Document:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.

                             STOCK PURCHASE WARRANT

WARRANT NO._______

                 To Purchase _________ Shares of Common Stock of

                           HUDSON HOLDING CORPORATION

THIS STOCK PURCHASE WARRANT CERTIFIES that, for value received, ____________
(the "Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after
November 28, 2006 (the "INITIAL EXERCISE DATE") and on or prior to the close of
business on the five year anniversary of the Initial Exercise Date (the
"TERMINATION DATE") but not thereafter, to subscribe for and purchase from
Hudson Holding Corporation, a corporation incorporated in the State of Delaware
(the "COMPANY"), up to ___________ shares (the "WARRANT SHARES") of Common
Stock, par value $0.001 per share, of the Company (the "COMMON STOCK"). The
purchase price of one share of Common Stock (the "EXERCISE PRICE") under this
Warrant shall be $0.85, subject to adjustment hereunder. The Exercise Price and
the number of Warrant Shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT"), dated October 25,
2006, between the Company and the investors signatory thereto.

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         1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.

         2. AUTHORIZATION OF SHARES. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).

         3. EXERCISE OF WARRANT.

                           (a) Except as provided in Section 4 herein, exercise
         of the purchase rights represented by this Warrant may be made at any
         time or times on or after the Initial Exercise Date and on or before
         the Termination Date by the surrender of this Warrant and the Notice of
         Exercise Form annexed hereto duly executed, at the office of the
         Company (or such other office or agency of the Company as it may
         designate by notice in writing to the registered Holder at the address
         of such Holder appearing on the books of the Company) and upon payment
         of the Exercise Price of the shares thereby purchased by wire transfer
         or cashier's check drawn on a United States bank. Upon such exercise,
         the Holder shall be entitled to receive a certificate for the number of
         Warrant Shares so purchased. Certificates for shares purchased
         hereunder shall be delivered to the Holder within nine Trading Days
         after the date on which this Warrant shall have been exercised as
         aforesaid. Notwithstanding anything herein to the contrary, in lieu of
         issuing certificates for shares purchased hereunder, upon mutual
         agreement of the Company and the Holder, the Company may authorize its
         transfer agent to issue shares through electronic transactions. This
         Warrant shall be deemed to have been exercised and such certificate or
         certificates shall be deemed to have been issued, and Holder or any
         other person so designated to be named therein shall be deemed to have
         become a holder of record of such shares for all purposes, as of the
         date the Warrant has been exercised by payment to the Company of the
         Exercise Price and all taxes required to be paid by the Holder, if any,
         pursuant to Section 5 prior to the issuance of such shares, have been
         paid. If the Company fails to deliver to the Holder a certificate or
         certificates representing the Warrant Shares pursuant to this Section
         3(a) by the ninth Trading Day after the date of exercise, then the
         Holder will have the right to rescind such exercise. In addition to any
         other rights available to the Holder, if the Company fails to deliver
         to the Holder a certificate or certificates representing the Warrant
         Shares pursuant to an exercise by the ninth Trading Day after the date
         of exercise, and if after such ninth Trading Day the Holder is required
         by its broker to purchase (in an open market transaction or otherwise)
         shares of Common Stock to deliver in satisfaction of a sale by the
         Holder of the Warrant Shares which the Holder anticipated receiving
         upon such exercise (a "BUY-IN"), then the Company shall (1) pay in cash

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         to the Holder the amount by which (x) the Holder's total purchase price
         (including brokerage commissions, if any) for the shares of Common
         Stock so purchased exceeds (y) the amount obtained by multiplying (A)
         the number of Warrant Shares that the Company was required to deliver
         to the Holder in connection with the exercise at issue times (B) the
         price at which the sell order giving rise to such purchase obligation
         was executed, and (2) at the option of the Holder, either reinstate the
         portion of the Warrant and equivalent number of Warrant Shares for
         which such exercise was not honored or deliver to the Holder the number
         of shares of Common Stock that would have been issued had the Company
         timely complied with its exercise and delivery obligations hereunder.
         For example, if the Holder purchases Common Stock having a total
         purchase price of $11,000 to cover a Buy-In with respect to an
         attempted exercise of shares of Common Stock with an aggregate sale
         price giving rise to such purchase obligation of $10,000, under clause
         (1) of the immediately preceding sentence the Company shall be required
         to pay the Holder $1,000. The Holder shall provide the Company written
         notice indicating the amounts payable to the Holder in respect of the
         Buy-In, together with applicable confirmations and other evidence
         reasonably requested by the Company. Nothing herein shall limit a
         Holder's right to pursue a decree of specific performance and/or
         injunctive relief with respect to the Company's failure to timely
         deliver certificates representing shares of Common Stock upon exercise
         of the Warrant as required pursuant to the terms hereof.

                           (b) If this Warrant shall have been exercised in
         part, the Company shall, at the time of delivery of the certificate or
         certificates representing Warrant Shares, deliver to Holder a new
         Warrant evidencing the rights of Holder to purchase the unpurchased
         Warrant Shares called for by this Warrant, which new Warrant shall in
         all other respects be identical with this Warrant.

                           (c) Notwithstanding anything herein to the contrary,
         in no event shall the Holder be permitted to exercise this Warrant for
         Warrant Shares to the extent that (i) the number of shares of Common
         Stock beneficially owned by such Holder, together with any affiliate
         thereof (other than Warrant Shares issuable upon exercise of this
         Warrant) plus (ii) the number of Warrant Shares issuable upon exercise
         of this Warrant, would be equal to or exceed 4.9999% of the number of
         shares of Common Stock then issued and outstanding, including shares
         issuable upon exercise of this Warrant held by such Holder after
         application of this Section 3(c). As used herein, beneficial ownership
         shall be determined in accordance with Section 13(d) of the Exchange
         Act and the rules promulgated thereunder. To the extent that the
         limitation contained in this Section 3(c) applies, the determination of
         whether this Warrant is exercisable (in relation to other securities
         owned by the Holder) and of which a portion of this Warrant is
         exercisable shall be in the sole discretion of such Holder, and the
         submission of a Notice of Exercise shall be deemed to be such Holder's
         determination of whether this Warrant is exercisable (in relation to
         other securities owned by such Holder) and of which portion of this
         Warrant is exercisable, in each case subject to such aggregate
         percentage limitation, and the Company shall have no obligation to
         verify or confirm the accuracy of such determination. Nothing contained
         herein shall be deemed to restrict the right of a Holder to exercise
         this Warrant into Warrant Shares at such time as such exercise will not
         violate the provisions of this Section 3(c). The provisions of this

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         Section 3(c) may be waived by the Holder upon, at the election of the
         Holder, not less than 61 days' prior notice to the Company, and the
         provisions of this Section 3(c) shall continue to apply until such 61st
         day (or such later date, as determined by the Holder, as may be
         specified in such notice of waiver). No exercise of this Warrant in
         violation of this Section 3(c) but otherwise in accordance with this
         Warrant shall affect the status of the Warrant Shares as validly
         issued, fully-paid and nonassessable.

