Document:

XcelMobility, Inc.: Exhibit 4.2 - Filed by newsfilecorp.com

Execution Version 

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

XCELMOBILITY,
INC. 

WARRANT TO PURCHASE
COMMON STOCK 

Warrant No.: 01 
Date of Issuance: May 30, 2014
(“Issuance Date”) 

      
     XcelMobility, Inc., a Nevada corporation (the
“Company”), hereby certifies that, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, HANOVER HOLDINGS
I, LLC, the registered holder hereof or its permitted assigns (the
“Holder”), is entitled, subject to the terms set forth below, to purchase
from the Company, at the Exercise Price (as defined below) then in effect, upon
exercise of this Warrant to Purchase Common Stock (including any Warrants to
Purchase Common Stock issued in exchange, transfer or replacement hereof, the
“Warrant”), at any time or times on or after the Issuance Date, but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
3,716,091 (subject to adjustment as provided herein) fully paid and
non-assessable shares of Common Stock (as defined below) (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this
Warrant shall have the meanings set forth in Section 16. This Warrant is issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
May 30, 2014, by and among the Company and the investor referred to therein (the
“Securities Purchase Agreement”). 

1.        EXERCISE OF
WARRANT. 

            (a)        Mechanics of Exercise. Subject to the terms and conditions hereof
  (including, without limitation, the limitations set forth in Section 1(f)), this
  Warrant may be exercised by the Holder on any day after the Issuance Date (each,
  an “Exercise Date”), in whole or in part, by delivery (whether via e-mail, facsimile or otherwise) of a
  written notice, in the form attached hereto as Exhibit A (the
  “Exercise Notice”), of the Holder’s election to exercise this Warrant.
  Within five (5) Trading Days of the receipt of the Exercise Notice, the Company
  shall notify the Holder by delivery (whether via e-mail, facsimile or otherwise)
  of a written notice of whether the Company, in its sole discretion, elects to
  accept or decline any specific Exercise Notice. If the Company elects to decline
  the Exercise Notice pursuant to this Section 1(a) and so elects to decline the
  Exercise Notice, such Exercise Notice shall be deemed null and void and have no
  further effect. If the Company elects to accept the Exercise Notice, then within
  one (1) Trading Day following written acceptance as aforesaid, the Holder shall
  deliver payment to the Company of an amount equal to the Exercise Price in
  effect on the date of such exercise multiplied by the number of Warrant Shares
  as to which this Warrant was so exercised (the “Aggregate Exercise
    Price”) in cash or via wire transfer of immediately available funds;
  provided, however, in no event can the Aggregate Exercise Price with
  respect to a specific Exercise Notice result in less than $50,000 in gross
  proceeds to the Company. The Holder shall not be required to deliver the
  original of this Warrant in order to effect an exercise hereunder. Execution and
  delivery of an Exercise Notice with respect to less than all of the Warrant
  Shares shall have the same effect as cancellation of the original of this
  Warrant and issuance of a new Warrant evidencing the right to purchase the
  remaining number of Warrant Shares. Execution and delivery of an Exercise Notice
  for all of the then-remaining Warrant Shares shall have the same effect as
  cancellation of the original of this Warrant after delivery of the Warrant
  Shares in accordance with the terms hereof. On or before the first
  (1st) Trading Day following the date on which the Company has
  received an Exercise Notice, the Company shall transmit by e-mail or facsimile
  an acknowledgment of confirmation of receipt of such Exercise Notice, in the
  form attached hereto as Exhibit B, the Company’s transfer agent (the
  “Transfer Agent”). On or before the third (3rd) Trading Day
  following the date on which the Company has received such Exercise Notice, the
  Company shall (X) provided that the Transfer Agent is participating in The
  Depository Trust Company (“DTC”) Fast Automated Securities Transfer
  Program, upon the request of the Holder, credit such aggregate number of shares
  of Common Stock to which the Holder is entitled pursuant to such exercise to the
  Holder’s or its designee’s balance account with DTC through its Deposit/
  Withdrawal at Custodian system, or (Y) if the Transfer Agent is not
  participating in the DTC Fast Automated Securities Transfer Program, issue and
  deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise
  Notice, the Holder’s agent or designee, in each case, sent by reputable
  overnight courier to the address as specified in the applicable Exercise Notice,
  a certificate, registered in the Company’s share register in the name of the
  Holder or its designee (as indicated in the applicable Exercise Notice), for the
  number of shares of Common Stock to which the Holder is entitled pursuant to
  such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed
  for all corporate purposes to have become the holder of record of the Warrant
  Shares with respect to which this Warrant has been exercised, irrespective of
  the date such Warrant Shares are credited to the Holder’s DTC account or the
  date of delivery of the certificates evidencing such Warrant Shares (as the case
  may be). If this Warrant is submitted in connection with any exercise pursuant
  to this Section 1(a) and the number of Warrant Shares represented by this
  Warrant submitted for exercise is greater than the number of Warrant Shares
  being acquired upon an exercise, then, at the request of the Holder, the Company
  shall as soon as practicable and in no event later than three (3) Business Days
  after any exercise and at its own expense, issue and deliver to the Holder (or
  its designee) a new Warrant (in accordance with Section 7(d)) representing the
  right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
and fees which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

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            (b)       
  Exercise Price. For purposes of this Warrant, “Exercise Price”
means, for any date of determination, the lesser of (A) the product of (x) the
arithmetic average of the lowest three (3) VWAPs of the Common Stock during the
ten (10) consecutive Trading Days ending and including the Trading Day
immediately preceding the applicable Exercise Date and (y) sixty-five percent
(65%), and (B) $0.12 (as adjusted for any stock split, stock dividend, stock
combination or other similar transaction). All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction during any such measuring period. 

            (c)       
Company’s Failure to Timely Deliver Securities. If the Company shall
fail, for any reason or for no reason, to issue to the Holder within three (3)
Trading Days after receipt of the applicable Exercise Notice (provided that if
the Company has the right to elect to decline the Exercise Notice pursuant to
Section 1(a), the Company has elected to accept the Exercise Notice), a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant (as the case may be), then, in addition to all other
remedies available to the Holder, the Company shall pay in cash to the Holder on
each day after such third (3rd) Trading Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 2% of the
product of (A) the aggregate number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing
Sale Price of the Common Stock on the Trading Day immediately preceding the last
possible date on which the Company could have issued such shares of Common Stock
to the Holder without violating Section 1(a). In addition to the foregoing, if
within three (3) Trading Days after the Company’s receipt of the applicable
Exercise Notice, the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company’s share
register or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise hereunder (as the case may be), and if on or after such third
(3rd) Trading Day the Holder (or any other Person in respect, or on
behalf, of the Holder) purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of all
or any portion of the number of shares of Common Stock, or a sale of a number of
shares of Common Stock equal to all or any portion of the number of shares of
Common Stock, issuable upon such exercise that the Holder so anticipated
receiving from the Company, then, in addition to all other remedies available to
the Holder, the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares of Common
Stock so purchased (including, without limitation, by any other Person in
respect, or on behalf, of the Holder) (the “Buy-In Price”), at which
point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder (as the case may be)
(and to issue such shares of Common Stock) shall terminate, or (ii) promptly
honor its obligation to so issue and deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and
pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock multiplied
by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day
during the period commencing on the date of the applicable Exercise Notice and
ending on the date of such issuance and payment under this clause (ii). 

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(d)        Reserved.

            (e)       
Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 13. 

            (f)       
Limitations on Exercises. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant shall not be exercisable by the Holder
hereof to the extent (but only to the extent) that the Holder or any of its
affiliates would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the Common Stock. To the extent the above limitation
applies, the determination of whether this Warrant shall be exercisable
(vis-à-vis other convertible, exercisable or exchangeable securities owned by
the Holder or any of its affiliates) and of which such securities shall be
exercisable (as among all such securities owned by the Holder) shall, subject to
such Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be). No prior inability to exercise this Warrant pursuant to this paragraph
shall have any effect on the applicability of the provisions of this paragraph
with respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not amend or waive this paragraph without the
consent of holders of a majority of its Common Stock. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one (1) Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding, including by virtue of any prior
conversion or exercise of convertible or exercisable securities into Common
Stock, including, without limitation, pursuant to this Warrant or securities
issued pursuant to the Securities Purchase Agreement. At any time the Holder may
increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% as specified in a written notice by the Holder
to the Company (subject to the Company’s consent to any such increase, not to be
unreasonably withheld); provided that (i) any such increase will not be
effective until the 61st day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the Holder sending such
notice. 

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            (g)       
Insufficient Authorized Shares. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company’s obligation to issue shares of Common
Stock hereunder (without regard to any limitation otherwise contained herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while this Warrant remains outstanding the
Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exercise of
this Warrant at least a number of shares of Common Stock equal to the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of this Warrant in full (the “Required Reserve Amount”) (an
“Authorized Share Failure”), then the Company shall immediately take all
action necessary to increase the Company’s authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve Amount
for this Warrant. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal. In the event that the Company is prohibited from issuing
shares of Common Stock upon any exercise due to the failure by the Company to
have sufficient shares of Common Stock available out of the authorized but
unissued shares of Common Stock (such unavailable number of shares of Common
Stock, the “Authorization Failure Shares”), in lieu of delivering
such Authorization Failure Shares to the Holder, the Company shall pay cash in
exchange for the redemption of such portion of this Warrant exercisable into
such Authorized Failure Shares at a price equal to the sum of (i) the product of
(x) such number of Authorization Failure Shares and (y) the greatest Closing
Sale Price of the Common Stock on any Trading Day during the period commencing
on the date the Holder delivers the applicable Exercise Notice with respect to
such Authorization Failure Shares to the Company and ending on the date of such
issuance and payment under this Section 1(g) and (ii) to the extent the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of Authorization Failure Shares,
any brokerage commissions and other out-of-pocket expenses, if any, of the
Holder incurred in connection therewith. Nothing contained in this Section 1(g)
shall limit any obligations of the Company under any provision of the Securities
Purchase Agreement 

2.        ADJUSTMENT OF
NUMBER OF WARRANT SHARES. If at any time the Share Amount of this Warrant is
less than the Required Share Amount of this Warrant, the number of Warrant
Shares issuable upon exercise of this Warrant (without regards to any
limitations on exercise contained herein) shall automatically be increased by
such number of Warrant Shares equal to the difference of (x) the Required Share Amount, less (y) the
Share Amount (provided, that no adjustment shall be made if such adjustment
would result in a decrease in the number of Warrant Shares issuable upon
exercise of this Warrant). 

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3.        RIGHTS UPON
DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2
above, if the Company shall declare or make any dividend or other distribution
of its assets (or rights to acquire its assets) to holders of shares of Common
Stock, by way of return of capital or otherwise (including, without limitation,
any distribution of cash, stock or other securities, property or options by way
of a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder’s right to
participate in any such Distributions would result in the Holder exceeding the
Maximum Percentage, then the Holder shall not be entitled to participate in such
Distribution to such extent (or the beneficial ownership of any such shares of
Common Stock as a result of such Distribution to such extent) and such
Distribution to such extent shall be held in abeyance for the benefit of the
Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage). 

