Document:

___________________	____________________
	Name of Subscriber	Agreement No.

 

CONFIDENTIAL SUBSCRIPTION AGREEMENT

 

SKINNY NUTRITIONAL
CORP.

 

Private Sale of up to $2,500,000 of Units
of Securities 

 

Each Unit Consisting of One (1) Convertible
Senior Subordinated Secured Note

in the Principal Amount of $25,000

and

One (1) Series A Common Stock Purchase Warrant

 

 

THIS SUBSCRIPTION
AGREEMENT CONTAINS MATERIAL NONPUBLIC INFORMATION CONCERNING SKINNY NUTRITIONAL CORP. AND IS PREPARED SOLELY FOR THE USE OF THE
OFFEREE NAMED ABOVE. ANY USE OF THIS INFORMATION FOR ANY PURPOSE OTHER THAN IN CONNECTION WITH THE CONSIDERATION OF AN INVESTMENT
IN THE SECURITIES OFFERED HEREBY MAY SUBJECT THE USER TO CRIMINAL AND CIVIL LIABILITY.

 

THE SECURITIES OFFERED
HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE DILUTION AND MAY BE PURCHASED ONLY BY PERSONS WHO
QUALIFY AS “ACCREDITED INVESTORS” UNDER RULE 501 (a) OF REGULATION D UNDER THE SECURITIES ACT.

 

THIS DOCUMENT HAS
NOT BEEN FILED WITH OR REVIEWED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER COMMISSION OR REGULATORY AUTHORITY,
AND HAS NOT BEEN FILED WITH OR REVIEWED BY THE ATTORNEY GENERAL OF ANY STATES NOR HAS ANY SUCH COMMISSION, AUTHORITY OR ATTORNEY
GENERAL DETERMINED WHETHER IT IS ACCURATE OR COMPLETE OR PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

SKINNY NUTRITIONAL CORP.

3 Bala Plaza East, Suite 101

Bala Cynwyd, Pennsylvania 19004

Tel. (610) 784-2000

 

November 4, 2011

 

    	 

    	 

    

 

CONFIDENTIAL SUBSCRIPTION AGREEMENT 

 

INSTRUCTIONS:

 

Items to be delivered by all Investors:

 

		a.	One (1) completed and executed Subscription Agreement,
including the Investor Questionnaire.

 

		b.	One completed and executed Security Agreement

 

c.            Payment
in the amount of subscription, by wire transfer of funds or check. All checks should be made payable to “Becker & Poliakoff,
LLP escrow account for Skinny Nutritional Corp.” in the total amount of the Securities subscribed for.

 

		d.	Wired funds should be directed as follows:

 

BECKER & POLIAKOFF, LLP

ATTORNEY ESCROW ACCOUNT FOR

 

SKINNY NUTRITIONAL CORP.

 

THE SUBSCRIBER IS RESPONSIBLE FOR ALL WIRE TRANSFER FEES
IMPOSED BY THE SUBSCRIBER’S BANK.

 

ALL DOCUMENTS SHOULD BE RETURNED TO:

 

Skinny Nutritional Corp.

3 Bala Plaza East, Suite 101

Bala Cynwyd, Pennsylvania 19004

Tel. (610) 784-2000

 

In the event you decide not to participate
in this offering please return this Confidential Subscription Agreement to the address set forth above.

 

THE FOLLOWING EXHIBITS AND SCHEDULES
ARE ANNEXED TO 

AND FORM PART OF THIS SUBSCRIPTION AGREEMENT:

 

DISCLOSURE SCHEDULE

EXHIBIT A:     INVESTOR QUESTIONNAIRE

EXHIBIT B:     FORM OF CONVERTIBLE SENIOR SUBORDINATED SECURED NOTE

EXHIBIT C:     FORM OF SERIES A COMMON STOCK PURCHASE WARRANT

EXHIBIT D:     FORM
OF SECURITY AGREEMENT

 

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SUBSCRIPTION AGREEMENT

 

The undersigned (the
“Subscriber” or the “Purchaser”) hereby subscribes to purchase from Skinny Nutritional Corp.,
a Nevada corporation (the “Company”), units of the Company’s securities (the “Units”),
on the terms as described herein. The Company is offering hereby (the “Offering”) up to a total aggregate principal
amount of $2,500,000 of Units on a “best efforts” basis. Each Unit offered hereby consists of one (1) Convertible Senior
Subordinated Secured Note in the principal amount of $25,000 (the “Convertible Note”) and one (1) Series A Common
Stock Purchase Warrant (the “Series A Warrant”).

 

Article I

SALE OF UNITS

 

1.1         Sale of
Units; Offering Period

 

(a)          Subject
to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company hereby
agrees to issue and sell to the Subscriber and the Subscriber agrees to purchase from the Company, upon Closing, the Units as described
herein for the purchase price as set forth on the signature page of this Subscription Agreement executed by the Subscriber. Each
Unit offered hereby consists of one (1) Convertible Note in the principal amount of $25,000 and one (1) Series A Warrant. The Convertible
Notes are convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”)
or the “Conversion Securities”, as defined below. The number of Units purchased hereunder by a Subscriber shall be
as specified on the signature page of this Subscription Agreement executed by the Subscriber. The Company may reject any subscription
in whole or in part. The Company is selling the Units in this Offering at a purchase price of $25,000 per Unit (the “Purchase
Price”). The Company is offering the Units on a “best efforts” basis as the total Offering amount. This Offering
is only being made to “accredited investors” (as defined in Rule 501 under the Securities Act of 1933, as amended (the
“Securities Act”)) in reliance upon an exemption from registration under Section 4(2) of the Securities Act
and/or Regulation D promulgated thereunder, and on similar exemptions under applicable state laws. The Units may be purchased,
in part or their entirety, by officers and directors of the Company or representatives of the Selling Agent (as defined below).

 

(b)          The
Units are being offered during the offering period commencing on the date set forth on the cover page of this Subscription Agreement
and terminating on the earlier of (a) 5:00 p.m. (New York time) on March 1, 2012 or (b) the date on which all the Units authorized
for sale have been sold (the “Offering Period”). The Company reserves the right to terminate or close the offering
at any time.

 

(c)          The Convertible
Notes are convertible into either (i) shares of the Company’s Common Stock (the “Conversion Shares”) at
the initial conversion rate of $0.03 or (ii) the securities (the “Conversion Securities”) sold by the Company
in the next financing conducted by the Company at a conversion rate equal to a 20% discount to the price at which the securities
in the Next Financing (as defined below) are sold. The conversion rate is subject to adjustment as described in the Convertible
Notes, including in the event that the Company issued additional shares of Common Stock or other equity securities at a purchase
price below the initial conversion rate. The principal amount of the Convertible Notes shall bear interest at the rate of 10% per
annum and shall have an initial maturity date of twelve (12) months. The Company shall have the right to extend the maturity date
for an additional twelve (12) month period provided it issues the Subscribers additional Series A Warrants. The Convertible Notes
are secured obligations of the Company and will be secured by a lien on the Company’s assets, which lien will be subordinated
to the Senior Indebtedness of the Company, as defined in the Convertible Note and in the Security Agreement annexed hereto (the
“Security Agreement”). The Series A Warrants shall permit the holders to purchase shares of the Company’s
Common Stock (the “Warrant Shares”) at an initial per share exercise price of $0.05 for a period of five years.
The exercise price shall be subject to adjustment in the event that the Company issues additional common stock purchase warrants
in the next financing (as contemplated in the definition of such term, as set forth below) and such warrants have an exercise price
less than the exercise price of the Series A Warrants. Each Subscriber shall be issued a Series A Warrant to purchase such number
of Warrant Shares as is equal to 100% of the number of Conversion Shares which may be issued upon conversion of the Convertible
Note purchased by such Subscriber, at the initial conversion rate of such Convertible Note. A summary of the material terms and
conditions of the Convertible Notes and Series A Warrants is set forth below under the caption “Summary of Offering”.

 

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1.2           High
Risk Investment. This investment is speculative and should only be made by investors who can afford the risk of loss of their
entire investment. The proceeds from the sale of the Units will be used to fund short term capital needs to enable the Company
to maintain operations until additional funding is received. The Company may sell additional securities after the completion of
this transaction to further fund its operations. Unless the Company is successful in completing these additional funding transactions,
or is able to generate sufficient revenue from operations, the Company may be forced to significantly curtail its operations and
the Subscribers will lose their entire investment.

 

1.3           Selling
Agents; Certain Expenses. The Company has engaged Bryant Park Capital, Inc. as its exclusive selling agent (the “Selling
Agent”), for the sale of the Units and will pay commissions and other compensation to the Selling Agent based on the
subscriptions procured by it in this Offering. We will pay commissions to the Selling Agent of 8.0% of the gross proceeds from
the sale of the Securities in this Offering to subscribers procured by them and reimburse them for their reasonable expenses. We
will also issue to the Selling Agent warrants (the “Agent Warrants”) to purchase such number of shares of Common
Stock of the Company as equals 10.0% of the number of shares of Common Stock which may be issued upon the conversion of the Convertible
Notes sold in the Offering to Subscribers procured by the Selling Agents. The Agent Warrants will be exercisable for a period of
five years at an exercise price of $0.05 per share, and will substantially similar in all material respects to the Series A Warrants.
The Company will also indemnify the Selling Agent against certain liabilities, including liabilities under the Securities Act of
1933, and liabilities arising from breaches of representations and warranties contained in the agreement, or to contribute to payments
that it may be required to make in respect of such liabilities.

 

Summary of Offering

 

	Securities Offered:	The Company is offering a total of $2,500,000 of its Units on a “best efforts” basis as to the entire Offering. Each Unit consists of one (1) Convertible Note in the principal amount of $25,000 and one (1) Series A Warrant. As used herein the Units, Convertible Notes, Series A Warrants, Conversion Shares, Conversion Securities and Warrant Shares may collectively be referred to as the “Securities”.
	 	 
	Unit Purchase Price:	The Company is selling the Units in this Offering at a Purchase Price of $25,000 per Unit. The Company may accept subscriptions for partial Units in its sole discretion.
	 	 
	Offering Period:	The Securities are being offered during the Offering Period commencing on the date set forth on the cover page of this Subscription Agreement and terminating on the earlier of (a) 5:00 p.m. (New York time) on March 1, 2012 or (b) the date on which all the Units authorized for sale have been sold. The Company reserves the right to terminate or close the offering at any time.
	 	 
	Summary of Convertible Notes:
	 	 
	Principal Amount:	Up to an aggregate principal amount of $2,500,000.
	 	 
	Interest:	The Convertible Notes shall accrue simple interest at the rate of 10% per annum, payable semi-annually and at maturity at the Company’s option in either: (i) cash or (ii) shares of Common Stock.

 

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	Maturity:	The Convertible Notes shall have an initial maturity date of 12 months from the date of issuance. The Company shall have the option to extend the maturity date for an additional 12 months, provided it issues to the Subscribers such number of additional Series A Warrants as is equal to the number of Series A Warrants issued to the Subscribers upon the initial issuance of the Convertible Notes. 
	 	 
	Redemption:	The Convertible Notes may be redeemed in whole or in part at any time at the option of the Company at the following prices: (i) during the first six months at 105% of par plus accrued and unpaid interest and (ii) thereafter at par plus accrued and unpaid interest.
	 	 
	Conversion Price:	At the holder’s option the Convertible Notes will be convertible into (i) shares of Common Stock at an initial conversion rate of $0.03 per share or (ii) the securities issued by the Company in the Next Financing (defined below) at a 20% discount to the purchase price of the securities sold in the Next Financing. If the holder chooses not to convert at the time of the Next Financing then there will be no further conversion option. 
	 	 
	Next Financing	The “Next Financing” shall mean the closing of a sale of equity or convertible debt securities by the Company, or series of closings, as part of the same transaction, of equity or convertible debt securities within a period of six months, in the gross amount of at least $3,000,000.
	 	 
	Anti-dilution protection:	The conversion rate of the Convertible Notes will be adjusted on a “weighted-average” basis in the event that the Company issues additional shares of Common Stock or common stock equivalents (other than for stock option grants and other customary exclusions) at a purchase price less than the initial conversion rate of the Convertible Notes. In addition, the Convertible Notes will be adjusted proportionally in the event of stock splits, stock dividends, combinations, recapitalizations, and similar events.
	 	 
	Mandatory Conversion:	In the event that the gross proceeds realized by the Company in the Next Financing are at least $5,000,000, then each holder of a Convertible Note shall be required to convert such Convertible Note into the Conversion Securities issued in the Next Financing.
	 	 
	Security Interest:	The outstanding principal and interest outstanding under the Convertible Notes, and all other amounts due thereunder, shall be secured by a subordinated lien on the assets of the Company as set forth in the Security Agreement. Such subordinated lien shall be junior to (i) the existing first lien of United Capital Funding Corp. and (ii) such future senior indebtedness that the Company may incur in an amount not to exceed $5,000,000.
	 	 
	Summary of Series A Warrants
	 	 
	Number of Series A Warrants:	The Company will issue to the Subscribers Series A Warrants to purchase such number of Warrant Shares as is equal to 100% of the number of Conversion Shares which may be issued upon conversion of the Convertible Note purchased by such Subscriber, at the initial conversion rate of such Convertible Note.  The Company will issue to the Subscribers such number of additional Series A Warrants as is equal to the number of Series A Warrants issued at the Closings in the event it exercises the option to extend the maturity date of the Convertible Notes. 

 

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	Exercise Price and Term	The initial exercise price of the Series A Warrants shall be $0.05 per share of Common Stock and the Series A Warrants shall be exercisable for a period of five years. The Series A Warrants shall include a cashless exercise provision which will be applicable in the event that the resale of the Warrant Shares are not covered by a registration statement. The exercise price of the Series A Warrants shall be subject to adjustment in the event that the Company issues additional common stock purchase warrants in the Next Financing (the “Next Financing Warrants”) and such Next Financing Warrants have an exercise price less than the exercise price of the Series A Warrants. In such an event the exercise price of the Series A Warrants would be reduced to equal the exercise price of the Next Financing Warrants. 
	 	 
	Registration Rights:	Subscribers shall be entitled to the piggyback registration rights applicable to the Common Shares, as described in Section 5.1 of this Agreement.         
	 	 
	Use of Proceeds:	The proceeds will be used to fund working capital and for general corporate purposes.
	 	 
	Escrow; No Offering Minimum:	The Company has established a non-interest bearing escrow account for the deposit of funds in this Offering. However, each Subscriber acknowledges and agrees that there is no minimum Offering amount necessary to conduct a closing for the funds to be released to the Company. Accordingly, funds may be released to the Company and closings held, from time to time, as determined by the Company at any time during the Offering Period.
	 
