Document:

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.

      

      
        	 	
                Right
                  to Purchase ____________ shares of Common Stock of Attitude Drinks
                  Inc.
                  (subject to adjustment as provided
                  herein)

              

      

      

      FORM
        OF CLASS A AND CLASS B COMMON STOCK PURCHASE WARRANT

      

      
        	
                No. 2008-A/B-005

              	
                Issue
                  Date: September ___, 2008

              

      

    

     

    ATTITUDE
      DRINKS INC., a corporation organized under the laws of the State of Delaware
      (the “Company”), hereby certifies that, for value received,
      __________________________,
      _____________________________________________________________, or its assigns
      (the “Holder”), is entitled, subject to the terms set forth below, to purchase
      from the Company at any time after the Issue Date until 5:00 p.m., E.S.T on
      the
      fifth anniversary of the Issue Date (the “Expiration Date”), up to ____________
      fully paid and nonassessable shares of Common Stock at a per share purchase
      price of $_____ [$.50
      for
      the Class A Warrants, and 150% of the exercise price of the Class A Warrant
      in
      effect at the time of such exercise for the Class B, C, D and E Warrants,
      subject to adjustment as described herein].
      The
      aforedescribed purchase price per share, as adjusted from time to time as herein
      provided, is referred to herein as the "Purchase Price." The number and
      character of such shares of Common Stock and the Purchase Price are subject
      to
      adjustment as provided herein. The Company may reduce the Purchase Price for
      some or all of the Warrants, temporarily or permanently. Capitalized terms
      used
      and not otherwise defined herein shall have the meanings set forth in that
      certain Subscription Agreement (the “Subscription
      Agreement”),
      dated
      as of September ___, 2008, entered into by the Company and the
      Holder.

    

    As
      used
      herein the following terms, unless the context otherwise requires, have the
      following respective meanings: 

     

    (a) The
      term
“Company” shall include Attitude Drinks Inc. and any corporation which shall
      succeed or assume the obligations of Attitude Drinks Inc. hereunder.

     

    (b) The
      term
“Common Stock” includes (a) the Company's Common Stock, $0.001 par value
      per share, as authorized on the date of the Subscription Agreement, and (b)
      any
      other securities into which or for which any of the securities described in
      (a) may be converted or exchanged pursuant to a plan of recapitalization,
      reorganization, merger, sale of assets or otherwise.

     

    (c) The
      term
“Other Securities” refers to any stock (other than Common Stock) and other
      securities of the Company or any other person (corporate or otherwise) which
      the
      holder of the Warrant at any time shall be entitled to receive, or shall have
      received, on the exercise of the Warrant, in lieu of or in addition to Common
      Stock, or which at any time shall be issuable or shall have been issued in
      exchange for or in replacement of Common Stock or Other Securities pursuant
      to
      Section 4 or otherwise. 

     

    
      
        
          
          

        

        
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    (d) The
      term
“Warrant Shares” shall mean the Common Stock issuable upon exercise of this
      Warrant.

     

    1. Exercise
      of Warrant.

     

    1.1. Number
      of Shares Issuable upon Exercise.
      From
      and after the Issue Date through and including the Expiration Date, the Holder
      hereof shall be entitled to receive, upon exercise of this Warrant in whole
      in
      accordance with the terms of subsection 1.2 or upon exercise of this
      Warrant in part in accordance with subsection 1.3, shares of Common Stock
      of the Company, subject to adjustment pursuant to Section 4.

     

    1.2. Full
      Exercise.
      This
      Warrant may be exercised in full by the Holder hereof by delivery of an original
      or facsimile copy of the form of subscription attached as Exhibit A hereto
      (the “Subscription Form”) duly executed by such Holder and delivery within two
      days thereafter of payment, in cash, wire transfer or by certified or official
      bank check payable to the order of the Company, in the amount obtained by
      multiplying the number of shares of Common Stock for which this Warrant is
      then
      exercisable by the Purchase Price then in effect. The original Warrant is not
      required to be surrendered to the Company until it has been fully exercised.
      

     

    1.3. Partial
      Exercise.
      This
      Warrant may be exercised in part (but not for a fractional share) by delivery
      of
      a Subscription Form in the manner and at the place provided in
      subsection 1.2 except that the amount payable by the Holder on such partial
      exercise shall be the amount obtained by multiplying (a) the number of
      whole shares of Common Stock designated by the Holder in the Subscription Form
      by (b) the Purchase Price then in effect. On any such partial exercise
      provided the Holder has surrendered the original Warrant, the Company, at its
      expense, will forthwith issue and deliver to or upon the order of the Holder
      hereof a new Warrant of like tenor, in the name of the Holder hereof or as
      such
      Holder (upon payment by such Holder of any applicable transfer taxes) may
      request, the whole number of shares of Common Stock for which such Warrant
      may
      still be exercised for the balance of.

     

    1.4. Fair
      Market Value.
      Fair
      Market Value of a share of Common Stock as of a particular date (the
      "Determination Date") shall mean: 

     

    (a) If
      the
      Company's Common Stock is traded on an exchange or is quoted on the NASDAQ
      Global Market, Nasdaq Global Select Market, the NASDAQ Capital Market, the
      New
      York Stock Exchange or the American Stock Exchange, LLC, then the average of
      the
      closing or last sale prices, respectively, reported for the ten trading days
      immediately preceding the Determination Date;

     

    (b) If
      the
      Company's Common Stock is not traded on an exchange or on the NASDAQ Global
      Market, Nasdaq Global Select Market, the NASDAQ Capital Market, the New York
      Stock Exchange or the American Stock Exchange, LLC, but is traded in the
      over-the-counter market, then the average of the closing bid and ask prices
      reported for the ten trading days immediately preceding the Determination
      Date;

     

    (c) Except
      as
      provided in clause (d) below and Section 3.1, if the Company's Common Stock
      is not publicly traded, then as the Holder and the Company agree, or in the
      absence of such an agreement, by arbitration in accordance with the rules then
      standing of the American Arbitration Association, before a single arbitrator
      to
      be chosen from a panel of persons qualified by education and training to pass
      on
      the matter to be decided; or

     

    (d) If
      the
      Determination Date is the date of a liquidation, dissolution or winding up,
      or
      any event deemed to be a liquidation, dissolution or winding up pursuant to
      the
      Company's charter, then all amounts to be payable per share to holders of the
      Common Stock pursuant to the charter in the event of such liquidation,
      dissolution or winding up, plus all other amounts to be payable per share in
      respect of the Common Stock in liquidation under the charter, assuming for
      the
      purposes of this clause (d) that all of the shares of Common Stock then
      issuable upon exercise of all of the Warrants are outstanding at the
      Determination Date.

     

    
      
        
          
          

        

        
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    1.5. Company
      Acknowledgment.
      The
      Company will, at the time of the exercise of the Warrant, upon the request
      of
      the Holder hereof acknowledge in writing its continuing obligation to afford
      to
      such Holder any rights to which such Holder shall continue to be entitled after
      such exercise in accordance with the provisions of this Warrant. If the Holder
      shall fail to make any such request, such failure shall not affect the
      continuing obligation of the Company to afford to such Holder any such
      rights.

