-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TA+gFx0pmMFg4b9bOMWD532sk2NZ/bxxToVVdxwWEpp8AqhMPMBwyD85bNhzanRP wzVdOtN7klvL6CZhk2d6AQ== 0001144204-07-009804.txt : 20070223 0001144204-07-009804.hdr.sgml : 20070223 20070223162953 ACCESSION NUMBER: 0001144204-07-009804 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20070223 DATE AS OF CHANGE: 20070223 GROUP MEMBERS: MARSHALL S. GELLER GROUP MEMBERS: SCGP, LLC GROUP MEMBERS: ST. CLOUD CAPITAL, LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL HOLDINGS CORP CENTRAL INDEX KEY: 0001023844 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 364128138 STATE OF INCORPORATION: DE FISCAL YEAR END: 0926 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-51125 FILM NUMBER: 07646084 BUSINESS ADDRESS: STREET 1: 1001 FOURTH AVENUE STREET 2: STE 2200 CITY: SEATTLE STATE: WA ZIP: 98154 BUSINESS PHONE: 3127518833 MAIL ADDRESS: STREET 1: 1001 FOURTH AVENUE STREET 2: STE 2200 CITY: SEATTLE STATE: WA ZIP: 98154 FORMER COMPANY: FORMER CONFORMED NAME: OLYMPIC CASCADE FINANCIAL CORP DATE OF NAME CHANGE: 19960927 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ST CLOUD CAPITAL PARTNERS LP CENTRAL INDEX KEY: 0001164263 IRS NUMBER: 954883837 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 433 NORTH CAMDEN DRIVE STREET 2: FIFTH FLOOR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3105530177 MAIL ADDRESS: STREET 1: 433 NORTH CAMDEN DRIVE STREET 2: FIFTH FLOOR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 SC 13D/A 1 v066665_sc13da.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934

(Amendment No. 2)*

NATIONAL HOLDINGS CORPORATION

(Name of Issuer)

Common Stock

(Title of Class of Securities)

636375107

(CUSIP Number)

Marshall S. Geller

St. Cloud Capital Partners, L.P.

10866 Wilshire Boulevard, Suite 1450

Los Angeles, California 90024

(310) 475-2700

(Name, Address and Telephone Number of Person Authorized

to Receive Notices and Communications)

February 22, 2007

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box o.

NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.

*The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

SCHEDULE 13D

(Amendment No. 2)

CUSIP NO. 636375107

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON St. Cloud Capital Partners, L.P.

2	CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP (a) (b) x

3	SEC USE ONLY
4	SOURCE OF FUNDS WC, OO

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURUANT TO ITEMS 2(d) or 2(e)

6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER 2,300,833*
		8	SHARED VOTING POWER 2,300,833*
		9	SOLE DISPOSITIVE POWER 2,300,833*
		10	SHARED DISPOSITIVE POWER 2,300,833*
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,300,833*

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.04%**

14	TYPE OF REPORTING PERSON IV, PN

* See response to Item 5(a) and Item 5(b).

** Based on 5,358,611 shares of the Company’s Common Stock outstanding as of February 7, 2007, as reported by the Company.

SCHEDULE 13D

(Amendment No. 2)

CUSIP NO. 636375107

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON SCGP, LLC

2	CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP (a) (b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS AF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURUANT TO ITEMS 2(d) or 2(e)

6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER 0*
		8	SHARED VOTING POWER 2,300,833*
		9	SOLE DISPOSITIVE POWER 0*
		10	SHARED DISPOSITIVE POWER 2,300,833*
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,300,833*

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.04%**

14	TYPE OF REPORTING PERSON OO

* See response to Item 5(a) and Item 5(b).

** Based on 5,358,611 shares of the Company’s Common Stock outstanding as of February 7, 2007, as reported by the Company.

SCHEDULE 13D

(Amendment No. 2)

CUSIP NO. 636375107

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON St. Cloud Capital, LLC

2	CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP (a) (b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS AF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURUANT TO ITEMS 2(d) or 2(e)

6	CITIZENSHIP OR PLACE OF ORGANIZATION California

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER 0*
		8	SHARED VOTING POWER 2,300,833*
		9	SOLE DISPOSITIVE POWER 0*
		10	SHARED DISPOSITIVE POWER 2,300,833*

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,300,833*

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.04%**

14	TYPE OF REPORTING PERSON OO

* See response to Item 5(a) and Item 5(b).

** Based on 5,358,611 shares of the Company’s Common Stock outstanding as of February 7, 2007, as reported by the Company.

SCHEDULE 13D

(Amendment No. 2)

CUSIP NO. 636375107

1	NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Marshall S. Geller

2	CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP (a) (b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS AF, PF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURUANT TO ITEMS 2(d) or 2(e)

6	CITIZENSHIP OR PLACE OF ORGANIZATION USA

NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH		7	SOLE VOTING POWER 55,050*
		8	SHARED VOTING POWER 2,355,883*
		9	SOLE DISPOSITIVE POWER 55,050*
		10	SHARED DISPOSITIVE POWER 2,355,883*

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,355,883*

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.72%**

14	TYPE OF REPORTING PERSON IN

* See response to Item 5(a) and Item 5(b).

** Based on 5,358,611 shares of the Company’s Common Stock outstanding as of February 7, 2007, as reported by the Company.

SCHEDULE 13D

(Amendment No. 2)

Item 1. Security and Issuer.

This Amendment No. 2 amends and supplements the statements on Schedule 13D, as originally filed on January 23, 2006 and amended on September 18, 2006 (the “Schedule 13D”) relating to the common stock, par value $.02 per share (the “Common Stock”), of National Holdings Corporation, a Delaware corporation (the “Company” or the “Issuer”) and is filed with the Securities and Exchange Commission on behalf of the following persons: (i) St. Cloud Capital Partners, L.P.; (ii) SCGP, LLC; (iii) St. Cloud Capital, LLC; and (iv) Marshall S. Geller. Except as disclosed herein, there has been no change in the information previously reported in the Schedule 13D. Capitalized terms not defined herein have the meanings ascribed to them in the Schedule 13D.

Item 3. Source and Amount of Funds or Other Consideration

Item No. 3 of Schedule 13D is supplemented and amended by inserting the following at the end thereof:

On February 22, 2007, St. Cloud Partners entered into that certain Securities Purchase Agreement (the “Purchase Agreement”), by and among the Company, St. Cloud Partners and the additional purchasers named therein (collectively, with St. Cloud Partners, the “Purchasers,” and such Purchasers excluding St. Cloud Partners, the “Other Purchasers”). Pursuant to the Purchase Agreement, among other things, St. Cloud Partners purchased (i) a 10% promissory note of the Company (the “Note”) and (ii) a warrant (the “Warrant”) to purchase 62,500 shares of the Company’s common stock, par value $0.02 per share (the “Common Stock”) for an aggregate purchase price of $250,000. The funds were obtained from working capital of St. Cloud Partners and borrowings of St. Cloud Partners from the United States Small Business Administration.

Item 4. Purpose of Transaction.

St. Cloud Partners acquired the securities referenced in Item 3 above solely for the purpose of investment. The investment is subject to the terms of the Purchase Agreement, the Note, the Warrant and the Registration Rights Agreement, dated as of February 22, 2007, by and among the Company, St. Cloud Partners and the Other Purchasers (the “Registration Rights Agreement”), which are attached hereto as Exhibit 1, Exhibit 2, Exhibit 3, and Exhibit 4, respectively, and are incorporated herein by reference. Marshall S. Geller, a co-founder and senior manager of SCGP, the general partner of St. Cloud Partners, is a member of the Board of Directors of the Company.

The Note bears interest at 10% per annum payable quarterly in arrears, matures two years from the date of issuance, is not convertible into any other securities of the Company and is unsecured. The Note may be prepaid, at the option of the Company, in whole or in part, at any time without penalty.

