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Lockbox Agreement

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LOCKBOX AGREEMENT



THIS LOCKBOX AGREEMENT , dated as of July 21, 2006 (this "Agreement"), by and between EMAGIN CORPORATION , a Delaware corporation (the "Company"), the bank or other financial institution which may become a party hereto in accordance with Section 25, as lockbox agent (the "Lockbox Agent"), and ALEXANDRA GLOBAL MASTER FUND LTD. , a British Virgin Islands international business company (the "Collateral Agent").



W I T N E S S E T & #160; H :



WHEREAS, the Company and the several Buyers (such capitalized term and all other capitalized terms used in this Agreement having the meanings provided in Section 1) are parties to the several Note Purchase Agreements, pursuant to which, among other things, the Buyers have agreed to purchase the Notes from the Company;



WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company and the Collateral Agent are executing and delivering the Security Agreement with the Collateral Agent pursuant to which, among other things, the Company is granting a security interest in the Collateral, including, without limitation, all of the Company's right, title and interest in and to all Accounts and Contracts arising thereunder and the Collateral Account to the Collateral Agent for the ratable benefit of the Holders;



WHEREAS, in order to give effect to and perfect the security interest in certain of the collateral subject to the Security Agreement, this Agreement provides that all payments to the Company pursuant to the Security Agreement shall be paid into a lockbox or a Collateral Account controlled by the Lockbox Agent and disbursed from the Collateral Account in accordance with the terms of this Agreement; and



WHEREAS, it is a condition precedent to the several obligations of the Buyers to purchase their respective Notes pursuant to the Note Purchase Agreements that the Company and the Collateral Agent shall have executed and delivered this Agreement for the ratable benefit of the Holders;



NOW THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:



1. Definitions.



(a) As used in this Agreement, the terms "Agreement", "Company", "Collateral Agent" , and "Lockbox Agent ? shall have the respective meanings assigned to such terms in the introductory paragraph of this Agreement.



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






(c) Capitalized terms used herein without definition shall have the respective meanings assigned to such terms in the Notes.



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



"Accounts" shall have the meaning given such term in the Security Agreement.



"Additional Note" means the Note issued pursuant to the Additional Note Purchase Agreement.



"Additional Note Purchase Agreement" means the Note Purchase Agreement, dated as of July 21, 2006, by and between the Company and Stillwater LLC, which by its terms contemplates the issuance of up to $500,000 aggregate principal amount of Notes on or after December 10, 2006.



"Agreement" means this Lockbox Agreement, as amended, supplemented or otherwise modified from time to time.



"Available Specified Funds" means with respect to each Deposit Date the amount of the Specified Funds less the Retained Amount.



"Buyer" means any of the several buyers party to a Note Purchase Agreement.



"Collateral" shall have the meaning given such term in the Security Agreement.



"Collateral Account" means the account maintained at the Collateral Agent for the ratable benefit of the Holders which is identified in clause (b) of Section 2 and entitled "eMagin Noteholder Collateral Account ?, and any successor or replacement account.



"Deposit Date" shall have the meaning given such term in Section 7(a).



"Event of Default" means:



(1) the failure by the Company to perform in any material respect any obligation of the Company under this Agreement as and when required by this Agreement;



(2) any representation or warranty made by the Company pursuant to this Agreement shall have been untrue in any material respect when made or deemed to have been made; or



(3) any Event of Default, as that term is defined in the Security Agreement;





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(4) any Event of Default, as that term is defined in the Patent and Trademark Security Agreement; or



(5) any Event of Default, as that term is defined in any of the Notes.



"Event of Default Notice" means a notice given by the Company, the Collateral Agent or a Holder to the Lockbox Agent of the occurrence of an Event of Default.



"Holder" means any Buyer or any holder from time to time of any Note.



"Instruction" shall have the meaning provided in Section 2(a).



"Lien" shall mean any lien, mortgage, security interest, chattel mortgage, pledge or other encumbrance (statutory or otherwise) of any kind securing satisfaction or performance of an obligation, including any agreement to give any of the foregoing, any conditional sales or other title retention agreement, any lease in the nature thereof, and the filing of or the agreement to give any financing statement under the Code of any jurisdiction or similar evidence of any encumbrance, whether within or outside the United States.



"Lockbox" means the lockbox administered by the Lockbox Agent for the ratable benefit of the Holders which is identified in clause (a) of Section 2, and any successor or replacement lockbox.



"Lockbox Agent's Designees" shall have the meaning given such term in Section 10(a).



"Majority Holders" means at any time such of the holders of Notes, which based on the outstanding principal amount of the Notes, represents a majority of the aggregate outstanding principal amount of the Notes.



"Note Purchase Agreements" means the several Note Purchase Agreements, dated as of July 21, 2006, by and between the Company and the respective Buyer party thereto pursuant to which the Company issued the Notes, including, without limitation, the Additional Note Purchase Agreement.



"Notes" means the Company's 6% Senior Secured Convertible Notes due 2007-2008 originally issued pursuant to the Note Purchase Agreements, including, without limitation, the Additional Note.



"Notice Date" means the date on which the Company gives the Instruction in accordance with Section 2.