	Subscription Procedure:	In order to subscribe for the Units, each prospective subscriber must complete, execute and deliver to the Company a signature page evidencing such prospective subscriber’s execution of this Subscription Agreement along with a completed confidential Purchaser Questionnaire and a copy of the Security Agreement.
	 	 
	Restrictions on Transferability:	There is no public market for the Convertible Notes or Series A Warrants, and it is not anticipated that a market will develop after this Offering. Further, the Conversion Shares and Warrant Shares have not been registered under the Securities Act or under the securities laws of the United States or of any state or other jurisdiction. As a result, Convertible Notes, Series A Warrants, Conversion Shares and Warrants Shares (collectively, the “Securities”) are restricted securities under the Securities Act and they may not be transferred without registration under the Securities Act, or, if applicable, the securities laws of any state or other jurisdiction, unless in the opinion of counsel to the Company, such registration is not then required because of the availability of an exemption from registration. 
	 	 
	Investment:	An investment in the Company is highly speculative, and each investor bears the risk of losing his, her or its entire investment. All Purchasers must complete and execute a Subscription Agreement, the Security Agreement, and a confidential Purchaser Questionnaire. Purchasers must set forth representations in such documents that he, she or it is purchasing the Units for investment purposes only and without a view toward distribution. The Units are suitable investments only for sophisticated investors for whom an investment in the Units does not constitute a complete investment program and who fully understand, are willing to assume, and who have the financial resources necessary to withstand, the risks involved in investing in the Units and who can bear the potential loss of their entire investment. The Units are being offered and sold only to persons who qualify as “accredited investors,” as defined under Regulation D of the Securities Act.

 

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	Risk Factors:	An investment in the Units involves a high degree of risk.  Purchasers of the Units should carefully review the factors under the heading “Risk Factors” herein and in the Company’s reports filed under the Securities Exchange Act of 1934, as amended.

 

1.4           Escrow
and No Minimum Offering Amount; Multiple Closings.

 

Each Subscriber acknowledges
and agrees that all subscription amounts will be deposited in a non-interest bearing account established on behalf of the Company,
but that there is no minimum Offering amount necessary to conduct a closing for the funds to be released to the Company. Accordingly,
funds may be released to the Company and closings held, from time to time, as determined by the Company at any time during the
Offering Period. During the Offering Period, subscription funds will be placed into the escrow account and closings will be held
from time to time up to the sale of the maximum amount of Units described in this Subscription Agreement or the expiration of the
Offering Period. In the event a subscription is not accepted in whole or in part by the Company, the full or ratable amount, as
the case may be, of any subscription payment received will be promptly refunded to the Subscriber without deduction therefrom and
without interest thereon. In the event a subscription is accepted by the Company, in whole or in part, and subject to the conditions
set forth in this Subscription Agreement, a closing may be held from time to time by the Company and the Company shall issue and
deliver to you, the Convertible Note and Series A Warrant, dated the date of closing on such funds, and a fully executed copy of
this Subscription Agreement and the Security Agreement.

 

At each closing of
the transactions contemplated herein (the “Closing”), the Subscribers shall purchase, severally and not jointly,
and the Company shall issue and sell, to the Subscribers the amount of Units as indicated on the signature page of each Subscriber’s
subscription agreement, up to the total Offering amount. The Units may be purchased, in part or their entirety, by officers and
directors of the Company or representatives of the Selling Agent. Each Closing shall occur on the date determined by the Company
at such times and/or locations as the Company may set. A final Closing shall be held either on the date of which this Offering
is fully subscribed or the last date during the Offering Period on which the Company accepts a subscription, whichever is latest.
This Offering shall terminate on the earlier of (a) 5:00 p.m. (New York time) on March 1, 2012 or (b) the date on which all the
Units authorized for sale have been sold, unless sooner terminated by the Company, in its sole discretion. Each Closing of the
transactions contemplated hereunder shall be deemed to occur at the offices of Becker & Poliakoff, LLP, 45 Broadway, 8th
Floor, New York, New York 10006, or at such other place as shall be mutually agreeable to the parties, at 11:00 a.m., New York
time, on such date or dates as may be mutually agreeable to the parties.

 

1.5           Closing
Matters. At each Closing the following actions shall be taken:

 

(a)            each Subscriber
shall deliver its Purchase Price in immediately available United States funds to the account established for the Offering;

 

(b)            the Company
shall deliver certificates representing the Convertible Notes and Series A Warrants subscribed for to each Subscriber; and

 

(c)            each
of the Company and the Subscriber shall deliver to the other signed copies of this Agreement and the Security Agreement and the
Subscriber shall deliver to the Company a completed and executed Purchaser Questionnaire.

 

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1.6           Use
of Proceeds. The Company intends to use the proceeds derived from this Offering to satisfy its working capital requirements
and general corporate purposes. Management reserves the right to utilize the net proceeds of the Offering in a manner in the best
interests of the Company. Accordingly, management will have broad discretion in the application of the proceeds of the Offering.
The amount of the net proceeds that will be invested in particular areas of the Company’s business will depend upon future
economic conditions and business opportunities. To the extent that the Company continues to incur losses from operations, such
losses will be funded from its general funds, including the net proceeds of this Offering. As reported in its Quarterly Report
on Form 10-Q for the quarter ended June 30, 2011, filed on August 15, 2011, as amended on August 18, 2011, the Company had, as
of June 30, 2011, total liabilities of $5,158,144, including accounts payable of $1,946,157. Payment of these, and comparable obligations,
may be made from the proceeds of this Offering.

 

1.7           Certain
Reports Filed Under the Securities Exchange Act of 1934. 

 

(a)          Annual
Report on Form 10-K for the year ended December 31, 2010. On April 15, 2011, the Company filed its Annual Report on Form 10-K
for the year ended December 31, 2010 (the “2010 Annual Report”) with the United States Securities and Exchange
Commission (the “SEC”).

 

(b)          Quarterly
Reports on Form 10-Q. On May 20, 2011, the Company filed with the SEC its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2011 and on August 15, 2011, as amended on August 18, 2011, the Company filed with the SEC its Quarterly Report on Form
10-Q for the quarter ended June 30, 2011 (the “2011 Quarterly Reports”).

 

(c)          Current
Reports on Form 8-K. The Company has filed Current Reports on Form 8-K (including amendments to Current Reports on Form 8-K/A)
with the SEC on the following dates during the current fiscal year: January 21, 2011, February 28, 2011, March 16, 2011, June 22,
2011 and July 20, 2011 (excluding Current Reports on Form 8-K deemed to have been furnished rather than filed with the SEC, the
“Current Reports”).

 

(d)          Acknowledgement
and Confirmation. The undersigned hereby agrees and acknowledges that it has been advised that the Company has filed with the
SEC the 2010 Annual Report, the 2011 Quarterly Reports and the Current Reports (collectively, the “SEC Reports”)
and that it has either obtained or has access to (through the public website of the SEC or otherwise) the SEC Reports. The SEC
Reports comprise an integral part of this Agreement and each Subscriber is urged to read each such report in its entirety. The
undersigned further agrees that the SEC Reports are incorporated herein by reference, that it has taken the opportunity to review
such reports in their entirety, including the risk factors described therein, and that it has considered all factors that it deems
material in deciding on the advisability of investing in the Company’s securities.

 

1.8           Subscriber
Information

 

	(a)	 	Name(s) of SUBSCRIBER(s):_____________________
	 	 	 
	 	 	__________________________________________
	 	 	 
	 	 	__________________________________________
	 	 	 
	(b)	Principal Amount of Securities Subscribed for:	$__________
	 	 	 
	(c)	Accredited Investor Status	 

 

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The Subscriber acknowledges
and agrees that the offering and sale of the Securities are intended to be exempt from registration under the Securities Act, by
virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. In accordance therewith and in furtherance thereof,
the Subscriber represents and warrants to and agrees with the Company as follows [Please check statements applicable to the Subscriber]:

 

The Subscriber is an
Accredited Investor because the Subscriber is (check appropriate item):

 

		£	a bank as defined in Section 3(a)(2) of the Securities Act;

 

		£	a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities
Act;

 

		£	a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 as
amended (the “Exchange Act”);

 

		£	an insurance company as defined in Section 2(13) of the Securities Act;

 

		£	an investment company registered under the Investment Company Act of 1940, as amended or a business
development company as defined in Section 2(a)(48) of such act;

 

		£	a Small Business Investment Company licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958;

 

		£	an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security
Act of 1974, as amended, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which
is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that
are accredited investors;

 

		£	a private business development company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940, as amended;

 

		£	an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts
or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;

 

		£	a natural person whose individual net worth or joint net worth with that person’s spouse,
at the time of his purchase exceeds $l,000,000 (excluding the value of such person’s primary residence);

 

		£	a natural person who had an individual income in excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;

 

		£	a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring
the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Exchange
Act;

 

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		£	an entity in which all of the equity owners are accredited investors. (If this alternative is checked,
the Subscriber must identify each equity owner and provide statements signed by each demonstrating how each qualifies as an accredited
investor);

 

		£	a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality
thereof, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; or

 

		£	a director or officer of the Company.

 

(d)             Additional
Information.

 

The Subscriber has
completed the signature page to this Subscription Agreement and the Questionnaire annexed at Exhibit A to this Subscription
Agreement.

 

1.9           Risk
Factors 

 

Investing in our securities involves
risks and our operating results and financial condition have varied in the past and may in the future vary significantly depending
on a number of factors. You should consider the following risk factors in evaluating whether to invest in the Units. However, the
risks described below are not the only risks facing the Company. In addition to these risk factors and other risks described elsewhere
in this Agreement, including the Disclosure Schedule to this Agreement, you should carefully consider the risk factors described
in our SEC Reports, each of which has been filed with the Securities and Exchange Commission and which are all incorporated by
reference in this Agreement. These risks could have a material adverse effect on our business, results of operations, financial
condition or liquidity and cause our actual operating results to materially differ from those contained in forward-looking statements
made in this Agreement, in our SEC Reports and elsewhere by management. Before making an investment decision, you should carefully
consider these risks as well as other information contained or incorporated by reference in this Agreement. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results.

 

General Risks Related to the Company’s
Business

 

The Company has a history of operating losses. If it continues
to incur operating losses, it may have insufficient working capital to maintain operations and may require additional capital to
do so. 

 

The Company had a
net loss of $6,914,269 for the fiscal year ended December 31, 2010, and an accumulated deficit of $37,827,090 as of such date.
The Company had a net loss of $7,305,831 for the fiscal year ended December 31, 2009 and an accumulated deficit of $30,912,821
as of such date. For the years ended December 31, 2010 and 2009, the Company incurred a net loss from operations of $6,711,210
and $7,233,640, respectively. For the three and six months ended June 30, 2011, the Company had a net loss of $2,526,955 and $3,396,010,
respectively. The Company had an accumulated deficit at June 30, 2011 of $41,223,100. For the three and six months ended June 30,
2010, the Company had a net loss of $2,173,113 and $3,209,986, respectively. The Company had an accumulated deficit at June 30,
2010 of $37,827,090. For the three and six months ended June 30, 2011, the Company’s loss from operations was $1,915,816
and $2,730,407, respectively. This compares to a loss from operations for the three and six months ended June 30, 2010 of $2,044,475
and $2,967,859, respectively.

 

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The
Company generated revenues of $6,927,108 (net of billbacks of $1,129,007 and slotting fees of $349,490) for
the fiscal year ended December 31, 2010 as compared to revenues of $4,146,066 (net of billbacks of $612,822 and slotting
fees of $473,022) for the year ended December 31, 2009. For the three and six months ended June 30, 2011, revenues (net of billbacks
and slotting fees) were $2,113,229 and $3,724,744, respectively, as compared to revenues (net of billbacks and slotting fees) of
$2,249,588 and $4,028,306 for the three and six months ended June 30, 2010, respectively. If the Company is not able to begin to
earn an operating profit at some point in the future, it will eventually have insufficient working capital to maintain its operations
as it presently intends to conduct them. In light of the foregoing, the Company presently anticipates that it will require additional
funds in order to implement its business plan and sustain its operations.

 

The Company has relied on capital
raised from private placements of its securities to fund operations and its independent auditors’ have included a “going
concern” opinion in their report included in the Company’s 2010 Annual Report. 

 

The Company has been
substantially reliant on capital raised from private placements of its securities, in addition to a revolving line of credit, to
fund its operations. The Company has an immediate need for cash to fund its working capital requirements and business model objectives.
The Company, however, currently has no firm agreements with any third-parties for such transactions and no assurances can be given
that it will be successful in raising sufficient capital from any proposed financings. As of June 30, 2011, the Company had a working
capital deficiency of $3,250,486, an accumulated deficit of $41,223,100, stockholders’ deficit of $850,635 and no cash on
hand. Further, as of such date, the Company had current liabilities of $5,158,144, including accounts payable of $1,946,157.

 

During
the 2011 fiscal year, the Company has raised an additional $3,250,500, less offering costs of approximately $64,000, from
the sale of securities to accredited investors in private placements and other stock purchase agreements. During the 2010 fiscal
year, the Company raised an aggregate amount of $2,635,750, less $289,862 in offering costs, from the sale of securities to accredited
investors in private placements. Further, the Company has issued shares of its common stock in exchange for services rendered in
lieu of cash payment. During the first six months of 2011 the Company has issued 31,141,837 shares of common stock in lieu of approximately
$1,139,000 in services. During fiscal 2010, the Company issued 16,913,796 shares of common stock for consideration of services
of approximately $1,101,000. However, as the Company has experienced similar trends with respect to its rate of cash used in operations,
it will need to satisfy its cash requirements through the offer and sale of additional securities, including those in this Offering.
In light of the Company’s financial position, including the factors mentioned above and in its SEC Reports, the Company expects
the proceeds of this Offering, assuming the sale of the maximum Offering, together with available cash, will only last for a minimal
period of time. Thereafter, the Company expects to require additional capital which it would seek to raise from the sale of additional
securities or through a debt financing arrangement. If less than the maximum Offering is sold, the Company will need to raise a
greater amount of capital than presently and to do so sooner than anticipated. Any failure to raise adequate capital in a timely
manner would have a material adverse effect on our business, operating results, financial condition and future growth prospects.

