Document:

SECURITIES
      PURCHASE AGREEMENT

    

    THIS
      SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of the 30th
      day of
      June, 2008 by and among National Holdings Corporation, a Delaware corporation
      (the “Company”), and St. Cloud Capital Partners II, L.P. (the
“Investor”).

    

    Recitals

    

    A. The
      Company and the Investor are executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by the provisions
      of
      Regulation D (“Regulation D”), as promulgated by the U.S. Securities and
      Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended;
      and

    

    B. The
      Investor wishes to purchase from the Company, and the Company wishes to sell
      and
      issue to the Investor, upon the terms and conditions stated in this Agreement,
      (i) a 10%
      senior
      subordinated convertible promissory Note in the principal amount of $3,000,000
      (the “Note”), in the form attached as Exhibit
      A hereto
      and (iii) a Warrant to purchase 468,750 shares
      of
      the Company’s common stock, par value $0.02 per share (together with any
      securities into which the common stock may be reclassified, the “Common Stock”)
      at an exercise price equal to $2.00 per share (subject to adjustment) in the
      form attached hereto as Exhibit
      B
      (the
“Warrant”); and

    

    C. Contemporaneous
      with the sale of the Note and Warrant, the parties hereto will execute and
      deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit
      C
      (the
“Registration Rights Agreement”), pursuant to which the Company will agree to
      provide certain registration rights under the Securities Act of 1933, as
      amended, and the rules and regulations promulgated thereunder, and applicable
      state securities laws.

    

    In
      consideration of the mutual promises made herein and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

    

    1. Definitions.
      In
      addition to those terms defined above and elsewhere in this Agreement, for
      the
      purposes of this Agreement, the following terms shall have the meanings set
      forth below:

    

    “Affiliate”
means,
      with respect to any Person, any other Person which directly or indirectly
      through one or more intermediaries Controls, is controlled by, or is under
      common control with, such Person.

    

    “Business
      Day”
means
      a
      day, other than a Saturday, Sunday or holiday, on which banks in New York City
      are open for the general transaction of business.

     

    “Company’s
      Knowledge”
means
      the actual knowledge of the executive officers (as defined in Rule 405 under
      the
      1933 Act) of the Company, after due inquiry.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Control”
      (including the terms “controlling”, “controlled by” or “under common control
      with”) means the possession, direct or indirect, of the power to direct or cause
      the direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise.

    

    “Conversion
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Note.

    

    “Effective
      Date”
means
      the date on which the initial Registration Statement is declared effective
      by
      the SEC.

    

    “Effectiveness
      Deadline”
means
      the date on which the initial Registration Statement is required to be declared
      effective by the SEC under the terms of the Registration Rights
      Agreement.

    

    “Intellectual
      Property”
means
      all of the following: (i) patents, patent applications, patent disclosures
      and
      inventions (whether or not patentable and whether or not reduced to practice);
      (ii) trademarks, service marks, trade dress, trade names, corporate names,
      logos, slogans and Internet domain names, together with all goodwill associated
      with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
      registrations, applications and renewals for any of the foregoing; and (v)
      proprietary computer software (including but not limited to data, data bases
      and
      documentation).

    

    “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the assets, liabilities, results of operations,
      condition (financial or otherwise), or business of the Company and its
      Subsidiaries taken as a whole, or (ii) the ability of the Company to perform
      its
      obligations under the Transaction Documents.

    

    “Note”
has
      the
      meaning set forth in the recitals. 

    

    “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, sole
      proprietorship, unincorporated organization, governmental authority or any
      other
      form of entity not specifically listed herein.

     

    “Purchase
      Price”
means
      Three Million Dollars ($3,000,000.00).

    

    “SEC
      Filings”
has
      the
      meaning set forth in Section 4.6.

    

    “Registration
      Statement”
has
      the
      meaning set forth in the Registration Rights Agreement.

     

    “Securities”
means
      the Note, the Warrant, the Conversion Shares and the Warrant
      Shares.

     

    
      
        
        

      

      
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    “Subsidiary”
of
      any
      Person means another Person, an amount of the voting securities, other voting
      ownership or voting partnership interests of which is sufficient to elect at
      least a majority of its Board of Directors or other governing body (or, if
      there
      are no such voting interests, 50% or more of the equity interests of which)
      is
      owned directly or indirectly by such first Person.

    

    “Transaction
      Documents”
means
      this Agreement, the Note, the Warrant and the Registration Rights
      Agreement.

    

    “Warrant”
has
      the
      meaning set forth in the recitals.

    

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

    

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

    

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

    

    2. Purchase
      and Sale of the Note and Warrant.
      Subject
      to the terms and conditions of this Agreement, on the Closing Date, the Investor
      shall purchase, and the Company shall sell and issue to the Investor, the Note
      and Warrant in exchange for the payment of the Purchase Price as specified
      in
      Section 3 below.

    

    3. Closing.
      Upon
      confirmation that the other conditions to closing specified herein have been
      satisfied or duly waived by the Investor, the Company shall deliver to Mulvaney,
      Kahan & Barry, LLP, in trust, a certificate registered in the name of the
      Investor, representing the Warrant, along with original instrument, registered
      in the name of the Investor, representing the Note, with instructions that
      such
      certificate and instrument are to be held for release to the Investor only
      upon
      payment in full of the Purchase Price to the Company by the Investor. Upon
      such
      receipt by Mulvaney, Kahan & Barry, LLP of the certificate and instrument,
      the Investor shall promptly, but no more than one Business Day thereafter,
      cause
      a wire transfer in same day funds to be sent to the account of the Company
      as
      instructed in writing by the Company or its counsel, in an amount representing
      the Purchase Price. On the date (the “Closing Date”) the Company receives the
      Purchase Price, the certificate evidencing the Warrant and instrument evidencing
      the Note shall be released to the Investor (the “Closing”). The Closing of the
      purchase and sale of the Note and Warrant shall take place at the offices of
      Littman Krooks LLP, 655 Third Avenue, 20th Floor, New York, New York 10017
      (or
      remotely via the exchange of documents and signatures), or at such other
      location and on such other date as the Company and the Investor shall mutually
      agree.

    

    4. Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Investor that, except as set
      forth
      in the schedules delivered herewith (collectively, the “Disclosure
      Schedules”):

     

    
      
        
        

      

      
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    4.
      1 Organization,
      Good Standing and Qualification.
      Each of
      the Company and its Subsidiaries is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation and has all requisite corporate power and authority to carry
      on
      its business as now conducted and to own its properties. Each of the Company
      and
      its Subsidiaries is duly qualified to do business as a foreign corporation
      and
      is in good standing in each jurisdiction in which the conduct of its business
      or
      its ownership or leasing of property makes such qualification or leasing
      necessary unless the failure to so qualify has not and could not reasonably
      be
      expected to have a Material Adverse Effect. The Company’s Subsidiaries are
      listed on Schedule
      4.1
      hereto.

    

    4.2 Authorization.
      The
      Company has full power and authority and has taken all requisite action on
      the
      part of the Company necessary for (i) the authorization, execution and delivery
      of the Transaction Documents, (ii) the authorization of the performance of
      all
      obligations of the Company hereunder or thereunder and (iii) the authorization,
      issuance (or reservation for issuance) and delivery of the
      Securities.
      The
      Transaction Documents constitute the legal, valid and binding obligations of
      the
      Company, enforceable against the Company in accordance with their terms, subject
      to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
      and
      similar laws of general applicability, relating to or affecting creditors’
rights generally.

    

    4.3 Capitalization.
      Schedule
      4.3
      sets
      forth the authorized capital stock of the Company on the date hereof. All of
      the
      issued and outstanding shares of the Company’s capital stock have been duly
      authorized and validly issued, fully paid, and nonassessable. Except as
      described on Schedule
      4.3,
      there
      are no outstanding warrants, options, convertible securities or other rights,
      agreements or arrangements of any character under which the Company or any
      of
      its Subsidiaries is obligated to issue any equity securities of any kind. Except
      as described on Schedule
      4.3,
      except
      for the Registration Rights Agreement, there are no voting agreements, buy-sell
      agreements, option or right of first purchase agreements or other agreements
      of
      any kind among the Company and any of the securityholders of the Company
      relating to the securities of the Company held by them.

    

    4.4 Valid
      Issuance.
      The
      Conversion Shares and the Warrant Shares have been duly and validly authorized.
      Upon the due conversion of the Note, the Conversion Shares will be validly
      issued, fully paid and nonassessable, and shall be free and clear of all
      encumbrances and restrictions, except for restrictions on transfer set forth
      in
      the Transaction Documents or imposed by applicable securities laws and except
      for those created by the Investor. Upon the due exercise of the Warrant and
      payment of the exercise price thereunder, the Warrant Shares will be validly
      issued, fully paid and nonassessable, and shall be free and clear of all
      encumbrances and restrictions, except for restrictions on transfer set forth
      in
      the Transaction Documents or imposed by applicable securities laws and except
      for those created by the Investor. 

    

    4.5 Consents.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      and the offer, issuance and sale of the Securities require no consent of, action
      by or in respect of, or filing with, any Person, governmental body, agency,
      or
      official other than filings that have been made pursuant to applicable state
      securities laws and post-sale filings pursuant to applicable state and federal
      securities laws which the Company undertakes to file within the applicable
      time
      periods.

     

    
      
        
        

      

      
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    4.6 Delivery
      of SEC Filings.
      The
      Company has made available to the Investor through the EDGAR system, true and
      complete copies of the Company’s most recent Annual Report on Form 10-K for the
      fiscal year ended September 30, 2007 (the “2007 10-K”), and all other reports
      filed by the Company pursuant to the 1934 Act since the filing of the 2007
      10-K
      (including the Company’s most recent Quarterly Report on Form 10-Q for the
      quarters ended December 31, 2007 and March 31, 2008 and the Company’s
      Registration Statement on Form S-4 and declared effective by the SEC on May
      9,
      2008) and prior to the date hereof (collectively, the “SEC Filings”).