     

    1.6. Trustee
      for Warrant Holders.
      In the
      event that a bank or trust company shall have been appointed as trustee for
      the
      Holder of the Warrants pursuant to Subsection 3.2, such bank or trust
      company shall have all the powers and duties of a warrant agent (as hereinafter
      described) and shall accept, in its own name for the account of the Company
      or
      such successor person as may be entitled thereto, all amounts otherwise payable
      to the Company or such successor, as the case may be, on exercise of this
      Warrant pursuant to this Section 1. 

     

    1.7 Delivery
      of Stock Certificates, etc. on Exercise.
      The
      Company agrees that the shares of Common Stock purchased upon exercise of this
      Warrant shall be deemed to be issued to the Holder hereof as the record owner
      of
      such shares as of the close of business on the date on which delivery of a
      Subscription Form shall have occurred and payment made for such shares as
      aforesaid. As soon as practicable after the exercise of this Warrant in full
      or
      in part, and in any event within three (3) business
      days
      thereafter (“Warrant Share Delivery Date”), the Company at its expense
      (including the payment by it of any applicable issue taxes) will cause to be
      issued in the name of and delivered to the Holder hereof, or as such Holder
      (upon payment by such Holder of any applicable transfer taxes) may direct in
      compliance with applicable securities laws, a certificate or certificates for
      the number of duly and validly issued, fully paid and non-assessable shares
      of
      Common Stock (or Other Securities) to which such Holder shall be entitled on
      such exercise, plus, in lieu of any fractional share to which such Holder would
      otherwise be entitled, cash equal to such fraction multiplied by the then Fair
      Market Value of one full share of Common Stock, together with any other stock
      or
      other securities and property (including cash, where applicable) to which such
      Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
      The Company understands that a delay in the delivery of the Warrant Shares
      after
      the Warrant Share Delivery Date could result in economic loss to the Holder.
      As
      compensation to the Holder for such loss, the Company agrees to pay (as
      liquidated damages and not as a penalty) to the Holder for late issuance of
      Warrant Shares upon exercise of this Warrant the proportionate amount of $100
      per business day after the Warrant Share Delivery Date for each $10,000 of
      Purchase Price of Warrant Shares for which this Warrant is exercised 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 Holder, in the event that
      the
      Company fails for any reason to effect delivery of the Warrant Shares by the
      Warrant Share Delivery Date, the Holder may revoke all or part of the relevant
      Warrant exercise by delivery of a notice to such effect to the Company,
      whereupon the Company and the Holder shall each be restored to their respective
      positions immediately prior to the exercise of the relevant portion of this
      Warrant, except that the liquidated damages described above shall be payable
      through the date notice of revocation or rescission is given to the Company.
      

     

    1.8 Buy-In.
      In
      addition to any other rights available to the Holder, if the Company fails
      to
      deliver to a Holder the Warrant Shares as required pursuant to this Warrant,
      within seven (7) business days after the Warrant Share Delivery Date and the
      Holder or a broker on the Holder’s behalf, purchases (in an open market
      transaction or otherwise) shares of common stock to deliver in satisfaction
      of a
      sale by such Holder of the Warrant Shares which the Holder was entitled to
      receive from the Company (a "Buy-In"),
      then
      the Company shall pay in cash to the Holder (in addition to any remedies
      available to or elected by the Holder) the amount by which (A) the Holder'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
      Warrant Shares
      required
      to have been delivered 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 Holder 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
      Warrant Shares to have been received upon exercise of this Warrant, the Company
      shall be required to pay the Holder $1,000,
      plus interest. The
      Holder shall provide the Company written notice indicating the amounts payable
      to the Holder in respect of the Buy-In.

     

    
      
        
          
          

        

        
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    [FOR
      CLASS A WARRANTS ONLY]

     

    1.9 Additional
      Warrants.
      In
      addition to Warrant Shares, upon exercise of this Warrant, the Company will
      deliver to the Holder, one Class B Warrant for each Warrant Share that would
      be
      delivered upon exercise of this Warrant (“Springing Warrants”). The terms of the
      Class B Warrant are described in the Subscription Agreement and form of Class
      B
      Warrant annexed thereto. The delivery date of such Class B Warrants shall be
      deemed the “Issue Date” of such Class B Warrants. In the event of a cashless
      exercise pursuant to Section 2 below, the number of Class B Warrants to be
      delivered upon exercise shall be determined based upon the number of Warrant
      Shares which would be deliverable had such exercise been on a “cashless” basis.
      The Class B Warrants must be delivered not later than five business days after
      the exercise date of this Class A Warrant. Failure to timely deliver the Class
      B
      Warrants is a material default of the Company’s obligations. The features of the
      Springing Warrants described above shall apply upon the issuance of any
      subsequent Springing Warrants, so that if a Class B Warrant is exercised as
      described above, a Class C Warrant will be issued and similarly if a Class
      C
      Warrant is exercised a Class D Warrant will be issued, and so on.

     

    2. Cashless
      Exercise.

     

    (a) Payment
      upon exercise may be made at the option of the Holder either in (i) cash,
      wire transfer or by certified or official bank check payable to the order of
      the
      Company equal to the applicable aggregate Purchase Price, (ii) by delivery
      of
      Common Stock issuable upon exercise of the Warrants in accordance with
      Section (b) below or (iii) by a combination of any of the
      foregoing methods, for the number of Common Stock specified in such form (as
      such exercise number shall be adjusted to reflect any adjustment in the total
      number of shares of Common Stock issuable to the holder per the terms of this
      Warrant) and the holder shall thereupon be entitled to receive the number of
      duly authorized, validly issued, fully-paid and non-assessable shares of Common
      Stock (or Other Securities) determined as provided herein.

     

    (b) Subject
      to the provisions herein to the contrary, if the Fair Market Value of one share
      of Common Stock is greater than the Purchase Price (at the date of calculation
      as set forth below), in lieu of exercising this Warrant for cash, the holder
      may
      elect to receive shares equal to the value (as determined below) of this Warrant
      (or the portion thereof being cancelled) by surrender of this Warrant at the
      principal office of the Company together with the properly endorsed Subscription
      Form in which event the Company shall issue to the holder a number of shares
      of
      Common Stock computed using the following formula:

     

    X=Y
      (A-B)

    A

    

    
      	
            	Where	
              X= the
                number of shares of Common Stock to be issued to the
                holder

            

    

    

    
      	 	
              Y=

            	
              the
                number of shares of Common Stock purchasable under the Warrant or,
                if only
                a portion of the Warrant is being exercised, the portion of the Warrant
                being exercised (at the date of such
                calculation)

            

    

     

    
      	 	
              A=

            	
              the
                average of the closing sale prices of the Common Stock for the five
                (5)
                Trading Days immediately prior to (but not including) the Exercise
                Date,
                or Fair Market Value, whichever is
                less

            

    

     

    
      
        
          
          

        

        
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              B=

            	
              Purchase
                Price (as adjusted to the date of such
                calculation)

            

    

     

    (c) The
      Holder may employ the cashless exercise feature described in Section (b) above
      at any time.

     

    For
      purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
      and acknowledged that the Warrant Shares issued in a cashless exercise
      transaction shall be deemed to have been acquired by the Holder, and the holding
      period for the Warrant Shares shall be deemed to have commenced, on the date
      this Warrant was originally issued pursuant to the Subscription
      Agreement.

