SECURITIES
PURCHASE AGREEMENT


This Securities
Purchase Agreement (this “Agreement”) is dated as of February 2, 2012, between People’s Liberation, Inc.,
a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including
its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).


WHEREAS, subject
to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described
in this Agreement.


NOW, THEREFORE,
IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:


ARTICLE I.

DEFINITIONS





1.1Definitions.
In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Debentures (as defined herein) and the Certificate of Designation (as defined herein),
and (b) the following terms have the meanings set forth in this Section 1.1:


 


“Acquiring Person”
shall have the meaning ascribed to such term in Section 4.7.


 


“Action”
shall have the meaning ascribed to such term in Section 3.1(j).


“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.


“Board
of Directors” means the board of directors of the Company.


“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.


“Certificate
of Designation” means the Certificate of Designation to be filed prior to the First Closing by the Company with the Secretary
of State of Delaware, in the form of Exhibit B attached hereto.


“Closing”
means the First Closing and/or the Second Closing, as the context may require.






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“Closing
Date” means the First Closing Date and/or the Second Closing Date, as the context may require.


“Commission”
means the United States Securities and Exchange Commission.


“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.


“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument
that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.


“Company
Counsel” means Stubbs Alderton & Markiles, LLP, with offices located at 15250 Ventura Boulevard, 20th
Floor, Sherman Oaks, CA 91403.


“Conversion
Price” shall have the meaning ascribed to such term in the Debentures.


“Conversion
Shares” shall have the meaning ascribed to such term in the Debentures.


“Debentures”
means the Variable Rate Senior Secured Convertible Debentures due, subject to the terms therein, January 31, 2015, issued by the
Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.


“Deposit
Control Agreement” means the Deposit Account Control Agreement, dated the Closing Date, among the Company, Bank of the
West and the Purchasers, in the form of Exhibit G attached hereto


“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.


“EGS”
means Ellenoff Grossman & Schole LLP, with offices located at 150 East 42nd Street, New York, New York 10017.


“Effective
Date” means the earliest of the date that (a) all of the Shares and Warrant Shares have been sold pursuant to Rule 144
or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information
required under Rule 144 and without volume or manner-of-sale restrictions or (b) following the one year anniversary of the Closing
Date provided that a holder of Shares and Warrant Shares is not an Affiliate of the Company, all of the Shares and Warrant Shares
may be sold pursuant to an exemption from registration under Section 4(1) of the Securities Act without volume or manner-of-sale
restrictions and Company counsel has delivered to such holders a written opinion that resales may then be made by such holders
of the Shares and Warrant Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable
to such holders.



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“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.


 


“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options, restricted stock units or other awards of equity-based
compensation to employees, officers or directors of the Company pursuant to any stock or option plan in existence on the date hereof
or duly adopted for such purpose after the date hereof by a majority of the non-employee members of the Board of Directors or a
majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise
or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or
conversion price of such securities other than in accordance with the existing terms of such securities, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided
that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries,
an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the
Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities,
and (d) securities issued in a financing transaction approved by a majority of the disinterested directors of the Company where
all or substantially all of the net proceeds of such financing transaction are used by the Company to pay all or any portion of
the Debentures in accordance with the terms of Section 6(c) thereof.


“Existing
Secured Indebtedness” means the Indebtedness of the Company and/or its Subsidiaries in favor of (i) Monto Holdings (Pty)
Ltd., (ii) Mobility Special Situations I, LLC, and (ii) Rosenthal & Rosenthal, Inc.


“FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended.


“First
Closing” means the closing of the purchase and sale of the Securities to occur on the First Closing Date pursuant to
Section 2.1(a).


“First
Closing Date” means February 3, 2012.


“First
Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Debentures purchased at the
First Closing as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “First
Subscription Amount,” in United States dollars and in immediately available funds.






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“Fully
Diluted Common Stock” shall mean all of the Common Stock of the Company, assuming conversion, exercise or exchange of
all outstanding convertible or exchangeable securities, options, warrants and similar instruments into or for Common Stock (regardless
of whether such convertible securities, options, warrants or similar securities are then convertible or exercisable, and without
regard to any limitations on exercise or conversion thereof).


“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).


“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa).


“Intellectual
Property” means trademarks, registered copyrights and copyright applications, registered and unregistered inventions,
improvements, patent applications, patents (including reissues, continuations, continuations-in-part, revisions, extensions and
re-examinations thereof), software, licenses, permissions, Internet domain names and websites, trade dress works of authorship,
unregistered copyrights, databases, logos, slogans, trade secrets, designs including but not limited to package, product and fabric
designs, photographs, drawings, models, floor plans, know-how and similar confidential and proprietary information.


“Intellectual
Property Rights” means all Intellectual Property rights owned by the Company and Subsidiaries that are sufficient, necessary
or desirable to conduct the business of the Company and Subsidiaries as presently conducted throughout the world.


“Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).


“Liens”
means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.