 

Our independent auditors’
have included a “going concern” explanatory paragraph in their report to our financial statements for the years ended
December 31, 2010 and December 31, 2009, citing recurring losses from operations. Our capital needs in the future will depend upon
factors such as market acceptance of our products and any other new products we launch, the success of our independent distributors
and our production, marketing and sales costs. None of these factors can be predicted with certainty. The Company must satisfy
its future cash needs by further developing a market for its products, selling additional securities in private placements or by
negotiating for an extension of credit from third party lenders. The Company presently anticipates that it will require additional
funds in order to implement its business plan and sustain its operations.

 

If the Company is unable
to achieve sufficient levels of sales, it will need substantial additional debt or equity financing in the future in addition to
any funds which it may receive in this Offering and the Company currently has no commitments or arrangement with respect to any
additional financings, including the Next Financing. No assurances can be given that any additional financing, if required, including
the Next Financing, will be available or, even if it is available that it will be on acceptable terms. If the Company raises additional
funds by selling common stock or convertible securities, the ownership of our existing shareholders will be diluted. If additional
funds are raised though the issuance of equity or debt securities, such additional securities may have powers, designations, preferences
or rights senior to our currently outstanding securities. Any inability to obtain required financing on sufficiently favorable
terms could have a material adverse effect on our business, results of operations and financial condition. If the Company is unsuccessful
in raising additional capital and increasing revenues from operations, it will need to reduce costs and operations substantially.
Further, if expenditures required to achieve plans are greater than projected or if revenues are less than, or are generated more
slowly than, projected, the Company will need to raise a greater amount of funds than currently expected.  

 

    	11

    	 

    

 

Risks Related to this Offering

 

This Offering may result in dilution
to our common shareholders.

 

Dilution of the per
share value of our Common Stock could result from the issuance of the Units in this Offering. If this Offering is fully subscribed
and excluding the Agent Warrants, the Company will issue an aggregate of $2,500,000 of Convertible Notes, which are initially convertible
into a total of 83,333,333 Conversion Shares (or $2,500,000 of Conversion Securities in the Next Financing. Conversion), and 83,333,333
Series A Warrants. In addition, the Company may be required to issue additional Conversion Shares pursuant to the anti-dilution
provision of the Convertible Notes. In the event the Company exercises the option to extend the maturity date of the Convertible
Notes, the Company will also issue to the Subscribers such number of additional Series A Warrants as is equal to the number of
Series A Warrants issued at the Closings. The issuance of a substantial number of shares of our Common Stock will dilute the equity
interests of the Company’s current stockholders.

 

We expect to require additional financing.

 

As contemplated by
the disclosures set forth in this Subscription Agreement regarding the Next Financing, as defined above, the Company expects that
it will need to raise additional financing following the completion of this Offering. Accordingly, the purchasers of the Units
should expect to experience substantial dilution in their percentage of ownership of the Company and, possibly, the value of their
investment. Any future offerings will dilute the percentage ownership of the Company for purchasers of Units in this Offering.
The Company currently has no commitments or arrangement with respect to any additional financings, including the Next Financing
and cannot provide any assurances as to whether such additional financing will be available or as to the terms upon which it may
be available. If the Company raises additional funds by selling common stock or convertible securities, the ownership of our existing
shareholders will be diluted

 

The Securities offered hereby are “restricted
securities” and may not be transferred or resold absent registration or an exemption therefrom.

 

The
Securities offered hereby will be issued pursuant to an exemption from registration under the Securities Act and therefore have
not been and will not be registered under that act or any applicable state securities laws. Consequently, the Securities may be
sold, transferred, or otherwise disposed of by the Purchasers hereunder only if, among other things, the Securities are registered
or, in the opinion of counsel acceptable to us, registration is not required under the Securities Act or any applicable state securities
laws. Accordingly, Subscribers will need to rely on exemptions to the registration requirements
under the Securities Act and the “blue sky” laws in order to be able to resell the Securities offered hereby.

 

Purchasers
of our Units must be aware of the long-term nature of their investment and be able to bear the economic risks of their investment
for an indefinite period of time. The Securities have not been registered under the Securities
Act or the securities or “blue sky” laws of any state. The right of any Subscriber to sell,
transfer, pledge or otherwise dispose of the Securities offered herein will be limited by the Securities Act and state securities
laws and the regulations promulgated thereunder. Accordingly, under the Securities Act, the Securities offered herein may not be
resold unless a registration statement is filed and becomes effective or an exemption from registration is available. The Company
is not under any affirmative obligation to file a registration statement covering the Securities and even if the Company did file
a registration statement covering the Securities, there can be no assurance that any such registration statement would be declared
effective. Further, there can be no assurance that a liquid market for our Common Stock will be sustained. Rule 144 promulgated
under the Securities Act requires, among other conditions, a holding period prior to the resale of securities acquired in a non-public
offering without having to satisfy the registration requirements of the Securities Act. There can be no assurance that we will
fulfill in the future any reporting requirements under the Exchange Act, or disseminate to the public any current financial or
other information concerning the Company, as required by Rule 144 as one of the conditions of its availability.

 

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No assurances that enough Units
will be sold to pursue business strategies or to repay the Convertible Notes. 

 

No person or entity
is committed to purchase any of the Units offered pursuant to this Offering, and no assurance
is or can be given that all or any of the Units offered hereunder will be sold. Further, although
the Company has established an escrow account for the subscription amounts from investors, no minimum amounts of Units are required
to be sold. Proceeds received from the Offering will be available to the Company upon receipt, which the Company intends to promptly
utilize in accordance with the terms of the “Use of Proceeds” section of this Subscription Agreement, including the
payment of outstanding obligations. The application of the proceeds of the Offering to the payment of current obligations would
reduce the ability of the Company to utilize such proceeds for other business purposes. In the event that the Company is unable
to sell all or a significant portion of the Units pursuant to the Offering, the Company may have
insufficient capital after making the aforesaid payments to proceed with the Company’s business strategies and thus may be
forced to seek additional capital sooner than would have been the case had the Offering been fully subscribed. The Company also
may need additional funds from loans and/or the sale of securities to repay the Convertible Notes at their maturity date. There
can be no assurance that such additional funds will be available to the Company when required on terms acceptable to the Company.
The Company’s inability to obtain financing on favorable terms could restrict its operations and could materially harm an
investment in the Company. The Company has not entered into any agreement or letter of intent for the Next Financing or any other
subsequent financing. In the event the Next Financing is not consummated or other financing obtained, the Company may not have
adequate funds available to repay the Convertible Notes.

 

This Offering is being made on a
best efforts basis and there is no minimum amount of funds required to hold a closing and no escrow account has been established
for the Offering.

 

This
Offering is being made on a “best efforts” rather than a firm commitment basis. No commitment exists by anyone, including
the Selling Agent, to purchase all or any part of the Units being offered pursuant to this Offering. There can be no assurance
that any Units offered hereby will be sold. Although the Company has established an escrow account
for this Offering, there is no “minimum offering” amount required in this Offering and closings may be held and funds
released to the Company at such times and in such amounts, up to the maximum Offering amount, as determined by the Company in its
discretion. 

 

No independent counsel for Purchasers.

 

The Company has employed
its own legal counsel in connection with this Offering. The Purchasers have not been represented by independent counsel in connection
with the preparation of this Subscription Agreement or the terms of this Offering and no investigation of the merits or fairness
of this Offering has been conducted on behalf of the Purchasers. Company Counsel has not conducted due diligence on behalf of the
Purchasers. Prospective investors should consult with their own legal, tax and financial advisors with respect to the Offering
made hereby.

 

    	13

    	 

    

 

Our management will have broad discretion with respect
to the use of the proceeds of this Offering.

 

We have highlighted
the intended use of proceeds for this Offering, including repayment of outstanding accounts payable. However, our management will
have broad discretion as to the application of these net proceeds and could use them for purposes other than those contemplated
at the time of this Offering. Our stockholders may not agree with the manner in which our management chooses to allocate and spend
the net proceeds.

 

Availability of Securities Act
exemption.

 

The Units are being
offered pursuant to various available exemptions from registration from U.S. federal and state securities law registration requirements.
Compliance with such laws, which must be met in order for such exemptions to be available to us, is highly technical and to some
extent involves elements beyond our control. If the proper exemptions do not ultimately prove to be available, we could be subject
to the claims of all or only some of our shareholders for violations of federal or state securities laws, which could materially
adversely affect our profitability or operations or make an investment in the Securities worthless.

 

Risks Related to the Company’s
Securities

 

The equity interests of Purchasers
are subject to substantial dilution.

 

Under its articles
of incorporation, the Company is presently authorized to issue up to 1,000,000,000 shares of Common Stock. As of September 30,
2011, there are outstanding 572,397,439 shares of Common Stock. Subsequent to that date, the Company has issued, or agreed to issue,
a total of 8,136,361 additional shares of Common Stock, as reported in its SEC Reports. The Company may, at any time after consummation
or termination of this Offering, offer and sell additional securities of the Company upon such terms and conditions as the Board
of Directors believes to be in the best interests of the Company. The Company expects to seek to engage in future offerings of
its securities, including the Next Financing, so as to sustain the operations and business activities of the Company. The sale
of additional equity securities will dilute or reduce the percentage of ownership interests of the Purchasers. Further, the market
price of our Common Stock could fall due to an increase in the number of shares available for sale in the public market.

 

Exercise or conversion of outstanding
options, warrants and shares of convertible preferred stock will dilute stockholders and could decrease the market price of our
common stock.

 

As of September 30,
2011, there were issued and outstanding options to purchase 9,050,000 shares of Common Stock and warrants to purchase an aggregate
of 117,524,155 additional shares of Common Stock. To the extent that these securities are exercised or converted, dilution to our
shareholders will occur. In addition, the Company sold 20,350 shares of Series A Preferred Stock during fiscal 2009. Under the
terms of the Certificate of Designation, Preferences, Rights and Limitations of the Series A Preferred Stock, all shares of Series
A Preferred Stock were automatically convertible into 33,916,667 shares of Common Stock upon the filing by the Company of a Certificate
of Amendment to its Articles of Incorporation with the Secretary of State of Nevada. However, as of September 30, 2011, holders
of 1,920 shares of Series A Preferred Stock have not yet surrendered such shares for cancellation and the Company will issue an
additional 3,200,000 shares of Common Stock to such holders upon the surrender of their certificates representing shares of Series
A Preferred Stock. Further, the Company may issue 4,788,750 shares of Common Stock pursuant to unvested restricted stock awards
and issue an additional 8,136,361 shares of Common Stock and warrants to certain third parties pursuant to consulting or other
business arrangements. The exercise and conversion of these securities by the holders and issuance of these additional shares of
Common Stock may adversely affect the market price of the Company’s Common Stock and the terms under which we could obtain
additional equity capital.

 

    	14

    	 

    

 

We do not anticipate
paying dividends in the foreseeable future, and the lack of dividends may have a negative effect on the price of our Common Stock.

 

We currently intend
to retain our future earnings, if any, to support operations and to finance expansion and therefore, we do not anticipate paying
any cash dividends on our Common Stock in the foreseeable future.

 

Our Common Stock is traded on the OTC Bulletin Board,
which may be detrimental to investors.

 

Our Common Stock is
currently traded on the OTC Bulletin Board. Stocks traded on the OTC Bulletin Board generally have limited trading volume and are
therefore susceptible to exhibiting a wide spread between the bid/ask quotations. We cannot predict whether a more active market
for our Common Stock will develop in the future. In the absence of an active trading market, investors may have difficulty buying
and selling our Common Stock or obtaining market quotations; market visibility for our Common
Stock may be limited; and a lack of visibility for our Common Stock
may have a depressive effect on the market price for our Common Stock. 

 

Shares of our Common Stock are subject to restrictions
on sales by broker-dealers and penny stock rules, which may be detrimental to investors.

 

Our
Common Stock is subject to Rules 15g-1 through 15g-9 under the Exchange Act, which imposes certain
sales practice requirements on broker-dealers who sell our Common Stock to persons other than
established customers and “accredited investors” (as defined in Rule 501(c) of the Securities Act). For transactions
covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our Common
Stock and purchasers of our Common Stock to sell their shares. 

 

Additionally,
our Common Stock is subject to SEC regulations applicable to “penny stocks.” Penny
stocks include any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions.
The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by
the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure
must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations
for our Common Stock. The regulations also require that monthly statements be sent to holders
of a penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks.
These requirements adversely affect the market liquidity of our Common Stock. 

 

There are outstanding a significant number of shares available
for future sales under Rule 144.

 

As of September 30,
2011, of the 572,397,439 issued and outstanding shares of our Common Stock, approximately 313,976,011 shares may be deemed “restricted
shares” and, in the future, may be sold in compliance with Rule 144 under the securities Act of 1933, as amended. In general,
under Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities
within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated
holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated
person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled
to sell those shares without regard to the provisions of Rule 144. A person (or persons whose shares are aggregated) who is
deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for
at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater
of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock during
the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about us. Possible or actual sales of our Common Stock by certain of our present
shareholders under Rule 144 may, in the future, have a depressive effect on the price of our Common Stock in any market which may
develop for such shares. Such sales at that time may have a depressive effect on the price of our Common Stock in the open market.

 

    	15

    	 

    

 

A substantial number of shares may be sold in the market
following this offering, which will further dilute our common shareholders and may depress the market price for our common stock.

 

Sales of a substantial
number of shares of our Common Stock in the public market following this offering could cause the market price of our common stock
to decline. If the total Offering is completed, we will issue to Subscribers (a) an aggregate of $2,500,000 principal amount of
Convertible Notes, which are initially convertible into 83,333,333 Conversion Shares and (b) 83,333,333 Series A Warrants. We will
also issue to the Selling Agent a maximum of 8,333,333 Agent Warrants. Based on a total of 572,347,439 shares of Common Stock outstanding,
if the total Offering is completed and the Convertible Notes converted into Conversion Shares, the total number of outstanding
shares of Common Stock would be 664,064,105 shares, assuming no exercise of outstanding options or warrants or of the Series A
Warrants or Agent Warrants or issuance of Common Stock for services subsequent to September 30, 2011. The issuance of a substantial
number of our Common Stock will dilute the equity interests of the Company’s current stockholders. Further, as a substantial
majority of the outstanding shares of our Common Stock are, tradable without restriction or further registration under the Securities
Act of 1933 unless these shares are purchased by affiliates, the issuance of the Common Stock offered hereby may further depress
the market price of our Common Stock.

 

Preferred Stock as an anti-takeover device.