     

    3. Adjustment
      for Reorganization, Consolidation, Merger, etc.

     

    3.1. Fundamental Transaction. 
      If, at any time while this Warrant is outstanding, (A) the Company 
effects any merger or  consolidation  of the Company with or into
      another entity, (B) the Company effects any sale of all or
      substantially all of its assets in one or
      a series of related transactions,  (C)
      any tender offer or exchange offer (whether by the
      Company or another entity) is completed pursuant to which holders of Common
      Stock are permitted to tender or exchange their
      shares for other securities, cash or property, (D) the
      Company consummates a stock purchase agreement or other business combination
      (including, without limitation, a reorganization, recapitalization, spin-off
      or
      scheme of arrangement) with one or more persons or entities whereby such other
      persons or entities acquire more than the 50% of the outstanding shares of
      Common Stock (not including any shares of Common Stock held by such other
      persons or entities making or party to, or associated or affiliated with the
      other persons or entities making or party to, such stock purchase agreement
      or
      other business combination), (E) any "person" or "group" (as these terms are
      used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall
      become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
      directly or indirectly, of 50% of the aggregate Common Stock of the
      Company, or (F) the Company effects any reclassification of
      the Common Stock or any compulsory share exchange
      pursuant to
      which the Common Stock is effectively converted into
      or exchanged for other securities, cash or property (in any such
      case, a "Fundamental  Transaction"), then, upon
      any subsequent exercise of this Warrant, the Holder shall have the
      right to receive, for each Warrant Share that would have been issuable upon
      such
      exercise immediately prior to the occurrence of such
      Fundamental Transaction, at the option of the Holder, (a) upon
      exercise of this Warrant, the number of shares of Common Stock of
      the successor or acquiring corporation or of the
      Company, if it is the surviving corporation, and any additional
      consideration (the "Alternate Consideration") receivable upon or as
      a result of such reorganization,
      reclassification, merger, consolidation or disposition of assets
      by a Holder of the number of shares of Common Stock for
      which this Warrant is exercisable immediately prior to such
      event or (b) if the Company is acquired in (1) a transaction
      where the consideration paid to the holders of the Common Stock consists solely
      of cash, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the 1934
      Act, or (3) a transaction involving a person or entity not traded on a national
      securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market
      or the Nasdaq Capital Market, cash equal to the Black-Scholes
      Value.  For purposes of any such exercise, the
      determination of the Purchase Price shall
      be appropriately adjusted to apply to such Alternate
      Consideration based on the amount of
      Alternate Consideration issuable in respect of one share of Common
      Stock in such Fundamental Transaction, and
      the Company shall apportion the Purchase Price
      among the Alternate Consideration in a
      reasonable manner reflecting the relative value of any different
      components of the Alternate Consideration.  If holders of Common Stock
      are given any choice as to the securities, cash or property to be
      received in a Fundamental Transaction, then the Holder shall be given
      the same choice as to the Alternate Consideration it receives upon any exercise
      of this Warrant following such Fundamental Transaction.  To the extent
      necessary to effectuate the foregoing provisions, any
      successor to the Company or surviving entity in such
      Fundamental Transaction shall issue to the Holder a
      new warrant consistent with
      the foregoing provisions and evidencing the
      Holder's right to exercise such warrant into Alternate
      Consideration.  The terms of any agreement pursuant to which a
      Fundamental Transaction is effected shall include terms requiring any such
      successor or surviving entity to comply with the provisions of
      this Section 3.1 and insuring that this Warrant (or any such
      replacement security) will be
      similarly adjusted upon any subsequent transaction analogous to a
      Fundamental Transaction. “Black-Scholes Value” shall be determined in accordance
      with the Black-Scholes Option Pricing Model obtained from the “OV” function on
      Bloomberg L.P. using (i) a price per share of Common Stock equal to the VWAP
      of
      the Common Stock for the Trading Day immediately preceding the date of
      consummation of the applicable Fundamental Transaction, (ii) a risk-free
      interest rate corresponding to the U.S. Treasury rate for a period equal to
      the
      remaining term of this Warrant as of the date of such request and (iii) an
      expected volatility equal to the 100 day volatility obtained from the HVT
      function on Bloomberg L.P. determined as of the Trading Day immediately
      following the public announcement of the applicable Fundamental
      Transaction.

     

    
      
        
          
          

        

        
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    3.2. Dissolution.
      In the
      event of any dissolution of the Company following the transfer of all or
      substantially all of its properties or assets, the Company, prior to such
      dissolution, shall at its expense deliver or cause to be delivered the stock
      and
      other securities and property (including cash, where applicable) receivable
      by
      the Holder of the Warrants after the effective date of such dissolution pursuant
      to this Section 3 to a bank or trust company (a "Trustee") having its
      principal office in New York, NY, as trustee for the Holder of the
      Warrants. Such property shall be delivered only upon payment of the Warrant
      exercise price. 

     

    3.3. Continuation
      of Terms.
      Upon
      any reorganization, consolidation, merger or transfer (and any dissolution
      following any transfer) referred to in this Section 3, this Warrant shall
      continue in full force and effect and the terms hereof shall be applicable
      to
      the Other Securities and property receivable on the exercise of this Warrant
      after the consummation of such reorganization, consolidation or merger or the
      effective date of dissolution following any such transfer, as the case may
      be,
      and shall be binding upon the issuer of any Other Securities, including, in
      the
      case of any such transfer, the person acquiring all or substantially all of
      the
      properties or assets of the Company, whether or not such person shall have
      expressly assumed the terms of this Warrant as provided in Section 4. In
      the event this Warrant does not continue in full force and effect after the
      consummation of the transaction described in this Section 3, then only in
      such event will the Company's securities and property (including cash, where
      applicable) receivable by the Holder of the Warrants be delivered to the Trustee
      as contemplated by Section 3.2.

     

    3.4 Share
      Issuance.
      Until
      the Expiration Date, if the Company shall issue any Common Stock except for
      the
      Excepted Issuances (as defined in the Subscription Agreement), prior to the
      complete exercise of this Warrant for a consideration less than the Purchase
      Price that would be in effect at the time of such issue, then, and thereafter
      successively upon each such issue, the Purchase Price shall be reduced to such
      other lower price for then outstanding Warrants. For purposes of this
      adjustment, the issuance of any security or debt instrument of the Company
      carrying the right to convert such security or debt instrument into Common
      Stock
      or of any warrant, right or option to purchase Common Stock shall result in
      an
      adjustment to the Purchase Price upon the issuance of the above-described
      security, debt instrument, warrant, right, or option if such issuance is at
      a
      price lower than the Purchase Price in effect upon such issuance 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 Purchase Price in effect upon such issuance. The reduction of the Purchase
      Price described in this Section 3.4 is subject to the provisions of, and in
      addition to the other rights of the Holder described in, the Subscription
      Agreement. The
      number of shares of Common Stock that the Holder of this Warrant shall
      thereafter, on the exercise hereof, be entitled to receive shall be adjusted
      to
      a number determined by multiplying the number of shares of Common Stock that
      would otherwise (but for the provisions of this Section 3.4 be issuable on
      such
      exercise by a fraction of which (a) the numerator is the Purchase Price that
      would otherwise (but for the provisions of this Section 3.4 be in effect, and
      (b) the denominator is the Purchase Price in effect on the date of such
      exercise.

