EXECUTION COPY


 


SECURITIES PURCHASE AGREEMENT


 


SECURITIES PURCHASE
AGREEMENT (the "Agreement"), dated as of May 24, 2012, by and among MGT Capital Investments, Inc., a Delaware
corporation, with headquarters located at 500 Mamaroneck Avenue, Suite 204, Harrison, NY 10528 (the "Company"),
and the investors listed on the Schedule of Buyers attached hereto (individually, a "Buyer" and collectively,
the "Buyers").


 


WHEREAS:


 


A.           The
Company and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of Regulation D ("Regulation D")
as promulgated by the United States Securities and Exchange Commission (the "SEC") under the 1933 Act.


 


B.           The
Company has authorized a new series of senior secured convertible notes of the Company, in substantially the form attached hereto
as Exhibit A (the "Notes"), which Notes shall be convertible into the Company's common stock, par value
$0.001 per share (the "Common Stock") (the Notes as converted, collectively, the "Conversion Shares"),
in accordance with the terms of the Notes.


 


C.           Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate
principal amount of Notes, set forth opposite such Buyer's name in column (3) on the Schedule of Buyers attached hereto (which
aggregate principal amount of Notes for all Buyers shall be $3,500,000) and (ii) Warrants, in substantially the form attached hereto
as Exhibit B (the "Warrants"), representing the right to acquire that number of shares of Common Stock
set forth opposite such Buyer's name in column (4) on the Schedule of Buyers (as exercised, collectively, the "Warrant
Shares").


 


D.           The
Notes bear interest which, subject to certain conditions, may be paid in shares of Common Stock (the "Interest Shares").


 


E.           The
Notes will rank senior to all outstanding and future indebtedness of the Company, will be guaranteed by all direct and indirect
Subsidiaries (as defined in Section 3(a)) of the Company, currently formed or formed in the future (other than Subsidiaries organized
under the laws of a jurisdiction other than the United States, any of the states thereof or the District of Columbia (the "Foreign
Subsidiaries"), and all other Subsidiaries, the "U.S. Subsidiaries"), as evidenced by a guarantee agreement,
in form and substance satisfactory to the Required Holders (the "Guarantee Agreement"), and will be secured by
a first priority perfected security interest in all or substantially all of the current and future assets of the Company and all
direct and indirect U.S. Subsidiaries of the Company, currently formed or formed in the future, as evidenced by a pledge and security
agreement, in form and substance satisfactory to the Required Holders (as amended or modified from time to time in accordance with
its terms, the "Security Agreement" and together with the Guarantee Agreement, the "Security Documents").


 



    	 



    	 



    

 


F.           The
Notes, the Conversion Shares, the Warrants, the Warrant Shares and the Interest Shares collectively are referred to herein as the
"Securities".


 


NOW, THEREFORE,
the Company and each Buyer hereby agree as follows:


 


1.           PURCHASE
AND SALE OF NOTES AND WARRANTS.


 


(a)          Purchase
of Notes and Warrants. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing
Date (as defined in Section 1(b)), (x) a principal amount of Notes as is set forth opposite such Buyer's name in column (3) on
the Schedule of Buyers and (y) Warrants to acquire up to that number of Warrant Shares as is set forth opposite such Buyer's name
in column (4) on the Schedule of Buyers (the "Closing").


 


(b)          Closing.
The date and time of the Closing (the "Closing Date") shall be 10:00 a.m., New York City time, on the date hereof
(or such other date and time as is mutually agreed to by the Company and each Buyer) after notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6 and 7 below, at the offices of Schulte Roth & Zabel LLP, 919 Third
Avenue, New York, New York 10022.


 


(c)          Purchase
Price. The aggregate purchase price for the Notes and the Warrants to be purchased by each such Buyer at the Closing (the "Purchase
Price") shall be the amount set forth opposite each Buyer's name in column (5) of the Schedule of Buyers. Each Buyer shall
pay $1,000 for each $1,000 of principal amount of Notes and related Warrants to be purchased by such Buyer at the Closing. The
Buyers and the Company agree that the Notes and the Warrants constitute an "investment unit" for purposes of Section
1273(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). The Buyers and the Company mutually
agree that the allocation of the issue price of such investment unit between the Notes and the Warrants in accordance with Section
1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be as mutually agreed to by the parties, and neither the
Buyers nor the Company shall take any position inconsistent with such allocation in any tax return or in any judicial or administrative
proceeding in respect of taxes.


 


(d)          Form
of Payment. On the Closing Date, (i) each Buyer shall pay its Purchase Price to the Company for the Notes and the Warrants
to be issued and sold to such Buyer at the Closing (less, in the case of Hudson Bay Master Fund Ltd. ("Hudson Bay"),
the amounts withheld pursuant to Section 4(k)), by wire transfer of immediately available funds in accordance with the Company's
written wire instructions and (ii) the Company shall deliver to each Buyer the Notes (allocated in the principal amounts as
such Buyer shall request) which such Buyer is then purchasing hereunder along with the Warrants (allocated in the amounts as such
Buyer shall request) which such Buyer is purchasing hereunder, in each case duly executed on behalf of the Company and registered
in the name of such Buyer or its designee.


 



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2.           BUYER'S
REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not jointly, represents and warrants with respect to only itself
that:


 


(a)          No
Public Sale or Distribution. Such Buyer is (i) acquiring the Notes and the Warrants and (ii) upon conversion of the Notes and
exercise of the Warrants (other than pursuant to a Cashless Exercise (as defined in the Warrants)) will acquire the Conversion
Shares issuable upon conversion of the Notes and the Warrant Shares issuable upon exercise of the Warrants, for its own account
and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such 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. Such Buyer is acquiring
the Securities hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person (as defined below ) to distribute any of the Securities. For purposes of this Agreement,
"Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or any department or agency thereof.


 


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


 


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


 


(d)          Information.
Such Buyer and its advisors, if any, have been 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 that have been requested by such Buyer. Such Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other
due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect
such Buyer's right to rely on the Company's representations and warranties contained herein. Such Buyer understands that its investment
in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its acquisition of the Securities. Notwithstanding the foregoing,
such Buyer is not entitled to rely upon any information obtained, except for information obtained in connection with the Transaction
Documents and the transactions contemplated therein and information (including, without limitation representations and warranties)
set forth in the Transaction Documents.


 



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(e)          No
Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.


 


(f)          Transfer
or Resale. Such Buyer understands that: (i) the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder,
(B) such Buyer shall have delivered to the Company an opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
"Rule 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the 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 the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder. Notwithstanding the foregoing, the Securities may
be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and such
pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting
a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)), including, without limitation, this
Section 2(f).


 


(g)          Legends.
Such Buyer understands that the certificates or other instruments representing the Notes and the Warrants and, until such time
as the resale of the Conversion Shares, the Interest Shares and the Warrant Shares have been registered under the 1933 Act, the
stock certificates representing the Conversion Shares, the Interest Shares and the Warrant Shares, except as set forth below, shall
bear any legend as required by the "blue sky" laws of any state and a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such stock certificates):


 


[NEITHER THE ISSUANCE AND
SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


 



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The legend set forth above shall be removed
and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped or issue
to such holder by electronic delivery at the applicable balance account at The Depository Trust Company ("DTC"),
if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii)
in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made without registration under
the applicable requirements of the 1933 Act, or (iii) the Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with such issuance.


 


(h)          Validity;
Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with its terms,
except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights
and remedies.


 


(i)          No
Conflicts. The execution, delivery and performance by such Buyer of this Agreement and the consummation by such Buyer of the
transactions contemplated hereby will not (i) result in a violation of the organizational documents of such Buyer or (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 such
Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect
on the ability of such Buyer to perform its obligations hereunder.


 


(j)          Residency.
Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.


 






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3.           REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.


