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
      . S uch
      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
      . S uch
      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. S uch Subscriber has the authority and
      is
      duly and legally qualified to purchase and own the Securities. S uch 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
      . S uch
      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. S uch
      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, 2 nd
                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

            	 	 	
              1,500,000Exhibit
        10(2) 2007 Stock Compensation and Incentive Plan

       

      2007
        Stock Compensation and Incentive Plan

      

      
        	
                1.

              	
                Purpose
                  of Plan

              

      

      

      1.1
              This 2007 Stock Compensation and Incentive Plan (the
“Plan”) of Attitude Drinks Incorporated, a Delaware corporation, (the “Company”)
        for employees, directors and other persons associated with the Company, is
        intended to advance the best interests of the Company by providing those
        persons
        who have a substantial responsibility for its management and growth with
        additional incentive and by increasing their proprietary interest in the
        success
        of the Company, thereby encouraging them to maintain their relationships
        with
        the Company. Further, the availability and offering of stock options and
        common
        stock under the Plan supports and increases the Company's ability to attract
        and
        retain individuals of exceptional talent upon whom, in large measure, the
        sustained progress, growth and profitability of the Company
        depends.

      

      
        	
                2.

              	
                Definitions

              

      

      

      2.1
              For Plan purposes, except where the context might
        clearly indicate otherwise, the following terms shall have the meanings set
        forth below:

      

      “Board”
        shall mean the Board of Directors of the Company.

      

      “Committee”
        shall mean the Compensation Committee, or such other committee appointed
        by the
        Board, which shall be designated by the Board to administer the Plan, or
        the
        Board if no committees have been established. The Committee shall be composed
        of
three
        or more persons
        as from
        time to time are appointed to serve by the Board. Each member of the Committee,
        while serving as such, shall be a disinterested person with the meaning of
        Rule
        16b-3 promulgated under the Securities Exchange Act of 1934.

      

      “Common
        Shares” shall mean the Company's Common Shares, $.001 par value per share, or,
        in the event that the outstanding Common Shares are hereafter changed into
        or
        exchanged for different shares of securities of the Company, such other shares
        or securities.

      

      “Company”
        shall mean Attitude Drinks Incorporated, a Delaware corporation, and any
        parent
        or subsidiary corporation of the Company as such terms are defined in Sections
        425(e) and 425(f), respectively, of the Code.

      

      “Fair
        Market Value” shall mean, with respect to the date a given stock option is
        granted or exercised, the average of the highest and lowest reported sales
        prices of the Common Shares, as reported by such responsible reporting service
        as the Committee may select, or if there were not transactions in the Common
        Shares on such day, then the last preceding day on which transactions took
        place. The above withstanding, the Committee may determine the Fair Market
        Value
        in such other manner as it may deem more equitable for Plan purposes or as
        is
        required by applicable laws or regulations.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      “Optionee”
        shall mean an employee of the company who has been granted one or more Stock
        Options under the Plan.

      

      “Common
        Stock” shall mean shares of common stock which are issued by the Company
        pursuant to Section 5, below.

      

      “Common
        Stockholder”  
        means
        the employee of, consultant to, or director of the Company or other person
        to
        whom shares of Common Stock are issued pursuant to this Plan.

      

      “Common
        Stock Agreement” means an agreement executed by a Common Stockholder and the
        Company as contemplated by Section 5, below, which imposes on the shares
        of
        Common Stock held by the Common Stockholder such restrictions as the Board
        or
        Committee deem appropriate.

      

      “Stock
        Option” or “Non-Qualified Stock Option” or “NQSO” shall mean a stock option
        granted pursuant to the terms of the Plan.

      

      “Stock
        Option Agreement” shall mean the agreement between the Company and the Optionee
        under which the Optionee may purchase Common Shares hereunder.

      

      
        	
                3.

              	
                Administration
                  of the Plan

              

      

      

      3.1
              The Committee or the Board shall administer the Plan
        and accordingly, it shall have full power to grant Stock Options and Common
        Stock, construe and interpret the Plan, establish rules and regulations and
        perform all other acts, including the delegation of administrative
        responsibilities, it believes reasonable and proper.

