Document:

EX 10.6

    EXHIBIT
      10.6

    

    POSITRON
      CORPORATION

     

    2005
      STOCK OPTION AGREEMENT

     

    R
      E C
      I T A L S
      :

     

     

    WHEREAS
      the Board has adopted the Plan for the purpose of retaining the services of
      selected Employees, Officers, members of the Board or of the board of directors
      of any Parent or Subsidiary and consultants and other independent advisors
      who
      provide services to the Corporation (or any Parent or Subsidiary);

     

    WHEREAS
      the Optionee is to render valuable services to the Corporation (or a Parent
      or
      Subsidiary), and this Agreement is executed pursuant to, and is intended to
      carry out the purposes of, the Plan in connection with the Corporation's grant
      of an option to Optionee; and

     

    WHEREAS
      all capitalized terms in this Agreement shall have the meaning assigned to
      them
      in the attached Appendix.

     

    NOW,
      THEREFORE, it is hereby agreed as follows:

     

    1.    Grant
      of Option.
      The
      Corporation hereby grants to Optionee, as of the Grant Date, an option to
      purchase up to the number of Option Shares specified in the Grant Notice. The
      Option Shares shall be purchasable from time to time during the option term
      specified in Section 2 hereof at the Exercise Price.

     

    2.    Option
      Term.
      This
      Option shall have a maximum term of ten (10) years measured from the Grant
      Date
      and shall accordingly expire at the close of business on the Expiration Date,
      unless sooner terminated in accordance with Sections 5 or 6 hereof.

     

    3.    Limited
      Transferability.
      This
      Option shall be neither transferable nor assignable by Optionee other than
      by
      will or by the laws of descent and distribution following Optionee's death
      and
      may be exercised, during Optionee's lifetime, only by Optionee. However, if
      this
      Option is designated a Non- Statutory Option in the Grant Notice, then this
      Option may, (i) in connection with the Optionee's estate plan, be assigned
      in
      whole or in part during Optionee's lifetime to one or more members of the
      Optionee's Immediate Family or to a trust established for the exclusive benefit
      of the Optionee and/or one or more such family members or (ii) be assigned
      in
      whole or in part to the Optionee's former spouse pursuant to a domestic
      relations order. The assigned portion shall be exercisable only by the person
      or
      persons who acquire a proprietary interest in the Option pursuant to such
      assignment. The terms applicable to the assigned portion shall be the same
      as
      those in effect for this Option immediately prior to such assignment.
      Notwithstanding the foregoing, the Optionee may also designate one or more
      persons as the beneficiary or beneficiaries of his or her outstanding options
      under this Article Two, and those options shall, in accordance with such
      designation, automatically be transferred to such beneficiary or beneficiaries
      upon the Optionee's death while holding those options. Such beneficiary or
      beneficiaries shall take the transferred option subject to all the terms and
      conditions of this Agreement, including (without limitation) the limited time
      period during which the option may be exercised following the Optionee's
      death.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.    Dates
      of Exercise.
      This
      Option shall become exercisable for the Option Shares in one or more
      installments as specified in the Grant Notice, subject to the special vesting
      acceleration provisions of Paragraph 6. As the Option becomes exercisable for
      such installments, those installments shall accumulate and the Option shall
      remain exercisable for the accumulated installments until the Expiration Date
      or
      sooner termination of the option term under Sections 5 or 6 hereof.

     

    5.    Cessation
      of Service.
      The
      option term specified in Section 2 hereof shall terminate (and this Option
      shall
      cease to be outstanding) prior to the Expiration Date should any of the
      following provisions become applicable:

     

    (a)    Should
      Optionee cease to remain in Service for any reason (other than death, Permanent
      Disability or Misconduct) while this Option is outstanding, then the period
      for
      exercising this Option shall be reduced to a three (3) month period commencing
      with the date of such cessation of Service, but in no event shall this Option
      be
      exercisable at any time after the Expiration Date.

     

    (b)    Should
      Optionee die while this Option is outstanding, then the personal representative
      of Optionee's estate or the person or persons to whom the Option is transferred
      pursuant to Optionee's will or in accordance with the laws of descent and
      distribution, or any person or trust to whom all or a portion of this Option
      was
      previously transferred in accordance with Section 3 hereof or the
      designated beneficiary or beneficiaries of this option shall have the right
      to
      exercise this Option. Such right shall lapse, and this Option shall cease to
      be
      outstanding, upon the earlier of: (i) the expiration of the twelve (12) month
      period measured from the date of Optionee's death; or (ii) the Expiration
      Date.

     

    (c)    Should
      Optionee cease Service by reason of Permanent Disability while this Option
      is
      outstanding, then the period for exercising this Option shall be reduced to
      a
      twelve (12) month period commencing with the date of such cessation of Service,
      but in no event shall this Option be exercisable at any time after the
      Expiration Date.

     

    (d)    During
      the limited period of post-Service exercisability, this Option may not be
      exercised in the aggregate for more than the number of vested Option Shares
      for
      which the Option is exercisable at the time of Optionee's cessation of Service.
      Upon the expiration of such limited exercise period or (if earlier) upon the
      Expiration Date, this Option shall terminate and cease to be outstanding for
      any
      otherwise exercisable Option Shares for which the Option has not been exercised.
      However, this Option shall, immediately upon Optionee's cessation of Service
      for
      any reason, terminate and cease to be outstanding with respect to any Option
      Shares for which this Option is not otherwise at that time
      exercisable.

     

    (e)    Except
      as
      otherwise determined in the discretion of the Plan Administrator, either at
      the
      time the option is granted or at any time the option remains outstanding, should
      Optionee's Service be terminated for Misconduct or should Optionee otherwise
      engage in Misconduct while this option is outstanding, then this Option shall
      terminate immediately and cease to remain outstanding.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    6.    Special
      Acceleration of Option.