 


The Company represents
and warrants to each of the Buyers that:


 




(a)          Organization
and Qualification. Each of the Company and its "Subsidiaries" (which for purposes of this Agreement means
any entity in which the Company, directly or indirectly, owns any of the capital stock or holds an equity or similar interest)
are entities duly organized and validly existing in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and to carry on their business as now being conducted. The
Company is duly qualified as a foreign entity to do business and is in good standing in the State of New York. 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 reasonably be expected to have a Material Adverse Effect.
As used in this Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties,
assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries,
individually or taken as a whole, or on the transactions contemplated hereby or on the other Transaction Documents or by the agreements
and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents. The Company has no Subsidiaries except as set forth on Schedule 3(a).


 


(b)          Authorization;
Enforcement; Validity. The Company has the requisite power and authority to enter into and perform its obligations under this
Agreement, the Notes, the Warrants, the Voting Agreements (as defined in Section 4(w)), the Lock-Up Agreements (as defined in Section
7(xvi)), the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the Security Documents and each of the other
agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents") and to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the Notes and the Warrants, the reservation for issuance and
the issuance of the Conversion Shares issuable upon conversion of the Notes, the reservation for issuance and the issuance
of the Interest Shares issuable pursuant to the terms of the Notes, and the reservation for issuance and issuance of Warrant Shares
issuable upon exercise of the Warrants have been duly authorized by the Company's Board of Directors and (other than filings as
may be required by state securities agencies) no further filing, consent, or authorization is required by the Company, its Board
of Directors or its stockholders (other than the Stockholder Approval (as defined in Section 4(v)). This Agreement and the other
Transaction Documents have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. Each of the Subsidiaries
party to any of the Transaction Documents (as defined below) has the requisite power and authority to enter into and perform its
obligations under such Transaction Documents. The execution and delivery by the Subsidiaries party to any of the Transaction Documents
of such Transaction Documents and the consummation by such Subsidiaries of the transactions contemplated thereby have been duly
authorized by such Subsidiaries' respective boards of directors (or other applicable governing body) and (other than filings as
may be required by state securities agencies) no further filing, consent, or authorization is required by such Subsidiaries, their
respective boards of directors (or other applicable governing body) or stockholders (or other applicable owners of equity of such
Subsidiaries). The Transaction Documents to which any of the Subsidiaries are parties have been duly executed and delivered by
such Subsidiaries, and constitute the legal, valid and binding obligations of such Subsidiaries, enforceable against them in accordance
with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.


 



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(c)          Issuance
of Securities. The issuance of the Notes and the Warrants are duly authorized and, upon issuance, shall be validly issued and
free from all taxes, liens and charges with respect to the issue thereof. As of the Closing, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or exceeds 130% of the aggregate of the maximum number of
shares of Common Stock (the "Required Reserved Amount) (i) issuable upon conversion of the Notes (without taking into
account any limitations on the conversion of the Notes set forth in the Notes), (ii) upon exercise of the Warrants (without taking
into account any limitations on the exercise of the Warrants set forth in the Warrants) and (iii) as Interest Shares pursuant to
the terms of the Notes. As of the date hereof, there are 72,894,813 shares of Common Stock authorized and unissued. Upon conversion
of the Notes or payment of Interest in accordance with the Notes or exercise of Warrants in accordance with the Warrants, as the
case may be, the Conversion Shares, the Interest Shares and the Warrant Shares, respectively, will be validly issued, fully paid
and nonassessable, freely tradable under applicable securities laws and without containing any restrictive legend, and free from
all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Assuming the accuracy of each of the representations and warranties set forth
in Section 2 of this Agreement, the offer and issuance by the Company of the Securities is exempt from registration under the 1933
Act.


 


(d)          No
Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and any of its Subsidiaries
parties to any of the Transaction Documents and the consummation by the Company and any of its Subsidiaries of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of the Notes and the Warrants and reservation for
issuance and issuance of the Conversion Shares, the Interest Shares, and the Warrant Shares) will not (i) result in a violation
of any memorandum of association, certificate of incorporation, certificate of formation, any certificate of designations or other
constituent documents of the Company or any of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries or
the articles of association or bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any material 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
foreign, federal and state securities laws and regulations and the rules and regulations of NYSE MKT LLC (the "Principal
Market") and applicable laws of the State of Delaware and any other state laws) 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.


 



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(e)          Consents.
Neither the Company nor any of its Subsidiaries is required to obtain any consent, authorization or order of, or make any filing
or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for
it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company or any of its
Subsidiaries is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing
Date, and the Company and its Subsidiaries are unaware of any facts or circumstances that might prevent the Company or any of its
Subsidiaries from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence. The
Company is not in violation of the listing requirements of the Principal Market and has no Knowledge of any facts that would reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future, except as set forth on Schedule 3(n). The issuance
by the Company of the Securities shall not have the effect of delisting or suspending the Common Stock from the Principal Market.
"Knowledge of Company" or "Company's Knowledge" or any other similar knowledge qualification,
means the actual or constructive knowledge of Robert Ladd or Robert Traversa.


 


(f)          Acknowledgment
Regarding Buyer's Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and
that no Buyer is (i) an officer or director of the Company or any of its Subsidiaries, (ii) an "affiliate" of the Company
or any of its Subsidiaries (as defined in Rule 144) or (iii) to the Company's Knowledge, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "1934 Act")). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its representatives.


 


(g)          No
General Solicitation; Placement Agent's Fees. Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person
acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation
D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any placement agent's
fees, financial advisory fees, or brokers' commissions (other than for persons engaged by any Buyer or its investment advisor)
relating to or arising out of the transactions contemplated hereby, including, without limitation, placement agent fees payable
to Chardan Capital Markets, LLC, as placement agent (the "Placement Agent") in connection with the sale of the
Securities. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such claim. The Company acknowledges that it has engaged
the Placement Agent in connection with the sale of the Securities. Other than the Placement Agent, neither the Company nor any
of its Subsidiaries has engaged any placement agent or other agent in connection with the sale of the Securities.


 



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(h)          No
Integrated Offering. None of the Company, its Subsidiaries, any of their affiliates, and any Person 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 require registration of any of the Securities under the 1933 Act, whether through integration with prior offerings or
otherwise, or cause this offering of the Securities to require approval of stockholders of the Company for purposes of the 1933
Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are listed or designated. None of the Company, its
Subsidiaries, their affiliates and any Person acting on their behalf will take any action or steps referred to in the preceding
sentence that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to
be integrated with other offerings for purposes of any such applicable stockholder approval provisions.


 


(i)          Dilutive
Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Notes,
the number of Warrant Shares issuable upon exercise of the Warrants and the number of Interest Shares issuable pursuant to the
terms of the Notes will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Notes in accordance with this Agreement and the Notes, its obligation to issue the Warrant Shares
upon exercise of the Warrants in accordance with this Agreement and the Warrants and its obligation to issue the Interest Shares
in accordance with this Agreement and the Notes is, in each case, absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of the Company.


 


(j)          Application
of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation (as defined in Section 3(r))
or the laws of the jurisdiction of its formation which is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and any Buyer's ownership
of the Securities. The Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.


 



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(k)          SEC
Documents; Financial Statements. Except as disclosed in Schedule 3(k), 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 1934 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"). The Company has delivered to the Buyers or their respective representatives
true, correct and complete copies of the SEC Documents not available on the EDGAR system. As of their respective filing dates,
the SEC Documents complied in all material respects with the requirements of the 1934 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 filing 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 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 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).
No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents, including,
without limitation, information referred to in Section 2(d) of this Agreement or in the disclosure schedules to this Agreement,
contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not misleading.