“Lock-Up
Agreement” means the Lock-Up Agreement, dated as of the Closing Date, by and between the Company and Colin Dyne, in the
form of Exhibit H attached hereto.


“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).


“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).


“Maximum
Rate” shall have the meaning ascribed to such term in Section 5.17.


“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.






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“Preferred
Stock” means the up to 19,400 shares of the Company’s Series A Preferred Stock issued hereunder having the rights,
preferences and privileges set forth in the Certificate of Designation, in the form of Exhibit B hereto.


“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.


“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.8.


“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).


“Required
Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants
or conversion in full of all Debentures (including Underlying Shares issuable as payment of interest on the Debentures), ignoring
any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date
of determination 90% of the then Conversion Price on the Trading Day immediately prior to the date of determination.


“Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted
from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such Rule.


“Second
Closing” means the closing of the purchase and sale of the Securities to occur on the Second Closing Date pursuant to
Section 2.1(b).


“Second
Closing Date” means February 22, 2012.


“Second
Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Debentures purchased at the
Second Closing as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Second
Subscription Amount,” in United States dollars and in immediately available funds.


“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).


“Securities”
means the Debentures, the Preferred Stock, the Warrants and the Underlying Shares.


“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


“Security
Agreement” means the Security Agreement, dated the Closing Date, among the Company and the Purchasers, in the form of
Exhibit E attached hereto.






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“Security
Documents” shall mean the Security Agreement, Deposit Control Agreement, the Trademark Security Agreement, the Subsidiary
Guarantee and any other documents and filing required thereunder in order to grant the Purchasers a first priority security interest
in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing statements.


“Stated
Value” means $1,000 per share of Preferred Stock.


“Stockholder
Approval” shall have the meaning ascribed to such term in Section 4.15.


“Stockholders
Agreement” shall mean that certain Stockholder Agreement, entered into concurrently herewith by and among the Company,
Tengram and Colin Dyne.


“Subscription
Amount” means, as to each Purchaser, the sum of such Purchaser’s First Subscription Amount and Second Subscription
Amount.


“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date hereof.


“Subsidiary
Guarantee” means the Subsidiary Guarantee, dated the Closing Date, by each Subsidiary in favor of the Purchasers, in
the form of Exhibit F attached hereto.


“Tengram”
shall mean TCP WR Acquisition, LLC, a Purchaser hereunder.


“Trademark
Security Agreement” means the Trademark Security Agreement, dated the Closing Date, by the Company in favor of the Purchasers,
in the form of Exhibit I attached hereto.


“Trademarks”
means all trademarks owned, licensed or used by the Company and the Subsidiaries throughout the world, including unregistered trademarks,
pending trademark applications and registered trademarks.


“Trading
Day” means a day on which the principal Trading Market is open for trading.


“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).


“Transaction
Documents” means this Agreement, the Debentures, the Certificate of Designation, the Security Agreement, the Subsidiary
Guarantee, the Trademark Security Agreement, the Deposit Control Agreement, the Warrants, the Lock-Up Agreement, Stockholders Agreement,
all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions
contemplated hereunder.






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“Transfer
Agent” means Stalt Inc., the current transfer agent of the Company, with a mailing address of 671 Oak Grove Ave. #C,
Menlo Park, California 94025-4332 and a facsimile number of (650) 321-7113, and any successor transfer agent of the Company.


“TWR”
shall have the have the meaning ascribed to such term in Section 5.20.


“Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion of the Debentures and upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms of the
Debentures.


“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common
Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in
all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith
by the Purchasers of a majority in interest of the Shares then outstanding and reasonably acceptable to the Company, the fees and
expenses of which shall be paid by the Company.


“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years, in the form of Exhibit
C attached hereto.


“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants.


ARTICLE II.

PURCHASE AND SALE


2.1Closings.


 


(a)First
Closing. On the First Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, $3,000,000 in principal amount of the Debentures. Each Purchaser
shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s
First Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to
each Purchaser its respective Debenture, shares of Preferred Stock and a Warrant, as determined pursuant to Section 2.2(a), and
the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the First Closing. Upon satisfaction
of the covenants and conditions to the First Closing set forth in Sections 2.2 and 2.3, the First Closing shall occur on the First
Closing Date at the offices of EGS or such other location as the parties shall mutually agree.






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(b)Second
Closing. On the Second Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, $11,000,000 in principal amount of the Debentures. Notwithstanding
the foregoing, the Purchasers, or any of them, may increase (but not decrease) to up to $11,500,000 the aggregate principal amount
of the Debentures to be acquired on the Second Closing Date, by written notice to the Company delivered at least two (2) days prior
to the Second Closing Date, pursuant to which the Purchasers, or any of them, delivering such notice shall irrevocably agree to
purchase such additional amount of Debentures on the Second Closing Date as set forth in the notice, and the Purchaser’s
Second Subscription Amount shall be increased by the amount set forth in such notice. Each Purchaser shall deliver to the Company,
via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Second Subscription Amount
as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective
Debenture, shares of Preferred Stock and a Warrant, as determined pursuant to Section 2.2(b), and the Company and each Purchaser
shall deliver the other items set forth in Section 2.2 deliverable at the Second Closing. Upon satisfaction of the covenants and
conditions to the Second Closing set forth in Sections 2.2 and 2.3, the Second Closing shall occur on the Second Closing Date at
the offices of EGS or such other location as the parties shall mutually agree.