      

      3.2
              The determination of those eligible to receive Stock
        Options and Common Stock, and the amount, type and timing of each grant and
        the
        terms and conditions of the respective stock option agreements and Common
        stock
        agreements shall rest in the sole discretion of the Committee, subject to
        the
        provisions of the Plan.

      

      3.3
              The Committee may cancel any Stock Options awarded
        under the Plan if an Optionee conducts himself in a manner which the Committee
        determines to be inimical to the best interest of the Company, as set forth
        more
        fully in paragraph 8 of Article 11 of the Plan.

      

      3.4
              The Board, or the Committee, may correct any defect,
        supply any omission or reconcile any inconsistency in the Plan, or in any
        granted Stock Option, in the manner and to the extent it shall deem necessary
        to
        carry it into effect.

      

      3.5
              Any decision made, or action taken, by the Committee
        or the Board arising out of or in connection with the interpretation and
        administration of the Plan shall be final and conclusive.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      3.6
              Meetings of the Committee shall be held at such times
        and places as shall be determined by the Committee. A majority of the members
        of
        the Committee shall constitute a quorum for the transaction of business,
        and the
        vote of a majority of those members present at any meeting shall decide any
        question brought before that meeting. In addition, the Committee may take
        any
        action otherwise proper under the Plan by the affirmative vote, taken without
        a
        meeting, of a majority of its members.

      

      3.7
              No member of the Committee shall be liable for any act
        or omission of any other member of the Committee or for any act or omission
        on
        his own part, including, but not limited to, the exercise of any power or
        discretion given to him under the Plan, except those resulting from his own
        gross negligence or willful misconduct.

      

      3.8
              The Company, through its management, shall supply full
        and timely information to the Committee on all matters relating to the
        eligibility of Optionees, their duties and performance, and current information
        on any Optionee's death, retirement, disability or other termination of
        association with the Company, and such other pertinent information as the
        Committee may require. The Company shall furnish the Committee with such
        clerical and other assistance as is necessary in the performance of its duties
        hereunder.

      

      
        	
                4.

              	
                Shares
                  Subject to the Plan

              

      

      

      4.1
              The total number of shares of the Company available
        for grants of Stock Options and Common Stock under the Plan shall be 1,000,000
        Common Shares, subject to adjustment in accordance with Article 7 of the
        Plan,
        which shares may be either authorized but unissued or reacquired Common Shares
        of the Company.

      

      4.2
              If a Stock Option or portion thereof shall expire or
        terminate for any reason without having been exercised in full, the unpurchased
        shares covered by such NQSO shall be available for future grants of Stock
        Options.

      

      
        	
                5.

              	
                Award
                  Of Common Stock

              

      

      

      5.1
              The Board or Committee from time to time, in its
        absolute discretion, may (a) award Common Stock to employees of, consultants
        to,
        and directors of the Company, and such other persons as the Board or Committee
        may select, and (b) permit Holders of Options to exercise such Options prior
        to
        full vesting therein and hold the Common Shares issued upon exercise of the
        Option as Common Stock. In either such event, the owner of such Common Stock
        shall hold such stock subject to such vesting schedule as the Board or Committee
        may impose or such vesting schedule to which the Option was subject, as
        determined in the discretion of the Board or Committee.

      

      5.2
              Common Stock shall be issued only pursuant to a Common
        Stock Agreement, which shall be executed by the Common Stockholder and the
        Company and which shall contain such terms and conditions as the Board or
        Committee shall determine consistent with this Plan, including such restrictions
        on transfer as are imposed by the Common Stock Agreement.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      5.3
              Upon delivery of the shares of Common Stock to the
        Common Stockholder, below, the Common Stockholder shall have, unless otherwise
        provided by the Board or Committee, all the rights of a stockholder with
        respect
        to said shares, subject to the restrictions in the Common Stock Agreement,
        including the right to receive all dividends and other distributions paid
        or
        made with respect to the Common Stock.

      

      5.4.
              Notwithstanding anything in this Plan or any Common
        Stock Agreement to the contrary, no Common Stockholders may sell or otherwise
        transfer, whether or not for value, any of the Common Stock prior to the
        date on
        which the Common Stockholder is vested therein.

