SUBSCRIPTION AGREEMENT
 
THIS SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of September ____,
2008, by and among Attitude Drinks Inc., a Delaware corporation (the “Company”),
and the subscribers identified on the signature page hereto (each a “Subscriber”
and collectively “Subscribers”).
 
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC" and/or “Commission”) under the Securities Act of 1933, as amended (the
"1933 Act").
 
WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscriber, as
provided herein, and the Subscribers in the aggregate, shall purchase for up to
$300,000 (the "Purchase Price") of principal amount promissory notes of the
Company (“Note” or “Notes”) in the principal amount of up to $365,000 (“Note
Principal”), in the form annexed hereto as Exhibit A; and share purchase
warrants (the “Warrants”), in the form annexed hereto as Exhibit B, to purchase
shares of Common Stock (the “Warrant Shares”). The Notes and Shares of the
Company’s Common Stock, $.001 par value (the “Common Stock”) issuable upon
conversion of the Notes (“Shares”), the Warrants and the Warrant Shares issuable
upon exercise of the Warrants are collectively referred to herein as the
“Securities”; and
 
WHEREAS, the aggregate proceeds of the sale of the Notes contemplated hereby
shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to be
executed by the parties, substantially in the form annexed hereto as Exhibit C
(the "Escrow Agreement").
 
NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscriber hereby agree as
follows:
 
1. Closing. Subject to the satisfaction or waiver of the terms and conditions of
this Agreement, on the Closing Date, Subscriber shall purchase and the Company
shall sell to the Subscribers Notes in the principal amount of up to $365,000.
The “Closing Date” shall be the date that subscriber funds representing the net
amount due the Company from the Purchase Price is transmitted by wire transfer
or otherwise to or for the benefit of the Company.

2. Security Interest. On or about October 23, 2007, certain lenders were granted
a security interest in the assets of the Company, including ownership of the
Subsidiaries (as defined in Section 5(a) of this Agreement) and in the assets of
the Subsidiaries, which security interest was memorialized in a “Security
Agreement” and “Collateral Agent Agreement” dated October 23, 2007, as amended
on or about January 8, 2008. The Subsidiaries guaranteed the Company’s
obligations under the Transaction Documents [as defined in Section 5(c)]. Such
guaranties were memorialized in a “Subsidiary Guaranty”. The Security Agreement
and Collateral Agent Agreement are hereby amended to include the Subscribers and
the Company agrees that the Subscribers are hereby made parts to the Security
Agreement and Collateral Agent Agreement as Lenders therein and their interests
in the Obligations (as defined in the Security Agreement) are pari pasu in
proportion to their specific Obligation amounts and of equal priority with each
other. The Company will execute such other agreements, documents and financing
statements reasonably requested by the Subscribers to memorialize and further
protect the security interest described herein, which will be filed at the
Company’s expense with the jurisdictions, states and counties designated by the
Subscribers. The Company will also execute all such documents reasonably
necessary in the opinion of Subscribers to memorialize and further protect the
security interest described herein.

 
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3. Warrants. On the Closing Date, the Company will issue and deliver an
aggregate of 850,000 Class A Warrants to the Subscribers. The exercise price to
acquire a Warrant Share upon exercise of a Class A Warrant shall be equal to
$0.50, subject to reduction as described in the Class A Warrant. Upon exercise
of a Class A Warrant, the holder of the Warrant shall receive one Warrant Share
and Class B Warrant. The exercise price of such Class B Warrant shall be equal
to 150% of the exercise price of the Class A Warrant in effect at the time of
such exercise, subject to reduction as described in the Class B Warrant. The
Warrants shall be exercisable until five years after the issue date of the
Warrants. Each holder of the Warrants is granted the registration rights set
forth in this Agreement. The Warrant exercise price and number of Warrant Shares
issuable upon exercise of the Warrants shall be equitably adjusted to offset the
effect of stock splits, stock dividends, and similar events, and as otherwise
described in this Agreement and the Warrant. 

4. Subscriber Representations and Warranties. Each Subscriber hereby represents
and warrants to and agrees with the Company only as to such Subscriber that:

(a) Organization and Standing of the Subscribers. If such Subscriber is an
entity, such Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

(b) Authorization and Power. Such Subscriber has the requisite power and
authority to enter into and perform this Agreement and the other Transaction
Documents and to purchase the Notes being sold to it hereunder. The execution,
delivery and performance of this Agreement and the other Transaction Documents
by such Subscriber and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Subscriber
or its Board of Directors, stockholders, partners, members, as the case may be,
is required. This Agreement and the other Transaction Documents have been duly
authorized, executed and delivered by such Subscriber and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of such
Subscriber enforceable against such Subscriber in accordance with the terms
thereof.
(c) No Conflicts. The execution, delivery and performance of this Agreement and
the other Transaction Documents and the consummation by such Subscriber of the
transactions contemplated hereby and thereby or relating hereto do not and will
not (i) result in a violation of such Subscriber’s charter documents or bylaws
or other organizational documents or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement and the other Transaction Documents or to
purchase the Securities in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, such Subscriber is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.