2.2Deliveries.


 


(a)On
or prior to the First Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:


(i)this
Agreement duly executed by the Company;


(ii)a
Debenture with a principal amount equal to such Purchaser’s First Subscription Amount, registered in the name of such Purchaser;


(iii)a
certificate evidencing a number of shares of Preferred Stock equal to such Purchaser’s First Subscription Amount divided
by the Stated Value, registered in the name of such Purchaser and evidence of the filing and acceptance of the Certificate of Designation
from the Secretary of State of Delaware;






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(iv)a
Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 20% of such Purchaser’s
Conversion Shares underlying the Debenture issued on the First Closing Date, with an exercise price equal to $0.175, subject to
adjustment therein (such Warrant certificate may be delivered within three Trading Days of the First Closing Date);


(v)the
Lock-Up Agreement;


(vi)a
legal opinion of Company Counsel, in form and substance reasonably satisfactory to the Purchaser; and


(vii)the
Security Agreement, duly executed by the Company and each Subsidiary, along with all of the Security Documents, including the Subsidiary
Guarantee, duly executed by the parties thereto.


(b)On
or prior to the Second Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:


(i)a
legal opinion of Company Counsel, in form and substance reasonably satisfactory to the Purchaser;


(ii)a
Debenture with a principal amount equal to such Purchaser’s Second Subscription Amount, registered in the name of such Purchaser;


(iii)a
certificate evidencing a number of shares of Preferred Stock equal to such Purchaser’s Second Subscription Amount divided
by the Stated Value, registered in the name of such Purchaser;


(iv)a
Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 20% of such Purchaser’s
Conversion Shares underlying the Debenture issued on the Second Closing Date, with an exercise price equal to $0.175, subject to
adjustment therein (such Warrant certificate may be delivered within three Trading Days of the Second Closing Date);


(v)the
Deposit Control Agreement, duly executed by the Company and Bank of the West; and


(vi)the
Trademark Securities Agreement, duly executed by the Company and/or each of the Company’s Subsidiaries that own Trademarks.


(c)On
or prior to the First Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:


(i)this
Agreement duly executed by such Purchaser; 



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(ii)such
Purchaser’s First Subscription Amount by wire transfer to the account specified in writing by the Company; and


(iii)the
Security Agreement duly executed by such Purchaser.


(d)On
or prior to the Second Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:


(i)such
Purchaser’s Second Subscription Amount by wire transfer to the account specified in writing by the Company; and


(ii)the
Deposit Control Agreement duly executed by such Purchaser.


2.3Closing Conditions.


 


(a)The
obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:


 


(i)the
accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein
(unless as of a specific date therein in which case they shall be accurate as of such date);


(ii)all
obligations, covenants and agreements of each Purchaser required to be performed at or prior to the applicable Closing Date shall
have been performed;


(iii)the
delivery by each Purchaser of the items set forth in Section 2.2(c) (with respect to the First Closing) and Section 2.2(d) (with
respect to the Second Closing) of this Agreement;


(iv)prior
to the Second Closing only, the Stockholder Agreement, reasonably acceptable to the Company, shall have been executed and be binding
on the parties thereto.


(b)The
respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being
met:


(i)the
accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);


(ii)all
obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;


(iii)the
delivery by the Company of the items set forth in Section 2.2(a) (with respect to the First Closing) and Section 2.2(b) (with respect
to the Second Closing) of this Agreement;






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(iv)the
Company shall have delivered payoff letters from all holders of Existing Secured Indebtedness with respect to the repayment of
such indebtedness and the release of liens securing such indebtedness, and copies of all UCC-3 termination statements with respect
to the release of liens securing such indebtedness;


(v)there
shall have been no Material Adverse Effect with respect to the Company since the date hereof;


(vi)from
the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s
principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the
Closing;


(vii)prior
to the Second Closing only, the Board of Directors shall consist of 6 members as follows: William Sweedler, who shall also serve
as Chairman of the Board, Matthew D. Eby, Richard Gersten, Colin Dyne, Susan White and Alvin Gossett.


(viii)prior
to the Second Closing only, the Stockholder Agreement, reasonably acceptable to Tengram, shall have been executed and binding on
the parties thereto.


ARTICLE III.

REPRESENTATIONS AND WARRANTIES


3.1Representations
and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed
a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding
section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:


 


(a)Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities.






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(b)Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power
and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.


(c)Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated
by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of each of this Agreement and the other Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.