      

      5.5
              All shares of Common Stock issued under this Plan
        (including any shares of Common Stock and other securities issued with respect
        to the shares of Common Stock as a result of stock dividends, stock splits
        or
        similar changes in the capital structure of the Company) shall be subject
        to
        such restrictions as the Board or Committee shall provide, which restrictions
        may include, without limitation, restrictions concerning voting rights,
        transferability of the Common Stock and restrictions based on duration of
        employment with the Company, Company performance and individual performance;
        provided that the Board or Committee may, on such terms and conditions as
        it may
        determine to be appropriate, remove any or all of such restrictions. Common
        Stock may not be sold or encumbered until all applicable restrictions have
        terminated or expire. The restrictions, if any, imposed by the Board or
        Committee or the Board under this Section 5 need not be identical for all
        Common
        Stock and the imposition of any restrictions with respect to any Common Stock
        shall not require the imposition of the same or any other restrictions with
        respect to any other Common Stock.

      

      5.6
              Each Common Stock Agreement shall provide that the
        Company shall have the right to repurchase from the Common Stockholder the
        unvested Common Stock upon a termination of employment, termination of
        directorship or termination of a consultancy arrangement, as applicable,
        at a
        cash price per share equal to the purchase price paid by the Common Stockholder
        for such Common Stock.

      

      5.7
              In the discretion of the Board or Committee, the
        Common Stock Agreement may provide that the Company shall have the a right
        of
        first refusal with respect to the Common Stock and a right to repurchase
        the
        vested Common Stock upon a termination of the Common Stockholder's employment
        with the Company, the termination of the Common Stockholder's consulting
        arrangement with the Company, the termination of the Common Stockholder's
        service on the Company's Board, or such other events as the Board or Committee
        may deem appropriate.

      

      5.8
              The Board or Committee shall cause a legend or legends
        to be placed on certificates representing shares of Common Stock that are
        subject to restrictions under Common Stock Agreements, which legend or legends
        shall make appropriate reference to the applicable restrictions.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        	
                6.

              	
                Stock
                  Option Terms and
                  Conditions

              

      

      

      6.1
              Consistent with the Plan's purpose, Stock Options may
        be granted to non-employee directors of the Company or other persons who
        are
        performing or who have been engaged to perform services of special importance
        to
        the management, operation or development of the Company.

      

      6.2
              All Stock Options granted under the Plan shall be
        evidenced by agreements which shall be subject to applicable provisions of
        the
        Plan, and such other provisions as the Committee may adopt, including the
        provisions set forth in paragraphs 2 through 11 of this Section 6.

      

      6.3
              All Stock Options granted hereunder must be granted
        within ten years from the earlier of the date of this Plan is adopted or
        approved by the Company's shareholders.

      

      6.4
              No Stock Option granted to any employee or 10%
        Shareholder shall be exercisable after the expiration of ten years from the
        date
        such NQSO is granted. The Committee, in its discretion, may provide that
        an
        Option shall be exercisable during such ten year period or during any lesser
        period of time.

      

      The
        Committee may establish installment exercise terms for a Stock Option such
        that
        the NQSO becomes fully exercisable in a series of cumulating portions. If
        an
        Optionee shall not, in any given installment period, purchase all the Common
        Shares which such Optionee is entitled to purchase within such installment
        period, such Optionee's right to purchase any Common Shares not purchased
        in
        such installment period shall continue until the expiration or sooner
        termination of such NQSO. The Committee may also accelerate the exercise
        of any
        NQSO. However, no NQSO, or any portion thereof, may be exercisable until
        thirty
        (30) days following date of grant (“30-Day Holding Period.”).

      

      6.5
              A Stock Option, or portion thereof, shall be exercised
        by delivery of (i) a written notice of exercise of the Company specifying
        the
        number of common shares to be purchased, and (ii) payment of the full price
        of
        such Common Shares, as fully set forth in paragraph 6 of this Section
        6.