     

    4. Extraordinary
      Events Regarding Common Stock.
      In the
      event that the Company shall (a) issue additional shares of the Common
      Stock as a dividend or other distribution on outstanding Common Stock,
      (b) subdivide its outstanding shares of Common Stock, or (c) combine
      its outstanding shares of the Common Stock into a smaller number of shares
      of
      the Common Stock, then, in each such event, the Purchase Price shall,
      simultaneously with the happening of such event, be adjusted by multiplying
      the
      then Purchase Price by a fraction, the numerator of which shall be the number
      of
      shares of Common Stock outstanding immediately prior to such event and the
      denominator of which shall be the number of shares of Common Stock outstanding
      immediately after such event, and the product so obtained shall thereafter
      be
      the Purchase Price then in effect. The Purchase Price, as so adjusted, shall
      be
      readjusted in the same manner upon the happening of any successive event or
      events described herein in this Section 4. The number of shares of Common
      Stock that the Holder of this Warrant shall thereafter, on the exercise hereof,
      be entitled to receive shall be adjusted to a number determined by multiplying
      the number of shares of Common Stock that would otherwise (but for the
      provisions of this Section 4 be issuable on such exercise by a fraction of
      which
      (a) the numerator is the Purchase Price that would otherwise (but for the
      provisions of this Section 4 be in effect, and (b) the denominator is the
      Purchase Price in effect on the date of such exercise.

     

    
      
        
          
          

        

        
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    5. Certificate
      as to Adjustments.
      In each
      case of any adjustment or readjustment in the shares of Common Stock (or Other
      Securities) issuable on the exercise of the Warrants, the Company at its expense
      will promptly cause its Chief Financial Officer or other appropriate designee
      to
      compute such adjustment or readjustment in accordance with the terms of the
      Warrant and prepare a certificate setting forth such adjustment or readjustment
      and showing in detail the facts upon which such adjustment or readjustment
      is
      based, including a statement of (a) the consideration received or
      receivable by the Company for any additional shares of Common Stock (or Other
      Securities) issued or sold or deemed to have been issued or sold, (b) the
      number of shares of Common Stock (or Other Securities) outstanding or deemed
      to
      be outstanding, and (c) the Purchase Price and the number of shares of
      Common Stock to be received upon exercise of this Warrant, in effect immediately
      prior to such adjustment or readjustment and as adjusted or readjusted as
      provided in this Warrant. The Company will forthwith mail a copy of each such
      certificate to the Holder of the Warrant and any Warrant Agent of the Company
      (appointed pursuant to Section 11 hereof).

     

    6. Reservation
      of Stock, etc. Issuable on Exercise of Warrant; Financial
      Statements.
      The
      Company will at all times reserve and keep available, solely for issuance and
      delivery on the exercise of the Warrants, all shares of Common Stock (or Other
      Securities) from time to time issuable on the exercise of the Warrant. This
      Warrant entitles the Holder hereof to receive copies of all financial and other
      information distributed or required to be distributed to the holders of the
      Company's Common Stock. 

     

    7. Assignment;
      Exchange of Warrant.
      Subject
      to compliance with applicable securities laws, this Warrant, and the rights
      evidenced hereby, may be transferred by any registered holder hereof (a
      "Transferor"). On the surrender for exchange of this Warrant, with the
      Transferor's endorsement in the form of Exhibit B attached hereto (the
“Transferor Endorsement Form") and together with an opinion of counsel
      reasonably satisfactory to the Company that the transfer of this Warrant will
      be
      in compliance with applicable securities laws, the Company will issue and
      deliver to or on the order of the Transferor thereof a new Warrant or Warrants
      of like tenor, in the name of the Transferor and/or the transferee(s) specified
      in such Transferor Endorsement Form (each a "Transferee"), calling in the
      aggregate on the face or faces thereof for the number of shares of Common Stock
      called for on the face or faces of the Warrant so surrendered by the
      Transferor.

     

    8. Replacement
      of Warrant.
      On
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this Warrant and, in the case of any such loss,
      theft or destruction of this Warrant, on delivery of an indemnity agreement
      or
      security reasonably satisfactory in form and amount to the Company or, in the
      case of any such mutilation, on surrender and cancellation of this Warrant,
      the
      Company at its expense, twice only, will execute and deliver, in lieu thereof,
      a
      new Warrant of like tenor.

     

    
      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

    

    

    9. Registration
      Rights.
      The
      Holder of this Warrant has been granted certain registration rights by the
      Company. These registration rights are set forth in the Subscription Agreement.
      The terms of the Subscription Agreement are incorporated herein by this
      reference.

     

    10. Maximum
      Exercise.
      The
      Holder shall not be entitled to exercise this Warrant on an exercise date nor
      may the Company exercise its right to give a Call Notice (as defined in Section
      11) in connection with that number of Common Stock which would be in excess
      of
      the sum of (i) the number of shares of Common Stock beneficially owned by
      the Holder and its affiliates on an exercise date or Call Date, and
      (ii) the number of Common Stock issuable upon the exercise of this Warrant
      with respect to which the determination of this limitation is being made on
      an
      exercise date or Call Date, which would result in beneficial ownership by the
      Holder and its affiliates of more than 9.99% of the outstanding Common Stock
      on
      such date. For the purposes of 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 Regulation 13d-3 thereunder.
      Subject
      to the foregoing, the Holder shall not be limited to aggregate exercises which
      would result in the issuance of more than 9.99%. The
      restriction described in this paragraph may be waived, in whole or in part,
      upon sixty-one (61) days prior notice from the Holder to the Company to increase
      such percentage to up to 9.99%, but not in excess of 9.99%. The Holder may
      decide whether to convert a Convertible Note or exercise this Warrant to achieve
      an actual 9.99% or up to 9.99% ownership position as described above, but not
      in
      excess of 9.99%.

     

    11. Redemption.
      Not
      later than 90 days after the Issue Date of this Warrant, upon 10 days prior
      written notice, the Company will have the option of either (i) redeeming this
      Warrant at a per share price of $0.10, or (ii) electing to immediately reduce
      the Purchase Price to $.01.

     

    12. Warrant
      Agent.
      The
      Company may, by written notice to the Holder of the Warrant, appoint an agent
      (a
“Warrant Agent”) for the purpose of issuing Common Stock (or Other Securities)
      on the exercise of this Warrant pursuant to Section 1, exchanging this
      Warrant pursuant to Section 7, and replacing this Warrant pursuant to
      Section 8, or any of the foregoing, and thereafter any such issuance,
      exchange or replacement, as the case may be, shall be made at such office by
      such Warrant Agent. 

     

    13. Transfer
      on the Company's Books.
      Until
      this Warrant is transferred on the books of the Company, the Company may treat
      the registered holder hereof as the absolute owner hereof for all purposes,
      notwithstanding any notice to the contrary. 