(d) Information on Company. Such Subscriber has been furnished with or has had
access at the EDGAR Website of the Commission to the Company's audited financial
statements for the period ended March 31, 2008 (hereinafter referred to
collectively as the "Reports"). Such financial statements were prepared pursuant
to Generally Accepted Accounting Principles in the United States and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries, if any, as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject to
normal, immaterial adjustments. In addition, such Subscriber may have received
in writing from the Company such other information concerning its operations,
financial condition and other matters as such Subscriber has requested in
writing, identified thereon as OTHER WRITTEN INFORMATION (such other information
is collectively, the "Other Written Information"), and considered all factors
such Subscriber deems material in deciding on the advisability of investing in
the Securities.

 
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(e) Information on Subscriber. Such Subscriber is, and will be at the time of
the conversion of the Notes, an "accredited investor", as such term is defined
in Regulation D promulgated by the Commission under the 1933 Act, is experienced
in investments and business matters, has made investments of a speculative
nature and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable such
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. Such
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. Such Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding such Subscriber is accurate.
 
(f) Purchase of Notes and Warrants. On the Closing Date, such Subscriber will
purchase the Notes and Warrants as principal for its own account for investment
only and not with a view toward, or for resale in connection with, the public
sale or any distribution thereof.
 
(g) Compliance with Securities Act. Such Subscriber understands and agrees that
the Securities have not been registered under the 1933 Act or any applicable
state securities laws, by reason of their issuance in a transaction that does
not require registration under the 1933 Act (based in part on the accuracy of
the representations and warranties of such Subscriber contained herein), and
that such Securities must be held indefinitely unless a subsequent disposition
is registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration. Such Subscriber will comply with all applicable
rules and regulations in connection with the sales of the Securities including
laws relating to short sales.
 
(h) Shares Legend. The Shares, and the Warrant Shares shall bear the following
or similar legend:
 
"THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES."

 
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(i) Warrants Legend. The Warrants shall bear the following
or similar legend:
 
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

(j) Note Legend. The Note shall bear the following legend:
 
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. "
 
(k) Communication of Offer. The offer to sell the Securities was directly
communicated to such Subscriber by the Company. At no time was such Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.

 
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(l) Authority; Enforceability. This Agreement and other agreements delivered
together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by such Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity; and such Subscriber has full power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by such Subscriber relating hereto.

(m) Restricted Securities. Such Subscriber understands that the Securities have
not been registered under the 1933 Act and such Subscriber will not sell, offer
to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities
unless pursuant to an effective registration statement under the 1933 Act, or
unless an exemption from registration is available. Notwithstanding anything to
the contrary contained in this Agreement, such Subscriber may transfer (without
restriction and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate is an
“accredited investor” under Regulation D and such Affiliate agrees to be bound
by the terms and conditions of this Agreement. For the purposes of this
Agreement, an “Affiliate” of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate includes each
Subsidiary of the Company. For purposes of this definition, “control” means the
power to direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.

(n) No Governmental Review. Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

(o) Correctness of Representations. Each Subscriber represents only as to such
Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless such Subscriber otherwise notifies the
Company prior to the Closing Date shall be true and correct as of the Closing
Date.

(p) Survival. The foregoing representations and warranties shall survive the
Closing Date.
 
(q) Mandatory Conversion Representations. In connection with Section 2.1 of the
Note, Subscriber makes all of the customary Subscriber representations to the
Company.
 
5. Company Representations and Warranties. The Company represents and warrants
to and agrees with each Subscriber that:
 
(a) Due Incorporation. The Company is a corporation or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has the requisite
corporate power to own its properties and to carry on its business as presently
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purposes of this Agreement, a “Material Adverse Effect”
shall mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement, “Subsidiary”
means, with respect to any entity at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which more than 30% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association, joint
venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity. The Company’s Subsidiaries as of the Closing Date are set forth on
Schedule 5(a).
 
 
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(b) Outstanding Stock. All issued and outstanding shares of capital stock of the
Company and each Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable.
 
(c) Authority; Enforceability. This Agreement, the Note, the Warrants, Escrow
Agreement, and any other agreements delivered together with this Agreement or in
connection herewith (collectively “Transaction Documents”) have been duly
authorized, executed and delivered by the Company, and Subsidiaries (as
applicable) and are valid and binding agreements of the Company and
Subsidiaries, and are enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
 
(d) Additional Issuances. There are no outstanding agreements or preemptive or
similar rights affecting the Company's Common Stock or equity and no outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, or agreements or understandings with respect to the sale or
issuance of any shares of Common Stock or equity of the Company or Subsidiaries
or other equity interest in the Company except as described on Schedule 5(d).
The Common Stock of the Company on a fully diluted basis outstanding as of the
last Business Day preceding the Closing Date is set forth on Schedule 5(d).
 