      

      No
        NQSO
        or installment thereof shall be exercisable except with respect to whole
        shares,
        and fractional share interests shall be disregarded. Not less than 100 Common
        Shares may be purchased at one time unless the number purchased is the total
        number at the time available for purchase under the NQSO. Until the Common
        Shares represented by an exercised NQSO are issued to an Optionee, he shall
        have
        none of the rights of a shareholder.

      

      6.6
              The exercise price of a Stock Option, or portion
        thereof, may be paid:

      

      A.
              In United States dollars, in cash or by cashier's
        check, certified check, bank draft or money order, payable to the order of
        the
        Company in an amount equal to the option price; or

      

      B.
              At the discretion of the Committee, through the
        delivery of fully paid and nonassessable Common Shares, with an aggregate
        Fair
        Market Value on the date the NQSO is exercised equal to the option price,
        provided such tendered Shares have been owned by the Optionee for at least
        one
        year prior to such exercise; or

      

        C.      
          By a combination of both A and B above.

      

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      The
        Committee shall determine acceptable methods for tendering Common Shares
        as
        payment upon exercise of a Stock Option and may impose such limitations and
        prohibitions on the use of Common Shares to exercise an NQSO as it deems
        appropriate.

      

      6.7
              With the Optionee's consent, the Committee may cancel
        any Stock Option issued under this Plan and issue a new NQSO to such
        Optionee.

      

      6.8
              Except by will or the laws of descent and
        distribution, no right or interest in any Stock Option granted under the
        Plan
        shall be assignable or transferable, and no right or interest of any Optionee
        shall be liable for, or subject to, any lien, obligation or liability of
        the
        Optionee. Stock Options shall be exercisable during the Optionee's lifetime
        only
        by the Optionee or the duly appointed legal representative of an incompetent
        Optionee.

      

      6.9
              If the Optionee shall die while associated with the
        Company or within three months after termination of such association, the
        personal representative or administrator of the Optionee's estate or the
        person(s) to whom an NQSO granted hereunder shall have been validly transferred
        by such personal representative or administrator pursuant to the Optionee's
        will
        or the laws of descent and distribution, shall have the right to exercise
        the
        NQSO for one year after the date of the Optionee's death, to the extent (i)
        such
        NQSO was exercisable on the date of such termination of employment by death,
        and
        (ii) such NQSO was not exercised, and (iii) the exercise period may not be
        extended beyond the expiration of the term of the Option.

      

      No
        transfer of a Stock Option by the will of an Optionee or by the laws of descent
        and distribution shall be effective to bind the Company unless the Company
        shall
        have been furnished with written notice thereof and an authenticated copy
        of the
        will and/or such other evidence as the Committee may deem necessary to establish
        the validity of the transfer and the acceptance by the transferee or transferee
        of the terms and conditions by such Stock Option.

      

      In
        the
        event of death following termination of the Optionee's association with the
        Company while any portion of an NQSO remains exercisable, the Committee,
        in its
        discretion, may provide for an extension of the exercise period of up to
        one
        year after the Optionee's death but not beyond the expiration of the term
        of the
        Stock Option.

      

      6.10
              Any Optionee who disposes of Common Shares acquired on
        the exercise of a NQSO by sale or exchange either (i) within two years after
        the
        date of the grant of the NQSO under which the stock was acquired, or (ii)
        within
        one year after the acquisition of such Shares, shall notify the Company of
        such
        disposition and of the amount realized upon such disposition. The transfer
        of
        Common Shares may also be Common by applicable provisions of the Securities
        Act
        of 1933, as amended.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        	
                7.

              	
                Adjustments
                  or Changes in
                  Capitalization

              

      

      

      7.1
              In the event that the outstanding Common Shares of the
        Company are hereafter changed into or exchanged for a different number or
        kind
        of shares or other securities of the Company by reason of merger, consolidation,
        other reorganization, recapitalization, reclassification, combination of
        shares,
        stock split-up or stock dividend:

      

      A.
              Prompt, proportionate, equitable, lawful and adequate
        adjustment shall be made of the aggregate number and kind of shares subject
        to
        Stock Options which may be granted under the Plan, such that the Optionee
        shall
        have the right to purchase such Common Shares as may be issued in exchange
        for
        the Common Shares purchasable on exercise of the NQSO had such merger,
        consolidation, other reorganization, recapitalization, reclassification,
        combination of shares, stock split-up or stock dividend not taken
        place;