    

    4.7 No
      Material Adverse Change.
      Since
      December 31, 2007, except as identified and described in the SEC Filings, there
      has not been any change in the consolidated assets, liabilities, financial
      condition or operating results of the Company from that reflected in the
      financial statements included in the SEC Filings, except for changes in the
      ordinary course of business which have not had and could not reasonably be
      expected to have a Material Adverse Effect, individually or in the
      aggregate.

    

    4.8 SEC
      Filings.
      At the
      time of filing thereof, the SEC Filings complied as to form in all material
      respects with the requirements of the 1934 Act and did not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in the light of the circumstances
      under which they were made, not misleading.

    

    4.9 No
      Conflict, Breach, Violation or Default.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the issuance and sale of the Securities will not conflict with or result
      in
      a breach or violation of any of the terms and provisions of, or constitute
      a
      default under (i) the Company’s Certificate of Incorporation or the Company’s
      Bylaws, both as in effect on the date hereof (true and complete copies of which
      have been made available to the Investor through the EDGAR system), or (ii)(a)
      any statute, rule, regulation or order of any governmental agency or body or
      any
      court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
      or any of their respective assets or properties, or (b) any agreement or
      instrument to which the Company or any Subsidiary is a party or by which the
      Company or a Subsidiary is bound or to which any of their respective assets
      or
      properties is subject.

    

    4.10 Tax
      Matters.
      The
      Company and each Subsidiary has prepared and filed all tax returns required
      to
      have been filed by the Company or such Subsidiary with all appropriate
      governmental agencies and timely paid all taxes shown thereon or otherwise
      owed
      by it. The charges, accruals and reserves on the books of the Company in respect
      of taxes for all fiscal periods are adequate in all material respects, and
      there
      are no material unpaid assessments against the Company or any Subsidiary nor,
      to
      the Company’s Knowledge, any basis for the assessment of any additional taxes,
      penalties or interest for any fiscal period or audits by any federal, state
      or
      local taxing authority except for any assessment which is not material to the
      Company and its Subsidiaries, taken as a whole. All taxes and other assessments
      and levies that the Company or any Subsidiary is required to withhold or to
      collect for payment have been duly withheld and collected and paid to the proper
      governmental entity or third party when due. There are no tax liens or claims
      pending or, to the Company’s Knowledge, threatened against the Company or any
      Subsidiary or any of their respective assets or property. Except as described
      on
Schedule
      4.10,
      there
      are no outstanding tax payments or tax sharing agreements or other such
      arrangements between the Company and any Subsidiary or other corporation or
      entity.

     

    
      
        
        

      

      
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    4.11 Title
      to Properties.
      Except
      as disclosed in the SEC Filings, the Company and each Subsidiary has good and
      marketable title to all properties and assets owned by it, in each case free
      from liens, encumbrances and defects that would materially affect the value
      thereof or materially interfere with the use made or currently planned to be
      made thereof by them; and except as disclosed in the SEC Filings, the Company
      and each Subsidiary holds any leased real or personal property under valid
      and
      enforceable leases with no exceptions that would materially interfere with
      the
      use made or currently planned to be made thereof by them.

    

    4.12 Certificates,
      Authorities and Permits.
      Except
      as disclosed in the SEC Filings, the Company and each Subsidiary possess
      adequate certificates, authorities or permits issued by appropriate governmental
      agencies or bodies necessary to conduct the business now operated by it, and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any such certificate, authority
      or
      permit that, if determined adversely to the Company or such Subsidiary, could
      reasonably be expected to have a Material Adverse Effect, individually or in
      the
      aggregate.

    

    4.13 Labor
      Matters.

     

    (a) The
      Company is not a party to or bound by any collective bargaining agreements
      or
      other agreements with labor organizations. The Company has not violated in
      any
      material respect any laws, regulations, orders or contract terms, affecting
      the
      collective bargaining rights of employees, labor organizations or any laws,
      regulations or orders affecting employment discrimination, equal opportunity
      employment, or employees’ health, safety, welfare, wages and hours.

     

    (b) The
      Company is, and at all times has been, in compliance in all material respects
      with all applicable laws respecting employment (including laws relating to
      classification of employees and independent contractors) and employment
      practices, terms and conditions of employment, wages and hours, and immigration
      and naturalization.

     

    4.14 Intellectual
      Property.
      All
      Intellectual Property of the Company and its Subsidiaries is currently in
      compliance with all legal requirements (including timely filings, proofs and
      payments of fees) and, to the Company’s Knowledge, is valid and enforceable. No
      Intellectual Property of the Company or its Subsidiaries which is necessary
      for
      the conduct of Company’s and each of its Subsidiaries’ respective businesses as
      currently conducted or as currently proposed to be conducted has been or is
      now
      involved in any cancellation, dispute or litigation, and, to the Company’s
      Knowledge, no such action is threatened.

    

    4.15 Environmental
      Matters.
      Neither
      the Company nor any Subsidiary is in violation of any statute, rule, regulation,
      decision or order of any governmental agency or body or any court, domestic
      or
      foreign, relating to the use, disposal or release of hazardous or toxic
      substances or relating to the protection or restoration of the environment
      or
      human exposure to hazardous or toxic substances (collectively, “Environmental
      Laws”), owns or operates any real property contaminated with any substance that
      is subject to any Environmental Laws, is liable for any off-site disposal or
      contamination pursuant to any Environmental Laws, and is subject to any claim
      relating to any Environmental Laws, which violation, contamination, liability
      or
      claim has had or could reasonably be expected to have a Material Adverse Effect,
      individually or in the aggregate; and there is no pending or, to the Company’s
      Knowledge, threatened investigation that might lead to such a
      claim.

     

    
      
        
        

      

      
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    4.16 Litigation.
      Except
      as described in the SEC Filings or on Schedule
      4.16,
      there
      are no pending actions, suits or proceedings against or affecting the Company,
      its Subsidiaries or any of its or their properties; and to the Company’s
      Knowledge, no such actions, suits or proceedings are threatened or
      contemplated.

    

    4.17 Financial
      Statements.
      The
      financial statements included in each SEC Filing present fairly, in all material
      respects, the consolidated financial position of the Company as of the dates
      shown and its consolidated results of operations and cash flows for the periods
      shown, and such financial statements have been prepared in conformity with
      United States generally accepted accounting principles applied on a consistent
      basis (“GAAP”) (except as may be disclosed therein or in the Note thereto, and,
      in the case of quarterly financial statements, as permitted by Form 10-Q under
      the 1934 Act). Except as set forth in the financial statements of the Company
      included in the SEC Filings filed prior to the date hereof, neither the Company
      nor any of its Subsidiaries has incurred any liabilities, contingent or
      otherwise, except those incurred in the ordinary course of business, consistent
      (as to amount and nature) with past practices since the date of such financial
      statements, none of which, individually or in the aggregate, have had or could
      reasonably be expected to have a Material Adverse Effect.

    

    4.18 Insurance
      Coverage.
      The
      Company and each Subsidiary maintains in full force and effect insurance
      coverage that is customary for comparably situated companies for the business
      being conducted and properties owned or leased by the Company and each
      Subsidiary, and the Company reasonably believes such insurance coverage to
      be
      adequate against all liabilities, claims and risks against which it is customary
      for comparably situated companies to insure.

    

    4.19 Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or the Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of the Company.

    

    4.20 No
      Directed Selling Efforts or General Solicitation.
      Neither
      the Company nor any Person acting on its behalf has conducted any general
      solicitation or general advertising (as those terms are used in Regulation
      D) in
      connection with the offer or sale of any of the Securities.

    

    4.21 Private
      Placement.
      Subject
      to the accuracy of the Investor’s representations in Section 5 of this
      Agreement, the offer and sale of the Securities to the Investor as contemplated
      hereby is exempt from the registration requirements of the 1933
      Act.

     

    
      
        
        

      

      
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    4.22 Financial
      Transactions.
      The
      Company has not engaged in any account trading for its own benefit that creates
      an obligation to provide liquidity or other guarantees for special purpose
      entities (variable interest entities); that creates an obligation to repurchase
      subprime assets; nor has it any undisclosed transactions involving special
      purpose entities or special investment vehicles which utilize off balance sheet
      financing.

    

    4.23 Sarbanes
      Oxley Act.
      The
      Company is in compliance in all material respects with applicable requirements
      of the Sarbanes-Oxley Act of 2002 and applicable rules and regulations
      promulgated by the SEC thereunder in effect as of the date of this Agreement,
      except where such noncompliance could not be reasonably expected to have,
      individually or in the aggregate, a Material Adverse Effect.

    

    4.24 Disclosure.
      The
      Transaction Documents, including the Schedules to this Agreement, as the same
      relate to the Company, are true and correct in all material respects and do
      not
      contain any untrue statement of a material fact or omit to state any material
      fact necessary in order to make the statements made therein, in the light of
      the
      circumstances under which they were made, not misleading; it being understood
      that the Company has not provided the Investor, and the Investor is not relying
      on, any information constituting a forecast or projection. 

     

    5. Representations,
      Warranties and Covenants of the Investor.
      The
      Investor hereby represents, warrants and covenants to the Company
      that:

    

    5.1 Organization
      and Existence.
      The
      Investor is a validly existing limited partnership and has all requisite
      partnership power and authority to invest in the Securities pursuant to this
      Agreement. The Investor was not formed solely for the purpose of investing
      in
      the Securities.

    

    5.2 Authorization.
      The
      execution, delivery and performance by the Investor of the Transaction Documents
      to which Investor is a party have been duly authorized and will each constitute
      the valid and legally binding obligation of Investor, enforceable against
      Investor in accordance with their respective terms, subject to bankruptcy,
      insolvency, fraudulent transfer, reorganization, moratorium and similar laws
      of
      general applicability, relating to or affecting creditors’ rights
      generally.

    

    5.3 Purchase
      Entirely for Own Account.
      The
      Securities to be received by Investor hereunder will be acquired for Investor’s
      own account, not as nominee or agent, and not with a view to the resale or
      distribution of any part thereof in violation of the 1933 Act, and Investor
      has
      no present intention of selling, granting any participation in, or otherwise
      distributing the same in violation of the 1933 Act
      without
      prejudice, however, to Investor’s right at all times to sell or otherwise
      dispose of all or any part of such Securities in compliance with applicable
      federal and state securities laws.
      Nothing
      contained herein shall be deemed a representation or warranty by Investor to
      hold the Securities for any period of time. Neither Investor
      nor any Affiliate of Investor is a broker-dealer registered with the SEC under
      the 1934 Act or an entity engaged in a business that would require it to be
      so
      registered.