(e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, or the Company's shareholders is required for the
execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities. The
Transaction Documents and the Company’s performance of its obligations
thereunder has been unanimously approved by the Company’s Board of Directors.
 
(f) No Violation or Conflict. Assuming the representations and warranties of the
Subscribers in Section 4 are true and correct, neither the issuance and sale of
the Securities nor the performance of the Company’s obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will:
 
(i) violate, conflict with, result in a breach of, or constitute a default (or
an event which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) under (A) the articles or certificate
of incorporation, charter or bylaws of the Company, (B) to the Company's
knowledge, any decree, judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or
 
 
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(ii) result in the creation or imposition of any lien, charge or encumbrance
upon the Securities or any of the assets of the Company or any of its Affiliates
except as described herein; or
 
(iii) except as described in Schedule 5(d), result in the activation of any
anti-dilution rights or a reset or repricing of any debt or security instrument
of any other creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
 
(iv) will result in the triggering of any piggy-back registration rights of any
person or entity holding securities of the Company or having the right to
receive securities of the Company.
 
(g) The Securities. The Securities upon issuance:
 
(i) are, or will be, free and clear of any security interests, liens, claims or
other encumbrances, subject to restrictions upon transfer under the 1933 Act and
any applicable state securities laws;

(ii) have been, or will be, duly and validly authorized, and upon exercise of
the Warrants, the Warrant Shares will be duly and validly issued, fully paid and
non-assessable;
 
(iii) will not have been issued or sold in violation of any preemptive or other
similar rights of the holders of any securities of the Company;
 
(iv) will not subject the holders thereof to personal liability by reason of
being such holders; and
 
(v) assuming the representations warranties of the Subscribers as set forth in
Section 4 hereof are true and correct, will not result in a violation of Section
5 under the 1933 Act.
 
(h) Litigation. There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.
 
(i) No Market Manipulation. The Company and its Affiliates have not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold.
 
(j) Information Concerning Company. The Reports and Other Written Information
contain all material information relating to the Company and its operations and
financial condition as of their respective dates which information is required
to be disclosed therein. Since the date of the financial statements included in
the Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no Material Adverse Event relating to the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports and Other Written Information do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, taken as a whole, not misleading in
light of the circumstances when made.

 
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(k) Stop Transfer. The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities, except as
may be required by any applicable federal or state securities laws and if so
required only if contemporaneous notice of such instruction is given to the
Subscriber.
 
(l) Defaults. The Company is not in violation of its articles of incorporation
or bylaws. The Company is (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
Material Adverse Effect, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.
 
(m) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offer of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the OTC Bulletin Board
(“Bulletin Board”) which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder. Neither the Company nor any of its Affiliates will take any action or
steps that would cause the offer or issuance of the Securities to be integrated
with other offerings or issuances which would impair the exemptions relied upon
in this Offering or the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities that would impair the exemptions relied upon in this Offering or the
Company’s ability to timely comply with its obligations hereunder.
 
(n) No General Solicitation. Neither the Company, nor any of its Affiliates, nor
to its knowledge, any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
 
(o) No Undisclosed Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company businesses since the date of the most
recent financial statements of the Company contained in the Reports and which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or on Schedule 5(o).
 
(p) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or its businesses, properties,
operations or financial condition, that, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed in the
Reports.
 
(q) Capitalization. The authorized and outstanding capital stock of the Company
and Subsidiaries as of the date of this Agreement and the Closing Date (not
including the Securities) are set forth in the Reports or on Schedule 5(d).
Except as set forth on Schedule 5(d), there are no options, warrants, or rights
to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company or any of its Subsidiaries.
 
 
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(r) Dilution. The Company's executive officers and directors understand the
nature of the Securities being sold hereby and recognize that the issuance of
the Securities will have a potential dilutive effect on the equity holdings of
other holders of the Company’s equity or rights to receive equity of the
Company. The board of directors of the Company has concluded, in its good faith
business judgment that the issuance of the Securities is in the best interests
of the Company.
 
(s) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise between the Company and the accountants and lawyers presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing Date.

(t) Investment Company. Neither the Company nor any Affiliate of the Company is
an “investment company” within the meaning of the Investment Company Act of
1940, as amended.
 
(u) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

(v) DTC Status. The Company’s transfer agent is a participant in, and the Common
Stock is eligible for transfer pursuant to, the Depository Trust Company
Automated Securities Transfer Program. The name, address, telephone number, fax
number, contact person and email address of the Company transfer agent is set
forth on Schedule 5(v) hereto.

(w) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 Act") and has a class of Common Stock registered
pursuant to Section 12(g) of the 1934 Act. The Company is not a “shell company”
as that term is employed in the 1933 Act.