     

    14. 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: if to the Company, to: Attitude
      Drinks Inc., 10415 Riverside Drive, Suite 101, Palm Beach Gardens, FL
      33410,
      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 Holder, to the address and telecopier number listed
      on the first paragraph of this Warrant, with a copy by telecopier only to:
      Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York
      10176, telecopier number: (212) 697-3575.

    

    
      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

     

    15. Law
      Governing This Warrant.
      This
      Warrant 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 Warrant 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 Warrant 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
      Company and Holder 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 Warrant 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.

     

    IN
      WITNESS WHEREOF, the Company has executed this Warrant as of the date first
      written above. 

     

    
      	 	
              ATTITUDE
                DRINKS INC. 

            
	 	 	 	 
	 	 	 	 
	 	
              By: 

            	    

	 	 	
              Name:

            	 

    

     

    
      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

    

    

    Exhibit A

    

    FORM
      OF
      SUBSCRIPTION

    (to
      be
      signed only on exercise of Warrant)

     

    TO:
      ATTITUDE DRINKS INC. 

    The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.____), hereby irrevocably elects to purchase (check applicable
      box):

    

    ___
       ________
      shares of the Common Stock covered by such Warrant; or

    ___ 
      the
      maximum number of shares of Common Stock covered by such Warrant pursuant to
      the
      cashless exercise procedure set forth in Section 2.

    

    The
      undersigned herewith makes payment of the full purchase price for such shares
      at
      the price per share provided for in such Warrant, which is $___________. Such
      payment takes the form of (check applicable box or boxes):

    

    ___ $__________
      in lawful money of the United States; and/or

    ___ the
      cancellation of such portion of the attached Warrant as is exercisable for
      a
      total of _______ shares of Common Stock (using a Fair Market Value of $_______
      per share for purposes of this calculation); and/or

    

    ___ the
      cancellation of such number of shares of Common Stock as is necessary, in
      accordance with the formula set forth in Section 2, to exercise this
      Warrant with respect to the maximum number of shares of Common Stock purchasable
      pursuant to the cashless exercise procedure set forth in
      Section 2.

    

    The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to _____________________________________________________
      whose
      address is 

     

    
      

    

    
      

    

    

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the "Securities Act"), or pursuant to an exemption from registration
      under the Securities Act.

    
      
        	
                Dated:___________________

              	   

	 	
                (Signature
                  must conform to name of holder as specified on the face of the
                  Warrant)

                 

              
	 	    

	 	    

	 	
                (Address)

              

      

    

    

    
      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

    

    

    Exhibit B

    

    

    FORM
      OF
      TRANSFEROR ENDORSEMENT

    (To
      be
      signed only on transfer of Warrant)

     

    For
      value
      received, the undersigned hereby sells, assigns, and transfers unto the
      person(s) named below under the heading "Transferees" the right represented
      by
      the within Warrant to purchase the percentage and number of shares of Common
      Stock of ATTITUDE DRINKS INC. to which the within Warrant relates specified
      under the headings "Percentage Transferred" and "Number Transferred,"
      respectively, opposite the name(s) of such person(s) and appoints each such
      person Attorney to transfer its respective right on the books of ATTITUDE DRINKS
      INC. with full power of substitution in the premises.

     

    

    
      	
              Transferees

            	
              Percentage
                Transferred

            	
              Number
                Transferred

            
	 	 	 
	 	 	 
	 	 	 

    

    
 

    
      
        	
                Dated:
                  ______________, ___________

              	 	    

	 	 	
                (Signature
                  must conform to name of holder as specified on the face of the
                  warrant)

              
	 	 	 
	
                Signed
                  in the presence of:

              	 	 
	 	 	 
	    
	 	     

	
                (Name)

              	 	    

	 	 	
                (address)

              
	 	 	 
	
                ACCEPTED
                  AND AGREED:

              	 	    

	
                [TRANSFEREE]

              	 	    

	 	 	
                (address)

              
	    
	 	 
	
                (Name)SETTLEMENT
        AGREEMENT
        AND MUTUAL RELEASE

      

      THIS
        SETTLEMENT AGREEMENT AND MUTUAL RELEASE
        (this
“Agreement”)
        is
        made and entered into as of this 23rd
        day of
        September, 2008 (the “Execution
        Date”),
        by
        and among Paul Guez and Elizabeth Guez (collectively the “Guezes”),
        The
        Paul and Beth Guez Living Trust (the “Trust”),
        Blue
        Concept, LLC, a California limited liability company (“Blue
        Concept”),
        Taverniti Holdings, LLC, a California limited liability company (“Taverniti
        Holdings”),
        Yanuk
        Jeans, LLC, a California limited liability company (“Yanuk
        Jeans”
and
        together with the Guezes, the Trust, Blue Concept and Taverniti Holdings,
        the
“Guez
        Parties”),
        and
        Blue Holdings, Inc., a Nevada corporation (together with any and all of its
        subsidiaries as appropriate, the “Company”).

       

      RECITALS

       

      A. Paul
        Guez
        serves as the Chairman of the Company’s Board of Directors (the “Board”).

       

      B. From
        time
        to time Paul Guez and Elizabeth Guez made advances to the Company to support
        its
        working capital needs. These advances were non-interest bearing and unsecured,
        with no formal terms of repayment. On July 1, 2006, the Company converted
        these
        advances to a line of credit in an agreement with Paul Guez which allows
        the
        Company to borrow from him up to a maximum of $3,000,000 at an interest rate
        of
        6% per annum (the “Revolving
        Line”).
        The
        Company may repay the advances in full or in part at any time until the
        Revolving Line expires and repayment is required on December 31,
        2008.

       

      C. Pursuant
        to that certain Common Stock Purchase Agreement dated March 5, 2008, between
        the
        Company and Paul Guez (the “Purchase
        Agreement”),
        Paul
        Guez cancelled $1,400,000 of indebtedness under the Revolving Line in
        consideration of the Company’s issuance of 1,750,000 shares (the “Conversion
        Shares”)
        of the
        Company’s common stock, par value $0.001 per share (“Common
        Stock”),
        to
        Paul Guez and Elizabeth Guez.

       

      D. Paul
        Guez
has
        informed the Company of his claims for sums he believes are due and owing
        to him
        pursuant to advances made to and payments made on behalf of the Company separate
        from the Revolving Line.
        The
        Company’s books and records reflect additional sums owed by Paul Guez to the
        Company. The Board has performed an investigation of these claims.

       

      E. Based
        on
        the foregoing, the parties
        desire to enter into a final and binding settlement with respect to all claims
        pursuant to which (i) the Company and Paul Guez will rescind the transactions
        under the Purchase Agreement, (ii) Paul Guez will cancel all amounts owed
        under
        the Revolving Line and the Company will issue a new note for certain amounts
        thereunder and (iii) Paul Guez and Elizabeth Guez will indemnify the Company
        for
        claims arising in connection with units of product shipped to the Company
        by
        Seven Licensing Co. LLC.