                           (d) If at any time after one year from the date of
         issuance of this Warrant there is no effective Registration Statement
         registering the resale of the Warrant Shares by the Holder, this
         Warrant may also be exercised at such time by means of a "cashless
         exercise" in which the Holder shall be entitled to receive a
         certificate for the number of Warrant Shares equal to the quotient
         obtained by dividing [(A-B) (X)] by (A), where:

                  (A) = the Closing Price on the Trading Day preceding the date
                        of such election;

                  (B) = the Exercise Price of the Warrants, as adjusted; and

                  (X) = the number of Warrant Shares issuable upon exercise
                        of the Warrants in accordance with the terms of this
                        Warrant.

                           (e) Subject to the provisions of this Section 3, if
         after the Effective Date the Closing Price (the "MEASUREMENT PRICE")
         exceeds 250% of the then Exercise Price (subject to adjustment
         herein)("THRESHOLD PRICE DATE") and the daily average trading volume of
         the Common Stock for the 10 Trading Days including and prior to such
         Threshold Price Date exceeds 100,000 shares, then the Company may,
         within five Trading Days of such date, call for the exercise of all or
         any portion of this Warrant for which a Notice of Exercise has not yet
         been delivered (such right, a "CALL"). To exercise this right, the
         Company must deliver to the Holder an irrevocable written notice (a
         "CALL NOTICE"), indicating therein the portion of unexercised portion
         of this Warrant to which such notice applies (such date, the "CALL
         DATE"). If Holder wants to exercise Called Warrants within three
         Trading Days of the Call Date, the Holder shall pay to the Company by
         wire transfer of immediately available funds the exercise price for the
         Warrant Shares to be issued in connection with the Call Notice. Any
         unexercised portion of this Warrant to which the Call Notice does not
         pertain will be unaffected by such Call Notice. Notwithstanding
         anything to the contrary set forth in this Warrant, the Company may not
         deliver a Call Notice or require the cancellation of this Warrant (and
         any Call Notice will be void), unless, at the time of sending such Call
         Notice, the Registration Statement shall be effective as to all Warrant
         Shares and the prospectus thereunder available for use by the Holder
         for the resale all such Warrant Shares and the Common Stock shall be
         listed or quoted for trading on the Trading Market.

         4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

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         5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

         6. CLOSING OF BOOKS. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

         7. TRANSFER, DIVISION AND COMBINATION.

                           (a) Subject to compliance with any applicable
         securities laws and the conditions set forth in Sections 1 and 7(f)
         hereof and to the provisions of Section 4.1 of the Purchase Agreement,
         this Warrant and all rights hereunder are transferable, in whole or in
         part, upon surrender of this Warrant at the principal office of the
         Company, together with a written assignment of this Warrant
         substantially in the form attached hereto duly executed by the Holder
         or its agent or attorney and funds sufficient to pay any transfer taxes
         payable upon the making of such transfer. Upon such surrender and, if
         required, such payment, the Company shall execute and deliver a new
         Warrant or Warrants in the name of the assignee or assignees and in the
         denomination or denominations specified in such instrument of
         assignment, and shall issue to the assignor a new Warrant evidencing
         the portion of this Warrant not so assigned, and this Warrant shall
         promptly be cancelled. A Warrant, if properly assigned, may be
         exercised by a new holder for the purchase of Warrant Shares without
         having a new Warrant issued.

                           (b) This Warrant may be divided or combined with
         other Warrants of like tenor and terms upon presentation hereof at the
         aforesaid office of the Company, together with a written notice
         specifying the names and denominations in which new Warrants are to be
         issued, signed by the Holder or its agent or attorney. Subject to
         compliance with Section 7(a), as to any transfer which may be involved
         in such division or combination, the Company shall execute and deliver
         a new Warrant or Warrants in exchange for the Warrant or Warrants to be
         divided or combined in accordance with such notice.

                           (c) The Company shall prepare, issue and deliver at
         its own expense (other than transfer taxes) the new Warrant or Warrants
         under this Section 7.

                           (d) The Company agrees to maintain, at its aforesaid
         office, books for the registration and the registration of transfer of
         the Warrants.

                           (e) If, at the time of the surrender of this Warrant
         in connection with any transfer of this Warrant, the transfer of this
         Warrant shall not be registered pursuant to an effective registration
         statement under the Securities Act and under applicable state

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<PAGE>

         securities or blue sky laws, the Company may require, as a condition of
         allowing such transfer (i) that the Holder or transferee of this
         Warrant, as the case may be, furnish to the Company a written opinion
         of counsel (which opinion shall be in form, substance and scope
         customary for opinions of counsel in comparable transactions) to the
         effect that such transfer may be made without registration under the
         Securities Act and under applicable state securities or blue sky laws,
         (ii) that the holder or transferee execute and deliver to the Company
         an investment letter in form and substance acceptable to the Company
         and (iii) that the transferee be an "accredited investor" as defined in
         Rule 501(a) promulgated under the Securities Act.

         8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price, the Warrant Shares so purchased shall
be and be deemed to be issued to such Holder as the record owner of such shares
as of the close of business on the later of the date of such surrender or
payment.

         9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

         10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

         11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES;

                 STOCK SPLITS, ETC. The number and kind of securities
         purchasable upon the exercise of this Warrant and the Exercise Price
         shall be subject to adjustment from time to time upon the happening of
         any of the following. In case the Company shall (i) pay a dividend in
         shares of Common Stock or make a distribution in shares of Common Stock
         to holders of its outstanding Common Stock, (ii) subdivide its
         outstanding shares of Common Stock into a greater number of shares,
         (iii) combine its outstanding shares of Common Stock into a smaller
         number of shares of Common Stock, or (iv) issue any shares of its
         capital stock in a reclassification of the Common Stock, then the
         number of Warrant Shares purchasable upon exercise of this Warrant
         immediately prior thereto shall be adjusted so that the Holder shall be
         entitled to receive the kind and number of Warrant Shares or other
         securities of the Company which it would have owned or have been
         entitled to receive had such Warrant been exercised in advance thereof.
         Upon each such adjustment of the kind and number of Warrant Shares or
         other securities of the Company which are purchasable hereunder, the
         Holder shall thereafter be entitled to purchase the number of Warrant
         Shares or other securities resulting from such adjustment at an

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<PAGE>

         Exercise Price per Warrant Share or other security obtained by
         multiplying the Exercise Price in effect immediately prior to such
         adjustment by the number of Warrant Shares purchasable pursuant hereto
         immediately prior to such adjustment and dividing by the number of
         Warrant Shares or other securities of the Company resulting from such
         adjustment. An adjustment made pursuant to this paragraph shall become
         effective immediately after the effective date of such event
         retroactive to the record date, if any, for such event.