(x) Solvency. Based on the financial condition of the Company as of the Closing
Date after giving effect to the receipt by the Company of the proceeds from the
sale of the Notes hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts are
required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
 
 
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(y) Company Predecessor and Subsidiaries. The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j),
(l), (o), (p), (q), (s), (t), and (u) of this Agreement, as same relate to the
Subsidiary of the Company. All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Sections 9(g) through 9(l) shall relate, apply and refer to the Company and its
predecessors. The Company represents that it owns 100% of the outstanding equity
of the Subsidiaries and rights to receive equity of the Subsidiaries free and
clear of all liens, encumbrances and claims, except as set forth on Schedule
5(d). No person or entity other than the Company has the right to receive any
equity interest in the Subsidiaries.

(z) Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date.
 
(AA) Survival. The foregoing representations and warranties shall survive the
Closing Date.
 
6. Regulation D Offering/Legal Opinion. The offer and issuance of the Securities
to the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to the Subscribers
from the Company's legal counsel opining on the availability of an exemption
from registration under the 1933 Act as it relates to the offer and issuance of
the Securities and other matters reasonably requested by Subscribers. A form of
the legal opinion is annexed hereto as Exhibit D. The Company will provide, at
the Company's expense, such other legal opinions, if any, as are reasonably
necessary in each Subscriber’s opinion for the issuance and resale of the Common
Stock issuable upon exercise of the Warrants pursuant to an effective
registration statement, Rule 144 under the 1933 Act or an exemption from
registration.
 
7. Redemption. The Notes shall not be redeemable or callable by the Company
except as described in the Note.

8. Commissions/Due Diligence Fee/Legal Fees.

(a)  Commissions. The Company on the one hand, and each Subscriber (for himself
only) on the other hand, agrees to indemnify the other against and hold the
other harmless from any and all liabilities to any persons claiming brokerage
commissions or similar fees except as described on Schedule 8(a) on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party’s actions. Anything in this Agreement to the contrary
notwithstanding, each Subscriber is providing indemnification only for such
Subscriber’s own actions and not for any action of any other Subscriber. The
Company represents that there are no parties entitled to receive fees,
commissions, or similar payments in connection with the offering described in
this Agreement except as described on Schedule 8(a) hereto.
 
(b) Due Diligence Fee. The Company will pay a due diligence fee (“Due Diligence
Fee”) to the lead investor or its designees (each a “Due Diligence Fee
Recipient”) as described on Schedule 8(b). The aggregate Due Diligence Fee shall
be equal to ten percent (10%) of the Purchase Price. The Due Diligence Fee will
be payable in the form of a Note substantially similar to the Notes issued to
Subscribers.
 
(c) Subscriber’s Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a
cash fee of $7,500 (“Cash Legal Fees”) as reimbursement for services rendered to
the Subscribers in connection with this Agreement and the purchase and sale of
the Notes (the “Offering”). The Subscribers’ Legal Fees and expenses will be
payable out of funds held pursuant to the Escrow Agreement on the Closing Date.
Grushko & Mittman, P.C. will be reimbursed on the Closing Date for all lien
searches, filing fees, and printing and shipping costs for the closing
statements to be delivered to Subscribers.
 
 
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9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:
 
(a) Stop Orders. The Company will advise the Subscribers, within twenty-four
hours after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
 
(b) Listing/Quotation. The Company shall promptly secure the quotation or
listing of the Shares and Warrant Shares upon the Principal Market each national
securities exchange, or automated quotation system upon which they are or become
eligible for quotation or listing (subject to official notice of issuance) and
shall maintain same so long as any Securities are outstanding. The Company will
maintain the quotation or listing of its Common Stock on the American Stock
Exchange, Nasdaq Capital Market, Nasdaq Global Select Market, Nasdaq Global
Market, the Bulletin Board, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock (the “Principal Market”)), and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market. As of the date
of this Agreement and the Closing Date, the Bulletin Board is and will be the
Principal Market.
 
(c) Market Regulations. The Company shall notify the Commission, the Principal
Market and applicable state authorities, in accordance with their requirements,
of the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Subscribers and promptly provide copies thereof to the Subscribers.
 
(d) Filing Requirements. From the date of this Agreement and until the last to
occur of (i) two (2) years after the Closing Date, (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to a registration statement or pursuant to Rule 144(b)(1), or (iii) the Notes
are no longer outstanding (the date of occurrence of the last such event being
the “End Date”), the Company will (A) cause its Common Stock to be registered
under Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with
its reporting and filing obligations under the 1934 Act, and (C) voluntarily
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(g) of the 1934 Act, if Company
is not subject to such reporting requirements. The Company will not take any
action or file any document (whether or not permitted by the 1933 Act or the
1934 Act or the rules thereunder) to terminate or suspend its reporting and
filing obligations under said acts until the End Date. Until the End Date, the
Company will continue the listing or quotation of the Common Stock on a
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market.
The Company agrees to timely file a Form D with respect to the Securities if
required under Regulation D and to provide a copy thereof to each Subscriber
promptly after such filing.
 
