Document:

THIS  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,  2002  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 Farmers Insurance  Exchange,  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.

               Farmers Insurance Exchange
               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 W. Jones
                                      Title: Chief Executive Officer

                                   Farmers Insurance Exchange by Farmers Group,
                                     Inc. D.b.A. farmers Underwriters
                                     association, attorney in fact

                                   By:
                                      ------------------------------------------
                                      Name:  Laszlo Heredy
                                      Title: Vice President & Chief Investment
                                             Officer

<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):

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<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:AMENDMENT NO. 7 TO CONVERTIBLE PROMISSORY NOTE

          AMENDMENT NO. 7 TO  CONVERTIBLE  PROMISSORY  NOTE (this  "Agreement"),
dated as of August 30,  2002,  by and  between  eMAGIN  CORPORATION,  a Delaware
corporation (the "Borrower") and The Travelers Insurance Company (the "Lender"),
each a party to the Note  Purchase  Agreement  (the "Note  Purchase  Agreement")
entered  into as of  August  20,  2001 and a  Convertible  Promissory  Note (the
"Note")  dated August 20, 2001 as amended to date.  All  capitalized  terms used
herein and not  otherwise  defined  herein  shall have the  respective  meanings
provided to such terms in the Note.

                              W I T N E S S E T H :
                               - - - - - - - - - -

          WHEREAS,  the  parties  wish to amend the Note to extend its  maturity
date;

          NOW,  THEREFORE,  in  consideration  of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby  acknowledged,  the  parties  hereto,  intending  to be legally
bound, hereby agree as follows:

                                   ARTICLE ONE

                                AMENDMENT TO NOTE

          SECTION 1.1  Amendment  to Note.  By  executing  this  Agreement,  the
Borrower and the Lender hereby agree and acknowledge  that Section 1 of the Note
is hereby  amended by deleting  "August 30, 2002" and  inserting in the place of
such deletion "September 30, 2002"

                                   ARTICLE TWO

                                  MISCELLANEOUS

          SECTION 2.1 Counterparts.This  Agreement may be executed in any number
of counterparts  and by the different  parties hereto on separate  counterparts,
each of which  counterparts when executed and delivered  (including  delivery by
way of  facsimile)  shall  be an  original,  but  all of  which  shall  together
constitute one and the same instrument.  A complete set of counterparts shall be
lodged with the Borrower.

          SECTION 2.2 Governing  Law. This  Agreement  shall be governed by, and
construed  and enforced in accordance  with,  the laws of the State of New York,
excluding conflict of law principles that would cause the application of laws of
any other jurisdiction.

          SECTION 2.3 Effective Date. This Agreement shall become effective (the
"Effective Date") as of the date first referenced above.

          SECTION 2.4 Effect of Amendment.  From and after the  Effective  Date,
the Note and all references to the Note pursuant to the Note Purchase  Agreement
and the other documents  referenced  therein shall be deemed to be references to
the Note as modified hereby.

<PAGE>

This Agreement is limited as specified and shall not constitute a  modification,
amendment,  acceptance  or waiver of any other  provision of the Note,  the Note
Purchase Agreement or any other document referenced therein.

          SECTION 2.5 Headings. The article,  section and subsection headings in
this Agreement are for convenience  only and shall not constitute a part of this
Agreement  for any other  purpose and shall not be deemed to limit or affect any
of the provisions hereof.

          SECTION  2.6  Further  Assurances.  From  and  after  the date of this
Agreement,  upon the request of any party  hereto,  each party shall execute and
deliver such  instruments,  documents  and other  writings as may be  reasonably
necessary  or  desirable  to confirm and carry out and to  effectuate  fully the
intent and purposes of this Agreement.

                                    * * * * *

                                      -2-
<PAGE>

          IN  WITNESSES  WHEREOF,  the parties  hereto  have  caused  their duly
authorized  officers to execute and deliver this  Agreement as of the date first
above written.

                                        BORROWER:

                                        eMAGIN CORPORATION

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

                                        LENDER:

                                        THE TRAVELERS INSURANCE COMPANY

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

                                      -3-

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