         12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive upon
exercise of this Warrant, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

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<PAGE>

         14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

         15. NOTICE OF CORPORATE ACTION. If at any time:

                           (a) the Company shall take a record of the holders of
         its Common Stock for the purpose of entitling them to receive a
         dividend or other distribution, or any right to subscribe for or
         purchase any evidences of its indebtedness, any shares of stock of any
         class or any other securities or property, or to receive any other
         right, or

                           (b) there shall be any capital reorganization of the
         Company, any reclassification or recapitalization of the capital stock
         of the Company or any consolidation or merger of the Company with, or
         any sale, transfer or other disposition of all or substantially all the
         property, assets or business of the Company to, another corporation or,

                           (c) there shall be a voluntary or involuntary
         dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

         16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company

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will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.

                  Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, 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, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to
such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

         17. MISCELLANEOUS.

                           (a) JURISDICTION. This Warrant shall constitute a
         contract under the laws of New York, without regard to its conflict of
         law, principles or rules.

                           (b) RESTRICTIONS. The Holder acknowledges that the
         Warrant Shares acquired upon the exercise of this Warrant, if not
         registered, will have restrictions upon resale imposed by state and
         federal securities laws.

                           (c) NONWAIVER AND EXPENSES. No course of dealing or
         any delay or failure to exercise any right hereunder on the part of
         Holder shall operate as a waiver of such right or otherwise prejudice
         Holder's rights, powers or remedies, notwithstanding all rights
         hereunder terminate on the Termination Date. If the Company willfully
         and knowingly fails to comply with any provision of this Warrant, which
         results in any material damages to the Holder, the Company shall pay to
         Holder such amounts as shall be sufficient to cover any costs and
         expenses including, but not limited to, reasonable attorneys' fees,
         including those of appellate proceedings, incurred by Holder in
         collecting any amounts due pursuant hereto or in otherwise enforcing
         any of its rights, powers or remedies hereunder.

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<PAGE>

                           (d) NOTICES. Any notice, request or other document
         required or permitted to be given or delivered to the Holder by the
         Company shall be delivered in accordance with the notice provisions of
         the Purchase Agreement.

                           (e) SUCCESSORS AND ASSIGNS. Subject to applicable
         securities laws, this Warrant and the rights and obligations evidenced
         hereby shall inure to the benefit of and be binding upon the successors
         of the Company and the successors and permitted assigns of Holder. The
         provisions of this Warrant are intended to be for the benefit of all
         Holders from time to time of this Warrant and shall be enforceable by
         any such Holder or holder of Warrant Shares.

                           (f) AMENDMENT. This Warrant may be modified or
         amended or the provisions hereof waived with the written consent of the
         Company and the Holder.

                           (g) SEVERABILITY. Wherever possible, each provision
         of this Warrant shall be interpreted in such manner as to be effective
         and valid under applicable law, but if any provision of this Warrant
         shall be prohibited by or invalid under applicable law, such provision
         shall be ineffective to the extent of such prohibition or invalidity,
         without invalidating the remainder of such provisions or the remaining
         provisions of this Warrant.

                           (h) HEADINGS. The headings used in this Warrant are
         for the convenience of reference only and shall not, for any purpose,
         be deemed a part of this Warrant.

                           (i) NO CASH SURRENDER VALUE. Under no circumstances
         shall the Holder be entitled to a Cash Surrender Value.

                              ********************

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                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  November 28, 2006
                           HUDSON HOLDING CORPORATION

                           By:__________________________________________________
                                 Name:  Keith Knox
                                 Title:  President

                                      -11-
<PAGE>

                               NOTICE OF EXERCISE

To:      Hudson Holding Corporation

         (1) The undersigned hereby elects to purchase ________ Warrant Shares
of Hudson Securities, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith such Warrant and payment of the exercise price in full,
together with all applicable transfer taxes, if any.

         (2) Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:

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

The Warrant Shares shall be delivered to the following:

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

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

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

         (3) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

                               [PURCHASER]

                               By: ______________________________
                                     Name:
                                     Title:

                               Dated:  ________________________

<PAGE>

                                 ASSIGNMENT FORM

                                   (To assign the foregoing warrant, execute
                   this form and supply required information.
                                Do not use this form to exercise the warrant.)

                  FOR VALUE RECEIVED, subject to receipt of the Company's
consent, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

_______________________________________________ whose address is

________________________________________________________________.

________________________________________________________________

                                       Dated:  ______________, _______

                 Holder's Signature:  _____________________________

                 Holder's Address:    _____________________________

                                      _____________________________

Signature Guaranteed:  ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "AGREEMENT") is dated as of
October 25, 2006, among Hudson Holding Corporation, a Delaware corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each a
"PURCHASER" and collectively the "PURCHASERS"); and

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company, in the aggregate up to $8,500,000 of the Company's
Common Stock and certain Warrants, as more fully described in this Agreement;

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

ARTICLE I.
                                   DEFINITIONS

         1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

                  "ACTION" shall have the meaning ascribed to such term in
         Section 3.1(j).

                  "AFFILIATE" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person, as such terms are used in and
         construed under Rule 144. With respect to a Purchaser, any investment
         fund or managed account that is managed on a discretionary basis by the
         same investment manager as such Purchaser will be deemed to be an
         Affiliate of such Purchaser.

                  "BUSINESS DAY" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday or a day on which banking
         institutions in the State of New York are authorized or required by law
         or other governmental action to close.

                  "CLOSING" means the closing of the purchase and sale of the
         Common Stock and Warrants pursuant to Section 2.2.

                  "CLOSING DATE" means the date of a Closing.