    

    5.4 Investment
      Experience.
      Investor acknowledges that it can bear the economic risk and complete loss
      of
      its investment in the Securities and has such knowledge and experience in
      financial or business matters that it is capable of evaluating the merits and
      risks of the investment contemplated hereby.

     

    
      
        
        

      

      
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    5.5 Disclosure
      of Information.
      Investor has had an opportunity to receive all information related to the
      Company requested by it and to ask questions of and receive answers from the
      Company regarding the Company, its business and the terms and conditions of
      the
      offering of the Securities. Investor acknowledges receipt of and has reviewed
      copies of the SEC Filings. 

    

    5.6 Restricted
      Securities.
      Investor understands that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the 1933 Act only in certain limited
      circumstances.

    

    5.7 Legends.
      It is
      understood that, except as provided below, certificates and instruments
      evidencing the Securities may bear the following or any similar
      legend:

    

    (a) “The
      securities represented hereby may not be transferred unless (i) such securities
      have been registered for sale pursuant to the Securities Act of 1933, as
      amended, (ii) such securities may be sold pursuant to Rule 144, or (iii) the
      Company has received an opinion of counsel reasonably satisfactory to it that
      such transfer may lawfully be made without registration under the Securities
      Act
      of 1933 or qualification under applicable state securities laws.”

    

    (b) If
      required by the authorities of any state in connection with the issuance of
      sale
      of the Securities, the legend required by such state authority.

    

    5.8 Accredited
      Investor.
      Investor is an accredited Investor as defined in Rule 501(a) of Regulation
      D, as
      amended, under the 1933 Act.

    

    5.9 No
      General Solicitation.
      Investor did not learn of the investment in the Securities as a result of any
      public advertising or general solicitation.

    

    5.10 Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of Investor.

    

    5.11 Prohibited
      Transactions.
      During
      the last thirty (30) days prior to the date hereof, neither Investor nor any
      Affiliate of Investor which (x) had knowledge of the transactions contemplated
      hereby, (y) has or shares discretion relating to Investor’s investments or
      trading or information concerning Investor’s investments, including in respect
      of the Securities, or (z) is subject to Investor’s review or input concerning
      such Affiliate’s investments or trading (collectively, “Trading Affiliates”)
      has, directly or indirectly, effected or agreed to effect (i) any purchase
      or
      long sale of the Company’s securities or (ii) any short sale, whether or not
      against the box, established any “put equivalent position” (as defined in Rule
      16a-1(h) under the 1934 Act) with respect to the Common Stock, granted any
      other
      right (including, without limitation, any put or call option) with respect
      to
      the Common Stock or with respect to any security that includes, relates to
      or
      derived any significant part of its value from the Common Stock or otherwise
      sought to hedge its position in the Securities (each of such transactions
      specified in this clause (ii), a “Prohibited Transaction”). Prior to the
      earliest to occur of (i) the termination of this Agreement, (ii) the Effective
      Date or (iii) the Effectiveness Deadline, such Investor shall not, and shall
      cause its Trading Affiliates not to, engage, directly or indirectly, in a
      Prohibited Transaction. Investor acknowledges that the representations,
      warranties and covenants contained in this Section 5.11 are being made for
      the
      benefit of the Investor as well as the Company.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    6.
      Conditions
      to Closing.

    

    6.1 Conditions
      to the Investor’s Obligations.
      The
      obligation of Investor to purchase the Note and the Warrant at the Closing
      is
      subject to the fulfillment to Investor’s satisfaction, on or prior to the
      Closing Date, of the following conditions, any of which may be waived by
      Investor:

    

    (a) The
      representations and warranties made by the Company in Section 4 hereof qualified
      as to materiality shall be true and correct at all times prior to and on the
      Closing Date, except to the extent any such representation or warranty expressly
      speaks as of an earlier date, in which case such representation or warranty
      shall be true and correct as of such earlier date, and, the representations
      and
      warranties made by the Company in Section 4 hereof not qualified as to
      materiality shall be true and correct in all material respects at all times
      prior to and on the Closing Date, except to the extent any such representation
      or warranty expressly speaks as of an earlier date, in which case such
      representation or warranty shall be true and correct in all material respects
      as
      of such earlier date. The Company shall have performed in all material respects
      all obligations and conditions herein required to be performed or observed
      by it
      on or prior to the Closing Date.

    

    (b) The
      Company shall have obtained any and all consents, permits, approvals,
      registrations and waivers necessary or appropriate for consummation of the
      purchase and sale of the Securities and the consummation of the other
      transactions contemplated by the Transaction Documents, all of which shall
      be in
      full force and effect.

    

    (c) No
      judgment, writ, order, injunction, award or decree of or by any court, or judge,
      justice or magistrate, including any bankruptcy court or judge, or any order
      of
      or by any governmental authority, shall have been issued, and no action or
      proceeding shall have been instituted by any governmental authority, enjoining
      or preventing the consummation of the transactions contemplated hereby or in
      the
      other Transaction Documents.

    

    (d) The
      Company shall have reimbursed the Investor for its legal fees and expenses
      up to
      a maximum amount of $20,000 in the aggregate.

    

    (e) The
      Company shall have paid the Investor a closing fee equal to
      $60,000.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    (f) The
      Company shall have executed and delivered the Registration Rights
      Agreement.

    

    (g) The
      Company shall have delivered a Certificate, executed on behalf of the Company
      by
      its Chief Executive Officer or its Chief Financial Officer, dated as of the
      Closing Date, certifying to the fulfillment of the conditions specified in
      subsections (a), (b) and (c) of this Section 6.1.

    

    (h) The
      Company shall have delivered a Certificate, executed on behalf of the Company
      by
      its Secretary, dated as of the Closing Date, certifying the resolutions adopted
      by the Board of Directors of the Company approving the transactions contemplated
      by this Agreement and the other Transaction Documents, and the issuance of
      the
      Securities, certifying the current versions of the Certificate of Incorporation
      and Bylaws of the Company and certifying as to the signatures and authority
      of
      persons signing the Transaction Documents and related documents on behalf of
      the
      Company.

    

    (i) The
      Investor shall have received an opinion of counsel to the Company substantially
      in the form attached hereto as Exhibit
      D.

    

    6.2 Conditions
      to Obligations of the Company.
      The
      Company's obligation to sell and issue the Note and the Warrant at the Closing
      is subject to the fulfillment to the satisfaction of the Company on or prior
      to
      the Closing Date of the following conditions, any of which may be waived by
      the
      Company:

    

    (a) The
      representations and warranties made by the Investor in Section 5 hereof, other
      than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
      5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and
      correct in all material respects when made, and shall be true and correct in
      all
      material respects on the Closing Date with the same force and effect as if
      they
      had been made on and as of said date. The Investment Representations shall
      be
      true and correct in all respects when made, and shall be true and correct in
      all
      respects on the Closing Date with the same force and effect as if they had
      been
      made on and as of said date. The Investor shall have performed in all material
      respects all obligations and conditions herein required to be performed or
      observed by them on or prior to the Closing Date.

    

    (b) The
      Investor shall have executed and delivered the Registration Rights
      Agreement.

    

    (c) The
      Investor shall have delivered or caused to be delivered the Purchase Price
      to
      the Company.

     

    7. Covenants
      and Agreements of the Company.

    

    7.1 Reservation
      of Common Stock.
      The
      Company shall at all times reserve and keep available out of its authorized
      but
      unissued shares of Common Stock, solely for the purpose of providing for the
      conversion of the Note and the exercise of the Warrant, such number of shares
      of
      Common Stock as shall from time to time equal the number of shares sufficient
      to
      permit the issuance of the Conversion Shares and the Warrant Shares pursuant
      to
      the Transaction Documents in accordance with their respective
      terms.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    7.2 No
      Conflicting Agreements.
      The
      Company will not take any action, enter into any agreement or make any
      commitment that would conflict or interfere in any material respect with the
      Company’s obligations to the Investor under the Transaction
      Documents.

    

    7.3 Insurance.
      The
      Company shall not materially reduce the insurance coverages described in Section
      4.18.

    

    7.4 Compliance
      with Laws.
      The
      Company will comply in all material respects with all applicable laws, rules,
      regulations, orders and decrees of all governmental authorities.

    

    7.5 Use
      of
      Proceeds
      . The
      Company will use the proceeds from the sale of the Note for general corporate
      and working capital purposes.

    

    7.6 Key
      Man Life Insurance.
      The
      Company shall undertake to obtain a $3 million key-man life insurance policy
      on
      Mark Goldwasser, President and Chief Executive Officer of the Company, naming
      the Company as beneficiary, on commercially reasonable rates. The foregoing
      covenant shall remain in place until such date as the Note is paid in full.
      

    

    7.7 Board
      Composition.
      Pursuant to that certain Securities Purchase Agreement, dated January 11, 2006,
      by and between the Company, St. Cloud Capital Partners, L.P. (“St. Cloud”) and
      the other investors signatory thereto (the “Prior Agreement”), the Company
      agreed to elect one nominee of St. Cloud as a director to fill an existing
      vacancy on the Board of Directors and to include such nominee in its proxy
      statement for the Company’s 2006 Annual Meeting to continue to serve on the
      Company’s Board of Directors. Such Nominee was Marshall S. Geller, an Affiliate
      of St. Cloud and the Investor. The Company hereby reconfirms its covenant to
      elect a nominee of St. Cloud to continue to serve on the Company’s Board of
      Directors. Mr. Geller was re-elected to the Company’s Board of Directors at the
      Company’s 2008 annual meeting of stockholders. In addition, at or promptly
      following the Closing, one additional nominee of Investor reasonably acceptable
      to the Company shall be elected by the Board of Directors of the Company to
      fill
      an existing vacancy on the Board of Directors and the Company shall undertake
      to
      include such nominee in its proxy statement for the Company’s 2009 Annual
      Meeting to continue to serve on the Company’s Board of Directors.