Events of default which would cause the Note to accelerate, causing the principal and interest on the Note to become immediately due and payable, include, among other things: (i) the failure by the Company to perform or observe in any material respect any material covenant or agreement of the Company contained in the Note, which remains uncured for a period of five (5) business days; (ii) any representation or warranty made by the Company under any of the Purchaser Agreement, the Notes, the Warrants and the Registration Rights Agreement was, when made, untrue or misleading, the result of which is reasonably likely to have a material adverse effect; (iii) the failure of the Company to make any payment of principal or interest on the Note when due, whether at maturity, upon acceleration or otherwise and the continuation of such failure for a period of five (5) business days; (iv) there shall have occurred an acceleration of the stated maturity of any indebtedness for borrowed money of the Company (other than the Notes) of One Hundred Thousand United States Dollars ($100,000) or more in aggregate principal amount (which acceleration is not rescinded, annulled or otherwise cured within fifteen (15) business days of receipt by the Company of notice of such acceleration); (v) the Company makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Company as bankrupt or insolvent; or any order for relief with respect to the Company is entered under the Federal Bankruptcy Code or any other bankruptcy or insolvency law; or the Company petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Company or of any substantial part of the assets of the Company, or commences any proceeding relating to it under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Company and either (i) the Company by any act indicates its approval thereof, consents thereto or acquiescence therein or (ii) such petition application or proceeding is not dismissed within sixty (60) days; or (vi) a final, non-appealable judgment which, in the aggregate with other outstanding final judgments against the Company and its subsidiaries, exceeds Two Hundred Thousand United States Dollars ($200,000) shall be rendered against the Company or a subsidiary and within sixty (60) days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of such stay, such judgment is not discharged. The Note is attached hereto as Exhibit 2 and is incorporated by reference herein.

The Warrant issued pursuant to the terms of the Purchase Agreement is exercisable for 62,500 shares of Common Stock, at an exercise price of $1.40 per share (subject to adjustment), on or prior to 5:00 p.m. (Eastern time) on February 22, 2012. The Warrant is attached hereto as Exhibit 3 and is incorporated by reference herein.

Item 5. Interest in Securities of the Issuer

Item 5 is hereby amended and supplemented by adding thereto the following:

(a) According to the Company, there were 5,358,611 shares of Common Stock outstanding as of February 22, 2007. St. Cloud Partners is the beneficial owner of 2,300,833 shares of Common Stock (including 1,133,333 shares of Common Stock issuable upon conversion of the Company's Series B Convertible Preferred Stock, 850,000 shares of Common Stock issuable upon conversion of the St. Cloud Note, 255,000 shares of Common Stock issuable upon exercise of the St. Cloud Warrant and 62,500 shares of Common Stock issuable upon exercise of the Warrant), which represents 30.04% of the outstanding shares of Common Stock.

Marshall Geller is the direct owner of 55,050 shares of Common Stock. Such amount includes, 10,000 shares issuable upon exercise of a fully-vested stock option and 6,300 shares held in Mr. Geller’s IRA. Also, because Mr. Geller is a co-founder and senior manager of SCGP, the general partner of St. Cloud Partners, Mr. Geller may be deemed to own beneficially the 2,300,833 shares of Common Stock issuable upon conversion of the Company securities held by St. Cloud Partners.

(b) St. Cloud Capital Partners, L.P. has the power to direct the vote of 2,300,833 shares of Common Stock and the power to direct the disposition of 2,300,833 shares of Common Stock. In Mr. Geller’s capacity as a co-founder and senior manager of SCGP, Mr. Geller may be deemed to beneficially own the 2,300,833 shares of Common Stock beneficially owned by St. Cloud Partners and/or SCGP. Mr. Geller also is the direct beneficial owner of 48,750 shares of Common Stock held in his individual capacity and 6,300 shares of Common Stock held in his IRA.

(c) Except as set forth in this Statement, there have been no sales or purchases with respect to the Company's securities effected during the past sixty days by any of the Reporting Persons listed in (a) above.

(d) Not applicable.

(e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.

SECURITIES PURCHASE AGREEMENT

In addition to the description of the Purchase Agreement set forth in Items 3 and 4 above, the Purchase Agreement contains customary representations, warranties and covenants. The Purchase Agreement is attached hereto as Exhibit 1 and incorporated by reference herein. The terms and conditions of the Purchase Agreement, the Note and the Warrant issued thereunder, are further described in Item 4 and Item 5 above and are incorporated by reference herein.

REGISTRATION RIGHTS AGREEMENT

Pursuant to the Registration Rights Agreement, at any time after February 22, 2008, the holders of at least 50% of the Registrable Securities, as defined therein, may make a written demand for registration under the Securities Act of 1933, as amended, of all or part of their Registrable Securities. The Company is required to prepare and file with the SEC a registration statement within 90 days following the Company’s receipt of such demand notice and to use commercially reasonable efforts to have the registration statement declared effective as soon as practicable. The Registration Rights Agreement also provides the Purchasers with piggy-back registration rights. The Registration Rights Agreement is attached hereto as Exhibit 4 and incorporated by reference herein.

Item 7. Material to be Filed as Exhibits

1		Securities Purchase Agreement dated as of February 22, 2007 by and among the Company, St. Cloud Partners and the additional purchasers named therein.

2		10% Promissory Note, dated February 22, 2007 issued by the Company to St. Cloud Partners.

3		Warrant, dated February 22, 2007 issued by the Company to St. Cloud Partners.

4		Registration Rights Agreement dated as of February 22, 2007 by and among the Company, St. Cloud Partners and the additional purchasers named therein.

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: February 22, 2007


	St. Cloud Capital Partners, L.P.

	By: SCGP, LLC
	Its: General Partner

	By:	/S/ MARSHALL S. GELLER
	Name:	Marshall S. Geller
	Title:	Senior Managing Member


	SCGP, LLC

	By:	/S/ MARSHALL S. GELLER
	Name:	Marshall S. Geller
	Title:	Senior Managing Member


	St. Cloud Capital, LLC

	By:	/S/ MARSHALL S. GELLER
	Name:	Marshall S. Geller
	Title:	Senior Managing Director


	By:	/S/ MARSHALL S. GELLER
		Marshall S. Geller

EX-99.1 2 v066665_ex99-1.htm Unassociated Document

NATIONAL HOLDINGS CORPORATION

SECURITIES PURCHASE AGREEMENT

DATED AS OF

FEBRUARY 22, 2007

WITH RESPECT TO

10% NOTES AND WARRANTS

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of February 22, 2007 by and among NATIONAL HOLDINGS CORPORATION, a Delaware corporation (the “Company”) and the individuals listed on Exhibit A hereto under the heading “Purchasers” (the “Purchasers”) who become parties to this Agreement by executing and delivering a financing signature page in the form attached hereto as Exhibit B (the “Financing Signature Page”).

WHEREAS, the Company desires to sell to the Purchasers, and the Purchasers desire to purchase from the Company, an aggregate of up to (a) $1,000,000 principal amount of the Company’s 10% Promissory Notes (the “Notes”) and (b) warrants (the “Warrants”) to purchase up to 250,000 shares of the Company’s common stock, $0.02 par value per share (the “Warrant Shares”), at an initial exercise price of $1.40 per share, pursuant to the provisions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

1. Authorization; Sale of Notes and Warrants.

1.1 Authorization. The Company has duly authorized the sale and issuance, pursuant to the terms of this Agreement, of (i) the Notes and Warrants and (ii) the Warrant Shares issuable upon exercise of the Warrants.

1.2 Sale of Notes and Warrants. Subject to the terms and conditions of this Agreement, at the Closing (as defined ion Section 2.1), the Company will sell and each of the Purchasers will purchase (a) the Notes in the principal amounts set forth on Exhibit A hereto and (b) the Warrants. The terms and provisions of the Notes and Warrants are more fully set forth in the form of 10% Promissory Note, a true and correct copy of which is attached hereto as Exhibit C, and in the form of Warrant, a true and correct copy of which is attached hereto as Exhibit D, respectively. This Agreement, the Notes, the Warrants and the Registration Rights Agreement (as defined herein) are sometimes collectively referred to as the “Transaction Documents”.

2. Purchase Price; Closing.

2.1 Purchase Price. The aggregate purchase price (the "Purchase Price") to be paid by the Purchasers to the Company to acquire the Notes and Warrants shall be up to $1,000,000.

2.2 The Closing. Subject to the terms and conditions of this Agreement, the closing (the “Closing”) of the sale and purchase of Notes and Warrants under this Agreement shall take place at the offices of Littman Krooks LLP, 655 Third Avenue, New York NY 10017 (or remotely via the exchange of documents and signatures) on the date of this Agreement (the “Closing Date”). At the Closing:

(a) the Company shall deliver to each of the Purchasers, a Note in the amount set forth opposite such Purchaser’s name on Exhibit A attached hereto, and a Warrant exercisable for the number of Warrant Shares set forth opposite such Purchaser’s name on Exhibit A attached hereto, registered in the name of such Purchaser;

(b) the Company shall execute and deliver the Registration Rights Agreement in the form attached hereto as Exhibit E (the “Registration Rights Agreement”);

(c) each Purchaser shall pay directly to the Company, by wire transfer of immediately available funds, the Purchase Price for the Notes and Warrants being purchased; and

(d) in the event of an Additional Closing as described in Section 2.3 below, the Company shall have delivered to the Purchaser(s) at such Additional Closing a certificate of the Company, executed by the Chief Executive Officer of the Company, dated the Closing Date, and certifying to, among other things, the fulfillment of the conditions specified in Sections 5.1, 5.2 and 5.3 of this Agreement.