       

      F. As
        a
        material inducement to the Company’s execution of this Agreement, the parties
        further desire (with certain exceptions) to mutually
        release each other from claims existing as of the date of this Agreement
        on the
        terms set forth herein.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      AGREEMENT

       

      NOW,
        THEREFORE,
        in
        consideration of the premises, the parties hereto agree as follows:

       

      1. Definitions.

       

      1.1 “Affiliate”
means,
        with respect to any specified Person, any other Person who or which, directly
        or
        indirectly, controls, is controlled by, or is under common control with such
        specified Person where control (including with correlative meaning, controlled
        by and under common control with) as used with respect to any Person, means
        the
        possession, directly or indirectly, of the power to direct or cause the
        direction of the management and policies of such Person, through the ownership
        of voting securities, or by written contract, including, without limitation,
        any
        general partner, officer, director or manager of such Person.

       

      1.2 “Person”
means
        any individual, firm, corporation, company, partnership, trust, incorporated
        or
        unincorporated association, limited liability company, joint venture, joint
        stock company, government (or an agency or political subdivision thereof)
        or
        other entity of any kind, and shall include any successor (by merger or
        otherwise) of any such entity.

       

      2. Rescission
        of Purchase Agreement; Rescission of Rent Waiver.

       

      2.1 Effective
        as of March 5, 2008:

       

      2.1.1 The
        Parties hereby rescind and unwind the transactions consummated under the
        Purchase Agreement such that Paul Guez and Elizabeth Guez hereby transfer
        and
        assign to the Company all right, title and interest in and to the Conversion
        Shares, and relinquish all claims to ownership of the Conversion Shares and
        any
        and all rights therein, and the Company hereby transfers and assigns to Paul
        Guez all right, title and interest in and to the consideration paid by Paul
        Guez
        for the Conversion Shares consisting of indebtedness under the Revolving
        Line in
        the amount of $1,400,000, and such indebtedness is hereby reinstated under
        the
        Revolving Line; and

       

      2.1.2 The
        Purchase Agreement and the transactions consummated thereunder shall be deemed
        null and void and of no further force and effect.

       

      2.2 The
        foregoing rescission shall be effective so as to allow the Federal income
        tax
        doctrine of rescission to be applied thereto, and, each party acknowledges
        and
        agrees that it has been returned to its situation existing immediately prior
        to
        the consummation of the transactions contemplated by the Purchase
        Agreement.

       

      3. Settlement
        of Outstanding Indebtedness.

       

      3.1 The
        parties hereby agree and acknowledge that as of the Execution Date the Company’s
        total indebtedness to the Guez Parties and their Affiliates, other than the
        2008
        Amounts (defined below), consists of $1,618,093.15. For purposes hereof,
        the
“2008
        Amounts”
means
        $72,000 due to Paul and Elizabeth Guez for fiscal 2008 rental expense in
        connection with commercial space located at 1042 Princeton Drive, Marina
        Del
        Rey, CA 90292, and $197,005 due to Taverniti Holdings for fiscal 2008 royalties
        under the Taverniti So Jeans License Agreement executed May 1, 2004, between
        Taverniti Holdings and Taverniti So Jeans, LLC, a wholly-owned subsidiary
        of the
        Company.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      3.2 The
        parties hereby further agree and acknowledge that as of the Execution Date
        Paul
        Guez, Elizabeth Guez and each of their Affiliates are not indebted to the
        Company.

       

      3.3 Effective
        as of the Execution Date, the $1,400,000 balance under the Revolving Line
        shall
        be terminated and cancelled (with the same effect as if the Company had repaid
        such balance), and the parties agree and acknowledge that the outstanding
        balance on the Revolving Line shall be $0.

       

      3.4 On
        the
        Execution Date, the Company shall issue to Paul Guez, in full satisfaction
        of
        all amounts owed to Paul Guez, Elizabeth Guez and their Affiliates as of
        the
        Execution Date, a new 8% Senior Convertible Note substantially in the form
        attached hereto as Exhibit A (the “Note”),
        in
        the principal amount of $1,618,093.15 bearing interest at the rate of 8%
        per
        annum. The Note shall be unsecured and shall be subordinated in payment to
        indebtedness held by FTC Commercial Corp. and Gemini Master Fund,
        Ltd.

       

      4. Indemnification.
        The
        Guezes hereby agree to indemnify and hold the Company and/or its Affiliates
        harmless from and against any and all liabilities, losses, damages, costs
        and
        expenses (including reasonable attorneys’ fees) based upon or in connection with
        any action or claim by Seven Licensing Co. LLC arising out of or in connection
        with units of product shipped from Seven Licensing Co. LLC to the Company
        and/or
        the Company’s Affiliates as of the Execution Date. The Company shall solely
        conduct the defense of any such claim or action and all negotiations for
        its
        settlement or compromise; provided, however, that no settlement or compromise
        affecting the financial obligations of the Guezes shall be entered into or
        agreed to without their prior approval (such approval not to be unreasonably
        withheld).

       

      5. Non-Admission
        of Wrongdoing.
        This
        Agreement shall not in any way be construed as an admission by any party
        hereto
        that it acted wrongfully with respect to any other party hereto, or any other
        person or entity.

       

      6. Mutual
        Release.

       

      6.1 Release
        by the Guez Parties.
        As a
        material inducement for the Company to enter into this Agreement, and as
        partial
        consideration for the Company’s obligations hereunder, each of the Guez Parties,
        individually and for and on behalf of each of their Affiliates (collectively
        the
“Guez
        Releasing Parties”),
        knowingly and voluntarily waive and release all rights and claims, known
        and
        unknown, which the Guez Releasing Parties may have against the Company, and/or
        any of the Company’s related or affiliated entities or successors, or any of
        their current or former parents,
        subsidiaries, partners, affiliates, shareholders, directors, officers,
        employees, agents, representatives, predecessors, successors or
        assigns
        (the
“Company
        Releasees”),
        including without limitation, any and all charges, complaints, claims,
        liabilities, obligations, promises, agreements, contracts, controversies,
        damages, actions, causes of action, suits, rights, demands, costs, losses,
        debts
        and expenses of any kind arising out of, resulting from or in any manner
        relating to the Guez Releasing Parties’ relationship with the Company up to the
        date of this Agreement or the parties’ entry into this Agreement. The Guezes
general
        release under this Agreement includes, but is not limited to, claims for
        employment discrimination, harassment, wrongful termination, constructive
        termination, violation of public policy, breach of any express or implied
        contract, breach of any implied covenant, fraud, intentional or negligent
        misrepresentation, emotional distress, defamation, libel, or any other claims
        relating to the Guez
        Releasing Parties’
        relationship with the Company. The
        Guez
        Releasing Parties are not releasing any claims (a) based on acts or events
        occurring after the signing of this Agreement, (b) to indemnification as
        a
        director or officer under or pursuant to the Company’s Articles of Incorporation
        or Bylaws, (c) to any rights to Directors’ and Officers’ insurance coverage, and
        (d) related to the 2008 Amounts. The
        matters that are the subject of the releases referred to in this Section
        6.1
        are
        referred to herein as the “Guez
        Released Matters.”