                  "CLOSING PRICE" means on any particular date (a) the last
         reported closing price per share of Common Stock on such date on the
         Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
         time), or (b) if there is no such price on such date, then the closing
         price on the Trading Market on the date nearest preceding such date (as
         reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
         price for regular session trading on such day), or (c) if the Common
         Stock is not then listed or quoted on the Trading Market and if prices
         for the Common Stock are then reported in the "pink sheets" published

<PAGE>

         by the National Quotation Bureau Incorporated (or a similar
         organization or agency succeeding to its functions of reporting
         prices), the most recent bid price per share of the Common Stock so
         reported, or (d) if the shares of Common Stock are not then publicly
         traded the fair market value of a share of Common Stock as determined
         by an appraiser selected in good faith by the Purchasers of a majority
         in interest of the Shares then outstanding.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the common stock of the Company, $0.001
         par value per share, and any securities into which such common stock
         may hereafter be reclassified.

                  "COMMON STOCK EQUIVALENTS" means any securities of the Company
         or the Subsidiaries, which would entitle the holder thereof to acquire
         at any time Common Stock, including without limitation, any debt,
         preferred stock, rights, options, warrants or other instrument that is
         at any time convertible into or exchangeable for, or otherwise entitles
         the holder thereof to receive, Common Stock.

                  "DISCLOSURE SCHEDULES" means the Disclosure Schedules attached
         as ANNEX I hereto.

                  "EFFECTIVE DATE" means the date that the Registration
         Statement is first declared effective by the Commission.

                  "ESCROW AGENT" means American Stock Transfer & Trust Company.

                  "ESCROW AGREEMENT" means the Escrow Agreement, dated as of the
         date hereof, by and among the Company, the Placement Agent and the
         Escrow Agent.

                  "EVALUATION DATE" shall have the meaning ascribed to such term
         in Section 3.1(r).

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                  "INITIAL CLOSING" shall have the meaning ascribed to such term
         in Section 2.2.

                  "INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed
         to such term in Section 3.1(o).

                  "LIENS" means a lien, charge, security interest, encumbrance,
         right of first refusal or other restriction.

                  "MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to
         such term in Section 3.1(b).

                  "MATERIAL PERMITS" shall have the meaning ascribed to such
         term in Section 3.1(m).

                  "MAXIMUM OFFERING AMOUNT" shall have the meaning ascribed to
         such term in Section 2.1.

                                      -2-
<PAGE>

                  "OFFERING TERMINATION DATE" means November 30, 2006, unless
         extended for thirty (30) days by the Company without notice to the
         Purchasers.

                  "PER SHARE PURCHASE PRICE" means $0.60, subject to adjustment
         for reverse and forward stock splits, stock dividends, stock
         combinations and other similar transactions of the Common Stock that
         occur after the date of this Agreement.

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

                  "PLACEMENT AGENT" means Capstone Investments.

                  "PURCHASE AGREEMENT" shall have the meaning ascribed to such
         term in Section 3.1(g).

                  "QUESTIONNAIRE" means the Confidential Purchaser Questionnaire
         distributed by the Company to the Purchaser.

                  "REGISTRATION STATEMENT" means a registration statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale by the Purchasers of the Shares and the Warrant
         Shares.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
         Agreement, dated as of the date of this Agreement, among the Company
         and each Purchaser, in the form of EXHIBIT B hereto.

                  "RULE 144," means Rule 144 promulgated by the Commission
         pursuant to the Securities Act, as such Rules may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "SEC REPORTS" shall have the meaning ascribed to such term in
         Section 3.1(h).

                  "SECURITIES" means the Shares, the Warrants and the Warrant
         Shares.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended.

                  "SHARES" means the shares of Common Stock issued or issuable
         to each Purchaser pursuant to this Agreement other than the shares of
         Common Stock issuable pursuant to Section 4.9.

                  "SUBSCRIPTION AMOUNT" means, as to each Purchaser and the
         Closing, the amounts set forth below such Purchaser's signature block
         on the signature page hereto, in United States dollars and in
         immediately available funds.

                  "SUBSEQUENT CLOSING" shall have the meaning ascribed to such
         term in Section 2.2.

                  "SUBSIDIARY" shall have the meaning ascribed to such term in
         Section 3.1(a).

                                      -3-
<PAGE>

                  "TRADING DAY" means (i) a day on which the Common Stock is
         traded on a Trading Market, or (ii) if the Common Stock is not listed
         on a Trading Market, a day on which the Common Stock is traded on the
         over-the-counter market, as reported by the OTC Bulletin Board, or
         (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a
         day on which the Common Stock is quoted in the over-the-counter market
         as reported by the National Quotation Bureau Incorporated (or any
         similar organization or agency succeeding its functions of reporting
         prices); provided, that in the event that the Common Stock is not
         listed or quoted as set forth in (i), (ii) and (iii) hereof, then
         Trading Day shall mean a Business Day.

                  "TRADING MARKET" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: the American Stock Exchange, the New York Stock Exchange, the
         Nasdaq Global Market, the Nasdaq Capital Market, or the OTC Bulletin
         Board.

                  "TRANSACTION DOCUMENTS" means this Agreement, the Registration
         Rights Agreement, the Escrow Agreement, the Warrants and any other
         documents or agreements executed in connection with the transactions
         contemplated hereunder.

                  "WARRANTS" means the Common Stock Purchase Warrants, in the
         form of EXHIBIT C, issuable to the Purchasers at the Closing,
         exercisable for a term of five years at an exercise price equal to
         $0.85 or the market price at the end of the Trading Day on the Closing
         Date, whichever is higher, subject to adjustment therein.

                  "WARRANT SHARES" means the shares of Common Stock issuable
         upon exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

         2.1 PURCHASE AND SALE. At the Initial Closing (as defined below), the
Purchasers shall purchase, severally and not jointly, and the Company shall
issue and sell, in the aggregate, up to $8,500,000 (the "Maximum Offering
Amount") of Common Stock, together with the Warrants. Each Purchaser shall
purchase from the Company, and the Company shall issue and sell to each
Purchaser, (a) a number of Shares equal to such Purchaser's Subscription Amount
divided by the Per Share Purchase Price and (b) the Warrants as determined
pursuant to Section 2.3(a).

         2.2 CLOSING. The Initial Closing (the "Initial Closing") is expected to
be on or before the Offering Termination Date, subject to extension by the
Company without notice to the Purchasers. The offering period (the "Offering
Period") will commence on the date hereof and expire on the earlier to occur of:
(i) the Offering Termination Date or (ii) the date on which the Maximum Offering
Amount is placed. One or more subsequent closings (each a "Subsequent Closing"
and, together with the Initial Closing, each a "Closing" and, collectively, the
"Closings") may occur during the Offering Period until the Maximum Offering
Amount is placed.