 

The
Company is authorized to issue 1,000,000 shares of preferred stock, $0.001 par value. Presently, the Company does not have any
shares of preferred stock outstanding, except for the holders of 1,920 shares of Series A Preferred Stock that have not
yet surrendered such shares for cancellation (and which solely represent the right to receive the shares of Common Stock issuable
upon surrender thereof). The preferred stock may be issued in series from time to time with such designation,
voting and other rights, preferences and limitations as our Board of Directors may determine by resolution. Unless the nature of
a particular transaction and applicable statutes require such approval, the Board of Directors has the authority to issue these
shares without stockholder approval subject to approval of the holders of our preferred stock. The issuance of preferred stock
may have the effect of delaying or preventing a change in control of the Company without any further action by our stockholders.

 

Forward Looking Statements

 

This Subscription
Agreement and the exhibits and schedules annexed hereto contain certain forward looking information within the meaning of the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These statements relate to future events or future
predictions, including events or predictions relating to our future financial performance, and are generally identifiable by use
of the use of forward-looking terminology such as “believes”, “expects”, “may”, “will”,
“should”, “plan”, “intend”, or “anticipates” or the negative thereof or other variations
thereon or comparable terminology, or by discussion of strategy that involve risks an uncertainties. Management wishes to caution
each Subscriber that these forward-looking statements and other statements contained herein regarding matters that are not historical
facts, are only predictions and estimates regarding future events and circumstances and involve known and unknown risks, uncertainties
and other factors, including the risks described under “Risk Factors” that may cause the Company’s or its industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking statements. This information is based on various assumptions
by the management which may not prove to be correct.

 

    	16

    	 

    

 

In addition to the
risks described in Risk Factors, important factors to consider and evaluate in such forward-looking statements include: (i) changes
in the external competitive market factors which might impact the Company’s results of operations; (ii) unanticipated working
capital or other cash requirements including those created by the failure of the Company to adequately anticipate the costs associated
with clinical trials, manufacturing and other critical activities; (iii) changes in the Company’s business strategy or an
inability to execute its strategy due to the occurrence of unanticipated events; (iv) the inability or failure of the Company’s
management to devote sufficient time and energy to the Company’s business; and (v) the failure of the Company to complete
any or all of the transactions described herein on the terms currently contemplated. In light of these risks and uncertainties,
there can be no assurance that the forward-looking statements contained or incorporated by reference in this Agreement will in
fact transpire.

 

All of these assumptions
are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of our Company. Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee
future results, levels of activity, performance or achievements. Accordingly, there can be no assurance that actual results will
meet expectations or will not be materially lower than the results contemplated in this Agreement. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents
referred to or incorporated by reference, the dates of those documents. The Company does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or
to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law.

 

Article II

REPRESENTATIONS AND WARRANTIES OF
COMPANY

 

Except as set forth
under the corresponding section of the Disclosure Schedule, which Disclosure Schedule shall be deemed a part hereof and to qualify
any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby represents and warrants
to the Purchasers as of the date of this Subscription Agreement as follows:

 

(A)         Organization.
The Company is duly organized, validly existing and in good standing under the laws of its state of incorporation, with all requisite
power and authority to own, lease, license, and use its properties and assets and to carry out the business in which it is engaged,
except where the failure to have or be any of the foregoing may not be expected to have a material adverse effect on the Company’s
presently conducted businesses. The Company is not in violation of any of the provisions of its articles of incorporation, bylaws
or other organizational or charter documents. The Company is duly qualified to transact the business in which it is engaged and
is in good standing as a foreign corporation in every jurisdiction in which its ownership, leasing, licensing or use of property
or assets or the conduct of its business make such qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have or reasonably be expected to result in (i) a material
and adverse effect on the legality, validity or enforceability of this Agreement, (ii) a material and adverse effect on the results
of operations, assets, prospects, business or condition (financial or otherwise) of the Company, taken as a whole, or (iii) an
adverse impairment to the Company’s ability to perform on a timely basis its obligations hereunder (any of (i), (ii) or (iii),
a “Material Adverse Effect”).

 

(B)         Capitalization.
The Company is currently authorized to issue 1,000,000,000 shares of Common Stock, $0.001 par value per share and 1,000,000 shares
of Preferred Stock, $0.001 par value per share. Except as may be described in this Agreement, no securities of the Company are
entitled to preemptive or similar rights, and no entity or person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by this Agreement unless any such rights have been waived.
The issue and sale of the Securities will not (except pursuant to their terms thereunder), immediately or with the passage of time,
obligate the Company to issue shares of Common Stock or other securities to any entity or person and will not result in a right
of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. As of September
30, 2011, there are outstanding 572,397,439 shares of Common Stock. Further, as of such date there are (i) outstanding an aggregate
of 9,050,000 options to purchase shares of Common Stock under our 2009 Equity Incentive Compensation Plan, (ii) outstanding an
aggregate of 117,524,155 common stock purchase warrants, (iii) reserved for issuance an aggregate of 4,788,750 shares of Common
Stock pursuant to restricted stock awards granted to certain of our employees under our 2009 Equity Incentive Compensation Plan;
and (iv) an aggregate of 8,136,361 shares of Common Stock which are issuable pursuant to arrangements we have agreed to with consultants
or vendors.

 

    	17

    	 

    
 

(C)         Authorization;
Enforceability. The Company has the requisite corporate power and authority to enter into, deliver and consummate the transactions
contemplated by this Subscription Agreement, to issue, sell and deliver the Securities, and otherwise to carry out its obligations
hereunder. The execution and delivery of this Subscription Agreement and the consummation by it of the transactions contemplated
thereby have been duly authorized by the Company and no further action is required by the Company in connection therewith. When
executed and delivered by the Company, this Subscription Agreement, the Convertible Notes and the Series A Warrants will constitute
the legal, valid and binding obligations of the Company, enforceable as to the Company in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance or transfer,
moratorium or other laws or court decisions, now or hereinafter in effect, relating to or affecting the rights of creditors generally
and as may be limited by general principles of equity and the discretion of the court having jurisdiction in an enforcement action
(regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(D)         Consents.
The Company is not required to obtain any consent, waiver, authorization, approval or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other governmental authority or other person or entity
in connection with the execution, delivery and performance by the Company of this Agreement or the issuance, sale or delivery of
the Securities other than (i) any filings required by state securities laws, (ii) the filing of a Notice of a Sale of Securities
on Form D with the Commission under Regulation D of the Securities Act, (iii) those that have been made or obtained prior to or
contemporaneously with the initial Closing, and (iv) filings pursuant to the Exchange Act.

 

(E)         No
Conflicts. The execution, delivery and performance of this Subscription Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby in accordance with the terms and conditions described herein do not and will not:
(i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational
or charter documents, or (ii) violate, conflict with, or constitute a default or breach (or an event that 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
(with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company
debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound
or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

(F)         Issuance
of Securities. The Units have been duly authorized and, when issued and paid for in accordance with this Subscription Agreement,
the Units, and the securities comprising the Units, will be duly and validly issued, fully paid and nonassessable and will be issued
free and clear of all liens and encumbrances, other than restrictions on transfer under applicable securities laws. The Company
has properly reserved for issuance all the securities underlying the Units, the Convertible Notes and Series A Warrants and, upon
payment for and issuance of such securities in accordance with the terms of the Convertible Notes and Series A Warrants, they will
be duly authorized, fully paid and nonassessable securities of the Company, and will be issued free and clear of all liens and
encumbrances, other than restrictions on transfer under applicable securities laws.

 

    	18

    	 

    

 

(G)         SEC
Reports; Financial Statements. As of their respective dates, the SEC Reports (as defined in Section 1.7 above) complied in
all material respects with the requirements of the Exchange Act and none of the SEC Reports, when filed, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading. Except as may be stated in the SEC Reports,
the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America applied
on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company as of and for
the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.

 

(H)          Litigation.
Except as disclosed in the SEC Reports or in Schedule II(H) to this Subscription Agreement, 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 this Agreement, and all other agreements entered into by the Company relating
hereto. Except as disclosed in the SEC Reports, 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 which litigation if adversely determined could result in a Material Adverse Effect.

 

(I)         Liabilities.
The Company has no liabilities or obligations which are material, individually or in the aggregate, which are not disclosed in
the SEC Reports, other than those incurred in the ordinary course of the Company’s businesses and which, individually or
in the aggregate, would not reasonably be expected to have a material adverse effect on the Company’s financial condition.
Since the date of the latest audited financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the date hereof or otherwise disclosed herein, there has been
no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect.

 

(J)         Compliance.
Except as disclosed in the SEC Reports, the Company is not to its knowledge: (i) in default under or in violation of (and no event
has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or violation has been waived), (ii) in violation of any judgment,
decree or order of any court, arbitrator or governmental body or (iii) in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material Adverse Effect.

 

(K)         Intellectual
Property. To the Company’s knowledge, the Company owns, possesses, licenses or has other rights to use, on reasonable
terms, all patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights,
licenses, inventions, trade secrets, technology, know-how and other intellectual property (collectively, the “Intellectual
Property”) necessary for the conduct of the Company’s business as now conducted. Except as set forth in the SEC
Reports or for such matters which would not be expected to have a Material Adverse Effect, (a) to the Company’s knowledge,
there is no material infringement by third parties of any such Intellectual Property owned by or exclusively licensed to the Company;
(b) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging
the Company’s or any subsidiary’s rights in or to any material Intellectual Property, and the Company is unaware of
any facts which would form a reasonable basis for any such claim; (c) there is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property, and
the Company is unaware of any facts which would form a reasonable basis for any such claim; and (d) there is no pending or, to
the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company’s business as now
conducted infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others,
and the Company is unaware of any other fact which would form a reasonable basis for any such claim.

 

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(L)         Tax
Matters. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company (i) has made or filed all United States federal and state income and all foreign income and
franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports
and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods
subsequent to the periods to which such returns, reports or declarations apply except for any such amounts that is currently being
contested in good faith. There are no tax audits or investigations pending, which if adversely determined would have a Material
Adverse Effect; nor are there any material proposed additional tax assessments against the Company.

 

(M)         Accountants.
To the knowledge and belief of the Company, the Company’s independent registered public accounting firm (i) is a registered
public accounting firm as required by the Exchange Act and (ii) is an independent public or certified public accountants
as required by the Securities Act and the Exchange Act.

 

Article III

REPRESENTATIONS AND WARRANTIES OF
PURCHASERS

 

By signing this
Agreement, each undersigned Purchaser hereby represents and warrants to the Company as follows as an inducement to the Company
to accept the subscription of the Purchaser:

 

(A)         The
Purchaser acknowledges and agrees that (i) the offering and sale of the Securities are intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder, (ii) the Securities
have not been registered under the Securities Act and (iii) that the Company has represented to the Purchaser (assuming the veracity
of the representations of the Purchaser made herein and in the Questionnaire annexed hereto at Exhibit A) that the Securities
have been offered and sold by the Company in reliance upon an exemption from registration provided in Section 4(2) of the Securities
Act and Regulation D thereunder. In accordance therewith and in furtherance thereof, the Purchaser represents and warrants to and
agrees with the Company that it is an accredited investor (as defined in Rule 501 promulgated under the Securities Act) for the
reason indicated in Article I of this Subscription Agreement.

 

(B)         The
Purchaser hereby represents and warrants that the Purchaser is acquiring the Securities hereunder for its own account for investment
and not with a view to distribution, and with no present intention of distributing the Securities or selling the Securities for
distribution. The Purchaser understands that the Securities are being sold to the Purchaser in a transaction which is exempt from
the registration requirements of the Securities Act. Accordingly, the Purchaser acknowledges that it has been advised that the
Securities have not been registered under the Securities Act and are being sold by the Company in reliance upon the veracity of
the Purchaser’s representations contained herein and upon the exemption from the registration requirements provided by the
Securities Act and the securities laws of all applicable states. The Purchaser’s acquisition of the Securities shall constitute
a confirmation of the foregoing representation and warranty and understanding thereof.

 

    	20

    	 

    

 

(C)         The
Purchaser (or its “Purchaser Representative”, if any) has such knowledge and experience in financial and business
matters as is required for evaluating the merits and risks of making this investment, and the Purchaser or its Purchaser Representative(s)
has received such information requested by the Purchaser concerning the business, management and financial affairs of the Company
in order to evaluate the merits and risks of making this investment. Further, the Purchaser acknowledges that the Purchaser has
had the opportunity to ask questions of, and receive answers from, the officers of the Company concerning the terms and conditions
of this investment and to obtain information relating to the organization, operation and business of the Company and of the Company's
contracts, agreements and obligations or needed to verify the accuracy of any information contained herein or any other information
about the Company. Except as set forth in this Subscription Agreement, no representation or warranty is made by the Company to
induce the Purchaser to make this investment, and any representation or warranty not made herein or therein is specifically disclaimed
and no information furnished to the Purchaser or the Purchaser’s advisor(s) in connection with the sale were in any way inconsistent
with the information stated herein. The Purchaser further understands and acknowledges that no person has been authorized by the
Company to make any representations or warranties concerning the Company, including as to the accuracy or completeness of the information
contained in this Subscription Agreement.

 

(D)         The
Purchaser is making the foregoing representations and warranties with the intent that they may be relied upon by the Company in
determining the suitability of the sale of the Securities to the Purchaser for purposes of federal and state securities laws. Accordingly,
each Purchaser represents and warrants that the information stated herein is true, accurate and complete, and agrees to notify
and supply corrective information promptly to the Company as provided above if any of such information becomes inaccurate or incomplete.
The Purchaser has completed this Agreement and Questionnaire, has delivered it herewith and represents and warrants that it is
accurate and true in all respects and that it accurately and completely sets forth the financial condition of the Purchaser on
the date hereof. The Purchaser has no reason to expect there will be any material adverse change in its financial condition and
will advise the Company of any such changes occurring prior to the closing or termination of the Offering.

 

(E)         The
Purchaser is not subscribing for any of the Securities as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast over television or radio, any seminar or meeting,
or any solicitation of a subscription by a person not previously known to the Purchaser in connection with investments in Securities
generally.

 

(F)         The
Purchaser has received or obtained access to certain information regarding the Company, including this Subscription Agreement,
the SEC Reports and other accompanying documents of the Company receipt of which is hereby acknowledged. The Purchaser has carefully
reviewed all information provided to it and has carefully evaluated and understands the risks described therein related to the
Company and an investment in the Company, and understands and has relied only on the information provided to it in writing by the
Company relating to this investment. No agent prepared any of the information to be delivered to prospective investors in connection
with this transaction. Prospective investors are advised to conduct their own review of the business, properties and affairs of
the Company before subscribing to purchase the Securities.