4.        PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS. 

            (a)       
Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on exercise hereof, including without
limitation, the Maximum Percentage) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of shares of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage). 

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            (b)        Fundamental Transactions. The Company shall not enter into or be party to
a Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents (as defined in the Securities Purchase Agreement) in accordance with the
provisions of this Section 4(b) pursuant to written agreements in form and
substance satisfactory to the Holder and approved by the Holder prior to such
Fundamental Transaction, including agreements to deliver to the Holder in
exchange for this Warrant a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, which is exercisable for a corresponding number
of shares of capital stock equivalent to the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations
on the exercise of this Warrant) prior to such Fundamental Transaction, and with
an exercise price which applies the exercise price hereunder to such shares of
capital stock (but taking into account the relative value of the shares of
Common Stock pursuant to such Fundamental Transaction and the value of such
shares of capital stock, such adjustments to the number of shares of capital
stock and such exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such Fundamental
Transaction) and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the consummation of each Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of the applicable Fundamental Transaction, the
provisions of this Warrant and the other Transaction Documents referring to the
“Company” shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant and the other Transaction Documents with the same
effect as if such Successor Entity had been named as the Company herein. Upon
consummation of each Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the applicable Fundamental
Transaction, in lieu of the shares of Common Stock (or other securities, cash,
assets or other property (except such items still issuable under Sections 3 and
4(a) above, which shall continue to be receivable thereafter)) issuable upon the
exercise of this Warrant prior to the applicable Fundamental Transaction, such
shares of publicly traded common stock (or its equivalent) of the Successor
Entity (including its Parent Entity) which the Holder would have been entitled
to receive upon the happening of the applicable Fundamental Transaction had this
Warrant been exercised immediately prior to the applicable Fundamental
Transaction (without regard to any limitations on the exercise of this Warrant),
as adjusted in accordance with the provisions of this Warrant. In addition to
and not in substitution for any other rights hereunder, prior to the
consummation of each Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this Warrant at any
time after the consummation of the applicable Fundamental Transaction but prior
to the Expiration Date, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property (except such items still issuable
under Sections 3 and 4(a) above, which shall continue to be receivable
thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of the applicable Fundamental Transaction had this Warrant been exercised
immediately prior to the applicable Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant). Provision made pursuant to
the preceding sentence shall be in form and substance reasonably satisfactory to
the Holder. 

7

            (c)       
Black Scholes Value. Notwithstanding the foregoing and the provisions of
Section 4(b) above, at the request of the Holder delivered at any time
commencing on the earliest to occur of (x) the public disclosure of any
Fundamental Transaction, (y) the consummation of any Fundamental Transaction and
(z) the Holder first becoming aware of any Fundamental Transaction through the
date that is ninety (90) days after the public disclosure of the consummation of
such Fundamental Transaction by the Company pursuant to a Current Report on Form
8-K filed with the SEC, the Company or the Successor Entity (as the case may be)
shall purchase this Warrant from the Holder on the date of such request by
paying to the Holder cash in an amount equal to the Black Scholes Value. 

            (d)       
Application. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied as if this Warrant (and any such subsequent warrants) were fully
exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)). 

5.       
NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its articles of incorporation, bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as this Warrant is outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
the maximum number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of this Warrant in full (without regard to any
limitations on exercise). 

6.        WARRANT HOLDER
NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein,
the Holder, solely in its capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital
of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in its capacity as the Holder of
this Warrant, any of the rights of a stockholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which it is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the
Holder to purchase any securities (upon exercise of this Warrant or otherwise)
or as a stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders. 

8

7.        REISSUANCE OF
WARRANTS. 

            (a)       
Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred. 

            (b)       
Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Warrant, the Company shall
execute and deliver to the Holder a new Warrant (in accordance with Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant. 

            (c)       
Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, no warrants for fractional shares of
Common Stock shall be given. 

            (d)       
Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant. 

8.        NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with the notice
provsions of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon each adjustment of the
Exercise Price and the number of Warrant Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment(s) and (ii) at least
fifteen (15) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the shares
of Common Stock, (B) with respect to any grants, issuances or sales of any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder and (iii) at least ten (10) Trading Days prior to the
consummation of any Fundamental Transaction. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of its Subsidiaries, the Company shall
simultaneously file such notice with the SEC (as defined in the Securities
Purchase Agreement) pursuant to a Current Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company. 

9

9.        AMENDMENT AND
WAIVER. Except as otherwise provided herein, the provisions of this Warrant
(other than Section 1(f)) may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder. The
Holder shall be entitled, at its option, to the benefit of any amendment of (i)
any other similar warrant issued under the Securities Purchase Agreement or (ii)
any other similar warrant. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party. 

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

11.       GOVERNING LAW.
This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of Illinois. The Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Chicago, Illinois, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Nothing contained
herein shall (i) be deemed or operate to preclude the Holder from bringing suit
or taking other legal action against the Company in any other jurisdiction to
collect on the Company’s obligations to the Holder or to enforce a judgment or
other court ruling in favor of the Holder or (ii) limit, or be deemed to limit,
any provision of Section 13. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY. 

10

12.      CONSTRUCTION;
HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company
and the Holder and shall not be construed against any Person as the drafter
hereof. The headings of this Warrant are for convenience of reference and shall
not form part of, or affect the interpretation of, this Warrant. Terms used in
this Warrant but defined in the other Transaction Documents shall have the
meanings ascribed to such terms on the Closing Date (as defined in the
Securities Purchase Agreement) in such other Transaction Documents unless
otherwise consented to in writing by the Holder. 

13.      DISPUTE
RESOLUTION.

            (a)       
Disputes Over the Exercise Price, Closing Sale Price, Bid Price, Black
Scholes Value or Fair Market Value.

            (i)       
In the case of a dispute relating to the Exercise Price, the Closing Sale Price,
the Bid Price, Black Scholes Value or fair market value (as the case may be)
(including, without limitation, a dispute relating to the determination of any
of the foregoing), the Company or the Holder (as the case may be) shall submit
the dispute via e-mail or facsimile (I) within twenty (20) Business Days after
delivery of the applicable notice giving rise to such dispute to the Company or
the Holder (as the case may be) or (II) if no notice gave rise to such dispute,
at any time after the Holder learned of the circumstances giving rise to such
dispute. If the Holder and the Company are unable to resolve such dispute
relating to the Exercise Price, the Closing Sale Price, the Bid Price, Black
Scholes Value or fair market value (as the case may be) by 5:00 p.m. (New York
time) on the third (3rd) Business Day following such delivery by the
Company or the Holder (as the case may be) of such dispute to the Company or the
Holder (as the case may be), then the Holder shall select an independent,
reputable investment bank to resolve such dispute. 

11

            (ii)       
The Holder and the Company shall each deliver to such investment bank (x) a copy
of the initial dispute submission so delivered in accordance with the first sentence of this Section 13(a) and (y)
written documentation supporting its position with respect to such dispute, in
each case, no later than 5:00 p.m. (New York time) by the fifth (5th)
Business Day immediately following the date on which the Holder selected such
investment bank (the “Dispute Submission Deadline”) (the documents
referred to in the immediately preceding clauses (x) and (y) are collectively
referred to herein as the “Required Dispute Documentation”) (it
being understood and agreed that if either the Holder or the Company fails to so
deliver all of the Required Dispute Documentation by the Dispute Submission
Deadline, then the party who fails to so submit all of the Required Dispute
Documentation shall no longer be entitled to (and hereby waives its right to)
deliver or submit any written documentation or other support to such investment
bank with respect to such dispute and such investment bank shall resolve such
dispute based solely on the Required Dispute Documentation that was delivered to
such investment bank prior to the Dispute Submission Deadline). Unless otherwise
agreed to in writing by both the Company and the Holder or otherwise requested
by such investment bank, neither the Company nor the Holder shall be entitled to
deliver or submit any written documentation or other support to such investment
bank in connection with such dispute (other than the Required Dispute
Documentation). 

            (iii)       
The Company and the Holder shall cause such investment bank to determine the
resolution of such dispute and notify the Company and the Holder of such
resolution no later than ten (10) Business Days immediately following the
Dispute Submission Deadline. The fees and expenses of such investment bank shall
be borne solely by the Company, and such investment bank’s resolution of such
dispute shall be final and binding upon all parties absent manifest error.

           
(b)        Disputes Over Arithmetic
Calculation of Warrant Shares.

            (i)       
In the case of a dispute as to the arithmetic calculation of the number of
Warrant Shares, the Company or the Holder (as the case may be) shall submit the
disputed arithmetic calculation via e-mail or facsimile (i) within twenty (20)
Business Days after delivery of the applicable notice giving rise to such
dispute to the Company or the Holder (as the case may be) or (ii) if no notice
gave rise to such dispute, at any time after the Holder learned of the
circumstances giving rise to such dispute. If the Holder and the Company are
unable to resolve such disputed arithmetic calculation of the number of Warrant
Shares by 5:00 p.m. (New York time) on the third (3rd) Business Day
following such delivery by the Company or the Holder (as the case may be) of
such disputed arithmetic calculation of the number of Warrant Shares to the
Company or the Holder (as the case may be), then the Holder shall select an
independent, reputable accountant or accounting firm to perform such disputed
arithmetic calculation of the number of Warrant Shares. 

            (ii)       
The Holder and the Company shall each deliver to such accountant or accounting
firm (as the case may be) (x) a copy of the initial dispute submission so
delivered in accordance with the first sentence of this Section 13(b) and (y)
written documentation supporting its position with respect to such disputed
arithmetic calculation of the number of Warrant Shares, in each case, no later
than 5:00 p.m. (New York time) by the fifth (5th) Business Day
immediately following the date on which the Holder selected such accountant or accounting
firm (as the case may be) (the “Submission Deadline”) (the documents
referred to in the immediately preceding clauses (x) and (y) are collectively
referred to herein as the “Required Documentation”) (it being
understood and agreed that if either the Holder or the Company fails to so
deliver all of the Required Documentation by the Submission Deadline, then the
party who fails to so submit all of the Required Documentation shall no longer
be entitled to (and hereby waives its right to) deliver or submit any written
documentation or other support to such accountant or accounting firm (as the
case may be) with respect to such disputed arithmetic calculation of the number
of Warrant Shares and such accountant or accounting firm (as the case may be)
shall perform such disputed arithmetic calculation of the number of Warrant
Shares based solely on the Required Documentation that was delivered to such
accountant or accounting firm (as the case may be) prior to the Submission
Deadline). Unless otherwise agreed to in writing by both the Company and the
Holder or otherwise requested by such accountant or accounting firm (as the case
may be), neither the Company nor the Holder shall be entitled to deliver or
submit any written documentation or other support to such accountant or
accounting firm (as the case may be) in connection with such disputed arithmetic
calculation of the number of Warrant Shares (other than the Required
Documentation). 

12

            (iii)     
The Company and the Holder shall cause such accountant or accounting firm (as
the case may be) to perform such disputed arithmetic calculation and notify the
Company and the Holder of the results no later than ten (10) Business Days
immediately following the Submission Deadline. The fees and expenses of such
accountant or accounting firm (as the case may be) shall be borne solely by the
Company, and such accountant’s or accounting firm’s (as the case may be)
arithmetic calculation shall be final and binding upon all parties absent
manifest error. 