(d)No
Conflicts. Except as set forth on Schedule 3.1(d), the execution, delivery and performance by the Company of this Agreement
and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it
of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration , cancellation or other relief of obligation (with or without notice, lapse of time or both) of, any agreement,
credit or factoring facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding
to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order,
plan, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations and federal bankruptcy laws, regulations and orders), or
by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect. Schedule 3.1(d) sets
forth all of the material consents required in connection with the consummation of the transactions contemplated hereunder.






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(e)Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i)
the filings required pursuant to Section 4.6 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading
Market for the issuance and sale of the Securities and the listing of the Conversion Shares and Warrant Shares for trading thereon
in the time and manner required thereby and (iii) the filing of Form D with the Commission and such filings as are required to
be made under applicable state securities laws (collectively, the “Required Approvals”).


(f)Issuance
of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents. Except as described in Section 4.15, the Company has reserved
from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement, the Debentures
and the Warrants. The Securities constitute 63.4% of the Fully Diluted Common Stock, assuming an aggregate Subscription Amount
of $15,000,000.


(g)Capitalization.
The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company
has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the Exchange Act. Other than rights set forth on Schedule
3.1(g), which rights have been properly waived or the time for exercise has lapsed with respect to the Transaction Documents,
no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Other than such rights set forth on Schedule 3.1(g), and except
as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable
or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents. Other than the rights set forth on Schedule 3.1(g), which rights have been properly waived
or the time for exercise has lapsed with respect to the Transaction Documents, the issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of
such securities. Since January 1, 2006, all of the outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.
No further approval or authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities or the execution and delivery of the Transaction Documents. Other than as described
on Schedule 3.1(g), there are no stockholders agreements, voting agreements or other similar agreements with respect to
the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders. True and complete copies of all agreements and instruments relating to or issued under
any Company equity option plan, option agreements, or otherwise relating to the issuance of shares of Common Stock or other capital
stock, options to purchase Common Stock or other capital stock or securities convertible into shares of Common Stock or other capital
stock have been provided or made available to Purchasers and such agreements and instruments have not thereafter been amended,
modified or supplemented and there are no agreements to amend, modify or supplement such agreements or instruments in any case
from the forms of agreements or instruments provided to Purchasers.






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(h)SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and
none of the SEC Reports, when filed, 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. The financial statements of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required
by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.






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(i)Material
Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except
for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability,
fact, circumstance, occurrence or development has occurred or exists, or is reasonably expected to occur or exist, with respect
to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that
would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.


(j)Litigation.
There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their respective properties or contractual relationships
before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local
or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty owed to the Company. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 






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(k)Labor
Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’
employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or
any Subsidiary is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement (except where such non-competition agreements are unenforceable),
or any other contract or agreement or any restrictive covenant in favor of any third party, 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. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.


(l)Compliance.
Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture,
loan, factoring or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties
or assets is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree, plan
or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance
or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to
taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except
in each case as could not have or reasonably be expected to result in a Material Adverse Effect.


(m)Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation
or modification of any Material Permit.






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(n)Title
to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries,
in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens
for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP
and the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance. The Company has not received any notice from any insurance company or governmental body of any defects
or inadequacies in the real property owned or leased by it or the improvements thereon that would adversely affect the insurability
or usability of such real property or such improvements or prevent the issuance of new insurance policies thereon at rates not
materially higher than present rates. To the knowledge of the Company, no fact or condition exists that would result in the discontinuation
of necessary utilities or services to such real property or the termination of current access to and from such real property.


(o)Intellectual
Property. 


(i)The
Company and its Subsidiaries do not own any patents and have no patent applications pending. Schedule 3.1(o) identifies each registration
that has been issued to the Company or its Subsidiaries with respect to any of its Intellectual Property, identifies each pending
application for registration that the Company and its Subsidiaries have made with respect to any of its Intellectual Property,
and identifies each license, sublicense, agreement, or other permission that the Company or its Subsidiaries have granted to any
third party with respect to any of its Intellectual Property. Schedule 3.1(o) also identifies each unregistered trademark, service
mark, trade name, corporate name or Internet domain name, computer software item (other than commercially available off-the-shelf
software purchased or licensed for less than a total cost of $30,000 in the aggregate) used by the Company or its Subsidiaries
in connection with its business as presently conducted.


(ii)The
Company and its Subsidiaries own or possess or have the right to use pursuant to a valid and enforceable written license, sublicense,
agreement, or permission all Intellectual Property necessary for the substantive operation of the business of the Company as presently
conducted. The Company and its Subsidiaries have taken all necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses in its business as presently conducted.






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(iii)No
dispute exists which challenges the legality, validity or enforceability of any of the Intellectual Property Rights.


(iv)To
the knowledge of the Company and its Subsidiaries, the Company and its Subsidiaries have not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights or privacy rights of third parties, and to the knowledge
of the Company and its Subsidiaries there are no facts that indicate a likelihood of any of the foregoing. To the knowledge of
the Company and its Subsidiaries, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property Rights of the Company or its Subsidiaries.