2.3 Additional Closings. Additional sales of Notes and Warrants not sold at the initial Closing may be made by the Company at one or more closings (each, an “Additional Closing”). Each Additional Closing and the initial Closing are collectively referred to as the “Closings” and the date of each Additional Closing and the initial Closing are collectively referred to as the “Closing Dates.” Each Additional Closing shall take place at the offices of Littman Krooks LLP, 655 Third Avenue, New York, NY 10017 (or remotely via the exchange of documents and signatures). The Purchasers agree that any additional persons or entities that acquire Notes and Warrants at any “Additional Closing” shall become “Purchasers” under this Agreement with all the rights and obligations attendant thereto, upon their execution of this Agreement without further action by any other Purchaser. For purposes of this Agreement, the terms “Closing” and “Closing Date”, unless otherwise indicated, refer to the applicable closing and closing date of the Initial Closing or the Additional Closing(s), as the case may be.

3. Representations of the Company. The Company hereby represents and warrants to each Purchaser that the statements contained in this section 3 are complete and accurate as of the date of this agreement. Such representations and warranties are supplemented by the Company's filings under the pursuant to the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended, made prior to the date of this agreement (collectively, the "SEC Reports"), copies of which have been provided to the purchasers):

3.1 Organization and Standing. The Company and each of its subsidiaries (as defined below) is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of existence, has all requisite corporate power and authority, and has been duly authorized by all necessary approvals and orders, to own, lease and operate its assets and properties to the extent owned, leased and operated and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its assets and properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified and in good standing would not, when taken together with all other such failures, reasonably be expected to have a material adverse effect on the business, properties, condition (financial or otherwise), prospects (other than effects that are the result of general economic changes or industry-specific risks) or results of operations of the Company and its subsidiaries taken as a whole (any such material adverse effect being hereafter referred to as a "Material Adverse Effect"). As used in this Agreement, the term "subsidiary" of a person shall mean any corporation or other entity (including partnerships and other business associations) of which a majority of the outstanding capital stock or other voting securities having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or entity shall at the time be held, directly or indirectly, by such person.

3.2 Subsidiaries. Except as disclosed in the SEC Reports, the Company has no subsidiaries and does not currently own or control, directly or indirectly, any equity interest, nor has any commitment to purchase or otherwise acquire any equity interest, in any other corporation, partnership, limited liability company, association, or other business entity. Except as set forth in the SEC Reports, the Company is not a participant in any joint venture, partnership, or similar arrangement.

3.3 Capitalization. The authorized and outstanding capital stock of the Company consists of the following: (i) a total of Thirty Million (30,000,000) shares of Common Stock, of which 5,358,611 shares are issued and outstanding; and (ii) a total of Two Hundred Thousand (200,000) shares of preferred stock, $0.01 par value per share, of which 50,000 shares are designated as Series A 9% Cumulative Convertible Preferred Stock, 35,316 of which are issued and outstanding, and 20,000 are designated as Series B 10% Cumulative Convertible Preferred Stock, 10,000 of which are issued and outstanding.

3.4 Issuance of Notes and Warrants. The issuance, sale and delivery of the Notes and Warrants in accordance with this Agreement, and the issuance and delivery of the Warrant Shares underlying the Warrants have been duly authorized by all necessary corporate action on the part of the Company, and all such shares have been duly reserved for issuance. The Warrant Shares when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement and the Warrants, when issued upon such conversion, will be duly and validly issued, fully paid and nonassessable.

3.5 Corporate Power; Authority for Agreement; No Conflict. The Company has all requisite legal and corporate power to execute and deliver this Agreement, to sell and issue the Notes and Warrants hereunder, to issue the Warrant Shares (upon due exercise of the Warrants), to consummate the other transactions contemplated by the terms of this Agreement and carry out and perform its obligations under the terms of this Agreement. The execution, delivery and performance by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action. This Agreement, and the consummation of the transactions contemplated hereunder, has been duly executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable in accordance with their respective terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting generally the enforcement of creditors’ rights and subject to a court’s discretionary authority with respect to the granting of a decree ordering specific performance or other equitable remedies. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and thereby and the compliance with their respective provisions by the Company will not (a) conflict with or violate any provision of the Certificate of Incorporation or By-laws of the Company, (b) require on the part of the Company any filing with, or any permit, order, authorization, consent or approval of, any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency, other than notice filings pursuant to applicable federal and state securities laws (each of the foregoing is hereafter referred to as a “Governmental Entity”), (c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest (as defined below) or other arrangement to which the Company is a party or by which the Company is bound or to which its assets are subject, other than any of the foregoing events listed in this clause (c) which do not and will not, individually or in the aggregate, have a Company Material Adverse Effect, (d) result in the imposition of any Security Interest upon any assets of the Company or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets. For purposes of this Agreement, “Security Interest” means any mortgage, pledge, security interest, encumbrance, charge, or other lien (whether arising by contract or by operation of law).

3.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Entity is required on the part of the Company in connection with the offer, issuance, sale and delivery of the Notes and Warrants, the issuance and delivery of the Warrant Shares or the other transactions to be consummated at the Closing, as contemplated by this Agreement, except such filings required to be made after the Closing under applicable federal and state securities laws. Based on the representations made by each of the Purchasers in Section 4 of this Agreement, the offer and sale of the Notes and Warrants to each of the Purchasers will be in material compliance with applicable federal and state securities laws.

3.7 Financial Statements. Each Purchaser has had the opportunity to review the audited financial statements of the Company for the fiscal year ended September 30, 2006 and the unaudited financial statements of the Company for the quarter ended December 31, 2006, (all such financial statements being collectively referred to herein as the “Financial Statements”). The Financial Statements 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 notes 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, 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.

3.8 Use of Proceeds. The net proceeds of the sale of the Notes and the Warrants hereunder shall be used by the Company for (i) retirement of the following outstanding indebtedness: Barcombe Investments Limited ($250,000), Branscombe Investments Limited ($250,000), Shampan Lamport Financial Holdings LLC ($300,000) and Jeffrey C. Fernyhough ($50,000) and (ii) working capital and general corporate purposes.

3.9 No Material Adverse Change. Since December 31, 2006, except as identified and described in the SEC Reports, 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 Company’s December 31, 2006 Quarterly Report on Form 10-Q, 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.

3.10 SEC Reports. At the time of filing thereof, the SEC Reports 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.

3.11 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 Purchasers 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.

3.12 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. 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.

3.13 Title to Properties. Except as disclosed in the SEC Reports, the Company and each of its subsidiaries 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 Reports, the Company and each of its subsidiaries 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.

3.14 Certificates, Authorities and Permits. Except as disclosed in the SEC Filings, the Company and each of its subsidiaries 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.

3.15 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.

3.16 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.

3.17 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.

3.18 Litigation. Except as described in the SEC Reports or on Schedule 3.18, 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.

3.19 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.

3.20 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 an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company, other than the Closing Fee described in Section 5.5 hereof.

3.21 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 offered hereby.

3.22 Private Placement. Subject to the accuracy of the Purchasers’ representations in Section 4 of this Agreement, the offer and sale of the Securities to the Purchasers as contemplated hereby is exempt from the registration requirements of the 1933 Act.

3.23 Small Business Matters.

(a) The Company acknowledges that St. Cloud Capital Partners, L.P., one of the Purchasers of the securities being offered hereby (“St. Cloud”) is a federally licensed Small Business Investment Company (“SBIC”) under the Small Business Investment Act of 1958, as amended. Company, together with its “affiliates” (as that term is defined in 13 C.F.R. Section 121.103), is a “small business concern” within the meaning of the SBIC Regulations, including 13 C.F.R. Section 121.103. After giving effect to the transactions contemplated by the Transaction Documents, Company will have 500 or fewer full-time equivalent employees. The information regarding Company and its affiliates set forth in the SBA forms Nos. 480, 652 and 1031 delivered at the Closing is accurate and complete. Copies of such forms have been completed and executed by Company and delivered to St. Cloud at the Closing together with a written statement of Company regarding its planned use of the proceeds from the transactions contemplated by the Transaction Documents. The Company does not presently engage in, and it shall not hereafter engage in, any activities, nor shall it use directly or indirectly the proceeds of the transactions contemplated by the Transaction Documents for any purpose, for which an SBIC is prohibited from providing funds by the SBIC Regulations (including 13 C.F.R. Section 107.720).

