Unassociated Document


    (10)(1)
      Subscription Agreement for Securities

    


     

    SUBSCRIPTION
      AGREEMENT

     

     

    THIS
      SUBSCRIPTION AGREEMENT
      (this
“Agreement”),
      is
      dated as of October 23, 2007, 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
“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 Subscribers, as provided herein,
      and the Subscribers, in the aggregate, shall purchase for up to $1,200,000
      (the
      "Purchase
      Price")
      of
      principal amount of promissory notes of the Company (“Note”
or
      “Notes”),
      a
      form of which is annexed hereto as Exhibit
      A,
      convertible into shares of the Company's Common Stock, $0.001 par value (the
      "Common
      Stock")
      at a
      per share conversion price set forth in the Note (“Conversion
      Price”);
      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, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
      the
      Warrants and the Warrant Shares are collectively referred to herein as the
      "Securities";
      and

     

    WHEREAS,
      the
      aggregate proceeds of the sale of the Notes and the Warrants 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 attached 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 Subscribers hereby agree as follows:

     

    1.    (a) Closing
      Dates.
      The
“Initial
      Closing Date”
shall
      be the date that the Initial Closing Purchase Price is transmitted by wire
      transfer or otherwise credited to or for the benefit of the Company. The
      consummation of the transactions contemplated herein shall take place at the
      offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York,
      New York 10176, upon the satisfaction or waiver of all conditions to closing
      set
      forth in this Agreement. Not later than ten (10) calendar days after the Initial
      Closing Date, the Company will file a Form 10-SB or Form 8-K containing the
      consolidated financial statements of Attitude Drinks Inc., and its wholly owned
      subsidiary Attitude Drink Company, Inc., a Delaware corporation. Each of the
      Initial Closing Date and Second Closing Date (as defined in Section 1(c) below)
      is referred to herein as a “Closing
      Date.”

    


       (b) Initial
      Closing.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      on
      the Initial Closing Date, each Subscriber shall purchase and the Company shall
      sell to each Subscriber a Note in the principal amount set forth on the
      signature page hereto (“Initial
      Closing Notes”),
      and
      Warrants as described in Section 2 of this Agreement (“Initial
      Closing Warrants”).
      The
      principal amount of the Notes to be purchased by the Subscribers on the Initial
      Closing Date shall be Six Hundred Thousand Dollars ($600,000) (the “Initial
      Closing Purchase Price”).

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) Second
      Closing.
      The
“Second
      Closing Date”
shall
      be on or before the fifth business day after the compliance with the Second
      Closing Condition as defined in Section 1(d) of this Agreement (the
“Second
      Closing Date”).
      Subject to the satisfaction or waiver of the conditions to Closing,


    on
      the
      Second Closing Date, each Subscriber shall purchase and the Company shall sell
      to each Subscriber a Note in the principal amount set forth on the signature
      page hereto (“Second
      Closing Notes”)
      and
      Warrants as described in Section 2 of this Agreement (“Second
      Closing Warrants”).
      The
      Second Closing Notes shall be of the same tenor as the Notes issuable on the
      Initial Closing Date and have the same maturity date as the Initial Closing
      Notes. The principal amount of the Notes to be purchased by the Subscribers
      on
      the Second Closing Date shall be Six Hundred Thousand Dollars ($600,000) (the
      “Second
      Closing Purchase Price”).

    


    (d) Conditions
      to Second Closing.
      The
      occurrence of the Second Closing is expressly contingent on (i) compliance
      with
      the Second Closing Condition, (ii) the truth and accuracy, on the Second Closing
      Date of the representations and warranties of the Company and Subscriber
      contained in this Agreement except for changes that do not constitute a Material
      Adverse Effect (as defined in Section 5(a)), (iii) continued compliance with
      the
      covenants of the Company set forth in this Agreement, and (iv) the
      non-occurrence of any Event of Default (as defined in the Note and this
      Agreement) or an event that with the passage of time or the giving of notice
      could become an Event of Default. “Second
      Closing Condition”
shall
      mean the actual effectiveness of the Registration Statement as defined in
      Section 11.1 hereunder. A Second Closing will not take place in connection
      with
      any amount of Second Closing Notes for which sufficient Shares have not been
      registered in an effective Registration Statement as of the Second Closing
      Date.

     

    (e) Second
      Closing Deliveries.
      On the
      Second Closing Date, the Company will deliver a certificate (“Second
      Closing Certificate”)
      signed
      by its chief executive officer and chief financial officer (i) representing
      the
      truth and accuracy of all the representations and warranties made by the Company
      contained in this Agreement, as of the Initial Closing Date, and the Second
      Closing Date as if such representations and warranties were made and given
      on
      all such dates, except for changes that do not constitute a Material Adverse
      Effect, (ii) certifying that the information contained in the schedules and
      exhibits hereto is substantially accurate as of the Second Closing Date, except
      for changes that do not constitute a Material Adverse Effect, (iii) adopting
      and
      renewing the covenants and representations set forth in Sections 5, 8, 9, 10,
      11, and 12 of this Agreement in relation to the Second Closing Date, Second
      Closing Notes, and Second Closing Warrants, (iv) representing timely compliance
      by the Company with the Second Closing Condition, (v) representing the timely
      compliance by the Company with the Company’s applicable registration
      requirements set forth in Section 11 of this Agreement except as described
      in
      Section 1(c) above, and (vi) certifying that an Event of Default or an event
      that with the passage of time or the giving of notice could become an Event
      of
      Default except as described in Section 1(c) above, has not occurred. A legal
      opinion nearly identical to the legal opinion referred to in Section 6 of this
      Agreement shall be delivered to each Subscriber at the Second Closing in
      relation to the Company, Second Closing Notes and Second Closing Warrants
      (“Second
      Closing Legal Opinion”).

     

    2. Warrants.
      On
      the
      Closing Date, the Company will issue and deliver Class A Warrants to the
      Subscribers. One Class A Warrant will be issued for each Share which would
      be
      issued on the Closing Date assuming the complete conversion of the Note on
      the
      Closing Date at the Conversion Price. 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.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3. Security
      Interest.
      The
      Subscribers will be 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 will
      be memorialized in a “Security
      Agreement,”
a
      form
      of which is annexed hereto as Exhibit
      D.
      The
      Subsidiaries will guarantee the Company’s obligations under the Transaction
      Documents [as defined in Section 5(c)]. Such guaranties will be memorialized
      in
      a “Subsidiary
      Guaranty”,
      the
      form of which is annexed hereto as Exhibit
      E.
      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
      Subscribers will appoint a Collateral Agent to represent them collectively
      in
      connection with the security interests to be granted to the Subscribers. The
      appointment of the Collateral Agent in connection with the Security Agreement
      will be pursuant to a “Collateral
      Agent Agreement,”
a
      form
      of which is annexed hereto as Exhibit
      F.

    


    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 and
      Warrants 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, 2007 (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.

     

    (e) Information
      on Subscriber.
      Such
      Subscriber is, and will be at the time of the conversion of the Notes and
      exercise of the Warrants, 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 each
      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."

     

    (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.

     

    (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 a Closing Date
      shall be true and correct as of such Closing Date.

    


    (p) Survival.
      The
      foregoing representations and warranties shall survive the Closing
      Date.

     

    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).

     

    (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, the Security Agreement, Subsidiary Guaranty,
      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

     

    (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, fully paid and non-assessable
      and
      on the date of issuance of the Purchase Shares, the Shares upon conversion
      of
      the Notes and the Warrant Shares and upon exercise of the Warrants, the Purchase
      Shares, Shares and Warrant Shares will be duly and validly issued, fully paid
      and non-assessable and if registered pursuant to the 1933 Act and resold
      pursuant to an effective registration statement will be free trading and
      unrestricted;

     

    (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.

     

    (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 September 30, 2007 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.
      Since
      September 30, 2007, 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.

     

    (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. The
      Company specifically acknowledges that its obligation to issue the Shares upon
      conversion of the Notes, and the Warrant Shares upon exercise of the Warrants,
      is binding upon the Company and enforceable regardless of the dilution such
      issuance may have on the ownership interests of other shareholders of the
      Company or parties entitled to receive equity 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) 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).

    


    (x) 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.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (y) 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 each Closing Date, shall
      be
      true and correct in all material respects as of each Closing Date.

     

    (z) 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
      G.
      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 conversion of the Notes and
      exercise of the Warrants pursuant to an effective registration statement, Rule
      144 under the 1933 Act or an exemption from registration.