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      6.2 Release
        by the Company.
        As a
        material inducement for the Guezes to enter into this Agreement, and as partial
        consideration for the Guezes’ obligations hereunder, the Company, for and on
        behalf of itself and each of its Affiliates (collectively the “Company
        Releasing Parties”
and
        together with the Guez Releasing Parties, the “Releasing
        Parties”),
        knowingly and voluntarily waives and release all rights and claims, known
        and
        unknown, which the Company Releasing Parties may have against the Guez Releasing
        Parties, and/or any of their predecessors,
        successors or assigns
        (the
“Guez
        Releasees”
and
        together with the Company Releasees, the “Releasees”),
        including without limitation, any and all charges, complaints, claims,
        liabilities, obligations, promises, agreements, contracts, controversies,
        damages, actions, causes of action, suits, rights, demands, costs, losses,
        debts
        and expenses of any kind arising out of, resulting from or in any manner
        relating to the Guez Releasing Parties’ relationship with the Company up to the
        date of this Agreement or the parties’ entry into this Agreement. The Company
        Releasing Parties’ release
        under this Agreement includes, but is not limited to, claims for violation
        of
        public policy, breach of any express or implied contract, breach of any implied
        covenant, fraud, intentional or negligent misrepresentation, defamation,
        libel,
        or any other claims relating to the Guez
        Releasing Parties’
        relationship with the Company. The
        Company Releasing Parties are not releasing any claims based on acts or events
        occurring after the signing of this Agreement. The
        matters that are the subject of the releases referred to in this Section
        6.2
        are
        referred to herein as the “Company
        Released Matters.”
The
        Guez Released Matters and the Company Released Matters are hereinafter
        collectively referred to as the “Released
        Matters.”

       

      6.3 Unknown
        Claims.
        The
        parties acknowledge that there is a risk that subsequent to the execution
        of
        this Agreement, the Releasing Parties will incur or suffer damage, loss or
        injury to persons or property that is unknown or unanticipated at the time
        of
        the execution of this Agreement. The Releasing Parties hereby specifically
        assume such risk and agree that this Agreement and the releases contained
        herein
        shall and do apply to all unknown or unanticipated claims, as well as those
        currently known or anticipated. Accordingly, the Releasing Parties acknowledge
        that they have read the provisions of California Civil Code Section 1542,
        which
        provides as follows:

       

      “A
        general release does not extend to claims which the creditor does not know
        or
        suspect to exist in his or her favor at the time of executing the release,
        which
        if known by him or her must have materially affected his settlement with
        the
        debtor.”

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      Notwithstanding
        the provisions of Section 1542, and for the purpose of implementing a full
        and
        complete release and discharge of the Releasees, the Releasing Parties expressly
        acknowledge that this Agreement is intended to include and does include in
        its
        effect, without limitation, all claims which the Releasing Parties do not
        know
        or suspect to exist in their favor against the Releasees with respect to
        the
        Released Matters, and
        that
        this Agreement contemplates the extinguishment of any such claim or
        claims.

      

      6.4 Assumption
        of Risk; Investigation of Facts.
        The
        Releasing Parties hereby expressly assume the risk of any mistake of fact
        or
        that the true facts might be other than or different from the facts now known
        or
        believed to exist, and it is the Releasing Parties’ express intention to forever
        settle, adjust and compromise any and all disputes between and among the
        Releasing
        Parties
        and the
        Releasees with respect to the Released Matters, finally and forever, and
        without
        regard to who may or may not have been correct in their respective
        understandings of the facts or the law relating thereto. In making and executing
        this Agreement, each Releasing Party jointly and severally represents and
        warrants, individually and on behalf of its Affiliates, that such parties
        have
        made such investigation of the facts and the law pertaining to the matters
        described in this Agreement as they deem necessary, and have not relied upon
        any
        statement or representation, oral or written, made by the Releasees with
        respect
        to any of the facts involved in any dispute or possible dispute between the
        parties hereto, or with respect to any of their rights or asserted rights,
        or
        with respect to the advisability of making and executing this
        Agreement.

       

      6.5 Ownership
        of Claims.
        Each
        Releasing Party jointly and severally represents and warrants, individually
        and
        on behalf of its Affiliates, that such
        parties have not assigned or transferred, or attempted to assign or transfer,
        to
        any person or entity, any of the Released Matters, as applicable.

       

      6.6 No
        Representations.
        Each
        party represents and agrees that no promises, statements or inducements have
        been made to such party that caused such party to sign this Agreement other
        than
        those expressly stated in this Agreement.

       

      7. Covenant
        Not to Sue.

       

      7.1 Each
        party agrees, individually and on behalf of its Affiliates, that they will
        not
        file or cause to be filed a lawsuit, administrative complaint or charge of
        any
        kind with any court, governmental or administrative agency or arbitrator
        against
        the other parties hereto, or any of their Affiliates,
        predecessors, successors or assigns,
        asserting any claims that are released in this Agreement.

       

      7.2 Each
        party hereto jointly and severally represents and warrants, individually
        and on
        behalf of its Affiliates, that before signing this Agreement they have not
        filed
        or pursued, or caused to be filed or pursued, any complaints, charges or
        lawsuits of any kind with any court, governmental or administrative agency
        or
        arbitrator against the other parties hereto or any of their
        Affiliates,
        predecessors, successors or assigns,
        asserting any claims that are released in this Agreement.

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      8. Goodwill
        and Reputation of the Company and the Guezes.
        Each of
        the parties hereto further agrees not to take actions or make statements,
        written or oral, that disparage or defame the goodwill or reputation of any
        other party hereto, or any of their respective parents, subsidiaries, partners,
        affiliates, shareholders, directors, officers, employees, agents,
        representatives, predecessors, successors, assigns, heirs, executors or
        administrators.

       

      9. Attorney’s Fees.
        The
        losing party shall be liable to the prevailing party for its reasonable costs
        and attorney’s fees, including the costs of the arbitrator in any arbitration,
        incurred in any action to enforce this Agreement.

       

      10. Independent
        Counsel; Interpretation.
        EACH
        OF
        THE GUEZ PARTIES HEREBY EXPRESSLY REPRESENTS, ACKNOWLEDGES AND CONFIRMS,
        JOINTLY
        AND SEVERALLY, THAT STUBBS ALDERTON & MARKILES, LLP IS NOT REPRESENTING THE
        GUEZ PARTIES OR ANY OF THEIR AFFILIATES (OTHER THAN THE COMPANY), THAT HE/SHE/IT
        HAS BEEN ADVISED TO SEEK AND OBTAIN LEGAL ADVICE FROM INDEPENDENT COUNSEL
        REPRESENTING HIS/HER/ITS INTERESTS WITH RESPECT TO THIS AGREEMENT, THAT
        HE/SHE/IT HAS HAD THE FULL RIGHT AND OPPORTUNITY TO CONSULT WITH SUCH COUNSEL,
        THAT HE/SHE/IT HAS AVAILED HIMSELF/HERSELF/ITSELF OF THIS RIGHT AND OPPORTUNITY,
        THAT HE/SHE/IT HAS CAREFULLY READ AND FULLY UNDERSTANDS THIS AGREEMENT IN
        ITS
        ENTIRETY, THAT HE/SHE/IT IS FULLY AWARE OF THE CONTENTS HEREOF AND THE MEANING,
        INTENT AND LEGAL EFFECT OF THIS AGREEMENT, AND THAT HE/SHE/IT HAS EXECUTED
        THIS
        AGREEMENT FREE FROM COERCION, DURESS OR UNDUE INFLUENCE. SPECIFICALLY, BY
        SIGNING THIS AGREEMENT, EACH GUEZ PARTY UNDERSTAND, AND HEREBY JOINTLY AND
        SEVERALLY ACKNOWLEDGES AND CONFIRMS, THAT HE/SHE/IT MAY BE GIVING UP SIGNIFICANT
        LEGAL RIGHTS. SHOULD ANY PROVISION OF THIS AGREEMENT REQUIRE JUDICIAL
        INTERPRETATION, IT IS AGREED THAT A COURT INTERPRETING OR CONSTRUING THE
        SAME
        SHALL NOT APPLY A PRESUMPTION THAT THE TERMS HEREOF SHALL BE MORE STRICTLY
        CONSTRUED AGAINST ANY PARTY BY REASON OF THE RULE OF CONSTRUCTION THAT A
        DOCUMENT IS TO BE CONSTRUED MORE STRICTLY AGAINST THE PARTY WHO ITSELF OR
        THROUGH ITS AGENT PREPARED THE SAME, IT BEING AGREED THAT ALL PARTIES HERETO
        HAVE PARTICIPATED IN THE PREPARATION OF THIS AGREEMENT.