    

    7.8 Board
      Observer Rights.
      So long
      as the principal balance of the Note is unpaid, or Investor or any of its
      Affiliates are the beneficial owners (as defined under Rule 13d-3 promulgated
      under the 1934 Act) of at least 5% of the Common Stock (as determined pursuant
      to such Rule 13d-3), the Company shall give Investor written notice of each
      meeting of the Company’s Board of Directors and each committee thereof at least
      at the same time and in the same manner as notice is given to the directors,
      and
      the Company shall permit a representative of Investor to attend as an observer
      all meetings of the Company’s Board of Directors and all committees thereof;
      provided that in the case of telephonic meetings conducted in accordance with
      the Company’s bylaws and applicable law, the Investor representative shall be
      given the opportunity to listen to such telephonic meetings; and provided,
      further, that the Company shall have the right to exclude the Investor
      representative from any portion of a meeting if, in the good faith judgment
      of
      the Company’s counsel, the inclusion of the Investor representative therein
      would result in the waiver of any applicable privilege. The Investor
      representative shall be entitled to receive all written materials and other
      information (including without limitation copies of meeting minutes) given
      to
      directors in connection with such meetings at the same time such materials
      and
      information are given to the directors; provided, however, that the Company
      shall have the right to provide information to the Investor representative
      if,
      in the good faith judgment of the Company’s counsel, the provision of such
      information to the Investor representative would result in the waiver of any
      applicable privilege. If the Company proposes to take any action by written
      consent in lieu of a meeting of its Board of Directors or of any committee
      thereof, the Company shall give written notice thereof to the Investor
      representative and each of the Company’s directors prior to the effective date
      of such consent describing in reasonable detail the nature and substance of
      such
      action. The Company shall pay the reasonable out-of-pocket expenses of the
      Investor representative incurred in connection with attending such board and
      committee meetings. This covenant shall be a reconfirmation of that similar
      right granted in the Prior Agreement and shall not be construed to grant the
      Investor and its Affiliates an additional observer right.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    7.9 Right
      of First Offer.
      Subject
      to the terms and conditions specified in this Section 7.9, if the Company
      proposes to offer or sell any additional debt financing, ("New Debt") then
      the
      Company shall first make an offering of such New Debt to the Investor in
      accordance with the following provisions of this Section 7.9. The Investor
      shall
      be entitled to apportion the right of first offer hereby granted to it among
      itself and its Affiliates in such proportions as it deems
      appropriate.

    

    (a)
      Company
      shall deliver a notice, in accordance with the notice provisions hereof, (the
      “Debt Offer Notice”) to the Investor
      stating
      (i) its bona fide intention to offer such New Debt, (ii) the amount of
      such New Debt to be offered, and (iii) the price and terms, if any, upon
      which it proposes to offer such New Debt.

    

    (b)
      By
      written notification received by the Company, within fifteen (15) calendar
      days
      after receipt of the Debt Offer Notice, the Investor
      may
      elect to purchase all or less than all of the New Debt being
      offered.

    

    (c)
      If
      the New Debt is not elected to be purchased or obtained as provided in
Section 7.9(b)
      hereof,
      the Company may sell such New Debt during the ninety (90) day period following
      the expiration of the period provided in Section 7.9(b)
      hereof,
      to any Person or Persons at a price not less than, and upon terms no more
      favorable to the offeree than, those specified in the Debt Offer Notice. If
      the
      Company does not enter into an agreement for the sale of such New Debt within
      such period, or if such agreement is not consummated within thirty (30) days
      of
      the execution thereof, the right provided hereunder shall be deemed to be
      revived, and such New Debt shall not be offered unless first reoffered to the
      Investor in accordance with this Section
      7.9.

    

    7.10 Certain
      Negative Covenants.
      From
      and after the date of this Agreement and for so long as any Note remain
      outstanding, the Company shall not without first obtaining the approval (by
      vote
      or written consent, as provided by law) of the holders of a majority of the
      outstanding principal face amount of the Note, which consent shall not be
      unreasonably withheld or delayed, take any of the following actions:

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    (a) Incur
      additional indebtedness; provided, however, that, the foregoing restriction
      shall not preclude (i) up to $1,000,000 dollars of Other Senior Debt (as defined
      in the Note), (ii) additional debt that is expressly subordinated to the Note,
      as evidenced by a subordination agreement reasonably acceptable to the holder
      of
      the Note and (iii) indebtedness under purchase money security interests incurred
      in the ordinary course of business;

    

    (b) Declare
      or pay any dividend of any kind, in cash or in property, on any class of its
      common stock equity securities, nor purchase, redeem, retire or otherwise
      acquire for value any shares of such stock, nor make any distribution of any
      kind in respect thereof.

    

    (c) Make
      loans, advances to, or guarantees for the benefit of any its officers, directors
      or stockholders who beneficially own five percent (5%) or more of the Company’s
      Common Stock;

    

    (d) Enter
      into, amend, modify or supplement, any agreement, transaction, commitment,
      or
      arrangement with any of its officers, directors or stockholders who beneficially
      own five percent (5%) or more of the Common Stock, except for (a) customary
      employment arrangements and benefit programs on reasonable terms, and (b) any
      agreement, transaction, commitment, or arrangement which is approved by a
      majority of the disinterested directors of the Company; for purposes hereof,
      any
      director who is also an officer of the Company or any subsidiary of the Company
      shall not be a disinterested director with respect to any such agreement,
      transaction, commitment, or arrangement.

    

    (e) Enter
      into the active management or operation of any business other than the business
      currently conducted by Company and a similar business;

    

    (f) Enter
      into employment agreements not terminable at will with new or existing employees
      (other than employment agreements with senior management that are approved
      by
      the Board, including those contemplated by the merger with vFinance, Inc.);
      or
      renew any existing employment agreements with non-senior management (except
      those which are terminable at will) or establish or modify equity options
      (unless approved by the Board), retirement allowances, pensions and remuneration
      of Directors (unless approved by the Board), consultants or strategic partners
      of Company; 

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    (g) Allow
      any
      officer of Company to use any assets of Company in such a manner as would
      violate such person’s fiduciary duties to Company or its
      shareholders;

    

    (h) Enter
      or
      consummate any off-balance sheet transactions other than operating
      leases;

    

    (i)
       Change
      the tax or accounting policies of Company, other than to comply with Generally
      Accepted Accounting Principles (“GAAP”) or existing rules of the Internal
      Revenue Code; 

    

    (j) Settle
      claims, litigation or disputes (including tax claims or audits) involving an
      amount in excess of one-hundred thousand dollars ($100,000), unless approved
      by
      the Board, other than any claims to the extent covered by Company’s errors and
      omissions, worker’s compensation or general liability insurance; 

    

    (k) File
      any
      petition for bankruptcy or similar action relating to Company or voluntarily
      dissolve or terminate Company;

    

    (l) Consummate
      any merger, reorganization, restructuring, reverse stock split consolidation,
      sale of all or substantially all of the Company’s assets or any similar
      transaction or related transactions, other than the contemplated merger with
      vFinance, Inc.; or 

    

    (m) Amend
      its
      Certificate of Incorporation or By-Laws.

    

    7.11 Termination
      of Covenants.
      The
      provisions of Sections 7.2 through 7.4 shall terminate and be of no further
      force and effect on the later of the date (i) on which the Company’s obligations
      under the Registration Rights Agreement to register or maintain the
      effectiveness of any registration covering the Registrable Securities (as such
      term is defined in the Registration Rights Agreement) shall terminate and (ii)
      of full repayment of obligations under the Note.

     

    8. Survival
      and Indemnification.

    

    8.1 Survival.
      The
      representations, warranties, covenants and agreements contained in this
      Agreement shall survive the Closing of the transactions contemplated by this
      Agreement; provided, however, that the representations and warranties contained
      in this Agreement shall expire twelve (12) months after the
      Closing.

    

    8.2 Indemnification.
      Subject
      to the provisions of Section 8.1, the Company agrees to indemnify and hold
      harmless Investor and its Affiliates and their respective directors, officers,
      employees and agents from and against any and all losses, claims, damages,
      liabilities and expenses (including without limitation reasonable attorney
      fees
      and disbursements and other expenses incurred in connection with investigating,
      preparing or defending any action, claim or proceeding, pending or threatened
      and the costs of enforcement thereof) (collectively, “Losses”) to which such
      Person may become subject as a result of any breach of representation, warranty,
      covenant or agreement made by or to be performed on the part of the Company
      under the Transaction Documents, and will reimburse any such Person for all
      such
      amounts as they are incurred by such Person.

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    8.3 Conduct
      of Indemnification Proceedings.
      Promptly
      after receipt by any Person (the “Indemnified
      Person”) of notice of any demand, claim or circumstances which would or might
      give rise to a claim or the commencement of any action, proceeding or
      investigation in respect of which indemnity may be sought pursuant to Section
      8.2, such Indemnified Person shall promptly notify the Company in writing and
      the Company shall assume the defense thereof, including the employment of
      counsel reasonably satisfactory to such Indemnified Person, and shall assume
      the
      payment of all fees and expenses; provided,
      however, that
      the
      failure of any Indemnified Person so to notify the Company shall not relieve
      the
      Company of its obligations hereunder except to the extent that the Company
      is
      materially prejudiced by such failure to notify. In any such proceeding, any
      Indemnified Person shall have the right to retain its own counsel, but the
      fees
      and expenses of such counsel shall be at the expense of such Indemnified Person
      unless: (i) the Company and the Indemnified Person shall have mutually agreed
      to
      the retention of such counsel; or (ii) in the reasonable judgment of counsel
      to
      such Indemnified Person representation of both parties by the same counsel
      would
      be inappropriate due to actual or potential differing interests between them.
      The Company shall not be liable for any settlement of any proceeding effected
      without its written consent, which consent shall not be unreasonably withheld,
      but if settled with such consent, or if there be a final judgment for the
      plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
      from and against any loss or liability (to the extent stated above) by reason
      of
      such settlement or judgment. Without the prior written consent of the
      Indemnified Person, which consent shall not be unreasonably withheld, the
      Company shall not effect any settlement of any pending or threatened proceeding
      in respect of which any Indemnified Person is or could have been a party and
      indemnity could have been sought hereunder by such Indemnified Party, unless
      such settlement includes an unconditional release of such Indemnified Person
      from all liability arising out of such proceeding.