    


    7.1. Conversion
      of Note.

    


    (a) Upon
      the
      conversion of a Note or part thereof, the Company shall, at its own cost and
      expense, take all necessary action, including obtaining and delivering, an
      opinion of counsel to assure that the Company's transfer agent shall issue
      stock
      certificates in the name of Subscriber (or its permitted nominee) or such other
      persons as designated by Subscriber and in such denominations to be specified
      at
      conversion representing the number of shares of Common Stock issuable upon
      such
      conversion. The Company warrants that no instructions other than these
      instructions have been or will be given to the transfer agent of the Company's
      Common Stock and that the certificates representing such shares shall contain
      no
      legend other than the usual 1933 Act restriction from transfer legend. If and
      when a Subscriber sells the Shares, assuming (i) the Registration Statement
      (as
      defined below) is effective and the prospectus, as supplemented or amended,
      contained therein is current and (ii) such Subscriber or its agent confirms
      in
      writing to the transfer agent that such Subscriber has complied with the
      prospectus delivery requirements, the Company will reissue the Shares without
      restrictive legend and the Shares will be free-trading, and freely transferable.
      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 transfer agent an opinion permitting removal of the legend
      (indefinitely, if pursuant to Rule 144(k) of the 1933 Act, or for 90 days if
      pursuant to the other provisions of Rule 144 of the 1933 Act, provided that
      Subscriber delivers all reasonably requested representations in support of
      such
      opinion).

    


    (b) A
      Subscriber will give notice of its decision to exercise its right to convert
      the
      Note, interest, or part thereof by telecopying, or otherwise delivering a
      completed Notice of Conversion (a form of which is annexed as Exhibit
      A
      to the
      Note) to the Company via confirmed telecopier transmission or otherwise pursuant
      to Section 13(a) of this Agreement. Such Subscriber will not be
      required to surrender the Note
      until
      the Note has been fully converted or satisfied. Each date on which a Notice
      of
      Conversion is telecopied to the Company in accordance with the provisions hereof
      by 6 PM Eastern Time (“ET”) (or if received by the Company after 6 PM ET then
      the next business day) shall be deemed a “Conversion
      Date.”
The
      Company will itself or cause the Company’s transfer agent to transmit the
      Company's Common Stock certificates representing the Shares issuable upon
      conversion of the Note to such Subscriber via express courier for receipt by
      such Subscriber within three (3) business days after receipt by the Company
      of
      the Notice of Conversion (such third day being the "Delivery
      Date").
      In
      the event the Shares are electronically transferable, then delivery of the
      Shares must
      be made
      by electronic transfer provided request for such electronic transfer has been
      made by the Subscriber.
      A Note representing the balance of the Note not so converted will be provided
      by
      the Company to such Subscriber if requested by Subscriber, provided such
      Subscriber delivers the
      original Note to the Company. In the event that a Subscriber elects not to
      surrender a Note for reissuance upon partial payment or conversion of a Note,
      such Subscriber hereby indemnifies the Company against any and all loss or
      damage attributable to a third-party claim in an amount in excess of the actual
      amount then due under the Note.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) The
      Company understands that a delay in the delivery of the Shares in the form
      required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
      described in Section 7.2 hereof, respectively later than the Delivery Date
      or
      the Mandatory Redemption Payment Date (as hereinafter defined) could result
      in
      economic loss to the Subscriber. As compensation to a Subscriber for such loss,
      the Company agrees to pay (as liquidated damages and not as a penalty) to such
      Subscriber for late issuance of Shares in the form required pursuant to Section
      7.1 hereof upon Conversion of the Note in the amount of $100 per business day
      after the Delivery Date for each $10,000 of Note principal amount (and
      proportionately for other amounts) being converted of the corresponding Shares
      which are not timely delivered. The Company shall pay any payments incurred
      under this Section in immediately available funds upon demand. Furthermore,
      in
      addition to any other remedies which may be available to the Subscriber, in
      the
      event that the Company fails for any reason to effect delivery of the Shares
      within seven (7) business days after the Delivery Date or make payment within
      seven (7) business days after the Mandatory Redemption Payment Date (as defined
      in Section 7.2 below), such Subscriber will be entitled to revoke all or part
      of
      the relevant Notice of Conversion or rescind all or part of the notice of
      Mandatory Redemption by delivery of a notice to such effect to the Company
      whereupon the Company and such Subscriber shall each be restored to their
      respective positions immediately prior to the delivery of such notice, except
      that the liquidated damages described above shall be payable through the date
      notice of revocation or rescission is given to the Company.

    (d) The
      Company agrees and acknowledges that despite the pendency of a not yet effective
      Registration Statement which includes for registration the Registrable
      Securities (as defined in Section 11.1(iv)), a Subscriber is permitted to and
      the Company will issue to such Subscriber Shares upon conversion of the Note
      and
      Warrant Shares upon exercise of the Warrants. Such Shares will, if required
      by
      law, bear the legends described in Section 4 above and if the requirements
      of
      Rule 144 under the 1933 Act are satisfied, be resalable thereunder.

    


    7.2. Mandatory
      Redemption at Subscriber’s Election.
      In the
      event (i) the Company is prohibited from issuing Shares, (ii) upon the
      occurrence of any other Event of Default (as defined in the Note or in this
      Agreement), that continues for more than twenty (20) business days, (iii) a
      Change in Control (as defined below), or (iv) of the liquidation, dissolution
      or
      winding up of the Company, then at the Subscriber's election, the Company must
      pay to each Subscriber ten (10) business days after request by each Subscriber
      (“Calculation
      Period”),
      a sum
      of money determined by multiplying up to the outstanding principal amount of
      the
      Note designated by each such Subscriber by 120%, plus accrued but unpaid
      interest ("Mandatory
      Redemption Payment").
      The
      Mandatory Redemption Payment must be received by each Subscriber on the same
      date as the Shares otherwise deliverable or within ten (10) business days after
      request, whichever is sooner ("Mandatory
      Redemption Payment Date").
      Upon
      receipt of the Mandatory Redemption Payment, the corresponding Note principal
      and interest will be deemed paid and no longer outstanding. Liquidated damages
      calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
      for
      the ten day period prior to the actual receipt of the Mandatory Redemption
      Payment by a Subscriber shall be credited against the Mandatory Redemption
      Payment. For purposes of this Section 7.2, “Change
      in Control”
shall
      mean (i) the Company no longer having a class of shares publicly traded or
      listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
      entity (other than a corporation formed by the Company for purposes of
      reincorporation in another U.S. jurisdiction), (iii) a majority of the board
      of
      directors of the Company as of the Closing Date, no longer serving as directors
      of the Company, except due to natural causes (which shall include, termination
      of such directors by the holders of more than 50% of the equity outstanding
      as
      of the Closing Date), and (iv) the sale, lease or transfer of substantially
      all
      the assets of the Company or its Subsidiaries.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7.3. Maximum
      Conversion.
      No
      Subscriber shall be entitled to convert on a Conversion Date that amount of
      the
      Note in connection with that number of shares of Common Stock which would be
      in
      excess of the sum of (i) the number of shares of Common Stock beneficially
      owned
      by such Subscriber and its Affiliates on a Conversion Date, and (ii) the number
      of shares of Common Stock issuable upon the conversion of the Note with respect
      to which the determination of this provision is being made on a Conversion
      Date,
      which would result in beneficial ownership by such Subscriber and its Affiliates
      of more than 4.99% of the outstanding shares of Common Stock of the Company
      on
      such Conversion Date. For the purposes of the provision to the immediately
      preceding sentence, beneficial ownership shall be determined in accordance
      with
      Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule
      13d-3
      thereunder. Subject to the foregoing, the Subscriber shall not be limited to
      aggregate conversions of only 4.99% and aggregate conversions by the Subscriber
      may exceed 4.99%. The Subscriber may increase the permitted beneficial ownership
      amount up to 9.99% upon and effective after 61 days’ prior written notice to the
      Company. Such Subscriber may allocate which of the equity of the Company deemed
      beneficially owned by such Subscriber shall be included in the 4.99% amount
      described above and which shall be allocated to the excess above
      4.99%.

    


    7.4. Injunction
      Posting of Bond.
      In the
      event a Subscriber shall elect to convert a Note or part thereof, the Company
      may not refuse conversion or exercise 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 from a court,
      on notice, restraining and or enjoining conversion of all or part of such Note
      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 outstanding principal and interest of the Note, or
      aggregate purchase price of the Shares which are sought to be subject to the
      injunction, which bond shall remain in effect until the completion of
      arbitration/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.

    


    7.5. Buy-In.
      In
      addition to any other rights available to a Subscriber, if the Company fails
      to
      deliver to a Subscriber such shares issuable upon conversion of a Note by the
      Delivery Date and if after seven (7) business days after the Delivery Date
      such
      Subscriber or a broker on such 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 Common Stock which such Subscriber was entitled
      to receive upon such conversion (a "Buy-In"),
      then
      the Company shall pay in cash to such Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) such
      Subscriber's total purchase price (including brokerage commissions, if any)
      for
      the shares of Common Stock so purchased exceeds (B) the aggregate principal
      and/or interest amount of the Note for which such conversion was not timely
      honored 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 an attempted
      conversion of $10,000 of note principal and/or interest, the Company shall
      be
      required to pay such Subscriber $1,000 plus interest. Such Subscriber shall
      provide the Company written notice and evidence indicating the amounts payable
      to such Subscriber in respect of the Buy-In.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7.6 Adjustments.
      The
      Conversion Price, Warrant exercise price and amount of Shares issuable upon
      conversion of the Notes and exercise of the Warrants shall be equitably adjusted
      and as otherwise described in this Agreement, the Notes and
      Warrants.

