Exhibit 10.35
 

 

NATIONAL HOLDINGS CORPORTATION
 
SECURITIES PURCHASE AGREEMENT
 
DATED AS OF
 
JULY 12, 2010
 
with respect to
 
CONVERSION OF
 
5% CONVERTIBLE SUBORDINATED PROMISSORY NOTES
 
INTO
 
CLASS C PREFERED STOCK AND UNIT WARRANTS
 

 

 
 

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

 
 
SECURITIES PURCHASE AGREEMENT
 
This SECURITES PURCHASE AGREEMENT (this “Agreement”), dated as of July 12, 2010,
is entered into by and among National Holdings Corporation, a Delaware
corporation (the “Company”), and the individuals and entities listed on Exhibit
A hereto under the heading “Purchasers” (the “Purchasers”) who become parties to
this Agreement by executing and delivering (i) a financing signature page in the
form attached hereto as Exhibit B (the “Financing Signature Page”) and (ii) a
notice of conversion in the form attached to the Notes (as hereinafter defined)
(the “Notice of Conversion”).
 
WHEREAS, pursuant to that certain Note Purchase Agreement dated as of June 4,
2010 by and among the Company and the Purchasers (the “NPA”), the Company issued
to the Purchasers an aggregate of $1,700,000 principal amount of 5% Convertible
Subordinated Promissory Notes (the “Notes”); and
 
WHEREAS, as evidenced by the execution and delivery of the Notice of Conversion,
the Purchasers desire to convert the entire principal amount and accrued
interest of their Notes into units (“Units”) comprised of (a) an aggregate of
34,167 shares of a newly created class of Series C Preferred Stock (the “Series
C Preferred Stock”) convertible into shares of the Company’s common stock, $0.02
par value per share (the “Common Stock”) and (b) warrants exercisable for up to
3,416,692 shares of Common Stock (the “Unit Warrant”).
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
 
1. Authorization; Sale of Units.
 
1.1 Authorization.  The Company has, or before the Closing (as defined in
Section 2.2) will have, duly authorized the sale and issuance, pursuant to the
terms of this Agreement, of the Units.
 
1.2 Sale of Units.  Subject to the terms and conditions of this Agreement, at
the Closing, the Company will sell and each of the Purchasers will purchase,
severally and not jointly, the Units in the denominations set forth on Exhibit A
attached hereto.  The rights, designations and privileges of the Series C
Preferred Stock are set forth in the certificate of designations (“Series C
Certificate of Designations”), a true and correct copy of which is attached
hereto as Exhibit C.  The form of the Unit Warrant is attached hereto as Exhibit
D.
 
2. Purchase Price; Closing.
 
2.1           Payment of the Purchase Price.  The purchase price (the “Purchase
Price”) shall be evidenced by the delivery of (i) the executed Notice of
Conversion and (ii) the Notes marked ‘cancelled.’

2.2           The Closing.  Subject to the terms and conditions of this
Agreement, the initial closing (the “Closing”) of the sale and purchase of Notes
under this Agreement shall take place at the offices of Littman Krooks LLP, 655
Third Avenue, New York, New York 10017 (or remotely via the exchange of
documents and signatures) on the date of this Agreement (the “Closing
Date”).  At the Closing:
 
 
 

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

 
 
(a) the Company shall deliver to each of the Purchasers, such number of shares
of Series C Preferred Stock and Unit Warrants set forth opposite such
Purchaser’s name on Exhibit A attached hereto; and
 
(b) each Purchaser shall delivered his/her/its Notice of Conversion and Note for
cancellation.
 
3. Representations of the Company.  To induce the Purchasers to enter into this
Agreement and to purchase the Units, the Company hereby warrants, represents and
covenants to the Purchasers as set forth below in this Section 3.  Except as (i)
set forth in the SEC Documents (as defined below) filed by the Company with the
Securities and Exchange Commission (the “SEC”) or (ii) previously disclosed to
the Purchasers by the Company via written due diligence materials or emails or
similar written communications, the Company represents and warrants to the
Purchasers that as of the Closing Date:
 
3.1 Due Organization and Qualification.  Each of the Company and its
Subsidiaries (which for purposes of this Agreement is defined as the
subsidiaries of the Company listed on Exhibit 21 to the Company’s Annual Report
on Form 10-K for the fiscal year ended September 30, 2009) is an entity duly
organized and validly existing and in good standing under the laws of the
jurisdiction in which it is formed, and has the requisite power and
authorization to own its properties and to carry on its business as now being
conducted and as presently proposed to be conducted.  Each of the Company and
its Subsidiaries is duly qualified as a foreign entity to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect.  As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on (i) the business,
properties, assets, liabilities, operations (including results thereof),
condition (financial or otherwise) or prospects (to the extent disclosed in the
SEC Documents) of the Company or any Subsidiary, either individually or taken as
a whole, (ii) the transactions contemplated hereby or (iii) the authority or
ability of the Company to perform any of its obligations hereunder.  Other than
the Subsidiaries, the Company owns no interest, directly or indirectly, in any
corporation, partnership, joint venture, limited liability company or other
entity.
 
3.2 Power and Authority.  The Company has the requisite corporate power and
authority to execute and deliver this Agreement and the Units and to perform its
obligations hereunder and thereunder.  The execution, delivery and performance
of this Agreement have been duly authorized by all necessary corporate action on
the part of Company.  This Agreement has been duly executed and delivered by the
Company and is the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, moratorium, insolvency, reorganization
or other similar laws now or hereafter in effect generally affecting the
enforcement of creditors’ rights, specific performance, injunctive or other
equitable remedies.
 