     

    (a)    The
      Option, to the extent outstanding at the time of a Change in Control transaction
      but not otherwise fully exercisable, shall automatically accelerate so that
      this
      Option shall, immediately prior to the effective date of such Change in Control,
      become exercisable for all of the Option Shares at the time subject to this
      option and may be exercised for any or all of those Option Shares as fully
      vested shares of Common Stock. Notwithstanding the foregoing, this Option shall
      not become exercisable on such an accelerated basis if and to the extent: (i)
      this Option is, in connection with the Change in Control, to be assumed by
      the
      successor corporation (or Parent thereof) or otherwise continued in full force
      and effect pursuant to the terms of the Change in Control; or (ii) this Option
      is to be replaced with a cash incentive program of the successor corporation
      which preserves the spread existing at the time of the Change in Control on
      the
      Option Shares for which this Option is not otherwise at that time exercisable
      (the excess of the Fair Market Value of those Option Shares over the aggregate
      Exercise Price payable for such shares) and provides for subsequent payout
      in
      accordance with the same option exercise/vesting schedule set forth in the
      Grant
      Notice.

     

    (b)    Immediately
      following the Change in Control, this Option shall terminate and cease to be
      outstanding, except to the extent assumed by the successor corporation (or
      Parent thereof) or otherwise continued in full force and effect pursuant to
      the
      terms of the Change in Control transaction.

     

    (c)    If
      this
      Option is assumed in connection with a Change in Control (or otherwise continued
      in full force and effect), then this Option shall be appropriately adjusted,
      immediately after such Change in Control, to apply to the number and class
      of
      securities or other property which would have been issuable to Optionee in
      consummation of such Change in Control had the Option been exercised immediately
      prior to such Change in Control, and appropriate adjustments shall also be
      made
      to the Exercise Price, provided the aggregate Exercise Price shall remain the
      same.

     

    (d)    Notwithstanding
      the foregoing, immediately upon an Involuntary Termination of Optionee's Service
      within eighteen (18) months following a Change in Control transaction, the
      Option, to the extent outstanding at the time but not otherwise fully
      exercisable, shall automatically accelerate so that the Option shall become
      immediately exercisable for all the Option Shares at the time subject to the
      Option and may be exercised for any or all of those Option Shares as fully
      vested shares. The Option as accelerated shall remain so exercisable until
      the
      earlier of: (i) the Expiration Date; or (ii) the expiration of the one (1)
      year
      period measured from the date of the Optionee's Involuntary
      Termination.

     

    (e)    This
      Option may also be subject to acceleration in accordance with the terms of
      any
      special Addendum attached to this Agreement.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    7.    Adjustment
      in Option Shares.
      Should
      any change be made to the Common Stock by reason of any stock split, stock
      dividend, recapitalization, combination of shares, exchange of shares or other
      change affecting the outstanding Common Stock as a class without the
      Corporation's receipt of consideration, appropriate adjustments shall be made
      to: (i) the total number and/or class of securities subject to this Option;
      and
      (ii) the Exercise Price in order to reflect such change and thereby preclude
      a
      dilution or enlargement of benefits hereunder.

     

    8.    Stockholder
      Rights.
      The
      holder of this Option shall not have any stockholder rights with respect to
      the
      Option Shares until such person shall have exercised the Option, paid the
      Exercise Price and become a holder of record of the purchased
      shares.

     

    9.    Manner
      of Exercising Option.

     

    (a)    In
      order
      to exercise this Option with respect to all or any part of the Option Shares
      for
      which this Option is at the time exercisable, Optionee (or any other person
      or
      persons exercising the Option) must take the following actions:

     

    (i)    To
      the
      extent the Option is exercised for vested Option Shares, execute and deliver
      to
      the Corporation a Notice of Exercise for the Option Shares for which the Option
      is exercised. To the extent the Option is exercised for unvested Option Shares,
      execute and deliver to the Corporation a Purchase Agreement for those unvested
      Option Shares. In connection with the Purchase Agreement, any certificate issued
      upon the exercise of the Option shall bear legends as set forth in the Purchase
      Agreement.

     

    (ii)    Pay
      the
      aggregate Exercise Price for the purchased shares in one or more of the
      following forms: 

     

    (A)    cash
      or
      check made payable to the Corporation; or 

     

    (B)    a
      promissory note payable to the Corporation, but only to the extent authorized
      by
      the Plan Administrator in accordance with Section 14 hereof;
      or

     

    (C)    shares
      of
      Common Stock held by Optionee (or any other person or persons exercising the
      option) for the requisite period necessary to avoid a charge to the
      Corporation's earnings for financial reporting purposes and valued at Fair
      Market Value on the Exercise Date; or 

     

    (D)    through
      a
      special sale and remittance procedure pursuant to which Optionee (or any other
      person or persons exercising the option) shall concurrently provide irrevocable
      instructions to a Corporation-designated brokerage firm to effect the immediate
      sale of the purchased shares and remit to the Corporation, out of the sale
      proceeds available on the settlement date, sufficient funds to cover the
      aggregate Exercise Price payable for the purchased shares plus all applicable
      Federal, state and local income and employment taxes required to be withheld
      by
      the Corporation by reason of such exercise and to the Corporation to deliver
      the
      certificates for the purchased shares directly to such brokerage firm in order
      to complete the sale.

     

    Except
      to
      the extent the sale and remittance procedure is utilized in connection with
      the
      Option exercise, payment of the Exercise Price must accompany the Notice of
      Exercise or Purchase Agreement, as applicable, delivered to the Corporation
      in
      connection with the Option exercise.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    (iii)    Furnish
      to the Corporation appropriate documentation that the person or persons
      exercising the Option (if other than Optionee) have the right to exercise this
      Option.

     

    (iv)    Make
      appropriate arrangements with the Corporation (or Parent or Subsidiary employing
      or retaining Optionee) for the satisfaction of all Federal, state and local
      income and employment tax withholding requirements applicable to the option
      exercise.

     

    (b)    As
      soon
      as practical after the Exercise Date, the Corporation shall issue to or on
      behalf of Optionee (or any other person or persons exercising this Option)
      a
      certificate for the purchased Option Shares, with the appropriate legends
      affixed thereto.

     

    (c)    In
      no
      event may this Option be exercised for any fractional shares.