 


(l)          Absence
of Certain Changes. Except as disclosed in Schedule 3(l), since December 31, 2010, there has been no material adverse
change and no material adverse development in the business, assets, properties, operations, condition (financial or otherwise),
results of operations or prospects of the Company or its Subsidiaries. Except as disclosed in Schedule 3(l), since December
31, 2010, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets, individually
or in the aggregate, in excess of $100,000 outside of the ordinary course of business or (iii) had capital expenditures, individually
or in the aggregate, in excess of $100,000. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any Knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact that 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 in this Section 3(l)). For purposes of this Section
3(l), "Insolvent" means, with respect to any Person, (i) the present fair saleable value of such Person's assets
is less than the amount required to pay such Person's total Indebtedness (as defined in Section 3(s)), (ii) such Person is unable
to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured,
(iii) such Person intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature
or (iv) such Person has unreasonably small capital with which to conduct the business in which it is engaged as such business is
now conducted and is currently proposed to be conducted.


 



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(m)          No
Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred
or exists, or is contemplated to occur with respect to the Company, its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that 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 Common Stock
and which has not been publicly announced.


 


(n)          Conduct
of Business; Regulatory Permits. Neither the Company nor any of its Subsidiaries is in violation of any term of or in default
under any certificate of designations of any outstanding series of preferred stock of the Company (if any), its Certificate of
Incorporation or Bylaws (as defined in Section 3(r)) or their organizational charter or memorandum of association or certificate
of incorporation or articles of association 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 for
possible violations which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements
of the Principal Market and has no Knowledge of any facts or circumstances that would reasonably lead to delisting or suspension
of the Common Stock by the Principal Market in the foreseeable future, except as set forth on Schedule 3(n). Except as set forth
in Schedule 3(n), during the two (2) years prior to the date hereof, the Common Stock has been designated for quotation
on the Principal Market. Except as set forth in Schedule 3(n), during the two (2) years prior to the date hereof, (i) trading
in the Common Stock has not been suspended by the SEC or the Principal Market and (ii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities 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.


 


(o)          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 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.


 



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(p)          Sarbanes-Oxley
Act. The Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as
of the date hereof.


 


(q)          Transactions
With Affiliates. Except as set forth on Schedule 3(q), 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 Company's Knowledge or to the knowledge of any of its Subsidiaries,
any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest
or is an officer, director, trustee or partner.


 


(r)          Equity
Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 75,000,000 shares of Common
Stock, of which as of the date hereof, 2,105,187 shares are issued and outstanding, 415,000 shares are reserved for issuance
pursuant to the Company's stock option and purchase plans and no shares are reserved for issuance pursuant to securities (other
than the aforementioned options, the Notes and the Warrants) exercisable or exchangeable for, or convertible into, Common Stock.
All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. No preferred
stock of the Company is authorized, issued or outstanding. Except as disclosed in Schedule 3(r): (i) none of the Company's
capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its Subsidiaries, or contracts, commitments, understandings 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
or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound; (iv) there are no financing statements securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company
or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act; (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution
or similar provisions that will be triggered by the issuance of the Securities; (viii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement; and (ix) the Company and its Subsidiaries
have no liabilities or obligations required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or any of its Subsidiary's' respective businesses and which, individually
or in the aggregate, do not or would not have a Material Adverse Effect. The Company has furnished or made available to the Buyers
true, correct and complete copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's Bylaws, as amended and as in effect on the date hereof
(the "Bylaws"), and the terms of all securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.


 



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(s)          Indebtedness
and Other Contracts. Except as disclosed in Schedule 3(s), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined in this Section 3(s)), (ii) is a party to any contract, agreement or instrument, the violation
of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected
to result in a Material Adverse Effect, (iii) is in violation of any term of or in default under any contract, agreement or instrument
relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in
a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance
of which, in the judgment of the Company's officers, has or is expected to have a Material Adverse Effect. Schedule 3(s)
provides a detailed description of the material terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations
issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, "capital
leases" in accordance with United States generally accepted accounting principles (other than trade payables entered into
in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to
letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing,
in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property),
(F) all monetary obligations under any leasing or similar arrangement which, in connection with United States generally accepted
accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property
has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G) above; and (y) "Contingent Obligation"
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness,
lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole
or in part) against loss with respect thereto.


 



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(t)          Absence
of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court,
public board, government agency, self-regulatory organization or body pending or, to the Company's Knowledge, threatened against
or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or any of the Company's
or its Subsidiaries' officers or directors, whether of a civil or criminal nature or otherwise, in their capacities as such, except
as set forth in Schedule 3(t). The matters set forth in Schedule 3(t) would not reasonably be expected to have a
Material Adverse Effect.


 


(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 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 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.


 


(v)         Employee
Relations.


 


(i)          Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their employees are good. No executive officer of the Company or
any of its Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its Subsidiaries, to the Company's Knowledge or to the knowledge of any
of its Subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing matters.


 


(ii)         The
Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure
to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.


 






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(w)          Title.
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 do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property
and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.


 


(x)          Intellectual
Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and
registrations therefor ("Intellectual Property Rights") necessary to conduct their respective businesses as now
conducted. Except as set forth in Schedule 3(x), none of the Company's Intellectual Property Rights have expired or terminated
or have been abandoned or are expected to expire or terminate or are expected to be abandoned, within three years from the date
of this Agreement. To the Company's Knowledge, the Company or its Subsidiaries are not infringing on the Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought, or to the Company's Knowledge or to the knowledge
of any of its Subsidiaries, being threatened, against the Company or any of its Subsidiaries regarding its Intellectual Property
Rights. Neither the Company nor any of its Subsidiaries is aware of any facts or circumstances which might give rise to any of
the foregoing infringements or claims, actions or proceedings. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.


 


(y)          Environmental
Laws. The Company and its Subsidiaries (i) are in compliance with any and all Environmental Laws (as hereinafter defined),
(ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where,
in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect. 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.


 


(z)          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.


 






    	- 15 -



    	 



    
 


(aa)         Investment
Company Status. The Company is not, and upon consummation of the sale of the Securities, and for so long any Buyer holds any
Securities, will not be, 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.


 


(bb)         Tax
Status. The Company and each of its Subsidiaries (i) has made or filed all U.S. federal, state and foreign income and all other
tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) 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 (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 know of no basis for any
such claim.


 


(cc)         Internal
Accounting and Disclosure Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls
sufficient 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 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 under
the 1934 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 1934 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 1934 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. During the twelve months prior to the date hereof neither the Company nor any of
its Subsidiaries has received any notice or correspondence from any accountant relating to any material weakness in any part of
the system of internal accounting controls of the Company or any of its Subsidiaries, except as set forth on Schedule 3(cc).


 


(dd)         Off
Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated
or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed
or that otherwise would be reasonably likely to have a Material Adverse Effect.


 






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(ee)         Ranking
of Notes. No Indebtedness of the Company or any of its Subsidiaries is senior to or ranks pari passu with the Notes
in right of payment, whether with respect of payment of redemptions, interest, damages or upon liquidation or dissolution or otherwise.


 




(ff)         Eligibility
for Registration. The Company is eligible to register the Conversion Shares, the Interest Shares and the Warrant Shares for
resale by the Buyers using Form S-3 promulgated under the 1933 Act.


 


(gg)         Transfer
Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be
paid in connection with the sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.


 


(hh)         Manipulation
of Price. The Company has not, and to the Company's Knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) other than the Placement
Agent, sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than
the Placement Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities
of the Company.


 


(ii)         Acknowledgement
Regarding Buyers' Trading Activity. The Company acknowledges and agrees that (i) none of the Buyers has been asked to agree,
nor has any Buyer agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) any Buyer, and counter-parties
in "derivative" transactions to which any such Buyer is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further understands and acknowledges that one or more Buyers
may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Conversion Shares, the Warrant Shares and/or the Interest Shares are
being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders' equity
interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges
that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Notes, the Warrants
or any of the documents executed in connection herewith.


 


(jj)         U.S.
Real Property Holding Corporation. The Company is not, has never been, and so long as any Securities remain outstanding, shall
not become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon any Buyer's request.