 
2

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

 
 
3.3 Valid Issuance.  The Series C Preferred Stock, the shares of Common Stock
issuable upon conversion of the Series C Preferred Stock (“Conversion Shares”)
and the shares of Common Stock issuable upon exercise of the Unit Warrants
(“Warrant Shares”) have been duly and validly authorized.  Upon conversion of
the Notes, the Series C Preferred Stock will be validly issued, fully paid and
non-assessable, and shall be free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth herein or imposed by
applicable securities laws and except for those created by the Purchaser.  Upon
due conversion of the Series C Preferred Stock, the Conversion Shares will be
validly issued, fully paid and non-assessable, and shall be free and clear of
all encumbrances and restrictions, except for restrictions on transfer set forth
herein or imposed by applicable securities laws and except for permitted
encumbrances that may be created by the Purchaser.  Upon the due exercise of the
Unit Warrants, the Warrant Shares will be validly issued, fully paid and
non-assessable, and shall be free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth herein or imposed by
applicable securities laws and except for permitted encumbrances that may be
created by the Purchaser.
 
3.4 Brokers. Neither the Company nor any of Company’s officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement and no fee is or will be due and
owing to any broker or finder in connection with the transactions contemplated
by this Agreement.
 
3.5 Private Placement. Assuming the accuracy of the Purchaser representations
and warranties set forth in Section 4 hereof, no registration under the
Securities Act of 1933, as amended (“Securities Act”) is required for the offer
and sale of the Units by the Company.
 
3.6 Intentionally Deleted.
 
3.7 No Conflict.  The execution, delivery and performance of this Agreement and
the Units by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby does not and will not (i) result in a violation
of the Company’s certificate of incorporation (including, without limitation,
any certificates of designations contained therein) or other organizational
documents of the Company or any of its Subsidiaries, any capital stock of the
Company, or the Company’s or any Subsidiaries Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or 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 (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, federal and state securities laws and
regulations and the rules and regulations of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), and including all applicable federal laws, rules and
regulations) 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, in the case of clause (ii) or (iii) above, to the extent such
violations do not or could not reasonably be expected to have a Material Adverse
Effect.
 
 
3

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

 
 
3.8 Consents.  Neither the Company nor any Subsidiary is required to obtain any
consent from, authorization or order of, or make any filing or registration with
any court, arbitrational tribunal, administrative agency or commission or other
governmental or self regulatory authority or agency (including, without
limitation, FINRA and the SEC) (each of the foregoing is hereafter referred to
as a “Governmental Entity”) or any other person or entity in order for it to
execute, deliver or perform any of its obligations under, or contemplated by,
this Agreement, in each case, in accordance with the terms hereof or thereof,
except (i) a Rule 5122 Filing with FINRA, (ii) a Form D with the SEC and (iii)
blue sky filings in various states.  All consents, authorizations, orders,
filings and registrations which the Company is required to obtain at or prior to
the Closing have been obtained or effected on or prior to the Closing Date, and
neither the Company nor any of its Subsidiaries are aware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings contemplated hereby, except to the
extent failure to obtain such consents do not or could not reasonably be
expected to have a Material Adverse Effect.
 
3.9 No Integrated Offering.  None of the Company, its Subsidiaries or any of
their affiliates, nor any person or entity acting on their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would cause the offer and sale of
the Units to require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of FINRA.  None of the Company, its Subsidiaries,
their affiliates nor any person or entity acting on their behalf has taken nor
will they take any action or steps that would cause the offer and sale of any of
the Units to be integrated with other offerings of securities of the Company by
the Company or any other person or entity.  The offer and sale of the Units is
not and will not be integrated with other offerings of securities of the Company
by the Company or any other person or entity.
 
3.10 Application of Takeover Protections. Other than the staggered board
provisions contained in the Company’s Certificate of Incorporation and power and
authority to issue ‘blank check’ preferred stock, the Company and its board of
directors (the “Board”) have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including, without limitation, any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Certificate of Incorporation, Bylaws or other organizational
documents or the laws of the jurisdiction of its incorporation or otherwise
which is or could become applicable to any Purchaser as a result of the
transactions contemplated by this Agreement.
 
3.11 SEC Documents; Financial Statements. During the two (2) years prior to the
date hereof, 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 “Exchange Act”) (all of the foregoing filed prior to the date hereof and
all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the “SEC Documents”).  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC 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 the light of the circumstances under
which they were made, not misleading.  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 as in effect as
of the time of filing.  Such financial statements have been prepared in
accordance with 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 exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments which
will not be material, either individually or in the aggregate).
 