(v)The
Company and/or its Subsidiaries have full right, power and authority to grant all of the rights, title and interests granted by
the Company and/or its Subsidiary in the Intellectual Property Rights on the terms set forth in the applicable license agreement
listed on Schedule 3.1(o) hereto.


(vi)Each
agreement and permission listed on Schedule 3.1(o) is legal, valid, binding, enforceable and in full force and effect, and neither
the Company nor any Subsidiary is in material breach thereof and, to the Company’s knowledge, no other party to such agreement
or permission is in breach thereof.


(vii)The
Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, validity and value
of all of their Intellectual Property including but not limited to, the execution of confidentiality and trade secret agreements
with designers and creative staff, whether such persons are employees or not, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on the business.


(p)Insurance.
The Company and the Subsidiaries and their respective properties and assets, whether owned or leased, are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary (or as are required
under the terms of any agreements or leases which the Company is party) in the businesses in which the Company and the Subsidiaries
are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription
Amount. Neither the Company nor any 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 without a significant increase in cost.


(q)Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or
any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party
to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or
personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case
in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan
of the Company.






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(r)Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are 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 Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the 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 GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The
Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers
have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of
the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange
Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal
control over financial reporting of the Company or its Subsidiaries.


(s)Certain
Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.






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(t)Private
Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.


(u)Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.


(v)Registration
Rights. Except as set forth on Schedule 3.1(u), no Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company or any Subsidiary.


(w)Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating
such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance requirements.


(x)Application
of Takeover Protections. The Company and the 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 Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation
as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.


(y)Disclosure.
All of the disclosure, whether during the due diligence process, in the Disclosure Schedules hereto, or otherwise furnished by
or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions
contemplated hereby, 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 light of the circumstances under which they were made, not misleading.
The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do
not 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 light of the circumstances under which they were made and when made, not misleading.
The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2 hereof.






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(z)No
Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2,
neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering
of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require
the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any
Trading Market on which any of the securities of the Company are listed or designated. 


(aa)Solvency.
Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds
the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry
on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate
all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 3.1(z) sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties
by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;
and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.






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(bb)Tax
Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local
income and all foreign income and franchise 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 and (iii) has set aside on its books provision reasonably adequate for the payment of
all material 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 or
of any Subsidiary know of no basis for any such claim.


(cc)No
General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers
and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.


(dd)Foreign
Corrupt Practices. Neither the Company nor any Subsidiary, to the knowledge of the Company or any Subsidiary, any agent or
other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate
funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.


(ee)Accountants.
The Company’s accounting firm is set forth on Schedule 3.1(dd) of the Disclosure Schedules. To the knowledge and belief
of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal
year ending December 31, 2011.


(ff)No
Disagreements with Accountants and Lawyers.There are no 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. 






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(gg)Seniority.
Immediately following the First Closing, after payment of the Existing Secured Indebtedness from the Purchasers’ Subscription
Amount, no Indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect
to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property
covered thereby). 


(hh)Acknowledgment
Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated
thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given
by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to
each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.


(ii)Regulation
M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to 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) sold, bid for, purchased, or paid any compensation for soliciting purchases of,
any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement
agent in connection with the placement of the Securities.


(jj)Stock
Option Plans. Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance
with the terms of the Company’s stock option plan 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 Company policy or practice 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.


(kk)Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department (“OFAC”).






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(ll)U.S.
Real Property Holding Corporation. The Company is not and has never been 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 Purchaser’s
request.


(mm)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 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.


(nn)Money
Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970,
as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money
Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge
of the Company or any Subsidiary, threatened.


(oo)Accounts
Receivable. Schedule 3.1(mm) hereto sets forth as of December 31, 2011, all accounts, notes and other receivables, whether
or not accrued, and whether or not billed, of the Company and Subsidiaries (the “Accounts Receivable”). Except
as set forth in Schedule 3.1(mm), all Accounts Receivable arose in the ordinary course of business and represent bona fide
revenues of the Company and Subsidiaries arising from the conduct of its business. Except as set forth on Schedule 3.1(mm),
no Accounts Receivable is subject to reasonable doubt as to its collectability.


3.2Representations
and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as
of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):


 


(a)Organization;
Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability
company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary
corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction
Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with
the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.






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(b)Own
Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered
under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account
and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities
law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.


(c)Purchaser
Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures, it will be either an “accredited investor” as defined in
Rule 501 under the Securities Act.


(d)Experience
of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.


(e)General
Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented
at any seminar or any other general solicitation or general advertisement.


The Company
acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s
right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties
contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this
Agreement or the consummation of the transaction contemplated hereby.






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ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES


4.1Transfer
Restrictions.


 


(a)The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.


(b)The
Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following
form:


[NEITHER] THIS SECURITY [NOR THE
SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.


The Company
acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees
or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.






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(c)Certificates
evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while
a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of
such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the
requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying
Shares and without volume or manner-of-sale restrictions or (iv) if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date if required by the Transfer
Agent to effect the removal of the legend hereunder. If all or any portion of a Debenture is converted or Warrant is exercised
at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying
Shares may be sold under Rule 144 without the requirement for the Company to be in compliance with the current public information
required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions or if such legend is not
otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued
by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following
the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three
Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying
Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and
other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall
be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository
Trust Company System as directed by such Purchaser.