    

    
      
        9.
          Disclosure
          Provisions.
          

      

    

    

    9.1 Use
      of
      Proceeds-Statements and Access.
      At such
      times as Investor reasonably requests, Company shall deliver to Investor a
      written statement certified by Company’s chief financial officer describing in
      reasonable detail the use of the proceeds from the transactions contemplated
      by
      the Transaction Documents by Company. 

    

    9.2 Use
      of
      Proceeds-Public Interest.
      The
      Company shall not, and shall not permit its Subsidiaries to, use any proceeds
      from the transactions contemplated by the Transaction Documents for any purpose
      contrary to public interest (including, but not limited to, activities which
      are
      in violation of law) or inconsistent with free enterprise, in each case within
      the meaning of 13 C.F.R. Section 107.720.

    

    9.3
       Economic
      Impact Information.
      Promptly after the end of each calendar year (but in any event prior to February
      28 of each year), the Company shall deliver to Investor a written assessment
      of
      the economic impact of Investor’s investment in the Company, specifying the
      full-time equivalent jobs created or retained in connection with the investment,
      the impact of the investment on the businesses of the Company and its
      Subsidiaries and on taxes paid by Company and its employees.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    10. Miscellaneous.

    

    10.1 Successors
      and Assigns.
      This
      Agreement may not be assigned by a party hereto without the prior written
      consent of the Company or the Investor, as applicable, provided, however, that
      Investor may assign its rights and delegate its duties hereunder in whole or
      in
      part to an Affiliate or to a third party acquiring some or all of its Securities
      in a private transaction without the prior written consent of the Company,
      after
      notice duly given by Investor to the Company provided, that no such assignment
      or obligation shall affect the obligations of Investor hereunder. The provisions
      of this Agreement shall inure to the benefit of and be binding upon the
      respective permitted successors and assigns of the parties. Nothing in this
      Agreement, express or implied, is intended to confer upon any party other than
      the parties hereto or their respective successors and assigns any rights,
      remedies, obligations, or liabilities under or by reason of this Agreement,
      except as expressly provided in this Agreement.

    

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

     

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

    

    10.4 Notices.
      Unless
      otherwise provided, any notice required or permitted under this Agreement shall
      be given in writing and shall be deemed effectively given as hereinafter
      described (i) if given by personal delivery, then such notice shall be deemed
      given upon such delivery, (ii) if given by telex or telecopier, then such notice
      shall be deemed given upon receipt of confirmation of complete transmittal,
      (iii) if given by mail, then such notice shall be deemed given upon the earlier
      of (A) receipt of such notice by the recipient or (B) three days after such
      notice is deposited in first class mail, postage prepaid, and (iv) if given
      by
      an internationally recognized overnight air courier, then such notice shall
      be
      deemed given one Business Day after delivery to such carrier. All notices shall
      be addressed to the party to be notified at the address as follows, or at such
      other address as such party may designate by ten days’ advance written notice to
      the other party:

    

    If
      to the
      Company:

    

    National
      Holdings Corporation

    120
      Broadway, 27th
      Floor

    New
      York,
      NY 10271

    Attention:
      Mark Goldwasser, CEO

    Fax:
      (212) 417-8010

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    With
      a
      copy to:

    

    Littman
      Krooks LLP

    655
      Third
      Avenue, 20th
      Floor

    New
      York,
      NY 10017

    Attention:
      Mitchell C. Littman, Esq.

    Fax:
      (212) 490-2990

    

    If
      to the
      Investor:

    

    St.
      Cloud
      Capital Partners II, L.P.

    10866
      Wilshire Boulevard, Suite1450

    Los
      Angeles, CA 90024

    Attention:
      Marshall S. Geller

    Fax:
      (310) 475-0550

    

    With
      a
      copy to:

    

    Mulvaney,
      Kahan & Barry, LLP

    401
      West
      A Street, 17th Floor

    San
      Diego, CA 92101

    Attention:
      Rex B. Beatty, Esq.

    Fax:
      (619) 238-1010

    

    10.5 Expenses.
      The
      parties hereto shall pay their own costs and expenses in connection herewith,
      except that the Company shall pay the reasonable fees and expenses of
      Investor not
      to
      exceed $20,000. Such expenses shall be paid not later than the Closing. In
      the
      event that legal proceedings are commenced by any party to this Agreement
      against another party to this Agreement in connection with this Agreement or
      the
      other Transaction Documents, the party or parties which do not prevail in such
      proceedings shall severally, but not jointly, pay their pro rata share of the
      reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses
      incurred by the prevailing party in such proceedings. In addition and
      notwithstanding anything contained herein to the contrary, the Company agrees
      to
      pay the reasonable fees and expenses incurred by Investor in connection with
      its
      preparation, filing and updating of all required SEC filings related to this
      transaction; provided that counsel to the Company prepares the Schedule 13(d)
      and related amendments required to be filed. 

     

    10.6 Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      retroactively or prospectively), only with the written consent of the Company
      and the Investor. Any amendment or waiver effected in accordance with this
      paragraph shall be binding upon each holder of any Securities purchased under
      this Agreement at the time outstanding, each future holder of all such
      Securities, and the Company.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    10.7 Publicity.
      Except
      as set forth below, no public release or announcement concerning the
      transactions contemplated hereby shall be issued by the Company or the Investor
      without the prior consent of the Company (in the case of a release or
      announcement by the Investor) or the Investor (in the case of a release or
      announcement by the Company) (which consents shall not be unreasonably
      withheld), except as such release or announcement may be required by law or
      the
      applicable rules or regulations of any securities exchange or securities market,
      in which case the Company or the Investor, as the case may be, shall allow
      the
      Investor or the Company, as applicable, to the extent reasonably practicable
      in
      the circumstances, reasonable time to comment on such release or announcement
      in
      advance of such issuance. In addition, the Company will make such other filings
      and notices in the manner and time required by the SEC. 

    

    10.8 Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provision hereof prohibited or unenforceable in any
      respect.

    

    10.9 Entire
      Agreement.
      This
      Agreement, including the Exhibits and the Disclosure Schedules, and the other
      Transaction Documents constitute the entire agreement among the parties hereof
      with respect to the subject matter hereof and thereof and supersede all prior
      agreements and understandings, both oral and written, between the parties with
      respect to the subject matter hereof and thereof, other than any written
      confidentiality agreement between the Company and Investor, which shall continue
      in full force and effect.

    

    10.10 Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

    

    10.11 Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of New York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    10.12 Confidentiality.
      Each
      party hereto agrees that, except with the prior written permission of the
      other party or as required by applicable federal or state securities law, it
      shall at all times keep confidential and not divulge, furnish or make accessible
      to anyone any confidential information, knowledge or data concerning or relating
      to the business or financial affairs of the other parties to which such party
      has been or shall become privy by reason of this Agreement, discussions or
      negotiations relating to this Agreement, the performance of its obligations
      hereunder or the ownership of the Securities purchased hereunder. The
      provisions of this Section 10.12 shall be in addition to, and not in
      substitution for, the provisions of any separate nondisclosure agreement
      executed by the parties hereto with respect to the transactions contemplated
      hereby.

    

    

    [SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
      authorized officers to execute this Agreement as of the date first above
      written.

    

      
        	
                The
                  Company:

              	
                NATIONAL
                  HOLDINGS CORPORATION

              
	 	 
	 	
                By:

              	
                /S/
                  MARK GOLDWASSER

              
	 	 	
                Mark
                  Goldwasser

              
	 	 	
                President
                  and Chief Executive Officer

              
	 	 	 
	
                The
                  Investor:

              	
                ST.
                  CLOUD CAPITAL PARTNERS II, L.P.

              
	 	 
	 	
                By:
                  SGCP II, LLC

              
	 	
                Its:
                  General Partner

              
	 	 	 
	 	
                By:

              	
                /S/
                  MARSHALL S. GELLER

              
	 	 	
                Marshall
                  S. Geller

              
	 	 	
                Managing
                  Member

              

      

    

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

    

    NOTE

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    

    WARRANT

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    EXHIBIT
      C

    

    REGISTRATION
      RIGHTS AGREEMENT

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    EXHIBIT
      D

    

    FORM
      OF
      LEGAL OPINION

    

    [THE
      FOLLOWING IS SUBJECT TO CUSTOMARY ASSUMPTIONS AND DISCLAIMERS TO BE SET FORTH
      IN
      ACTUAL OPINION]

    

    
      	 	
              1.

            	
              The
                Company is a corporation validly existing and in good standing under
                the
                laws of the State of Delaware.  

            

    

    

    
      	 	
              2.

            	
              The
                Company has the corporate power and corporate authority to enter
                into and
                perform each of the Transaction
                Documents.

            

    

    

    
      	 	
              3.

            	
              The
                Company has taken all corporate action necessary to authorize the
                execution, delivery and performance of each of the Transaction Documents
                and has duly executed and delivered each of the Transaction
                Documents.

            

    

    

    
      	 	
              4.

            	
              Each
                of the Transaction Documents is a valid and binding obligation of
                the
                Company, enforceable by the Investor against the Company in accordance
                with its terms.

            

    

    

    
      	 	
              5.

            	
              Neither
                the execution and delivery of the Transaction Documents on behalf
                of the
                Company, nor the issuance and sale of the Note and the Warrant to
                the
                Investor at the Closing, violates any provision of the Certificate
                of
                Incorporation or Bylaws of the
                Company.

            

    

    

    
      	 	
              6.

            	
              The
                shares of Common Stock issuable upon (i) conversion of the Note and
                (ii)
                exercise of the Warrant have been duly and validly authorized and
                reserved
                as of the date hereof. The issuance of the shares of Common Stock
                issuable
                upon (i) conversion of the Note and (ii) exercise of the Warrant
                are not
                subject to any statutory or, to our knowledge, contractual or other
                preemptive rights, other than as set forth in the Transaction
                Documents.

            

    

    

    
      
        
        

      

      
        -25-REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration
      Rights Agreement
      (the
“Agreement”) is made and entered into as of this 30th
      day of
      June, 2008 by and among National Holdings Corporation, a Delaware corporation
      (the “Company”), and St. Cloud Capital Partners II, L.P. (the
“Investor”).