                  (a) Upon satisfaction of the conditions set forth in Section
2.3, the Closing shall occur at the offices of the Company, or such other
location as the parties shall mutually agree.

                                      -4-
<PAGE>

                  (b) Purchaser understands and acknowledges that this Agreement
is part of a proposed placement by the Company of up to the Maximum Offering
Amount. Purchaser understands that the Subscription Amount will be held in an
escrow account established by the Company and the Placement Agent with the
Escrow Agent. No minimum amount of Securities must be sold before a Closing may
take place. Proceeds shall be released to the Company at Closing or to the
Purchaser, without interest, in the event that no Closing takes place prior to
the Offering Termination Date.

         2.3 CLOSING CONDITIONS.

                  (a) At Closing, the Company shall deliver or cause to be
         delivered to each Purchaser the following:

                           (i) this Agreement duly executed by the Company;

                           (ii) a certificate evidencing the number of Shares
                  equal to such Purchaser's Subscription Amount divided by the
                  Per Share Purchase Price, registered in the name of such
                  Purchaser;

                           (iii) the Registration Rights Agreement duly executed
                  by the Company; and

                           (iv) a Warrant, registered in the name of such
                  Purchaser, pursuant to which such Purchaser shall have the
                  right to acquire up to the number of shares of Common Stock
                  equal to 50% of the Shares to be issued to such Purchaser at
                  the Closing; and

                  (b) At Closing, the Company shall deliver or cause to be
         delivered to the Escrow Agent the following:

                           (i) Instructions as required by the Escrow Agreement.

                  (c) At or prior to the Closing each Purchaser shall deliver or
         cause to be delivered to the Company the following:

                           (i) this Agreement duly executed by such Purchaser;

                           (ii) such Purchaser's Subscription Amount as to such
                  Closing by wire transfer or check to the account of the Escrow
                  Agent;

                           (iii) the Registration Rights Agreement duly executed
                  by such Purchaser; and

                           (iv) a completed and executed Questionnaire.

                  (d) All representations and warranties of the other party
         contained herein shall remain true and correct as of the Closing Date.

                                      -5-
<PAGE>

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the SEC Reports or under the corresponding section of the Disclosure
Schedules delivered concurrently herewith, the Company hereby makes the
following representations and warranties as of the date hereof and as of the
Closing Date to each Purchaser:

                  (a) SUBSIDIARIES. Other than Hudson Securities, Inc., the
         Company has no direct or indirect subsidiaries. The Company owns,
         directly or indirectly, all of the capital stock of each Subsidiary
         free and clear of any lien, charge, security interest, encumbrance,
         right of first refusal or other restriction (collectively, "LIENS"),
         and all the issued and outstanding shares of capital stock of each
         Subsidiary are validly issued and are fully paid, non-assessable and
         free of preemptive and similar rights. If the Company has no
         subsidiaries, then references in the Transaction Documents to the
         Subsidiaries will be disregarded.

                  (b) ORGANIZATION AND QUALIFICATION. Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation of any of the provisions of
         its respective certificate or articles of incorporation, bylaws or
         other organizational or charter documents. Each of the Company and the
         Subsidiaries is duly qualified to conduct business and is in good
         standing as a foreign corporation or other entity in each jurisdiction
         in which the nature of the business conducted or property owned by it
         makes such qualification necessary, except where the failure to be so
         qualified or in good standing, as the case may be, would not have or
         reasonably be expected to result in (i) a material adverse effect on
         the legality, validity or enforceability of any Transaction Document,
         (ii) a material adverse effect on the results of operations, assets,
         business or financial condition of the Company and the Subsidiaries,
         taken as a whole, or (iii) adversely impair the Company's ability to
         perform in any material respect on a timely basis its obligations under
         any Transaction Document (any of (i), (ii) or (iii), a "MATERIAL
         ADVERSE EFFECT").

                  (c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations thereunder. The execution and
         delivery of each of the Transaction Documents by the Company and the
         consummation by it of the transactions contemplated thereby have been
         duly authorized by all necessary action on the part of the Company and
         no further action is required by the Company in connection therewith.
         Each Transaction Document has been (or upon delivery will have been)
         duly executed by the Company and, when delivered in accordance with the
         terms hereof, will constitute the valid and binding obligation of the
         Company enforceable against the Company in accordance with its terms
         except (i) as limited by applicable bankruptcy, insolvency,
         reorganization, moratorium and other laws of general application
         affecting enforcement of creditors' rights generally and (ii) as
         limited by laws relating to the availability of specific performance,
         injunctive relief or other equitable remedies.

                                      -6-
<PAGE>

                  (d) NO CONFLICTS. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the transactions contemplated thereby do not and will not
         (i) conflict with or violate any provision of the Company's or any
         Subsidiary's certificate or articles of incorporation, bylaws or other
         organizational or charter documents, or (ii) conflict with, or
         constitute a default (or an event that 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 (with or without
         notice, lapse of time or both) of, any agreement, credit facility, debt
         or other instrument (evidencing a Company or Subsidiary debt or
         otherwise) or other understanding to which the Company or any
         Subsidiary is a party or by which any property or asset of the Company
         or any Subsidiary is bound or affected, or (iii) result in a violation
         of any law, rule, regulation, order, judgment, injunction, decree or
         other restriction of any court or governmental authority to which the
         Company or a Subsidiary is subject (including federal and state
         securities laws and regulations), or by which any property or asset of
         the Company or a Subsidiary is bound or affected; except in the case of
         each of clauses (ii) and (iii), such as would not have or reasonably be
         expected to result in a Material Adverse Effect.

                  (e) FILINGS, CONSENTS AND APPROVALS. The Company is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or registration with, any court or
         other federal, state, local or other governmental authority or other
         Person in connection with the execution, delivery and performance by
         the Company of the Transaction Documents, other than (a) the filing
         with the Commission of the Registration Statement, the application(s)
         to each Trading Market for the listing of the Shares and Warrant Shares
         for trading thereon in the time and manner required thereby, and
         applicable Blue Sky filings, (b) such as have already been obtained or
         such exemptive filings as are required to be made under applicable
         securities laws, (c) such other filings as may be required following
         the Closing Date under the Securities Act, the Exchange Act and
         corporate law.