(b) The primary business activity of Company does not involve, directly or indirectly, providing funds to others, purchasing or discounting debt obligations, factoring or long-term leasing of equipment with no provision for maintenance or repair, and Company is not classified under Section 53 (Real Estate) of the North American Industry Classification System manual. The assets of the business of Company (the “Business”) will not be reduced or consumed, generally without replacement, as the life of the Business progresses, and the nature of the Business does not require that a stream of cash payments be made to the Business’s financing sources, on a basis associated with the continuing sale of assets.

3.24 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.

3.25 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 Purchasers, and the Purchasers are not relying on, any information constituting a forecast or projection.

4. Representations of the Purchasers. Each of the Purchasers severally, and not jointly, represents and warrants to the Company as follows:

4.1 Existence and Power. Such Purchaser, if not an individual, is a corporation, partnership, limited duration company or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each non-individual Purchaser has the corporate, partnership, limited duration company or limited liability company, as the case may be, power and authority to own and operate its properties and assets, to execute and deliver this Agreement to purchase the Notes, the Warrants and, upon exercise of the Warrants, the Warrant Shares, and to carry out the provisions of this Agreement. Each non-individual Purchaser is duly qualified and is authorized to do business and is in good standing as a foreign corporation, partnership, limited duration company or limited liability company, as the case may be, in such Purchaser’s jurisdictions of organization.

4.2 Authorization; No Contravention. The execution, delivery and performance by each Purchaser of this Agreement and the transactions contemplated hereby, (a) have been duly authorized by all necessary action, (b) do not contravene the terms of such Purchaser’s organizational documents, or any amendment thereof, if any, and (c) do not violate, conflict with or result in any breach or contravention of, or the creation of any lien under, any material contractual obligation of such Purchaser or any requirement of law applicable to such Purchaser, and (d) do not violate any orders of any Governmental Entity against, or binding upon, such Purchaser.

4.3 Binding Effect. This Agreement and the other documents to which each Purchaser is a party have been duly executed and delivered by each Purchaser and constitute the legal, valid and binding obligations of such Purchaser, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting generally the enforcement of creditors’ rights and subject to a court’s discretionary authority with respect to granting a decree ordering specific performance or other equitable remedies.

4.4 Purchase for Own Account. The Notes and Warrants hereby acquired by each Purchaser pursuant to this Agreement are being acquired for such Purchaser’s own account, not as nominee or agent, and with no intention of distributing or reselling such securities in any transaction that would be in violation of the securities laws of the United States of America or any state, without prejudice. If such Purchaser should in the future decide to dispose of any of such Notes or Warrants or Warrant Shares, such Purchaser understands and agrees that it may do so only in compliance with the Securities Act and applicable state securities laws, as then in effect. Each Purchaser agrees to the imprinting, so long as required by law, of legends on certificates representing all of its Notes, Warrants and Warrant Shares to the following effect:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

4.5 Restricted Securities. The Purchaser understands that the Notes and Warrants 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. The Purchaser understands that the Notes and Warrants are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemption and the eligibility of the Purchaser to acquire the Notes and Warrants.

4.6 Brokers, Finder’s or Similar Fees. The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by such Purchaser, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement.

4.7 Accredited Investor. Each Purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Notes or the Warrants.

4.8 Investment Experience; Acknowledgment of Risk. Each Purchaser 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. The Purchaser understands that its investment in the Notes and the Warrants involves a significant degree of risk.

4.9 Disclosure of Information. The Purchaser has conducted its own due diligence examination of the Company’s business, financial condition, results of operations, and prospects, and has had an opportunity to receive all information related to the Company and the Notes and Warrants requested by it and to ask questions of and receive answers from the Company regarding the Company, its business, finances and operations and the terms and conditions of the offering of the Securities. Neither such inquiries nor any other due diligence investigation conducted by such Purchaser shall modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement.

4.10 SEC Reports. Each Purchaser acknowledges that it has had the opportunity to review the SEC Reports filed with the SEC, including the information contained in the Company’s most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q and Proxy Statement on Schedule 14A. Each Purchaser acknowledges that it has read the information in such reports, including the information under the caption “Risk Factors” contained in the SEC Reports.

4.11 No General Solicitation. Each Purchaser did not learn of the investment in the Notes and Warrants as a result of any public advertising or general solicitation.

5. Conditions of Closing of the Purchasers. The obligations of the Purchasers to purchase their respective Notes and Warrants and transfer the Purchase Price for the Notes and Warrants being purchased at the Closing are subject to the fulfillment at or before the Closing, as applicable, of the following conditions precedent, any one or more of which may be waived in whole or in part by the Purchasers, which waiver shall be at the sole discretion of such Purchasers:

5.1 Representations and Warranties. The representations and warranties made by the Company in this Agreement are true and correct in all respects as of the date hereof, except for the representations and warranties that are expressly made as of a particular date (which shall remain true and correct as of such date).

5.2 Agreements. All agreements, and conditions contained in this Agreement to be performed or complied with by the Company prior to Closing shall have been performed or complied with by the Company prior to or at the Closing.

5.3 Registration Rights Agreement. The Company shall have executed and delivered to the Purchasers the Registration Rights Agreement.

5.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be in a form and substance reasonably satisfactory to the Purchasers and their counsel, and the Purchasers and their counsel shall have received all such counterpart originals or certified or other copies of such documents as the Purchasers or their counsel may reasonably request.

5.5 Closing Fee. The Company shall have paid a closing fee equal to $5,000 to St. Cloud Capital Partners, L.P. and $5,000 to Bedford Oaks Partners, L.P.

6. Conditions of Closing of the Company. The Company’s obligations to sell and issue the Notes and Warrants at the Closing are subject to the fulfillment at or before the Closing of the following conditions, which conditions may be waived in whole or in part by the Company, and which waiver shall be at the sole discretion of the Company:

6.1 Representations and Warranties. The representations and warranties made by the Purchasers in this Agreement shall have been true and correct in all respects as of the date when made and as of the Closing Date, except for the representations and warranties that are expressly made as of a particular date (which shall remain true and correct as of such date).

6.2 Agreements. All agreements, and conditions contained in this Agreement to be performed or complied with by the Purchasers prior to the Closing shall have been performed or complied with by the Company prior to or at the Closing.

6.3 Payment of Purchase Price. The Purchasers shall have tendered the aggregate Purchase Price in exchange for the Notes and Warrants being issued hereunder in accordance with Section 2.1.

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 exercise of the Warrants, 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 Warrant Shares pursuant to the Transaction Documents in accordance with their respective terms.

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 Purchasers under the Transaction Documents.

7.3 Insurance. The Company shall not materially reduce the insurance coverages described in Section 3.19.

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 Certain Negative Covenants. From and after the date of this Agreement and for so long as any Notes remain outstanding, the Company shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least 50% of the outstanding principal face amount of the Notes, which consent shall not be unreasonably withheld or delayed, take any of the following actions:

(a) Incur additional indebtedness, provided however that the Company may incur additional indebtedness so long as the total indebtedness of the Company after taking into account such additional indebtedness does not exceed the sum of (i) the total existing indebtedness of the Company as of the date hereof (inclusive of the indebtedness represented by the Notes) and (ii) $500,000. In addition, the foregoing restriction shall not preclude (i) additional debt that is expressly subordinated to the Note, as evidenced by a subordination agreement reasonably acceptable to the holder of the Notes and (ii) indebtedness under purchase money security interests incurred in the ordinary course of business;

(b) Pay or authorize any dividend or make or authorize any distribution or payment upon any of its common stock equity securities;

(c) Make loans, advances to, guarantees for the benefit of, or investments in, any person except investments made in the ordinary course of business in (A) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (B) certificates of deposit of commercial banks insured by the Federal Deposit Insurance Corporation, or (C) commercial paper with a rating of at least Prime-l according to Moody’s Investors Service, Inc., in each case having a maturity not in excess of one (1) year;

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

(e) Enter into any transaction with any shareholder, officer, or employee of Company other than in the ordinary course of business which shall in the aggregate exceed twenty-five thousand dollars ($25,000) outstanding at any one time, except that Company may enter into "at-will" employment arrangements;

(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); 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;

(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 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.

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 each Purchaser and their respective directors, officers, employees, affiliates 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.

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. SBIC Regulatory Provisions.

(a) Use of Proceeds-Statements and Access. At such times as St. Cloud reasonably requests, Company shall deliver to St. Cloud 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. In addition to any other rights granted hereunder, Company shall grant St. Cloud and the SBA access to Company’s books and records for the purpose of verifying the use of such proceeds and verifying the certifications made by Company in SBA forms Nos. 480, 652 and 1031, delivered pursuant to Section 3.1.6 and for the purpose of determining whether the principal business activity of Company and its Subsidiaries continues to constitute an eligible business activity (within the meaning of the SBIC Regulations).