       

      11. Notices.
        Any
        notice required to be given or delivered by one party to the other hereunder
        shall be in writing and addressed as specified below or at such other addresses
        as shall be specified by the parties by like notice. All notices shall be
        deemed
        effectively given (a) upon personal delivery, (b) five (5) days after deposit
        in
        the United States mail by certified or registered mail (return receipt
        requested), (c) two (2) business day after its deposit with any return receipt
        express courier (prepaid), or (d) one (1) business day after transmission
        by
        facsimile or electronic mail.

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

      
        	If to the
                Company:	 	If
                to the Guez Parties:
	 	 	 
	
                Blue
                  Holdings, Inc.

              	 	
                Paul
                  and Elizabeth Guez

              
	
                4901
                  Zambrano Street

              	 	
                972
                  Palisades Beach Road

              
	
                Commerce,
                  CA 90040

              	 	
                Santa
                  Monica, CA 90403

              
	
                Fax:
                  323-726-6857

              	 	
                Fax:
                  310-458-0224

              
	
                e-mail:
                  glenn.palmer@blueholdings.com

              	 	
                e-mail:
                  paulguez@blueholdings.com

              

      

      

      With
        a
        copy to:

      (which
        shall not constitute notice)

      

      Stubbs
        Alderton & Markiles, LLP

      15260
        Ventura Boulevard, 20th
        Floor

      Sherman
        Oaks, CA 91403

      Attn:
        Gregory Akselrud, Esq.

      Fax:
        818-444-6303

      e-mail:
        gakselrud@biztechlaw.com

      

      12. Further
        Actions.
        Whether
        or not specifically required under the terms of this Agreement, each party
        hereto shall execute and deliver such documents and take such further actions
        as
        shall be necessary in order for such party to perform all of its obligations
        specified herein or reasonably implied from the terms hereof.

       

      13. Successors,
        Third Party Beneficiaries.

       

      13.1 This
        Agreement is personal to the Guezes and, without the prior written consent
        of
        the Company, is not assignable by the Guezes. This Agreement will inure to
        the
        benefit of and be enforceable by the Guezes’ legal representatives (including
        any duly appointed guardian) acting in their capacities as such pursuant
        to
        applicable law.

       

      13.2 This
        Agreement will inure to the benefit of and be binding on the Company and
        its
        successors and assigns. The Company will be entitled to assign all of its
        obligations hereunder to any successor (direct or indirect and whether by
        purchase, merger, consolidation, share exchange or otherwise) to the business,
        properties and assets of the Company; provided,
        however,
        that
        the Company will remain liable for the full, timely performance of all the
        obligations so assigned as if such assignment had not been made.

       

      13.3 Except
        as
        otherwise expressly provided in this Agreement, this Agreement is not intended,
        and shall not be construed, deemed or interpreted, to confer on any person
        or entity not a party hereto any rights or remedies hereunder.

       

      14. Execution
        In Counterparts.
        This
        Agreement may be executed in two (2) or more counterparts (including via
        facsimile or portable document format signatures), all of which taken together
        shall constitute one agreement.

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      15. Severability
        and Governing Law.

       

      15.1 Should
        any of the provisions in this Agreement be declared or be determined to be
        illegal or invalid, all remaining parts, terms or provisions, or any sections,
        subsections, paragraph or subparagraphs, shall be valid, and the illegal
        or
        invalid part, term or provision, or section, subsection, paragraph or
        subparagraph, shall be deemed not to be a part of this Agreement.

       

      15.2 This
        Agreement is made and entered into in the State of California and shall in
        all
        respects be interpreted, enforced and governed under the laws of California,
        without
        regard to conflict of law principles thereof.

       

      16. Proper
        Construction.

       

      16.1 The
        language of all parts of this Agreement shall in all cases be construed as
        a
        whole according to its fair meaning, and not strictly for or against any
        of the
        parties.

       

      16.2 As
        used
        in this Agreement, singular or plural number shall be deemed to include the
        other, the term “it” shall be deemed to include the terms “he” and “she” and the
        term “or” shall be deemed to include the term “and/or” whenever the context so
        indicates or requires.

       

      16.3 The
        paragraph headings used in this Agreement are intended solely for convenience
        of
        reference and shall not in any manner amplify, limit, modify or otherwise
        be
        used in the interpretation of any of the provisions hereof.

       

      17. Entire
        Agreement. This
        Agreement is the entire agreement between the Guezes and the Company, and
        fully
        supersedes any and all prior agreements or understandings between the parties
        pertaining to its subject matter.

       

      [Signatures
        appear on next page]

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

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

       

      
        	BLUE
                HOLDINGS, INC.	 	 
	 	 	 	 
	
                By:

              	
                /s/
                  Glenn S. Palmer

              	 	
                /s/
                  Paul Guez

              
	 	
                Glenn
                  S. Palmer

              	 	
                Paul
                  Guez

              
	 	
                Chief
                  Executive Officer

              	 	 
	 	 	 	 
	 	 	 	
                /s/
                  Elizabeth Guez 

              
	 	 	 	
                Elizabeth
                  Guez

              

      

      

      
        	THE
                PAUL AND BETH GUEZ
	LIVING
                TRUST
	 	 
	
                By:

              	
                /s/
                  Paul Guez

              
	 	
                Paul
                  Guez, Trustee

              
	 	 
	
                By:

              	
                /s/
                  Elizabeth Guez

              
	 	
                Elizabeth
                  Guez, Trustee

              
	 	 
	BLUE
                CONCEPT, LLC
	 	 
	
                By:

              	
                /s/
                  Paul Guez

              
	 	
                Paul
                  Guez, Manager

              
	
              	 
	TAVERNITI
                HOLDINGS, LLC
	 	 
	
                By:

              	
                /s/
                  Paul Guez

              
	 	
                Paul
                  Guez, Manager

              
	 	 
	YANUK
                JEANS, LLC
	 	 
	
                By:

              	
                /s/
                  Paul Guez

              
	 	
                Paul
                  Guez, Manager

              

      

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      EXHIBIT
        A

      

      8%
        SENIOR CONVERTIBLE NOTE

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