     

    10.    No
      Impairment of Rights.
      This
      Agreement shall not in any way affect the right of the Corporation to adjust,
      reclassify, reorganize or otherwise make changes in its capital or business
      structure or to merge, consolidate, dissolve, liquidate or sell or transfer
      all
      or any part of its business or assets. In addition, this Agreement shall not
      in
      any way be construed or interpreted so as to affect adversely or otherwise
      impair the rights of the Corporation (or any Parent or Subsidiary employing
      or
      retaining Optionee) or of Optionee, which rights are hereby expressly reserved
      by each, to terminate Optionee's Service at any time for any reason, with or
      without cause.

     

    11.    Compliance
      with Laws and Regulations.

     

    (a)    The
      exercise of this Option and the issuance of the Option Shares upon such exercise
      shall be subject to compliance by the Corporation and Optionee with all
      applicable requirements of law relating thereto and with all applicable
      regulations of the Nasdaq SmallCap Market (or any Stock Exchange, if applicable)
      on which the Common Stock may be listed for trading at the time of such exercise
      and issuance.

     

    (b)    The
      inability of the Corporation to obtain approval from any regulatory body having
      authority deemed by the Corporation to be necessary to the lawful issuance
      and
      sale of any Common Stock pursuant to this Option shall relieve the Corporation
      of any liability with respect to the non-issuance or sale of the Common Stock
      as
      to which such approval shall not have been obtained. The Corporation, however,
      shall use its best efforts to obtain all such approvals.

     

    12.    Successors
      and Assigns.
      Except
      to the extent otherwise provided in Sections 3 and 6 hereof, the provisions
      of
      this Agreement shall inure to the benefit of, and be binding upon, the
      Corporation and its successors and assigns and Optionee, Optionee's assigns
      and
      the legal representatives, heirs and legatees of Optionee's estate.

     

    13.    Notices.
      Any
      notice required to be given or delivered to the Corporation under the terms
      of
      this Agreement shall be in writing and addressed to the Corporation at its
      principal corporate offices. Any notice required to be given or delivered to
      Optionee shall be in writing and addressed to Optionee at the address indicated
      below Optionee's signature line on the Grant Notice. All notices shall be deemed
      effective upon personal delivery or upon deposit in the U.S. mail, postage
      prepaid and properly addressed to the party to be notified.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    14.    Financing.
      The
      Plan Administrator may, in its absolute discretion and without any obligation
      to
      do so, permit Optionee to pay the Exercise Price for the purchased Option Shares
      by delivering a full-recourse promissory note payable to the Corporation. The
      terms of any such promissory note (including the interest rate, the requirements
      for collateral and the terms of repayment) shall be established by the Plan
      Administrator in its sole discretion.

     

    15.    Construction.
      This
      Agreement and the Option evidenced hereby are made and granted pursuant to
      the
      Plan and are in all respects limited by and subject to the terms of the Plan.
      All decisions of the Plan Administrator with respect to any question or issue
      arising under the Plan or this Agreement shall be conclusive and binding on
      all
      persons having an interest in this Option.

     

    16.    Governing
      Law.
      The
      interpretation, performance and enforcement of this Agreement shall be governed
      by the laws of the State of Texas without resort to that State's
      conflict-of-laws rules.

     

    17.    Excess
      Shares.
      If the
      Option Shares covered by this Agreement exceed, as of the Grant Date, the number
      of shares of Common Stock which may without stockholder approval be issued
      under
      the Plan, then this Option shall be void with respect to those excess shares,
      unless stockholder approval of an amendment sufficiently increasing the number
      of shares of Common Stock issuable under the Plan is obtained in accordance
      with
      the provisions of the Plan.

     

    18.    Optionee
      Undertaking.
      Optionee hereby agrees to take whatever additional action and execute whatever
      additional documents the Corporation may deem necessary or advisable in order
      to
      carry out or effect one or more of the obligations or restrictions imposed
      on
      either Optionee or the Option Shares pursuant to the provisions of this
      Agreement.

     

    19.    Representation
      by Counsel.
      Each
      party hereby agrees and acknowledges that (i) such party has had the opportunity
      to consult with independent legal, tax and financial counsel of each party's
      choice, in order to be advised with respect to the effect of this Agreement,
      the
      Notice of Exercise and the Purchase Agreement and (ii) neither the Corporation
      nor its attorneys have provided legal, tax or financial advice of any nature
      to
      Optionee.

     

    20.    Additional
      Terms Applicable to an Incentive Option.
      In the
      event this Option is designated an Incentive Option in the Grant Notice, the
      following terms and conditions shall also apply to the grant: 

     

    (a)    This
      option shall cease to qualify for favorable tax treatment as an Incentive Option
      if (and to the extent) this Option is exercised for one or more Option Shares:
      (i) more than three (3) months after the date Optionee ceases to be an Employee
      for any reason other than death or Permanent Disability; or (ii) more than
      twelve (12) months after the date Optionee ceases to be an Employee by reason
      of
      death or Permanent Disability.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    (b)    No
      installment under this Option shall qualify for favorable tax treatment as
      an
      Incentive Option if (and to the extent) the aggregate Fair Market Value
      (determined at the Grant Date) of the Common Stock for which such installment
      first becomes exercisable hereunder would, when added to the aggregate value
      (determined as of the respective date or dates of grant) of the Common Stock
      or
      other securities for which this option or any other Incentive Options granted
      to
      Optionee prior to the Grant Date (whether under the Plan or any other option
      plan of the Corporation or any Parent or Subsidiary) first become exercisable
      during the same calendar year, exceed One Hundred Thousand Dollars ($100,000.00)
      in the aggregate. Should such One Hundred Thousand Dollar ($100,000.00)
      limitation be exceeded in any calendar year, this Option shall nevertheless
      become exercisable for the excess shares in such calendar year as a
      Non-Statutory Option.