     

    7.7. Redemption.
      The
      Notes shall not be redeemable or callable by the Company except as described
      in
      the Note and Warrants. 

    


    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 eight percent (8%) of the Purchase
      Price and Warrants (“Due
      Diligence Warrants”)
      as
      more fully described on Schedule
      8(b)
      hereto.
      The cash portion of the Due Diligence Fee will be payable on each Closing Date
      out of funds held pursuant to the Escrow Agreement.

     

      (c) Subscriber’s
      Legal Fees.
      The
      Company shall pay to Grushko & Mittman, P.C., a cash fee of $20,000
      (“Cash
      Legal Fees”)
      and
      60,600 Shares of the Company’s Common Stock (“Legal
      Fee Shares”)
      as
      reimbursement for services rendered to the Subscribers in connection with this
      Agreement and the purchase and sale of the Notes, and Warrants (the
“Offering”).
      The
      Legal Fee Shares are granted the same registration rights granted to the
      Subscribers in this Offering. The Subscribers’ Legal Fees will be paid on the
      Initial Closing Date. The Subscribers’ Legal Fees and expenses will be payable
      out of funds held pursuant to the Escrow Agreement. Grushko & Mittman, P.C.
      will be reimbursed on each Closing Date for all lien searches, filing fees,
      and
      printing and shipping costs for the closing statements to be delivered to
      Subscribers.

     

    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.
      Not
      later
      than 170 days after the Initial Closing Date [as defined in Section 1(a), the
      Company shall secure the listing of the Common Stock, Shares and Warrants Shares
      upon the Bulletin Board, American Stock Exchange or a NASDAQ domestic market
      or
      exchange, any of which is a “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
      sooner of the Actual Effective Date, or ninety (90) days after the Initial
      Closing Date and until the later to occur of (i) two (2) years after the Second
      Closing Date, (ii) until all the Shares are resalable or transferable by all
      the
      Subscribers pursuant to Rule 144, without regard to volume limitations or (iii)
      the Notes are no longer outstanding (the date of occurrence of the first 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, (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, and (D) comply
      with all requirements related to any registration statement filed pursuant
      to
      this Agreement. The Company will use its best efforts not to 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 such registration or 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) Reporting
      Requirements.
      Until
      the time the Company becomes subject to the reporting provisions of the Exchange
      Act, the Company shall furnish to each Subscriber that holds Notes and/or
      underlying Shares, the following:

    


    (i) As
      soon
      as available and in any event within ninety (90) days after the end of each
      fiscal year of the Company, audited financial statements of the Company as
      at
      the end of such fiscal year and related statements of income and expenses for
      such fiscal year, all in reasonable detail and in scope to the Subscriber,
      prepared in accordance with GAAP, with the opinion of an independent certified
      public accountant reasonably acceptable to the Subscriber as evidenced by the
      prior written consent of the Subscriber;

    


    (ii) As
      soon
      as available and in any event within forth-five (45) days after the end of
      the
      sixth (6th) month of the Company’s fiscal year, reviewed financial statements of
      the Company as at the end of such six month period and related statements of
      income and expenses for such period, all in reasonable detail and scope to
      Subscriber, prepared in accordance with GAAP, and prepared by an independent
      certified public accountant reasonably acceptable to the Subscriber as evidenced
      by the prior written consent of the Subscriber; 

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (iii) As
      soon
      as available and in any event within thirty (30) days after the end of each
      fiscal quarter, quarterly financial statements prepared by the Company and
      other
      information reasonably requested by the Subscriber;

    


    (iv) As
      soon
      as available and in any event within fifteen (15) days after the end of each
      month, monthly reports containing information on the Company's sales and other
      information reasonably requested by the Subscriber;

    


    (v) As
      soon
      as available and in any event not less than thirty (30) days prior to the
      commencement of each fiscal year, a detailed annual budget and strategic plan
      for the Company's business for such fiscal year, which shall have been approved
      by the Company's Board of Directors;

    


    (vi) As
      soon
      as possible and in any event within five (5) days after the Subscribers notify
      the Company of the occurrence of each Event of Default, a statement of an
      authorized officer of the Company setting forth the nature and period of
      existence of such Event of Default and the action which the Company has taken
      and proposes to take with respect thereto;

    


    (vii) Promptly
      after the sending or filing thereof, copies of all reports, if any, which the
      Company sends to any of its shareholders, and copies of all reports and
      registration statements, if any, which the Company files with the Commission
      or
      any Trading Market;

    


    (viii) Promptly
      after the filing or receiving thereof, copies of all reports and notices, if
      any, which the Company files under ERISA, with the Internal Revenue Service
      or
      the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or
      which the Company receives from any of such Persons;

    


    (ix) Promptly
      upon determination by the Company’s Chief Executive Officer of the need for the
      Company or Board of Directors to obtain additional financing, all information
      concerning such determination if, as and when available;

    


    (x) Information
      concerning offers or solicitations, and the terms and conditions thereof, for
      additional equity financing, given to the Subscriber not less than 30 days
      prior
      to the entering into of such financial arrangement; and

    


    (xi) Such
      other information respecting the condition or operations, financial or
      otherwise, of the Company as the Subscribers may from time to time reasonably
      request.

     

    (f) Use
      of
      Proceeds.
      The
      proceeds of the Offering will be employed by the Company as described on
Schedule
      9(f).
      Except
      as described on Schedule
      9(f),
      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.

     

    (g) Reservation.
      Prior
      to Initial Closing Date, and at all times thereafter, the Company shall have
      reserved, pro rata,
      on
      behalf of each holder of a Note or Warrant, from its authorized but unissued
      Common Stock, a number of common shares equal to 175%
      of
      the amount of Common Stock necessary to allow each holder of a Note to be able
      to convert all such outstanding Notes and interest (if any) and reserve the
      amount of Warrant Shares issuable upon exercise of the Warrants. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (h)
       DTC
      Program.
      Within
      60 days of the Initial Closing and thereafter at all times that Notes or
      Warrants are outstanding, the Company will employ as the transfer agent for
      the
      Common Stock, Shares and Warrant Shares a participant in the Depository Trust
      Company Automated Securities Transfer Program.

     

    (i) 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.

     

    (j) 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.

     

    (k) 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.

     

    (l) 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.

     

    (m) 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.

     

    (n) 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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (o) 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, Shares, Warrants,
      or
      Warrant Shares are 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.

     

    (p) 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.

    (q) 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”);

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

         (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.     

     

    (r) Further
      Registration Statements.
      Except
      for a registration statement filed on behalf of the Subscribers pursuant to
      Section 11 of this Agreement, and as set forth on Schedule
      11.1
      hereto,
      the Company will not, without the consent of the Subscribers, file with the
      Commission or with state regulatory authorities any registration statements
      or
      amend any already filed registration statement to increase the amount of Common
      Stock registered therein, or reduce the price of which such Common Stock is
      registered therein, (including but not limited to Forms S-8), until the
      expiration of the “Exclusion
      Period,”
which
      shall be defined as the sooner of (i) the Registration Statement having been
      current and available for use in connection with the resale of all of the
      Registrable Securities [as defined in Section 11.1(i)] for a period of 180
      days,
      or (ii) until the Notes are no longer outstanding. The Exclusion Period will
      be
      tolled or reinstated, as the case may be, during the pendency of an Event of
      Default as defined in the Note.