 
4

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

 
 
3.12 Absence of Certain Changes.  Since the date of the Company’s most recent
audited financial statements contained in a Form 10-K, there has been no
material adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results thereof),
condition (financial or otherwise) or prospects (to the extent disclosed in the
SEC Documents) of the Company or any of its Subsidiaries.  Except as set forth
in the SEC Documents, since the date of the Company’s most recent audited
financial statements contained in a Form 10-K, neither the Company nor any of
its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business or
(iii) made any material capital expenditures, individually or in the
aggregate.  Neither the Company nor any of its Subsidiaries has taken any steps
to seek protection pursuant to any law or statute relating to bankruptcy,
insolvency, reorganization, receivership, liquidation or winding up, nor does
the Company or any Subsidiary have any actual knowledge or reason to believe
that any of their respective creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so.  The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing will not be,
Insolvent (as defined below).  For purposes of this Section 3.12, “Insolvent”
means, (a) with respect to the Company and its Subsidiaries, on a consolidated
basis, (i) the Company and its Subsidiaries are unable to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (ii) the Company and its Subsidiaries
intend to incur or believe that they will incur debts that would be beyond their
ability to pay as such debts mature; and (b) with respect to the Company and
each Subsidiary, individually, (i) the Company or such Subsidiary (as the case
may be) is unable to pay its respective debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured or (ii) the Company or such Subsidiary (as the case may be) intends to
incur or believes that it will incur debts that would be beyond its respective
ability to pay as such debts mature.  Neither the Company nor any of its
Subsidiaries has engaged in any business or in any transaction, and is not about
to engage in any business or in any transaction, for which the Company’s or such
Subsidiary’s remaining assets constitute unreasonably small capital.
 
3.13 No Undisclosed Events, Liabilities, Developments or Circumstances.  No
event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company, any of its
Subsidiaries or any of their respective businesses, properties, liabilities,
prospects (to the extent disclosed in the SEC Documents), operations (including
results thereof) or condition (financial or otherwise) that (i) would be
required to be disclosed by the Company under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to an issuance
and sale by the Company of its securities and which has not been publicly
announced, (ii) could have a material adverse effect on any Purchaser’s
investment hereunder or (iii) could have a Material Adverse Effect.
 
 
5

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

 
 
3.14 Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in material violation of any term of or in material default
under its Certificate of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred stock of the
Company or any of its Subsidiaries or Bylaws or their organizational charter,
certificate of formation or certificate of incorporation or bylaws,
respectively. Neither the Company nor any of its Subsidiaries is in violation of
any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries, and neither the Company
nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which could not,
individually or in the aggregate, have a Material Adverse Effect.  The Company
and each of its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities(including, without
limitation, FINRA) necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit, which if so initiated and adjudicated against the
Company would be reasonably expected to have a Material Adverse Effect.
 
3.15 Foreign Corrupt Practices.  Neither the Company nor any of its Subsidiaries
nor any director, officer, agent, employee or other person or entity acting on
behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
 
3.16 Sarbanes-Oxley Act. The Company and each Subsidiary is in compliance with
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and all applicable rules and regulations promulgated by
the SEC thereunder that are effective as of the date hereof.
 
3.17 Transactions With Affiliates.  Except with respect to Purchasers hereunder
that are principal shareholders, officers, directors or employees of the
Company, none of the officers, directors or employees of the Company or any of
its Subsidiaries is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for ordinary course services as employees,
officers or 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
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other person or entity
in which any such officer, director or employee has a substantial interest or is
an employee, officer, director, trustee or partner.
 
 
6

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

 
 
3.18 Capitalization.  The authorized and outstanding equity capitalization of
the Company (including all options, warrants and other convertible or other
securities of the Company or any Subsidiary) are as disclosed in the SEC
Documents.
 
3.19 Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation by any person or entity or before any Governmental Entity pending
or, to the knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries or their respective officers or directors which is
outside of the ordinary course of business or individually or in the aggregate
has or would reasonable be expected to have a Material Adverse Effect.  There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the SEC or FINRA involving the Company, any
of its Subsidiaries or any current or former director or officer of the Company
or any of its Subsidiaries.
 
3.20 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 been refused any
insurance coverage sought or applied for, and neither the Company nor any such
Subsidiary has any reason to believe that it will be unable 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.
 
3.21 Subsidiary Rights.  The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
 
3.22 Tax Status.  Each of the Company and its Subsidiaries (i) has timely made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has timely 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 (iii)
has set aside on its books provision 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 and its Subsidiaries know of no basis for any such claim.
 
 
7

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

 
 
3.23 Internal Accounting and Disclosure Controls.  Each of the Company and its
Subsidiaries maintains internal control over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act) that is effective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, including 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 and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) under the Exchange Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is accumulated and
communicated to the Company’s management, including its principal executive
officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required disclosure.  Neither
the Company nor any of its Subsidiaries has received any notice or
correspondence from any accountant or other person or entity relating to any
potential material weakness or significant deficiency in any part of the
internal controls over financial reporting of the Company or any of its
Subsidiaries.
 
3.24 Off Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise could be reasonably likely to have a Material Adverse Effect.
 
3.25 Investment Company Status.  The Company is not, and upon consummation of
the sale of the Units will not be, an “investment company,” an affiliate of an
“investment company,” a company controlled by an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company” as such terms are defined in the Investment Company Act of
1940, as amended.
 
3.26 Money Laundering.  The Company and its Subsidiaries are in compliance with,
and have not previously violated, the USA Patriot Act of 2001 and all other
applicable U.S. and non-U.S. anti-money laundering laws and regulations,
including, but not limited to, the laws, regulations and Executive Orders and
sanctions programs administered by the U.S. Office of Foreign Assets Control,
including, but not limited, to (i) Executive Order 13224 of September 23, 2001
entitled, “Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001));
and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.
 