(e) Use of Proceeds. The proceeds of the Offering will be employed by the
Company as described on Schedule 9(e). Except as described on Schedule 9(e), the
Purchase Price may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date. For so long as any Notes are outstanding, the Company will
not prepay any financing related debt obligations nor redeem any equity
instruments of the Company.
 
 
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(f) DTC Program. At all times that Notes and Warrants are outstanding, the
Company will employ as the transfer agent for the Common Stock a participant in
the Depository Trust Company Automated Securities Transfer Program.
 
(g) Taxes. From the date of this Agreement and until the End Date, the Company
will promptly pay and discharge, or cause to be paid and discharged, when due
and payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
 
(h) Insurance. From the date of this Agreement and until the End Date, the
Company will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company’s line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than one hundred percent (100%)
of the insurable value of the property insured less reasonable deductible
amounts; and the Company will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated and to the extent available on commercially
reasonable terms.
 
(i) Books and Records. From the date of this Agreement and until the End Date,
the Company will keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to its
business and affairs in accordance with generally accepted accounting principles
applied on a consistent basis.
 
(j) Governmental Authorities. From the date of this Agreement and until the End
Date, the Company shall duly observe and conform in all material respects to all
valid requirements of governmental authorities relating to the conduct of its
business or to its properties or assets.
 
(k) Intellectual Property. From the date of this Agreement and until the End
Date, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for value.
 
(l) Properties. From the date of this Agreement and until the End Date, the
Company will keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all necessary and
proper repairs, renewals, replacements, additions and improvements thereto; and
the Company will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could reasonably be expected to have a Material Adverse Effect.
 
(m) Confidentiality/Public Announcement. From the date of this Agreement and
until the End Date, the Company agrees that except in connection with a Form 8-K
and the registration statement or statements regarding the Subscribers’
securities or in correspondence with the SEC regarding same, it will not
disclose publicly or privately the identity of the Subscribers unless expressly
agreed to in writing by a Subscriber or only to the extent required by law and
then only upon five days prior notice to Subscriber. In any event and subject to
the foregoing, the Company undertakes to file a Form 10-SB, Form 8-K or make a
public announcement describing the Offering not later than the business day
after the Closing Date. Prior to filing or announcement, such Form 10-SB, Form
8-K or public announcement will be provided to Subscribers for their review and
approval. In the Form 10-SB, Form 8-K or public announcement, the Company will
specifically disclose the amount of Common Stock outstanding immediately after
the Closing. Upon  delivery by the Company to the Subscribers after the Closing
Date of any notice or information, in writing, electronically or otherwise, and
while a Note is held by such Subscribers, unless the  Company has in good faith
determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company or
Subsidiaries, the Company  shall within one business day after any such delivery
publicly disclose such  material,  nonpublic  information on a Report on Form
10-SB, Form 8-K or otherwise. In the event that the Company believes that a
notice or communication to a Subscriber contains material, nonpublic
information, relating to the Company or Subsidiaries, the Company shall so
indicate to such Subscriber contemporaneously with delivery of such notice or
information. In the absence of any such indication, such Subscriber shall be
allowed to presume that all matters relating to such notice and information do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.
 
 
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(n) Non-Public Information. The Company covenants and agrees that except for the
Reports, Other Written Information and schedules and exhibits to this Agreement,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to keep such information in confidence.
The Company understands and confirms that each Subscriber shall be relying on
the foregoing representations in effecting transactions in securities of the
Company.
(o) Negative Covenants. So long as a Note is outstanding, without the consent of
the Subscribers, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

(i) create, incur, assume or suffer to exist any pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired except for: (A) the Excepted
Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed by law
for taxes that are not yet due or are being contested in good faith and for
which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “Permitted Lien”);

 
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(ii) amend its certificate of incorporation, bylaws or its charter documents so
as to materially and adversely affect any rights of the Subscriber;

(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire or
make any dividend or distribution in respect of any of its Common Stock,
preferred stock, or other equity securities other than to the extent permitted
or required under the Transaction Documents.
 
(iv) engage in any transactions with any officer, director, employee or any
Affiliate of the Company, including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $100,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company, and
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company; or
 
(v) prepay or redeem any financing related debt or past due obligations
outstanding as of the Closing Date.     
 
(p) Seniority. Except for Permitted Liens and as otherwise provided for herein,
until the Notes are fully satisfied or converted, the Company shall not grant
nor allow any security interest to be taken in the assets of the Company or any
Subsidiary; nor issue any debt, equity or other instrument which would give the
holder thereof directly or indirectly, a right in any assets of the Company or
any Subsidiary, superior to any right of the holder of a Note in or to such
assets.
 
(q) Notices. For so long as the Subscribers hold any Securities, the Company
will maintain as United States address and United States fax number for notices
purposes under the Transaction Documents.
 