            (c)       
Miscellaneous. The Company expressly acknowledges and agrees that (i)
this Section 13 constitutes an agreement to arbitrate between the Company and
the Holder (and constitutes an arbitration agreement) under the Illinois Uniform
Arbitration Act, as amended, (ii) the terms of this Warrant and each other
applicable Transaction Document shall serve as the basis for the selected
investment bank’s resolution of the applicable dispute, such investment bank
shall be entitled (and is hereby expressly authorized) to make all findings,
determinations and the like that such investment bank determines are required to
be made by such investment bank in connection with its resolution of such
dispute and in resolving such dispute such investment bank shall apply such
findings, determinations and the like to the terms of this Warrant and any other
applicable Transaction Documents, (iii) the terms of this Warrant and each other
applicable Transaction Document shall serve as the basis for the selected
accountant’s or accounting firm’s performance of the applicable arithmetic
calculation of the number of Warrant Shares, (iv) for clarification purposes and
without implication that the contrary would otherwise be true, disputes relating
to matters described in Section 13(a) shall be governed by Section 13(a) and not
by Section 13(b), (v) the Holder (and only the Holder), in its sole discretion,
shall have the right to submit any dispute described in this Section 13 to any
state or federal court sitting in Chicago, Illinois in lieu of utilizing the
procedures set forth in this Section 13 and (vi) nothing in this Section 13
shall limit the Holder from obtaining any injunctive relief or other equitable
remedies (including, without limitation, with respect to any matters described
in Section 13(a) or Section 13(b)). 

13

14.      REMEDIES,
CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual and consequential damages for any failure by the Company to comply
with the terms of this Warrant. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, exercises and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Warrant (including, without limitation, compliance with
Section 2 hereof). The issuance of shares and certificates for shares as
contemplated hereby upon the exercise of this Warrant shall be made without
charge to the Holder or such shares for any issuance tax or other costs in
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder or its agent on its
behalf. 

15.      TRANSFER. This Warrant
may be offered for sale, sold, transferred or assigned without the consent of
the Company, except as may otherwise be required by the terms of the Securities
Purchase Agreement. 

16.      CERTAIN DEFINITIONS.
For purposes of this Warrant, the following terms shall have the following
meanings: 

           
(a)        “Bid Price” means, for any
security as of the particular time of determination, the bid price for such
security on the Principal Market as reported by Bloomberg as of such time of
determination, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the bid price of such security on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg as of such time of determination, or
if the foregoing does not apply, the bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg as of such time of determination, or, if no bid price is
reported for such security by Bloomberg as of such time of determination, the
average of the bid prices of any market makers for such security as reported in
the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of
such time of determination. If the Bid Price cannot be calculated for a security
as of the particular time of determination on any of the foregoing bases, the
Bid Price of such security as of such time of determination shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period. 

14

            (b)       
“Black Scholes Value” means the value of the unexercised portion of this
Warrant remaining on the date of the Holder’s request pursuant to Section 4(c),
which value is calculated using the Black Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg utilizing (i) an underlying price per share
equal to the greatest of (1) the highest Closing Sale Price of the Common Stock
during the period beginning on the Trading Day immediately preceding the
earliest to occur of (x) the public disclosure of the applicable Fundamental
Transaction, (y) the consummation of the applicable Fundamental Transaction and
(z) the date on which the Holder first became aware of the applicable
Fundamental Transaction and ending on the later to occur of (A) the Trading Day
of the Holder’s request pursuant to Section 4(c) and (B) the Trading Day on
which the Company makes payment in full to the Holder pursuant to Section 4(c),
(2) the sum of the price per share being offered in cash in the applicable
Fundamental Transaction (if any) plus the value of the non-cash consideration
being offered in the applicable Fundamental Transaction (if any) and (3) without
limiting clauses (1) and (2) above, if the applicable Fundamental Transaction
results from a sale of all or substantially all of the assets of the Company or
any of its Subsidiaries, a price per share equal to the quotient of (A) the sum
of (X) the total consideration (including, without limitation, cash and non-cash
consideration, the assumption of indebtedness and other amounts, earn-outs and
contingent consideration) offered in the applicable Fundament Transaction plus
(Y) the aggregate amount of cash then held by the Company and its Subsidiaries
divided by (B) the total number of shares of Common Stock outstanding on the
earlier to occur of the Trading Day of the Holder’s request pursuant to Section
4(c) and the date of consummation of the applicable Fundamental Transaction,
(ii) a strike price equal to the Exercise Price in effect on the date of the
Holder’s request pursuant to Section 4(c), (iii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the greater of (1)
the remaining term of this Warrant as of the date of the Holder’s request
pursuant to Section 4(c) and (2) the remaining term of this Warrant as of the
date of consummation of the applicable Fundamental Transaction or as of the date
of the Holder’s request pursuant to Section 4(c) if such request is prior to the
date of the consummation of the applicable Fundamental Transaction and (iv) an
expected volatility equal to the greater of 100% and the 100 day volatility
obtained from the HVT function on Bloomberg (determined utilizing a 365 day
annualization factor) as of the Trading Day immediately following the earliest
to occur of (x) the public disclosure of the applicable Fundamental Transaction,
(y) the consummation of the applicable Fundamental Transaction and (z) the date
on which the Holder first became aware of the applicable Fundamental
Transaction. 

           
(c)        “Bloomberg” means
Bloomberg, L.P. 

            (d)       
“Business Day” means any day other than Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
to remain closed. 

            (e)       
“Closing Sale Price” means, for any security as of any date, the last
trade price for such security on the Principal Market, as reported by Bloomberg,
or, if the Principal Market begins to operate on an extended hours basis and
does not designate the closing trade price, then the last trade price of such
security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last trade price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing does
not apply, the last trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no last trade price is reported for such security by Bloomberg, the average
of the ask prices of any market makers for such security as reported in the
“pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Sale Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with
the procedures in Section 13. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period. 

15

            (f)       
“Common Stock” means (i) the Company’s shares of common stock, $0.001 par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock. 

            (g)       
“Convertible Securities” means any stock, note, debenture or other
security (other than Options) that is, or may become, at any time and under any
circumstances, directly or indirectly, convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
shares of Common Stock. 

            (h)       
“Eligible Market” means the OTC Bulletin Board, The NASDAQ Global Market,
The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock
Exchange, NYSE Arca, the NYSE MKT, the OTCQX Marketplace or the OTCQB
Marketplace operated by OTC Markets Group Inc. (or any successor to any of the
foregoing) 

           
(i)        “Equity Conditions” means:
(i) on each day during the period beginning one month prior to the applicable
date of determination and ending on and including the applicable date of
determination either (x) one or more Registration Statements filed pursuant to
the Registration Rights Agreement shall be effective and the prospectus
contained therein shall be available for the resale by the Holder of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement and there shall not have been during such period any Grace Periods (as
defined in the Registration Rights Agreement) or (y) all Registrable Securities
shall be eligible for sale without restriction under Rule 144 (as defined in the
Securities Purchase Agreement) (including, without limitation, volume
restrictions) and without the need for current public information required by
Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and without the need for
registration under any applicable federal or state securities laws (in each
case, disregarding any limitation on conversion of the Notes exercise of the
Warrants); (ii) on each day during the period beginning three months prior to
the applicable date of determination and ending on and including the applicable
date of determination (the “Equity Conditions Measuring Period”), the
Common Stock (including all Registrable Securities) is listed or designated for
quotation (as applicable) on an Eligible Market and shall not have been
suspended from trading on an Eligible Market (other than suspensions of not more
than two (2) days and occurring prior to the applicable date of determination
due to business announcements by the Company) nor shall delisting or suspension by an Eligible
Market be pending or have been threatened either (A) in writing by such Eligible
Market or (B) by falling below the minimum listing maintenance requirements of
the Eligible Market on which the Common Stock is then listed or designated for
quotation (as applicable); (iii) on each day during the Equity Conditions
Measuring Period, the Company shall have delivered all shares of Common Stock
issuable upon exercise of this Warrant on a timely basis as set forth in Section
1(a) hereof and all other shares of capital stock required to be delivered by
the Company on a timely basis as set forth in the other Transaction Documents;
(iv) any shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating Section 1(f)
hereof; (v) any shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating the rules or
regulations of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause (1) any Registration
Statement filed pursuant to the Registration Rights Agreement to not be
effective or the prospectus contained therein to not be available for the resale
of all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (2) any Registrable Securities to not be
eligible for sale without restriction pursuant to Rule 144 (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or any
applicable state securities laws (in each case, disregarding any limitation on
conversion of the Notes and exercise of the Warrants); (viii) the Holder shall
not be in possession of any material, non-public information provided to any of
them by the Company, any of its affiliates or any of their respective employees,
officers, representatives, agents or the like; and (ix) on each day during the
Equity Conditions Measuring Period, the Company otherwise shall have been in
compliance with each, and shall not have breached any, provision, covenant,
representation or warranty of any Transaction Document. 

16

            (j)       
“Equity Conditions Failure” means, with respect to a particular date of
determination, that on any day during the period commencing twenty (20) Trading
Days immediately prior to such date of determination, the Equity Conditions have
not been satisfied (or waived in writing by the Holder). 

            (k)       
“Expiration Date” means the date that is the first (1st)
anniversary of the Issuance Date or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a Holiday. 

            (l)       
“Fundamental Transaction” means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with any
other Person whereby such other Person acquires more than 50% of the outstanding
shares of Voting Stock of the Company (not including any shares of Voting Stock
of the Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination), or (ii) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act and the rules and regulations promulgated thereunder) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Voting Stock of the Company. 

17

            (m)       
“Maximum Forced Exercise Amount” means, as of any given date, the lesser
of (x) subject to Section 1(f), the number of Warrant Shares issuable upon
exercise of this Warrant as of such given date and (y) 500% of the average
trading volume (as reported on Bloomberg) of the Common Stock on the Principal
Market on each of the ten (10) consecutive Trading Days ending and including the
Trading Day immediately prior to such given date. 

            (n)       
“Notes” shall have the meaning as set forth in the Securities Purchase
Agreement. 

            (o) “Options” means any rights, warrants or options to
  subscribe for or purchase shares of Common Stock or Convertible Securities. 

            (p)       
“Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction. 

            (q)       
“Person” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any
other entity or a government or any department or agency thereof. 

            (r)       
“Principal Market” means, as of any date of determination, the principal
securities exchange or securities market on which the Common Stock is then
traded.

            (s)       
“Required Share Amount” means, as of any given time, the quotient
of (x) $150,000 and (y) the Exercise Price in effect as of such given time. 

            (t)       
“Share Amount” means, as of any given time, the sum of (x) the number of
Warrant Shares issuable upon exercise of this Warrant as of such given time
(without regard to any limitations on exercise set forth herein) and (y) the
number of Warrant Shares upon exercise of this Warrant prior to such given time.

            (u)       
“Successor Entity” means the Person (or, if so elected by the Holder, the
Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into. 