     

    (s) Blackout.
      The
      Company undertakes and covenants that, until the end of the Exclusion Period,
      the Company will not enter into any acquisition, merger, exchange or sale or
      other transaction or fail to take any action that could have the effect of
      delaying the effectiveness of any pending Registration Statement or causing
      an
      already effective Registration Statement to no longer be effective or current
      for a period of forty-five or more days in the aggregate during any three
      hundred and sixty-five day period.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (t) Offering
      Restrictions.
      Until
      the expiration of the Exclusion Period and during the pendency of an Event
      of
      Default, except for the Excepted Issuances, the Company will not enter into
      an
      agreement to issue nor issue any equity, convertible debt or other securities
      convertible into Common Stock or equity of the Company nor modify any of the
      foregoing which may be outstanding at anytime, without the prior written consent
      of a majority of the holders of outstanding Notes, which consent may be withheld
      for any reason. For so long as the Notes are outstanding, the Company will
      not
      enter into any Equity Line of Credit or similar agreement, nor issue nor agree
      to issue any floating or Variable Priced Equity Linked Instruments nor any
      of
      the foregoing or equity with price reset rights (collectively, the “Variable
      Rate Restrictions”).
      For
      purposes hereof, “Equity
      Line of Credit”
shall
      include any transaction involving a written agreement between the Company and
      an
      investor or underwriter whereby the Company has the right to “put” its
      securities to the investor or underwriter over an agreed period of time and
      at
      an agreed price or price formula, and “Variable
      Priced Equity Linked Instruments”
shall
      include: (A) any debt or equity securities which are convertible into,
      exercisable or exchangeable for, or carry the right to receive additional shares
      of Common Stock either (1) at any conversion, exercise or exchange rate or
      other
      price that is based upon and/or varies with the trading prices of or quotations
      for Common Stock at any time after the initial issuance of such debt or equity
      security, or (2) with a fixed conversion, exercise or exchange price that is
      subject to being reset at some future date at any time after the initial
      issuance of such debt or equity security due to a change in the market price
      of
      the Company’s Common Stock since date of initial issuance, and (B) any
      amortizing convertible security which amortizes prior to its maturity date,
      where the Company is required or has the option to (or any investor in such
      transaction has the option to require the Company to) make such amortization
      payments in shares of Common Stock which are valued at a price that is based
      upon and/or varies with the trading prices of or quotations for Common Stock
      at
      any time after the initial issuance of such debt or equity security (whether
      or
      not such payments in stock are subject to certain equity conditions). The only
      officer, director, employee and consultant stock option or stock incentive
      plan
      currently in effect or contemplated by the Company is described on Schedule
      5(d).

     

    (u) 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.

     

    (v) 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.

     

    (w) Attendance
      by Observer.
       Alpha
      Capital Anstalt, a Subscriber herein, has the right to designate an observer,
      who shall be entitled to attend and participate (but not vote) at all meetings
      of the Board of Directors of the Company and to receive all notices, reports,
      information, correspondence and communications sent by the Company to members
      of
      the Board of Directors. All reasonable costs and expenses incurred in connection
      therewith by any such designated observer shall be reimbursed by the Company
      to
      the extent that the Company reimburses such expenses incurred by any directors
      of the Company. It
      is
      provided and agreed that the actions and advice of any person while serving
      pursuant to this section as an observer at meetings of the Board of Directors
      shall be construed to be the actions and advice of that person alone and not
      be
      construed as actions of any Subscriber as to any notice, requirements or rights
      of any Subscriber under the Transaction Documents, nor as the action of any
      Subscriber to approve modifications, consents, amendments or waivers thereof;
      and all such actions or notices shall be deemed actions or notices to the
      Subscribers only when duly provided in writing and given in accordance with
      the
      provisions of the Transaction Documents. 
      The
      relationship between the Company and the Subscribers is, and shall at all times
      remain, solely that of the Company with a purchaser of its securities and
      creditor. The Subscribers neither undertake nor assume any responsibility or
      duty to the Company to review, inspect, supervise, pass judgment upon, or inform
      the Company of any matter in connection with any phase of the Company’s
      business, operations, or condition, financial or otherwise. The Company shall
      rely entirely upon its own judgment with respect to such matters, and any
      review, inspection, supervision, exercise of judgment, or information supplied
      to the Company by the Subscribers, or any representative or agent of the
      Subscribers, in connection with any such matter is for the protection of the
      Subscribers, and neither the Company nor any third party is entitled to rely
      thereon. It shall be deemed a default of a material obligation under the Notes
      if Company does not comply with the requirements of this section.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10. Covenants
      of the Company Regarding Indemnification.

     

    (a) 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.

     

    (b) The
      procedures set forth in Section 11.6 shall apply to the indemnification set
      forth in Section 10(a).

     

    11.1. Registration
      Rights.
      The
      Company hereby grants the following registration rights to holders of the
      Securities.

     

    (i) On
      one
      occasion, for a period commencing one hundred and eighty (180) days after the
      Initial Closing Date, but not later than two years after the Initial Closing
      Date, upon a written request therefor from any record holder or holders of
      more
      than 50% of the Shares issued and issuable upon conversion of the outstanding
      Notes and outstanding Warrant Shares, the Company shall prepare and file with
      the Commission a registration statement under the 1933 Act registering the
      Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
      subject of such request for unrestricted public resale by the holder thereof.
      For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
      not
      include Securities which are (A) registered for resale in an effective
      registration statement, (B) included for registration in a pending registration
      statement, (C) which have been issued without further transfer restrictions
      after a sale or transfer pursuant to Rule 144 under the 1933 Act or (D) which
      may be resold under Rule 144(k) or Rule 144 without volume limitations. Upon
      the
      receipt of such request, the Company shall promptly give written notice to
      all
      other record holders of the Registrable Securities that such registration
      statement is to be filed and shall include in such registration statement
      Registrable Securities for which it has received written requests within ten
      days after the Company gives such written notice. Such other requesting record
      holders shall be deemed to have exercised their demand registration right under
      this Section 11.1(i).

     

    (ii) If
      the
      Company at any time proposes to register any of its securities under the 1933
      Act for sale to the public, whether for its own account or for the account
      of
      other security holders or both, except with respect to registration statements
      on Forms S-4, S-8 or another form not available for registering the Registrable
      Securities for sale to the public, provided the Registrable Securities are
      not
      otherwise registered for resale by the Subscribers or Holder pursuant to an
      effective registration statement, each such time it will give at least ten
      (10)
      days' prior written notice to the record holder of the Registrable Securities
      of
      its intention so to do. Upon the written request of the holder, received by
      the
      Company within ten (10) days after the giving of any such notice by the Company,
      to register any of the Registrable Securities not previously registered, the
      Company will cause such Registrable Securities as to which registration shall
      have been so requested to be included with the securities to be covered by
      the
      registration statement proposed to be filed by the Company, all to the extent
      required to permit the sale or other disposition of the Registrable Securities
      so registered by the holder of such Registrable Securities (the “Seller”
or
      “Sellers”).
      In
      the event that any registration pursuant to this Section 11.1(ii) shall be,
      in
      whole or in part, an underwritten public offering of common stock of the
      Company, the number of shares of Registrable Securities to be included in such
      an underwriting may be reduced by the managing underwriter if and to the extent
      that the Company and the underwriter shall reasonably be of the opinion that
      such inclusion would adversely affect the marketing of the securities to be
      sold
      by the Company therein; provided, however, that the Company shall notify the
      Seller in writing of any such reduction. Notwithstanding the foregoing
      provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
      a delay of any registration statement referred to in this Section 11.1(ii)
      without thereby incurring any liability to the Seller.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (iii) If,
      at
      the time any written request for registration is received by the Company
      pursuant to Section 11.1(i), the Company has determined to proceed with the
      actual preparation and filing of a registration statement under the 1933 Act
      in
      connection with the proposed offer and sale for cash of any of its securities
      for the Company's own account and the Company actually does file such other
      registration statement, such written request shall be deemed to have been given
      pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
      the
      holders of Registrable Securities covered by such written request shall be
      governed by Section 11.1(ii).

     