 

(G)         The
Purchaser acknowledges and agrees that investing in the Company’s Securities involves risks and that the Company’s
operating results and financial condition have varied in the past and may in the future vary significantly depending on a number
of factors. The Purchaser acknowledges and agrees that it has evaluated and understands the risks regarding investing in the Company’s
securities, including the risks identified in this Subscription Agreement and the risk factors described in the Company’s
SEC Reports. The Purchaser agrees that the risks described herein and in such SEC Reports are not the only risks facing the Company.
The Purchaser agrees that these risks could have a material adverse effect on the Company’s business, results of operations,
financial condition or liquidity and cause its actual operating results to materially differ from those contained in any forward-looking
statements made in this Subscription Agreement, in the Company’s SEC Reports and elsewhere by management. Before making an
investment decision, each Purchaser acknowledges that it has been advised that it should carefully consider these risks as well
as other information contained or incorporated by reference in this Subscription Agreement. Additional risks and uncertainties
not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect the Company’s
business, financial condition and/or operating results.

 

    	21

    	 

    

 

(H)         The
Purchaser also understands and agrees that, although the Company will use its best efforts to keep the information provided in
this Subscription Agreement strictly confidential, the Company or its counsel may present this Subscription Agreement and the information
provided in answer to it to such parties as they may deem advisable if called upon to establish the availability under any federal
or state securities laws of an exemption from registration of the private placement or if the contents thereof are relevant to
any issue in any action, suit or proceeding to which the Company or its affiliates is a party, or by which they are or may be bound
or as otherwise required by law or regulatory authority. Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission without the prior written consent
of such Purchaser, except as required by federal securities law in connection with the disclosure of the transactions contemplated
by this Subscription Agreement and otherwise to the extent such disclosure is required by law or regulation, in which case the
Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause.

 

(I)         The
individual signing below on behalf of any entity hereby warrants and represents that he/she is authorized to execute this Subscription
Agreement on behalf of such entity. If an individual, the Purchaser has reached the age of majority in the state in which the Purchaser
resides. The execution and delivery of this Subscription Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite action, if any, in respect thereof on the part of Purchasers and no other proceedings
on the part of Purchasers are necessary to consummate the transactions contemplated hereby. This Subscription Agreement has been
duly and validly executed and delivered by Purchasers and constitutes a valid and binding obligation of Purchasers, enforceable
against Purchasers in accordance with its terms (subject to applicable bankruptcy, insolvency and similar laws affecting creditors’
rights generally and subject, as to enforceability, to general principles of equity (whether applied in a proceeding in equity
or at law)).

 

(J)         The
Purchaser is aware that the offering of the Securities involves securities for which only a limited trading market exists, thereby
requiring any investment to be maintained for an indefinite period of time. The purchase of the Securities involves risks which
the Purchaser has evaluated, and the Purchaser is able to bear the economic risk of the purchase of such Securities and the loss
of its entire investment. The undersigned is able to bear the substantial economic risk of the investment for an indefinite period
of time, has no need for liquidity in such investment and can afford a complete loss of such investment. The Purchaser’s
overall commitment to investments that are not readily marketable is not, and his acquisition of the Securities will not cause
such overall commitment to become, disproportionate to his net worth and the Purchaser has adequate means of providing for its
current needs and contingencies.

 

(K)         In
entering into this Subscription Agreement and in purchasing the Securities, the Purchaser further acknowledges that:

 

(i) The Company has informed
the Purchaser that the Securities have not been offered for sale by means of general advertising or solicitation and the Purchaser
acknowledges that it has either a pre-existing personal or business relationship with either the Company or any of its officers,
directors or controlling person, of a nature and duration such as would enable a reasonable prudent investor to be aware of the
character, business acumen, and general business and financial circumstances of the Company and an investment in the Securities.

 

(ii) Neither the Securities
nor any interest therein may be resold by the Purchaser in the absence of a registration under the Securities Act or an exemption
from registration. In particular, the Purchaser is aware that all of the foregoing described Securities will be “restricted
securities”, as such term is defined in Rule 144 promulgated under the Securities Act (“Rule 144”), and
they may not be sold pursuant to Rule 144, unless the conditions thereof are met. Other than set forth in this Agreement, the Company
has no obligation to register any securities purchased or issuable hereunder.

 

    	22

    	 

    

 

(iii) The following legend
(or substantially similar language) shall be placed on the certificate(s) or other instruments evidencing the Securities:

 

THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”), OR ANY STATE SECURITIES LAWS
AND NEITHER SUCH NOTES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES
AN OPINION OF COUNSEL TO THE HOLDER OF SUCH NOTES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
NOTES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

 

(iv) The Company may
at any time place a stop transfer order on its transfer books against the Securities. Such stop order will be removed, and further
transfer of the Securities will be permitted, upon an effective registration of the respective Securities, or the receipt by the
Company of an opinion of counsel satisfactory to the Company that such further transfer may be effected pursuant to an applicable
exemption from registration.

 

(L)         The
Company has employed its own legal counsel in connection with the Offering. The Purchasers have not been represented by independent
counsel in connection with the preparation of this Subscription Agreement or the terms of this Offering and no investigation of
the merits or fairness of the Offering has been conducted on behalf of the Purchasers. Each Purchaser has had the opportunity to
consult with its own legal, tax and financial advisors with respect to the Offering made pursuant to this Subscription Agreement.

 

(M)         _________
 (insert name of Purchaser Representative: if none leave blank) has acted as the Purchaser’s Purchaser
Representative for purposes of the private placement exemption under the Act. If the Purchaser has appointed a Purchaser Representative
(which term is used herein with the same meaning as given in Rule 501(h) of Regulation D), the Purchaser has been advised by his
Purchaser Representative as to the merits and risks of an investment in the Company in general and the suitability of an investment
in the Securities for the Purchaser in particular.

 

(N)         The
undersigned hereby acknowledges that officers, affiliates, employees and directors of the Company and/or the Selling Agent may
purchase Securities in the Offering on the same terms and conditions as the Purchasers.

 

(O)         It
never has been represented, guaranteed or warranted by the Company, any of the officers, directors, stockholders, partners, employees
or agents of the Company, or any other persons, whether expressly or by implication, that: (i) the Company or the Purchasers will
realize any given percentage of profits and/or amount or type of consideration, profit or loss as a result of the Company’s
activities or the Purchaser’s investment in the Company; or (ii) the past performance or experience of the management of
the Company, or of any other person, will in any way indicate the predictable results of the ownership of the Securities or of
the Company’s activities.

 

    	23

    	 

    

 

(P)         The
Purchaser acknowledges that any delivery to it of this Subscription Agreement relating to the Securities prior to the determination
by the Company of its suitability as a Purchaser shall not constitute an offer of the Securities until such determination of suitability
shall be made, and the Purchaser hereby agrees that it shall promptly return this Subscription Agreement and the other Offering
documents to the Company upon request. The Purchaser understands that the Company shall have the right to accept or reject this
subscription in whole or in part. Unless this subscription is accepted in whole or in part by the Company this subscription shall
be deemed rejected in whole.

 

(Q)         Each
Purchaser acknowledges that it is aware (and that its representatives who are apprised of this matter have been or will be advised)
that the United States securities laws restrict persons with material non-public information about a company obtained directly
or indirectly from that company from purchasing or selling securities of such company, or from communicating such information to
any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such
securities. Each Purchaser hereby confirm and acknowledges that it is in receipt of material, non-public information regarding
this Offering and the Company and each Purchaser further agrees and acknowledges that it will hold such information in confidence,
is restricted in its ability to use such information and may not use any such information in contravention of applicable securities
laws or otherwise, including trading in the Company’s securities, except for the purpose of evaluating an investment in the
Company’s securities.  Each Purchaser agrees to comply with such restrictions for so long as it (or its representatives)
posses any material, non-public information concerning the Company or the transactions contemplated herein.

 

(R)         Each
Purchaser acknowledges and agrees that there is no “minimum” offering amount for the Securities and that funds may
be immediately released to the Company.

 

(S)         Each
Purchaser understands that nothing in this Subscription Agreement or any other materials presented to the Purchaser in connection
with the purchase and sale of the Units constitutes legal, tax or investment advice. The Purchaser has consulted such legal, tax
and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Units.

 

Article IV

INDEMNIFICATION

 

4.1          Indemnification
by the Company. The Company agrees to defend, indemnify and hold harmless the Purchasers and shall reimburse Purchasers for,
from and against each claim, loss, liability, cost and expense (including without limitation, interest, penalties, costs of preparation
and investigation, and the reasonable fees, disbursements and expenses of attorneys, accountants and other professional advisors)
(collectively, “Losses”) directly or indirectly relating to, resulting from or arising out of any untrue representation,
misrepresentation, breach of warranty or non-fulfillment of any covenant, agreement or other obligation by or of the Company contained
herein or in any certificate, document, or instrument delivered to Purchasers pursuant hereto.

 

4.2          Indemnification
by Purchasers. Purchasers agrees to defend, indemnify and hold harmless the Company and shall reimburse the Company for, from
and against all Losses directly or indirectly relating to, resulting from or arising out of any untrue representation, misrepresentation,
breach of warranty or non-fulfillment of any covenant, agreement or other obligation of the Purchasers contained herein or in
any certificate, document or instrument delivered to the Company pursuant hereto.

 

    	24

    	 

    

 

4.3          Procedure.
The party to be indemnified hereunder (the “Indemnified Party”) shall promptly notify the party providing indemnification
hereunder (the “Indemnifying Party”) of any claim, demand, action or proceeding for which indemnification may
be sought under Sections 4.1 or 4.2 of this Subscription Agreement, and, if such claim, demand, action or proceeding is a third
party claim, demand, action or proceeding (collectively, an “Action”), the Indemnifying Party will have the
right at its expense to assume the defense thereof using counsel reasonably acceptable to the Indemnified Party; provided, however
any failure or delay to so notify the Indemnifying Party will not relieve it from its obligation to indemnify any Indemnified
Party, unless and only to the extent that such failure or delay results in the forfeiture by the Indemnifying Party of substantial
rights and defenses or the Indemnifying Party is otherwise materially prejudiced by such failure or delay. Any Indemnified Party
shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party except to the extent that (i) the employment thereof has been
specifically authorized by the Indemnifying Party in writing, (ii) the Indemnifying Party has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a
material conflict on any material issue between the position of the Indemnifying Party and the position of such Indemnified Party,
in which case the Indemnifying Party shall be responsible for the reasonable fees and expenses of no more than one such separate
counsel for the Indemnified Party. In connection with any such third party Action, Purchasers and the Company shall cooperate
with each other and provide each other with access to relevant books and records in their possession. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, effect
any settlement, compromise or consent to the entry of judgment in any pending or threatened Action in respect of which any Indemnified
Party is or could have been a party and indemnity was or could have been sought hereunder by such Indemnified Party, unless such
settlement, compromise or consent includes an unconditional release of such Indemnified Party from all liability on claims that
are the subject matter of such Action. Further, no Indemnified Party seeking indemnification hereunder will, without the prior
written consent of the Indemnifying Party, which shall not be unreasonably withheld, settle, compromise, consent to the entry
of any judgment in or otherwise seek to terminate any Action. The Indemnifying Party shall not be liable for settlement of any
Action effected without its written consent. 

 

ARTICLE V

ADDITIONAL AGREEMENTS BY THE PARTIES

 

5.1           Registration
Rights

 

Each Purchaser and
the Company agree that the Purchasers shall be entitled to the registration rights with respect to the shares of Common Stock which
may be issued pursuant to the terms of the Convertible Notes and Series A Warrants as set forth in this Section 5.1

 

(a)          Definition
of Registrable Securities. As used in this Section 5.1, the term “Registrable Security” means (i) each of
the Conversion Shares and Warrant Shares issued under this Subscription Agreement, (ii) any shares of Common Stock issuable by
the Company as Conversion Securities in the event the Convertible Notes and converted into Conversion Securities in the Next Financing,
and (iii) any additional shares of Common Stock issued upon any stock split or stock dividend in respect thereof; provided, however,
that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the
date of determination; (A) it has been and remains effectively registered under the Securities Act and disposed of pursuant thereto;
(B) in the opinion of counsel to the Company, registration under the Securities Act is no longer required for subsequent public
distribution of such security pursuant to Rule 144 promulgated under the Securities Act, or otherwise; or (C) it has ceased to
be outstanding. The term “Registrable Securities” means any and all of the securities falling within the foregoing
definition of “Registrable Security.” In the event of any merger, reorganization, consolidation, recapitalization
or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of “Registrable
Security” as is appropriate to prevent any dilution or increase of the rights granted pursuant to this Clause (a) as determined
in good faith by the Board of Directors.

 

(b)          Registration
by the Company. Commencing on the Closing date and for a period of three years thereafter, in the event that the Company intends
to file a registration statement with the Securities and Exchange Commission under the Securities Act, other than registration
statement on Form S-4 or S-8, or successor forms thereto, and registration statements filed but not effective prior to the termination
of this Offering, to register for sale any of its shares of Common Stock, the Company will include for resale under the Securities
Act in the registration statement the Registrable Securities of the Holder in accordance with this Section 5.1. The Company shall
advise the Holder of the Registrable Securities (such persons being collectively referred to herein as “Holders”)
by written notice at least 20 days prior to the filing by the Company with the Securities and Exchange Commission of any other
registration statement under the Act covering shares of Common Stock of the Company, except on Forms S-4 or S-8 (or similar successor
form) or registration statements filed but not effective prior to the termination of this Offering, and upon the request of any
such Holder within ten days after the date of such notice, include in any such registration statement such information as may be
required to permit a public offering of the Holder’s Registrable Securities. Such Holders shall furnish information and indemnification
as set forth in elsewhere in this Section 5.1. The Company may withdraw the registration at any time. Notwithstanding the foregoing,
if the registration statement filed by the Company is pursuant to an underwritten offering of securities sold by the Company or
on its behalf:

 

    	25

    	 

    

 

(A)         if
the underwriter determines in good faith that marketing factors require the exclusion of some or all of the Registrable Securities,
then the Holders may include in the registration statement no more than the maximum amount, if any, of such Registrable Securities
that the underwriter believes will not jeopardize the success of the offering (the securities so included to be apportioned pro
rata among the Holders according to the total amount of securities requested to be included therein owned by the Holders or in
such other proportions as shall mutually be agreed upon by such parties). The Holders’ right to have Registrable Securities
included in the first registration statement filed by the Company shall be deferred to the second registration statement filed
by the Company, which deferral may be continued to the third or subsequent registration statement so long as the registration statements
are pursuant to underwritten offerings and the underwriter determines in good faith that marketing factors require exclusion of
some or all of the Registrable Securities held by the Holders; and

 

(B)         each
Holder of Registrable Securities shall enter into an underwriting agreement in customary form with the underwriter and provide
such information regarding Holder that the underwriter shall reasonably request in connection with the preparation of the prospectus
describing such offering, including completion of FINRA Questionnaires.