10. Covenants of the Company Regarding Indemnification. The Company agrees to
indemnify, hold harmless, reimburse and defend the Subscribers, the Subscribers'
officers, directors, agents, Affiliates, members, managers, control persons, and
principal shareholders, against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon the Subscriber or any such person which results, arises out of or
is based upon (i) any material misrepresentation by Company or breach of any
representation or warranty by Company in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default in
performance by the Company of any covenant or undertaking to be performed by the
Company hereunder, or any other agreement entered into by the Company and
Subscriber relating hereto.
 
11.1. Delivery of Unlegended Shares.
 
(a) Within seven business days (such seventh business day being the “Unlegended
Shares Delivery Date”) after the business day on which the Company has received
(i) a notice that Shares or Warrant Shares, or any other Common Stock held by a
Subscriber have been sold pursuant to a registration statement, if any, or Rule
144, (ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable and if required, have been satisfied,
(iii) the original share certificates representing the shares of Common Stock
that have been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or a Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(i) above (the
“Unlegended Shares”); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the submitted certificate, if any, to the Subscriber
at the address specified in the notice of sale, via express courier, by
electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date. In the event that the Shares are sold in a manner that complies with an
exemption from registration, the Company will promptly instruct its counsel to
issue to the Company’s transfer agent an opinion permitting removal of the
legend indefinitely if pursuant to Rule 144(b)(1).

 
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(b) In lieu of delivering physical certificates representing the Unlegended
Shares, upon request of a Subscriber, so long as the certificates therefor do
not bear a legend and the Subscriber is not obligated to return such certificate
for the placement of a legend thereon, the Company will cause its transfer agent
to electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such
DWAC system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.

(c) The Company understands that a delay in the delivery of the Unlegended
Shares pursuant to Section 11 hereof later than the Unlegended Shares Delivery
Date could result in economic loss to a Subscriber. As compensation to a
Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. In the event damages are payable pursuant to the foregoing
sentence, then the Subscriber may elect to receive liquidated damages under this
Section 11.1(c) or Section 12(g) below. If during any 360 day period, the
Company fails to deliver Unlegended Shares as required by this Section 11.1 for
an aggregate of 30 days, then each Subscriber or assignee holding Securities
subject to such default may, at its option, require the Company to redeem all or
any portion of the Shares and Warrant Shares subject to such default at a price
per share equal to the greater of (i) 120%, or (ii) a fraction in which the
numerator is the highest closing price of the Common Stock during the
aforedescribed 30 day period and the denominator of which is the purchase price
of the Shares or exercise price of such Warrant Shares during such 30 day
period, multiplied by the purchase price of the Shares or exercise price of such
Warrant Shares (“Unlegended Redemption Amount”). The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.

(d)  In addition to any other rights available to a Subscriber, if the Company
fails to deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within three business days after the Unlegended Shares Delivery Date
and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an open
market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
 
 
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(e) In the event a Subscriber shall request delivery of Unlegended Shares as
described in Section 11.1 or Warrant Shares upon exercise of Warrants and the
Company is required to deliver such Unlegended Shares pursuant to Section 11.1
or the Warrant Shares pursuant to the Warrant, the Company may not refuse to
deliver Unlegended Shares or Warrant Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
or temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares or exercise of all or part of said
Warrant shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate purchase price of the Shares and Warrant Shares which are subject
to the injunction or temporary restraining order, which bond shall remain in
effect until the final unappealable disposition of the litigation of the dispute
and the proceeds of which shall be payable to such Subscriber to the extent
Subscriber obtains judgment in Subscriber’s favor.
 
11.2. In the event commencing one hundred and eighty-one (181) days after the
Closing Date and ending five years thereafter, the Subscriber is not permitted
to resell any of the Shares or Warrant Shares without any restrictive legend or
if such sales are permitted but subject to volume limitations or further
restrictions on resale as a result of the unavailability to Subscriber of Rule
144(b)(1) under the 1933 Act or any successor rule (a “144 Default”), for any
reason except for Subscriber’s status as an Affiliate or “control person” of the
Company, then the Company shall pay such Subscriber as liquidated damages
(“Liquidated Damages”) and not as a penalty an amount equal to one percent (1%)
for the first day of such occurrence and one percent (1%) for each thirty (30)
days (or such lesser pro-rata amount for any period less than thirty (30) days)
thereafter of the purchase price of the Shares or Warrant Shares owned by the
Subscriber during the pendency of the 144 Default.
 
12. Miscellaneous.
 
(a) Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Attitude Drinks Inc., 11300
U.S. Highway 1, Suite 207, North Palm Beach, Florida 33408, Attn: Roy Warren,
CEO and President, telecopier: (561) 799-5039, with a copy by telecopier only
to: Weed & Co., LLP, 4695 MacArthur Court, Suite 1430, Newport Beach, CA 92660,
Attn: Rick Weed, Esq., telecopier number: (949) 475-9087, and (ii) if to the
Subscriber, to: the one or more addresses and telecopier numbers indicated on
the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier: (212) 697-3575.
 