    (iv) The
      Company shall file with the Commission a Form SB-2 registration statement (the
      “Registration
      Statement”)
      (or
      such other form that it is eligible to use) in order to register the Registrable
      Securities for resale and distribution under the 1933 Act within sixty (60)
      calendar days after the Initial Closing Date (the
      “Filing
      Date”),
      and
      cause the Registration Statement to be declared effective not
      later
      than one hundred and eighty (180) calendar days after the Initial Closing Date
      (the
      “Effective
      Date”).
      The
      Company will register not less than a number of shares of common stock in the
      aforedescribed registration statement that is equal to 175%
      of
      the Shares issued and issuable upon conversion of the Notes, and 100% of the
      Warrant Shares issuable upon exercise of the Warrants issued and issuable on
      the
      Initial Closing Date, Second Closing Date, Purchase Shares, Legal Fee Shares,
      and Due Diligence Warrant Shares (collectively the “Registrable
      Securities”).
      The
      Registrable Securities shall be reserved and set aside exclusively for the
      benefit of each Subscriber and Warrant holder, pro rata,
      and not
      issued, employed or reserved for anyone other than each such Subscriber and
      Warrant holder. The Registration Statement will immediately be amended or
      additional registration statements will be immediately filed by the Company
      as
      necessary to register additional shares of Common Stock to allow the public
      resale of all Common Stock included in and issuable by virtue of the Registrable
      Securities. Except with the written consent of the Subscribers, no securities
      of
      the Company other than the Registrable Securities or the securities described
      on
Schedule
      11.1,
      will be
      included in the Registration Statement. It shall be deemed a Non-Registration
      Event if at any time after the date the Registration Statement is declared
      effective by the Commission (“Actual
      Effective Date”)
      the
      Company has registered for unrestricted resale on behalf of the Subscribers
      less
      than all of the Registrable Securities required to be registered as described
      in
      this Agreement (“Shortfall”).
      The
      Company shall cause to be registered a sufficient amount of shares of Common
      stock in order to eliminate the Shortfall within 60 days after the date the
      Shortfall occurs. Failure to eliminate the Shortfall within such 60 day period
      shall be a Non-Registration Event. Except for Common Stock described on
Schedule
      11.1,
      no
      other securities of the Company will be included in the Registration Statement
      other than the Registrable Securities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (v) The
      amount of Registrable Securities required to be included in the Registration
      Statement as described in Section 11.1(iv) (“Initial
      Registrable Securities”)
      shall
      be limited to not less than 100% of the maximum amount (“Rule
      415 Amount”)
      of
      Common Stock which may be included in a single Registration Statement without
      exceeding registration limitations imposed by the Commission pursuant to Rule
      415 of the 1933 Act but in any event not less than 1,000,000 shares of Common
      Stock. In the event that less than all of the Initial Registrable Securities
      are
      included in the Registration Statement as a result of the limitation described
      in this Section 11.1(v), then the Company will file additional Registration
      Statements each registering the Rule 415 Amount (each such Registration
      Statement a “Subsequent
      Registration Statement”),
      seriatim,
      until
      all of the Initial Registrable Securities have been registered. The Filing
      Date
      and Effective Date of each such additional Registration Statement shall be,
      respectively, fourteen (14) and forty-five (45) days after the first day such
      Subsequent Registration Statement may be filed without objection by the
      Commission based on Rule 415 of the 1933 Act. The Subscribers agree and
      acknowledge that notwithstanding anything contained herein to the contrary,
      the
      Registration Statement will include for registration on behalf of the
      Subscribers not fewer than 8,610,600 shares of Common Stock for the Shares
      issuable upon conversion of the Notes and thereafter may include, at the
      Company’s discretion, up to 1,000,000 shares of Common Stock on behalf of the
      holders thereof (“Other
      Holders”)
      described on Schedule
      11.1.
      In the
      event for any reason the amount of Common Stock to be registered must be
      reduced, then such reduction must come entirely from the Common Stock being
      registered on behalf of the Other Holders and not the Subscribers.

     

    (vi) Unless
      otherwise instructed in writing by a holder of Registrable Securities and only
      if the initial Registration Statement does not include all of the Registrable
      Securities, the Registrable Securities will be registered on behalf of each
      such
      holder in the Registration Statements based in the following order and
      priority:

     

    (A) Purchase
      Shares and Legal Fee Shares.

     

    (B) Conversion
      Shares issued and issuable upon conversion of the Notes (based on the multiple
      set forth above).

     

    (C) Warrants
      Shares and Due Diligence Warrant Shares issued and issuable to the Subscribers
      with lower exercise priced Warrant Shares being registered first and then the
      higher exercise priced Warrant Shares. In the case of Warrants with the same
      exercise prices but different Issue Dates, the Warrants issuable upon later
      issued Warrants will be registered first.

     

    (vii) The
      foregoing notwithstanding, Registrable Securities shall be allocated and
      registered pro rata among the Subscribers based upon their initial investments
      in the Offering.

     

    11.2. Registration
      Procedures.
      If and
      whenever the Company is required by the provisions of Sections 11.1(i), 11.1(ii)
      or 11.1(iv) to effect the registration of any Registrable Securities under
      the
      1933 Act, the Company will, as expeditiously as possible: 

     

    (a) subject
      to the timelines provided in this Agreement, prepare and file with the
      Commission a registration statement required by Section 11, with respect to
      such
      securities and use its best efforts to cause such registration statement to
      become and remain effective for the period of the distribution contemplated
      thereby (determined as herein provided), promptly provide to the holders of
      the
      Registrable Securities copies of all filings and Commission letters of comment
      and notify the Subscribers (by telecopier and by e-mail addresses provided
      by
      the Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com)
      on or
      before the second business day thereafter that the Company receives notice
      that
      (i) the Commission has no comments or no further comments on the Registration
      Statement, and (ii) the registration statement has been declared effective
      (failure to timely provide notice as required by this Section 11.2(a) shall
      be a
      material breach of the Company’s obligation and an Event of Default as defined
      in the Notes
      and
      a Non-Registration Event as defined in Section 11.4 of this Agreement);


     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) prepare
      and file with the Commission such amendments and supplements to such
      registration statement and the prospectus used in connection therewith as may
      be
      necessary to keep such registration statement effective until such registration
      statement has been effective for a period of two (2) years, and comply with
      the
      provisions of the 1933 Act with respect to the disposition of all of the
      Registrable Securities covered by such registration statement in accordance
      with
      the Sellers’ intended method of disposition set forth in such registration
      statement for such period; 

     

    (c) furnish
      to the Sellers, at the Company’s expense, such number of copies of the
      registration statement and the prospectus included therein (including each
      preliminary prospectus) as such persons reasonably may request in order to
      facilitate the public sale or their disposition of the securities covered by
      such registration statement or make them electronically available; 

     

    (d) use
      its
reasonable
      best efforts to register or qualify the Registrable Securities covered by such
      registration statement under the securities or “blue sky” laws of New York and
      such jurisdictions as the Sellers shall request in writing, provided, however,
      that the Company shall not for any such purpose be required to qualify generally
      to transact business as a foreign corporation in any jurisdiction where it
      is
      not so qualified or to consent to general service of process in any such
      jurisdiction; 

     

    (e) if
      applicable, list the Registrable Securities covered by such registration
      statement with any securities exchange on which the Common Stock of the Company
      is then listed; 

     

    (f) notify
      the Subscribers within twenty-four hours of the Company’s becoming aware that a
      prospectus relating thereto is required to be delivered under the 1933 Act,
      of
      the happening of any event of which the Company has knowledge as a result of
      which the prospectus contained 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 light of the circumstances then existing or which
      becomes subject to a Commission, state or other governmental order suspending
      the effectiveness of the registration statement covering any of the Registrable
      Securities;

     

    (g) provided
      same would not be in violation of the provision of Regulation FD under the
      1934
      Act, make available for inspection by the Sellers during reasonable business
      hours, and any attorney, accountant or other agent retained by the Seller or
      underwriter, all publicly available, non-confidential financial and other
      records, pertinent corporate documents and properties of the Company, and cause
      the Company's officers, directors and employees to supply all publicly
      available, non-confidential information reasonably requested by the seller,
      attorney, accountant or agent in connection with such registration
      statement
      at such
      requesting Seller’s expense;
      and


     

    (h) provide
      to the Sellers copies of the Registration Statement and amendments thereto
      five
      business days prior to the filing thereof with the Commission. Any Subscriber’s
      failure to comment on any Registration Statement or other document provided
      to a
      Subscriber or its counsel shall not be construed to constitute approval thereof
      nor the accuracy thereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11.3. Provision
      of Documents.
      In
      connection with each registration described in this Section 11, each Seller
      will
      furnish to the Company in writing such information and representation letters
      with respect to itself and the proposed distribution by it as reasonably shall
      be necessary in order to assure compliance with federal and applicable state
      securities laws. 

     

    11.4. Non-Registration
      Events.
      The
      Company agrees that the Sellers will suffer damages if the Registration
      Statement is not filed by the Filing Date and not declared effective by the
      Commission by the Effective Date, and any registration statement required under
      Section 11.1(i) or 11.1(ii) is not filed within 60 days after written request
      and declared effective by the Commission within 90 days after such request,
      and
      maintained in the manner and within the time periods contemplated by Section
      11
      hereof, and it would not be feasible to ascertain the extent of such damages
      with precision. Accordingly, if (A) the Registration Statement is not filed
      on
      or before the Filing Date, (B) the Registration Statement is not declared
      effective on or before the required Effective Date, (C) due to the action or
      inaction of the Company the Registration Statement is not declared effective
      within three (3) business days after receipt by the Company or its attorneys
      of
      a written or oral communication from the Commission that the Registration
      Statement will not be reviewed or that the Commission has no further comments,
      (D) if the registration statement described in Sections 11.1(i) or 11.1(ii)
      is
      not filed within 60 days after such written request, or is not declared
      effective within 90 days after such written request, or (E) any registration
      statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is filed and
      declared effective but shall thereafter cease to be effective without being
      succeeded within twenty-five (25) business days by an effective replacement
      or
      amended registration statement or for a period of time which shall exceed forty
      (45) days in the aggregate per year (defined as every rolling period of 365
      consecutive days commencing on the Actual Effective Date (each such event
      referred to in clauses (A) through (E) of this Section 11.4 is referred to
      herein as a "Non-Registration
      Event"),
      then
      the Company shall deliver to the holder of Registrable Securities, as
Liquidated
      Damages,
      an
      amount equal to one and one-half percent (1.5%) for each thirty (30) days (or
      such lesser pro-rata amount for any period of less than thirty (30) days) of
      the
      principal amount of the outstanding Notes and
      purchase price of Purchase Shares, Legal Fee Shares, Shares, Due Diligence
      Warrant Shares, and Warrant Shares issued upon conversion of Notes and exercise
      of Warrants held by Subscriber which are subject to such Non-Registration
      Event.
      The
      Company must pay the Liquidated Damages in cash. The Liquidated Damages must
      be
      paid within ten (10) days after the end of each thirty (30) day period or
      shorter part thereof for which Liquidated Damages are payable. In the event
      a
      Registration Statement is filed by the Filing Date but is withdrawn prior to
      being declared effective by the Commission, then such Registration Statement
      will be deemed to have not been filed and Liquidated Damages will be calculated
      accordingly. All
      oral
      or written comments received from the Commission relating to the Registration
      Statement must be satisfactorily responded to within
      ten (10) business days after receipt of comments from the Commission.
      Failure
      to
      timely respond to Commission comments is a Non-Registration Event for which
      Liquidated Damages shall accrue and be payable by the Company to the holders
      of
      Registrable Securities at the same rate and amounts set forth above calculated
      from the date the response was required to have been made.