 

(c)          Covenants
with Respect to Registration. In connection with the registration in which the Registrable Securities are included, the Company
covenants and agrees as follows:

 

(A)         The
Company shall use commercially reasonable efforts to have the registration statement declared effective as soon as possible after
filing, and shall furnish each Holder of Registrable Securities such number of prospectuses as shall reasonably be requested. In
addition, the Company shall file such amendments as may be required from time to time, in order to keep any registration statement
filed under this section effective as provided herein. The Company shall use commercially reasonable efforts to maintain the effectiveness
of the registration statement filed by the Company hereunder until the date that the Registrable Securities may be sold without
volume limitation under SEC Rule 144.

 

(B)         The
Company shall pay all costs (excluding fees and expenses of Holder(s) counsel and any underwriting or selling commissions), fees
and expenses in connection with the registration statement filed pursuant hereto including, without limitation, the Company’s
legal and accounting fees, printing expenses, blue sky fees and expenses.

 

(C)         The
Company will take all necessary action which may be required in qualifying or registering the Registrable Securities included in
the registration statement, for offering and sale under the securities or blue sky laws of such states as reasonably are requested
by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process
or to qualify as a foreign corporation to do business under the laws of any such jurisdiction.

 

(D)         The
Company shall indemnify each Holder of Registrable Securities to be sold pursuant to the registration statement and each person,
if any, who controls such Holder within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including reasonable
expenses reasonably incurred in investigating, preparing or defending against any claim) to which any of them may become subject
under the Securities Act, the Exchange Act or otherwise, arising from such registration statement, except to the extent arising
under paragraph (E) below.

 

    	26

    	 

    

 

(E)         Each
Holder of Registrable Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and any underwriter, and each person, if any, who controls the
Company or such underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or reasonable expense or liability (including expenses reasonably incurred in investigating, preparing or defending
against any claim) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising (I) from information
furnished by or on behalf of such Holder, or their successors or assigns, for inclusion in such registration statement, or (II)
as a result of use by the Holder of a registration statement that the Holder was advised to discontinue; provided, however, that
in no event shall any indemnity hereunder exceed the net proceeds from the offering received by such Holder.

 

(F)          The
foregoing registration rights shall be contingent on the Holders furnishing the Company with such appropriate information (relating
to the intended means of distribution of the Registrable Securities of such Holders) as the Company shall reasonably request.

 

ARTICLE VI

MISCELLANEOUS

 

6.1          Representations.
No investigation made by or on behalf of either party shall affect the representations and warranties made pursuant to this Subscription
Agreement. No party makes any additional or implied representations other than those set forth herein.

 

6.2          Expenses.
Each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated hereby,
including fees and expenses of its own brokers, finders, financial consultants, accountants and counsel.

 

6.3          Entire
Agreement. This Subscription Agreement, including the Exhibits, contains the entire agreement and understanding of the parties
with respect to its subject matter. This Subscription Agreement supersedes all prior arrangements and understandings between the
parties, either written or oral, with respect to its subject matter.

 

6.4          Binding
Effect of Subscription. The Purchaser hereby acknowledges and agrees, subject to any applicable state securities laws that
the subscription and application hereunder are irrevocable, that the Purchaser is not entitled to cancel, terminate or revoke
this Subscription Agreement and that this Subscription Agreement shall survive the death or disability of the Purchaser and shall
be binding upon and inure to the benefit of the Purchaser and his heirs, executors, administrators, successors, legal representatives,
and assigns. If the Purchaser is more than one person, the obligations of the Purchaser hereunder shall be joint and several,
and the agreements, representations, warranties, and acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators, successors, legal representatives, and assigns.

 

6.5          Captions.
The table of contents and captions contained in this Subscription Agreement are for reference purposes only and are not part of
this Subscription Agreement.

 

6.6           Amendments;
Waivers. No provision of this Subscription Agreement may be waived or amended except in a written instrument signed by the
Company and the Purchasers holding a majority of the Convertible Notes. No waiver of any default with respect to any provision,
condition or requirement of this Subscription Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise of any such right.

 

    	27

    	 

    

 

6.7           Notices.
All notices, requests, consents and other communications hereunder will be in writing, will be mailed by first-class registered
or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, and will be deemed
given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight carrier, one business day after so mailed, and (iii) if delivered by facsimile, upon electric
confirmation of receipt and will be delivered and addressed as follows: (A) if to the Company, to the Company’s executive
office as set forth on the cover of this Subscription Agreement and (b) if to a Subscriber, to the address given by the Subscriber
on the signature page to this Subscription Agreement, or such other address as may be given in writing by the Subscriber to the
Company.

 

6.8           Execution.
This Subscription Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each
of such counterparts shall, or all purposes, constitute one agreement binding on all parties, notwithstanding that all parties
are not signatories to the same counterpart.

 

6.9           Severability;
Assignment. Each provision of this Subscription Agreement is intended to be severable from every other provisions, and the
invalidity or illegality of any portion hereof, shall not affect the validity or legality of the remainder hereof. This Subscription
Agreement is not transferable or assignable by the Purchaser except as may be provided herein. This Subscription Agreement shall
be binding upon and inure to the benefit of the Company, the Purchasers and their respective successors and permitted assigns.

 

6.10         Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Subscription Agreement shall
be governed by and construed and enforced in accordance with the internal laws of the State of Pennsylvania, without regard to
the principles of conflicts of law thereof. Each party agrees that all proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the state and federal courts sitting in the State of Pennsylvania (the “Pennsylvania
Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Pennsylvania Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction
of any Pennsylvania Court, or that such proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being served in any such proceeding 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 manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any
proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence
a proceeding to enforce any provisions of this Agreement, then the prevailing party in such proceeding shall be reimbursed by the
other party for its reasonable attorney’s fees and other reasonable costs and expenses incurred with the investigation, preparation
and prosecution of such Proceeding.

 

Signature pages to Subscription Agreement
Follows

 

    	28

    	 

    

 

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

 

IN WITNESS WHEREOF,
the parties hereto have executed or caused this Subscription Agreement to be executed by their signature as natural persons or
by individuals by their duly authorized officers as of the __ day of ____________, 201_.

 

	THE COMPANY:	 
	 	 
	SKINNY NUTRITIONAL CORP.:
	 	 
	 	 
	Michael Salaman	 
	Chief Executive Officer	 

 

    	29

    	 

    

 

EXECUTION BY AN INDIVIDUAL

(Not applicable to entities)

 

IF YOU ARE PURCHASING SECURITIES WITH YOUR SPOUSE, YOU MUST
BOTH SIGN THIS SIGNATURE PAGE.

 

PLEASE INDICATE
DESIRED TYPE OF OWNERSHIP OF UNITS:

 

 ̈          Individual

 

 ̈          Joint
Tenants (rights of survivorship)

 

 ̈          Tenants
in Common (no rights of survivorship)

 

I represent that the foregoing information is true and correct.

 

IN WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement and agrees to the terms hereof.

 

Dated: __________________ ___, 2011

 

Subscription Amount (Principal Amount of Convertible Notes purchased):
$_____________

 

Number of Series A Warrants to be issued:
_______________

 

	 	 
	 	(Name of Subscriber - Please Print)
	 	 
	 	 
	 	(Signature)
	 	 
	 	 
	 	(Name of co- Subscriber - Please Print)
	 	 
	 	 
	 	(Signature of Co- Subscriber)

 

	Exact name Units are to be issued under:	 
	 	 
	Address for Delivery of Certificates	 
	(if not the same as in Questionnaire):	 
	 	 
	 	 
	 	 

 

    	30

    	 

    

 

PARTNERSHIP SIGNATURE PAGE

 

The undersigned
PARTNERSHIP hereby represents and warrants that the person signing this Subscription Agreement
on behalf of the PARTNERSHIP is a general partner of the PARTNERSHIP, has been duly authorized by the PARTNERSHIP to acquire the
Units and sign this Subscription Agreement on behalf of the PARTNERSHIP and, further, that the
undersigned PARTNERSHIP has all requisite authority to purchase such Units and enter into the Subscription
Agreement.

 

IN WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement and agrees to the terms hereof.

 

Dated: __________________ _____, 2011

 

Subscription Amount (Principal Amount of Convertible Notes purchased):
$_____________

 

Number of Series A Warrants to be issued:
_______________

 

	 	 
	 	Name of Partnership
	 	(Please Type or Print)
	 	 	 
	 	By: 	 
	 	(Signature)

 

	 	Name:	 
	 	(Please Type or Print)

 

	 	Title:	 
	 	(Please Type or Print)

 

	Exact name Units are to be issued under:	 
	 	 
	Address for Delivery of Certificates	 
	(if not the same as in Questionnaire):	 
	 	 
	 	 
	 	 

 

    	31

    	 

    

 

CORPORATION/LIMITED LIABILITY COMPANY
SIGNATURE PAGE

 

The undersigned
CORPORATION or LIMITED LIABILITY COMPANY hereby represents and warrants that the person signing this Subscription
Agreement on behalf of the CORPORATION or LIMITED LIABILITY COMPANY has been duly authorized by all requisite action on the part
of the CORPORATION or LIMITED LIABILITY COMPANY to acquire the Units and sign this Subscription
Agreement on behalf of the CORPORATION or LIMITED LIABILITY COMPANY and, further, that the undersigned CORPORATION or LIMITED LIABILITY
COMPANY has all requisite authority to purchase the Units and enter into this Subscription Agreement.

 

IN WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement and agrees to the terms hereof.

 

Dated: __________________ _____, 2011

 

Subscription Amount (Principal Amount of Convertible Notes purchased):
$_____________

 

Number of Series A Warrants to be issued:
_______________

 

	 	 
	 	Name of Corporation
	 	Or Limited Liability Company
	 	(Please Type or Print)
	 	 	 
	 	By:	 
	 	Signature

 

	 	Name:	 
	 	(Please Type or Print)

 

	 	Title:	 
	 	(Please Type or Print)

 

	Exact name Units are to be issued under:	 
	 	 
	Address for Delivery of Certificates	 
	(if not the same as in Questionnaire):	 
	 	 
	 	 
	 	 

 

    	32

    	 

    

 

TRUST/RETIREMENT
PLAN SIGNATURE PAGE

 

The undersigned
TRUST or RETIREMENT PLAN hereby represents and warrants that the persons signing this Subscription
Agreement on behalf of the TRUST or RETIREMENT PLAN are duly authorized to acquire the Units and sign this Subscription
Agreement on behalf of the TRUST or RETIREMENT PLAN and, further, that the undersigned TRUST or RETIREMENT PLAN has all requisite
authority to purchase such Units and enter into the Subscription Agreement.

 

IN WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement and agrees to the terms hereof.

 

Dated: __________________ _____, 2011

 

Subscription Amount (Principal Amount of Convertible Notes purchased):
$_____________

 

Number of Series A Warrants to be issued:
_______________

 

	 	 
	 	Title of Trust or Retirement Plan
	 	(Please Type or Print)

 

	 	By:	 
	 	 	Signature of Trustee or
	 	 	Authorized Signatory

 

	 	Name of Trustee:	 
	 	 	(Please Type or Print)

 

	 	By:	 
	 	 	Signature of Co-Trustee if applicable

 

	 	Name of Co-Trustee:	 
	 	 	(Please Type or Print)

 

	Exact name Units are to be issued under:	 
	 	 
	Address for Delivery of Certificates	 
	(if not the same as in Questionnaire):	 
	 	 
	 	 
	 	 

 

    	33SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT
(this “Agreement”) is made and entered into as of ____________, 201_ by Skinny Nutritional Corp., a Nevada corporation
(the “Company”) and the holders of the Company’s up to $2,500,000 of the Company’s Convertible Senior
Subordinated Secured Notes (the “Notes”) issued from time to time under the Subscription Agreement (defined
below) (each, a “Secured Party” and together, the “Secured Parties”). This Agreement is being
executed and delivered by the Company and the Secured Parties in connection with that certain Subscription Agreement, dated as
of November 4, 2011 (the “Subscription Agreement”), by and among the Company and the Secured Parties. Capitalized
terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Subscription Agreement.

 

WITNESSETH:

 

WHEREAS, pursuant to
the terms of the Subscription Agreement, the Secured Parties have agreed to purchase from the Company, and the Company has agreed
to sell to the Secured Parties, the Notes, pursuant to the terms of the Subscription Agreement;

 

WHEREAS, the Company
shall derive substantial direct and/or indirect benefits from the transactions contemplated by the Subscription Agreement; and

 

 WHEREAS, in order
to induce the Secured Parties to extend the loans evidenced by the Notes, the Company has agreed to execute and deliver to the
Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through
the Security Agent (as defined herein), a security interest in certain property of the Company to secure the prompt payment, performance
and discharge in full of all of the Company’s obligations under the Notes.

 

NOW, THEREFORE, in
consideration of the foregoing, the covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, each Secured Party and the Company hereby agree as follows.

 

SECTION
I

DEFINITIONS

 

            1.                      Certain
Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.  Terms
used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel
paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”,
“fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”,
“investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”)
shall have the respective meanings given such terms in Article 9 of the UCC.

 

(a)           “Collateral”
means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the
following personal property of the Company, whether presently owned or existing or hereafter acquired or coming into existence,
wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products
and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance
covering the same and of any tort claims in connection therewith:

 

    	 

    	 

    

 

(i)            All
goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in
connection with the Company’s businesses and all improvements thereto; and (B) all inventory;

 

(ii)           All
contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests,
stock or other securities,  licenses, distribution and other agreements, computer software (whether “off-the-shelf”,
licensed from any third party or developed by the Company), computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents,
patent applications, copyrights, and income tax refunds;

 

(iii)           All
accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising,
goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties
with respect to each account, including any right of stoppage in transit; and

 

(iv)           All
documents, letter-of-credit rights, instruments and chattel paper; all commercial tort claims; all deposit accounts and all cash
(whether or not deposited in such deposit accounts); all investment property; all supporting obligations; and all files, records,
books of account, business papers, and computer programs; and all the products and proceeds of all of the foregoing Collateral
set forth in clauses (i)-(iv) above.

   

Notwithstanding the
foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes
void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent
that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided,
however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset
and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

 

(b)           “Intellectual
Property” means the collective reference to all rights, priorities and privileges relating to intellectual property,
whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights
arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered
and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent
of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications
for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof,
(iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service
marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country
or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under
the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals
or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of
the foregoing.