 
8

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

 
 
3.27 Management. During the past five year period, no current director or
executive officer of the Company or any of its Subsidiaries has been the subject
of:
 
(a)           a petition under bankruptcy laws or any other insolvency or
moratorium law or the appointment by a court of a receiver, fiscal agent or
similar officer for such person or entity, or any partnership in which such
person was a general partner at or within two years before the filing of such
petition or such appointment, or any corporation or business association of
which such person was an executive officer at or within two years before the
time of the filing of such petition or such appointment;
 
(b)           a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations that do not relate to
driving while intoxicated or driving under the influence);
 
(c)           any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
 
(i)           Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States Commodity
Futures Trading Commission or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
 
(ii)           Engaging in any type of business practice; or
 
(iii)           Engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of securities
laws or commodities laws;
 
(d)           any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any authority barring, suspending or otherwise limiting
for more than 60 days the right of any such person to engage in any activity
described in the preceding sub paragraph, or to be associated with persons
engaged in any such activity;
 
(e)           a finding by a court of competent jurisdiction in a civil action
or by the SEC or other authority to have violated any securities law, regulation
or decree and the judgment in such civil action or finding by the SEC or any
other authority has not been subsequently reversed, suspended or vacated; or
 
(f)           a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
 
 
9

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

 
 
4.           Representations of the Purchasers.  Each of the Purchasers
severally represents and warrants to the Company as follows:

4.1 Existence and Power.  The Purchaser (a) is duly organized and validly
existing and (b) has the requisite power and authority to execute, deliver and
perform its obligations under this Agreement.  In the event the Purchaser is an
individual, such Purchaser has the legal capacity to execute, deliver and
perform the obligations under this Agreement.
 
4.2 Authorization; No Contravention.  The execution delivery and performance by
each Purchaser of this Agreement and the transactions contemplated hereby, (a)
have been duly authorized by all necessary action, (b) do not contravene the
terms of such Purchaser’s organizational documents, or any amendment thereof,
and (c) do not violate, conflict with or result in any breach or contravention
of, or the creation of any lien under, any material contractual obligation of
such Purchaser or any requirement of law applicable to such Purchaser, and (d)
do not violate any orders of any Governmental Entity against, or binding upon,
such Purchaser.
 
4.3 Disclosure of Information.  The Purchaser acknowledges that it has received
all the information that it has requested relating to the Company and the
purchase of the Units.  The Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Units.
 
4.4 Binding Effect.  This Agreement has been duly executed and delivered by each
Purchaser and constitute the legal, valid and binding obligations of such
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting generally the enforcement
of creditors’ rights and subject to a court’s discretionary authority with
respect to granting a decree ordering specific performance or other equitable
remedies.
 
4.5 Purchase for Own Account.  The Units hereby acquired by each Purchaser
pursuant to this Agreement are being acquired for such Purchaser’s own account
and with no intention of distributing or reselling such securities in any
transaction that would be in violation of the securities laws of the United
States of America or any state, without prejudice.  If such Purchaser should in
the future decide to dispose of any of such Units, such Purchaser understands
and agrees that it may do so only in compliance with the Securities Act and
applicable state securities laws, as then in effect.  Each Purchaser agrees to
the imprinting, so long as required by law, of legends on certificates
representing the Series C Preferred Stock and Units Warrants, and, upon
conversion, on the Conversion Shares and Warrant Shares, as follows:
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF
ANY STATE.  THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.
 
 
10

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

 
 
4.6 Restricted Securities.  Each Purchaser understands the Units, the Series C
Preferred Stocks, Unit Warrants and the shares of Common Stock underlying the
Series C Preferred Stock and Unit Warrants will not be registered at the time of
their issuance under the Securities Act since they are being acquired from the
Company in a transaction exempt from the registration requirements of the
Securities Act and that the reliance of the Company on such exemption is
predicated in part on the Purchaser’s representations set forth herein.
 
4.7 Investment Representations.  Each Purchaser (i) has such knowledge and
experience in financial and business affairs that it is capable of evaluating
the merits and risks involved in purchasing the Units, (ii) is able to bear the
economic risks involving in purchasing the Units, (iii) is an “accredited
investor” as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act and (iv) has had the opportunity to ask questions of, and receive
answers from, Company and persons acting on Company’s behalf concerning
Company’s business, management, and financial affairs and the terms and
conditions of the Units.
 
4.8 Brokers.  There is no broker, investment banker, financial advisor, finder
or other person who has been retained by or is authorized to act on behalf of
the Purchaser who might be entitled to any fee or commission for which the
Company will be liable in connection with the execution of this Agreement and
the consummation of the transactions contemplated hereby.
 
4.9 Short Sales and Confidentiality Prior to the Date hereof.  Other than the
transaction contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any disposition, including short
sales, in the securities of the Company during the period commencing from the
time that the Purchaser first received an indication of interest (written or
oral) from the Company or any other person setting forth the material terms of
the transactions contemplated hereunder until the date hereof.  Other than to
other persons party to this Agreement, the Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
 
5. Conditions of Closing of the Purchasers.  The obligations of the Purchasers
to purchase their respective Units and convert their Notes for the Units being
purchased at the Closing are subject to the fulfillment at or before the Closing
of the following conditions precedent, any one or more of which may be waived in
whole or in part by the Purchasers, which waiver shall be at the sole discretion
of such Purchasers:

5.1 Representations and Warranties.  The representations and warranties made by
the Company in this Agreement shall have been true and correct in all respects
as of the date when made and as of each Closing Date, except for the
representations and warranties that are expressly made as of a particular date
(which shall remain true and correct as of such date).
 