 


(d)In
addition to the other transfer restrictions in this Section 4.1, the Preferred Stock and the Debentures can only be transferred
by a holder thereof to a transferee together as a single unit of securities, in a ratio of one (1) share of Preferred Stock (as
adjusted for stock splits, reverse stock splits and similar events) for each $1,000 in principal amount of Debentures. Any attempted
transfer of Debentures that does not also include a transfer to the transferee thereof of one (1) share of Preferred Stock (as
adjusted for stock splits, reverse stock splits and similar events) for each $1,000 in principal amount of Debentures, or any attempted
transfer of one (1) share of Preferred Stock (as adjusted for stock splits, reverse stock splits and similar events) that does
not also include a transfer to the transferee thereof of $1,000 in principal amount of Debentures, shall be null and void and of
no force or effect, and the Company shall continue to recognize as the holder of such securities the Person attempting to transfer
such securities in violation of this Section 4.1(d). The Debentures may only be transferred in denominations of $1,000 in principal
amount or whole multiples of $1,000 in principal amount. The Purchasers agree to the imprinting of a legend on the Debentures and
the certificates representing the Preferred Stock in the following form:






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THESE SECURITIES MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF A SECURITIES PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE COMPANY.


4.2Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant
to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive
effect that such issuance may have on the ownership of the other stockholders of the Company.


 


4.3Furnishing of
Information; Public Information. Until the earliest of the time that (i) no Purchaser owns Securities or (ii) the Warrants
have expired, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange
Act and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required
to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act.


 


4.4Integration.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined
in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require
the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of
the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval
prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.


 


4.5Conversion and
Exercise Procedures. Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion
included in the Debentures set forth the totality of the procedures required of the Purchasers in order to exercise the
Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the
Debentures and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction
Documents.


 






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4.6Securities Laws
Disclosure; Publicity. The Company shall issue a press release disclosing the material terms of the transactions contemplated
hereby at a time and in substance mutually agreed to by the Company and Tengram, and file a Current Report on Form 8-K, including
the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. The Company and
each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed,
except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market,
without the prior written consent of such Purchaser, except: (a) as required by federal securities law in connection with the
filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under
this clause (b).


 


4.7Shareholder
Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that
any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the
Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.


 


4.8Piggyback Registration
Rights. If the Company shall determine to prepare and file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s
stock option or other employee benefit plans, then the Company shall deliver to each Purchaser a written notice of such determination
and, if within fifteen days after the date of the delivery of such notice, any such Purchaser shall so request in writing, the
Company shall include in such registration statement all or any part of such Shares or Warrant Shares such Holder requests to
be registered, subject to customary underwriter cutbacks.


 


4.9Use of Proceeds.
The Company shall use the net proceeds from the sale of the Securities at the First Closing to pay the Existing Secured Indebtedness,
professional fees and related costs associated with the transactions contemplated by this Agreement, and accounts payable, and
the Company shall use the net proceeds from the sale of the Securities at the Second Closing for working capital purposes and
shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of Existing
Secured Indebtedness and the payment of trade payables in the ordinary course of the Company’s business and prior practices),
(b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or
(d) in violation of FCPA or OFAC regulations.


 






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4.10Indemnification
of Purchasers. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of
a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against
the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser Parties, with respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser Parties may have with any such stockholder or any violations
by such Purchaser Parties of state or federal securities laws or any conduct by such Purchaser Parties which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of
which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and
the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser
Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time
to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material
conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will
not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s
prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that
a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties,
covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification
required by this Section 4.8 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 are incurred. The indemnity agreements contained herein shall be in addition to any
cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject
to pursuant to law.


 






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4.11Reservation
of Common Stock. Subject to Section 4.15, the Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under
the Transaction Documents. If, on any date from and after the date Stockholder Approval is obtained, the number of authorized
but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board
of Directors shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to
increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as
possible and in any event not later than the 120 days after such date.


 


4.12Listing of
Common Stock. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on the
Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all
of the Underlying Shares on such Trading Market and promptly secure the listing of all of the Underlying Shares on such Trading
Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will
then include in such application all of the Underlying Shares, and will take such other action as is necessary to cause all of
the Underlying Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take
all action reasonably necessary to continue the listing or quotation and trading of its Common Stock on a Trading Market and will
comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading
Market.


 


4.13Form D; Blue
Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and
to provide a copy thereof, promptly upon request of any Purchaser. The Company shall 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 Purchasers at the Closing
under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such
actions promptly upon request of any Purchaser.