 



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(kk)         Bank
Holding Company Act. Neither the Company nor any of its Subsidiaries or affiliates is subject to the Bank Holding Company Act
of 1956, as amended (the "BHCA") and to regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve"). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%)
or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank
or any entity that is subject to the BHCA and to regulation by the Federal Reserve.


 


(ll)         No
Additional Agreements. Neither the Company not any of its Subsidiaries has any agreement or understanding with any Buyer with
respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.


 


(mm)         Disclosure.
The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information. The
Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the Company, or any of its Subsidiaries, their business
and the transactions contemplated hereby, including the disclosure schedules to this Agreement, furnished by or on behalf of the
Company is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each
press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact or omit 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. No event or circumstance has occurred or information 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. The Company
acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.


 


(nn)         Shell
Company Status. To the Company's Knowledge, the Company is not, and for the seven (7) years prior to the date hereof has not
been, an issuer identified in Rule 144(i)(1) of the 1933 Act. The Company is, and has been for a period of at least 90 days, subject
to the reporting requirements of Section 13 or Section 15(d) of the 1934 Act. The Company has filed its current "Form 10 information"
with the SEC pursuant to and in accordance with applicable requirements reflecting its status as an entity that is no longer an
issuer described in Rule 144(i)(1) and one (1) year has elapsed from the date that the Company filed "Form 10 information"
with the SEC.


 






    	- 18 -



    	 



    
 


(oo)         Stock
Option Plans. Each stock option granted by the Company was granted (i) in accordance with the terms of the applicable stock
option plan of the Company and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the
date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company's
stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no policy or practice
of the Company to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with,
the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial
results or prospects.


 




(pp)         No
Disagreements with Accountants and Lawyers. There are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the
Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company's
ability to perform any of its obligations under any of the Transaction Documents.


 


(qq)         Foreign
Subsidiaries. The Foreign Subsidiaries, separately and aggregately, do not own, directly or indirectly, assets (whether cash
or tangible or intangible assets) in excess of $500,000 or material to the business or operations of (i) the Company or any of
its Subsidiaries or (ii) the Company and any of its Subsidiaries.


 


4.           COVENANTS.


 


(a)          Best
Efforts. Each party shall use its best efforts timely to satisfy each of the covenants and the conditions to be satisfied by
it as provided in Sections 6 and 7 of this Agreement.


 


(b)          Form
D and Blue Sky. 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 in order to obtain an exemption for or to qualify the Securities for sale to
the Buyers at the 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
the Buyers on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing
Date.


 


(c)          Reporting
Status. Until the date on which the Buyers shall have sold all of the Conversion Shares, the Interest Shares and Warrant Shares
and none of the Notes or Warrants are outstanding (the "Reporting Period"), 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 no longer
require or otherwise permit such termination, and the Company shall take all actions necessary to maintain its eligibility to register
the Conversion Shares, Warrant Shares and Interest Shares for resale by the Buyers on Form S-3.


 






    	- 19 -



    	 



    
 


(d)          Use
of Proceeds. The Company will use the proceeds from the sale of the Securities solely for general working capital purposes
but not for (i) the repayment of any outstanding Indebtedness of the Company or any of its Subsidiaries or (ii) the redemption
or repurchase of any of its or its Subsidiaries' equity securities. Notwithstanding the forgoing, the Company may use the proceeds
from the sale of the Securities to repurchase the remaining outstanding shares of Medicsight Limited, the Company’s majority-owned
Subsidiary.


 


(e)          Reserved.


 


(f)          Reserved.


 


(g)          Reserved.


 


(h)          Reserved.


 


(i)          Financial
Information. The Company agrees to send the following to each Buyer during the Reporting Period (i) unless the following are
filed with the SEC through EDGAR and are available to the public through the EDGAR system, within one (1) Business Day after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q, any Current Reports
on Form 8-K (or any analogous reports under the 1934 Act) and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies of all press releases
issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and other information made available or given
to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.
As used herein, "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.


 


(j)          Listing.
The Company shall promptly secure the listing of all of the Conversion Shares, Interest Shares and Warrant Shares upon each national
securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice
of issuance) and shall maintain such listing of all Conversion Shares, Interest Shares and Warrant Shares from time to time issuable
under the terms of the Transaction Documents. The Company shall maintain the authorization for quotation of the Common Stock on
the Principal Market. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected
to result in the delisting or suspension of the Common Stock on the Principal Market. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(j).


 


(k)          Fees.
The Company shall reimburse Hudson Bay (a Buyer) or its designee(s) (in addition to any other expense amounts paid to any Buyer
or its counsel prior to the date of this Agreement) for all reasonable costs and expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith) in
an amount not to exceed $75,000 without the prior approval from the Company, which amount may be withheld by such Buyer from its
Purchase Price at the Closing. The Company shall be responsible for the payment of any placement agent's fees, financial advisory
fees, or broker's commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated
hereby, including, without limitation, any fees or commissions payable to the Placement Agent. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorney's fees and out-of-pocket
expenses) arising in connection with any claim relating to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.


 



    	- 20 -



    	 



    

 


(l)          Pledge
of Securities. The Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona
fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document, including, without limitation, Section 2(f) hereof; provided that a Buyer and its pledgee
shall be required to comply with the provisions of Section 2(f) hereof in order to effect a sale, transfer or assignment of Securities
to such pledgee. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by a Buyer.


 


(m)          Disclosure
of Transactions and Other Material Information. On or before 8:30 a.m., New York City time, on the first Business Day after
this Agreement has been executed, the Company shall issue a press release and file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all schedules and exhibits to this Agreement), the form
of the Notes, the Security Documents, the form of Voting Agreement and the form of Lock-Up Agreement as exhibits to such filing
(including all attachments), the "8-K Filing"). From and after the filing of the 8-K Filing with the SEC, no Buyer
shall be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their
respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide
any Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express prior written consent of such Buyer. If a Buyer has, or believes it has, received
any such material, nonpublic information regarding the Company or any of its Subsidiaries from the Company, any of its Subsidiaries
or any of their respective officers, directors, affiliates or agents, it may provide the Company with written notice thereof. The
Company shall, within two (2) Trading Days (as defined in the Notes) of receipt of such notice, make public disclosure of such
material, nonpublic information. In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or
any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in
the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement
or otherwise, of such material, nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its
or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, its Subsidiaries,
or any of its or their respective officers, directors, employees, stockholders or agents for any such disclosure. To the extent
that the Company delivers any material, non-public information to a Buyer without such Buyer's consent, the Company hereby covenants
and agrees that such Buyer shall not have any duty of confidentiality with respect to, or a duty not to trade on the basis of,
such material, non-public information. Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue
any press releases 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 any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required
by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release). Without the prior written consent of any applicable
Buyer, neither the Company nor any of its Subsidiaries or affiliates shall disclose the name of such Buyer in any filing, announcement,
release or otherwise.


 



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(n)          Collateral
Agent.


 


(i)          Each
Buyer hereby (a) appoints Hudson Bay Master Fund Ltd. as the collateral agent hereunder and under the Security Documents (in such
capacity, the "Collateral Agent"), and (b) authorizes the Collateral Agent (and its officers, directors, employees
and agents) to take such action on such Buyer's behalf in accordance with the terms hereof and thereof. The Collateral Agent shall
not have, by reason hereof or any of the Security Documents, a fiduciary relationship in respect of any Buyer. Neither the Collateral
Agent nor any of its officers, directors, employees and agents shall have any liability to any Buyer for any action taken or omitted
to be taken in connection hereof or the Security Documents except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the Collateral Agent and all of its officers, directors,
employees and agents (collectively, the "Collateral Agent Indemnitees") from and against any losses, damages,
liabilities, obligations, penalties, actions, judgments, suits, fees, costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Collateral Agent Indemnitee, whether direct, indirect or consequential, arising
from or in connection with the performance by such Collateral Agent Indemnitee of the duties and obligations of Collateral Agent
pursuant hereto or any of the Security Documents.