 
11

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

 
 
5.2 Agreements.  All agreements, and conditions contained in this Agreement to
be performed or complied with by the Company prior to the Closing shall have
been performed or complied with by the Company prior to or at the Closing.
 
5.3 Consents, Etc.  The Company shall have secured and delivered to the
Purchasers all consents and authorizations that shall be necessary or required
lawfully to consummate this Agreement and to issue the Units to be purchased by
each Purchaser at the Closing.
 
5.4 Delivery of Documents.  All of the documents to be delivered by the Company
pursuant to Section 2.2 shall be in a form and substance reasonably satisfactory
to the Purchasers and their counsel, and shall have been executed and delivered
to the Purchasers by each of the other parties thereto.
 
5.5 Proceedings and Documents.  All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be in a form and
substance reasonably satisfactory to the Purchasers and their counsel, and the
Purchasers and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as the Purchasers or their
counsel may reasonably request.
 
5.6 Certificate of Designation.  The Certificate of Designation shall have been
filed with and received by the Secretary of State of the State of Delaware.
 
5.7 Broker-Dealer Matters.  Neither the Company nor any Subsidiary shall have
received any oral or written notice from the SEC, FINRA or any state securities
regulatory authority of any pending or threatened action or proceeding relating
to the revocation or modification of any registration or qualification of the
Company’s broker-dealer Subsidiaries as broker-dealers.
 
6. Conditions of Closing of the Company.  The Company’s obligations to sell and
issue the Units at the Closing are subject to the fulfillment at or before the
Closing of the following conditions, which conditions may be waived in whole or
in part by the Company, and which waiver shall be at the sole discretion of the
Company:

6.1 Representations and Warranties.  The representations and warranties made by
the Purchasers in this Agreement shall have been true and correct in all
respects as of the date when made and as of each Closing Date, except for the
representations and warranties that are expressly made as of a particular date
(which shall remain true and correct as of such date).
 
6.2 Agreements.  All agreements, and conditions contained in this Agreement to
be performed or complied with by the Purchasers prior to the Closing shall have
been performed or complied with by the Company prior to or at the Closing.
 
6.3 Payment of Purchase Price.  The Purchasers shall have tendered their
cancelled Notes and delivered their Notice of Conversion in exchange for the
Units being issued hereunder in accordance with Section 2.2.
 
 
12

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

 
 
7. Miscellaneous.

7.1 Idemnification.
 
(a) Subject to the provisions of Section 7.6 below, in consideration of each
Purchaser’s execution and delivery of this Agreement and acquiring the Units and
in addition to all of the Company’s other obligations hereunder and under the
Units, the Company shall defend, protect, indemnify and hold harmless each
Purchaser and all of their respective stockholders, partners, members, officers,
directors, employees, direct or indirect investors, heirs, successors and
assigns, and any agents or other representatives of any of the foregoing
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of this Agreement or the Units or (ii) the status of
such Purchaser as an investor in the Company pursuant to the transactions
contemplated by this Agreement and the Units, except to the extent that the
Purchaser breached any of its representations and warranties contained in
Section 4 hereof.  To the extent that the foregoing undertaking by the Company
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
 
(b) Promptly after receipt by an Indemnitee under this Section 7.1 of notice of
the commencement of any action or proceeding (including any governmental action
or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a
claim in respect thereof is to be made against the Company under this Section
7.1, deliver to the Company a written notice of the commencement thereof, and
the Company shall have the right to participate in, and, to the extent the
Company so desires, to assume control of the defense thereof with counsel
mutually satisfactory to the Company and the Indemnitee; provided, however, that
an Indemnitee shall have the right to retain its own counsel with the fees and
expenses of such counsel to be paid by the Company if: (i) the Company has
agreed in writing to pay such fees and expenses; (ii) the Company shall have
failed promptly to assume the defense of such Indemnified Liability and to
employ counsel reasonably satisfactory to such Indemnitee in any such
Indemnified Liability; or (iii) the named parties to any such Indemnified
Liability (including any impleaded parties) include both such Indemnitee and the
Company, and such Indemnitee shall have been advised by counsel that a conflict
of interest is likely to exist if the same counsel were to represent such
Indemnitee and the Company (in which case, if such Indemnitee notifies the
Company in writing that it elects to employ separate counsel at the expense of
the Company, then the Company shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Company), provided
further, that in the case of clause (iii) above the Company shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for such Indemnitee.  The Indemnitee shall reasonably cooperate
with the Company in connection with any negotiation or defense of any such
action or Indemnified Liability by the Company and shall furnish to the Company
all information reasonably available to the Indemnitee which relates to such
action or Indemnified Liability.  The Company shall keep the Indemnitee
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto.  The Company shall not be liable
for any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the Company shall not unreasonably
withhold, delay or condition its consent.  The Company shall not, without the
prior written consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liability or litigation, and such settlement shall not include any admission as
to fault on the part of the Indemnitee.  Following indemnification as provided
for hereunder, the Company shall be subrogated to all rights of the Indemnitee
with respect to all third parties, firms or entities relating to the matter for
which indemnification has been made.  The failure to deliver written notice to
the Company within a reasonable time of the commencement of any such action
shall not relieve the Company of any liability to the Indemnitee under this 7.1,
except to the extent that the Company is materially and adversely prejudiced in
its ability to defend such action.
 