18

            (v)       
“Trading Day” means, as applicable, (x) with respect to all price
determinations relating to the Common Stock, any day on which the Common Stock
is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded, provided
that “Trading Day” shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock is suspended from trading during the final hour of trading
on such exchange or market (or if such exchange or market does not designate in
advance the closing time of trading on such exchange or market, then during the
hour ending at 4:00:00 p.m., New York time) unless such day is otherwise
designated as a Trading Day in writing by the Holder or (y) with respect to all
determinations other than price determinations relating to the Common Stock, any
day on which The New York Stock Exchange (or any successor thereto) is open for
trading of securities. 

            (w)       
“Voting Stock” of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency). 

17.      FORCED EXERCISE.

            (a)       
General. If at any time after the date hereof (i) the Closing Bid Price
of the Common Stock is equal to or greater than 140% of the Exercise Price (as
adjusted for stock splits, stock combinations or other similar transaction) for
a period of thirty (30) consecutive Trading Days (each thirty (30) consecutive
Trading Days on which the condition in this clause (i) is satisfied being
referred to herein as a “Measuring Period”), (ii) no Equity Conditions
Failure shall have occurred or be continuing, and (iii) the aggregate dollar
trading volume (as reported on Bloomberg) of the Common Stock on the applicable
Eligible Market for each Trading Day during such Measuring Period exceeds
$3,000 per day (collectively, the “Forced Exercise Conditions”, and each
date in which all the Forced Exercise Conditions are met, a “Forced Exercise
Eligibility Date”), then the Company shall have the right, exercisable on a
Forced Exercise Eligibility Date, to require the Holder to exercise all, or any
part, of this Warrant (up to the Maximum Forced Exercise Amount of Warrant
Shares as of the applicable Forced Exercise Notice Date (as defined below)) in
accordance with Section 1 hereof (the “Forced Exercise”) at the Exercise
Price in effect as of the applicable Forced Exercise Date (as defined below).
Notwithstanding anything herein to the contrary, the Company shall not be
permitted to effect a Forced Exercise if, after giving effect to such Forced
Exercise, the Company shall have received more than $150,000 in cash, in the
aggregate, from one or more exercises of this Warrant. 

19

            (b)        Mechanics. On any Forced Exercise Eligibility Date, the Company may
exercise its right to require a Forced Exercise by delivering a written notice
thereof by facsimile and e-mail to the Holder (each, a “Forced Exercise
Notice” and the date the Holder receives any such notice by facsimile is
referred to as a “Forced Exercise Notice Date”). Except as set forth
below, each Forced Exercise Notice shall be irrevocable. Each Forced Exercise
Notice shall (i) state that the Company is electing to effect a Forced Exercise,
(ii) state the proposed date of such Forced Exercise (the “Forced Exercise
Date”), which shall be no less than three (3) Trading Days after such Forced Exercise Notice Date, no more than ten
(10) Trading Days after such Forced Exercise Notice Date and no less than ten
(10) Trading Days after any prior Forced Exercise Date, (ii) state the number of
Warrant Shares to be exercised by the Holder on such Forced Exercise Date
(subject to any adjustments thereto pursuant to Section 2 that may occur prior
to such Forced Exercise Date); provided, that such number of Warrant Shares
shall not exceed the Maximum Forced Exercise Amount as of such Forced Exercise
Notice Date, and (iv) contain a certification from an officer or director of the
Company that the Forced Exercise Conditions shall have been satisfied as of the
Forced Exercise Notice Date. On the Forced Exercise Date, the mechanics of
exercise set forth in Section 1 shall apply, to the extent applicable, as if the
Company had received from the Holder on the Forced Exercise Date an Exercise
Notice with respect to the number of Warrant Shares subject to the Forced
Exercise as set forth in such Forced Exercise Notice. If the Company fails to
meet any of the Forced Exercise Conditions during the period commencing on the
applicable Forced Exercise Notice Date through and including the applicable
Forced Exercise Date, the Company shall deliver a written notice to the Holder
of such failure and, unless such failure is waived by the Holder, such Forced
Exercise Notice shall be null and void and the Company shall not be permitted to
effect such Forced Exercise hereunder. 

[signature page follows]

20

            IN
WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above. 

XCELMOBILITY, INC. 

 

By: _________________________________
      
Name:
       Title: 

     EXHIBIT A 

EXERCISE NOTICE 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK 

XCELMOBILITY,
INC. 

            The
undersigned holder hereby exercises the right to purchase _________________of
the shares of Common Stock (“Warrant Shares”) of XcelMobility, Inc., a
Nevada corporation (the “Company”), evidenced by Warrant No. 01 (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant. 

            1.       
Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as: 

	 	__________	a “Cash Exercise” with respect to
      _______________Warrant Shares; and/or 
	 	 	  
	 	__________	a “Cashless Exercise” with respect to
      ______________Warrant Shares. 

            In
the event that the Holder has elected a Cashless Exercise with respect to some
or all of the Warrant Shares to be issued pursuant hereto, the Holder hereby
represents and warrants that (i) this Exercise Notice was executed by the Holder
at __________[a.m.][p.m.] on the date set forth below and (ii) if applicable,
the Bid Price as of such time of execution of this Exercise Notice was
$________. 

            2.       
Payment of Exercise Price. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________to the Company in accordance with the terms of the Warrant.

            3.       
Delivery of Warrant Shares. The Company shall deliver to Holder, or its
designee or agent as specified below, __________Warrant Shares in accordance
with the terms of the Warrant. Delivery shall be made to Holder, or for its
benefit, as follows: 

[  
]                   Check here if requesting
delivery as a certificate to the following name and to the following address:

	 	Issue to: 	 
	 	 	 
	 	 	 

	 	[   ]	Check here if requesting delivery by
      Deposit/Withdrawal at Custodian as follows: 

	 	DTC Participant: 	 
	 	 	 
	 	DTC Number: 	 
	 	 	 
	 	Account Number: 	 

Date: _______________ __, ______

 

_____________________________________
Name of Registered
Holder 

 

By:     
________________________________
           
Name: 
           
Title: 

     EXHIBIT B 

ACKNOWLEDGMENT 

         
  The Company hereby acknowledges this Exercise Notice and hereby
directs ______________ to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated _________, 20__,
from the Company and acknowledged and agreed to by _______________. 

XCELMOBILITY, INC. 

 

By: 
_________________________________
        
Name:
         Title:XcelMobility, Inc.: Exhibit 10.1 - Filed by newsfilecorp.com

Execution Version 

SECURITIES PURCHASE AGREEMENT 

            THIS
SECURITIES PURCHASE AGREEMENT (the “Agreement”) is made as of
the 30th day of May, 2014 by and between
XcelMobility, Inc., a Nevada corporation (the “Company”), and
Hanover Holdings I, LLC, a New York limited liability company (the
“Investor”). 

            WHEREAS,
the Company and the Investor are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the “1933
Act”), and Rule 506 of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the 1933 Act (without limiting any other such
exemption which may apply to the transactions contemplated by this Agreement);

           
WHEREAS, the Company has authorized the issuance of (i) a senior
convertible note, in the original principal amount of $350,000, in the form
attached hereto as Exhibit A (the “Note”), which Note shall
be convertible into shares of the Company’s common stock, $0.001 par value per
share (the “Common Stock”), in accordance with the terms of the
Note, and (ii) a warrant to acquire up 3,716,091 additional shares of Common
Stock, in the form attached hereto as Exhibit B (the
“Warrant”); 

           
WHEREAS, Investor wishes to purchase, and the Company wishes to sell at
the Closing (as defined below), upon the terms and conditions stated in this
Agreement, (i) the Note (and the Common Stock issuable upon conversion thereof,
collectively, the “Conversion Shares”) and (ii) the Warrant (and
the Common Stock issuable upon exercise thereof, collectively, the
“Warrant Shares”). 

            WHEREAS,
the Note, the Conversion Shares, the Warrant and the Warrant Shares are
collectively referred to herein as the “Securities” and the
offering contemplated hereby is referred to herein as the
“Offering”; 

           
WHEREAS, the parties have agreed that the obligation to repay the Note
shall be an unsecured obligation of the Company; and 

           
WHEREAS, at the Closing, the parties hereto shall execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit C (the
“Registration Rights Agreement”), pursuant to which the Company
has agreed to provide certain registration rights with respect to the
Registrable Securities (as defined in the Registration Rights Agreement), under
the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws. 

            NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in consideration of the premises and the
mutual agreements, representations and warranties, provisions and covenants
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows: 

           
1.        Purchase and Sale of Note
and Warrant.

                          1.1       
Purchase and Sale of Note and Warrant. Subject to the satisfaction (or,
where legally permissible, the waiver) of the conditions set forth in Section
4.1, the Company shall issue and sell to the Investor, and the Investor shall
purchase from the Company on the Closing Date (as defined below), the Note and
the Warrant (the “Closing”). 

                          1.2       
Form of Payment. On the Closing Date, (i) the Investor shall pay the
Purchase Price (as defined below) (less the amounts withheld pursuant to Section
12.12) to the Company for the Note and the Warrant to be issued and sold to the
Investor at the Closing, by wire transfer of immediately available funds in
accordance with the Company’s written wire instructions and (ii) immediately
following the Company’s receipt of such amount, the Company shall deliver to the
Investor (x) the Note and (y) the Warrant, in each case, duly executed on behalf
of the Company and registered in the name of the Investor or its designee.

            2.       
Purchase Price. The purchase price for the Note and the Warrant to be
purchased by the Investor (the “Purchase Price”) shall be
$250,000. The Note will be issued with an original issue discount of
approximately 28.57% . 

            3.       
Closing Date. The date and time of the Closing (the “Closing
Date”) shall be 10:00 a.m. (New York City time), on the first
(1st) Trading Day (as defined below) (and including the date hereof
if a Trading Day) on which the conditions to the Closing set forth in Section
4.1 below are satisfied or waived. The Closing shall occur at the offices of
Greenberg Traurig, LLP, MetLife Building, 200 Park Avenue, New York, NY 10166.

           
4.        Closing Conditions; Certain
Covenants. 

                         
4.1        Conditions to the
Closing.

                          (a)       
Conditions of the Company to the Closing. The obligation of the Company
to sell and issue the Note and the Warrant to the Investor at the Closing is
subject to the fulfillment, to the Company’s reasonable satisfaction, prior to
or at the Closing, of each of the following conditions: 

                         
(i)      Representations and Warranties. The
representations and warranties of the Investor contained in this Agreement (x)
that are not qualified by “materiality” shall have been true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date with the same force and effect as if made on
such dates, except to the extent such representations and warranties are as of
another date, in which case, such representations and warranties shall be true
and correct in all material respects as of such other date and (y) that are
qualified by “materiality” shall have been true and correct when made and shall
be true and correct as of the Closing Date with the same force and effect as if
made on such dates, except to the extent such representations and warranties are
as of another date, in which case, such representations and warranties shall be
true and correct as of such other date.

                          (ii)   
 Registration Rights Agreement. The Investor shall have duly
executed and delivered the Registration Rights Agreement to the Company. 

2

                          (iii)  
 No Injunction. No statute, regulation, order, decree, writ, ruling
or injunction shall have been enacted, entered, promulgated, threatened or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of or which would materially modify or delay any of
the transactions contemplated by the Transaction Documents. 