 


(ii)         The
Collateral Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person,
and with respect to all matters pertaining to this Agreement or any of the other Transaction Documents and its duties hereunder
or thereunder, upon advice of counsel selected by it.


 


(iii)        The
Collateral Agent may resign from the performance of all its functions and duties hereunder and under the Notes and the Security
Documents at any time by giving at least ten (10) Business Days prior written notice to the Company and each holder of the Notes.
Such resignation shall take effect upon the acceptance by a successor Collateral Agent of appointment as provided below. Upon any
such notice of resignation, Hudson Bay Master Fund Ltd. ("Hudson Bay") shall appoint a successor Collateral Agent.
Upon the acceptance of the appointment as Collateral Agent, such successor Collateral Agent shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be
discharged from its duties and obligations under this Agreement, the Notes and the Security Agreement. After any Collateral Agent's
resignation hereunder, the provisions of this Section 4(n) shall inure to its benefit. If a successor Collateral Agent shall not
have been so appointed within said ten (10) Business Day period, the retiring Collateral Agent shall then appoint a successor Collateral
Agent who shall serve until such time, if any, as Hudson Bay appoints a successor Collateral Agent as provided above.


 



    	- 22 -



    	 



    

 


(o)          Additional
Notes; Variable Securities; Dilutive Issuances. So long as any Buyer beneficially owns any Securities, the Company will not
issue any Notes other than to the Buyers as contemplated hereby and the Company shall not issue any other securities that would
cause a breach or default under the Notes. For so long as any Notes remain outstanding, the Company shall not, in any manner, issue
or sell any rights, warrants or options to subscribe for or purchase Common Stock or directly or indirectly convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may vary with the market price of the Common Stock, including
by way of one or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such security cannot
be less than the then applicable Conversion Price (as defined in the Notes) with respect to the Common Stock into which any Note
is convertible or the then applicable Exercise Price (as defined in the Warrants) with respect to the Common Stock into which any
Warrant is exercisable. For so long as any Notes or Warrants are outstanding, unless or until the Stockholder Approval has been
obtained, the Company shall not take any action if the effect of such action would be to cause the Exercise Price or Conversion
Price to be reduced, in each case without giving effect to any (x) limitations on exercise contained in the Warrants and (y) limitations
on conversion contained in the Notes.


 


(p)          Corporate
Existence. So long as any Buyer beneficially owns any Securities, the Company shall, (i) and shall cause each of its Subsidiaries
to, maintain its corporate existence and (ii) not be party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes and the Warrants.


 


(q)          Reservation
of Shares. So long as any Buyer owns any Securities, the Company shall take all action necessary to at all times after the
Closing have authorized, and reserved for the purpose of issuance, no less than 130% of the sum of the number of shares
of Common Stock issuable (i) upon conversion of the Notes (without taking into account any limitations
on the conversion of the Notes set forth in the Notes), (ii) upon exercise of the Warrants then outstanding (without taking into
account any limitations on the exercise of the Warrants set forth in the Warrants) and (iii) as Interest Shares pursuant to the
terms of the Notes. If at any time the number of shares of Common Stock authorized and reserved for issuance
is not sufficient to meet the Required Reserved Amount, the Company will promptly take all corporate action necessary to authorize
and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company's obligations under Section 3(c), in the case of an insufficient number of authorized shares,
obtain stockholder 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 Required Reserved Amount. 


 



    	- 23 -



    	 



    

 


(r)          Conduct
of Business. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate,
in a Material Adverse Effect.


 


(s)          Additional
Issuances of Securities.


 


(i)          For
purposes of this Section 4(s), the following definitions shall apply.


 


(1)         "Convertible
Securities" means any stock or securities (other than Options) convertible into or exercisable or exchangeable for shares
of Common Stock.


 


(2)         "Options"
means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.


 


(3)         "Common
Stock Equivalents" means, collectively, Options and Convertible Securities.


 


(ii)         From
the date hereof until the second (2nd) anniversary of the Closing Date, the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition
of) any of its or its Subsidiaries' equity or equity equivalent securities, including without limitation any debt, preferred stock
or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable
or exercisable for Common Stock or Common Stock Equivalents (any such offer, sale, grant, disposition or announcement being referred
to as a "Subsequent Placement") unless the Company shall have first complied with this Section 4(s)(ii).


 


(1)         The
Company shall deliver to each Buyer an irrevocable written notice (the "Offer Notice") of any proposed or
intended issuance or sale or exchange (the "Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe
the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities
to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyers 50% of the Offered
Securities, allocated among such Buyers (a) based on such Buyer's pro rata portion of the aggregate principal amount of Notes purchased
hereunder (the "Basic Amount"), and (b) with respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall indicate it
will purchase or acquire should the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription Amount"),
which process shall be repeated until the Buyers shall have an opportunity to subscribe for any remaining Undersubscription Amount.


 



    	- 24 -



    	 



    

 


(2)         To
accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company prior to the end of the tenth (10th)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer Period"), setting forth the portion of
such Buyer's Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the "Notice of Acceptance").
If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then each Buyer who has
set forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the
"Available Undersubscription Amount"), each Buyer who has subscribed for any Undersubscription Amount shall be
entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the
total Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the
extent its deems reasonably necessary. Notwithstanding anything to
the contrary contained herein, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration
of the Offer Period, the Company may deliver to the Buyers a new Offer Notice and the Offer Period shall expire on the tenth (10th)
Business Day after such Buyer's receipt of such new Offer Notice.


 


(3)         The
Company shall have five (5) Business Days from the expiration of the Offer Period above to offer, issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Buyers (the "Refused Securities")
pursuant to a definitive agreement (the "Subsequent Placement Agreement") but only to the offerees described in
the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring Person or Persons or less favorable to the Company than those set forth in
the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent Placement Agreement, and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.


 



    	- 25 -



    	 



    

 


(4)         In
the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 4(s)(ii)(3) above), then each Buyer may, at its sole option and in its sole discretion, reduce the number
or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(s)(ii)(2) above multiplied by a fraction,
(i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to Buyers pursuant to Section 4(s)(ii)(3) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Buyer so elects
to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or
exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered
to the Buyers in accordance with Section 4(s)(ii)(1) above.


 


(5)         Upon
the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, the Buyers shall acquire from
the Company, and the Company shall issue to the Buyers, the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(s)(ii)(3) above if the Buyers have so elected, upon the terms and conditions specified
in the Offer. The purchase by the Buyers of any Offered Securities is subject in all cases to the preparation, execution and delivery
by the Company and the Buyers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance
to the Buyers and their respective counsel.


 


(6)         Any
Offered Securities not acquired by the Buyers or other persons in accordance with Section 4(s)(ii)(3) above may not be issued,
sold or exchanged until they are again offered to the Buyers under the procedures specified in this Agreement.


 


(7)         The
Company and the Buyers agree that if any Buyer elects to participate in the Offer, neither the Subsequent Placement Agreement with
respect to such Offer nor any other transaction documents related thereto (collectively, the "Subsequent Placement Documents")
shall include any term or provisions whereby any Buyer shall be required to agree to any restrictions in trading as to any securities
of the Company owned by such Buyer prior to such Subsequent Placement.


 


(8)         Notwithstanding
anything to the contrary in this Section 4(s) and unless otherwise agreed to by the Buyers, the Company shall either confirm in
writing to the Buyers that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose
its intention to issue the Offered Securities, in either case in such a manner such that the Buyers will not be in possession of
material non-public information, by the fifteenth (15th) Business Day following delivery of the Offer Notice. If by
the fifteenth (15th) Business Day following delivery of the Offer Notice no public disclosure regarding a transaction
with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received
by the Buyers, such transaction shall be deemed to have been abandoned and the Buyers shall not be deemed to be in possession of
any material, non-public information with respect to the Company. Should the Company decide to pursue such transaction with respect
to the Offered Securities, the Company shall provide each Buyer with another Offer Notice and each Buyer will again have the right
of participation set forth in this Section 4(s)(ii). The Company shall not be permitted to deliver more than one such Offer Notice
to the Buyers in any 60 day period.