    

    WHEREAS,
      the Company has agreed to issue and sell to the Investor, and the Investor
      has
      agreed to purchase from the Company, a 10% senior subordinated convertible
      promissory note in the principal amount of $3,000,000 (the “Note”), which is
      initially convertible into 1,875,000 shares of the Company’s common stock, $0.02
      par value per share (the “Common Stock”) and a warrant to purchase 468,750
      shares of Common Stock (the “Warrant”), all upon the terms and conditions set
      forth in that certain Securities Purchase Agreement of even date herewith,
      by
      and among the Company and the Investor (the “Purchase Agreement”),
      and

     

    WHEREAS,
      the terms of the Purchase Agreement provide that it shall be a condition
      precedent to the closing of the transactions thereunder for the Company and
      the
      Investor to execute and deliver this Agreement.

     

    NOW,
      THEREFORE, in consideration of the premises and mutual covenants contained
      herein, the parties hereto hereby agree as follows:

    

    1. Certain
      Definitions.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
means,
      with respect to any person, any other person which directly or indirectly
      controls, is controlled by, or is under common control with, such
      person.

    

    “Allowed
      Delay”
as
      defined in Section 2(d)(ii) hereto. 

    

    “Business
      Day”
means
      a
      day, other than a Saturday, Sunday or holiday, on which banks in New York City
      are open for the general transaction of business.

    

    “Common
      Stock”
shall
      have the meaning as defined in the recitals, and any securities into which
      such
      shares may hereinafter be reclassified.

    

    “Conversion
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Note.

    

    “Effectiveness
      Date”
means,
      with respect to the Initial Registration Statement, the earlier of (i) one
      hundred eighty (180) days of the closing of the Company’s proposed merger with
      vFinance, Inc. or (ii) one hundred eighty (180) days of the termination of
      the
      Company’s proposed merger with vFinance, Inc. 

      

    “Effectiveness
      Period”
as
      defined in Section 3(a) hereto. 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Filing
      Date”
means,
      with respect to the Initial Registration Statement, the earlier of (i) ninety
      (90) days of the closing of the Company’s proposed merger with vFinance, Inc.
      (ii) ninety (90) days of the termination of the Company’s proposed merger with
      vFinance, Inc. or (iii) November 15, 2008.

    

    “Initial
      Registration Statement”
as
      defined in Section 2(a) hereto. 

    

    “Note”
shall
      have the meaning as defined in the recitals.

    

    “Prospectus”
shall
      mean the prospectus included in any Registration Statement, as amended or
      supplemented by any prospectus supplement, with respect to the terms of the
      offering of any portion of the Registrable Securities covered by such
      Registration Statement and by all other amendments and supplements to the
      prospectus, including post-effective amendments and all material incorporated
      by
      reference or deemed to be incorporated by reference in such
      prospectus.

    

    “Register,”
      “registered”
and
      “registration”
refer
      to a registration made by preparing and filing a Registration Statement or
      similar document in compliance with the 1933 Act (as defined below), and the
      declaration or ordering of effectiveness of such Registration Statement or
      document.

    

    “Registrable
      Securities”
shall
      mean (i) the Conversion Shares, (ii) the Warrant Shares and (iii) any other
      securities issued or issuable with respect to or in exchange for Registrable
      Securities; provided, that, a security shall cease to be a Registrable Security
      upon (A) sale pursuant to a Registration Statement or Rule 144 under the 1933
      Act, or (B) such security becoming eligible for resale by the Investor without
      restrictions pursuant to Rule 144.

    

    “Registration
      Statement”
shall
      mean any registration statement of the Company filed under the 1933 Act that
      covers the resale of any of the Registrable Securities pursuant to the
      provisions of this Agreement, including the Prospectus and any amendments and
      supplements to such Registration Statement, including pre- or post-effective
      amendments, all exhibits thereto and all material incorporated by reference
      or
      deemed incorporated by reference in such Registration Statement.

    

    “Rule
      144”
shall
      mean Rule 144 promulgated by the SEC pursuant to the 1933 Act and any successor
      or substitute rule, law or provision.

     

    “SEC”
means
      the U.S. Securities and Exchange Commission.

    

    “SEC
      Guidance”
means
      (i) any publicly-available written guidance, or rule of general
      applicability of the SEC staff, or (ii) written comments, requirements or
      requests of the SEC staff to the Company in connection with the review of a
      Registration Statement.

    

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

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

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

    

    “Warrant”
shall
      have the meaning as defined in the recitals.

    

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

    

    2. Registration.

     

    (a)  Filing
      of Initial Registration Statement.
      Subject
      to the terms and conditions of this Agreement, the Company shall prepare and
      file with the SEC, no later than the Filing Date, a Registration Statement
      under
      the 1933 Act on any form for which the Company then qualifies (the “Initial
      Registration Statement”)
      for
      the resale by the Investor of the Registrable Securities. The Company shall
      have
      the right to include in such Initial Registration Statement on a pari passu
      basis with the Registrable Securities shares of Common Stock remaining unsold
      by
      the persons or entities who have continuing registration rights and who are
      set
      forth in the selling stockholders section of that certain prospectus of the
      Company dated November 6, 2006, and certain additional shares of Common Stock
      issued or underlying securities issued subsequent to such date, including those
      persons or entities who took part in the Company’s February 2007 $1,000,000
      financing and its March 2008 $3,000,000 financing or which such Persons have
      the
      right to acquire pursuant to the exercise, conversion or exchange of securities
      of the Company held on the date hereof. Such Initial Registration Statement
      shall include the plan of distribution attached hereto as Exhibit
      A.
      The
      Initial Registration Statement (and each amendment thereto) shall be provided
      to
      the Investor prior to its filing or other submission in accordance with Section
      4(c) hereof. 

     

    (b)
        Additional
      Registration Statements.
      If
      during the Effectiveness Period, subject to Section 2(d)(ii), the number of
      Registrable Securities at any time exceeds 100% of the number of Registrable
      Securities then registered for resale in the Initial Registration Statement,
      then the Company shall file as soon as reasonably practicable an additional
      Registration Statement covering the resale by the Investor of not less than
      the
      number of such unregistered Registrable Securities.

     

    (c)
        Expenses.
      Except
      as set forth in Section 4(f), the Company will pay all expenses associated
      with
      each registration, including filing and printing fees, the Company’s counsel and
      accounting fees and expenses, costs associated with clearing the Registrable
      Securities for sale under applicable state securities laws, listing fees.
      Investor shall be responsible for all other expenses in connection with the
      registration, including fees and expenses of counsel, discounts, commissions,
      fees of underwriters, selling brokers, dealer managers or similar securities
      industry professionals with respect to the Registrable Securities being
      sold.

     

    (d) Effectiveness.
      

     

    (i)
      The
      Company shall use commercially reasonable efforts to have the Initial
      Registration Statement declared effective within ninety (90) days of the Filing
      Date but in any event by the Effectiveness Date. The Company shall notify the
      Investor by facsimile or e-mail as promptly as practicable, after any
      Registration Statement is declared effective and shall simultaneously provide
      the Investor with copies of any related Prospectus to be used in connection
      with
      the sale or other disposition of the securities covered thereby. 

     

    
      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

    

    

    (ii)
      For
      not more than twenty (20) consecutive days or for a total of not more than
      sixty
      (60) days in any twelve (12) month period, the Company may delay the disclosure
      of material non-public information concerning the Company, by suspending the
      use
      of any Prospectus included in any Registration Statement contemplated hereunder
      containing such information, the disclosure of which at the time is not, in
      the
      good faith opinion of the Company, in the best interests of the Company (an
      “Allowed Delay”); provided, that the Company shall promptly (a) notify the
      Investor in writing of the existence of (but in no event, without the prior
      written consent of an Investor, shall the Company disclose to such Investor
      any
      of the facts or circumstances regarding) material non-public information giving
      rise to an Allowed Delay, (b) advise the Investor in writing to cease all sales
      under the Registration Statement until the end of the Allowed Delay and (c)
      use
      commercially reasonable efforts to terminate an Allowed Delay as promptly as
      practicable.

     

    3.
      Liquidated
      Damages.

     

    (a)
        If the Initial Registration Statement is not (i) filed on or prior
      to the Filing Date, or (ii) declared effective by the SEC by the
      Effectiveness Date (any such failure or breach being referred to as an “Event”,
      and the date on which such Event occurs being referred to as an “Event
      Date”), then, on each 30 day period following such Event Date (if the applicable
      Event shall not have been cured by such date) until the applicable Event is
      cured, as liquidated damages and not as a penalty, the interest rate of the
      Note
      shall increase by 1% per annum, but in no event shall the interest rate of
      the
      Note exceed 15% per annum. 

     

    (b) Investor
      shall not be entitled to an adjustment pursuant to this Section 3 if
      effectiveness of a Registration Statement has been delayed or a Prospectus
      has
      been unavailable as a result of (i) a failure by Investor to promptly provide
      on
      request by the Company the information required under the Purchase Agreement
      or
      this Agreement or requested by the SEC as a condition to effectiveness of a
      Registration Statement; (ii) the provision of inaccurate or incomplete
      information by Investor; or (iii) a statement or determination of the SEC that
      any provision of the rights of the Investor under this Agreement are contrary
      to
      the provisions of the 1933 Act. In addition, Investor shall not be entitled
      to
      any adjustment pursuant to this Section 3 in the event that the Company is
      unable to Register all Registrable Securities as a result of SEC
      Guidance.