                          (b)       
Conditions to the Investor to the Closing. The obligation of the Investor
to purchase the Note and the Warrant to be issued to the Investor at the Closing
is subject to the satisfaction, or (where legally permissible) the waiver by the
Investor, on the Closing Date, of each of the following conditions: 

                         
(i)      Representations and Warranties. The
representations and warranties of the Company contained in this Agreement (x)
that are not qualified by “materiality” or “Material Adverse Effect” shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects as of the Closing Date with the same force and
effect as if made on such dates, except to the extent such representations and
warranties are as of another date, in which case, such representations and
warranties shall be true and correct in all material respects as of such other
date and (y) that are qualified by “materiality” or “Material Adverse Effect”
shall have been true and correct when made and shall be true and correct as of
the Closing Date with the same force and effect as if made on such dates, except
to the extent such representations and warranties are as of another date, in
which case, such representations and warranties shall be true and correct as of
such other date. 

                          (ii)   
 Performance of the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement and the Registration Rights Agreement
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Company shall have delivered to the Investor on the Closing
Date a written certification by an executive officer of the Company to the
foregoing substantially in the form attached hereto as Exhibit D. 

                          (iii)    No
Suspension of Trading in or Notice of Delisting of Common Stock.
Trading in the Common Stock shall not have been suspended by the Commission, the
Trading Market or the FINRA (except for any suspension of trading of less than
fourteen (14) days, which suspension shall be terminated prior to the Closing
Notice Date), the Company shall not have received any final and non-appealable
notice that the listing or quotation of the Common Stock on the Trading Market
shall be terminated on a date certain (unless, prior to such date certain, the
Common Stock is listed or quoted on any other Trading Market), trading in
securities generally as reported on the Trading Market shall not have been
suspended or limited, nor shall a banking moratorium have been declared either
by the U.S. or New York State authorities (except for any suspension, limitation
or moratorium which shall be terminated prior to the Closing Notice Date), there
shall not have been imposed any suspension of electronic trading or settlement
services by the Depository Trust Company (“DTC”) with respect to
the Common Stock that is continuing, the Company shall not have received any
notice from DTC to the effect that a suspension of electronic trading or
settlement services by DTC with respect to the Common Stock is being imposed or
is contemplated (unless, prior to such suspension, DTC shall have
notified the Company in writing that DTC has determined not to impose any such
suspension).

3

                          (iv)   
 Compliance with Laws. The Company shall have complied with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances in connection with the execution, delivery and performance of this
Agreement and the other Transaction Documents (as defined below) to which it is
a party and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the Company shall have obtained all
permits and qualifications required by any applicable state securities or “Blue
Sky” laws for the offer and sale of the Securities by the Company to the
Investor). 

                          (v)     
No Injunction. No statute, regulation, order, decree, writ, ruling or
injunction shall have been enacted, entered, promulgated, threatened or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of or which would materially modify or delay any of the
transactions contemplated by the Transaction Documents. 

                          (vi)   
 No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any court or governmental authority shall have been commenced
or threatened, and no inquiry or investigation by any governmental authority
shall have been commenced or threatened, against the Company or any Subsidiary,
or any of the officers, directors or affiliates of the Company or any
Subsidiary, seeking to restrain, prevent or change the transactions contemplated
by the Transaction Documents, or seeking material damages in connection with
such transactions. 

                          (vii)   
Listing of Securities. All of the Conversion Shares and Warrant Shares
that may be issued pursuant to the Note and Warrant, respectively, shall have
been approved for listing or quotation on the Trading Market as of the Closing
Date, in each case, without regard to any limitations on conversion or exercise
set forth in the Note or Warrant, respectively, subject only to notice of
issuance. 

                          (viii) 
 No Material Adverse Effect. No condition, occurrence, state of
facts or event constituting a Material Adverse Effect shall have occurred and be
continuing. 

                          (ix)   
 Opinion of Counsel. On the Closing Date, the Investor shall have
received an opinion from outside counsel to the Company, dated the Closing Date,
in the form mutually agreed to by the parties hereto prior to the date hereof.

                          (x)    
 Note and Warrant. At the Closing, the Company shall have tendered
to the Investor the Note and Warrant. 

                          (xi)   
 Registration Rights Agreement. The Company shall have duly executed
and delivered the Registration Rights Agreement to the Investor. 

                          (xii)   
Current Public Information. All reports, schedules, registrations, forms,
statements, information and other documents required to have been filed by the
Company with the Commission pursuant to
the reporting requirements of the 1934 Act, including all material required to
have been filed pursuant to Section 13(a) or 15(d) of the 1934 Act, shall have
been filed with the Commission under the 1934 Act.

4

                         
4.2        Reserved.

                          4.3       
Securities Law Disclosure; Publicity. The Company shall (a) by 9:00 a.m.
(New York City time) on the Trading Day immediately following the Closing Date,
issue a press release in form and substance reasonably acceptable to the
Investor disclosing the material terms of the transactions contemplated hereby
(the “Press Release”) and (b) issue a Current Report on Form 8-K
(the “Current Report”) disclosing the material terms of the
transactions contemplated hereby, and including the Transaction Documents as
exhibits thereto, within the time required by the 1934 Act. From and after the
issuance of the Press Release, the Company represents to the Investor that the
Company shall have publicly disclosed all material, non-public information
delivered to the Investor as of such time by the Company or any of its
subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. The Company shall afford the Investor and its counsel with a
reasonable opportunity to review and comment upon, shall consult with the
Investor and its counsel on the form and substance of, and shall give due
consideration to all such comments from the Investor or its counsel on, any
press release, Commission filing or any other public disclosure made by or on
behalf of the Company relating to the Investor, its purchases hereunder or any
aspect of the Transaction Documents or the transactions contemplated thereby,
prior to the issuance, filing or public disclosure thereof, and the Company
shall not issue, file or publicly disclose any such information to which the
Investor shall object. For the avoidance of doubt, the Company shall not be
required to submit for review any such disclosure contained in periodic reports
filed with the Commission under the Exchange Act if it shall have previously
provided the same disclosure for review in connection with a previous filing.

                          4.4       
Legends. 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 (as defined
below), to the Company or to an affiliate of the Investor or in connection with
a pledge, 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 1933 Act. The
Investor understands that the certificate or other instrument representing the
Note and the Warrant and the stock certificates representing the Conversion
Shares and the Warrant Shares, respectively, except as set forth below, shall
bear any legends as required by applicable state securities or “Blue Sky” laws
in addition to a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):

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

5

                          The
Company shall use its reasonable best efforts to cause its transfer agent to
remove the legend set forth above and to issue a certificate without such legend
to the holder of the Securities upon which it is stamped, or to issue to such
holder by electronic delivery at the applicable balance account at DTC, unless
otherwise required by state securities or “blue sky” laws, at such time as (i)
such Securities are registered for resale under the 1933 Act, (ii) in connection
with a sale, assignment or other transfer, such holder provides the Company with
an opinion of counsel, in a form generally acceptable to the Company’s legal
counsel and the Transfer Agent, to the effect that such sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
(ii) if the holding period (as determined under Rule 144) for such Securities is
at least six months, but less than one year, such holder provides the Company
and its legal counsel with reasonable assurance in writing that the Securities
are being sold, assigned or transferred pursuant to Rule 144 or Rule 144A or
(iii) if the holding period (as determined under Rule 144) for such Securities
is at least one year, such holder provides the Company and its legal counsel
with reasonable assurance in writing that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A. In furtherance of the
foregoing, the Company agrees that, following the Effective Date or at such time
as such legend is not required pursuant to this Section 4.4, the Company shall,
no later than three Trading Days following the delivery by the Investor to the
Company or the Transfer Agent of a certificate representing Conversion Shares or
Warrant Shares issued with a restrictive legend (such third Trading Day, the
“Legend Removal Date”), either: (A) issue and deliver (or cause to
be issued and delivered) to the Investor a certificate representing such
Conversion Shares or Warrant Shares, as applicable, that is free from all
restrictive and other legends or (B) cause the Transfer Agent to credit the
Investor’s or its designee’s account at DTC through its Deposit/Withdrawal at
Custodian (DWAC) system with a number of shares of Common Stock equal to the
number of Conversion Shares or Warrant Shares, as applicable, represented by the
certificate so delivered by the Investor. If the Company fails on or prior to
the Legend Removal Date to either (i) issue and deliver (or cause to be issued
and delivered) to the Investor a certificate representing the Conversion Shares
or Warrant Shares, as applicable, that is free from all restrictive and other
legends or (ii) cause the Transfer Agent to credit the balance account of the
Investor or its designee at DTC through its Deposit/Withdrawal at Custodian
(DWAC) system with a number of shares of Common Stock equal to the number of the
Conversion Shares or Warrant Shares, as applicable, represented by the
certificate delivered by the Investor pursuant hereto (a “Delivery
Failure”), and if on or after the Legend Removal Date the Investor
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Investor of shares of Common Stock that the Investor
anticipated receiving from the Company without any restrictive legend, then the
Company shall, within three Trading Days after the Investor’s request, pay cash
to the Investor in an amount equal to the Investor’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased, at which point the Company’s obligation to deliver a certificate or
credit the Investor’s or its designee’s account at DTC for such shares of Common
Stock shall terminate and such shares shall be cancelled(the “Buy-In
Remedy”). For the avoidance of doubt, with respect to any given Delivery
Failure, the Investor shall be entitled, at the election of the Investor, to
recovery either pursuant to this Buy-In Remedy or Section 3(c)(ii) of the Note,
but not both. 

6

                          4.5       
No Short Sales. So long as the Note remains outstanding, neither the
Investor nor any of its affiliates nor any entity managed or controlled by the
Investor (collectively, the “Restricted Persons” and each of the
foregoing is referred to herein as a “Restricted Person”) shall,
directly or indirectly, engage in any Short Sales involving the Company’s
securities. Notwithstanding the foregoing, it is expressly understood and agreed
that nothing contained herein shall (without implication that the contrary would
otherwise be true) prohibit any Restricted Person from: (1) selling “long” (as
defined under Rule 200 promulgated under Regulation SHO) the Securities; or (2)
selling a number of shares of Common Stock equal to the number of Conversion
Shares and/or Warrant Shares, as applicable, that such Restricted Person is
entitled to receive under a pending Conversion Notice (as defined in the Note)
and/or Exercise Notice (as defined in the Warrant) but has not yet taken
possession of so long as such Restricted Person delivers the Conversion Shares
purchased pursuant to such Conversion Notice and/or the Warrant Shares purchased
pursuant to such Exercise Notice, as applicable, to the purchaser thereof;
provided, however, such Restricted Person shall not be required to so deliver
any such Conversion Shares subject to such Conversion Notice or the Warrant
Shares purchased pursuant to such Exercise Notice, as applicable, if the Company
fails for any reason to deliver such Conversion Shares to the Investor on the
applicable settlement date upon the terms and subject to the provisions of the
Note and/or such Warrant Shares to the Investor on the applicable settlement
date upon the terms and subject to the provisions of the Warrant, as applicable.

            5.       
Representations 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 the Investors as of the Closing Date: 

                         
5.1        Organization, Good Standing and
Qualification. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a Material Adverse Effect. 