     

    (c)    Should
      the exercisability of this Option be accelerated upon a Change in Control
      transaction, then this Option shall qualify for favorable tax treatment as
      an
      Incentive Option only to the extent the aggregate Fair Market Value (determined
      at the Grant Date) of the Common Stock for which this Option first becomes
      exercisable in the calendar year in which the Change in Control occurs does
      not,
      when added to the aggregate value (determined as of the respective date or
      dates
      of grant) of the Common Stock or other securities for which this Option or
      one
      or more other Incentive Options granted to Optionee prior to the Grant Date
      (whether under the Plan or any other option plan of the Corporation or any
      Parent or Subsidiary) first become exercisable during the same calendar year,
      exceed One Hundred Thousand Dollars ($100,000.00) in the aggregate. Should
      the
      applicable One Hundred Thousand Dollar ($100,000.00) limitation be exceeded
      in
      the calendar year of such Change in Control, the Option may nevertheless be
      exercised for the excess shares in such calendar year as a Non-Statutory
      Option.

     

    (d)    Should
      Optionee hold, in addition to this Option, one or more other options to purchase
      Common Stock which become exercisable for the first time in the same calendar
      year as this Option, then the foregoing limitations on the exercisability of
      such options as Incentive Options shall be applied on the basis of the order
      in
      which such options are granted.

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    APPENDIX

     

     

    The
      following definitions shall be in effect under the Agreement:

     

    A.    Agreement
      shall
      mean this 2005 Stock Option Agreement.

     

    B.    Board
      shall
      mean the Corporation's Board of Directors.

     

    C.    Change
      in Control
      shall
      mean a change in ownership or control of the Corporation effected through any
      of
      the following transactions:

     

    (i)    a
      merger,
      consolidation or reorganization approved by the Corporation's stockholders,
      unless securities representing more than fifty percent (50%) of the total
      combined voting power of the successor corporation are immediately thereafter
      beneficially owned, directly or indirectly and in substantially the same
      proportion, by the persons who beneficially owned the Corporation's outstanding
      voting securities immediately prior to such transaction, or

     

    (ii)    a
      sale,
      transfer or other disposition of all or substantially all of the Corporation's
      assets, or

     

    (iii)    the
      acquisition, directly or indirectly, by any person or related group of persons
      (other than the Corporation or a person that directly or indirectly controls,
      is
      controlled by, or is under common control with, the Corporation) of beneficial
      ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
      possessing more than fifty percent (50%) of the total combined voting power
      of
      the Corporation's outstanding securities pursuant to a tender or exchange offer
      made directly to the Corporation's stockholders which the Board recommends
      such
      stockholders accept;

     

    provided,
      however, the Plan Administrator shall have the discretionary authority to
      determine that a transaction or series of transactions does not constitute
      a
      Change in Control. Such determination by the Plan Administrator shall govern
      notwithstanding the fact that the determination is contrary to paragraphs (i)
      through (iii) set forth above.

     

    D.    Code
      shall
      mean the Internal Revenue Code of 1986, as amended.

     

    E.    Common
      Stock
      shall
      mean shares of the Corporation's common stock.

     

    F.    Corporation
      shall
      mean Positron Corporation, a Texas corporation.

     

    G.    Employee
      shall
      mean an "employee" of the Corporation (or any Parent or Subsidiary) within
      the
      meaning of Section 3401(c) of the Code and the regulations
      thereunder.

     

    H.    Exercise
      Date
      shall
      mean the date on which the Option shall have been exercised in accordance with
      Section 4 of the Agreement.

     

    
      
         

      

      
        
          APPENDIX

          -1-

        

        
          

        

      

      
         

      

    

     

    I.    Exercise
      Price
      shall
      mean the exercise price per Option Share as specified in the Grant
      Notice.

     

    J.    Expiration
      Date
      shall
      mean the date on which the Option expires as specified in the Grant
      Notice.

     

    K.    Fair
      Market Value
      per
      share of Common Stock on any relevant date shall be determined in accordance
      with the Plan.

     

    L.    Grant
      Date
      shall
      mean the date of grant of the Option as specified in the Grant
      Notice.

     

    M.    Grant
      Notice
      shall
      mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant
      to
      which Optionee has been informed of the basic terms of the Option evidenced
      hereby.

     

    N.    Immediate
      Family
      shall
      mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
      sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
      brother-in-law, or sister-in-law, and shall include adoptive
      relationships.

     

    O.    Incentive
      Option
      shall
      mean an option which satisfies the requirements of Code Section
      422.

     

    P.    Involuntary
      Termination
      shall
      mean the termination of Optionee's Service by reason of:

     

    (i)    Optionee's
      involuntary dismissal or discharge by the Corporation for reasons other than
      Misconduct, or

     

    (ii)    Optionee's
      voluntary resignation following (A) a change in Optionee's position with the
      Corporation (or Parent or Subsidiary employing Optionee) which materially
      reduces Optionee's duties and responsibilities or the level of management to
      which Optionee reports, (B) a reduction in Optionee's level of compensation
      (including base salary, fringe benefits and target bonus under any corporate
      performance based bonus or incentive programs) by more than fifteen percent
      (15%) or (C) a relocation of Optionee's place of employment by more than fifty
      (50) miles, provided and only if such change, reduction or relocation is
      effected by the Corporation without Optionee's consent.

     

    Q.    Misconduct
      shall
      mean the commission of any act of fraud, embezzlement or dishonesty by Optionee,
      any unauthorized use or disclosure by Optionee of confidential information
      or
      trade secrets of the Corporation (or any Parent or Subsidiary), or any
      intentional wrongdoing by Optionee, whether by omission or commission, which
      adversely affects the business or affairs of the Corporation (or any Parent
      or
      Subsidiary) in a material manner. This shall not limit the grounds for the
      dismissal or discharge of Optionee or any other individual in the Service of
      the
      Corporation (or any Parent or Subsidiary).

     

    R.    1934
      Act
      shall
      mean the Securities Exchange Act of 1934, as amended.

     

    
      
         

      

      
        
          APPENDIX

          -2-

        

        
          

        

      

      
         

      

    

     

    S.    Non-Statutory
      Option
      shall
      mean an option not intended to satisfy the requirements of Code Section
      422.

     

    T.    Notice
      of Exercise
      shall
      mean the notice of exercise in the form attached hereto as Exhibit
      I.