     

    11.5. Expenses.
      All
      expenses incurred by the Company in complying with Section 11, including,
      without limitation, all registration and filing fees, printing expenses (if
      required), fees and disbursements of counsel and independent public accountants
      for the Company, fees and expenses (including reasonable counsel fees) incurred
      in connection with complying with state securities or “blue sky” laws, fees of
      the NASD, transfer taxes, and fees of transfer agents and registrars, are called
      “Registration
      Expenses.”
All
      underwriting discounts and selling commissions applicable to the sale of
      Registrable Securities are called "Selling
      Expenses."
      The
      Company will pay all Registration Expenses in connection with the registration
      statement under Section 11. Selling Expenses in connection with each
      registration statement under Section 11 shall be borne by the Seller and may
      be
      apportioned among the Sellers in proportion to the number of shares sold by
      the
      Seller relative to the number of shares sold under such registration statement
      or as all Sellers thereunder may agree.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11.6. Indemnification
      and Contribution.

     

    (a) In
      the
      event of a registration of any Registrable Securities under the 1933 Act
      pursuant to Section 11, the Company will, to the extent permitted by law,
      indemnify and hold harmless the Seller, each officers, directors, agents,
      Affiliates, members, managers, control persons, and principal shareholders
      of
      the Seller, each underwriter of such Registrable Securities thereunder and
      each
      other person, if any, who controls such Seller or underwriter within the meaning
      of the 1933 Act, against any losses, claims, damages or liabilities, joint
      or
      several, to which the Seller, or such underwriter or controlling person may
      become subject under the 1933 Act or otherwise, insofar as such losses, claims,
      damages or liabilities (or actions in respect thereof) arise out of or are
      based
      upon any untrue statement or alleged untrue statement of any material fact
      contained in any registration statement under which such Registrable Securities
      was registered under the 1933 Act pursuant to Section 11, any preliminary
      prospectus or final prospectus contained therein, or any amendment or supplement
      thereof, or arise out of or are based upon the omission or alleged omission
      to
      state therein a material fact required to be stated therein or necessary to
      make
      the statements therein not misleading in light of the circumstances when made,
      and will subject to the provisions of Section 11.6(c) reimburse the Seller,
      each
      such underwriter and each such controlling person for any legal or other
      expenses reasonably incurred by them in connection with investigating or
      defending any such loss, claim, damage, liability or action; provided, however,
      that the Company shall not be liable to the Seller to the extent that any such
      damages arise out of or are based upon an untrue statement or omission made
      in
      any preliminary prospectus if (i) the Seller failed to send or deliver a copy
      of
      the final prospectus delivered by the Company to the Seller with or prior to
      the
      delivery of written confirmation of the sale by the Seller to the person
      asserting the claim from which such damages arise, (ii) the final prospectus
      would have corrected such untrue statement or alleged untrue statement or such
      omission or alleged omission, or (iii) to the extent that any such loss, claim,
      damage or liability arises out of or is based upon an untrue statement or
      alleged untrue statement or omission or alleged omission so made in conformity
      with information furnished by any such Seller in writing specifically for use
      in
      such registration statement or prospectus. 

     

    (b) In
      the
      event of a registration of any of the Registrable Securities under the 1933
      Act
      pursuant to Section 11, each Seller severally but not jointly will, to the
      extent permitted by law, indemnify and hold harmless the Company, and each
      person, if any, who controls the Company within the meaning of the 1933 Act,
      each officer of the Company who signs the registration statement, each director
      of the Company, each underwriter and each person who controls any underwriter
      within the meaning of the 1933 Act, against all losses, claims, damages or
      liabilities, joint or several, to which the Company or such officer, director,
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in the registration statement
      under which such Registrable Securities were registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading,
      and will reimburse the Company and each such officer, director, underwriter
      and
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action, provided, however, that the Seller will be liable hereunder
      in any such case if and only to the extent that any such loss, claim, damage
      or
      liability arises out of or is based upon an untrue statement or alleged untrue
      statement or omission or alleged omission made in reliance upon and in
      conformity with information pertaining to such Seller, as such, furnished in
      writing to the Company by such Seller specifically for use in such registration
      statement or prospectus, and provided, further, however, that the liability
      of
      the Seller hereunder shall be limited to the net proceeds actually received
      by
      the Seller from the sale of Registrable Securities pursuant to such registration
      statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) Promptly
      after receipt by an indemnified party hereunder of notice of the commencement
      of
      any action, such indemnified party shall, if a claim in respect thereof is
      to be
      made against the indemnifying party hereunder, notify the indemnifying party
      in
      writing thereof, but the omission so to notify the indemnifying party shall
      not
      relieve it from any liability which it may have to such indemnified party other
      than under this Section 11.6(c) and shall only relieve it from any liability
      which it may have to such indemnified party under this Section 11.6(c), except
      and only if and to the extent the indemnifying party is prejudiced by such
      omission. In case any such action shall be brought against any indemnified
      party
      and it shall notify the indemnifying party of the commencement thereof, the
      indemnifying party shall be entitled to participate in and, to the extent it
      shall wish, to assume and undertake the defense thereof with counsel
      satisfactory to such indemnified party, and, after notice from the indemnifying
      party to such indemnified party of its election so to assume and undertake
      the
      defense thereof, the indemnifying party shall not be liable to such indemnified
      party under this Section 11.6(c) for any legal expenses subsequently incurred
      by
      such indemnified party in connection with the defense thereof other than
      reasonable costs of investigation and of liaison with counsel so selected,
      provided, however, that, if the defendants in any such action include both
      the
      indemnified party and the indemnifying party and the indemnifying party shall
      have reasonably concluded that there may be reasonable defenses available to
      indemnified party which are different from or additional to those available
      to
      the indemnifying party or if the interests of the indemnified party reasonably
      may be deemed to conflict with the interests of the indemnifying party, the
      indemnified parties, as a group, shall have the right to select one separate
      counsel, reasonably satisfactory to the indemnified and indemnifying party,
      and
      to assume such legal defenses and otherwise to participate in the defense of
      such action, with the reasonable expenses and fees of such separate counsel
      and
      other expenses related to such participation to be reimbursed by the
      indemnifying party as incurred.

     

    (d) In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the 1933 Act in any case in which either (i) a Seller, or any controlling
      person of a Seller, makes a claim for indemnification pursuant to this Section
      11.6 but it is judicially determined (by the entry of a final judgment or decree
      by a court of competent jurisdiction and the expiration of time to appeal or
      the
      denial of the last right of appeal) that such indemnification may not be
      enforced in such case notwithstanding the fact that this Section 11.6 provides
      for indemnification in such case, or (ii) contribution under the 1933 Act may
      be
      required on the part of the Seller or controlling person of the Seller in
      circumstances for which indemnification is not provided under this Section
      11.6;
      then, and in each such case, the Company and the Seller will contribute to
      the
      aggregate losses, claims, damages or liabilities to which they may be subject
      (after contribution from others) in such proportion so that the Seller is
      responsible only for the portion represented by the percentage that the public
      offering price of its securities offered by the registration statement bears
      to
      the public offering price of all securities offered by such registration
      statement, provided, however, that, in any such case, (y) the Seller will not
      be
      required to contribute any amount in excess of the public offering price of
      all
      such securities sold by it pursuant to such registration statement; and (z)
      no
      person or entity guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the 1933 Act) will be entitled to contribution from any person
      or entity who was not guilty of such fraudulent misrepresentation and
      provided, further, however, that the liability of the Seller hereunder shall
      be
      limited to the net proceeds actually received by the Seller from the sale of
      Registrable Securities pursuant to such Registration Statement..

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11.7. Delivery
      of Unlegended Shares.