 


4.14Negative Covenants.
Until the later of the two (2) year anniversary of the First Closing Date and the date that Tengram’s beneficial ownership
of the Common Stock (including shares of Common Stock underlying the Debentures then held by Tengram) is less than 40% of the
Fully Diluted Common Stock, neither the Company nor any Subsidiary shall take any of the following actions without the prior written
consent of Tengram:


 


(a)other
than an Exempt Issuance, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common
Stock or Common Stock Equivalents.


(b)effecting
or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents for cash consideration (or a combination of units thereof) involving a Variable Rate Transaction. “Variable
Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A)
at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices
of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B)
with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of
such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line
of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive
relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.






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(c)entering
into, or any settlement of, any litigation to which the Company or any of its Subsidiaries is a party involving the payment by
the Company or any of its Subsidiaries of an amount equal to or greater than $250,000;


(d)any
(A) acquisition by the Company or any Subsidiary of the Company of the stock, other equity interests or assets of any Person, in
one transaction or a series of related transactions, or (B) disposition of assets of the Company or any Subsidiary of the Company
or the capital stock or other equity interests of any Subsidiary of the Company;


(e)any
merger, consolidation or other business combination involving the Company or any Subsidiary of the Company (other than mergers
of wholly-owned Subsidiaries of the Company with each other or the Company);


(f)any
joint venture with or equity investment in any Person, other than any equity investment in wholly-owned Subsidiaries of the Company;


(g)the
incurrence or refinancing of any indebtedness for borrowed money (including, without limitation, through capital leases, the issuance
of debt securities or the guarantee of indebtedness of another Person), other than indebtedness where all or substantially all
of the net proceeds thereof are used by the Company to pay all or any portion of the Debentures in accordance with the terms
of Section 6(c) thereof;


(h)other
than an Exempt Issuance, any authorization, creation (by way of reclassification, merger, consolidation or otherwise), subdivision
or issuance of any equity or equity-linked securities of the Company or any Subsidiary of the Company;


(i)any
payment or declaration of any dividend or other distribution on or in respect of the Common Stock, or any redemption of Common
Stock, any non-pro rata payment or declaration of any dividend or other distribution on or in respect of the Common Stock,
or any non pro-rata redemption or other repurchase of any Common Stock, other than any redemption of any Common Stock issued
to an employee permitted under any agreement between the Company and such employee approved (if required) in accordance with a
management equity incentive plan;






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(j)voluntary
election by the Company or any Subsidiary of the Company to liquidate or dissolve or to commence bankruptcy or insolvency proceedings
under applicable laws or the adoption of a plan with respect to any of the foregoing;


(k)any
agreement or transaction between the Company or any Subsidiary of the Company, on the one hand, and any Affiliate of the Company,
including, without limitation, any of the portfolio companies held or managed by such Affiliates, on the other hand, other than
any transaction between the Company or any Subsidiary of the Company, on the one hand, and another Subsidiary of the Company or
an employee of the Company or any of its Subsidiaries, on the other hand; or


(l)any
material change in the principal lines of business of the Company and its Subsidiaries.


Notwithstanding
anything in this Section 4.14 to the contrary, if the Second Closing does not occur for any reason, then the negative covenants
set forth in this Section 4.14 shall terminate and be of no further force or effect, except for the negative covenants contained
in Sections 4.14(b), 4.14(g) and 4.14(i), which shall continue to apply until payment or conversion in full of the Debentures issued
pursuant to this Agreement.


4.15Stockholder
Approval. Notwithstanding anything in this Agreement or the Debentures to the contrary, the Purchasers acknowledge and agree
that at the Second Closing, the Company will not have sufficient authorized but unissued and unreserved shares of Common Stock
to cover all of the Underlying Shares, and that the Debentures and the Warrants will contain restrictions on the conversion or
exercise thereof, as applicable, providing for a maximum number of shares of Common Stock that may be acquired upon the conversion
or exercise thereof. At the Company’s next annual or special meeting of its stockholders, the Company shall seek the approval
of its stockholders to increase the authorized number of shares of its Common Stock to at least 300 million shares of Common Stock
(“Stockholder Approval”), which amount is sufficient to provide for the issuance of all reserved but unissued
shares of Common Stock, including the Underlying Shares. If the Stockholder Approval is not obtained at such meeting, the Company
shall, at any subsequent annual or special meeting of its Stockholders, seek such Stockholder Approval until such approval is
obtained.


 


ARTICLE V.

MISCELLANEOUS


5.1Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect
whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing
has not been consummated on or before February 29, 2012; provided, however, that such termination will not affect
the right of any party to sue for any breach by any other party (or parties).


 


5.2Fees and Expenses.
At the Second Closing, the Company has agreed to pay Tengram the non-accountable sum equal to 2.5% of the aggregate Subscription
Amounts subscribed for hereunder plus all legal and other fees and expenses incurred in connection with this Agreement. Additionally,
on the Second Closing Date and on each one-year anniversary of such date so long as Tengram has the right under the Stockholder
Agreement to nominate one or more directors to the Company’s Board of Directors, the Company shall pay Tengram a monitoring
fee of $250,000 per year. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the
Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.


 






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5.3Entire Agreement.
The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.