     

    U.    Officer
      shall
      mean any person serving as the president, chief executive officer, chief
      financial officer, chief operating officer, treasurer, secretary or in any
      other
      managerial or administrative capacity for the Corporation or a Parent or
      Subsidiary of the Corporation, as determined in the Administrator's
      discretion.

     

    V.    Option
      shall
      mean the Option granted pursuant to this Agreement.

     

    W.    Option
      Shares
      shall
      mean the number of shares of Common Stock subject to the Option as specified
      in
      the Grant Notice.

     

    X.    Optionee
      shall
      mean the person to whom the Option is granted as specified in the Grant
      Notice.

     

    Y.    Parent
      shall
      mean any corporation (other than the Corporation) in an unbroken chain of
      corporations ending with the Corporation, provided each corporation in the
      unbroken chain (other than the Corporation) owns, at the time of the
      determination, stock possessing fifty percent (50%) or more of the total
      combined voting power of all classes of stock in one of the other corporations
      in such chain.

     

    Z.    Permanent
      Disability
      shall
      mean the inability of Optionee to engage in any substantial gainful activity
      by
      reason of any medically determinable physical or mental impairment which can
      be
      expected to result in death or has lasted or can be expected to last for a
      continuous period of twelve (12) months or more.

     

    AA.    Plan
      shall
      mean the Corporation's Amended and Restated 2005 Stock Incentive
      Plan.

     

    BB.    Plan
      Administrator
      shall
      mean either the Board or a committee of the Board acting in its capacity as
      administrator of the Plan.

     

    CC.    Service
      shall
      mean the Optionee's performance of services for the Corporation (or any Parent
      or Subsidiary) in the capacity of an Employee, an Officer, a member of the
      board
      of directors or a consultant or independent advisor.

     

    DD.    Stock
      Exchange
      shall
      mean the American Stock Exchange or the New York Stock Exchange.

     

    EE.    Subsidiary
      shall
      mean any corporation (other than the Corporation) in an unbroken chain of
      corporations beginning with the Corporation, provided each corporation (other
      than the last corporation) in the unbroken chain owns, at the time of the
      determination, stock possessing fifty percent (50%) or more of the total
      combined voting power of all classes of stock in one of the other corporations
      in such chain.

     

    
      
         

      

      
        
          APPENDIX

          -3-

        

        
          

        

      

      
         

      

    

     

    EXHIBIT
      I

     

     

    NOTICE
      OF EXERCISE

     

    I
      hereby
      notify Positron Corporation (the "Corporation") that I elect to purchase
      _____________________ shares of the Corporation's Common Stock (the "Purchased
      Shares") at the option exercise price of _____________ per share (the "Exercise
      Price") pursuant to that certain option (the "Option") granted to me under
      the
      Corporation's Amended and Restated 2005 Stock Incentive Plan on
      _____________________, 200_.

     

    Concurrently
      with the delivery of this Notice of Exercise to the Corporation, I shall hereby
      pay to the Corporation the Exercise Price for the Purchased Shares in accordance
      with the provisions of my agreement with the Corporation (or other documents)
      evidencing the Option and shall deliver whatever additional documents may be
      required by such agreement as a condition for exercise. Alternatively, I may
      utilize the special broker-dealer sale and remittance procedure specified in
      my
      agreement to effect payment of the Exercise Price. 

    
      	 	 
	
              _____________________________________,
                200_

              Date

            	 
	 	_______________________________________
	 	
              Optionee

            
	 	
              Address:_____________________________________

            
	 	_______________________________________
	
              Print
                name in exact manner it is to appear on the stock
                certificate:

            	_______________________________________
	
              Address
                to which certificate is to be sent, if different from address
                above:

            	_______________________________________
	
              Social
                Security Number:

            	_______________________________________
	
              Employee
                Number

            	_______________________________________

    

     

     

    
      
         

      

        EXHIBIT
          ISECURITIES PURCHASE AGREEMENT

      SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 16,
2005, by and among Sew Cal Logo, Inc., a Nevada corporation, with headquarters
located at 207 W. 138th Street, Los Angeles, CA 90061 (the "Company"), and each
of the purchasers set forth on the signature pages hereto (the "Buyers").

      WHEREAS:

      A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");

      B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 8% secured
convertible notes of the Company, in the form attached hereto as Exhibit "A", in
the aggregate principal amount of Two Million Dollars ($2,000,000) (together
with any note(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"Notes"), convertible into shares of common stock, par value $.001 per share, of
the Company (the "Common Stock"), upon the terms and subject to the limitations
and conditions set forth in such Notes and (ii) warrants, in the form attached
hereto as Exhibit "B", to purchase 2,142,858 shares of Common Stock (the
"Warrants").

      C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and

      D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.

      NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:

            1. PURCHASE AND SALE OF NOTES AND WARRANTS.

                  a. Purchase of Notes and Warrants. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of Notes and
number of Warrants as is set forth immediately below such Buyer's name on the
signature pages hereto.

<PAGE>

                  b. Form of Payment. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Notes and the Warrants to be
issued and sold to it at the Closing (as defined below) (the "Purchase Price")
by wire transfer of immediately available funds to the Company, in accordance
with the Company's written wiring instructions, against delivery of the Notes in
the principal amount equal to the Purchase Price and the number of Warrants as
is set forth immediately below such Buyer's name on the signature pages hereto,
and (ii) the Company shall deliver such Notes and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.

                  c. Closing Date. Subject to the satisfaction (or written
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Notes and the Warrants
pursuant to this Agreement (the "Closing Date") shall be 12:00 noon, Eastern
Standard Time on February 16, 2006, or such other mutually agreed upon time. The
closing of the transactions contemplated by this Agreement (the "Closing") shall
occur on the Closing Date at such location as may be agreed to by the parties.

            2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:

                  a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Notes and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Notes (including, without limitation, such
additional shares of Common Stock, if any, as are issuable (i) on account of
interest on the Notes, (ii) as a result of the events described in Sections 1.3
and 1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the "Conversion Shares") and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"Warrant Shares" and, collectively with the Notes, Warrants and Conversion
Shares, the "Securities") for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.

                  b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").

                  c. Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.