     

    (a) Within
      three (3) business days (such third 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 the Registration Statement or Rule 144 under the 1933 Act, (ii)
      a
      representation that the prospectus delivery requirements, or the requirements
      of
      Rule 144, as applicable and if required, have been satisfied, and (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.

     

    (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 shall 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. If during any 360 day period, the Company fails to deliver Unlegended
      Shares as required by this Section 11.7 for an aggregate of thirty (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 thirty day period
      and the denominator of which is the lowest conversion price during such thirty
      day period, multiplied by the Purchase Price of such Common Stock and 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 seven (7) 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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e) In
      the
      event a Subscriber shall request delivery of Unlegended Shares as described
      in
      Section 11.7 or Warrant Shares upon exercise of Warrants and the Company is
      required to deliver such Unlegended Shares pursuant to Section 11.7 or the
      Warrant Shares pursuant to the Warrants, 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 Common
      Stock
      and Warrant Shares which are subject to the injunction or temporary restraining
      order, which bond shall remain in effect until the completion of
      arbitration/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.

    


    12. (a) Right
      of First Refusal.
      Until
      one year after the Second Closing Date, the Subscribers shall be given not
      less
      than ten business days prior written notice of any proposed sale by the Company
      of its common stock or other securities or equity linked debt obligations,
      except in connection with (i) full or partial consideration in connection with
      a
      strategic merger, acquisition, consolidation or purchase of substantially all
      of
      the securities
      or assets of corporation or other entity which holders of such securities or
      debt are not at any time granted registration rights, (ii)
      the
      Company’s issuance of securities in connection with strategic license agreements
      and other partnering arrangements so long as such issuances are not for the
      purpose of raising capital and which holders of such securities or debt are
      not
      at any time granted registration rights, (iii) the Company’s issuance of Common
      Stock or the issuances or grants of options to purchase Common Stock pursuant
      to
      stock option plans and employee stock purchase plans described on Schedule
      5(d)
      hereto at prices equal to or higher than the closing price of the Common Stock
      on the issue date of any of the foregoing, (iv) as a result of the exercise
      of
      Warrants or conversion of Notes which are granted or issued pursuant to this
      Agreement, or that have been issued prior to the Closing Date, the issuance
      of
      which has been disclosed in a Registration Statement filed not less than five
      days prior to the Closing Date, (v) the issuance of up to 1,000,000 Shares
      of
      the Company’s Common Stock until March 31, 2008 to attract key employees at
      valuation not less than the Conversion Price and which holders of such
      securities are not at any time granted registration rights, (vi) the Company’s
      issuance of securities as described in NHRA Sponsorship Agreement annexed hereto
      as Exhibit
      H,
      (vii)
      securities issued in payment of outstanding indebtednesses (for non-financing
      purposes) or to a vendor for professional services, and (vi) the payment of
      any
      interest on the Notes and Liquidated Damages pursuant to the Transaction
      Documents (collectively the foregoing are “Excepted
      Issuances”).
      The
      Subscribers who exercise their rights pursuant to this
      Section
      12(a) shall have the right during the ten business days following receipt of
      the
      notice to purchase in the aggregate up to one-half such offered common stock,
      debt or other securities in accordance with the terms and conditions set forth
      in the notice of sale in the same proportion to each other as their purchase
      of
      Notes in the Offering. In the event such terms and conditions are modified
      during the notice period, the Subscribers shall be given prompt notice of such
      modification and shall have the right during the ten business days following
      the
      notice of modification to exercise such right.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Favored
      Nations Provision.
      Other
      than in connection with the Excepted Issuances, if at any time the Notes or
      Warrants are outstanding, the Company shall agree to or issue (the “Lower
      Price Issuance”)
      any
      Common Stock or securities convertible into or exercisable for shares of Common
      Stock (or modify any of the foregoing which may be outstanding) to any person
      or
      entity at a price per share or conversion or exercise price per share which
      shall be less than the price in respect of the the Conversion Price in respect
      of the Shares, or if less than the Warrant exercise price in respect of the
      Warrant Shares, without the consent of each Subscriber, then the Company shall
      issue, for each such occasion, additional shares of Common Stock to each
      Subscriber respecting those Notes, Warrants, and Shares that remain outstanding
      at the time of the Lower Price Issuance so that the average per share purchase
      price of the shares of Common Stock issued to each Subscriber (of only the
      Common Stock or Warrant Shares still owned by a Subscriber) is equal to such
      other lower price per share and the Conversion Price and Warrant exercise price
      shall automatically be reduced to such other lower price. The average Purchase
      Price of the Shares and average exercise price in relation to the Warrant Shares
      shall be calculated separately for the Shares and Warrant Shares. The foregoing
      calculation and issuance shall be made separately for Shares received upon
      conversion of the Notes and separately for Warrant Shares. The delivery to
      a
      Subscriber of the additional shares of Common Stock shall be not later than
      the
      closing date of the transaction giving rise to the requirement to issue
      additional shares of Common Stock. Each Subscriber is granted the registration
      rights described in Section 11 hereof in relation to such additional shares
      of
      Common Stock. For purposes of the issuance and adjustment described in this
      paragraph, the issuance of any security of the Company carrying the right to
      convert such security into shares of Common Stock or of any warrant, right
      or
      option to purchase Common Stock shall result in the issuance of the additional
      shares of Common Stock upon the sooner of the agreement to or actual issuance
      of
      such convertible security, warrant, right or option and again at any time upon
      any subsequent issuances of shares of Common Stock upon exercise of such
      conversion or purchase rights if such issuance is at a price lower than the
      Conversion Price or Warrant exercise price in effect upon such issuance. The
      rights of each Subscriber set forth in this Section 12 are in addition to any
      other rights the Subscriber has pursuant to this Agreement, the Note, any
      Transaction Document, and any other agreement referred to or entered into in
      connection herewith or to which such Subscriber and Company are parties. Each
      Subscriber is also given the right to elect to substitute any term or terms
      of
      any other offering in connection with which such Subscriber has rights as
      described in Section 12(a), or any outstanding price protection, anti-dilution
      or reset rights granted to any holder of any of the Company’s equity or right to
      receive such equity, or any such rights which are granted after the Initial
      Closing Date for any term or terms of the Offering in connection with Securities
      owned by such Subscriber as of the date the notice described in Section 12(a)
      is
      required to be given to such Subscriber.

     

    (c) Maximum
      Exercise of Rights.
      In the
      event the exercise of the rights described in Sections 12(a) and 12(b)
would
      or
      could result in the issuance of an amount of Common Stock of the Company that
      would exceed the maximum amount that may be issued to a Subscriber calculated
      in
      the manner described in Section 7.3 of this Agreement, then the issuance of
      such
      additional shares of Common Stock of the Company to such Subscriber will be
      deferred in whole or in part until such time as such Subscriber is able to
      beneficially own such Common Stock without exceeding the applicable maximum
      amount set forth calculated in the manner described in Section 7.3 of this
      Agreement. The determination of when such Common Stock may be issued shall
      be
      made by each Subscriber as to only such Subscriber.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    13. Purchase
      Shares.
      Concurrently with the Initial Closing, the Company shall issue to the investors
      described on Schedule
      13
      hereto
      in the amounts described on Schedule
      13
      hereto
      an aggregate of 1,700,000 restricted shares of the Company’s Common Stock
      (“Purchase
      Shares”).
      In
      connection with the issuance of such Purchase Shares to the investors, the
      investors make all of the representations and warranties contained in Section
      4
      of this Agreement and the Company makes all of the representations and
      warranties and undertakes all of the covenants contained in Sections 5, 9 and
      10
      of this Agreement. Furthermore, in connection with such Purchase Shares, the
      investors are granted all of the registration rights contained in Section 11
      of
      this Agreement.

     

    14. 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. 

     

    (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 13(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 (including, but not
      limited to, the (i) inclusion of a Subscriber in the Registration Statement
      and
      (ii) review by, and consent to, such Registration Statement by a Subscriber)
      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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (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. 