                  (f) ISSUANCE OF THE SECURITIES. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         Transaction Documents, will be duly and validly issued, fully paid and
         nonassessable, free and clear of all Liens. The Company has reserved
         from its duly authorized capital stock the maximum number of shares of
         Common Stock issuable pursuant to this Agreement and the Warrants.

                  (g) CAPITALIZATION. Since the date of the Company's most
         recent periodic report filed with the Commission, the Company has not
         issued any capital stock other than pursuant to the exercise of
         employee stock options under the Company's stock option plans, the
         issuance of shares of capital stock to employees pursuant to the
         Company's employee stock purchase plan, the issuance of capital stock
         pursuant to grants under time accelerated restricted stock award plans,
         pursuant to the conversion or exercise of outstanding Common Stock
         Equivalents. No Person has any right of first refusal, preemptive
         right, right of participation, or any similar right to participate in
         the transactions contemplated by the Transaction Documents. Except as a

                                      -7-
<PAGE>

         result of the purchase and sale of the Securities, there are no
         outstanding options, warrants, script rights to subscribe to, calls or
         commitments of any character whatsoever relating to, or securities,
         rights or obligations convertible into or exchangeable for, or giving
         any Person any right to subscribe for or acquire, any shares of Common
         Stock, or contracts, commitments, understandings or arrangements by
         which the Company or any Subsidiary is or may become bound to issue
         additional shares of Common Stock, or securities or rights convertible
         or exchangeable into shares of Common Stock, other than in connection
         with the Purchase Agreement and the Company's stock option plans. The
         issue and sale of the Securities will not obligate the Company to issue
         shares of Common Stock or other securities to any Person (other than
         the Purchasers) and will not result in a right of any holder of Company
         securities to adjust the exercise, conversion, exchange or reset price
         under such securities.

                  (h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years preceding the date hereof (or such shorter period as the
         Company was required by law to file such material) (the foregoing
         materials, including the exhibits thereto, being collectively referred
         to herein as the "SEC REPORTS" and, together with the Disclosure
         Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely
         basis or has received a valid extension of such time of filing and has
         filed any such SEC Reports prior to the expiration of any such
         extension. As of their respective dates, the SEC Reports complied in
         all material respects with the requirements of the Securities Act and
         the Exchange Act and the rules and regulations of the Commission
         promulgated thereunder, and none of the SEC Reports, when filed,
         contained any untrue statement of a material fact or omitted to state a
         material fact required to be stated therein or necessary in order to
         make the statements therein, in light of the circumstances under which
         they were made, not misleading. The financial statements of the Company
         included in the SEC Reports comply in all material respects with
         applicable accounting requirements and the rules and regulations of the
         Commission with respect thereto as in effect at the time of filing.
         Such financial statements have been prepared in accordance with
         generally accepted accounting principles applied on a consistent basis
         during the periods involved ("GAAP"), except as may be otherwise
         specified in such financial statements or the notes thereto and except
         that unaudited financial statements may not contain all footnotes
         required by GAAP, and fairly present in all material respects the
         financial position of the Company and its consolidated subsidiaries as
         of and for the dates thereof and the results of operations and cash
         flows for the periods then ended, subject, in the case of unaudited
         statements, to normal, immaterial, year-end audit adjustments.

                  (i) MATERIAL CHANGES. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         disclosed in the SEC Reports, (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
         required to be disclosed in filings made with the Commission, and (iii)
         the Company has not altered its method of accounting, (iv) the Company

                                      -8-
<PAGE>

         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 and in connection with the Purchase Agreement. The Company does
         not have pending before the Commission any request for confidential
         treatment of information.

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

                  (k) LABOR RELATIONS. No material labor dispute exists or, to
         the knowledge of the Company, is imminent with respect to any of the
         employees of the Company which could reasonably be expected to result
         in a Material Adverse Effect.

                  (l) COMPLIANCE. Except as disclosed in the SEC Reports,
         neither the Company nor any Subsidiary (i) is in default under or in
         violation of (and no event has occurred that has not been waived that,
         with notice or lapse of time or both, would result in a default by the
         Company or any Subsidiary under), nor has the Company or any Subsidiary
         received notice of a claim that it is in default under or that it is in
         violation of, any indenture, loan or credit agreement or any other
         agreement or instrument to which it is a party or by which it or any of
         its properties is bound (whether or not such default or violation has
         been waived), (ii) is in violation of any order of any court,
         arbitrator or governmental body, or (iii) is or has been in violation
         of any statute, rule or regulation of any governmental authority,
         including without limitation all foreign, federal, state and local laws
         applicable to its business, except in the case of clauses (i), (ii) and
         (iii) as would not have or reasonably be expected to result in a
         Material Adverse Effect.

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

                                      -9-
<PAGE>

                  (n) TITLE TO ASSETS. The Company and the Subsidiaries have
         good and marketable title in fee simple to all real property owned by
         them that is material to the business of the Company and the
         Subsidiaries and good and marketable title in all personal property
         owned by them that is material to the business of the Company and the
         Subsidiaries, in each case free and clear of all Liens, except for
         Liens as do not materially affect the value of such property and do not
         materially interfere with the use made and proposed to be made of such
         property by the Company and the Subsidiaries and Liens for the payment
         of federal, state or other taxes, the payment of which is neither
         delinquent nor subject to penalties. Any real property and facilities
         held under lease by the Company and the Subsidiaries are held by them
         under valid, subsisting and enforceable leases of which the Company and
         the Subsidiaries are in compliance.

                  (o) PATENTS AND TRADEMARKS. To the knowledge of the Company
         and each Subsidiary, the Company and the Subsidiaries have, or have
         rights to use, all patents, patent applications, trademarks, trademark
         applications, service marks, trade names, copyrights, licenses and
         other similar rights that are necessary or material for use in
         connection with their respective businesses as described in the SEC
         Reports and which the failure to so have could have or reasonably be
         expected to result in a Material Adverse Effect (collectively, the
         "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary
         has received a written notice that the Intellectual Property Rights
         used by the Company or any Subsidiary violates or infringes upon the
         rights of any Person. To the knowledge of the Company, all such
         Intellectual Property Rights are enforceable.

                  (p) INSURANCE. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as are prudent and customary in the
         businesses in which the Company and the Subsidiaries are engaged.
         Neither the Company nor any Subsidiary has any reason to believe that
         it will not be able to renew its existing insurance coverage as and
         when such coverage expires or to obtain similar coverage from similar
         insurers as may be necessary to continue its business without a
         significant increase in cost.