"Obligations Schedule" means a schedule prepared by the Company which for each Holder and each Note held thereby states, as of the date thereof, the following:





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(i) such Holder's name, address, telephone line facsimile transmission number and payment instructions, including wire transfer instructions,



(ii) the original principal amount, the outstanding principal amount and the and the maturity date of the Note,



(iii) the amount of accrued and unpaid interest on each Note,



(iv) the amount of unpaid interest due on each Note as of the most recent Interest Payment Date,



(v) the amount of unpaid Default Interest, if any, due on each Note,



(vi) the occurrence or continuation of any Event of Default with respect to each Note,



(vii) the occurrence of any event which with notice or the passage of time, or both, could become an Event of Default,



(viii) the amount, due date of, and reasons for any unpaid obligation due with respect to each Note by reason of (A) an Event of Default or (B) any other repurchase, redemption or acceleration obligation, and



(ix) the aggregate amount then due to the Holder with respect to each Note.



"Patent and Trademark Security Agreement" means the Patent and Trademark Security Agreement, dated as of July 21, 2006, between the Company and the Collateral Agent.



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



"Retained Amount" means that portion, which may be all, of the Specified Funds for each Deposit Date which equal (to the extent of the Specified Funds available) the sum of all amounts with respect to the Notes which are scheduled to accrue or which otherwise are expected to become due to the Holders during the Retention Period for principal of and interest and Default Interest on the Notes or for costs and expenses arising under the Transaction Documents and payable by the Company.



"Retention Period" means the 45-day period after each Deposit Date.



"Security Agreement" means the Pledge and Security Agreement, dated as of July 21, 2006, between the Company and the Collateral Agent.



"Specified Funds" shall have the meaning given such term in Section 7(a).





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



"Termination Notice" means a notice given to the Lockbox Agent by and signed by the Company, the Majority Holders and the Collateral Agent, which notice states that a particular Event of Default has terminated or has been satisfied or waived and no Holder has any continuing rights with respect thereto.



"Transaction Documents" means the Notes, the Note Purchase Agreements, this Agreement, the Security Agreement, the Patent and Trademark Security Agreement, the Warrants and the other agreements, instruments and documents contemplated hereby and thereby.



2. Payments. (a) The Company agrees, that, upon the direction of the Collateral Agent given at any time that an Event of Default has occurred and is continuing, in accordance with Section 3(b) of the Security Agreement the Company shall irrevocably instruct in writing (the "Instruction") all the account debtors on the Accounts that constitute part of the Collateral and all of the parties (other than the Company) who are parties to Contracts that constitute part of the Collateral that such Accounts and Contracts have been assigned to the Collateral Agent for the ratable benefit of the Holders and that payments in respect thereof shall be shall be made either



(i) by check or money order to the address of the Lockbox, which address shall be identified to the Company by the Collateral Agent or if the Lockbox Agent is a bank shall be the address of the office of the Lockbox Agent, or



(ii) by wire transfer of funds to the Collateral Account, which account shall be identified to the Company by the Collateral Agent.



If the Company fails to give the Instruction in accordance with Section 3(b) of the Security Agreement, the Collateral Agent may, in its own name or in the name of the Company, give the Instruction directly to the account debtors on the Accounts that constitute part of the Collateral and to all of the parties to Contracts that constitute part of the Collateral.



(b) If the Collateral Agent shall so require, at or prior to the time any Person who has not already received the Instruction is to become an account debtor on Accounts that constitute part of the Collateral or a party to Contracts that constitute part of the Collateral, the Company shall instruct such Person that such Accounts and Contracts have been assigned to the Collateral Agent for the ratable benefit of the Holders and that payments in respect thereof shall be made in the manner set forth in Section 2(a). If the Company fails to give the instructions in accordance with this Section 2(b), the Collateral Agent may, in its own name or in the name of the Company, give such instructions directly to such Person.



3. No Contrary Instructions. Without the prior written consent of the Collateral Agent and the Majority Holders, the Company shall not revoke, rescind or modify the Instruction or take any other action which is contrary to or inconsistent with this Agreement or the Security Agreement. If for any reason the Company receives any payment from an account debtor or party to a Contract on or after the Notice Date, the Company shall immediately deposit such payment, and any interest or proceeds thereon, in the Collateral Account. Prior to such deposit, the Company shall hold all such funds in trust for the exclusive benefit of the Collateral Agent and the Holders pursuant to this Agreement.





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4. Lockbox. The Lockbox shall be under the sole and exclusive control of the Lockbox Agent, as agent for the Collateral Agent only. On each Business Day on or after the date the Company gives or is required to give the Instruction, the Lockbox Agent will remove all items from the Lockbox and promptly deposit all checks, money orders and other payments included in such items in the Collateral Account. The Company irrevocably authorizes and directs the Lockbox Agent to endorse and deposit all such checks and money orders in the Collateral Account on the Business Day of receipt by the Lockbox.



5. Collateral Account. The Collateral Account shall be under the sole and exclusive control of the Lockbox Agent, as agent for the Collateral Agent only. All cash deposited in the Collateral Account pursuant to this Agreement, and all interest earned thereon, shall be held in the Collateral Account and shall at all times be segregated from the funds and property of any other Person. The Collateral Account shall be an interest-bearing account which pays interest at the rate determined from time to time by the Lockbox Agent for comparable, fully liquid commercial accounts. Without the prior consent of the Company, the Collateral Agent and the Majority Holders, the assets in the Collateral Account shall be held in cash only and shall not be invested in any securities. Funds may be withdrawn from the Collateral Account only as expressly provided
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