                                       2
<PAGE>

                  d. Information. The Buyer and its advisors, if any, have been,
and for so long as the Notes and Warrants remain outstanding will continue to
be, furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its advisors, if any, have been, and for so long as the Notes and Warrants
remain outstanding will continue to be, afforded the opportunity to ask
questions of the Company. Notwithstanding the foregoing, the Company has not
disclosed to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant degree
of risk.

                  e. Governmental Review. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.

                  f. Transfer or Re-sale. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer shall
have delivered to the Company an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. In the
event that the Company does not accept the opinion of counsel provided by the
Buyer with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business days
of delivery of the opinion to the Company, the Company shall pay to the Buyer
liquidated damages of three percent (3%) of the outstanding amount of the Notes
per month plus accrued and unpaid interest on the Notes, prorated for partial
months, in cash or shares at the option of the Company ("Standard Liquidated
Damages Amount"). If the Company elects to be pay the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.

                                       3
<PAGE>

                  g. Legends. The Buyer understands that the Notes and the
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):

            "The securities represented by this certificate have
            not been registered under the Securities Act of 1933,
            as amended. The securities may not be sold, transferred
            or assigned in the absence of an effective registration
            statement for the securities under said Act, or an
            opinion of counsel, in form, substance and scope
            customary for opinions of counsel in comparable
            transactions, that registration is not required under
            said Act or unless sold pursuant to Rule 144 or
            Regulation S under said Act."

      The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.

                  h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.

                  i. Residency. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.

                                       4
<PAGE>

            3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:

                  a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any of (i) a material and adverse effect
on the legality, validity or enforceability of any document executed in
connection with this financing, (ii) a material and adverse effect on the
results of operations, assets, prospects, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an
adverse impairment to the Company's ability to perform under any of the
documents executed in connection with this financing. "Subsidiaries" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.

                  b. Authorization; Enforcement. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Notes and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the Notes and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Notes and the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares issuable upon conversion or exercise
thereof) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Notes and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.

                  c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 50,000,000 shares of Common Stock,
of which [ ] shares are issued and outstanding, [ ] shares are reserved for
issuance pursuant to the Company's stock option plans, [ ] shares are reserved
for issuance pursuant to securities (other than the Notes and the Warrants)
exercisable for, or convertible into or exchangeable for shares of Common Stock
and, 28,116,884 shares are reserved for issuance upon conversion of the Notes
and exercise of the Warrants (subject to adjustment pursuant to the Company's

                                       5
<PAGE>

covenant set forth in Section 4(h) below); and (ii) 300,000 shares of preferred
stock of which 234,800 shares are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Notes, the Warrants, the Conversion Shares or Warrant Shares.
The Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.

                  d. Issuance of Shares. The Conversion Shares and Warrant
Shares are duly authorized and reserved for issuance and, upon conversion of the
Notes and exercise of the Warrants in accordance with their respective terms,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and shall not
be subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder thereof.

                  e. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this Agreement, the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other shareholders of
the Company.

                  f. No Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any

                                       6
<PAGE>

provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company or
any of its Subsidiaries in default) under, and neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action that would
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Notes or the Warrants in accordance with the
terms hereof or thereof or to issue and sell the Notes and Warrants in
accordance with the terms hereof and to issue the Conversion Shares upon
conversion of the Notes and the Warrant Shares upon exercise of the Warrants.
Except as disclosed in Schedule 3(f), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the quotation requirements of the
Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably anticipate
that the Common Stock will be delisted by the OTCBB in the foreseeable future.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.

                  g. SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(g), the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC

                                       7
<PAGE>

promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to August 31, 2005 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.

                  h. Absence of Certain Changes. Since August 31, 2005, there
has been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.

                  i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
3(i) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.

                  j. Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(j) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the

                                       8
<PAGE>

right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.

                  k. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.

                  l. Tax Status. Except as set forth on Schedule 3(l), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on Schedule 3(l), none
of the Company's tax returns is presently being audited by any taxing authority.

                  m. Certain Transactions. Except as set forth on Schedule 3(m)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

                                       9
<PAGE>

                  n. Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).

                  o. Acknowledgment Regarding Buyers' Purchase of Securities.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers' purchase of the Securities. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.

                  p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.

                  q. No Brokers. Except as set forth in Schedule 3(q), the
Company has taken no action which would give rise to any claim by any person for
brokerage commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby.

                  r. Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since August 31,
2005, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.

                                       10
<PAGE>

                  s. Environmental Matters.

                       (i) Except as set forth in Schedule 3(s), there are, to
the Company's knowledge, with respect to the Company or any of its Subsidiaries
or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.

                       (ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.

                       (iii) Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.

                  t. Title to Property. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in Schedule 3(t) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.

                                       11
<PAGE>

                  u. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect. The Company has provided to Buyer true
and correct copies of all policies relating to directors' and officers'
liability coverage, errors and omissions coverage, and commercial general
liability coverage.

                  v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

                  w. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

                  x. Solvency. The Company (after giving effect to the
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year.

                  y. No Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement will not
be an "investment company" required to be registered under the Investment
Company Act of 1940 (an "Investment Company"). The Company is not controlled by
an Investment Company.

                                       12
<PAGE>

                  z. Breach of Representations and Warranties by the Company. If
the Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.