(b) Entire Agreement; Assignment. This Agreement and other documents delivered
in connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by both parties. Neither the Company nor the Subscribers have relied on
any representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of the Subscribers.
 
 
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(c) Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.
 
(d) Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state and county of New York. The parties to this Agreement hereby
irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The parties executing
this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the in personam
jurisdiction of such courts and hereby irrevocably waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this
Agreement or any other Transaction Document by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law.
 
(e) Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity. Subject to Section 12(d)
hereof, the Company hereby irrevocably waives, and agrees not to assert in any
such suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction in New York of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any right
to serve process in any other manner permitted by law.
 
(f) Independent Nature of Subscribers.     The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.  The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto shall be deemed to constitute the
Subscribers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Subscribers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents.  The Company acknowledges that each
Subscriber shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose.  The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers.  The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.

 
17

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(g) Damages. In the event the Subscriber is entitled to receive any liquidated
damages pursuant to the Transactions, the Subscriber may elect to receive the
greater of actual damages or such liquidated damages.
 
(h) Consent. As used in the Agreement, “consent of the Subscribers” or similar
language means the consent of holders of not less than 75% of the total of the
Shares issued and issuable upon conversion of outstanding Notes owned by
Subscribers on the date consent is requested.
 
(i) Limit on Liability. In no event shall the liability of any Subscriber or
permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds actually received by such Subscriber upon the sale of
Shares.
 
(j) Equal Treatment. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of the Transaction
Documents unless the same consideration is also offered and paid to all the
Subscribers and their permitted successors and assigns.
 
(k) Maximum Payments. Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
 
(l) Calendar Days. All references to “days” in the Transaction Documents shall
mean calendar days unless otherwise stated. The terms “business days” and
“trading days” shall mean days that the New York Stock Exchange is open for
trading for three or more hours. Time periods shall be determined as if the
relevant action, calculation or time period were occurring in New York City. Any
deadline that falls on a non-business day in any of the Transaction Documents
shall be automatically extended to the next business day and interest, if any,
shall be calculated and payable through such extended period.
 
(m) Successor Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms. A successor
rule to 144(b)(1)(i) shall include any rule that would be available to a
non-Affiliate of the Company for the sale of Common Stock not subject to volume
restrictions and after a six month holding period. 
 
[THIS SPACE INTENTIONALLY LEFT BLANK]

 
18

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
 

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 
ATTITUDE DRINKS INC.
 
a Delaware corporation
                 
By:
        
Name:
 
Title:
         
Dated: September ____, 2008

 

SUBSCRIBER
NOTE PRINCIPAL AMOUNT
PURCHASE PRICE
ALPHA CAPITAL ANSTALT
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
 
 
 
 
_______________________________________________
(Signature)
By:
 
$200,000.00

 
 
19

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
 

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
 

 
ATTITUDE DRINKS INC.
 
a Delaware corporation
                 
By:
        
Name:
 
Title:
         
Dated: September ____, 2008

 

SUBSCRIBER
NOTE PRINCIPAL AMOUNT
PURCHASE PRICE
Name of Subscriber:
______________________________________________
Address: _______________________________________________
 
_______________________________________________
 
Fax No.: _______________________________________________
 
Taxpayer ID# (if applicable): ______________________
 
 
 
_______________________________________________
(Signature)
By:
   

 
 
20

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LIST OF EXHIBITS AND SCHEDULES

Exhibit A
Form of Note
 
Exhibit B
 
Form of Warrant
 
Exhibit C
 
Escrow Agreement
 
Exhibit D
 
Form of Legal Opinion
 
Schedule 5(a)
 
Subsidiaries
 
Schedule 5(d)
 
Additional Issuances / Capitalization / Reset Rights
 
Schedule 5(o)
 
Undisclosed Liabilities
 
Schedule 5(v)
 
Transfer Agent
 
Schedule 8(a)
 
Placement Fees
 
Schedule 8(b)
 
Due Diligence Fee
 
Schedule 9(e)
 
Use of Proceeds

 
 
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SCHEDULES
 
Schedule 5(a) Subsidiaries

Attitude Drink Company, Inc., a Delaware corporation, is a wholly owned
subsidiary and has 50,000,000 shares of common stock, $.001 par value, of which
100,000 shares are issued and outstanding and held of record by the Company
 
 
SCHEDULE 5(d) Additional Issuances / Capitalization / Reset Rights

Capital Structure

As of September 19, 2008, the Company has 120,000,000 shares consisting of
100,000,000 shares of common stock, $.001 par value, of which 11,065,488 shares
are issued and outstanding and 20,000,000 shares of preferred stock, $.001 par
value, of which no shares are issued and outstanding.

The Company created the 2007 Stock Compensation and Incentive Plan and reserved
1,000,000 shares of its common stock for issuance in the form of stock options
or shares to employees, consultants and advisors that perform services for the
Company. As of September 19, 2008, 813,888 shares have been issued from this
plan, leaving 186,112 shares to be issued in the future based on the approval of
the Board of Directors. In addition, the Company issued 350,000 stock options at
an exercise price of $.65 to Nutraceutical Discoveries as part of a sub-license
agreement.