 
13

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

 
 
(c) The indemnification required by this Section 7.1 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or Indemnified Liabilities are incurred.
 
(d) The indemnity agreement contained herein shall be in addition to (i) any
cause of action or similar right of the Indemnitee against the Company or
others, and (ii) any liabilities the Company may be subject to pursuant to the
law.
 
7.2 Intentionally Omitted.
 
7.3 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.
 
7.4 Remedies.  Each Purchaser shall have all rights and remedies applicable to
it which are set forth in this Agreement and in the Units and all rights and
remedies which such parties have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law.  The Company acknowledges and agrees that in the event that it fails to
perform, observe, or discharge any or all of its obligations under this
Agreement or the Units, any remedy at law may prove to be inadequate relief to
the Purchasers. The Company therefore agrees that the Purchasers shall be
entitled to seek specific performance and/or temporary, preliminary and
permanent injunctive or other equitable relief from any court of competent
jurisdiction in any such case without the necessity of proving actual damages
and without posting a bond or other security.
 
 
14

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

 
 
7.5 Successors and Assigns.  This Agreement, and the rights and obligations of
each Purchaser hereunder, may be assigned by such Purchaser to (a) any person or
entity to which the Units are transferred by such Purchaser, or (b) to any
Affiliated Party (as hereinafter defined), and, in each case, such transferee
shall be deemed a “Purchaser” for purposes of this Agreement; provided that such
assignment of rights shall be contingent upon the transferee providing a written
instrument to the Company notifying the Company of such transfer and assignment
and agreeing in writing to be bound by the terms of this Agreement.  The Company
may not assign its rights under this Agreement.  For purposes of this Agreement,
“Affiliated Party” shall mean, with respect to any Purchaser, any person or
entity which, directly or indirectly, controls, is controlled by or is under
common control with such Purchaser, including, without limitation, any general
partner, manager, officer or director of such Purchaser and any venture capital
fund now or hereafter existing which is controlled by one or more general
partners of, or shares the same management company as, such Purchaser.
 
7.6 Survival of Representations and Warranties.  All of the representations,
warranties, covenants and agreements made herein shall survive the execution and
delivery of this Agreement for one (1) year from the Closing Date.  The
Purchasers are entitled to rely, and the parties hereby acknowledge that the
Purchasers have so relied, upon the truth, accuracy and completeness of each of
the representations and warranties of the Company contained herein, irrespective
of any independent investigation made by Purchasers.  The Company is entitled to
rely, and the parties hereby acknowledge that the Company has so relied, upon
the truth, accuracy and completeness of each of the representations and
warranties of the Purchasers contained herein, irrespective of any independent
investigation made by the Company.
 
7.7 Expenses.  Each party hereto shall pay its own expenses relating to the
transactions contemplated by this Agreement, including, without limitation, the
fees and expenses of their respective counsel, financial advisors and
accountants; provided, however, that at the Closing, the Company shall pay or
reimburse the Purchasers for the fees and expenses of Ellenoff Grossman & Schole
LLP in the amount of up to $25,000.
 
7.8 Severability.  The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
 
7.9 Governing Law; Venue.  This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York (without reference to
the conflicts of law provisions thereof).  Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in The
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
 
 
15

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

 
 
7.10 Notices.  All notices, requests, consents, and other communications under
this Agreement shall be in writing and shall be deemed delivered (i) three
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid or (ii) one business day after being sent via a
reputable nationwide overnight courier service guaranteeing next business day
delivery or (iii) by facsimile transmission (with printed confirmation of
receipt), in each case to the intended recipient as set forth below:
 
(a)           If to the Company, at 120 Broadway, 27th Floor, New York,
NY  10271, Attention: Mark Goldwasser, CEO, Fax Number: (212) 417-8159, or at
such other address as may have been furnished in writing by the Company to the
other parties hereto, with a copy (which shall not constitute notice) to Littman
Krooks LLP, 655 Third Avenue, New York, New York 10017, Attention: Mitchell C.
Littman, Esq., Fax Number: (212) 490-2990.
 
(b)           If to a Purchaser, at its address set forth on Exhibit A, or at
such other address as may have been furnished in writing by such Purchaser to
the other parties hereto, with a copy (which shall not constitute notice) to
Ellenoff Grossman & Schole LLP, 150 East 42nd Street, New York, NY 10017,
Attention: Douglas S. Ellenoff, Esq. Fax Number: (212) 370-7889.
 
(c)           Any party may give any notice, request, consent or other
communication under this Agreement using commercially reasonable means
(including, without limitation, personal delivery, messenger service, telecopy,
first class mail or electronic mail), but no such notice, request, consent or
other communication shall be deemed to have been duly given unless and until it
is actually received by the party for whom it is intended.  Any party may change
the address to which notices, requests, consents or other communications
hereunder are to be delivered by giving the other parties notice in the manner
set forth in this Section.
 