                          5.2       
Capitalization and Voting Rights. The authorized capital stock of the
Company and the shares thereof issued and outstanding were as set forth in the
Public Reports as of the dates reflected therein. All of the outstanding shares
of Common Stock have been duly authorized and validly issued, and are fully paid
and nonassessable. Except as set forth in the Public Reports, this Agreement and
the Registration Rights Agreement, there are no agreements or arrangements under
which the Company is obligated to register the sale of any securities under the
Securities Act. Except as set forth in the Public Reports, no shares of Common
Stock are entitled to preemptive rights and there are no outstanding
debt securities and no contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, any shares of capital stock of
the Company other than those issued or granted in the ordinary course of
business pursuant to the Company’s equity incentive and/or compensatory plans or
arrangements. Except for customary transfer restrictions contained in agreements
entered into by the Company to sell restricted securities or as set forth in the
Public Reports, the Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. Except as set forth in the Public Reports, the offer and sale of
all capital stock, convertible or exchangeable securities, rights, warrants or
options of the Company issued prior to the Closing Date complied with all
applicable federal and state securities laws, and no stockholder has any right
of rescission or damages or any “put” or similar right with respect thereto that
would have a Material Adverse Effect. Except as set forth in the Public Reports,
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the Note, the Warrant, this Agreement or
the Registration Rights Agreement or the consummation of the transactions
described herein or therein. 

7

                          5.3       
Authorization; Enforcement. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Note, the Warrant
and the Registration Rights Agreement (the “Transaction
Documents”) and the performance of all obligations of the Company
hereunder and thereunder, and the authorization (or reservation for issuance),
sale and issuance of the Note and the Warrant, and the Common Stock into which
the Note and the Warrant are convertible or exercisable, as applicable, have
been taken on or prior to the date hereof. Each of the Transaction Documents has
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. 

                          5.4       
Valid Issuance of the Conversion Shares and Warrant Shares; Reservation
of Shares. Each of the Note and Warrant has been duly authorized and,
when issued and paid for in accordance with this Agreement, 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 under this Agreement
and under applicable state and federal securities laws. Upon conversion in
accordance with the Note or exercise in accordance with the Warrant (as the case
may be), the Conversion Shares and the Warrant Shares, respectively, when issued
and delivered in accordance with the terms of this Agreement and the Note or the
Warrant, as applicable, for the consideration expressed herein and therein, will
be duly and validly issued, fully paid and non-assessable, free and clear of all
Liens imposed by the Company, other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. The Company
has reserved from its duly authorized capital stock a sufficient number of
shares of Common Stock for issuance of the Conversion Shares as required
by Section 8 of the Note and Warrant Shares as required by Section 1(g) of the
Warrant. 

8

                          5.5       
Offering. Subject to the truth and accuracy of the Investor’s
representations set forth in Section 6 of this Agreement, the offer and issuance
of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the
“1933 Act”), and the qualification or registration requirements of
state securities laws or other applicable blue sky laws. Neither the Company nor
any authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemptions. 

                          5.6       
Public Reports. The Company is current in its filing obligations under
the 1934 Act, including without limitation as to its filings of Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
(collectively, the “Public Reports”). The Public Reports do not
contain any untrue statement of a material fact or omit to state any fact
necessary to make any statement therein not misleading. The financial statements
included within the Public Reports for the fiscal year ended December 31, 2013
and for each quarterly period thereafter (the “Financial
Statements”) have been prepared in accordance with generally accepted
accounting principles (“GAAP”) applied on a consistent basis
throughout the periods indicated and with each other, except that unaudited
Financial Statements may not contain all footnote required by generally accepted
accounting principles. The Financial Statements fairly present, in all material
respects, the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject in the case of unaudited
Financial Statements to normal year-end audit adjustments. 

                          5.7       
Compliance With Laws. The Company has not violated any law or any
governmental regulation or requirement which violation has had or would
reasonably be expected to have a Material Adverse Effect on its business and the
Company has not received written notice of any such violation. 

                          5.8       
Violations. The consummation of the transactions contemplated by the
Transaction Documents and all other documents and instruments required to be
delivered in connection therewith will not result in or constitute any of the
following: (a) a violation of any provision of the articles of incorporation,
bylaws or other governing documents of the Company; (b) a violation of any
provisions of any applicable law or of any writ or decree of any court or
governmental instrumentality; (c) a default or an event that, with notice or
lapse of time or both, would be a default, breach, or violation of a lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, or other agreement, instrument, or arrangement to which
the Company is a party or by which the Company or its property is bound; (d) an
event that would permit any party to terminate any agreement or to accelerate
the maturity of any indebtedness or other obligation of the Company; or (e) the
creation or imposition of any lien, pledge, option, security agreement, equity,
claim, charge, encumbrance or other restriction or limitation on the capital
stock or on any of the properties or assets of the Company. 

                          5.9       
Consents; Waivers. No consent, waiver, approval or authority of any
nature, or other formal action, by any Person, firm or corporation, or any
agency, bureau or department of any government or any subdivision thereof, not
already obtained, is required in connection with the execution and delivery of the Transaction
Documents by the Company or the consummation by the Company of the transactions
provided for herein and therein. 

9

                          5.10    
 Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof.

                          5.11    
Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, the Common Stock or any of
the Company’s officers or directors in their capacities as such.

                          5.12    
 Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
Public Reports, except as specifically disclosed in a subsequent Public 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, 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 one Trading Day prior to the
date that this representation is made. 

                          5.13    
 Intellectual Property. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights as described in the Public
Reports as necessary or required for use in connection with their respective
businesses and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”). None of, and
the Company has not received a notice (written or otherwise) that any of, the
Intellectual Property Rights has expired, terminated or been abandoned, or is
expected to expire or terminate or be abandoned, within two (2) years from the
date of this Agreement. The Company has not received, since the date of the
latest audited financial statements included within the Public Reports, a
written notice of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as
could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company has taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 

10

                          5.14    
 Registration Rights. Other than the Investor or as set forth in the
Public Reports, no Person has any right to cause the Company to effect the
registration under the 1933 Act of any securities of the Company. 

                          5.15    
 Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided the Investor or its agents or counsel with any information that it
believes constitutes or might constitute material, non-public information. The
Company understands and confirms that the Investor will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished by or on behalf of the Company to the Investor
regarding the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct in all material respects 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 the
Investor does not make nor has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 6 hereof. 

                          5.16    
 No Integrated Offering. Assuming the accuracy of the Investor’s
representations and warranties set forth in Section 6, 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 1933 Act which would require the registration of any
such securities under the 1933 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. 

                          5.17     
Seniority. As of the Closing Date, no Indebtedness or other claim against
the Company is senior to the Note 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). 

                          5.18    
 Bankruptcy Status; Indebtedness. The Company has no current
intention or expectation to file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 5.18 sets forth as of the date hereof all outstanding
secured and unsecured Indebtedness (as defined below) 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 $100,000 (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 $100,000
due under leases required to be capitalized in accordance with GAAP. The Company
is not in default with respect to any Indebtedness. 

11

                          5.19    
 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. 

                          5.20    
 No Disqualification Events. None of the Company, any of its
predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the offering contemplated hereby, any
beneficial owner of 20% or more of the Company's outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that
term is defined in Rule 405 under the 1933 Act) connected with the Company in
any capacity at the time of sale (each, an “Issuer Covered
Person”) is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a
“Disqualification Event”), except for a Disqualification Event
covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care
to determine whether any Issuer Covered Person is subject to a Disqualification
Event. 

            6.       
Representations and Warranties of the Investor. The Investor hereby
represents, warrants and covenants that: 

                         
6.1        Authorization. The Investor
has full power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby and
has taken all action necessary to authorize the execution and delivery of this
Agreement and the Registration Rights Agreement, the performance of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby.

                          6.2       
No Public Sale or Distribution. The Investor is (i) acquiring the Note
and the Warrant, and (ii) upon conversion of the Note will acquire the
Conversion Shares and (iii) upon exercise of the Warrant will acquire the
Warrant Shares for its own account, not as a nominee or agent, and not with a
view towards, or for resale in connection with, the public sale or distribution
of any part thereof, except pursuant to sales registered or exempted under the
1933 Act. The Investor is acquiring the Securities hereunder in the ordinary
course of its business. The Investor does not presently have any contract,
agreement, undertaking, arrangement or understanding, directly or indirectly,
with any Person to sell, transfer, pledge, assign or otherwise distribute any of
the Securities.

12

                          6.3       
Accredited Investor Status; Investment Experience. The Investor is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D.
The Investor can bear the economic risk of its investment in the Securities, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in the Securities.

                          6.4       
Reliance on Exemptions. The Investor understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities.

                          6.5       
Information. The Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Investor. The Investor and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by the Investor
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor’s right to rely on the Company’s representations and warranties
contained herein. The Investor understands that its investment in the Securities
involves a high degree of risk. The Investor has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities. The Investor is
relying solely on its own accounting, legal and tax advisors, and not on any
statements of the Company or any of its agents or representatives, for such
accounting, legal and tax advice with respect to its acquisition of the
Securities and the transactions contemplated by this Agreement. 

                          6.6       
No Governmental Review. The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

                          6.7       
Validity; Enforcement; No Conflicts. This Agreement and each Transaction
Document to which the Investor is a party have been duly and validly authorized,
executed and delivered on behalf of the Investor and shall constitute the legal,
valid and binding obligations of the Investor enforceable against the Investor
in accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies. The execution, delivery and performance by the Investor of this
Agreement and each Transaction Document to which the Investor is a party and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of the
Investor or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Investor is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree (including federal and
state securities or “Blue Sky” laws) applicable to the Investor, except in the
case of clause (ii) above, for such conflicts, defaults or rights which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of the Investor to perform its obligations
hereunder.

13

                          6.8       
Organization and Standing. The Investor is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of New York. 

                          6.9       
Brokers or Finders. The Investor represents and warrants, to the best of
its knowledge, that no finder, broker, agent, financial advisor or other
intermediary, nor any purchaser representative or any broker-dealer acting as a
broker, is entitled to any compensation in connection with the transactions
contemplated by this Agreement or the transactions contemplated hereby. 

                          6.10     
Ability to Perform. There are no actions, suits, proceedings or
investigations pending against Investor or Investor’s assets before any court or
governmental agency (nor is there any threat thereof) which would impair in any
way Investor’s ability to enter into and fully perform its commitments and
obligations under this Agreement or the transactions contemplated hereby. 

            7.       
Use of Proceeds. The Investor acknowledges that the Company will use the
proceeds received from the purchase of the Note and Warrant for, among other
things, (i) costs and expenses relating to the sale of the Note and Warrant to
the Investor and (ii) general working capital purposes. 