 



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(iii)        The
restrictions contained in Section 4(s)(ii) shall not apply in connection with the issuance of any Excluded Securities (as defined
in the Notes).


 


(t)          Successor
Collateral Agent. The Company hereby covenants and agrees to take all actions as promptly as practicable reasonably requested
by either Hudson Bay or the Collateral Agent (or its successor), from time to time, to secure a successor Collateral Agent satisfactory
to Hudson Bay, in its sole discretion, including, without limitation, by paying all fees of such successor Collateral Agent, by
having the Company agree to indemnify any successor Collateral Agent and by the Company executing a collateral agency agreement
or similar agreement and/or any amendment to the Security Documents reasonably requested or required by the successor Collateral
Agent.


 


(u)          Public
Information. At any time during the period commencing from the six (6) month anniversary of the Closing Date and ending at
such time that all of the Securities, if a registration statement is not available for the resale of all of the Securities, may
be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1),
if (i) the Company shall fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the
failure to satisfy the current public information requirement under Rule 144(c) or (ii) the Company is determined to have been
an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall fail to satisfy any condition
set forth in Rule 144(i)(2) (a "Public Information Failure") then, as partial relief for the damages to any holder
of Securities by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity), the Company shall pay to each such holder an amount in cash equal to one
and one-half percent (1.5%) of the aggregate Purchase Price of such holder's Securities on the day of a Public Information Failure
and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the earlier of (i) the date
such Public Information Failure is cured and (ii) such time that such public information is no longer required pursuant to Rule
144. The payments to which a holder shall be entitled pursuant to this Section 4(u) are referred to herein as "Public Information
Failure Payments." Public Information Failure Payments shall be paid on the earlier of (I) the last day of the
calendar month during which such Public Information Failure Payments are incurred and (II) the third Business Day after
the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to
make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid in full.


 



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(v)         Stockholder
Approval. The Company shall provide each stockholder entitled to vote at a special or annual
meeting of stockholders of the Company (the "Stockholder Meeting"), which shall
be called as promptly as practicable after the date hereof, but in no event later than July 31, 2012 (the "Stockholder
Meeting Deadline"), a proxy statement, in a form reasonably acceptable to the Buyers after review by Schulte Roth &
Zabel LLP at the expense of the Company, soliciting each such stockholder's affirmative vote
at the Stockholder Meeting for approval of resolutions (the "Resolutions") providing for the issuance of all of
the Securities as described in the Transaction Documents in accordance with applicable law, the provisions of the Bylaws and the
rules and regulations of the Principal Market (the "Stockholder Approval" and
the date such approval is obtained, the "Stockholder Approval Date"), and the Company shall use its reasonable
best efforts to solicit its stockholders' approval of such Resolutions and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve the Resolutions.
The Company shall be obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting Deadline. If, despite the
Company's reasonable best efforts, the Stockholder Approval is not obtained at the Stockholder Meeting, the Company shall cause
an additional Stockholder Meeting to be held each calendar quarter thereafter until Stockholder Approval is obtained. For the avoidance
of doubt, the number of shares outstanding as of May 24, 2012 was 2,105,187, and as such, the Company shall be required to obtain
Stockholder Approval prior to the Buyers acquiring more than an aggregate of 421,016 shares of Common Stock as a result of the
issuance of Interest Shares, Warrant Shares and/or Conversion Shares. Additionally, pursuant to the Principal Market rules, Buyers
acknowledge that the Warrant Shares, Interest Shares and/or Conversion Shares acquired prior to Stockholder Approval may not be
voted for the Resolutions at the Stockholder Meeting.


 


(w)          Voting
Agreement. The Company shall use its reasonable best efforts to effectuate the transactions contemplated by the Voting Agreement,
in form and substance satisfactory to the Required Holders (the "Voting Agreement"), executed by the Company and
Robert Ladd, Robert Traversa and Joseph Direnzo (collectively, the "Principal Stockholders"). The Principal Stockholders
hold 44% of the issued and outstanding shares of Common Stock of the Company. The Company shall not amend, waive or terminate any
provision of the Voting Agreement and shall enforce the provisions of the Voting Agreement in accordance with its terms. If any
of the Principal Stockholders breach any provisions of the Voting Agreement, the Company shall promptly use its best efforts to
seek specific performance of the terms of the Voting Agreement in accordance with Section 4.02 thereof. In addition, if the Company
receives any notice from the Principal Stockholders pursuant to the Voting Agreement, the Company shall promptly, but in no event
later than two (2) Business Days, deliver a copy of such notice to each Buyer.


 


(x)          Lock-Up.
The Company shall not amend, waive or terminate any provision of any of the Lock-Up Agreements except to extend the term of the
lock-up period and shall enforce the provisions of each Lock-Up Agreement in accordance with its terms. If any officer or director
that is a party to a Lock-Up Agreement breaches any provision of a Lock-Up Agreement, the Company shall promptly use its best efforts
to seek specific performance of the terms of such Lock-Up Agreement.


 



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(y)          Issuances
of Conversion Shares, Interest Shares and Warrant Shares. The Company agrees to take all actions, including, without limitation,
the issuance by its legal counsel of any necessary legal opinions, necessary to issue the Conversion Shares, the Interest Shares
and the Warrant Shares without restriction and not containing any restrictive legend without the need for any action by any of
the Investors or any of their respective representatives.


 


(z)          Foreign
Subsidiaries. As long as any Notes are outstanding, without the prior written approval of the holders of at least a majority
of the aggregate number of shares of Common Stock issued or issuable under the Notes and Warrants (the "Required Holders"),
(i) the Company shall cause each of its currently existing or future Foreign Subsidiaries not to conduct any business or other
operations which, together with the business and other operations of all other Foreign Subsidiaries, are in excess of $500,000
or material to the business or operations of (x) the Company or any of its Subsidiaries or (y) the Company and any of its Subsidiaries,
and (ii) the Company shall not, and the Company shall cause each of its Subsidiaries not to, assign or otherwise transfer to any
of its currently existing or future Foreign Subsidiaries any assets (whether cash or tangible or intangible assets) which together
with the assets of any other Foreign Subsidiaries (whether cash or tangible or intangible assets) are in excess of $500,000 or
material to the business or operations of (x) the Company or any of its Subsidiaries or (y) the Company and any of its Subsidiaries.
As long as any Notes are outstanding, without the prior written approval of the Required Holders, the Company shall not, and the
Company shall cause each of its Subsidiaries not to, create, otherwise establish or acquire any Foreign Subsidiary with aggregate
assets (whether cash or tangible or intangible assets) which together with the assets of any other Foreign Subsidiaries (whether
cash or tangible or intangible assets) are in excess of $500,000 or material to the business or operations of (x) the Company or
any of its Subsidiaries or (y) the Company and any of its Subsidiaries.


 


(aa)         Offshore
Assets of the Company and U.S. Subsidiaries. Without the prior written approval of the Required Holders, the Company shall
not, and the Company shall cause each of its U.S. Subsidiaries not to, hold any assets (whether cash or tangible or intangible
assets) outside of the United States.


 


(bb)         As
long as any Notes are outstanding, the Company shall not, directly or indirectly, conduct any Subsequent Placement at a purchase
price per share of Common Stock of less than $3.00 (as adjusted for any stock dividend, stock split, stock combination, reclassification
or other similar transaction); provided, however, that such Subsequent Placement shall be permissible with the consent of the holders
of at least 50.1% of the Notes then outstanding.