    

    4. Company
      Obligations.
      In
      connection with the Company’s obligations under Section 2 hereof to file a
      Registration Statement with the SEC and to use its commercially reasonable
      efforts to cause a Registration Statement to become effective in accordance
      with
      the terms hereof, the Company will, as expeditiously as possible:

     

    (a) use
      commercially reasonable efforts to cause such Registration Statement to become
      effective and to remain continuously effective for a period that will terminate
      upon the earlier of (i) the date on which all Registrable Securities covered
      by
      such Registration Statement as amended from time to time, have been sold, and
      (ii) the date on which all Registrable Securities covered by such Registration
      Statement may be sold without restriction pursuant to Rule 144 (the
“Effectiveness Period”) and advise the Investor in writing when the
      Effectiveness Period has expired. Thereafter, the Company shall be entitled
      to
      withdraw such Registration Statement and the Investor shall have no further
      right to offer or sell any of the Registrable Securities registered for resale
      thereon pursuant to the respective Registration Statement (or any prospectus
      relating thereto);

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    (b) prepare
      and file with the SEC such amendments and post-effective amendments to the
      Registration Statement and the Prospectus as may be necessary to keep the
      Registration Statement effective for the period specified in Section 4(a) and
      to
      comply with the provisions of the 1933 Act and the 1934 Act with respect to
      the
      distribution of all of the Registrable Securities covered thereby;

     

    (c) provide
      copies to the Investor in an effort to permit counsel designated by the Investor
      to review each Registration Statement and all amendments and supplements thereto
      no fewer than three (3) Business Days prior to their filing with the
      SEC;

     

    (d) furnish
      to the Investor such number of copies of a Prospectus, including a preliminary
      prospectus, and all amendments and supplements thereto and such other documents
      as Investor may reasonably request in order to facilitate the disposition of
      the
      Registrable Securities owned by Investor that are covered by the related
      Registration Statement;

     

    (e) use
      commercially reasonable efforts to (i) prevent the issuance of any stop order
      or
      other suspension of effectiveness of a Registration Statement and, (ii) if
      such
      order or suspension is issued, obtain the withdrawal of any such order or
      suspension at the earliest possible moment and notify each holder of Registrable
      Securities of the issuance of such order and the resolution thereof or its
      receipt of notice of the initiation of any proceeding such purpose;

    

    (f) prior
      to
      any public offering of Registrable Securities, use commercially reasonable
      efforts to register or qualify or cooperate with the Investor and its counsel
      in
      connection with the registration or qualification of such Registrable Securities
      for offer and sale under the securities or blue sky laws of such jurisdictions
      requested by the Investor as shall be reasonably appropriate in the opinion
      of
      the Company and do any and all other commercially reasonable acts or things
      necessary or advisable to enable the distribution in such jurisdictions of
      the
      Registrable Securities covered by the Registration Statement;
      provided, however, that the Company shall not be required in connection
      therewith or as a condition thereto to (i) qualify to do business in any
      jurisdiction where it would not otherwise be required to qualify but for this
      Section 4(f), (ii) subject itself to general taxation in any jurisdiction where
      it would not otherwise be so subject but for this Section 4(f), or (iii) file
      a
      general consent to service of process in any such jurisdiction;

    

    (g) use
      commercially reasonable efforts to cause all Registrable Securities covered
      by a
      Registration Statement to be listed on each securities exchange, interdealer
      quotation system or other market on which similar securities issued by the
      Company are then listed;

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    (h) immediately
      notify the Investor, at any time when a Prospectus relating to Registrable
      Securities is required to be delivered under the 1933 Act, upon discovery that,
      or upon the happening of any event as a result of which, the Prospectus included
      in a Registration Statement, as then in effect, includes an untrue statement
      of
      a material fact or omits to state any material fact required to be stated
      therein or necessary to make the statements therein not misleading in light
      of
      the circumstances then existing, and at the request of any such holder, promptly
      prepare and furnish to such holder a reasonable number of copies of a supplement
      to or an amendment of such Prospectus as may be necessary so that, as thereafter
      delivered to the purchasers of such Registrable Securities, such Prospectus
      shall not include an untrue statement of a material fact or omit to state a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading in light of the circumstances then existing;

     

    (i) otherwise
      use commercially reasonable efforts to comply with all applicable rules and
      regulations of the SEC under the 1933 Act and the 1934 Act, take such other
      actions as may be reasonably necessary to facilitate the registration of the
      Registrable Securities hereunder; and

     

    (j) With
      a
      view to making available to the Investor the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investor to sell shares of Common Stock to the public without
      registration, the Company covenants and agrees to use commercially reasonable
      efforts to: (i) make and keep public information available, as those terms
      are
      understood and defined in Rule 144; (ii) file with the SEC in a timely manner
      all reports and other documents required of the Company under the 1934 Act;
      and
      (iii) furnish to Investor upon request, as long as Investor owns any Registrable
      Securities, (A) a written statement by the Company that it has complied with
      the
      reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent
      annual or quarterly report, and (C) such other information as may be reasonably
      requested in order to avail Investor of any rule or regulation of the SEC that
      permits the selling of any such Registrable Securities without
      registration.

    

    5. Due
      Diligence Review; Information.
      The
      Company shall make available, during normal business hours, for inspection
      and
      review by the Investor, advisors to and representatives of the Investor (who
      may
      or may not be affiliated with the Investor and who are reasonably acceptable
      to
      the Company), all financial and other records, all SEC Filings (as defined
      in
      the Purchase Agreement) and other filings with the SEC, and all other corporate
      documents and properties of the Company as may be reasonably necessary for
      the
      purpose of such review, and cause the Company’s officers, directors and
      employees, within a reasonable time period, to supply all such information
      reasonably requested by the Investor or any such representative, advisor or
      underwriter in connection with such Registration Statement (including, without
      limitation, in response to all questions and other inquiries reasonably made
      or
      submitted by any of them), prior to and from time to time after the filing
      and
      effectiveness of the Registration Statement for the sole purpose of enabling
      the
      Investor and such representatives, advisors and underwriters and their
      respective accountants and attorneys to conduct initial and ongoing due
      diligence with respect to the Company and the accuracy of such Registration
      Statement.

     

    The
      Company shall not disclose material nonpublic information to the Investor,
      or to
      advisors to or representatives of the Investor, unless prior to disclosure
      of
      such information the Company identifies such information as being material
      nonpublic information and provides the Investor, such advisors and
      representatives with the opportunity to accept or refuse to accept such material
      nonpublic information for review and if Investor wishes to obtain such
      information, it enters into an appropriate confidentiality agreement with the
      Company with respect thereto.

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    6. Obligations
      of the Investor.

     

    (a) Investor
      shall furnish in writing to the Company such information regarding itself,
      the
      Registrable Securities held by it, the intended method of disposition of the
      Registrable Securities held by it and its beneficial ownership of the Company’s
      securities, including who has the right to vote or dispose of such securities
      on
      behalf of Investor, as shall be reasonably required to effect the registration
      of such Registrable Securities and shall execute and deliver such documents
      in
      connection with such registration as the Company may reasonably request. At
      least five (5) Business Days prior to the first anticipated filing date of
      any
      Registration Statement, the Company shall notify Investor of the information
      the
      Company requires from Investor if Investor elects to have any of the Registrable
      Securities included in the Registration Statement. Investor shall provide such
      information to the Company at least two (2) Business Days prior to the first
      anticipated filing date of such Registration Statement if Investor elects to
      have any of the Registrable Securities included in the Registration
      Statement.

     

    (b) Investor,
      by its acceptance of the Registrable Securities, agrees to cooperate with the
      Company as reasonably requested by the Company in connection with the
      preparation and filing of a Registration Statement hereunder, unless Investor
      has notified the Company in writing of its election to exclude all of its
      Registrable Securities from such Registration Statement.

     

    (c) Investor
      agrees that, upon receipt of any notice from the Company of either (i) the
      commencement of an Allowed Delay pursuant to Section 2(d) or (ii) the happening
      of an event pursuant to Section 4(h) hereof, Investor will immediately
      discontinue disposition of Registrable Securities pursuant to the Registration
      Statement covering such Registrable Securities, until the Investor’s receipt of
      the copies of the supplemented or amended prospectus filed with the SEC and
      until any related post-effective amendment is declared effective and, if so
      directed by the Company, the Investor shall deliver to the Company (at the
      expense of the Company) or destroy (and deliver to the Company a certificate
      of
      destruction) all copies in the Investor’s possession of the Prospectus covering
      the Registrable Securities current at the time of receipt of such
      notice.

     

    7. Indemnification.

     

    (a) Indemnification
      by the Company.
      The
      Company will indemnify and hold harmless Investor and its officers, directors,
      members, employees and agents, successors and assigns, and each other person,
      if
      any, who controls Investor within the meaning of the 1933 Act, against any
      losses, claims, damages or liabilities, joint or several, to which they may
      become subject under the 1933 Act or otherwise, insofar as such losses, claims,
      damages or liabilities (or actions in respect thereof) arise out of or are
      based
      upon: (i) any untrue statement or alleged untrue statement of any material
      fact
      contained in any Registration Statement, any preliminary prospectus or final
      prospectus contained therein, or any amendment or supplement thereof; (ii)
      any
      blue sky application or other document executed by the Company specifically
      for
      that purpose or based upon written information furnished by the Company filed
      in
      any state or other jurisdiction in order to qualify any or all of the
      Registrable Securities under the securities laws thereof (any such application,
      document or information herein called a “Blue
      Sky
      Application”);
      (iii)
      the omission or alleged omission to state therein a material fact required
      to be
      stated therein or necessary to make the statements therein not misleading;
      (iv)
      any violation by the Company or its agents of any rule or regulation promulgated
      under the 1933 Act applicable to the Company or its agents and relating to
      action or inaction required of the Company in connection with such registration;
      or (v) any failure to register or qualify the Registrable Securities included
      in
      any such Registration in any state where the Company or its agents has
      affirmatively undertaken or agreed in writing that the Company will undertake
      such registration or qualification on Investor’s behalf and will reimburse
      Investor, and each such officer, director or member and each such controlling
      person for any legal or other expenses reasonably incurred by them in connection
      with investigating or defending any such loss, claim, damage, liability or
      action; provided,
      however,
      that
      the Company will not be liable in any such case if and to the extent that any
      such loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished by Investor or any such controlling person
      in writing specifically for use in such Registration Statement or
      Prospectus.