      

      B.
              Rights under unexercised Stock Options or portions
        thereof granted prior to any such change, both as to the number or kind of
        shares and the exercise price per share, shall be adjusted appropriately,
        provided that such adjustments shall be made without change in the total
        exercise price applicable to the unexercised portion of such NQSO's but by
        an
        adjustment in the price for each share covered by such NQSO's; or

      

      C.
              Upon any dissolution or liquidation of the Company or
        any merger or combination in which the Company is not a surviving corporation,
        each outstanding Stock Option granted hereunder shall terminate, but the
        Optionee shall have the right, immediately prior to such dissolution,
        liquidation, merger or combination, to exercise his NQSO in whole or in part,
        to
        the extent that it shall not have been exercised, without regard to any
        installment exercise provisions in such NQSO.

      

      7.2
              The foregoing adjustments and the manner of
        application of the foregoing provisions shall be determined solely by the
        Committee, whose determination as to what adjustments shall be made and the
        extent thereof, shall be final, binding and conclusive. No fractional Shares
        shall be issued under the Plan on account of any such adjustments.

      

      8.
              Merger,
        Consolidation or Tender Offer

      

      8.1
              If the Company shall be a party to a binding agreement
        to any merger, consolidation or reorganization or sale of substantially all
        the
        assets of the Company, each outstanding Stock Option shall pertain and apply
        to
        the securities and/or property which a shareholder of the number of Common
        Shares of the Company subject to the NQSO would be entitled to receive pursuant
        to such merger, consolidation or reorganization or sale of assets.

      

      8.2
              In the event that:

      

      A.
              Any person other than the Company shall acquire more
        than 20% of the Common Shares of the Company through a tender offer, exchange
        offer or otherwise;

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      B.
              A change in the “control” of the Company occurs, as
        such term is defined in Rule 405 under the Securities Act of 1933;

      

      C.
              There shall be a sale of all or substantially all of
        the assets of the Company;

      

      any
        then
        outstanding Stock Option held by an Optionee, who is deemed by the Committee
        to
        be a statutory officer (“Insider”) for purposes of Section 16 of the Securities
        Exchange Act of 1934 shall be entitled to receive, subject to any action
        by the
        Committee revoking such an entitlement as provided for below, in lieu of
        exercise of such Stock Option, to the extent that it is then exercisable,
        a cash
        payment in an amount equal to the difference between the aggregate exercise
        price of such NQSO, or portion thereof, and, (i) in the event of an offer
        or
        similar event, the final offer price per share paid for Common Shares, or
        such
        lower price as the Committee may determine to conform an option to preserve
        its
        Stock Option status, times the number of Common Shares covered by the NQSO
        or
        portion thereof, or (ii) in the case of an event covered by B or C above,
        the
        aggregate Fair Market Value of the Common Shares covered by the Stock Option,
        as
        determined by the Committee at such time.

      

      8.3
              Any payment which the Company is required to make
        pursuant to paragraph 8.2 of this Section 8 shall be made within 15 business
        days, following the event which results in the Optionee's right to such payment.
        In the event of a tender offer in which fewer than all the shares which are
        validly tendered in compliance with such offer are purchased or exchanged,
        then
        only that portion of the shares covered by an NQSO as results from multiplying
        such shares by a fraction, the numerator of which is the number of Common
        Shares
        acquired pursuant to the offer and the denominator of which is the number
        of
        Common Shares tendered in compliance with such offer shall be used to determine
        the payment thereupon. To the extent that all or any portion of a Stock Option
        shall be affected by this provision, all or such portion of the NQSO shall
        be
        terminated.

      

      8.4
              Notwithstanding paragraphs 8.1 and 8.3 of this Section
        8, the Committee may, by unanimous vote and resolution, unilaterally revoke
        the
        benefits of the above provisions; provided, however, that such vote is taken
        no
        later than ten business days following public announcement of the intent
        of an
        offer or the change of control, whichever occurs earlier.