 


5.4Notices.
Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and
shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.


 


5.5Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed
by the Company, Tengram and the Purchasers holding at least a majority in interest of the Securities then outstanding. No waiver
of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver
in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall
any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.


 


5.6Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.


 


5.7Successors and
Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Tengram
and the Purchasers holding at least a majority in interest of the Shares then outstanding (other than by merger). Any Purchaser
may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities,
provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the “Purchasers.”


 






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5.8No Third-Party
Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set
forth in Section 4.10 and this Section 5.8.


 


5.9Governing Law.
All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles
of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto
or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively
in the state and federal courts sitting in the City 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 (including with respect to the enforcement
of any of the Transaction Documents), 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 improper
or is an inconvenient venue for such proceeding. 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 via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for 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 other manner permitted by law. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents, then in addition to the obligations of the Company
under Section 4.8, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action
or proceeding.


 


5.10Survival.
The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.


 


5.11Execution.
This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being
understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.


 






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5.12Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.


 


5.13Rescission
and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of)
any of the other Transaction Documents, whenever any Purchaser 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 Purchaser
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; provided, however, that in the
case of a rescission of a conversion of a Debenture or exercise of a Warrant, the applicable Purchaser shall be required to return
any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Purchaser
of the aggregate conversion or exercise price paid to the Company for such shares and the restoration of such Purchaser’s
right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate
evidencing such restored right).


 


5.14Replacement
of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation),
or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory
to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances
shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement
Securities.


 


5.15Remedies.
In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.


 


5.16Saturdays,
Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required
or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding
Business Day.


 






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5.17Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim,
and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at
any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order
to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents
for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum
Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of
them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction
Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to
the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof,
the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from
the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever,
interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded
to the Company, the manner of handling such excess to be at such Purchaser’s election.


 


5.18Construction.
The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.


 


5.19WAIVER
OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY,
THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY,
UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 


 


5.20Additional
Purchaser. On or before the Second Closing, the Company shall have the right to include as a Purchaser under this Agreement,
Tennman WR-T, Inc., a Delaware corporation (“TWR”), and to issue and sell Securities to TWR hereunder at the
Second Closing, if and to the extent TWR exercises its preemptive rights to purchase Securities pursuant to that certain Preemptive
Rights and Board Nominee Agreement, dated as October 1, 2011, by and among the Company, TWR and Al Gossett. If TWR exercises its
preemptive rights to purchase all or any portion of the Securities that TWR is entitled to purchase, then (i) TWR shall become
a party to this Agreement as a Purchaser hereunder by signing a joinder agreement in a form acceptable to the Company, which joinder
agreement shall set forth the Subscription Amount for TWR, and (ii) the aggregate Subscription Amount for all Purchasers hereunder
shall be increased by TWR’s Subscription Amount (i.e., the Subscription Amount for all other Purchasers shall not be decreased
as a result of TWR’s election to purchase Securities hereunder).


 


 (Signature Pages Follow)






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IN WITNESS WHEREOF,
the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.


 


	
        People’s liberation,
        inc.

         

         
	Address for Notice:
	
        By:  /s/ Colin Dyne                                

        Name: Colin Dyne

        Title: Chief Executive Officer

         

         
	
        People’s Liberation, Inc.

        1212 S. Flower Street, 5th Floor

        Los Angeles, CA 90015

        Fax:

        Attn: Colin Dyne

	
         

        With a copy to (which shall not constitute notice):

         

        John J. McIlvery, Esq.

        Stubbs Alderton & Markiles, LLP

        15260 Ventura Boulevard, 20th Floor

        Sherman Oaks, CA 91403

        Fax: (818) 444-6302

        
	 


 


 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


SIGNATURE PAGE FOR PURCHASER FOLLOWS]


 






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[PURCHASER SIGNATURE PAGES TO PPLB SECURITIES
PURCHASE AGREEMENT]


 


 









 


IN WITNESS WHEREOF,
the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as
of the date first indicated above.


Name of Purchaser:  TCP WR Acquisition,
LLC                                                                                                  


Signature of Authorized Signatory
of Purchaser: ________________________________________


Name of Authorized Signatory:
______________________________________________________


Title of Authorized Signatory:
_______________________________________________________


Email Address of Authorized
Signatory: ________________________________________________


Facsimile Number of Authorized Signatory: ______________________________________________


EIN Number: _____________________________________________________________________


Address for Notice to Purchaser:


 


 


 


 


 


 


Address for Delivery of Securities to Purchaser (if not same as
address for notice):


 


 


 


 


 


 


Subscription Amounts


 


	First Closing:	 	Second Closing:
	 	 	 
	First Subscription Amount:  $3,000,000	 	Second Subscription Amount:  $11,500,000
	 	 	 
	Shares of Preferred Stock:  3,000 shares	 	Shares of Preferred Stock:  11,500shares
	 	 	 
	Warrant Shares:  3,428,571	 	Warrant Shares:  13,142,857


 






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