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    (b) Indemnification
      by the Investor.
      Investor agrees to indemnify and hold harmless, to the fullest extent permitted
      by law, the Company, its directors, officers, employees, stockholders and each
      person who controls the Company (within the meaning of the 1933 Act) against
      any
      losses, claims, damages, liabilities and expense (including reasonable attorney
      fees) resulting from any untrue statement of a material fact or any omission
      of
      a material fact required to be stated in the Registration Statement or
      Prospectus or preliminary prospectus or amendment or supplement thereto or
      necessary to make the statements therein not misleading, to the extent, but
      only
      to the extent, that such untrue statement or omission is contained in any
      information furnished in writing by Investor to the Company specifically for
      inclusion in such Registration Statement or Prospectus or amendment or
      supplement thereto. In no event shall the liability of Investor be greater
      in
      amount than the dollar amount of the proceeds (net of all expense paid by
      Investor in connection with any claim relating to this Section 7 and the amount
      of any damages Investor has otherwise been required to pay by reason of such
      untrue statement or omission) received by Investor upon the sale of the
      Registrable Securities included in the Registration Statement giving rise to
      such indemnification obligation.

     

    (c) Conduct
      of Indemnification Proceedings.
      Any
      person entitled to indemnification hereunder shall (i) give prompt notice to
      the
      indemnifying party of any claim with respect to which it seeks indemnification
      and (ii) permit such indemnifying party to assume the defense of such claim
      with
      counsel reasonably satisfactory to the indemnified party; provided
      that any
      person entitled to indemnification hereunder shall have the right to employ
      separate counsel and to participate in the defense of such claim, but the fees
      and expenses of such counsel shall be at the expense of such person unless
      (a)
      the indemnifying party has agreed to pay such fees or expenses, or (b) the
      indemnifying party shall have failed to assume the defense of such claim and
      employ counsel reasonably satisfactory to such person or (c) in the reasonable
      judgment of any such person, based upon written advice of its counsel, a
      conflict of interest exists between such person and the indemnifying party
      with
      respect to such claims (in which case, if the person notifies the indemnifying
      party in writing that such person elects to employ separate counsel at the
      expense of the indemnifying party, the indemnifying party shall not have the
      right to assume the defense of such claim on behalf of such person); and
provided,
      further,
      that
      the failure of any indemnified party to give notice as provided herein shall
      not
      relieve the indemnifying party of its obligations hereunder, except to the
      extent that such failure to give notice shall materially adversely affect the
      indemnifying party in the defense of any such claim or litigation. It is
      understood that the indemnifying party shall not, in connection with any
      proceeding in the same jurisdiction, be liable for fees or expenses of more
      than
      one separate firm of attorneys at any time for all such indemnified parties.
      No
      indemnifying party will, except with the consent of the indemnified party,
      consent to entry of any judgment or enter into any settlement that does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of a release from all liability in respect of such
      claim or litigation.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    (d) Contribution.
      If for
      any reason the indemnification provided for in the preceding paragraphs (a)
      and
      (b) is unavailable to an indemnified party or insufficient to hold it harmless,
      other than as expressly specified therein, then the indemnifying party shall
      contribute to the amount paid or payable by the indemnified party as a result
      of
      such loss, claim, damage or liability in such proportion as is appropriate
      to
      reflect the relative fault of the indemnified party and the indemnifying party,
      as well as any other relevant equitable considerations. No person guilty of
      fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
      Act
      shall be entitled to contribution from any person not guilty of such fraudulent
      misrepresentation. In no event shall the contribution obligation of a holder
      of
      Registrable Securities be greater in amount than the dollar amount of the
      proceeds (net of all expenses paid by such holder in connection with any claim
      relating to this Section 7 and the amount of any damages such holder has
      otherwise been required to pay by reason of such untrue or alleged untrue
      statement or omission or alleged omission) received by it upon the sale of
      the
      Registrable Securities giving rise to such contribution obligation.

     

    8. Miscellaneous.

     

    (a) Amendments
      and Waivers.
      This
      Agreement may be amended only by a writing signed by the Company and the
      Investor.
      The
      Company may take any action herein prohibited, or omit to perform any act herein
      required to be performed by it, only if the Company shall have obtained the
      written consent to such amendment, action or omission to act, of the
      Investor.

     

    (b) Notices.
      All
      notices and other communications provided for or permitted hereunder shall
      be
      made as set forth in Section 10.4 of the Purchase Agreement.

     

    (c) Assignments
      and Transfers by Investor.
      The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the Investor and its successors and assigns. Investor may transfer or assign,
      in
      whole or from time to time in part, to one or more persons its rights hereunder
      in connection with the transfer of Registrable Securities by Investor to such
      person, provided that Investor complies with all laws applicable thereto and
      provides written notice of assignment to the Company promptly after such
      assignment is effected.

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    (d) Assignments
      and Transfers by the Company.
      This
      Agreement may not be assigned by the Company (whether by operation of law or
      otherwise) without the prior written consent of the Investor, provided, however,
      that the Company may assign its rights and delegate its duties hereunder to
      any
      surviving or successor corporation in connection with a merger or consolidation
      of the Company with another corporation, or a sale, transfer or other
      disposition of all or substantially all of the Company’s assets to another
      corporation, without the prior written consent of the Investor, after notice
      duly given by the Company to Investor.

     

    (e) Benefits
      of the Agreement.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective permitted successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of this
      Agreement, except as expressly provided in this Agreement.

     

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

     

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

     

    (h) Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provisions hereof prohibited or unenforceable in any
      respect.

     

    (i) Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    (j) Entire
      Agreement.
      This
      Agreement is intended by the parties as a final expression of their agreement
      and intended to be a complete and exclusive statement of the agreement and
      understanding of the parties hereto in respect of the subject matter contained
      herein. This Agreement supersedes all prior agreements and understandings
      between the parties with respect to such subject matter.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    (k) Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to conflicts of laws concepts
      which
      would apply the substantive law of some other jurisdiction, and shall be binding
      upon and inure to the benefit of the parties hereto and their respective heirs,
      personal representatives, successors or assigns. Each of the parties hereto
      irrevocably submits to the exclusive jurisdiction of the courts of the State
      of
      New York located in New York County and the United States District Court for
      the
      Southern District of New York for the purpose of any suit, action, proceeding
      or
      judgment relating to or arising out of this Agreement and the transactions
      contemplated hereby. Service of process in connection with any such suit, action
      or proceeding may be served on each party hereto anywhere in the world by the
      same methods as are specified for the giving of notices under this Agreement.
      Each of the parties hereto irrevocably consents to the jurisdiction of any
      such
      court in any such suit, action or proceeding and to the laying of venue in
      such
      court. Each party hereto irrevocably waives any objection to the laying of
      venue
      of any such suit, action or proceeding brought in such courts and irrevocably
      waives any claim that any such suit, action or proceeding brought in any such
      court has been brought in an inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
      authorized officers to execute this Agreement as of the date first above
      written.

     

    
      	
              The
                Company:

            
	 
	
              NATIONAL
                HOLDINGS CORPORATION

            
	 	 
	
              By:
                

            	
              /S/
                MARK GOLDWASSER

            
	 	
                
                Mark Goldwasser

            
	 	
                 President
                and Chief Executive Officer

            
	 	 
	
              The
                Investor:

            
	 
	
              ST.
                CLOUD CAPITAL PARTNERS II, L.P.

            
	 
	
              By:
                SGCP II, LLC

            
	
              Its:
                General Partner

            
	 	 
	
              By:

            	
              /S/
                MARSHALL S. GELLER

            
	 	
              Marshall
                S. Geller

            
	 	
              Managing
                Member

            

    

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    Exhibit
      A

    

    Plan
      of Distribution

    

    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

    

    The
      selling stockholders may use any one or more of the following methods when
      disposing of shares or interests therein:

    

    -
      ordinary brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

    

    -
      block
      trades in which the broker-dealer will attempt to sell the shares as agent,
      but
      may position and resell a portion of the block as principal to facilitate the
      transaction;

    

    -
      purchases by a broker-dealer as principal and resale by the broker-dealer for
      its account;

    

    -
      an
      exchange distribution in accordance with the rules of the applicable
      exchange;

    

    -
      privately negotiated transactions;

    

    -
      short
      sales effected after the date the registration statement of which this
      Prospectus is a part is declared effective by the SEC;

    

    -
      through
      the writing or settlement of options or other hedging transactions, whether
      through an options exchange or otherwise;

    

    -
      broker-dealers may agree with the selling stockholders to sell a specified
      number of such shares at a stipulated price per share;

    

    -
      a
      combination of any such methods of sale; and

    

    -
      any
      other method permitted pursuant to applicable law.

    

    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the shares of common stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell the shares of common stock, from time to time, under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the 1933 Act amending the list of selling
      stockholders to include the pledgee, transferee or other successors in interest
      as selling stockholders under this prospectus. The selling stockholders also
      may
      transfer the shares of common stock in other circumstances, in which case the
      transferees, pledgees or other successors in interest will be the selling
      beneficial owners for purposes of this prospectus.

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    In
      connection with the sale of our common stock or interests therein, the selling
      stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The selling
      stockholders may also sell shares of our common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The selling
      stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    

    The
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the Warrant by payment of cash, however, we will receive the
      exercise price of the Warrant.

    

    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the 1933 Act, provided
      that
      they meet the criteria and conform to the requirements of that
      rule.

    

    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the 1933 Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the 1933 Act. Selling
      stockholders who are "underwriters" within the meaning of Section 2(11) of
      the
      1933 Act will be subject to the prospectus delivery requirements of the 1933
      Act.

    

    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this
      prospectus.

    

    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the 1934 Act may apply to sales of shares in the market and to the
      activities of the selling stockholders and their affiliates. In addition, we
      will make copies of this prospectus (as it may be supplemented or amended from
      time to time) available to the selling stockholders for the purpose of
      satisfying the prospectus delivery requirements of the 1933 Act. The selling
      stockholders may indemnify any broker-dealer that participates in transactions
      involving the sale of the shares against certain liabilities, including
      liabilities arising under the 1933 Act.

    

    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the 1933 Act and state securities laws, relating to the
      registration of the shares offered by this prospectus.

    

    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until the earlier of (1) such
      time
      as all of the shares covered by this prospectus have been disposed of pursuant
      to and in accordance with the registration statement or (2) the date on which
      the shares may be sold without restriction pursuant to Rule 144 of the 1933
      Act.

    
      
         

      

      
        -15-

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