      

      
        	
                9.

              	
                Amendment
                  and Termination of Plan

              

      

      

      9.1
              The Board may at any time, and from time to time,
        suspend or terminate the Plan in whole or in part or amend it from time to
        time
        in such respects as the Board may deem appropriate and in the best interest
        of
        the Company.

      

      9.2
              No amendment, suspension or termination of this Plan
        shall, without the Optionee's consent, alter or impair any of the rights
        or
        obligations under any Stock Option theretofore granted to him under the
        Plan.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      9.3
              The Board may amend the Plan, subject to the
        limitations cited above, in such manner as it deems necessary to permit the
        granting of Stock Options meeting the requirements of future amendments or
        issued regulations, if any, to the Code.

      

      9.4
              No NQSO may be granted during any suspension of the
        Plan or after termination of the Plan.

      

      
        	
                10.

              	
                Government
                  and Other Regulations

              

      

      

      10.1
            The obligation of the Company to issue, transfer and deliver
        Common Shares for Stock Options exercised under the Plan shall be subject
        to all
        applicable laws, regulations, rules, orders and approval which shall then
        be in
        effect and required by the relevant stock exchanges on which the Common Shares
        are traded and by government entities as set forth below or as the Committee
        in
        its sole discretion shall deem necessary or advisable. Specifically, in
        connection with the Securities Act of 1933, as amended, upon exercise of
        any
        Stock Option, the Company shall not be required to issue Common Shares unless
        the Committee has received evidence satisfactory to it to the effect that
        the
        Optionee will not transfer such shares except pursuant to a registration
        statement in effect under such Act or unless an opinion of counsel satisfactory
        to the Company has been received by the Company to the effect that such
        registration is not required. Any determination in this connection by the
        Committee shall be final, binding and conclusive. The Company may, but shall
        in
        no event be obligated to, take any other affirmative action in order to cause
        the exercise of a Stock Option or the issuance of Common Shares pursuant
        thereto
        to comply with any law or regulation of any government authority.

      

      
        	
                11.

              	
                Miscellaneous
                  Provisions

              

      

      

      11.1
            No person shall have any claim or right to be granted a Stock
        Option or Common Stock under the Plan, and the grant of an NQSO or Common
        Stock
        under the Plan shall not be construed as giving an Optionee or Common
        Stockholder the right to be retained by the Company. Furthermore, the Company
        expressly reserves the right at any time to terminate its relationship with
        an
        Optionee with or without cause, free from any liability, or any claim under
        the
        Plan, except as provided herein, in an option agreement, or in any agreement
        between the Company and the Optionee.

      

      11.2
            Any expenses of administering this Plan shall be borne by the
        Company.

      

      11.3
            The payment received from Optionee from the exercise of Stock
        Options under the Plan shall be used for the general corporate purposes of
        the
        Company.

      

      11.4
            The place of administration of the Plan shall be in the State
        of Delaware, and the validity, construction, interpretation, administration
        and
        effect of the Plan and of its rules and regulations, and rights relating
        to the
        Plan, shall be determined solely in accordance with the laws of the State
        of
        Delaware.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      11.5
              Without amending the Plan, grants may be made to
        persons who are foreign nationals or employed outside the United States,
        or
        both, on such terms and conditions, consistent with the Plan's purpose,
        different from those specified in the Plan as may, in the judgment of the
        Committee, be necessary or desirable to create equitable opportunities given
        differences in tax laws in other countries.

      

      11.6
              In addition to such other rights of indemnification as
        they may have as members of the Board or the Committee, the members of the
        Committee shall be indemnified by the Company against all costs and expenses
        reasonably incurred by them in connection with any action, suit or proceeding
        to
        which they or any of them may be party by reason of any action taken or failure
        to act under or in connection with the Plan or any Stock Option granted
        thereunder, and against all amounts paid by them in settlement thereof (provided
        such settlement is approved by independent legal counsel selected by the
        Company) or paid by them in satisfaction of a judgment in any such action,
        suit
        or proceeding, except a judgment based upon a finding of bad faith; provided
        that upon the institution of any such action, suit or proceeding a Committee
        member shall, in writing, give the Company notice thereof and an opportunity,
        at
        its own expense, to handle and defend the same, with counsel acceptable to
        the
        Optionee, before such Committee member undertakes to handle and defend it
        on his
        own behalf.