   

 

    	2

    	 

    

 

(c)               “Lien”
means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

(d)            
“Majority in Interest” means, at any time of determination, the majority in interest (based on then-outstanding
principal amounts of Notes at the time of such determination) of the Secured Parties.

 

(e)               “Obligations”
means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become
due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company to the Secured Parties, including,
without limitation, all obligations under this Agreement, the Notes, and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary,
direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or
not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from
any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time.  Without limiting the generality of the foregoing, the term “Obligations”
shall include, without limitation: (i) principal of, and interest on the Notes and the loans extended pursuant thereto; (ii) any
and all other fees, indemnities, costs, obligations and liabilities of the Company from time to time under or in connection with
this Agreement, the Notes, and any other instruments, agreements or other documents executed and/or delivered in connection herewith
or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would
be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of
a bankruptcy, reorganization or similar proceeding involving the Company.

 

(f)               
“Permitted Liens” means (i) the Liens and security interests permitted by the Notes, including, for the avoidance
of doubt, the Liens and security interests which presently secure, or which may subsequently secure, the Company’s obligations
with respect to the Senior Indebtedness; (ii) any Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (iii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iv) any
Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in
the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good
faith by appropriate proceedings, (v) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries
to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or
lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (vi) Liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (i) through
(v) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vii) leases or
subleases and licenses and sublicenses granted to others in the ordinary course of the Company’s business, not interfering
in any material respect with the business of the Company and its Subsidiaries taken as a whole, (viii) Liens in favor of customs
and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods,
and (ix) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under
the Notes.

 

    	3

    	 

    

 

(g)            
“Permitted Indebtedness” means up to $5,000,000 of senior Indebtedness, whether or not secured, that may be
incurred by the Company or any Subsidiary from time to time hereafter, and any deferrals, renewals or extensions of any such Indebtedness
and notes or other instruments or evidences of Indebtedness issued in respect of or in exchange for any such Indebtedness or any
funding to pay or replace any such Indebtedness or credit.

 

(h)            
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

(i)             
“Security Agent” means the Person appointed to act as the agent of the Secured Parties in accordance with the
terms and conditions of Section 7 of this Agreement.

 

(j)             
“Senior Credit Facility” means the secured credit facility entered into between the Company and United Capital
Funding Corp., as of April 1, 2009, and as such facility may be amended, increased or replaced from time to time, whether by United
Capital Funding Corp. or another financing source, and all other obligations of the Company to United Capital Funding Corp. (or
a successor or other financing source) now existing or hereafter arising, together with all costs of collecting such obligations
(including attorneys’ fees).

 

(k)            
“Senior Indebtedness” means all amounts owed or owing pursuant to (a) the Senior Credit Facility and (b) the
Permitted Indebtedness, and in both cases, including, but not limited to, (i) the principal amount of such Indebtedness, (ii) unpaid
accrued interest thereon, and (iii) all other obligations of the Company to the holders of such Senior Indebtedness now existing
or hereafter arising, together with all costs of collecting such obligations (including attorneys’ fees), including, without
limitation, all interest accruing after the commencement by or against the Company of any bankruptcy, reorganization or similar
proceeding.

 

(l)            
  “Subsidiary” means, in respect of any Person, any corporation, association, partnership or other business entity
of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners
or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person
and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.

 

(m)             “Transaction
Documents” means this Agreement, the Subscription Agreement, the Notes and the warrants issued pursuant to the Subscription
Agreement.

 

(n)              “UCC”
means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction
with respect to all, or any portion of, the Collateral or this Agreement, from time to time.  

 

SECTION II

COLLATERAL; OBLIGATION SECURED

 

Section 2.1 Grant
and Description. In order to secure the full and complete payment and performance of the Obligations when due, the Company
hereby grants to each Secured Party a subordinated security interest in all of the Company’s rights, titles, and interests
in and to the Collateral (the “Security Interest”) and subject to the Permitted Liens and the rights of the
holders of the Senior Indebtedness, pledges, collaterally transfers, and assigns the Collateral to the Secured Parties, all upon
and subject to the terms and conditions of this Security Agreement. If the grant, pledge, or collateral transfer or assignment
of any specific item of the Collateral is expressly prohibited by any contract or by law, then the Security Interest created hereby
nonetheless remains effective to the extent allowed by such contract, the UCC or other applicable laws, but is otherwise limited
by that prohibition.

 

    	4

    	 

    

 

Section 2.2 Financing
Statements; Further Assurances.

 

(a)            The
Company hereby irrevocably authorizes the Security Agent at any time and from time to time to file in any UCC jurisdiction any
initial financing statements and amendments thereto (without the requirement for the Company’s signature thereon) that (i) indicate
the Collateral (A) as all assets of the Company or words of similar effect, regardless of whether any particular asset comprised
in the Collateral falls within the scope of Article 9 of the UCC of the state or such jurisdiction or whether such assets
are included in the Collateral hereunder, or (B) as being of an equal or lesser scope or with greater detail, and (ii) contain
any other information required by Article 9 of the UCC of the state or such jurisdiction for the sufficiency or filing office
acceptance of any financing statement or amendment, including whether the Company is an organization, the type of organization,
and any organization identification number issued to the Company. The Company agrees to furnish to the Security Agent any such
information reasonably required by the Security Agent for the purposes contemplated by this Section 2.2.

 

(b)            Until
the Obligations are paid and performed in full, the Company covenants and agrees that it will, at its own expense and upon the
Security Agent’s reasonable request, but in all cases subject to the rights of the holders of the Senior Indebtedness: (i) after
an Event of Default, file or cause to be filed such applications and take such other actions as the Security Agent may reasonably
request to obtain the consent or approval of any governmental authority to the rights of the Secured Parties and the Security Agent
hereunder, including, without limitation, the right to sell all the Collateral upon an Event of Default without additional consent
or approval from such governmental authority; (ii) from time to time, either before or after an Event of Default, promptly
execute and deliver to the Security Agent all such other assignments, certificates, supplemental documents, and financing statements,
and do all other acts or things as the Security Agent may reasonably request in order to more fully create, evidence, perfect,
continue, and preserve the priority of the Security Interest and to carry out the provisions of this Agreement; and (iii) either
before or after an Event of Default, pay all filing fees in connection with any financing, continuation, or termination statement
or other instrument with respect to the Security Interest.

 

SECTION
III

COVENANTS

 

Section 3.1 Duties
of the Company Regarding Collateral. At all times from and after the date hereof and until the Notes have been indefeasibly
paid in full, the Company agrees that it shall:

 

(a)           Preserve
the Collateral in good condition and order (ordinary wear and tear excepted) and not permit it to be abused or misused;

 

(b)           Not
allow any of the Collateral to be affixed to real estate, except for any property deemed to be fixtures;

 

(c)           Maintain
good and complete title to the Collateral subject only to Permitted Liens;

 

(d)           Keep
the Collateral free and clear at all times of all Liens other than Permitted Liens;

 

    	5

    	 

    

 

(e)           Take
or cause to be taken such acts and actions as shall be necessary or appropriate to assure that each Secured Party’s security
interest in the Collateral (other than the Permitted Liens) shall not become subordinate or junior to the security interests, Liens
or claims of any other Person;

 

(f)            Refrain
from selling, assigning or otherwise disposing of any of the Collateral or moving or removing any of the Collateral, without obtaining
the prior written consent of the Secured Parties, or until all of the Obligations have been fully performed and paid in full; provided,
however, that concurrently with any disposition permitted by this Section 3.1(f), (x) the security interest granted
hereby shall automatically be released from the Collateral so disposed, and (y) the security interest shall continue in the Proceeds
(as defined in the UCC) of such Collateral or any property purchased with such Proceeds; and provided further, that, the
Secured Parties shall execute and deliver, at the Company’s sole cost and expense, any releases or other documents reasonably
requested by the Company, that is in form and substance reasonably acceptable to the executing party, confirming the release of
the security interest in that portion of the Collateral that is the subject of a disposition permitted by this Section 3.1(f);

 

(g)           Promptly
provide to the Secured Parties such financial statements, reports, lists and schedules related to the Collateral and any other
information relating to the Collateral as the Secured Parties may reasonably request from time to time;

 

(h)           Upon
reasonable notice, permit the Security Agent to inspect all books and records of the Company relating to the Collateral at such
times and as often as the Security Agent reasonably request; and

 

(i)             Promptly
notify the Secured Parties if any Event of Default (as hereinafter defined) occurs.

 

Section 3.2 Other
Encumbrances. At all times after the date hereof and until such time as there are no Obligations due to the Secured Parties,
the Company shall, subject to the rights of the holders of the Senior Indebtedness and the Permitted Liens: (i) defend its title
to, and each Secured Party’s interest in, the Collateral against all claims, (ii) take any action necessary to remove any
encumbrances on the Collateral other than Permitted Liens, and (iii) defend the right, title and interest of each Secured Party
in and to any of the Company’s rights in the Collateral.

 

Section 3.3 Change
Name or Location. At all times after the date hereof and until such time as there are no Obligations due to the Secured Parties,
the Company shall not, except upon 10 days’ prior written notice to the Secured Parties, change its company name or conduct
its business under any name other than that set forth herein or change its jurisdiction of organization or incorporation, chief
executive office, place of business from the current location.

 

SECTION
IV

REPRESENTATIONS AND WARRANTIES

 

The Company represents
and warrants to each Secured Party as follows:

 

Section 4.1 Title
to Collateral. The Company is the owners of and has good and marketable title to, or has a valid and subsisting leasehold interest
in, all of the Collateral.

 

    	6

    	 

    

 

Section 4.2 No Other
Encumbrances. Other than the Permitted Liens, the Company has not granted, nor will it grant, a security interest in the Collateral
to any other individual or entity, and such Collateral is free and clear of any mortgage, pledge, lease, trust, bailment, lien,
security interest, encumbrance, charge or other arrangement.

 

Section 4.3 Authority;
Enforceability. The Company has the authority and capacity to perform its obligations hereunder, and this Agreement is the
valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights
or general equitable principles, whether applied in law or equity.

 

Section 4.4 Company
Name; Place of Business; Location of Collateral. The Company’s true and correct company name, all trade name(s) under
which it conducts its business, its jurisdiction of organization or incorporation and each of its chief executive offices, its
place(s) of business and the locations of the Collateral or records relating to the Collateral are set forth in Schedule I
hereto.

 

Section 4.5 Perfection;
Security Interest. For Collateral in which the Security Interest may be perfected by the filing of financing statements, once
those financing statements have been properly filed in the appropriate jurisdictions, the Security Interest in such Collateral
will be fully perfected, subject only to Permitted Liens. Other than the financing statements and with respect to this Agreement,
there are no other financing statements or control agreements covering any Collateral, other than those evidencing Permitted Liens.

 

SECTION
V

EVENTS OF DEFAULT

 

Section 5.1 Events
of Default Defined. The occurrence of any of the following events shall constitute an event of default under this Agreement
(each, an “Event of Default”):

 

(a)           The
failure of the Company to perform or comply in a material respect with any act, duty or obligation required to be performed under
this Agreement if such failure is not remedied within thirty (30) days after the Company receives written notice of such failure
from the Security Agent;

 

(b)           If
any of the representations or warranties of the Company set forth in this Agreement shall prove to have been incorrect in any material
respect when made, or becomes incorrect in any material respect and is not cured within thirty (30) days after the Company receives
written notice from the Security Agent;

 

(c)           If
any material portion of the Collateral shall be damaged, destroyed or otherwise lost and such damage, destruction or loss is not
covered by insurance; or

 

(d)           If
an “Event of Default” as defined in the Notes shall have occurred and is continuing.

 

Section 5.2 Rights
and Remedies Upon Default. If an Event of Default exists and is continuing, the Security Agent may, at its election (but subject
to Section 8 below and to the terms and conditions of the Transaction Documents), exercise any and all rights available
to a secured party under the UCC, in addition to any and all other rights afforded by the Transaction Documents, at law, in equity,
or otherwise, including, without limitation, (a) requiring the Company to assemble all or part of the Collateral and make
it available to the Security Agent at a place to be designated by the Security Agent which is reasonably convenient to the Company,
(b) surrendering any policies of insurance on all or part of the Collateral and receiving and applying the unearned premiums
as a credit on the Obligation, (c) applying by appropriate judicial proceedings for appointment of a receiver for all or part
of the Collateral (and the Company hereby consents to any such appointment), and (d) applying to the Obligation any cash held
by Security Agent under this Security Agreement.

 

    	7

    	 

    

 

Section 5.3 Notice.
Reasonable notification of the time and place of any public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be made, shall be sent to the Company, the holders
of Permitted Liens, and to any other person or entity entitled to notice under the UCC. It is agreed that notice sent or given
not less than ten calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice
for the purposes of this subparagraph.

 

Section 5.4 Allocation
of Proceeds. The Security Agent may determine the order in which to apply funds received by it hereunder (e.g., the
Security Agent may determine to apply funds first to expenses, second to interest and third to principal or the it may determine
to apply funds first to interest, second to expenses and third to principal).

 

SECTION
VI

ADDITIONAL REMEDIES

 

Section 6.1 Additional
Remedies. Subject to Section 8, upon the occurrence of an Event of Default, the Company shall:

 

(a)           Endorse
any and all documents evidencing any Collateral (other than any Collateral if and to the extent subject to the Permitted Liens)
to each Secured Party, or as otherwise instructed by the Security Agent, and notify any payor that said documents have been so
endorsed and that all sums due and owing pursuant to them should be paid directly to such Secured Party, or as otherwise instructed
by the Security Agent;

 

(b)           Turn
over to the Security Agent, or as otherwise instructed by the Security Agent, copies of all documents evidencing any right to collection
of any sums due to the Company arising from or in connection with any of the Collateral;

 

(c)           Take
any action reasonably required by a Secured Party with reference to the Federal Assignment of Claims Act; and

 

(d)           Keep
all of its books, records, documents and instruments relating to the Collateral in such manner as the Secured Parties may require.