                  (q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
         forth in the SEC Reports and except in connection with the Purchase
         Agreement, none of the officers or directors of the Company and, to the
         knowledge of the Company, none of the employees of the Company is
         presently a party to any transaction with the Company or any Subsidiary
         (other than for services as employees, officers and directors),
         including any contract, agreement or other arrangement providing for
         the furnishing of services to or by, providing for rental of real or
         personal property to or from, or otherwise requiring payments to or
         from any officer, director or such employee or, to the knowledge of the
         Company, any entity in which any officer, director, or any such
         employee has a substantial interest or is an officer, director, trustee
         or partner, in each case in excess of $60,000 other than (a) for
         payment of salary or consulting fees for services rendered, (b)
         reimbursement for expenses incurred on behalf of the Company and (c)
         for other employee benefits, including stock option agreements under
         any stock option plan of the Company.

                                      -10-
<PAGE>

                  (r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
         subsidiaries maintains a system of internal accounting controls
         sufficient to provide reasonable assurance that (i) transactions are
         executed in accordance with management's general or specific
         authorizations, (ii) transactions are recorded as necessary to permit
         preparation of financial statements in conformity with GAAP and to
         maintain asset accountability, (iii) access to assets is permitted only
         in accordance with management's general or specific authorization, and
         (iv) the recorded accountability for assets is compared with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e)) for the Company and designed such disclosures controls and
         procedures to ensure that material information relating to the Company,
         including its subsidiaries, is made known to the certifying officers by
         others within those entities, particularly during the period in which
         the Company's Form 10-K or 10-QSB, as the case may be, is being
         prepared. The Company's certifying officers have evaluated the
         effectiveness of the Company's controls and procedures as of a date
         within 90 days prior to the filing date of the Form 10-QSB for the
         quarter ended June 30, 2006 (such date, the "EVALUATION DATE"). The
         Company presented in its most recently filed Form 10-KSB or Form 10-QSB
         the conclusions of the certifying officers about the effectiveness of
         the disclosure controls and procedures based on their evaluations as of
         the Evaluation Date. Since the Evaluation Date, there have been no
         significant changes in the Company's internal controls or, to the
         Company's knowledge, in other factors that could significantly affect
         the Company's internal controls.

                  (s) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
         representations and warranties set forth in Section 3.2, no
         registration under the Securities Act is required for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby.

                  (t) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not,
         in the 12 months preceding the date hereof, received notice from any
         Trading Market on which the Common Stock is or has been listed or
         quoted to the effect that the Company is not in compliance with the
         listing or maintenance requirements of such Trading Market.

                  (u) NO INTEGRATED OFFERING. Other than in connection with the
         Purchase Agreement, 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 the Securities Act or any applicable shareholder approval
         provisions, including, without limitation, under the rules and
         regulations of any exchange or automated quotation system on which any
         of the securities of the Company are listed or designated.

         3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

                  (a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
         organized, validly existing and in good standing under the laws of the
         jurisdiction of its organization with full right, corporate or
         partnership power and authority to enter into and to consummate the

                                      -11-
<PAGE>

         transactions contemplated by the Transaction Documents and otherwise to
         carry out its obligations thereunder. The execution, delivery and
         performance by such Purchaser of the transactions contemplated by this
         Agreement has been duly authorized by all necessary corporate action on
         the part of such Purchaser. Each Transaction Document to which it is
         party has been duly executed by such Purchaser, and when delivered by
         such Purchaser in accordance with terms hereof, will constitute the
         valid and legally binding obligation of such Purchaser, enforceable
         against it in accordance with its terms.

                  (b) INVESTMENT INTENT. Such Purchaser understands that the
         Securities are "restricted securities" and have not been registered
         under the Securities Act or any applicable state securities law and is
         acquiring the Securities as principal for its own account for
         investment purposes only and not with a view to or for distributing or
         reselling such Securities or any part thereof, has no present intention
         of distributing any of such Securities and has no arrangement or
         understanding with any other persons regarding the distribution of such
         Securities (this representation and warranty not limiting such
         Purchaser's right to sell the Securities pursuant to the Registration
         Statement or otherwise in compliance with applicable federal and state
         securities laws). Such Purchaser is acquiring the Securities hereunder
         in the ordinary course of its business. Such Purchaser does not have
         any agreement or understanding, directly or indirectly, with any Person
         to distribute any of the Securities.

                  (c) PURCHASER STATUS. At the time such Purchaser was offered
         the Securities, it was, and at the date hereof it is an "accredited
         investor" as defined in Rule 501(a) under the Securities Act. Such
         Purchaser is not required to be registered as a broker-dealer under
         Section 15 of the Exchange Act.

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

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

                  (f) ACCESS TO INFORMATION. Such Purchaser acknowledges that it
         has reviewed the Disclosure Materials and has been afforded (i) the
         opportunity to ask such questions as it has deemed necessary of, and to
         receive answers from, representatives of the Company concerning the
         terms and conditions of the offering of the Securities and the merits
         and risks of investing in the Securities; (ii) access to information
         about the Company and the Subsidiaries and their respective financial
         condition, results of operations, business, properties, management and
         prospects sufficient to enable it to evaluate its investment; and (iii)
         the opportunity to obtain such additional information that the Company
         possesses or can acquire without unreasonable effort or expense that is
         necessary to make an informed investment decision with respect to the
         investment. Neither such inquiries nor any other investigation

                                      -12-
<PAGE>

         conducted by or on behalf of such Purchaser or its representatives or
         counsel shall modify, amend or affect such Purchaser's right to rely on
         the truth, accuracy and completeness of the Disclosure Materials and
         the Company's representations and warranties contained in the
         Transaction Documents.

                  (g) INTERNATIONAL ACTIONS. Such Purchaser acknowledges,
         represents and agrees that no action has been or will be taken in any
         jurisdiction outside the United States by the Company or any other
         agent on behalf of such Purchaser that would permit an offering of the
         Securities, or possession or distribution of offering materials in
         connection with the issue of the Securities, in any jurisdiction
         outside the United States. If such Purchaser is located outside the
         United States, it has or will take all actions necessary for the sale
         of the Securities to comply with all applicable laws and regulations in
         each foreign jurisdiction in which it purchases, offers, sells or
         delivers Securities or has in its possession or distributes any
         offering material, in all cases at its own expense.