      

      11.7
              Stock Options may be granted under this Plan from time
        to time, in substitution for stock options held by employees of other
        corporations who are about to become employees of the Company as the result
        of a
        merger or consolidation of the employing corporation with the Company or
        the
        acquisition by the Company of the assets of the employing corporation or
        the
        acquisition by the Company of stock of the employing corporation as a result
        of
        which it becomes a subsidiary of the Company. The terms and conditions of
        such
        substitute stock options so granted may vary from the terms and conditions
        set
        forth in this Plan to such extent as the Board of Directors of the Company
        at
        the time of grant may deem appropriate to conform, in whole or in part, to
        the
        provisions of the stock options in substitution for which they are granted,
        but
        no such variations shall be such as to affect the status of any such substitute
        stock options as a stock option under Section 422A of the Code.

      

      11.8
              Notwithstanding anything to the contrary in the Plan,
        if the Committee finds by a majority vote, after full consideration of the
        facts
        presented on behalf of both the Company and the Optionee, that the Optionee
        has
        been engaged in fraud, embezzlement, theft, insider trading in the Company's
        stock, commission of a felony or proven dishonesty in the course of his
        association with the Company or any subsidiary corporation which damaged
        the
        Company or any subsidiary corporation, or for disclosing trade secrets of
        the
        Company or any subsidiary corporation, the Optionee shall forfeit all
        unexercised Stock Options and all exercised NQSO's under which the Company
        has
        not yet delivered the certificates and which have been earlier granted to
        the
        Optionee by the Committee. The decision of the Committee as to the cause
        of an
        Optionee's discharge and the damage done to the Company shall be final. No
        decision of the Committee, however, shall affect the finality of the discharge
        of such Optionee by the Company or any subsidiary corporation in any
        manner.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      
        	
                12.

              	
                Written
                  Agreement

              

      

      

      12.1
              Each Stock Option granted hereunder shall be embodied
        in a written Stock Option Agreement which shall be subject to the terms and
        conditions prescribed above and shall be signed by the Optionee and by the
        President or any Vice President of the Company, for and in the name and on
        behalf of the Company. Such Stock Option Agreement shall contain such other
        provisions as the Committee, in its discretion shall deem
        advisable.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      
        
          	
                  Number of Shares:

                	 	 	 	
                  Date of Grant:

                	 	 

        

      

       

      FORM
        OF
        NON-QUALIFIED STOCK OPTION AGREEMENT

      

      AGREEMENT
        made this     day
        of                      
        200  
        ,
        between                            
        (the “Optionee”), and _________________________________, a Delaware corporation
        (the “Company”).

      

      
        	 	
                1.

              	
                Grant
                  of Option

              

      

      

      The
        Company, pursuant to the provisions of the 2007 Stock Compensation and Incentive
        Plan (the “Plan”), adopted by the Board of Directors on October 31, 2007, the
        Company hereby grants to the Optionee, subject to the terms and conditions
        set
        forth or incorporated herein, an option to purchase from the Company all
        or any
        part of an aggregate of     shares of its $.001 par value common
        stock, as such common stock is now constituted, at the purchase price of
        $
  per share. The provisions of the Plan governing the terms and conditions
        of the Option granted hereby are incorporated in full herein by
        reference.

      

      
        	 	
                2.