(b) Use of Proceeds - Foreign Operations. The Company shall not, and shall not permit its subsidiaries to, use any proceeds from the transactions contemplated by the Transaction Documents substantially for a foreign operation, and no more than forty-nine percent (49%) of the employees or tangible assets of Company and its subsidiaries will be outside the United States (unless Company can show to the SBA’s satisfaction, that proceeds from the transactions contemplated by the Transaction Documents will be used for a specific domestic purpose).

(c) 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

(d) Regulatory Violation. Upon the occurrence of a Regulatory Violation or in the event that St. Cloud determines in its good faith judgment that a Regulatory Violation has occurred, in addition to any other rights and remedies to which it may be entitled as a holder of the Securities under any of the Transaction Documents, St. Cloud shall have the right to the extent required under the SBIC Regulations to demand the immediate repayment of the principal balance of the Note, plus all accrued interest on the applicable Note, by delivering written notice of such demand to the Company. The Company shall make such payment by a cashier’s or certified check or by wire transfer of immediately available funds to St. Cloud within thirty (30) days after the Company’s receipt of the demand notice.

(e) Regulatory Violation Cooperation. In the event that a Purchaser believes that it has a regulatory problem with the SBIC, such Purchaser shall have the right to transfer its Notes and Warrants without regard to any restrictions on transfer set forth in this Agreement or any of the Transaction Documents other than the restrictions under applicable securities law, and the Company shall take all such actions as are reasonably requested by such Purchaser in order to effectuate and facilitate any transfer by such Purchaser of the Notes and Warrants then held by such Purchaser to any person designated by such Purchaser.

(f) 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 St. Cloud a written assessment of the economic impact of St. Cloud’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.

(g) Business Activity. For a period of one (1) year following the date hereof, neither the Company nor any of its subsidiaries will change its business activity if such change would render the Company ineligible to receive financial assistance from St. Cloud (within the meanings of 13 C.F.R. Sections 107.720 and 107.760(b)).

(h) Compliance with Non-Discrimination Requirements. The Company shall comply at all times with the non-discrimination requirements of 13 C.F.R. Parts 112, 113 and 117.

10. Miscellaneous.

10.1 Successors and Assigns. This Agreement, and the rights and obligations of each Purchaser hereunder, may be assigned by such Purchaser to (a) any person or entity to which Notes and Warrants are transferred by such Purchaser, or (b) to any Affiliated Party (as hereinafter defined), and, in each case, such transferee shall be deemed a “Purchaser” for purposes of this Agreement; provided that such assignment of rights shall be contingent upon the transferee providing a written instrument to the Company notifying the Company of such transfer and assignment and agreeing in writing to be bound by the terms of this Agreement. The Company may not assign its rights under this Agreement. For purposes of this Agreement, “Affiliated Party” shall mean, with respect to any Purchaser, any person or entity which, directly or indirectly, controls, is controlled by or is under common control with such Purchaser, including, without limitation, any general partner, officer or director of such Purchaser and any venture capital fund now or hereafter existing which is controlled by one or more general partners of, or shares the same management company as, such Purchaser.

10.2 Expenses. Each party hereto shall pay its or his own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, financial advisors and accountants.

10.3 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

10.4 Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Purchaser shall be entitled to specific performance of the agreements and obligations of the Company hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.

10.5 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York (without reference to the conflicts of law provisions thereof).

10.6 Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (i) three business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (ii) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below:

If to the Company, to National Holdings Corporation, 120 Broadway, 27^th Floor, New York, NY 10271, Attention: Chief Executive Officer, or at such other address as may have been furnished in writing by the Company to the other parties hereto, with a copy to Littman Krooks LLP, 655 Third Avenue, New York, NY 10017, Attention: Mitchell C. Littman, Esq.; or

If to a Purchaser, at its address set forth on Exhibit A, or at such other address as may have been furnished in writing by such Purchaser to the other parties hereto.

Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section.

10.8 Complete Agreement. This Agreement (including its exhibits) constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

10.9 Amendments and Waivers. This Agreement may not be amended or terminated without the prior written consent of the Company.

10.10 Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.

10.11 Counterparts; Signatures. This Agreement may be executed in any number of counterparts (including, in the case of the Purchasers, Financing Signature Pages), 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.

10.12 Section Headings and References. The section headings are for the convenience of the parties and in no way alter, modify, amend, limit or restrict the contractual obligations of the parties. Any reference in this agreement to a particular section or subsection shall refer to a section or subsection of this Agreement, unless specified otherwise.

10.13 Confidentiality. Each Purchaser acknowledges and agrees not to use the Confidential Information (as hereafter defined) disclosed to him by the Company for any purpose except as set forth in this Agreement. Each Purchaser will not disclose any Confidential Information to any third party except those directors, officers, employees, consultants and agents who are required to have the information in order to carry out the purpose of this Agreement. Each Purchaser also understands that certain of the Confidential Information may constitute material non-public information and that trading in the Company’s securities while in possession of Confidential Information, recommending trading in the Company’s securities based upon Confidential Information or providing Confidential Information to others who may trade in the Company’s securities could constitute a violation of federal securities laws and expose the Purchaser to civil and criminal liability. Each Purchaser specifically acknowledges that the Confidential Information is subject to the public disclosure requirements of Regulation FD promulgated under the Securities Exchange Act of 1934, as amended, and that the Company is specifically relying on each Purchaser’s execution of, and performance under, this Agreement in providing each Purchaser with the Confidential Information in compliance with Regulation FD.“Confidential Information” means any the information herein and any information, financial data, research, technical data, or know-how disclosed to the Purchaser by the Company, including, but not limited to, that which relates to services, products, plans for future products and services, clients, markets, operational methods, plans for future development, research, software, inventions, processes, designs, drawings, engineering, hardware configuration information, marketing, financial information, know-how and other trade secrets. Confidential Information does not include information, technical data or know-how that the Purchaser can show: (i) was rightfully in the possession of the Purchaser at the time of disclosure; (ii) becomes a matter of public knowledge, not as a result of any inaction or action of the Purchaser; or (iii) was received from a third party without a duty or confidentiality.

Executed as of the date first written above.


	COMPANY: NATIONAL HOLDINGS CORPORATION

	By:	/s/ MARK GOLDWASSER
		Mark Goldwasser Chief Executive Officer

EXHIBIT A

LIST OF PURCHASERS AND NOTES AND WARRANTS PURCHASED

Name and Address of Purchasers	Principal Amount of Notes		No. of Shares of Common Stock into which Warrants are Exercisable
Christopher C. Dewey PO Box 23 Oldwick, NJ 08858	$	500,000		125,000

St. Cloud Capital Partners, L.P. 10866 Wilshire Blvd. Suite 1450 Los Angeles, CA 90024	$	250,000		62,500

Bedford Oaks Partners, L.P. 100 South Bedford Road Mt. Kisco, NY 10549	$	250,000		62,500

A-1

EXHIBIT B

FINANCING SIGNATURE PAGE

By execution and delivery of this signature page, the undersigned hereby agrees to become a Purchaser, as defined in that certain Securities Purchase Agreement (the “Purchase Agreement”) by and among National Holdings Corporation, a Delaware corporation (the “Company”), and the Purchasers (as defined in the Purchase Agreement), dated as of the Closing Date (as defined in the Purchase Agreement), acknowledges having read the representations in the Purchase Agreement section entitled “Representations of the Purchasers,” and hereby represents that the statements contained therein are complete and accurate with respect to the undersigned as a Purchaser. The undersigned further hereby agrees to be bound by the terms and conditions of the Purchase Agreement as a “Purchaser” thereunder and authorizes this signature page to be attached to the Purchase Agreement.

Executed, in counterpart, as of the date set forth below.


	PURCHASER:

	By:	St. Cloud Capital Partners, L.P.
		Name of Purchaser


	By:	SCGP, LLC, its General Partner


	By:	/s/ MARSHALL S. GELLER


	Title:	Senior Managing Member


	Date:	February 22, 2007


		Contact Person: Benjamin Hom
		Telephone No: 310-475-2700 Ext. 106
		Fax No: 310-475-0550 E-mail Address: bhom@stcloudcapital.com

B-1

EX-99.2 3 v066665_ex99-2.htm

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITY MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITY MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.

10% PROMISSORY NOTE

$250,000.00

New York, New York

February 22, 2007

FOR VALUE RECEIVED, the undersigned, National Holdings Corporation, a Delaware corporation having an address at 120 Broadway, 27th Floor, New York, New York 10271 (“Maker”), promises to pay to the order of St. Cloud Capital Partners, L.P. (“Payee”) at 10866 Wilshire Blvd., Suite 1450, Los Angeles, CA 90024, or at such other place as Payee may from time to time designate by written notice to Maker, in lawful money of the United States, the sum of Two Hundred Fifty Thousand Dollars ($250,00.00), plus interest from the date of this Note on the unpaid balance. All principal and interest is to be paid as set forth below. All capitalized terms not otherwise defined herein shall have the respective means ascribed them in that certain Securities Purchase Agreement of even date hereof between the Maker, Payee and other Purchasers. Maker further agrees as follows:

Section 1. Interest Rate.

