necessity of any notice or declaration as aforesaid.

     Section 6.3 Default  Interest  Rate.  If any portion of the principal of or
interest  on the  Debenture  shall not be paid when due  (whether  at the stated
maturity,  by  acceleration  or otherwise) such principal of and interest on the
Debenture  which is due and  owing  but not paid  shall,  without  limiting  the
Holder's rights under this Debenture, bear interest at the Default Interest Rate
until paid in full.

          Notwithstanding  anything  herein to the contrary,  if at any time the
applicable  interest rate as provided for herein shall exceed the maximum lawful
rate which may be contracted  for,  charged,  taken or received by the Lender in
accordance with  applicable laws of the State of New York (the "Maximum  Rate"),
the rate of interest applicable to the Debenture shall be limited to the Maximum
Rate.

     Section 6.4 Remedies Not Waived.  No course of dealing  between the Company
and the Holder or any delay in exercising any rights  hereunder shall operate as
a waiver by the Holder.

                                    ARTICLE 7
                                  MISCELLANEOUS

     Section 7.1 Notice of Certain Events.  In the case of the occurrence of any
event described in Section 3.4 of this Debenture,  the Company shall cause to be
mailed to the Holder of this  Debenture at its last address as it appears in the
Company's security  registry,  at least twenty (20) days prior to the applicable
record,  effective or expiration date hereinafter  specified (or, if such twenty
(20) days' notice is not  possible,  at the earliest  possible date prior to any
such record,  effective or expiration  date), a notice  thereof,  including,  if
applicable, a statement of (x) the date on which a record is to be taken for the
purpose of such dividend, distribution,  issuance or granting of rights, options
or warrants, or if a record is not to be taken, the date as of which the holders
of  record  of  Common  Stock to be  entitled  to such  dividend,  distribution,
issuance or granting of rights,  options or warrants are to be determined or (y)
the date on which such reclassification,  consolidation, merger, sale, transfer,
dissolution,  liquidation or winding-up is expected to become effective, and the
date as of which it is expected  that  holders of record of Common Stock will be
entitled  to  exchange  their  shares  for  securities,  cash or other  property
deliverable upon such  reclassification,  consolidation,  merger, sale transfer,
dissolution, liquidation or winding-up.

     Section 7.2  Register.  The Company  shall keep at its  principal  office a
register  in which  the  Company  shall  provide  for the  registration  of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
3 hereof, the Company shall register such transfer on the Debenture register.

     Section 7.3  Withholding.  To the extent  required by  applicable  law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing

                                      -12-
<PAGE>
authority in the United  States  having  jurisdiction  over the Company from any
payments made pursuant to this Debenture.

     Section 7.4  Transmittal  of Notices.  Except as may be otherwise  provided
herein,  any notice or other  communication  or delivery  required or  permitted
hereunder  shall be in writing and shall be delivered  personally or transmitted
by telecopy or sent by  certified  mail,  postage  prepaid,  or by a  nationally
recognized  overnight  courier  service,  and  shall  be  deemed  given  when so
delivered  personally  or by telecopy or by overnight  courier  service,  or, if
mailed,  four (4) days after the date of deposit in the United States mails,  as
follows:

          (l)  if to the Company, to:

               eMagin Corporation
               2070 Route 52
               Hopewell Junction, NY 12533
               Attention:  Gary Jones, CEO
               Tel: (845) 892-1900
               Fax: (845) 892-1901

               with a copy to:

               White & Case LLP
               1155 Avenue of the Americas
               New York, New York  10036
               Attention:  S. Ward Atterbury
               Tel:  (212) 819-8200
               Fax:  (212) 354-8113

          (2)  if to the  Holder,  to the address of such Holder as shown on the
               books of the Company.

               Mid-Century Insurance Company
               4680 Wilshire Blvd.
               Los Angeles, CA 90010

               Attn:    Laszlo Heredy
                        Vice President & Chief Investment Officer
                        Farmers Group, Inc.
                        (323) 932-7448

Each of the Holder or the  Company  may change the  foregoing  address by notice
given pursuant to this Section 7.4.

     Section  7.5  Governing  Law.  THIS  DEBENTURE  SHALL BE  GOVERNED  BY, AND
CONSTRUED IN ACCORDANCE  WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO CONFLICTS  OF LAWS  PRINCIPLES).  WITH RESPECT TO ANY SUIT,  ACTION OR
PROCEEDINGS  RELATING TO THIS

                                      -13-
<PAGE>
DEBENTURE, THE COMPANY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE  JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED
IN THE BOROUGH OF  MANHATTAN IN THE CITY OF NEW YORK AND HEREBY  WAIVES,  TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT ANY SUCH SUIT, ACTION
OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT  FORUM.  SUBJECT TO APPLICABLE
LAW, THE COMPANY  AGREES THAT FINAL  JUDGMENT  AGAINST IT IN ANY LEGAL ACTION OR
PROCEEDING  ARISING OUT OF OR RELATING TO THIS DEBENTURE SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY
SUIT ON THE JUDGMENT,  A CERTIFIED  COPY OF WHICH  JUDGMENT  SHALL BE CONCLUSIVE
EVIDENCE  THEREOF  AND THE AMOUNT OF ITS  INDEBTEDNESS,  OR BY SUCH OTHER  MEANS
PROVIDED BY LAW.