            8.       
Rule 144 Availability; Public Information. At all times during the period
commencing on the six (6) month anniversary of the Closing Date and ending at
such time that all of the Securities can be sold without the requirement to be
in compliance with Rule 144(c)(1) under the 1933 Act and otherwise without
restriction or limitation pursuant to Rule 144 under the 1933 Act, the Company
shall use its reasonable best efforts to ensure the availability of Rule 144
under the 1933 Act to the Investor with regard to the Conversion Shares and the
Warrant Shares (assuming a cashless exercise of the Warrant), including
compliance with Rule 144(c)(1) under the 1933 Act. If, (i) at any time during
the period commencing from the six (6) month anniversary of the Closing Date and
ending on the first anniversary of the Closing Date, the Company shall fail for
any reason to satisfy the current public information requirement under Rule
144(c) under the 1933 Act (a “Public Information Failure”), or
(ii) the Company shall fail to take such action as is reasonably requested by
the Investor to enable the Investor to sell the Conversion Shares and the
Warrant Shares (assuming a cashless exercise of the Warrant) pursuant to Rule
144 under the 1933 Act (including, without limitation, delivering all such legal
opinions, consents, certificates, resolutions and instructions to the Company’s
transfer agent as may be reasonably requested from time to time by the Investor
and otherwise fully cooperate with Investor and Investor’s broker to effect such
sale of securities pursuant to Rule 144 under the 1933 Act) (a “Process
Failure”), then, in either case, in addition to the Investor’s other
available remedies, the Company shall pay to a Investor, in cash, as liquidated
damages and not as a penalty, by reason of any such delay in or reduction of its
ability to sell the Securities, an amount in cash equal to two percent (2.0%) of
the aggregate Purchase Price of the Investor’s Securities on the day of a Public
Information Failure or Process Failure, as applicable, and on every thirtieth
(30th) day (pro rated for periods totaling less than thirty days) thereafter
until (a) in the case of a Process Failure, the date such Process Failure
is cured, or (b) in the case of a Public Information Failure, the earlier of (1)
the date such Public Information Failure is cured and (b) such time that such
public information is no longer required for the Investor to transfer the
Conversion Shares or the Warrant Shares (assuming a cashless exercise of the
Warrant) pursuant to Rule 144 under the 1933 Act. The payments to which the
Investor shall be entitled pursuant to this Section 8 are referred to herein as
“Rule 144 Failure Payments.” Rule 144 Failure
Payments shall be paid on the earlier of (i) the last day of the calendar month
during which such Rule 144 Failure Payments are incurred and (ii) the third
(3rd) Trading Day after the event or failure giving rise to the Rule 144 Failure
Payments is cured.

14

            9.       
Indemnification. In consideration of the Investor’s execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Investor and each holder of any Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
“Indemnitees”) from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company or any Subsidiary in any of the
Transaction Documents, (b) any breach of any covenant, agreement or obligation
of the Company or any Subsidiary contained in any of the Transaction Documents
or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company or any Subsidiary) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of any of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of the Investor or holder of the Securities
as an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9 shall be the same as those set forth in Section
6 of the Registration Rights Agreement. Notwithstanding anything to the contrary
in this Section 9, the Company shall not be obligated to pay an Indemnitee any
sums otherwise due under this Section 9 if the Company has already paid the
Indemnitee such sums for the same Indemnified Liabilities under Section 6 of the
Registration Rights Agreement. 

            10.    
 Participation Rights. During the period commencing on the date
hereof and ending 180 calendar days after the date hereof, neither the Company
nor any of its Subsidiaries shall, directly or indirectly, effect any Subsequent
Placement (as defined below) unless the Company shall have first complied with
this Section 10.

15

                          10.1    
 At least three (3) Trading Days prior to any proposed or intended
Subsequent Financing, the Company shall deliver to the Investor a written notice
of its proposal or intention to effect a Subsequent Financing (each such notice,
a “Pre-Notice”), which Pre-Notice shall not contain any
information (including, without limitation, material, non-public information)
other than: either (A) (i) a statement that the Company proposes or intends to
effect a Subsequent Financing, (ii) a statement that the statement in clause (i)
above does not constitute material, non-public information and (iii) a statement
informing the Investor that it is entitled to receive an Offer Notice (as
defined below) with respect to such Subsequent Financing upon its written
request or (B) if the existence of such Subsequent Financing is, as of the date
of such Pre-Notice, material, non-public information, a statement that the
Investor is entitled to receive material, non-public information. Upon the
written request of the Investor within two (2) Trading Days after the Company’s
delivery to the Investor of such Pre-Notice, and only upon a written request by
the Investor, the Company shall promptly, but no later than one (1) Trading Day
after such request, deliver to the Investor an irrevocable written notice (the
“Offer Notice”) of any proposed or intended issuance or sale or
exchange (the “Offer”) of the securities being offered (the
“Offered Securities”) in a Subsequent Financing, which Offer
Notice shall (w) identify and describe the Offered Securities, (x) describe the
price and other terms upon which they are to be issued, sold or exchanged, and
the aggregate number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify the Persons (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with the Investor in accordance with the terms of
the Offer all of the Offered Securities.

                          10.2    
 To accept an Offer, in whole or in part, the Investor must deliver a
written notice to the Company prior to the end of the third (3rd) Business Day
after the Investor’s receipt of the Offer Notice (the “Offer
Period”), setting forth the portion of the Offered Securities that the
Investor elects to purchase (in either case, the “Notice of
Acceptance”). Notwithstanding the foregoing, if the Company desires to
modify or amend the terms and conditions of the Offer prior to the expiration of
the Offer Period, the Company may deliver to the Investor a new Offer Notice and
the Offer Period shall expire on the third (3rd) Business Day after the
Investor’s receipt of such new Offer Notice. 

                          10.3     
The Company shall have five (5) Business Days from the expiration of the Offer
Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Investor (the “Refused Securities”) pursuant to a definitive
agreement(s) (the “Subsequent Financing Agreement”), but only to
the offerees described in the Offer Notice (if so described therein) and only
upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring Person or Persons
or less favorable to the Company than those set forth in the Offer Notice and
(ii) to publicly announce (a) the execution of such Subsequent Financing
Agreement, and (b) either (x) the consummation of the transactions contemplated
by such Subsequent Financing Agreement or (y) the termination of such Subsequent
Financing Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Financing Agreement and any documents contemplated
therein filed as exhibits thereto. 

16

                          10.4    
 In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 10.3 above), then the Investor may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that the Investor elected to purchase pursuant
to Section 10.2 above multiplied by a fraction, (i) the numerator of which shall
be the number or amount of Offered Securities the Company actually proposes to
issue, sell or exchange (including Offered Securities to be issued or sold to
the Investor pursuant to this Section 10 prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities. In
the event that the Investor so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Investor in accordance with Section 10.1 above. 

                          10.5    
 Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Investor shall acquire from the Company, and the
Company shall issue to the Investor, the number or amount of Offered Securities
specified in its Notice of Acceptance. The purchase by the Investor of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Investor of a separate purchase agreement
relating to such Offered Securities reasonably satisfactory in form and
substance to the Investor and its counsel. 

                          10.6     
Any Offered Securities not acquired by the Investor or other Persons in
accordance with this Section 10 may not be issued, sold or exchanged until they
are again offered to the Investor under the procedures specified in this
Agreement. 

                          10.7    
 The Company and the Investor agree that if the Investor elects to
participate in the Offer, neither the Subsequent Financing Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the “Subsequent Financing Documents”) shall include
any term or provision whereby the Investor shall be required to agree to any
restrictions on trading as to any securities of the Company or be required to
consent to any amendment to or termination of, or grant any waiver, release or
the like under or in connection with, any agreement previously entered into with
the Company or any instrument received from the Company. 

                          10.8     
Notwithstanding anything to the contrary in this Section 10 and unless otherwise
agreed to by the Investor, the Company shall either confirm in writing to the
Investor that the transaction with respect to the Subsequent Financing has been
abandoned or shall publicly disclose its intention to issue the Offered
Securities, in either case, in such a manner such that the Investor will not be
in possession of any material, non-public information, by the fifth
(5th) Business Day following delivery of the Offer Notice. If by such
fifth (5th) Business Day, no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by the Investor,
such transaction shall be deemed to have been abandoned and the Investor shall
not be in possession of any material, non-public information with respect to the
Company or any of its Subsidiaries. Should the Company decide to pursue such
transaction with respect to the Offered Securities, the Company shall provide
the Investor with another Offer Notice and the Investor will again have the right of participation set forth in this
Section 10. The Company shall not be permitted to deliver more than one Offer
Notice to the Investor in any sixty (60) day period, except as expressly
contemplated by the last sentence of Section 10.2. 

17

                          10.9     
The restrictions contained in this Section 10 shall not apply in connection with
the issuance of any Excluded Securities (as defined below). 

                          10.10   
For purposes of this Section 10, the following definitions shall apply: 

                         
(a)        “Approved Stock
Plan” means any employee benefit plan which has been approved by the
board of directors of the Company prior to or subsequent to the date hereof
pursuant to which shares of Common Stock and standard options to purchase Common
Stock may be issued to any employee, officer, consultant or director for
services provided to the Company in their capacity as such. 

                          (b)       
“Convertible Securities” means any capital stock or other security
of the Company or any of its Subsidiaries that is at any time and under any
circumstances directly or indirectly convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
capital stock or other security of the Company (including, without limitation,
Common Stock) or any of its Subsidiaries.

                          (c)       
“Excluded Securities” means (A) shares of Common Stock or standard
options to purchase Common Stock to directors, officers or employees of the
Company in their capacity as such pursuant to an Approved Stock Plan (as defined
below), provided that (1) all such issuances (taking into account the shares of
Common Stock issuable upon exercise of such options) after the date hereof
pursuant to this clause (A) do not, in the aggregate, exceed more than 5% of the
Common Stock issued and outstanding immediately prior to the date hereof and (2)
the exercise price of any such options is not lowered, none of such options are
amended to increase the number of shares issuable thereunder and none of the
terms or conditions of any such options are otherwise materially changed in any
manner that adversely affects the Investor; (B) shares of Common Stock issued
upon the conversion or exercise of Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Stock Plan that
are covered by clause (A) above) issued prior to the date hereof, provided that
the conversion price of any such Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Stock Plan that
are covered by clause (A) above) is not lowered, none of such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Stock Plan that are covered by clause (A) above) are amended to
increase the number of shares issuable thereunder and none of the terms or
conditions of any such Convertible Securities (other than standard options to
purchase Common Stock issued pursuant to an Approved Stock Plan that are covered
by clause (A) above) are otherwise materially changed in any manner that
adversely affects the Investor; (C) the Securities and (D) shares of Common
Stock or Convertible Securities issued or issuable in connection with strategic
alliances, acquisitions, mergers, and strategic partnerships, provided, that (1)
the primary purpose of such issuance is not to raise capital, (2) the purchasers
or acquirers of the securities in such issuance does not include any affiliate
of the Company or any of its Subsidiaries and solely consists of either (x) the
actual participants in such strategic alliance or strategic partnership, (y) the
actual owners of such assets or securities acquired in such acquisition or
merger or (z) the stockholders, partners or members of the foregoing Persons,
(3) the number or amount of securities issued to such Person by
the Company shall not be disproportionate to such Person’s actual participation
in such strategic alliance or strategic partnership or ownership of such assets
or securities to be acquired by the Company, as applicable. 