(a) Interest shall accrue at a rate equal to ten percent (10%) per annum.

(b) Interest shall be computed on the basis of a year of 365 days for the actual number of days elapsed.

Section 2. Payments.

(a) Principal shall be due and payable on February 22, 2009 (the “Principal Payment Date”).

(b) Accrued interest shall be payable in arrears on a quarterly calendar basis on March 31, June 30, September 30 and December 31 during the term hereof commencing on March 31, 2007.

Section 3. Default.

It shall be an event of default (“Event of Default”), and the entire unpaid principal of this Note, together with accrued interest, shall become immediately due and payable, at the election of Payee, upon the occurrence of any of the following events:

(a) any failure on the part of Maker to make any payment when due, whether by acceleration or otherwise, and the continuation of such failure for a period of five (5) business days thereafter;

(b) any failure on the part of Maker to keep or perform any of the material provisions (other than payment) of this Note or any amendment thereof, which failure is not cured within five (5) business days;

(c) any representation or warranty made by the Company under any of the Transaction Documents was, when made, untrue or misleading, the result of which is reasonably likely to have a Material Adverse Effect;

(d) there shall have occurred an acceleration of the stated maturity of any indebtedness for borrowed money of the Company (other than Company Notes) of One Hundred Thousand United States Dollars ($100,000) or more in aggregate principal amount (which acceleration is not rescinded, annulled or otherwise cured within fifteen (15) business days of receipt by the Company of notice of such acceleration);

(e) the Company makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Company as bankrupt or insolvent; or any order for relief with respect to the Company is entered under the Federal Bankruptcy Code or any other bankruptcy or insolvency law; or the Company petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Company or of any substantial part of the assets of the Company, or commences any proceeding relating to it under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Company and either (i) the Company by any act indicates its approval thereof, consents thereto or acquiescence therein or (ii) such petition application or proceeding is not dismissed within sixty (60) days; or

(f) a final, non-appealable judgment which, in the aggregate with other outstanding final judgments against the Company and its subsidiaries, exceeds Two Hundred Thousand United States Dollars ($200,000) shall be rendered against the Company or a subsidiary and within sixty (60) days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of such stay, such judgment is not discharged.

Upon the occurrence of any such Event of Default all unpaid principal and accrued interest under this Note shall become immediately due and payable (A) upon election of the Payee, with respect to (a), (b), (c), (d) and (f), and (B) automatically, with respect to (e). Upon the occurrence of an Event of Default, the Payee shall have the right to exercise any other right, power or remedy as may be provided herein. Upon the occurrence of an Event of Default, the rate of interest on the unpaid principal shall be increased to fourteen percent (14%), or such lower rate that is the maximum rate allowed by law, from the date of such Event Default until such unpaid principal is repaid in full.

Section 4. Ranking.

The indebtedness evidenced by this Note and the payment of the principal thereof shall rank pari passu with (i) those certain notes held by those certain investors who are parties to that certain Securities Purchase Agreement of even date herewith, (ii) those certain notes, in the aggregate principal amount of One Million ($1,000,000) Dollars dated January 11, 2006 issued to each of St. Cloud Capital Partners, L.P., Fred N. Tarter and Lois Tarter, as Joint Tenants with Right of Survivorship, and GKW United holdings, LLC and (iii) those certain notes in the aggregate principal amount of Five Hundred Thousand ($500,000) Dollars, issued pursuant to that certain private placement memorandum, dated January 14, 2004.

Section 5. Jurisdiction.

Maker irrevocably submits to the exclusive jurisdiction of the courts of the State of New York, and of any federal court located in the State of New York, in connection with any action or proceeding arising out of or relating to, or a breach of, this Note. Maker agrees that such court may award reasonable legal fees and expenses to the prevailing party.

Section 6. Waivers.

(a) Maker waives demand, presentment, protest, notice of protest, notice of dishonor, and all other notices or demands of any kind or nature with respect to this Note.

(b) Maker agrees that a waiver of rights under this Note shall not be deemed to be made by Payee unless such waiver shall be in writing, duly signed by Payee, and each such waiver, if any, shall apply only with respect to the specific instance involved and shall in no way impair the rights of Payee or the obligations of Maker in any other respect at any other time.

(c) Maker agrees that in the event Payee demands or accepts partial payment of this Note, such demand or acceptance shall not be deemed to constitute a waiver of any right to demand the entire unpaid balance of this Note at any time in accordance with the terms of this Note.

Section 7. Assignment of Note.

Maker may not assign or transfer this Note or any of its obligations under this Note in any manner whatsoever (including, without limitation, by the consolidation or merger of Maker, if a corporation, with or into another corporation) without the prior written consent of Payee. The Note may be assigned at any time by Payee.

Section 8. Miscellaneous.

(a) This Note may be altered only by prior written agreement signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. This Note may not be modified by an oral agreement, even if supported by new consideration.

(b) This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to such jurisdiction's principles of conflict of laws.

(c) Subject to Section 7, the covenants, terms, and conditions contained in this Note apply to and bind the heirs, successors, executors, administrators and assigns of the parties.

(d) This Note constitute a final written expression of all the terms of the agreement between the parties regarding the subject matter hereof, are a complete and exclusive statement of those terms, and supersede all prior and contemporaneous agreements, understandings, and representations between the parties. If any provision or any word, term, clause, or other part of any provision of this Note shall be invalid for any reason, the same shall be ineffective, but the remainder of this Note shall not be affected and shall remain in full force and effect.

(e) The singular includes the plural. If more than one Maker executes this Note, the term “Maker” shall be deemed to refer to each of the undersigned Makers as well as to all of them, and their obligations and agreements under this Note shall be joint and several. If any of the undersigned is a married person, recourse may be had against his or her separate property for all of his or her obligations under this Note. The term “Obligor” shall be deemed to refer to each Maker, endorser, guarantor, or surety of this Note as well as to all of them. The term “Payee” shall include the initial party to whom payment is designated to be made and, in the event of an assignment of this Note, the successor assignee or assignees, and, as to each successive additional assignment, such successor assignee or assignees.

(f) All notices, consents, or other communications provided for in this Note or otherwise required by law shall be in writing and may be given to or made upon the respective parties at the addresses set forth in the preamble hereof. Such addresses may be changed by notice given as provided in this subsection. Notices shall be effective upon the date of receipt; provided, however, that a notice (other than a notice of a changed address) sent by certified or registered U.S. mail, with postage prepaid, shall be presumed received not later than three (3) business days following the date of sending.

(g) Time is of the essence under this Note.

(f) If action is instituted to collect on this Note, the Company promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

IN WITNESS WHEREOF, Maker has executed this Note effective as of the date first set forth above.


	NATIONAL HOLDINGS CORPORATION

	By:	/S/ MARK GOLDWASSER
		Mark Goldwasser Chief Executive Officer

EX-99.3 4 v066665_ex99-3.htm

THIS WARRANT AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED UPON THE EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT.

No. 119

February 22, 2007

NATIONAL HOLDINGS CORPORATION

COMMON STOCK PURCHASE WARRANT

THIS CERTIFIES THAT, for value received, St. Cloud Capital Partners, L.P. (the “Holder”), is entitled, upon the terms and subject to the conditions hereinafter set forth, at such times after the date hereof as are set forth below, to acquire from National Holdings Corporation, a Delaware corporation (the “Company”), in whole or, from time to time, in part, up to Sixty-Two Thousand Five Hundred (62,500) fully paid and nonassessable shares of Common Stock, $.02 par value, of the Company (the “Warrant Shares”) at a purchase price per share (the “Exercise Price”) of $1.40. Such number of shares, type of security and Exercise Price are subject to adjustment as provided herein, and all references to “Warrant Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments. This Warrant is granted by the Company to the Holder pursuant to that certain Securities Purchase Agreement dated February 22, 2007 by and among the Company and certain investors (the “Securities Purchase Agreement”).

The Warrant Shares shall vest immediately upon the Closing (as defined in the Securities Purchase Agreement).

1. Term.

(a) Commencement of Exercisability. Subject to the vesting provisions described above and Section 4 below, the Warrant is exercisable, in whole or in part, at any time and from time to time from the date hereof through the Expiration Date (as defined in Section 1(b) below).