7.11 Complete Agreement; Termination of NPA.  This Agreement (including its
exhibits and schedules and any other agreement or instrument contemplated
hereby) constitutes the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
and understandings relating to such subject matter.  This Agreement supersedes
and replaces the NPA which is hereby declared terminated as of the date hereof
and of no further force and effect; provided, however, that notwithstanding the
foregoing, the provisions of Sections 5.6, 5.7, 5.8 and 5.9 of the NPA (the
“Surviving Provisions”) shall survive the termination of the NPA, remain in full
force and effect and shall be incorporated herein by reference as operative
provisions of this Agreement.  It is agreed that the Lead Investor (as that term
is defined in the NPA) shall have the right and power to enforce the Surviving
Provisions on behalf of all of the Purchasers.
 
 
16

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

 
 
7.12 Co-Sale Rights.
 
(a) Certain Definitions:

“Counter Party” shall mean a bona fide third party engaging in a Triggering
Transaction with the Company during the Participation Period.
 
“Conversion Shares” shall mean such number of shares of Common Stock as shall be
determined by dividing the stated value per share of Series C Preferred Stock by
the conversion price of Series C Preferred Stock per share, then in effect.
 
“Makewhole Consideration” shall mean the product of (i) the Makewhole Price and
(ii) the Conversion Shares.
 
 “Makewhole Price” shall mean (i) during the ninety day period following the
date of this Agreement (the “First Period”) $0.75 per Conversion Share; (ii)
during the ninety day period following the First Period (the “Second Period”)
$1.00 per Conversion Share; (iii) during the ninety day period following the
Second Period (the “Third Period”) $1.25 per Conversion Share; and (iv) during
the period following the Third Period until the expiration of the Participation
Period (the “Final Period”) $1.50 per Conversion Share.
 
“Participation Period” shall mean the period commencing from the date of this
Agreement and expiring on March 31, 2011.
 
“Triggering Transaction” shall mean a bona fide equity or equity linked capital
raising transaction by the Company with a Counter Party in which $3 million or
more is invested into the Company, either in one or a series of related
transactions.
 
(b) If at any time during the Participation Period the Company seeks to
effectuate a Triggering Transaction, then no less than twenty (20) days prior to
the anticipated date of the closing of the Triggering Transaction (the “Closing
Date”), the Company shall provide written notice to the Purchasers (a “Makewhole
Notice”).  Pursuant to the Makewhole Notice, each Purchaser shall have the right
(but not the obligation) to require the Counter Party to purchase, for cash,
all, but not less than all, of the shares of Series C Preferred Stock (or to the
extent previously converted, the Conversion Shares) then owned by the Purchaser
(the “Participation Securities”). Upon the proper delivery of the Co-Sale Notice
in accordance with subsection (c) below, all electing Purchasers shall be
obligated to sell to the Counter Party, and the Counter Party shall be obligated
to purchase from such holders, all of the Participation Securities held by such
holders in accordance with the provisions set forth in this Section 7.12 (the
“Co-Sale Right”).  The Company covenants and agrees that as a condition to the
consummation of the Triggering Transaction, the Company will require the Counter
Party to abide by the provisions of this Section 7.12.
 
(c) In order to exercise the Co-Sale Right, a participating Purchaser shall
deliver a written notice indicating such Purchaser’s election to sell the
Participation Securities (“Co-Sale Notice”) to the Company, which shall be
delivered to the Company at least five (5) days prior to the Closing Date.  Upon
receipt of such Co-Sale Notice, the Company shall promptly, but in any event
within two (2) days thereafter, deliver to the Counter Party written notice (the
“Counter Party Notice”) indicating that the Co-Sale Right has been exercised and
setting forth the Makewhole Consideration applicable to each participating
Purchaser.
 
 
17

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

 
 
(d) The purchase of the Participation Securities shall take place at a single
closing at the offices of the Company on the Closing Date; provided, however,
that in the event that a participating Purchaser shall be an Affiliate of the
Company, such closing shall take place on the later of (i) the Closing Date or
(ii) 6 months and 5 days from the date of this Agreement.  At the closing, each
holder of Participation Securities being purchased shall deliver to the Counter
Party the certificate(s) evidencing the Participation Securities, a duly
executed stock power, medallion guaranteed (if required) and an applicable
instrument acknowledging the purchase of such Participation Securities by the
Counter Party, which shall include a certification that such holder has good and
marketable title to such Participation Securities, free and clear of all liens,
claims and encumbrances and the Counter Party shall pay to each such holder the
Makewhole Consideration for such holder’s Participation Securities in cash.
 
(e) If (A) a Purchaser declines the opportunity to exercise the Co-Sale Right or
(B) a Purchaser fails to timely deliver a Co-Sale Notice to the Company, then
the Co-Sale Right with respect to such Purchaser shall irrevocably expire and be
of no further force and effect, provided, however, that if the proposed
Triggering Transaction is not consummated, then the Co-Sale Rights shall once
again be reinstated for all Purchasers during the Participation Period.
 