            4. COVENANTS.

                  a. Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.

                  b. Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.

                  c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company's Common Stock is registered under Section 12(g) of the 1934
Act. The Company represents and warrants that it meets the requirements for the
use of Form S-3 (or if the Company is not eligible for the use of Form S-3 as of
the Filing Date (as defined in the Registration Rights Agreement), the Company
may use the form of registration for which it is eligible at that time) for
registration of the sale by the Buyer of the Registrable Securities (as defined
in the Registration Rights Agreement). So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
The Company further agrees to file all reports required to be filed by the
Company with the SEC in a timely manner so as to become eligible, and thereafter
to maintain its eligibility, for the use of Form S-3. The Company shall issue a
press release describing the material terms of the transaction contemplated
hereby as soon as practicable following the Closing Date but in no event more
than two (2) business days of the Closing Date, which press release shall be
subject to prior review by the Buyers. The Company agrees that such press
release shall not disclose the name of the Buyers unless expressly consented to
in writing by the Buyers or unless required by applicable law or regulation, and
then only to the extent of such requirement.

                  d. Use of Proceeds. The Company shall use the net proceeds
from the sale of the Notes and the Warrants in the manner set forth in Schedule
4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for (i) any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries); (ii) the satisfaction
of any portion of the Company's debt (other than payment of trade payables and
accrued expenses in the ordinary course of the Company's business and consistent
with prior past practices), or (iii) the redemption of any Common Stock.

                                       13
<PAGE>

                  e. Future Offerings. Subject to the exceptions described
below, the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves (A) the issuance of Common Stock at a discount to the
market price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270) days from
the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending two (2)
years after the end of the Lock-up Period unless it shall have first delivered
to each Buyer, at least twenty (20) business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the aggregate principal amount of
Notes purchased by it hereunder bears to the aggregate principal amount of Notes
purchased hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding sentence are collectively referred to as
the "Capital Raising Limitations"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the notice
to the Buyers concerning the proposed Future Offering, the Company shall deliver
a new notice to each Buyer describing the amended terms and conditions of the
proposed Future Offering and each Buyer thereafter shall have an option during
the fifteen (15) day period following delivery of such new notice to purchase
its pro rata share of the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act, an equity line of credit or similar financing
arrangement) resulting in net proceeds to the Company of in excess of
$15,000,000, or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by the shareholders of the Company. Notwithstanding anything
in this section 4(e) to the contrary, in the event the Company's Board of
Directors decides, in good faith, to enter into a transaction or relationship in
which the Company issues shares of Common Stock or other securities of the
Company to a person or any entity which is, itself or through its subsidiaries,
an operating company in a business synergistic with the business of the Company
and in which the Company received benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
business is investing in securities, the Company shall be permitted to do so.

                                       14
<PAGE>

                  f. Expenses. At the Closing, the Company shall reimburse
Buyers for expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith ("Documents"), including,
without limitation, attorneys' and consultants' fees and expenses, transfer
agent fees, fees for stock quotation services, fees relating to any amendments
or modifications of the Documents or any consents or waivers of provisions in
the Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at a
rate of 15% per annum.

                  g. Financial Information. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB its Quarterly Reports on Form 10-QSB
and any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders.

                  h. Authorization and Reservation of Shares. Subject to
Stockholder Approval, the Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the full conversion or exercise of the outstanding Notes
and Warrants and issuance of the Conversion Shares and Warrant Shares in
connection therewith (based on the Conversion Price of the Notes or Exercise
Price of the Warrants in effect from time to time) and as otherwise required by
the Notes. The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of Notes and exercise of the Warrants
without the consent of each Buyer. The Company shall at all times maintain the
number of shares of Common Stock so reserved for issuance at an amount
("Reserved Amount") equal to no less than two (2) times the number that is then
actually issuable upon full conversion of the Notes and Additional Notes and
upon exercise of the Warrants and the Additional Warrants (based on the
Conversion Price of the Notes or the Exercise Price of the Warrants in effect
from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance ("Authorized and Reserved Shares") is below
the Reserved Amount, the Company will promptly take all

                                       15
<PAGE>

corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares, the
Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer. If the Buyer
elects to be paid the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times, the Company must deliver to
the Buyer at the end of every month a list detailing (1) the current amount of
shares authorized by the Company and reserved for the Buyer; and (2) amount of
shares issuable upon conversion of the Notes and upon exercise of the Warrants
and as payment of interest accrued on the Notes for one year. If the Company
fails to provide such list within five (5) business days of the end of each
month, the Company shall pay the Standard Liquidated Damages Amount, in cash or
in shares of Common Stock at the option of the Buyer, until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock, such shares shall be issued at the Conversion Price
at the time of payment.

                  i. Listing. The Company shall promptly secure the listing or
quotation, as the case may be, of the Conversion Shares and Warrant Shares upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed or quoted, as the case may be,
(subject to official notice of issuance) and, so long as any Buyer owns any of
the Securities, shall maintain, so long as any other shares of Common Stock
shall be so listed or quoted, as the case may be, such listing or quotation, as
the case may be, of all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Notes or exercise of the Warrants. The Company
will obtain and, so long as any Buyer owns any of the Securities, maintain the
listing or quotation, as the case may be, and trading of its Common Stock on the
OTCBB or any equivalent replacement exchange, the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from the OTCBB and any other exchanges
or quotation systems on which the Common Stock is then listed or quoted, as the
case may be, regarding the continued eligibility of the Common Stock for listing
or quotation, as the case may be, on such exchanges and quotation systems.

                  j. Corporate Existence. So long as a Buyer beneficially owns
any Notes or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.

                                       16
<PAGE>

                  k. No Integration. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.