(b) Termination and Expiration. If not earlier exercised, the Warrant shall expire on the fifth (5^th) anniversary of the date hereof (the “Expiration Date”), subject to Section 4 below.

2. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section 1 hereof, exercise of this Warrant shall be made, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the payment to the Company of an amount equal to the Exercise Price multiplied by the number of Warrant Shares being purchased, which amount may be paid in cash or by check. In the event of any exercise of the rights represented by this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the Holder hereof within a reasonable time and, unless this Warrant has been fully exercised or expired, a new Warrant representing that portion of the Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder within such reasonable time.

3. Stock Fully Paid; Reservation of Warrant Shares. All of the Warrant Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.

4. Adjustment of Exercise Price and Number of Shares of Warrant Shares. Subject to the provisions of Section 2 hereof, the number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to adjustment, from time to time, upon the occurrence of certain events, as follows:

(a) In the event the Company shall at any time following the date hereof subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding Common Stock, the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased; and in the event the Company shall at any time following the date hereof combine the outstanding shares of Common Stock, the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.

(b) If the Company is, following the date hereof, recapitalized through the subdivision or combination of its outstanding shares of Common Stock into a larger or smaller number of shares, the number of shares of Common Stock for which this Warrant may be exercised shall be increased or reduced in the same proportion as the increase or decrease in the outstanding shares of Common Stock and the then applicable Exercise Price shall be adjusted by multiplying by a fraction with a numerator equal to the number of shares of Common Stock purchasable upon exercise hereof immediately prior to such subdivision or combination and the denominator of which shall be the number of shares of Common Stock purchasable immediately following such subdivision or combination.

(c) Subject to Section 1 hereof, in the event of any consolidation or merger of the Company with another entity in a bona fide transaction (i.e., not a mere recapitalization, reincorporation for the purpose of changing corporate domicile, or similar transaction), at any time prior to the Expiration Date, the Holder shall have the right upon exercise of this Warrant, to receive the same kind and number of Warrant Shares and other securities, cash or other property as would have been distributed to the Holder had the Holder exercised this Warrant immediately prior to such consolidation or merger. Notwithstanding the foregoing, in the event that the per share consideration price paid in the bona fide transaction is lower than the then effective Exercise Price, this Warrant shall expire without value upon consummation of the bona fide transaction.

5. Fractional Shares. No fractional shares of Common Stock will be issued in connection with any exercise hereunder, but in lieu thereof, the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

6. Transfer, Assignment or Loss of Warrant and Warrant Shares.

(a) This Warrant and the Warrant Shares to be issued or issuable upon exercise of this Warrant, may not be assigned or transferred except as provided in this Section 6 and in accordance with and subject to the provisions of the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder (said Act and such Rules and Regulations being hereinafter collectively referred to as the “Act”). Upon exercise of this Warrant, the holder hereof shall confirm in writing, in the form of Exhibit B, that the shares of Common Stock so purchased are being acquired for investment and not with a view toward distribution or resale. Any purported transfer or assignment made other than in accordance with this Section 6 shall be null and void and of no force and effect.

(b) Any assignment permitted hereunder shall be made by surrender of this Warrant to the Company at its principal office with the Assignment Form attached hereto as Exhibit C duly executed. In such event the Company shall, upon payment by the Holder of any issuance or transfer tax incurred or to be incurred by the Company with respect to such transfer, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other warrants which carry the same rights upon presentation thereof at the principal office of the Company together with a written notice signed by the Holder thereof, specifying the names and denominations in which new warrants are to be issued. Upon any partial transfer, the Company will sign, issue and deliver to the Holder a new Warrant with respect to any portion not so transferred.

(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant (provided that an affidavit of the Holder shall be satisfactory for such purpose), and of indemnity satisfactory to it (provided that if the Holder is the original Holder of this Warrant, its own indemnification agreement shall under all circumstances be satisfactory, and no bond shall be required), and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, or destroyed Warrant shall thereupon become void.

(d) In order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent.

(e) The Company shall not be required (i) to transfer on its books the Warrant or any Warrant Shares that have been sold or otherwise transferred in violation of any of the provisions of this Warrant or (ii) to treat as owner of such Warrant Shares or to accord the right to vote or pay dividends to an purchaser or other transferee to whom such Warrant Shares shall have been so transferred.

7. Representations and Covenants of the Holder. The Holder represents that this Warrant and any Warrant Shares issued or issuable upon exercise of this Warrant, will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that it has no present intention of selling, granting any participation in or otherwise distributing the same. Such Holder understands and acknowledges that the offering of this Warrant, and any issuance of Common Stock on exercise thereof, will not be registered under the Securities Act on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration pursuant to Section 4(2) of the Act, and that the Company’s reliance on such exemption is predicated on the Holder’s representations set forth herein. Such Holder represents that it is experienced in evaluating companies such as the Company, is able to fend for itself in investments such as this one, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its prospective investment in the Company.

8. Rights of Stockholders. No holder of this Warrant shall be entitled, as a Warrant holder, to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.

9. Registration Rights. The shares of Common Stock obtained upon exercise of this Warrant shall have the registration rights set forth in the Registration Rights Agreement dated February 22, 2007 and the term “Registrable Securities” as defined in such Registration Rights Agreement shall include the Common Stock obtained upon exercise of this Warrant.

10. Notices, Etc. All notices and other communications from the Company to the Holder shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by the Holder.

11. Governing Law, Headings. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of New York. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.

“COMPANY”

NATIONAL HOLDINGS CORPORATION

By: /S/ MARK GOLDWASSER

Name: Mark Goldwasser

Title: Chief Executive Officer

EXHIBIT A

NOTICE OF EXERCISE

TO: NATIONAL HOLDINGS CORPORATION

(i) The undersigned hereby elects to purchase ___________ shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such Common Stock in full.

(ii) Please issue a certificate or certificates representing said Common Stock in the name of the undersigned or in such other name as is specified below:

Name:

Address:

Social Security of Federal I.D. No.:

(iii) The undersigned hereby represents and warrants that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or, for resale in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares.

By:

Name:

Title:

Date:

EXHIBIT B

INVESTMENT REPRESENTATION STATEMENT

PURCHASER:

COMPANY: NATIONAL HOLDINGS CORPORATION

SECURITY: COMMON STOCK

AMOUNT:

DATE:

In connection with the purchase of the above-listed securities (the “Securities”), I, the Purchaser, represent to the Company the following:

(a) I am aware of the Company’s business affairs and financial condition, and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof for purposes of the Securities Act of 1933 (the “Securities Act”).

(b) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission (the “SEC”), the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future.

(c) I further understand that the Securities must be held for at least one (1) year under Rule 144 promulgated under the Securities Act, unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, I understand that the Company is under no obligation to register the Securities except as set forth in the Registration Rights Agreement. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company.

(d) I am aware of the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions.

(e) I am aware that the Securities involve a high degree of risk and that I may suffer a total loss of my investment. I have been provided with the Company’s periodic reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “34 Act Filings”), including the Company’s most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q and Proxy Statement on Schedule 14A . I have read the information in such reports, including the information under the caption “Risk Factors” contained in the Company’s 34 Act Reports.

(f) I further understand that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.

_______________________________

Name of Purchaser

_______________________________

Signature of Authorized Signatory

_______________________________

Print Name and Title

_______________________________

Date

EXHIBIT C

ASSIGNMENT FORM

FOR VALUE RECEIVED, _______________________________ hereby sells, assigns and transfers unto ______________________________________________________ (Name and Address) the right to purchase Warrant Shares represented by this Warrant to the extent of ___________ shares and does hereby irrevocably constitute and appoint ____________________________ __________________, attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

Dated: _______________ , ____

By: _________________________________

Name: _______________________________

Title: ________________________________

EX-99.4 5 v066665_ex99-4.htm

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT, dated as of February 22, 2007, among National Holdings Corporation (the “Company”) and each of the purchasers named on the signature pages hereto (individually, a “Purchaser” and collectively, the “Purchasers”).

WHEREAS, in connection with that certain Securities Purchase Agreement dated February 22, 2007 between the Purchasers and the Company (the “Securities Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Purchasers an aggregate of up to (a) $1,000,000 principal amount of 10% Promissory Notes (the "Notes") and (b) warrants (the “Warrants”) to purchase up to 250,000 shares of the Company’s common stock, $0.02 par value per share (the “Common Stock”), at an initial exercise price of $1.40 per share;

WHEREAS, to induce the Purchasers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants (the “Registrable Securities”) on the terms and conditions provided herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Piggyback Registration Statement. If, at any time, the Company proposes to file with the Securities and Exchange Commission (the “SEC”) any registration statement on Form S-3 or such other appropriate form in accordance with the Securities Act of 1933, as amended (the “Securities Act”) for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act or initial public offerings) it will give written notice by facsimile or mail, at least five (5) days prior to the filing of each registration statement, to the Purchasers of its intention to do so. If the Purchaser notifies the Company within five (5) days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford the Purchasers the opportunity to have any Registrable Securities registered under such registration statement.