The Company has a binding agreement with an NHRA drag race team for the 2008
NHRA racing season in which the company will pay the racing team a total of
$1,300,000 with $300,000 in cash and the rest to be paid in shares of common
stock. To date, 1,000,000 shares have been issued towards payment of this
commitment. Additional shares may be issued to meet the company’s obligations at
the end of the current racing season (November, 2008).

Common Stock Warrants:
 
As of September 19, 2008, the Company had the following outstanding warrants:

 
 
Grant Date
 
Expiration Date
 
Warrants/
Options
Granted
 
Exercise Price
 
Issued Class A Warrants:
 
 
 
 
 
 
 
 
 
October, 2007 Convertible Notes Financing
   
10/23/2007
   
10/22/2012
   
2,818,181
   
0.50
 
January, 2008 Investment Banker Agreement
   
1/1/2008
   
12/31/2012
   
125,000
   
0.50
 
February, 2008 Convertible Notes Financing
   
2/15/2008
   
2/14/2013
   
1,515,151
   
0.50
 
April, 2008 Bridge Loans Financing
   
4/2-15/2008
   
4/1-13/2011
   
500,000
   
0.50
 
April, 2008 Finders Fees
   
4/14/2008
   
4/13/2013
   
62,500
   
0.50
 
May, 2008 Investment Banker Fees
   
5/19/2008
   
5/18/2013
   
37,500
   
0.50
 
May, 2008 Bridge Loan
   
5/19/2008
   
5/18/2011
   
100,000
   
0.50
 
June, 2008 Debt Extensions
   
6/23/2008
   
6/22/2011
   
150,000
   
0.50
 
June, 2008 Debt
   
6/26/2008
   
6/25/2013
   
303,030
   
0.50
 
July 2008 - Steven Stock
   
7/14/2008
   
7/14/2011
   
100,000
   
0.50
 
July 2008 - Allen Hawley
   
7/14/2008
   
7/14/2011
   
50,000
   
0.50
 
August 2008 - H. John Buckman
   
8/8/2008
   
8/7/2011
   
100,000
   
0.50
                             
Total issued Class A Warrants
           
5,861,362
                                 
Other Issued Warrants:
                 
Supply Agreement
   
4/16/2008
   
4/15/2013
   
100,000
   
0.75
 

 
 
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Warrants/
Options
Granted
 
Exercise Price
 
Unissued Class B Warrants (i):
 
 
 
 
 
October, 2007 Convertible Notes Financing
   
2,818,181
   
0.75
 
January, 2008 Investment Banker Financing
   
125,000
   
0.75
 
February, 2008 Convertible Notes Financing
   
1,515,151
   
0.75
 
April, 2008 Bridge Loans Financing
   
500,000
   
0.75
 
April, 2008 Finders Fees
   
62,500
   
0.75
 
May, 2008 Investment Banker Fees
   
37,500
   
0.75
 
May, 2008 Bridge Loan
   
100,000
   
0.75
 
June, 2008 Debt Extensions
   
150,000
   
0.75
 
June, 2008 Debt
   
303,030
   
0.75
 
July 2008 - Steven Stock
   
100,000
   
0.75
 
July 2008 - Allen Hawley
   
50,000
   
0.75
 
August 2008 - H. John Buckman
   
100,000
   
0.75
 
Total issued Class B Warrants
   
5,861,362
     

(i) When Class A warrants are exercised, holders of these warrants will receive
an equal number of Class B warrants with an exercise price of $.75.
 
Other Unissued Warrants-Engagement fees
   
250,000
   
0.50
               
TOTAL WARRANTS
   
12,072,724
     

 
 
23

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SCHEDULE 5(o) Undisclosed Liabilities

None

SCHEDULE 5(v) Transfer Agent

The current transfer agent is

Florida Atlantic Stock Transfer
Attention: Mr. Rene Garcia, President
7130 Nob Hill Road
Tamarac, FL 33321

Telephone 954-726-4954
Facsimile 954-726-6305

The transfer agent is NOT a participant in the DTC Automated Securities Transfer
Program. See Section 9(f) of the Subscription Agreement.
 
 
SCHEDULE 8(a) Placement Fees
 
None.
 
SCHEDULE 8(b) Due Diligence Fee
 
10% of Purchase Price payable in the form of the Notes issued to Subscribers.
 
SCHEDULE 8(c) Subscriber’s Legal Fees
 
$7,500, plus out of pocket for wires, lien search, shipping, etc.

 
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SCHEDULE 9(e) Use of Proceeds
 
Gross Amount
Closing
 
$300,000
less Due Diligence Fee
$0 paid by issuance of note
less Subscriber’s Legal Fees
$7,500
   
Net to Company
$292,500
Trade Creditors
$192,500
Working Capital
$100,000

 
 
25

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