 

SECTION
VII

SECURITY AGENT

 

Section 7.1  Appointment. The
Secured Parties, by their acceptance of the benefits of the Agreement, hereby agree to designate a representative to act as the
security agent in accordance with the terms of this Agreement (the “Security Agent”) within thirty (30) days
from the date first set forth above. The Secured Parties agree that the act of the Majority in Interest in appointing the Security
Agent shall be sufficient in all respects to rightfully appoint the Security Agent hereunder. In the event that no Person is appointed
as Security Agent within the time period specified in this Section 7.1, then the Secured Parties agree that the Majority in Interest
shall act as the Security Agent hereunder. Each Secured Party (whether or not a signatory hereto) shall be deemed irrevocably (a) to
consent to the appointment of Security Agent as its agent hereunder, (b) to confirm that the Security Agent shall have the authority
to act as the exclusive agent of such Person for the enforcement of any provisions of this Agreement against the Company, the exercise
of remedies hereunder and the giving or withholding of any consent or approval hereunder relating to any Collateral or the Company’s
obligations with respect thereto, (c) to agree that it shall not take any action to enforce any provisions of this Agreement
against the Company, to exercise any remedy hereunder or to give any consents or approvals hereunder except as expressly provided
in this Agreement or in the Notes and (d) to agree to be bound by the terms of this Agreement. The appointment of the Security
Agent shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new
Security Agent. The Security Agent may perform any of its duties hereunder by or through its agents or employees.

 

    	8

    	 

    

 

Section 7.2 Nature
of Duties.  The Security Agent shall have no duties or responsibilities except those expressly set forth in
this Agreement. Neither the Security Agent nor any of its partners, members, shareholders, officers, directors, employees
or agents shall be liable for any action taken or omitted by it as such under the Agreement or in connection herewith, be responsible
for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross
negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.  The
duties of the Security Agent shall be mechanical and administrative in nature; the Security Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in respect of the Company or any Secured Party; and nothing
in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose
upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein
and therein.

 

Section 7.3 Lack
of Reliance on the Security Agent.  Independently and without reliance upon the Security Agent, each Secured Party,
to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial
condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Company,
the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or
not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries,
and of the value of the Collateral from time to time, and the Security Agent shall have no duty or responsibility, either initially
or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether
coming into its possession before any Obligations are incurred or at any time or times thereafter.  The Security Agent
shall not be responsible to the Company or any Secured Party for any recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction
Document, or for the financial condition of the Company or the value of any of the Collateral, or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction
Document, or the financial condition of the Company, or the value of any of the Collateral, or the existence or possible existence
of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.

 

Section 7.4 Certain
Rights of the Security Agent.  The Security Agent shall have the right to take any action with respect to the Collateral,
on behalf of all of the Secured Parties.  To the extent practical, the Security Agent shall request instructions from
the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any
other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority
in Interest; if such instructions are not provided despite the Security Agent’s request therefor, the Security Agent shall
be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification
from the Secured Parties in respect of actions to be taken by the Security Agent; and the Security Agent shall not incur liability
to any person or entity by reason of so refraining.  Without limiting the foregoing, (a) no Secured Party shall have
any right of action whatsoever against the Security Agent as a result of the Security Agent acting or refraining from acting hereunder
in accordance with the terms of the Agreement or any other Transaction Document, and the Company shall have no right to question
or challenge the authority of, or the instructions given to, the Security Agent pursuant to the foregoing and (b) the Security
Agent shall not be required to take any action which the Security Agent believes (i) could reasonably be expected to expose it
to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

 

    	9

    	 

    

 

Section 7.5  Reliance.  The
Security Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed,
sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction
Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement
and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it.  Anything
to the contrary notwithstanding, the Security Agent shall have no obligation whatsoever to any Secured Party to assure that the
Collateral exists or is owned by the Company or is cared for, protected or insured or that the liens granted pursuant to the Agreement
have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

   

Section 7.6  Indemnification.  To
the extent that the Security Agent is not reimbursed and indemnified by the Company, the Secured Parties will jointly and severally
reimburse and indemnify the Security Agent, in proportion to their initially purchased respective principal amounts of Notes, from
and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Security Agent in performing its
duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement
or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction to have resulted solely from the Security Agent's own gross negligence or willful misconduct.  Prior
to taking any action hereunder as Security Agent, the Security Agent may require each Secured Party to deposit with it sufficient
sums as it determines in good faith is necessary to protect the Security Agent for costs and expenses associated with taking such
action.

 

Section 7.7 Resignation
by the Security Agent.

 

(a)  The Security
Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at
any time by giving 30 days' prior written notice (as provided in the Agreement) to the Company and the Secured Parties.  Such
resignation shall take effect upon the appointment of a successor Security Agent pursuant to clauses (b) and (c) below.

 

(b)  Upon
any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Security Agent
hereunder.

 

(c) If a successor Security
Agent shall not have been so appointed within said 30-day period, the Security Agent shall then appoint a successor Security Agent
who shall serve as Security Agent until such time, if any, as the Secured Parties appoint a successor Security Agent as provided
above.  If a successor Security Agent has not been appointed within such 30-day period, the Security Agent may petition
any court of competent jurisdiction or may interplead the Company and the Secured Parties in a proceeding for the appointment of
a successor Security Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader
and expenses associated therewith, shall be payable by the Company on demand.

 

    	10

    	 

    

 

Section 7.8  Rights
with respect to Collateral.  Each Secured Party agrees with all other Secured Parties and the Security Agent
(i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether
pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the
Security Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action
arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral
other than as set forth in this Agreement and the other Transaction Documents.  Upon the acceptance of any appointment
as Security Agent hereunder by a successor Security Agent, such successor Security Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Security Agent and the retiring Security Agent shall
be discharged from its duties and obligations under the Agreement.  After any retiring Security Agent’s resignation
or removal hereunder as Security Agent, the provisions of the Agreement shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Security Agent.

 

SECTION
VIII

SUBORDINATION OF LIENS

 

Section 8.1  Subordination
of Liens. It is a requirement of the Senior Indebtedness, that the liens or security interests securing the Notes be
subordinate and junior to the liens and security interests securing the Senior Indebtedness of the Company, respectively. Accordingly,
and notwithstanding anything contained herein or in the other Transaction Documents, the Secured Parties and Security Agent hereby
covenant and agree with the Company as follows:

 

(a)         Acknowledgment.
The Secured Parties hereby acknowledge and agree that the Company has granted or intends to grant to the holders of the Senior
Indebtedness a security interest in the Collateral. The Secured Parties acknowledge and agree that the security interest granted
to them in the Collateral hereunder is subordinated to the respective security interests of the Senior Indebtedness in the Collateral
and that as between all holders of Notes issued under the Subscription Agreement, regardless of the date of original issuance of
such Notes, the Security Interest granted to each Secured Party under this Agreement is on parity with the Security Interests of
the other holders of such Notes (the “Other Note Holders”) in the Collateral, all in the manner and pursuant
to the terms set forth in this Section 8.

 

(b)         Priority
of Liens. The Secured Parties hereby confirm that regardless of the relative times of attachment or perfection thereof, and
regardless of anything in any Transaction Document to the contrary, any security interests or Liens granted from time to time to
the holders of Senior Indebtedness in all or any part of the Collateral shall in all respects be first and senior security interests
and Liens, superior to any security interests or Liens at any time granted to the Secured Parties in such Collateral, and any security
interests or Liens granted from time to time to the Other Note Holders in all or any part of the Collateral shall in all respects
be pari passu security interests and Liens on parity with the security interests or Liens at any time granted to the Secured
Parties in such Collateral. The priorities specified herein are applicable irrespective of the time, order or method of attachment
or perfection of security interests or the time or order of filing of financing statements. The Secured Parties agree not to seek
to challenge, to avoid, to subordinate or to contest or directly or indirectly to support any other Person in challenging, avoiding,
subordinating or contesting in any judicial or other proceeding, including, without limitation, any proceeding involving the Company,
the priority, validity, extent, perfection or enforceability of any Lien held by holders of Senior Indebtedness in all or any part
of the Collateral. The Secured Parties further covenant and agree that they shall not instruct, authorize or otherwise permit or
consent to allowing the Security Agent to take any action that is in violation of, or inconsistent with, the provisions of Section
8.

 

    	11

    	 

    

 

(c)          Release
of Collateral. If, in connection with the exercise by any of the holders of Senior Indebtedness of their rights and remedies
in respect of the Collateral, the holders of Senior Indebtedness release any of its or their Liens on any part of the Collateral,
then the Liens, if any, of the Secured Parties, shall be automatically, unconditionally and simultaneously released; provided,
that after the Senior Indebtedness have each been indefeasibly paid in full in cash, the balance, if any, of the proceeds of such
Collateral shall be applied to the Obligations for the benefit of the Secured Parties on a pari passu basis. The Secured
Parties shall cause the Security Agent to promptly execute and deliver to the Company and holders of Senior Indebtedness such termination
statements, releases and other documents as they may reasonably require to effectively confirm such release.

 

SECTION
IX

MISCELLANEOUS

 

Section 9.1 Termination
and Release. Upon the full and final payment and performance of the Obligation, this Agreement shall automatically terminate.
The Liens created by this Agreement on any of the Collateral shall be automatically released if the Company disposes of such Collateral
pursuant to a transaction permitted by the Note or otherwise consented to by the Security Agent or the Majority in Interest. In
connection with any termination or release pursuant to this Section 9.1, the Majority in Interest shall cause the Security Agent
to promptly execute and deliver to the Company all documents that the Company shall reasonably request to evidence such termination
or release.

 

Section 9.2  Severability.
In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said provision; provided, that in such case the
parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void,
as long as such new provision does not materially change the economic benefits of this Agreement to the parties.

 

Section 9.3 Continuing
Security Interest; Successors. This Agreement creates a continuing security interest in the Collateral and shall (i) remain
in full force and effect until the Obligations are paid and performed in full; and (ii) inure to the benefit of and be enforceable
by Secured Parties and their successors, transferees, and assigns. Each Secured Party may assign its rights hereunder in connection
with any private sale or transfer of its Note in accordance with the terms of the Subscription Agreement and applicable law, in
which case the term “Secured Party” shall be deemed to refer to such transferee as though such transferee was
an original signatory hereto.

 

Section 9.4 Governing
Law; Jurisdiction. This Agreement shall be governed by and construed under the laws of the State of New York applicable to
contracts made and to be performed entirely within the State of New York. The Company hereby irrevocably submit to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waive, and agree
not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.

 

Section 9.5 Headings.
The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this
Agreement.

 

    	12

    	 

    

 

Section 9.6 Notices.  Any
notice to the Company or to the holder of this Convertible Note shall be given in the manner set forth in the Subscription Agreement;
provided that the Holder of this Convertible Note, if not a party to such Subscription Agreement, may specify alternative
notice instructions to the Company. Either party may, by notice given in accordance with the Subscription Agreement, change the
address to which notices, demands and requests shall be sent to such party. Any notice to be given by the Company to the Security
Agent shall be given in the manner provided for in the Subscription Agreement, and delivered to such address as the Company is
instructed by the Security Agent.

 

Section 9.7 Entire
Agreement; Amendments; Waivers. This Agreement constitutes the entire agreement between the parties with regard to the subject
matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties.
Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument
executed by Company and the Majority in Interest, and no provision hereof may be waived other than by a written instrument signed
by the party against whom enforcement of any such waiver is sought. The Secured Parties shall not, by any act, any failure to act
or any delay in acting be deemed to have (i) waived any right or remedy under this Agreement, or (ii) acquiesced in any Event of
Default or in any breach of any of the terms and conditions of this Agreement. No failure to exercise, nor any delay in exercising,
any right, power or privilege of the Secured Parties under this Agreement shall operate as a waiver of any such right, power or
privilege. No single or partial exercise of any right, power or privilege under this Agreement shall preclude any other or further
exercise of any other right, power or privilege. A waiver by a Secured Party of any right or remedy under this Agreement on any
one occasion shall not be construed as a bar to any right or remedy that such Secured Party would otherwise have on any future
occasion.

 

Section 9.8 Multiple
Counterparts. This Agreement has been executed in a number of identical counterparts, each of which shall be deemed an original
for all purposes and all of which constitute, collectively, one agreement; but, in making proof of this Agreement, it shall not
be necessary to produce or account for more than one such counterpart.

 

Section 9.10 Cumulative
Remedies. The rights and remedies provided in this Agreement are cumulative, may be exercised singly or concurrently, and are
not exclusive of any other rights or remedies provided by law.

 

Section 9.11 Waivers.
The Company acknowledges that the Obligations arose out of a commercial transaction and hereby knowingly waives any right to require
the Secured Parties to (i) proceed against any person or entity, (ii) proceed against any other collateral under any
other agreement, (iii) pursue any other remedy available to the Secured Parties, or (iv) make presentment, demand, dishonor, notice
of dishonor, acceleration and/or notice of non-payment.

 

Section 9.12 Release.
No transfer or renewal, extension, assignment or termination of this Agreement or of any instrument or document executed and delivered
by an Obligor or any other obligor to the Secured Parties, nor additional advances made by the Secured Parties to an Obligor, nor
the taking of further security, nor the retaking or re-delivery of the Collateral to an Obligor by the Secured Parties nor any
other act of the Secured Parties shall release either Obligor from any Obligation, except a release or discharge executed in writing
by the Secured Parties with respect to such Obligation or upon full payment and satisfaction of all Obligations and termination
of the Notes. At such time the Obligations have been satisfied in full, each Secured Party shall execute and deliver to each Obligor
all assignments and other instruments as may be reasonably necessary or proper to terminate such Secured Party’s security
interest in the Collateral, subject to any disposition of the Collateral that may have been made by the Secured Parties
pursuant to this Agreement. For the purpose of this Agreement, the Obligations shall be deemed to continue if either Obligor enters
into any bankruptcy or similar proceeding at a time when any amount paid to the Secured Parties could be ordered to be repaid
as a preference or pursuant to a similar theory, and shall continue until it is finally determined that no such repayment can be
ordered.

[Signature Pages to Follow]

 

    	13

    	 

    

 

IN WITNESS WHEREOF,
the Company and the Secured Party have duly executed this Agreement as of the date first written above.

 

	 	SKINNY NUTRITIONAL CORP.
	 	 	 
	 	By:	 
	 	 	Name: Michael Salaman
	 	 	Title:  Chief Executive Officer

 

Signature
Page to Security Agreement

 

    	 

    	 

    

 

Signature
Page to Security Agreement

 

	 	SECURED PARTY:
	 	 	 
	 	[	]
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:

 

    	 

    	 

    

 

Schedule I

 

List of Collateral Locations, Executive
Offices and 

Jurisdiction of Organization or Incorporation
of Obligors

 

	SKINNY NUTRITIONAL CORP.
	 	 
	Collateral Location:	Three Bala Plaza East, Suite 101, Bala Cynwyd, PA 19004
	 	 
	Executive Officers: 	Michael Salaman – President and Chief Executive Officer
	 	Donald J. McDonald – Chief Financial Officer
	 	Robert Miller – Chief Sales Officer

 

Jurisdiction of Incorporation: Nevada

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