2. Demand Registration.

2.1 Request for Registration Statement. At any time commencing after February 22, 2008, the holders of at least 50% of the Registrable Securities held by the Purchasers may make a written demand for registration under the 1933 Act of all or part of their Registrable Securities (a “Demand Registration”). Any demand for a Demand Registration shall specify the number of shares of Registrable Securities proposed to be sold. The Company will notify all holders of Registrable Securities of the demand, and each holder of Registrable Securities who wishes to include all or a portion of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable Securities in such registration, a “Demanding Holder”) shall so notify the Company within fifteen (15) days after the receipt by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have their Registrable Securities included in the Demand Registration. The Company shall not be obligated to affect more than one Demand Registration under this Section 2.1 in respect of Registrable Securities.

2.2 Filing Registration Statement. The Company shall, as expeditiously as possible and in any event on or before 90 days following the Company’s receipt of a written notice with respect to a Demand Registration, prepare and file with the SEC a Registration Statement on any form for which the Company then qualifies and which form shall be available for the sale of all Registrable Securities to be registered thereunder. Such Registration Statement shall include the plan of distribution substantially in the form attached hereto as Exhibit A. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall have the right to include in such Registration Statement shares of Common Stock remaining unsold by the persons who are set forth in the selling stockholders section of that certain definitive prospectus of the Company dated November 6, 2006, as supplemented, and certain additional shares of Common Stock as may be issued subsequent to such date or which persons may have the right to acquire pursuant to the exercise, conversion or exchange of securities of the Company. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3.2 to the Purchasers and their counsel prior to its filing or other submission.

2.3 Effectiveness.

(i) The Company shall use commercially reasonable efforts to have the Demand Registration declared effective as soon as practicable after filing. The Company shall notify the Purchasers by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Demand Registration is declared effective and shall simultaneously provide the Purchasers with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.

3. Obligations of the Company. In connection with the filing of any registration statement herein, the Company shall:

3.1 Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.

3.2 Furnish to the Purchasers such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

3.3 Use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions as shall be reasonably requested by the Purchasers; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

3.4 Notify each Purchaser of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

3.5 Use its commercially reasonable efforts to cause all Registrable Securities covered by such registration statement to be listed on each securities exchange, if any, on which similar securities listed by the Company are then listed.

4. Obligations of the Purchasers.

Each Purchaser of Registrable Securities shall furnish to the Company such information regarding such Purchaser, the number of Registrable Securities owned and proposed to be sold by it, the intended method of disposition of such securities and any other information as shall be required to effect the registration of such Purchaser’s Registrable Securities, and cooperate with the Company in preparing the registration statement and in complying with the requirements of the Securities Act.

5. Registration Expenses.

The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities, including without limitation all registration, listing, filing and qualification fees, printers and accounting fees, but excluding (i) underwriting discounts and commissions relating to the Registrable Securities and (ii) legal fees and disbursements of any and all counsel retained by the Purchasers.

6. Suspension of Effectiveness.

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 contemplated by this Section 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 Purchasers 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 Purchasers 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.

7. Indemnification.

7.1 To the extent permitted by law, the Company will indemnify each Purchaser, its directors, officers, shareholders, employees, agents and affiliates, legal counsel for the Purchasers, and each person controlling such Purchaser within the meaning of the Securities Act, with respect to which registration, qualification or compliance of Registrable Securities has been effected pursuant to this Agreement, against any losses, claims, damages, liabilities or actions in respect thereof (collectively, “Damages”), arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and the Company will pay each such Purchaser any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this Section 7.1 shall not apply to: (i) amounts paid in settlement of any such Damages if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); (ii) any such Damages arising out of or a based upon any untrue statement or omission based upon information furnished to the Company by such Purchaser and stated to be for use in connection with the offering of securities of the Company; or (iii) any such Damages arising out of or based upon such Purchaser’s failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto.

7.2 To the extent permitted by law, each Purchaser will, if Registrable Securities held by such Purchaser are included in the securities as to which such registration, qualification or compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors, officers, shareholders, employees, agents and affiliates, each legal counsel and independent accountant of the Company, each person who controls the Company within the meaning of the Securities Act, and each other such Purchaser, each of its directors, officers, shareholders, employees, agents and affiliates, legal counsel, and each person controlling such other Purchaser within the meaning of the Securities Act, against all Damages arising out of or based upon arising any untrue statement or alleged untrue statement of a material fact contained in a registration statement filed pursuant hereto, prospectus offering circular or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by such Purchaser of the Securities Act, the Exchange Act, or any state securities laws or any rule or regulation promulgated under such laws and relating to action or inaction required of such Purchaser in connection with any such registration, qualification or compliance; and such Purchaser will pay the Company or such other Purchasers any legal and other expenses reasonably incurred by them in connection with investigating or defending any such claim, loss, damage, liability or action, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is made in such registration statement, prospectus, offering circular or other document in reliance on and in conformity with information furnished to the Company by such Purchaser and stated to be for use in connection with the offering of securities of the Company; provided, however, that the indemnity contained in this Section 7.2 shall not apply to amounts paid in settlement of any such Damages if settlement is effected without the consent of such Purchaser (which consent shall not unreasonably be withheld).

7.3 Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so chooses, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7.

7.4 If the indemnification provided for in this Section 7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Damages as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

7.5 The obligations of the Company and the Purchasers under this Section 7 shall survive the completion of any offering of Registrable Securities pursuant to a registration statement under this Agreement.

8. Notices.

8.1 Any notice or communication required or permitted hereunder shall be given in writing and shall be made by hand delivery, by confirmed facsimile, by overnight courier or by registered or certified mail, addressed (i) if to a Purchaser, to such Purchaser’s address as set forth on Schedule A hereto, and (ii) if to the Company, to National Holdings Corporation, 120 Broadway, 27^th Floor, New York, NY 10271, facsimile number (212) 417-8010, Attn: Mark Goldwasser, with a copy to Littman Krooks LLP, 655 Third Avenue, New York, NY 10017, facsimile number (212) 490-2990, Attn: Mitchell C. Littman, Esq.

8.2 All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or facsimile, on the date of such delivery, (ii) in the case of overnight courier, on the business day after the date when sent, and (iii) in the case of registered or certified mail, on the third business day following such mailing.

9. Miscellaneous.

9.1 This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the principles of the conflict of laws thereof. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York located in New York County and any Federal court located within New York County for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereby irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in the courts of the State of New York located in New York County or the courts of the United States of America located in New York County, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit of proceeding brought in any such court has been brought in an inconvenient forum.

9.2 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 Purchasers of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Purchaser of any Registrable Securities then outstanding, each future Purchaser of all such Registrable Securities, and the Company.

9.3 Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement, excepts as expressly provided herein.

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

9.5 The headings of the Sections of this Agreement are for convenience and shall not by themselves determine the interpretation of this Agreement.

9.6 This Agreement constitutes the entire contract among the Company and the Purchasers relative to the subject matter hereof and supersedes in its entirety any and all prior agreements, understandings and discussions with respect thereto.

9.7 This agreement may be executed in any number of counterparts (including, in the case of the purchasers, financing signature pages), 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.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


	COMPANY: NATIONAL HOLDINGS CORPORATION

	By:	/S/ MARK GOLDWASSER
		Name: Mark Goldwasser Title: Chief Executive Officer


	PURCHASERS:

		/S/ CHRISTOPHER C. DEWEY
		Christopher C. Dewey


	ST. CLOUD CAPITAL PARTNERS, L.P.

	By: SCGP, LLC, its General Partner

	By:	/S/ MARSHALL S. GELLER
		Name: Marshall S. Geller Its: Senior Managing Member


	BEDFORD OAKS PARTNERS, L.P.

	By:	/S/ HARVEY EISEN
		Name: Harvey Eisen Title: Chairman and Managing Partner

Schedule A

Purchaser Name	Purchaser Address	Number of Registrable Securities

Christopher C. Dewey	PO Box 23 Oldwick, NJ 08858	125,000

St. Cloud Capital Partners, L.P.	10866 Wilshire Blvd. Suite 1450 Los Angeles, CA 90024	62,500

Bedford Oaks Partners, L.P.	100 South Bedford Road Mt. Kisco, NY 10549	62,500

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.

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 warrants by payment of cash, however, we will receive the exercise price of the warrants.

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.

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 pursuant to Rule 144(k) of the 1933 Act.

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