     Section 7.6  Headings.  The  headings of the  Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.

     Section 7.7 Recovery. Each of the Holder and the Company hereby agrees that
to the extent that it recovers  damages for a breach under this Debenture,  such
party  shall not be entitled  to recover  damages for the same breach  under the
Securities Purchase Agreement.

     Section 7.8 Payment Dates. Whenever any payment hereunder shall be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day.

     Section 7.9 Binding Effect.  Each Holder by accepting this Debenture agrees
to be bound by and comply with the terms and provisions of this Debenture.

     Section 7.10 No Stockholder  Rights.  Except as otherwise  provided herein,
this  Debenture  shall  not  entitle  the  Holder  to  any of  the  rights  of a
stockholder of the Company, including, without limitation, the right to vote, to
receive  dividends and other  distributions,  or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent  converted into shares of Common Stock in accordance  with the
terms hereof.

              [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                      -14-
<PAGE>
          IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.

                                   EMAGIN CORPORATION

                                   By:
                                      ------------------------------------------
                                      Name:  Gary Jones
                                      Title: Chief Executive Officer

                                   MID-CENTURY INSURANCE COMPANY

                                   By:
                                      ------------------------------------------
                                      Name:  Laszlo Heredy
                                      Title: Vice President

<PAGE>
                                                                       EXHIBIT A

                           [FORM OF CONVERSION NOTICE]

TO:  eMagin Corporation
     2070 Route 52
     Hopewell Junction, NY 12533
     Attn:

          The undersigned owner of this 8% Convertible  Debenture due August 21,
2004 (the  "Debenture")  issued by eMagin  Corporation  (the  "Company")  hereby
irrevocably exercises its option to convert $_________________  Principal Amount
of the  Debenture  and accrued and unpaid  interest  thereon to the date of this
Notice  into  shares of the common  stock,  par value  $.001 per share  ("Common
Stock"),  of the  Company in  accordance  with the terms of the  Debenture.  The
undersigned hereby instructs the Company to convert the portion of the Debenture
specified  above into shares of Common Stock Issued At  Conversion in accordance
with the provisions of Article 3 of the Debenture.  The undersigned directs that
the Common Stock and certificates  therefore  deliverable  upon conversion,  the
Debenture  recertificated  in the  Principal  Amount not being  surrendered  for
conversion hereby,  plus accrued and unpaid interest thereon to the date of this
Notice,  together  with any check in payment for  fractional  Common  Stock,  be
registered  in the name of and delivered to the  undersigned  unless a different
name has been indicated below. All capitalized terms used and not defined herein
have the respective  meanings assigned to them in the Debenture.  The conversion
pursuant  hereto  shall be  deemed to have  been  effected  at the date and time
specified  below,  and at such time the rights of the undersigned as a Holder of
the Principal Amount of the Debenture set forth above shall cease and the Person
or Persons in whose name or names the Common Stock Delivered at Conversion shall
be registered  subject to the  Registration  Rights Agreement shall be deemed to
have  become the holder or  holders of record of the Common  Shares  represented
thereby and all voting and other rights associated with the beneficial ownership
of such Common Shares shall at such time vest with such Person or Persons.

          Date and time: _______________________

                                   ---------------------------------------------
                                   Signature

          Fill in for registration of Debenture:

Please print name and address
(including ZIP code number):

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

                                      A-1
<PAGE>
                                                                       EXHIBIT B

                       [FORM OF COMPANY PREPAYMENT NOTICE]

Dated:______________

TO:  [Holder]
     [Address]

          eMagin  Corporation (the "Company") hereby  irrevocably  exercises its
option to prepay  $__________  Principal Amount of the 8% Convertible  Debenture
due August 21, 2004 issued by the Company  (the  "Debenture"),  at a  prepayment
price of $_________ and of accrued and unpaid  interest  thereon,  in accordance
with the terms of the Debenture.  The undersigned hereby instructs the Holder to
surrender the portion of the Debenture  specified  above in accordance  with the
provisions  of  Sections  3.5 and 3.6 of the  Debenture.  Upon  receipt  of such
surrendered Debenture, the Company shall deliver the Debenture recertificated in
the Principal Amount, if any, not being called for prepayment  hereby,  together
with the check in  payment of the  prepayment  price and for  fractional  Common
Stock, such recertificated  Debenture to be issued in your name and delivered to
you or  issued  in the  name of such  other  Person  as you  may  designate  and
delivered  to such other  Person.  All  capitalized  terms used and not  defined
herein have the respective meanings assigned to them in the Debenture.

                                   Very truly yours,

                                   eMagin Corporation

                                   By:
                                      ------------------------------------------
                                      Name:
                                      Title:

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