                  l. Subsequent Investment. The Company and the Buyers agree
that, upon the filing by the Company of the Registration Statement to be filed
pursuant to the Registration Rights Agreement (the "Filing Date"), the Buyers
shall purchase additional Notes (the "Filing Notes") in the aggregate principal
amount of Six Hundred Thousand Dollars ($600,000) and additional warrants (the
"Filing Warrants") to purchase an aggregate of 642,858 shares of Common Stock,
for an aggregate purchase price of Six Hundred Thousand Dollars ($600,000), with
the closing of such purchase to occur within five (5) days of the Filing Date;
provided, however, that the obligation of each Buyer to purchase the Filing
Notes and the Filing Warrants is subject to the satisfaction, at or before the
closing of such purchase and sale, of the conditions set forth in Section 7. The
Company and the Buyers further agree that, upon the declaration of effectiveness
of the Registration Statement to be filed pursuant to the Registration Rights
Agreement (the "Effective Date"), the Buyers shall purchase additional notes
(the "Effectiveness Notes" and, collectively with the Filing Notes, the
"Additional Notes") in the aggregate principal amount of Seven Hundred Thousand
Dollars ($700,000) and additional warrants (the "Effectiveness Warrants" and,
collectively with the Filing Warrants, the "Additional Warrants") to purchase an
aggregate of 750,000 shares of Common Stock, for an aggregate purchase price of
Seven Hundred Thousand Dollars ($700,000), with the closing of such purchase to
occur within five (5) days of the Effective Date; provided, however, that the
obligation of each Buyer to purchase the Additional Notes and the Additional
Warrants is subject to the satisfaction, at or before the closing of such
purchase and sale, of the conditions set forth in Section 7; and, provided,
further, that there shall not have been a Material Adverse Effect as of such
effective date. The terms of the Additional Notes and the Additional Warrants
shall be identical to the terms of the Notes and Warrants, as the case may be,
to be issued on the Closing Date. The Common Stock underlying the Additional
Notes and the Additional Warrants shall be Registrable Securities (as defined in
the Registration Rights Agreement) and shall be included in the Registration
Statement to be filed pursuant to the Registration Rights Agreement.

                  m. Key Man Insurance. The Company shall use its best efforts
to obtain, on or before five (5) business days from the date hereof, key man
life insurance on all key executive employees.

                  n. Restriction on Short Sales. The Buyers agree that, so long
as any of the Notes remain outstanding, but in no event less than two (2) years
from the date hereof, the Buyers will not enter into or effect any "short sales"
(as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or
hedging transaction which establishes a net short position with respect to the
Common Stock.

                                       17
<PAGE>

                  o. Breach of Covenants. If the Company breaches any of the
covenants set forth in this Section 4, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall pay to the
Buyers the Standard Liquidated Damages Amount, in cash or in shares of Common
Stock at the option of the Company, until such breach is cured. If the Company
elects to pay the Standard Liquidated Damages Amount in shares, such shares
shall be issued at the Conversion Price at the time of payment.

            5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the "Irrevocable Transfer Agent Instructions"). Prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act or the date on
which the Conversion Shares and Warrant Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope customary for opinions in comparable transactions, to the effect that a
public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

                                       18
<PAGE>

            6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:

                  a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.

                  b. The applicable Buyer shall have delivered the Purchase
Price in accordance with Section 1(b) above.

                  c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.

                  d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

            7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:

                  a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.

                  b. The Company shall have delivered to such Buyer duly
executed Notes (in such denominations as the Buyer shall request) and Warrants
in accordance with Section 1(b) above.

                  c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.

                  d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.

                                       19
<PAGE>

                  e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                  f. No event shall have occurred which could reasonably be
expected to have a Material Adverse Effect on the Company.

                  g. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.

                  h. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.

                  i. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.

            8. GOVERNING LAW; MISCELLANEOUS.

                  a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.

                                       20
<PAGE>

                  b. Counterparts; Signatures by Facsimile. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

                  c. Headings. The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.

                  d. Severability. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.

                  e. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.

                  f. Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:

                                       21
<PAGE>

                           If to the Company:

                           Sew Cal Logo, Inc.
                           207 W. 138th Street
                           Los Angeles, CA 90061
                           Attention: Chief Executive Officer
                           Telephone:  (310) 352-3300
                           Facsimile:  866-820-6476

                           With a copy to:

                           David L. Kagel, Esq.
                           1801 Century Park East, 25th Floor
                           Los Angeles, CA 90067
                           Telephone:  (310) 553-9009
                           Facsimile:
         If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.

                           With copy to:

                                    Ballard Spahr Andrews & Ingersoll, LLP
                                    1735 Market Street
                                    51st Floor
                                    Philadelphia, Pennsylvania  19103
                                    Attention: Gerald J. Guarcini, Esq.
                                    Telephone: 215-864-8625
                                    Facsimile: 215-864-8999

         Each party shall provide notice to the other party of any change in
address.

                  g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.

                  h. Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

                                       22
<PAGE>

                  i. Survival. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.

                  j. Publicity. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).

                  k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                  l. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

                  m. Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.

                                       23
<PAGE>

         IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.

SEW CAL LOGO, INC.

s/s Richard Songer
Richard L. Songer
President

AJW PARTNERS, LLC
By:  SMS Group, LLC

s/s Corey S. Ribotsky
Corey S. Ribotsky
Manager

RESIDENCE:  Delaware

ADDRESS:  1044 Northern Boulevard
          Suite 302
          Roslyn, New York 11576
          Facsimile: (516) 739-7115
          Telephone: (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Notes:                              $________
    Number of Warrants:                                                ________
    Aggregate Purchase Price:                                         $________

                                       24
<PAGE>

AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC

s/s Corey S. Ribotsky
Corey S. Ribotsky
Manager

RESIDENCE:  Cayman Islands

ADDRESS:  AJW Offshore, Ltd.
          P.O. Box 32021 SMB
          Grand Cayman, Cayman Island, B.W.I.

AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Notes:                               $________
    Number of Warrants:                                                 ________
    Aggregate Purchase Price:                                          $________

                                       25
<PAGE>

AJW QUALIFIED PARTNERS, LLC
By:  AJW Manager, LLC

s/s Corey S. Ribotsky
Corey S. Ribotsky
Manager

RESIDENCE:  New York

ADDRESS:  1044 Northern Boulevard
          Suite 302
          Roslyn, New York 11576
          Facsimile:  (516) 739-7115
          Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Notes:                              $________
    Number of Warrants:                                                ________
    Aggregate Purchase Price:                                         $________

                                       26
<PAGE>

NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By:  First Street Manager II, LLP

s/s Corey S. Ribotsky
Corey S. Ribotsky
Manager

RESIDENCE:  New York

ADDRESS:  1044 Northern Boulevard
          Suite 302
          Roslyn, New York 11576
          Facsimile: (516) 739-7115
          Telephone: (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

    Aggregate Principal Amount of Notes:                               $_______
    Number of Warrants:                                                 _______
    Aggregate Purchase Price:                                          $_______

                                       27

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00098-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00098-of-00352.parquet"}]]