 


(cc)         Closing
Documents. On or prior to fourteen (14) calendar days after the Closing Date, the Company agrees to deliver, or cause to be
delivered, to each Buyer and Schulte Roth & Zabel LLP a complete closing set of the executed Transaction Documents, Securities
and any other documents required to be delivered to any party pursuant to Section 7 hereof or otherwise.


 


 



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5.          REGISTER;
TRANSFER AGENT INSTRUCTIONS.


 


(a)          Register.
The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate
by notice to each holder of Securities), a register for the Notes and the Warrants in which the Company shall record the name and
address of the Person in whose name the Notes and the Warrants have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of Conversion Shares issuable upon conversion of the
Notes, the number of Interest Shares issuable pursuant to the terms of the Notes and the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person. The Company shall keep the register open and available at all times during business
hours for inspection of any Buyer or its legal representatives.


 


(b)          Transfer
Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent,
in form and substance satisfactory to the Required Holders (the "Irrevocable Transfer Agent Instructions") to
issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Conversion Shares, the Interest Shares and the Warrant Shares issued at the Closing or upon conversion of the
Notes or exercise of the Warrants 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 or upon payment of interest in Interest Shares pursuant to and in accordance with the terms
of the Notes. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(f) hereof, 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 other Transaction Documents. If a Buyer effects a sale, assignment or transfer of the Securities
in accordance with Section 2(f), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue
one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified
by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves the Conversion
Shares, the Interest Shares or the Warrant Shares sold, assigned or transferred pursuant to an effective registration statement
or pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable
harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section
5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section
5(b), that a Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other
security being required.


 


6.          CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.


 


The obligation of the
Company hereunder to issue and sell the Notes and the related Warrants to each Buyer 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 the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:


 


(i)          Such
Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.


 



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(ii)         Such
Buyer shall have delivered to the Company the Purchase Price (less, in the case of Hudson Bay, the amounts withheld pursuant to
Section 4(k)) for the Notes and the related Warrants being purchased by such Buyer at the Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.


 


(iii)        The
representations and warranties of such Buyer shall be true and correct 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 which shall be true and correct as
of such specified date), and such 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 such Buyer at or prior to the
Closing Date.


 


7.          CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.


 


The obligation of each
Buyer hereunder to purchase the Notes and the related 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 each Buyer's sole benefit and may
be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:


 


(i)          The
Company shall have duly executed and delivered to such Buyer (A) each of the Transaction Documents, (B) the Notes (allocated in
such principal amounts as such Buyer shall request), being purchased by such Buyer at the Closing pursuant to this Agreement and
(C) the related Warrants (allocated in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.


 


(ii)         Reserved.


 


(iii)        Each
Subsidiary or other Person party to any of the Transaction Documents shall have duly executed and delivered to such Buyer each
of the Transaction Documents to which such Subsidiary or other Person, respectively, is a party pursuant to the terms of this Agreement
(including, without limitation, in the case of the U.S. Subsidiaries, the Guarantee Agreement and the Security Agreement and).


 


(iv)        Such
Buyer shall have received the opinion of Gersten Savage, LLP, the Company's outside counsel, dated as of the Closing Date, in form
and substance satisfactory to the Required Holders.


 


(v)         The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to the Required Holders, which instructions shall have been delivered to and acknowledged in writing by the Company's transfer
agent.


 


(vi)        The
Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company and each of
its Subsidiaries in such entity's jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction,
as of a date within ten (10) days of the Closing Date.


 



    	- 31 -



    	 



    

 


(vii)       The
Company shall have delivered to such Buyer a certificate evidencing the Company's qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business, as
of a date within ten (10) days of the Closing Date.


 


(viii)      The
Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of
State (or comparable office) of the State of Delaware within ten (10) days of the Closing Date.


 


(ix)         The
Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the Closing
Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company's Board of Directors in a form reasonably
acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in form
and substance satisfactory to the Required Holders.


 


(x)          The
representations and warranties of the Company shall be true and correct 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 which shall be true and correct
as of such specified date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to
the Closing Date. Such Buyer shall have received a certificate, 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 in form
and substance satisfactory to the Required Holders.


 


(xi)         The
Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five (5) days of the Closing Date.


 


(xii)        The
Security Documents shall have been executed and delivered to such Buyer, and the Company, in accordance with the terms of the Security
Agreement, shall have delivered to the Collateral Agent with a copy to each Buyer, appropriate financing statements on Form UCC-1
to be duly filed in such office or offices as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect
the security interests purported to be created by the Security Agreement.


 


(xiii)       Except
as disclosed on Schedule 3(n), the Common Stock (I) shall be designated for quotation or listed on the Principal Market and (II)
shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (A) in writing by
the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market.


 


(xiv)      The
Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities.


 



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(xv)       The
Voting Agreement shall have been executed and delivered to such Buyer by the Company and each of the Principal Stockholders.


 


(xvi)      The
Company shall have delivered to each Buyer a lock-up agreement in form and substance satisfactory to the Required Holders executed
and delivered by each of Robert Ladd, Robert Traversa and Joseph Direnzo (collectively, the "Lock Up Agreements").


 


(xvii)     Within
six (6) Business Days prior to the Closing, the Company shall have delivered or caused to be delivered to each Buyer (A) certified
copies of UCC search results, listing all effective financing statements which name as debtor the Company or any of its Subsidiaries
filed in the prior five years to perfect an interest in any assets thereof, together with copies of such financing statements,
none of which, except as otherwise agreed in writing by the Buyers, shall cover any of the Collateral (as defined in the Security
Agreement) and the results of searches for any tax lien and judgment lien filed against such Person or its property, which results,
except as otherwise agreed to in writing by the Buyers, shall not show any such Liens (as defined in the Security Agreement); and
(B) a perfection certificate, duly completed and executed by the Company and each of its Subsidiaries, in form and substance satisfactory
to the Buyers.


 


(xviii)    The
Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.


 


8.          TERMINATION.
In the event that the Closing shall not have occurred with respect to a Buyer on or before five (5) Business Days from the date
hereof due to the Company's or such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement
with respect to such breaching party at the close of business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 8, the Company shall remain obligated to reimburse Hudson Bay or its designee(s),
as applicable, for the expenses described in Section 4(k) above.


 



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9.          MISCELLANEOUS.


 


(a)          Governing
Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. 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, 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 OR ANY TRANSACTION CONTEMPLATED HEREBY.


 


(b)          Counterparts.
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if
the signature were an original, not a facsimile signature.


 


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


 


(d)          Severability.
If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect
the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or
unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations
of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s),
the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).


 



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(e)          Entire
Agreement; Amendments. This Agreement and the other Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein,
and this Agreement, the other Transaction Documents and the instruments referenced herein and therein 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 any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Required Holders,
and any amendment to this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on the Company
and all Buyers and holders of Securities. No provision hereof may be waived other than by an instrument in writing signed by the
Company if enforcement of such provision is sought against the Company or by the Required Holders if enforcement of such provision
is sought against any of the Buyers or holders of Securities, and any waiver to this Agreement made in conformity with the provisions
of this Section 9(e) shall be binding on the Company and all Buyers and holders of Securities. No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless
the same consideration (other than the reimbursement of legal fees) also is offered to all of the parties to the Transaction Documents,
holders of Notes or holders of the Warrants, as the case may be. The Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement,
no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company or otherwise.


 


(f)          Notices.
Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must
be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending
party) or by electronic mail; or (iii) one Business Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers and e-mail addresses for such communications shall
be:


 


If to the Company:


 


MGT Capital Investments, Inc.