                  (h) REGISTRATION REQUIRED. Such Purchaser hereby covenants
         with the Company not to make any sale of the Shares and the Warrant
         Shares without complying with the provisions hereof and of the
         Registration Rights Agreement, and without effectively causing the
         prospectus delivery requirement under the Securities Act to be
         satisfied (unless such Purchaser is selling such Shares and Warrant
         Shares in a transaction not subject to the prospectus delivery
         requirement), and such Purchaser acknowledges that the certificates
         evidencing the Shares will be imprinted with a legend that prohibits
         their transfer except in accordance therewith.

                  (i) NO TAX OR LEGAL ADVICE. Such Purchaser understands that
         nothing in this Agreement, any other Transaction Document or any other
         materials presented to such Purchaser in connection with the purchase
         and sale of the Securities constitutes legal, tax or investment advice.
         Such Purchaser has consulted such legal, tax and investment advisors as
         it, in its sole discretion, has deemed necessary or appropriate in
         connection with its purchase of Securities.

                  (j) PLACEMENT AGENT FEE. Such Purchaser represents and
         warrants that, other than the Placement Agent, 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. Purchaser understands and acknowledges that pursuant to
         an agreement by and between the Company and the Placement Agent, the
         Company will pay the Placement Agent a cash commission equal to six and
         one-half percent (6.5%) of each Purchaser's Subscription Amount.

         The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.

                                      -13-
<PAGE>

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1      TRANSFER RESTRICTIONS.

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

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

                  THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
                  AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
                  STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
                  THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
                  AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
                  TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
                  ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
                  TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
                  THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
                  SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
                  THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
                  REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
                  PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
                  REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
                  INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
                  RULE 501(a) UNDER THE SECURITIES ACT.

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

                                      -14-
<PAGE>

         may reasonably request in connection with a pledge or transfer of the
         Securities, including the preparation and filing of any required
         prospectus supplement under Rule 424(b)(3) of the Securities Act or
         other applicable provision of the Securities Act to appropriately amend
         the list of Selling Stockholders thereunder.

                  (c) Certificates evidencing the Shares and Warrant Shares
         shall not contain any legend (including the legend set forth in Section
         4.1(b)), (i) while a registration statement (including the Registration
         Statement) covering the resale of such security is effective under the
         Securities Act, or (ii) following any sale of such Shares or Warrant
         Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
         are eligible for sale under Rule 144(k), or (iv) if such legend is not
         required under applicable requirements of the Securities Act (including
         judicial interpretations and pronouncements issued by the Staff of the
         Commission). The Company shall cause its counsel to issue a legal
         opinion to the Company's transfer agent promptly after the Effective
         Date if required by the Company's transfer agent to effect the removal
         of the legend hereunder. If all or any portion of a Warrant is
         exercised at a time when there is an effective registration statement
         to cover the resale of the Warrant Shares, such Warrant Shares shall be
         issued free of all legends. The Company agrees that following the
         Effective Date or at such time as such legend is no longer required
         under this Section 4.1(c), it will, no later than nine Trading Days
         following the delivery by a Purchaser to the Company or the Company's
         transfer agent of a certificate representing Shares or Warrant Shares,
         as the case may be, issued with a restrictive legend, deliver or cause
         to be delivered to such Purchaser a certificate representing such
         Securities that is free from all restrictive and other legends. The
         Company may not make any notation on its records or give instructions
         to any transfer agent of the Company that enlarge the restrictions on
         transfer set forth in this Section. The Holder shall be required to
         provide the Company with an undertaking that when required it will
         deliver a prospectus to the purchaser of the Shares or Warrant Shares.

         4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any such holder of Securities, the Company
shall deliver to such holder a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c)(2) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

         4.3 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers.

                                      -15-
<PAGE>

         4.4 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, within 4
Trading Days of the Closing Date, issue a press release or file a Current Report
on Form 8-K, in each case reasonably acceptable to the attorney for Purchaser
disclosing the transactions contemplated hereby and make such other filings and
notices in the manner and time required by the Commission. The Company and each
Purchaser shall consult with the attorney for other in issuing any press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Purchaser shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the attorney for other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii). The
determination that such disclosure is necessary will be made by the Company's
attorneys.

         4.5 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

         4.6 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.

         4.7 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

         4.8 LISTING OF COMMON STOCK. The Company hereby agrees to use
commercially reasonably efforts to maintain the listing of the Common Stock on
the Trading Market, and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to list the applicable Shares and Warrant Shares on the
Trading Market. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Trading Market, it will include in such
application the Shares and the Warrant Shares, and will take such other action
as is necessary or desirable in the opinion of the Investors to cause the Shares
and Warrant Shares to be listed on such other Trading Market as promptly as
possible. The Company will take all action reasonably necessary to continue the
listing and trading of its Common Stock on a Trading Market and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Trading Market.

                                      -16-
<PAGE>

         4.9 NO SHORT SALES. The Purchasers and their Affiliates shall not
engage in short sales of the Common Stock (as defined in applicable SEC and NASD
rules) during the term of this Agreement.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 FEES AND EXPENSES. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.

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

         5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as set forth on the
signature pages attached hereto.

         5.3 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

         5.4 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

                                      -17-
<PAGE>

         5.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

         5.6 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

         5.7 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
New York for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto (including its affiliates, agents, officers, directors and
employees) hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of a Transaction Document, then the prevailing party in such action
or proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

         5.8 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive for one year after the Closing.

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

                                      -18-
<PAGE>

         5.10 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

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

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

         5.13 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

         5.14 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other

                                      -19-
<PAGE>

Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.

         5.15 IRREVOCABLE OFFER. Purchaser agrees that this Agreement
constitutes an irrevocable offer to purchase the Securities of the Company and
that Purchaser cannot cancel, terminate or revoke this Agreement or any
agreement of Purchaser made hereunder. This Agreement shall survive the death or
legal disability of Purchaser and shall be binding upon Purchaser's heirs,
executors, administrators and successors.

                            (SIGNATURE PAGE FOLLOWS)

                                      -20-
<PAGE>

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

HUDSON HOLDING CORPORATION                      ADDRESS FOR NOTICE:
                                                ------------------

                                                111 Town Square Place
                                                Suite 1500A
                                                Jersey City, New Jersey 07310
By:_____________________________________        Tel.  (201) 216-0100
      Name:
      Title:

                                      -21-
<PAGE>

          [PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, Purchaser has caused this Agreement to be executed as of the
date indicated below.

[PURCHASER]                                          ADDRESS FOR NOTICE:

By:  __________________________
        Name:                                        Fax:
        Title:                                       Attn:

Social Security Number or Taxpayer
Identification Number

Subscription Amount: $

With a copy to:

                                      -22-

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