              	
                Exercise

              

      

      

      The
        Option evidenced hereby shall be exercisable in whole or in part on or
        after               
        and on or before                       
        ,
        provided that the cumulative number of shares of common stock as to which
        this
        Option may be exercised (except in the event of death, retirement, or permanent
        and total disability, as provided in paragraph 6.9 of the Plan) shall not
        exceed
        the following amounts:

       

      
        
          	
                  Cumulative
                    Number

                  of
                    Shares

                	 	
                  Prior
                    to Date

                  (Note
                    Inclusive of)

                

        

      

       

       

      The
        Option evidenced hereby shall be exercisable by the delivery to and receipt
        by
        the Company of (i) written notice of election to exercise, in the form set forth
        in Attachment B hereto, specifying the number of shares to be purchased;
        (ii)
        accompanied by payment of the full purchase price thereof in cash or certified
        check payable to the order of the Company, or by fully paid and nonassessable
        common stock of the Company properly endorsed over to the Company, or by
        a
        combination thereof, and (iii) by return of this Stock Option Agreement for
        endorsement of exercise by the Company on Schedule I hereof. In the event
        fully
        paid and nonassessable common stock is submitted as whole or partial payment
        for
        shares to be purchased hereunder, such common stock will be valued at their
        Fair
        Market Value (as defined in the Plan) on the date such shares received by
        the
        Company are applied to payment of the exercise price.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      
        	 	
                3.

              	
                Transferability

              

      

      

      The
        Option evidenced hereby is not assignable or transferable by the Optionee
        other
        than by the Optionee's will or by the laws of descent and distribution, as
        provided in paragraph 6.9 of the Plan. The Option shall be exercisable only
        by
        the Optionee during his lifetime.

       

      
        
          	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	
                  By:

                
	 	 	 	
                  Name:

                
	
                  ATTEST:

                	 	
                  Title:

                
	 	 	 
	 	 	 
	
                  Secretary

                	 	 

        

      

       

      Optionee
        hereby acknowledges receipt of a copy of the Plan, attached hereto and accepts
        this Option subject to each and every term and provision of such Plan. Optionee
        hereby agrees to accept as binding, conclusive and final, all decisions or
        interpretations of the of the Board of Directors administering the Plan on
        any
        questions arising under such Plan. Optionee recognizes that if Optionee's
        employment with the Company or any subsidiary thereof shall be terminated
        without cause, or by the Optionee, prior to completion or satisfactory
        performance by Optionee (except as otherwise provided in paragraph 6 of the
        Plan) all of the Optionee's rights hereunder shall thereupon terminate; and
        that, pursuant to paragraph 6 of the Plan, this Option may not be exercised
        while there is outstanding to Optionee any unexercised Stock Option granted
        to
        Optionee before the date of grant of this Option.

       

      
        
          	
                  Dated:

                	 	 	 	 
	 	 	 	
                  Optionee

                
	 	 	 	 
	 	 	 	 
	 	 	 	
                  Print
                    Name

                
	 	 	 	 
	 	 	 	 
	 	 	 	
                  Address

                
	 	 	 	 
	 	 	 	 
	 	 	 	
                  Social
                    Security No.

                

        

      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      ATTACHMENT
        B

      

      NOTICE
        OF
        EXERCISE

       

      To:
          ____________________________________________

       

      (1)
          The undersigned hereby elects to purchase ________ shares of Common
        Shares (the “Common Shares”), of _____________________________________, a
        Delaware corporation pursuant to the terms of the attached Non-Qualified
        Stock
        Option Agreement, and tenders herewith payment of the exercise price in full,
        together with all applicable transfer taxes, if any.

       

      (2)
          Please issue a certificate or certificates representing said shares of
        Common Shares in the name of the undersigned or in such other name as is
        specified below:

       

      
        
          	 	 	 	 	 
	 	 	
                  (Name)
                    

                	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	
                  (Address)

                	 	 
	 	 	 	 	 

        

      

      

      Dated:

      

      
        	 	 	 	 
	 	 	 	
                Signature

              
	 	 	 	 

      

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      
        	
                Optionee:

              	           
                	 	
                Date of Grant:

              	 	 

      

      

      SCHEDULE
        I

      

      
        	
                DATE

              	 	
                SHARES

                PURCHASED

              	 	
                PAYMENT

                RECEIVED

              	 	
                UNEXERCISED

                SHARES

                REMAINING

              	 	
                ISSUING

                OFFICER

                INITIALS

              	 
	
                 

              	 	
              	 	
              	 	
              	 	
              	 
	
                 

              	 	
              	 	
              	 	
              	 	
              	 

      

       

      
        
          
          

        

        
          15

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