500 Mamaroneck Avenue, Suite 204


Harrison, NY 10528





	Telephone:	(914) 630-7430
	Facsimile:	(212) 661-7260
	Attention:	Robert Ladd, President and CEO
	E-mail:	rladd@mgtci.com


 


With a copy to:


 


Gersten Savage LLP


600 Lexington Ave. 9th Floor


New York, NY 10022




	Telephone:	(212) 752-9700
	Facsimile:	(212) 980-5192
	Attention:	Jay Kaplowitz, Esq.
	E-mail:	jkaplowitz@gskny.com


 



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If to the Transfer Agent:


 





Vstock Transfer LLC


77 Spruce Street, Suite 201

Cedarhurst, New York 11516





	Telephone:	(212) 828-8436
	Facsimile:	(646) 536-3179
	Attention:	Yoel Goldfeder
	E-mail:	yoel@vstocktransfer.com


 


If to a Buyer, to its address, facsimile number and e-mail address
set forth on the Schedule of Buyers, with copies to such Buyer's representatives as set forth on the Schedule of Buyers,


 


with a copy (for informational purposes only) to:


 


Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022




	Telephone:	(212) 756-2000
	Facsimile:	(212) 593-5955
	Attention:	Eleazer N. Klein, Esq.
	E-mail:	eleazer.klein@srz.com


 


or to such other address, facsimile number
and/or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given
to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient
of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile
machine or e-mail containing the time, date, recipient facsimile number and an image of the first page of such transmission or
(C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt
from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.


 


(g)          Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes or the Warrants. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Required Holders, including by way of a Fundamental Transaction (unless the
Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes and the Warrants).
A Buyer may assign some or all of its rights hereunder without the consent of the Company, in which event such assignee shall be
deemed to be a Buyer hereunder with respect to such assigned rights.


 


(h)          No
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, except that
each Indemnitee shall have the right to enforce the obligations of the Company with respect to Section 9(k).


 



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(i)          Survival.
Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer shall
be responsible only for its own representations, warranties, agreements and covenants hereunder.


 


(j)          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 any 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.


 


(k)          Indemnification.


 


(i)          In
consideration of each Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless each Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons' agents or
other representatives (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 the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of
the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby
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 the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii)
any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the
Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(m), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents. 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 that is permissible under applicable law.


 



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(ii)         Promptly
after receipt by an Indemnitee under this Section 9(k) 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 for indemnification in
respect thereof is to be made against any indemnifying party under this Section 9(k), deliver to the indemnifying party a written
notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnitee; provided, however, that an Indemnitee shall have the right
to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnitee to be paid by the indemnifying
party, if, in the reasonable opinion of the Indemnitee, the representation by such counsel of the Indemnitee and the indemnifying
party would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented
by such counsel in such proceeding. Legal counsel referred to in the immediately preceding sentence shall be selected by the Buyers
holding at least a majority of the Securities issued and issuable hereunder. The Indemnitee shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or Indemnified Liabilities by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to the Indemnitee that relates to such action or Indemnified
Liabilities. The indemnifying party shall keep the Indemnitee fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnitee, which consent
shall not be unreasonably withheld, conditioned or delayed, consent to entry of any judgment or enter into any settlement or other
compromise which (A) 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 Liabilities or litigation, (B) requires any admission of wrongdoing
by such Indemnitee, or (C) obligates or requires an Indemnitee to take, or refrain from taking, any action. Following indemnification
as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnitee with respect to all third
parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnitee under this Section 9(k), except to the extent that the indemnifying party is prejudiced in its
ability to defend such action.


 


(iii)        The
indemnification required by this Section 9(k) 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.


 


(iv)        The
indemnity agreements contained herein shall be in addition to (x) any cause of action or similar right of the Indemnitee against
the indemnifying party or others, and (y) any liabilities the indemnifying party may be subject to pursuant to the law.


 



    	- 38 -



    	 



    

 


(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.
Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law
may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek temporary
and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or
other security.


 


(n)          Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the
Company does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw,
in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or
in part without prejudice to its future actions and rights.


 


(o)          Payment
Set Aside. To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended
to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.


 


(p)          Independent
Nature of Buyers' Obligations and Rights. The obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations
of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action
taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and the Company acknowledges that the
Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Buyers are in any way 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 by the Transaction Documents and the Company acknowledges that the Buyers are
not acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges and each Buyer confirms that it has independently participated in the negotiation of the transaction contemplated
hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall
not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.


 



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(q)          Currency.
Unless otherwise indicated, all dollar amounts referred to in this Agreement are in United States Dollars. All amounts owing under
this Agreement or any Transaction Document shall be paid in US Dollars. All amounts denominated in other currencies shall be converted
in the US Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. "Exchange Rate"
means, in relation to any amount of currency to be converted into US Dollars pursuant to this Agreement, the US Dollar exchange
rate as published in The Wall Street Journal on the relevant date of calculation.


 


(r)          Judgment
Currency.


 


(i)          If
for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to
convert into any other currency (such other currency being hereinafter in this Section 9(r) referred to as the "Judgment
Currency") an amount due in US Dollars under this Agreement, the conversion shall be made at the Exchange Rate prevailing
on the Business Day immediately preceding:


 


(1)         the
date of actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other
jurisdiction that will give effect to such conversion being made on such date; or


 


(2)         the
date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as
of which such conversion is made pursuant to this Section being hereinafter referred to as the "Judgment Conversion Date").


 


(ii)         If
in the case of any proceeding in the court of any jurisdiction referred to in Section 9(r)(i)(2) above, there is a change in the
Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable
party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of US Dollars which could have been purchased with
the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion
Date.


 


(iii)        Any
amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained
for any other amounts due under or in respect of this Agreement.


 


[Signature Page Follows]


 



    	- 40 -



    	 



    

 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed
as of the date first written above.


 


 


	 	COMPANY:
	 	 
	 	MGT CAPITAL INVESTMENTS, INC.
	 	 	 
	 	By:	/s/ Robert B. Ladd
	 	 	Name:  Robert B. Ladd
	 	 	Title:    Presidential CEO


 


[Signature Page
to Securities Purchase Agreement]


 



    	 



    	 



    

 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed
as of the date first written above.


 


	 	BUYERS:	 
	 	 	 
	 	HUDSON BAY MASTER FUND LTD.	 
	 	By: Hudson Bay Capital Management LP, as its Investment Manager	 
	 	 	 	 
	 	By:	 	 
	 	 	 	 
	 	By:	/s/ Yoav Roth	 
	 	 	Name:  Yoav Roth	 
	 	 	Title:  Authorized Signatory	 


 



    	 



    	 



    

 


SCHEDULE OF BUYERS


 





	(1)	 	(2)	 	(3)	 	 	(4)	 	 	(5)	 	 	(6)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Buyer	 	Address and

    Facsimile Number	 	Aggregate

    Principal
 Amount of
  Notes	 	 	Number of 

    Warrant Shares	 	 	Purchase Price	 	 	Legal Representative's Address and

    Facsimile Number
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Hudson Bay Master Fund Ltd.	 	777 Third Avenue, 30th Floor 
New
    York, NY 10017 
Attention: Yoav Roth 
                 George Antonopolous 
Facsimile: 646-214-7946 
Telephone: 212-571-1244

Residence:
    Cayman Islands 
E-mail: investments@hudsonbaycapital.com 
            operations@hudsonbaycapital.com	 	$	3,500,00.00	 	 	 	875,000	 	 	$	3,500,000.00	 	 	Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York  10022

Attention:  Eleazer Klein, Esq.

 Facsimile: (212) 593-5955

Telephone:  (212) 756-2376





 


[Signature Page to Securities Purchase Agreement]


 



    	 



    	 



    

 


 


EXHIBITS


	Exhibit A	Form of Notes
	Exhibit B	Form of Warrants


 


SCHEDULES


	Schedule 3(a)	Subsidiaries
	Schedule 3(k)	SEC Documents
	Schedule 3(l)	Absence of Certain Changes
	Schedule 3(n)	Regulatory Permits
	Schedule 3(q)	Transactions with Affiliates
	Schedule 3(r)	Equity Capitalization
	Schedule 3(s)	Indebtedness and Other Contracts
	Schedule 3(t)	Absence of Litigation
	Schedule 3(x)	Intellectual Property Rights
	Schedule 3(cc)	Internal Accounting and Disclosure Controls