18

                          (d)       
“Subsequent Financing” means any, direct or indirect, issuance,
offer, sale, grant of any option or right to purchase, or otherwise disposition
of (or announcement of any issuance, offer, sale, grant of any option or right
to purchase or other disposition of) any equity or debt security or any
equity-linked or related security (including, without limitation, any “equity
security” (as that term is defined under Rule 405 promulgated under the 1933
Act), any Convertible Securities, any debt, any preferred stock or any purchase
rights) of the Company or any of its Subsidiaries, including, without
limitation, pursuant to Section 3(a)(9) or Section 3(a)(10) of the 1933 Act, or
the direct or indirect issuance by the Company or any of its Subsidiaries of any
Indebtedness. 

            11.    
 Exclusivity. During the period commencing on the date hereof and
ending on the first (1st) anniversary of the date hereof, and except
with respect to those securities of the Company set forth on Schedule 11,
neither the Company nor any of its affiliates or Subsidiaries, nor any of its or
their respective officers, employees, directors, agents or other
representatives, will, without the prior written consent of the Investor (which
consent may be withheld, delayed or conditioned in the Investor’s sole
discretion), directly or indirectly: (a) solicit, initiate, encourage or accept
any other inquiries, proposals or offers from any Person (other than the
Investor) relating to any exchange (i) of any security of the Company or any of
its Subsidiaries for any other security of the Company or any of its
Subsidiaries, except to the extent (x) consummated pursuant to an exchange
registered under a registration statement of the Company filed pursuant to the
1933 Act and declared effective by the Commission or (y) such exchange is exempt
from registration pursuant to an exemption provided under the 1933 Act (other
than Section 3(a)(10) of the 1933 Act) or (ii) of any indebtedness or other
securities of, or claim against, the Company or any of its Subsidiaries relying
on the exemption provided by Section 3(a)(10) of the 1933 Act (any such
transaction described in clauses (i) or (ii), an “Exchange
Transaction”); (b) enter into, effect, alter, amend, announce or
recommend to its stockholders any Exchange Transaction with any Person (other
than the Investor); or (c) participate in any discussions, conversations,
negotiations or other communications with any Person (other than the Investor)
regarding any Exchange Transaction, or furnish to any Person (other than the
Investor) any information with respect to any Exchange Transaction, or otherwise
cooperate in any way, assist or participate in, facilitate or encourage any
effort or attempt by any Person (other than the Investor) to seek an Exchange
Transaction involving the Company or any of its Subsidiaries. Notwithstanding
the foregoing or anything contained herein to the contrary, neither the Company
nor any of its affiliates or Subsidiaries, nor any of its or their respective
officers, employees, directors, agents or other representatives, will, without
the prior written consent of the Investor (which consent may be withheld,
delayed or conditioned in the Investor’s sole discretion), directly or
indirectly, cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any Person (other than the Investor) to
effect any acquisition of securities or indebtedness of, or claim against, the
Company by such Person from an existing holder of such securities, indebtedness
or claim in connection with a proposed exchange of such securities or
indebtedness of, or claim against, the Company (whether pursuant to Section
3(a)(9) or 3(a)(10) of the 1933 Act or otherwise) (a “Third Party Exchange
Transfer”). The Company, its affiliates and Subsidiaries, and each of its and their respective
officers, employees, directors, agents or other representatives shall
immediately cease and cause to be terminated all existing discussions,
conversations, negotiations and other communications with any Persons (other
than the Investor) with respect to any of the foregoing. The Company shall
promptly (and in no event later than 24 hours after receipt) notify (which
notice shall be provided orally and in writing and shall identify the Person
making the inquiry, request, proposal or offer and set forth the material terms
thereof) the Investor after receipt of any inquiry, request, proposal or offer
relating to any Exchange Transaction or Third Party Exchange Transfer, and shall
promptly (and in no event later than 24 hours after receipt) provide copies to
the Investor of any written inquiries, requests, proposals or offers relating
thereto. The Company agrees that it and its affiliates and Subsidiaries, and
each of its and their respective officers, employees, directors, agents or other
representatives Subsidiaries will not enter into any agreement with any Person
subsequent to the date hereof which prohibits the Company from providing any
information to the Investor in accordance with this provision. As used in this
Agreement, “Person” means any individual, partnership, firm,
corporation, limited liability company, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Exchange Act. For all
purposes of this Agreement, violations of the restrictions set forth in this
Section 11 by any Subsidiary or affiliate of the Company, or any officer,
employee, director, agent or other representative of the Company or any of its
Subsidiaries or affiliates shall be deemed a direct breach of this Section 11 by
the Company. 

19

           
12.        Miscellaneous 

                          12.1    
 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of the Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. 

                          12.2    
 Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of Illinois. The Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Chicago, Illinois, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY. 

20

                          12.3    
 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. 

                          12.4    
 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next Trading
Day, (c) five (5) Trading Days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to (a) in the case of the Company, to XcelMobility, Inc., 303 Twin Dolphins
Drive, Suite 600, Redwood City, CA 94065, Telephone Number: (650) 632-4210,
Attention: Ronald Strauss, or (b) in the case of the Investor, to Hanover
Holdings I, LLC, c/o Magna Group, 5 Hanover Square, New York, NY 10004,
Telephone Number: (347) 491-4240, Fax: (646) 737-9948, Attention: Marc Manuel,
with a copy (which shall not constitute notice) to Greenberg Traurig, LLP, The
MetLife Building, 200 Park Avenue, New York, New York 10166, Telephone Number
(212) 801-9200, Fax: (212) 801-6400, Attention: Anthony J. Marsico, Esq. 

                          12.5    
 Finder’s Fees. Each party represents that it neither is nor will be
obligated for any finders’ fee or commission in connection with this
transaction. The Company shall indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders’ fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible. 

                          12.6    
 Amendments and Waivers. No provision of this Agreement may be
amended other than by a written instrument signed by both parties hereto. No
provision of this Agreement may be waived other than in a written instrument
signed by the party against whom enforcement of such waiver is sought. No
failure or delay in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercises thereof
or of any other right, power or privilege. 

                          12.7    
 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms. 

                          12.8    
 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.

21

                          12.9    
 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. 

                          12.10  
 Interpretation. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) “including” has the inclusive meaning frequently identified
with the phrase “but not limited to” and (d) references to “hereunder” or
“herein” relate to this Agreement. 

                          12.11  
 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Investor
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. 

                          12.12  
 Fees and Expenses. Each party shall bear its own fees and expenses
related to the transactions contemplated by the Transaction Documents;
provided, however, that (i) $40,000 (less $15,000 heretofore paid
by the Company to the Investor) shall be withheld by the Investor from the
Purchase Price at the Closing as a non-accountable and non-refundable document
preparation fee (the “Document Preparation Fee”) in connection
with the preparation, negotiation, execution and delivery of the Transaction
Documents and legal due diligence of the Company, and shall be paid directly to
the Investor’s counsel on the Closing Date by wire transfer of immediately
available funds. For the avoidance of doubt, the Document Preparation Fee (and
any portion thereof) shall be non-refundable when paid. 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 Investor), stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Investor. 

                          12.13  
 No Variable Rate Transactions; No Frustration. Unless and until the
Company complies with Section 10 hereof, neither the Company nor any of its
affiliates or Subsidiaries, nor any of its or their respective officers,
employees, directors, agents or other representatives, will, without the prior
written consent of the Investor (which consent may be withheld, delayed or
conditioned in the Investor’s sole discretion), effect, enter into, announce or
recommend to its stockholders any agreement, plan, arrangement or transaction
that would or would reasonably be expected to constitute or involve a Variable
Rate Transaction. So long as the Investor or its affiliates hold any Securities,
neither the Company nor any of its affiliates or Subsidiaries, nor any of its or
their respective officers, employees, directors, agents or other
representatives, will, without the prior written consent of the Investor (which
consent may be withheld, delayed or conditioned in the Investor’s sole
discretion), effect, enter into, announce or recommend to its stockholders any
agreement, plan, arrangement or transaction that would or would reasonably be
expected to restrict, delay, conflict with or impair the ability or right of the
Company to timely perform its obligations under this Agreement, the Note or the
Warrant, including, without limitation, the obligation of the Company to timely
deliver shares of Common Stock to the Investor or its affiliates in accordance with this
Agreement, the Note or the Warrant. 

22

                          12.14  
 No Integration. None of the Company, any of its affiliates (as
defined in Rule 501(b) under the 1933 Act), or any person acting on behalf of
the Company or such affiliate will sell, offer for sale, or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in the 1933
Act) which will be integrated with the sale of the Securities in a manner which
would require the registration of the Securities under the 1933 Act or require
stockholder approval under the rules and regulations of the Trading Market and
the Company will take all action that is appropriate or necessary to assure that
its offerings of other securities will not be integrated for purposes of the
1933 Act or the rules and regulations of the Trading Market, with the issuance
of Securities contemplated hereby. 

            13.       
Additional Defined Terms. In addition to the terms defined elsewhere in
this Agreement, the Note or the Warrant the following terms have the meanings
set forth in this Section 11: 

                         
13.1      “1934 Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder. 

                          13.2     
“Commission” means the United States Securities and Exchange
Commission. 

                          13.3    
 “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 Convertible Security,
Option 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. 

                          13.4    
 “Effective Date” means the date that the Initial
Registration Statement (as defined in the Registration Rights Agreement) filed
pursuant to the Registration Rights Agreement has been declared effective by the
Commission. 

                          13.5    
 “Liens” means a lien, charge pledge, security interest,
encumbrance, right of first refusal, preemptive right or other restriction. 

                          13.6    
 “Material Adverse Effect” means (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. 

                          13.7     
“Registrable Securities” shall have the meaning set forth in the
Registration Rights Agreement. 

                          13.8     
“Short Sales” shall mean “short sales” as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act. 

23

                          13.9     
“Subsidiary” shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interest having
ordinary voting power for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. 

                          13.10  
 “Trading Day” means any day on which the Common Stock is
traded on the Trading Market, provided that “Trading Day” shall
not include any day on which the Common Stock is scheduled to trade on the
Trading Market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on the Trading Market
(or if the Trading Market does not designate in advance the closing time of
trading on the Trading Market, then during the hour ending at 4:00:00 p.m., New
York City time) unless such day is otherwise designated as a Trading Day in
writing by the Investor. 

                          13.11  
 “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 OTC Bulletin Board, The NASDAQ Global Market, The NASDAQ Global
Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE
Arca, the NYSE MKT, or the OTCQX Marketplace or the OTCQB Marketplace operated
by OTC Markets Group Inc. (or any successor to any of the foregoing). 

                          13.12  
 “Variable Rate Transaction” means a transaction in which the
Company or any Subsidiary (i) issues or sells any convertible securities either
(A) at a conversion, exercise 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 convertible 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 Convertible Securities 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,
including, without limitation, pursuant to any “weighted average” or
“full-ratchet” anti-dilution provision, or (ii) enters into any agreement
(including, without limitation, an equity line of credit or an “at-the-market”
offering) whereby the Company or any Subsidiary may sell securities at a future
determined price. 

[SIGNATURES ON THE FOLLOWING PAGE] 

24

        
   IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered as of the date provided above. 

 

THE COMPANY 

XCELMOBILITY, INC. 

 

By: 
_________________________________
       
Name:
        Title: 

       
    IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered as of the date provided above. 

 

THE INVESTOR:

 

HANOVER HOLDINGS I, LLC, a New York
limited liability company

 

By: 
_________________________________
       
Name:
        Title:

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