     

    


     

    


     

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


     

    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:  	/s/ Roy
              Warren
	 	
              
Name:
              Roy Warren
	 	Title: President
	 	 
	 	Dated: October 23,
              2007




    



    


    


    
      	
              SUBSCRIBER

            	 	
              INITIAL
                CLOSING PURCHASE PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 	
              SECOND
                CLOSING PURCHASE PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 
	
              ROY
                WARREN

              11300
                Highway 1, Suite 202

              North
                Palm Beach, Florida 33408

              Fax:
                (561) 799-5039

            	 	
              $

            	
              50,000.00

            	 	
              $

            	
              50,000.00

            	 
	 	 	 	 	 	 	 	 
	
              By:
                /s/ Roy Warren

              Name:
                Roy Warren

            	 	 	 	 	 	 	 


    

    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


     

    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:  	/s/ Roy
              Warren
	 	
              
Name:
              Roy Warren
	 	Title: President
	 	 
	 	Dated: October 23,
              2007




    


    


    


    
      	
              SUBSCRIBER

            	 	
              INITIAL
                CLOSING

              PURCHASE
                PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 	
              SECOND
                CLOSING 

              PURCHASE
                PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 
	
              ALPHA
                CAPITAL ANSTALT

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

            	 	
              $

            	
              300,000.00

            	 	
              $

            	
              300,000.00

            	 
	 	 	 	 	 	 	 	 
	 

              s/

            	 	 	 	 	 	 	 


    

    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (C)

     

    


    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:  	/s/ Roy
              Warren
	 	
              
Name:
              Roy Warren
	 	Title:
              President
	 	 
	 	Dated: October 23,
              2007




    
       

    

    


    


    


    
      	
              SUBSCRIBER

            	 	
              INITIAL
                CLOSING

              PURCHASE
                PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 	
              SECOND
                CLOSING

              PURCHASE
                PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 
	
              WHALEHAVEN
                CAPITAL FUND LIMITED

              3rd
                Fl., 14 Par-La-Ville Rd.

              Hamilton,
                Bermuda HM08

              Fax:
                (201) 782-9327

            	 	
              $

            	
              150,000.00

            	 	
              $

            	
              150,000.00

            	 
	 	 	 	 	 	 	 	 
	/s/	 	 	 	 	 	 	 


    

    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (D)

     

    


    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:  	/s/ Roy
              Warren
	 	
              
Name:
              Roy Warren
	 	Title:
              President
	 	 
	 	
              Dated:
                October 23, 2007

            




    


    


    


    
      	
              SUBSCRIBER

            	 	
              INITIAL
                CLOSING

              PURCHASE
                PRICE

              AND
                PRINCIPAL

              AMOUNT
                OF NOTE

            	 	
              SECOND
                CLOSING

              PURCHASE
                PRICE

              AND
                PRINCIPAL 

              AMOUNT
                OF NOTE

            	 
	
              MONARCH
                CAPITAL FUND LTD.

              Harbour
                House, 2nd
                Floor

              Waterfront
                Drive, Road Town

              Tortola,
                BVI

              Fax
                (284) 494-4771

            	 	
              $

            	
              100,000.00

            	 	
              $

            	
              100,000.00

            	 
	 	 	 	 	 	 	 	 
	
              /s/

            	 	 	 	 	 	 	 


    

    


     

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    LIST
      OF EXHIBITS AND SCHEDULES

     

    
      
        	
                 

                Exhibit
                  A

              	
                 

                Form
                  of Note (see Exhibit 4.4 to Registration Statement)

              
	
                 

                Exhibit
                  B

              	
                 

                Form
                  of Class A and Class B Warrant (see Exhibit 4.3 to Registration
                  Statement)

              
	
                 

                Exhibit
                  C

              	
                 

                Escrow
                  Agreement (see Exhibit 10.3 to Registration Statement)

              
	
                 

                Exhibit
                  D

              	
                 

                Form
                  of Security Agreement (see Exhibit 10.4 to Registration
                  Statement)

              
	
                 

                Exhibit
                  E

              	
                 

                Form
                  of Subsidiary Guaranty (see Exhibit 10.5 to Registration
                  Statement)

              
	
                 

                Exhibit
                  F

              	
                 

                Form
                  of Collateral Agent Agreement (see Exhibit 10.6 to Registration
                  Statement)

              
	
                 

                Exhibit
                  G

              	
                 

                Form
                  of Legal Opinion (omitted)

              
	
                 

                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(f)

              	
                 

                Use
                  of Proceeds

              
	
                 

                Schedule
                  11.1

              	
                 

                Other
                  Registrable Shares

              
	
                 

                Schedule
                  13

              	
                 

                Purchase
                  Shares

              


      


      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    SCHEDULE
      5(a) Subsidiaries

     

    


    Consistent
      with the Agreement and Plan of Merger among the Company, MH 09122007, Inc.
      and
      Attitude Drink Company, Inc. following completion of the merger that occurred
      on
      September 19, 2007, 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

    


    As
      of
      September 30, 2007, the Company has 120,000,000 shares consisting of 100,000,000
      shares of common stock, $.001 par value, of which 5,000,000 shares are issued
      and outstanding and 20,000,000 shares of preferred stock, $.001 par value,
      of
      which 75,000 shares are issued and outstanding.

    


    The
      Company has designated 2,000,000 shares of its preferred stock as Series A
      Convertible Preferred Stock, $.001 par value, (the “Series A”) of which 75,000
      shares of Series A are issued and outstanding. The Series A has 6:1 voting
      rights, converts into 6 shares of common stock and is subject to redemption
      by
      the Company under certain circumstances. [450,000 shares of common stock]


    


    The
      Company has created, or will create, the 2007 Stock Compensation and Incentive
      Plan and has 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. Further, the Company has entered a NHRA Race
      Car Sponsorship Agreement that grants the counterparty, Knoll Gas & Energy,
      Inc. the right (until March 31, 2008) to exchange the 5% royalties payable
      under
      the agreement for up to 2,000,000 shares of common stock.

    


    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

    


    Within
      60
      days of the Initial Closing, the Company will employ as the transfer agent
      for
      the Common Stock, Shares and Warrant Shares a participant in the Depository
      Trust Company Automated Securities Transfer Program.


    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    SCHEDULE
      8(a) Placement Fees

     

    None

     

    SCHEDULE
      8(b) Due Diligence Fees and Warrants

     

    


     

    Cash
      of
      8% of Purchase Price payable on Initial and Second Closing Date.

     

    On
      Initial Closing Date, 1,000,000 Class A Warrants identical to the Warrants
      issued and issuable to the Due Diligence Fee Recipient, and containing all
      of
      the rights including but not limited to the registration rights and
      anti-dilution protections set forth in this Agreement.

     

    SCHEDULE
      8(c) Legal Fees

     

    On
      the
      Initial Closing Date, $20,000 (“Cash
      Legal Fees”)
      and
      60,600 Shares of the Company’s Common Stock (“Legal
      Fee Shares”)

     

    


     

    SCHEDULE
      9(f) Use of Proceeds

     

    


    
      	
              Gross
                Amount

            	
              Initial
                Closing

            	
              Second
                Closing

            
	 	
              $600,000

            	
              $600,000

            
	
              less
                Due Diligence Fee

            	
              $48,000
                

            	
              $48,000
                

            
	
              less
                Subscriber’s Legal Fees

            	
              $20,000
                

            	 
	 	 	 
	
              Net
                to Company

            	
              $532,000

            	
              $552,000

            
	
              Rent
                through July 1, 2008

            	
              $25,000

            	
              $0

            
	
              Consulting
                Fees

            	
              $100,000

            	
              $200,000

            
	
              Employee
                Compensation

            	
              $150,000

            	
              $150,000

            
	
              Energy
                Drink Inventory

            	
              $75,000

            	
              $75,000

            
	
              Milk
                Based Drink Inventory

            	
              $10,000

            	
              $50,000

            
	
              Marketing
                & Distribution

            	
              $40,000

            	
              $25,000

            
	
              Professional
                Services

            	
              $50,000

            	
              $30,000

            
	
              Other

            	
              $82,000

            	
              $22,000

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    


     

    SCHEDULE
      11.1 Other Registrable Securities

     

    


    The
      Company does not have any obligations to register any of its securities for
      resale by the current owners. The Company reserves the right to include up
      to
      1,000,000 shares of its common stock held by the Company’s pre merger
      stockholders based upon comments from the Financial Industry Regulatory
      Authority concerning the Company’s Form 211.

    


    SCHEDULE
      11.2 Registration Shares & Priority

    


    Based
      upon the transaction documents, the Company shall register for resale the
      following shares:


    
      

      
        	
                Shares
                  

              	
                1,500,000

              	
                (plus
                  200,000 shares for SMIVEL LLC)

              
	
                Legal
                  Fee Shares

              	
                60,600

              	 
	
                Conversion
                  Shares 

              	
                4,200,000
                  

              	
                (being
                  175% of the shares issuable upon conversion of the Initial Closing
                  Notes
                  and Second Closing Notes)

              
	
                Warrant
                  Shares

              	
                2,400,000

              	 
	
                Due
                  Diligence Warrant Shares

              	
                1,000,000

              	 


      

       

    

    SCHEDULE
      13

    


    PURCHASE
      SHARES

    


    


    
      	
              PURCHASE
                SHARE INVESTOR

            	
              PURCHASE
                SHARES

            
	
              MOMONA
                CAPITAL

              3
                Martha Road

              Monsey,
                NY 10952-1407

              Tax
                ID: Omitted

            	
              1,470,000

            
	
              EFCOR
                LLC

              72
                Pond Road

              Woodbury,
                NY 11797

              Tax
                ID: Omitted

            	
              30,000

            
	
              TOTAL

            	
              1,500,000