7.13 Amendments and Waivers.  This Agreement may be amended or terminated and
the observance of any term of this Agreement may be waived with respect to all
parties to this Agreement (either generally or in a particular instance and
either retroactively or prospectively), with the written consent of the Company
and the holders of at least 50% of the aggregate amount of Units then held by
all Purchasers (the “Requisite Holders”).  Notwithstanding the foregoing, this
Agreement may not be amended or terminated and the observance of any term
hereunder may not be waived with respect to any Purchaser without the written
consent of such Purchaser unless such amendment, termination or waiver applies
to all Purchasers in the same fashion.  The Company shall give prompt written
notice of any amendment or termination hereof or waiver hereunder to any party
hereto that did not consent in writing to such amendment, termination or
waiver.  Any amendment, termination or waiver effected in accordance with this
Section 7.13 shall be binding on all parties hereto, even if they do not execute
such consent.  No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
 
7.14 Pronouns.  Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.

7.15 Counterparts.  This Agreement may be executed in any number of counterparts
(including, in the case of the Purchasers, Financing Signature Pages), each of
which shall be deemed to be an original, and all of which shall constitute one
and the same document.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
 
 
18

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

 
 
7.16 Section Headings and References.  The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.  Any reference in this agreement to
a particular section or subsection shall refer to a section or subsection of
this Agreement, unless specified otherwise.
 
7.17  
Independent Nature of Purchasers’ Obligations and Rights

 
.  The obligations of each Purchaser are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser.  Nothing
contained herein or in any other agreement or instrument contemplated hereby,
and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed
to constitute the Purchasers as, and the Company acknowledges that the
Purchasers do not so constitute, a partnership, an association, a joint venture
or any other kind of group or entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group or entity with respect
to such obligations or the transactions contemplated hereby or thereby or any
matters, and the Company acknowledges that the Purchasers are not acting in
concert or as a group, and the Company shall not assert any such claim, with
respect to such obligations or the transactions contemplated hereby or
thereby.  The decision of each Purchaser to purchase Units has been made by such
Purchaser independently of any other Purchaser.  Each Purchaser acknowledges
that no other Purchaser has acted as agent for such Purchaser in connection with
such Purchaser making its investment hereunder and that no other Purchaser will
be acting as agent of such Purchaser in connection with monitoring such
Purchaser’s investment in the Units or enforcing its rights hereunder.  The
Company and each Purchaser confirms that each Purchaser has independently
participated with the Company in the negotiation of the transaction contemplated
hereby with the advice of its own counsel and advisors.  Each Purchaser shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or the Units, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose.  The use of a single agreement to effectuate
the purchase and sale of the Units contemplated hereby was solely in the control
of the Company, not the action or decision of any Purchaser, and was done solely
for the convenience of the Company and not because it was required or requested
to do so by any Purchaser.  It is expressly understood and agreed that each
provision contained in this Agreement and in the Units is between the Company
and a Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among the Purchasers.

[Signature Page Follows]

 
19

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

 

IN WITNESS WHEREOF, each Purchaser and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.
 
COMPANY:
 
NATIONAL HOLDINGS CORPORATION
 

By:  /S/ MARK
GOLDWASSER                                                                
        Name: Mark Goldwasser
        Title:  Chief Executive Officer

 
 

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

 

EXHIBIT A
 
LIST OF PURCHASERS AND UNITS PURCHASED
 
Name and Address
of Purchasers
 
Amount of Units
                                           

 

 
 

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

 

EXHIBIT B
 
FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
FRANK S. PLIMPTON        Name of Purchaser                     By: S/S FRANK S.
PLIMPTON             Title:       Date:       Contact Person:       Telephone
No:       Fax No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
CHRISTOPHER C. DEWEY        Name of Purchaser                     By: S/S
CHRISTOPHER C. DEWEY              Title:       Date:       Contact Person:      
Telephone No:       Fax No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
MARK KLEIN       Name of Purchaser                     By: S/S MARK KLEIN      
      Title:       Date:       Contact Person:       Telephone No:       Fax
No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
LEONARD J. SOKOLOW         Name of Purchaser                     By: S/S LEONARD
J. SOKOLOW              Title:       Date:       Contact Person:       Telephone
No:       Fax No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
STEPHEN JONES        Name of Purchaser                     By: S/S STEPHEN JONES
            Title:       Date:       Contact Person:       Telephone No:      
Fax No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
LINDEN GROWTH PARTNERS MASTER FUND       Name of Purchaser                    
By: S/S PAUL COVIELLO, MANAGER             Title:       Date:       Contact
Person:       Telephone No:       Fax No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
TELLURIDE ACQUISITION , INC.        Name of Purchaser                     By:
S/S DIANE CHILLEMI, PRESIDENT             Title:       Date:       Contact
Person:       Telephone No:       Fax No.:       Email Address:    

 
 

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

 

FINANCING SIGNATURE PAGE
 
By execution and delivery of this signature page, the undersigned hereby agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among National Holdings Corporation, a
Delaware corporation (the “Company”), and the Purchasers (as defined in the
Purchase Agreement), dated as of the Closing Date (as defined in the Purchase
Agreement), acknowledges having read the representations in the Purchase
Agreement section entitled “Representations of the Purchasers,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as a Purchaser.  The undersigned further hereby
agrees to be bound by the terms and conditions of the Purchase Agreement as a
“Purchaser” thereunder and authorizes this signature page to be attached to the
Purchase Agreement.
 
Executed, in counterpart, as of the date set forth below.
 

  PURCHASER:          
 
By:
ST. CLOUD CAPITAL PARTNERS, L.P.       Name of Purchaser                     By:
S/S ROBERT LAUTZ, MANAGING DIRECTOR              Title:       Date:      
Contact Person:       Telephone No:       Fax No.:       Email Address:    

 
 

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

 

EXHIBIT C
 
FORM OF CERTIFICATE OF DESIGNATIONS

 
 
 

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

 

 
EXHIBIT D
 
FORM OF UNIT WARRANT