Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of July 25,
2008 by and between Syzygy Entertainment, Ltd., a Nevada corporation (the
“Company”), and Shelter Island Opportunity Fund, LLC, or any Affiliate thereof
designated by it (the “Purchaser”).
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchaser, and the Purchaser desires to purchase from the
Company securities of the Company as more fully described in this Agreement.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:
 
ARTICLE I.
DEFINITIONS
 
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Debenture (as defined herein), and (b) the following
terms have the meanings indicated in this Section 1.1:
 
“Action” shall have the meaning ascribed to such term in Section 3.1(j).
 
“Additional Closing” means one or more closing of the purchase and sale of an
Additional Debenture and an Additional Warrant pursuant to Section 4.15.
 
“Additional Closing Date” means the date on which an Additional Closing shall
occur.
 
“Additional Closing Notice” shall have the meaning ascribed to such term in
Section 4.15(b).
 
“Additional Debenture” means one or more Secured Original Issue Discount
Debenture issued by the Company to the Purchaser, in the form of Exhibit A
hereto (and as it may be modified in accordance with Section 4.15(d)(ii)), that
the Purchaser shall have the option to purchase at an Additional Closing.
 
“Additional Subscription Amount” shall have the meaning ascribed to such term in
Section 4.15(a).
 
“Additional Warrant” means one or more Common Stock Purchase Warrant, in the
form of Exhibit B hereto that shall be delivered to the Purchaser at an
Additional Closing, which Warrant shall be exercisable immediately upon issuance
and have a term of exercise equal to five years.

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“Additional Warrant Share Amount” means, with respect to each Additional Warrant
purchased at each Additional Closing, the product of (i) the number of shares of
Common Stock issuable upon the exercise of the Warrant and (ii) a fraction, the
numerator of which is the face value of the Additional Debenture to be purchased
at such Additional Closing and the denominator of which is 1,125,000.
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act. 
 
“Board” means the Gaming Board of the Turks and Caicos Islands.
 
“Business Day” means any day except Saturday, Sunday, any day which shall be a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
 
“Change of Control Transaction” shall have the meaning ascribed to such term in
the Debenture.
 
“Closing” means the closing of the purchase and sale of the Debenture and the
Warrant pursuant to Section 2.1.
 
“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchaser’s obligation to purchase the Debenture
and the Warrant and (ii) the Company’s obligation to deliver the Debenture and
the Warrant have been satisfied or waived.
 
“Commission” means the Securities and Exchange Commission.
 
“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed into.
 
“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
 
“Company Counsel” means Roetzel & Andress.

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“Debenture” means the $1,125,000 Secured Original Issue Discount Debenture
issued by the Company to the Purchaser at the Closing, in the form of Exhibit A
hereto.
 
“Disclosure Schedules” shall have the meaning ascribed to such term in Section
3.1.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such purpose,
(b) securities upon the exercise or exchange of any Securities issued hereunder
and/or other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of any such securities, and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided any such issuance shall only be
to a Person which is, itself or through its subsidiaries, an operating company
in a business synergistic with the business of the Company and in which the
Company receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.
 
“FW” means Feldman Weinstein & Smith LLP, counsel to the Purchaser, with offices
located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.
 
“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).
 
“Guarantors” shall mean each Subsidiary of the Company, other than The Game
International TCI, Ltd., a Turks and Caicos company.
 
“Guaranties” shall mean the several Guaranties, each dated the date hereof,
executed by each Guarantor to the Purchaser, in the form of Exhibit C attached
hereto.
 
“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).
 
“Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1.
 
“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

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“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).
 
“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).
 
“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.
 
“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.
 
“Principal Shareholder” means __________.
 
“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
 
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.
 
“Put Agreement” means the Put Option Agreement, dated the date hereof, between
the Company and the Purchaser, in the form of Exhibit D attached hereto.
 
“Put Note Shares” mean any shares of Common Stock that are issued upon
conversion of any convertible promissory note issued by the Company to the
Purchaser in accordance with the Put Agreement.
 
“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).
 
“Required Minimum” means, as of any date, the maximum aggregate number of Put
Note Shares and shares of Common Stock then issuable pursuant to any Additional
Warrant and the Warrant.
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).
 
“Securities” means any Additional Debenture, the Debenture, any Additional
Warrant, the Warrant, the Warrant Shares and the Put Note Shares.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated hereunder.

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“Security Agreements” means the Security Agreements (or Debenture), each dated
the date hereof, from each of the Company, the Subsidiaries and the Principal
Shareholder to the Purchaser, in the form of Exhibits E-1, E-2 and E-3 attached
hereto.
 
“Subscription Amount” means $1,000,000, which is the amount to be paid for the
Debenture and the Warrant purchased hereunder.
 
“Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a).
 
“Trading Day” means a day on which the Trading Markets are open for business.
 
“Trading Market” means the following markets or exchanges: the Nasdaq Capital
Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq
National Market.
 
“Transaction Documents” means this Agreement, the Guaranties, any Additional
Debenture, the Debenture, any Additional Warrant, the Warrant, the Security
Agreements, the Put Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
 
“Transaction End Date” means July ___, 2008.
 
“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time);
(b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchaser and reasonably acceptable to
the Company.
 
“Warrant” mean the Common Stock Purchase Warrant, in the form of Exhibit B
attached hereto delivered to the Purchaser at the Closing in accordance with
Section 2.2(a) hereof, which Warrant shall be exercisable immediately and have a
term of exercise equal to five years.
 
“Warrant Shares” means the shares of Common Stock issued and issuable upon
exercise of any Additional Warrant and the Warrant.

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 ARTICLE II.
PURCHASE AND SALE
 
2.1 Closing. On the Closing Date, upon the terms and subject to the conditions
set forth herein, substantially concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and the
Purchaser agrees to purchase, the Debenture and the Warrant. The Purchaser shall
deliver to the Company via wire transfer or a certified check in immediately
available funds equal to the Subscription Amount and the Company shall deliver
to the Purchaser the Debenture and the Warrant and the other items set forth in
Section 2.2 issuable at the Closing. Upon satisfaction of the conditions set
forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FW, or
such other location as the parties shall mutually agree.
 
2.2 Deliveries.
 
(a) On the Closing Date, the Company shall deliver or cause to be delivered to
the Purchaser (or as otherwise specified) the following:
 
(i) this Agreement duly executed by the Company;
 
(ii) a legal opinion of Company Counsel, in the form of Exhibit F attached
hereto;
 
(iii) the Debenture, duly executed by the Company;
 
(iv) the Warrant registered in the name of the Purchaser to purchase up to
1,334,813 shares of Common Stock, with a per share exercise price and subject to
adjustment as specified therein;
 
(v) resolutions duly adopted by the respective Boards of Directors of the
Company and the Subsidiaries authorizing the transactions contemplated by the
Transaction Documents;
 
(vi) the Security Agreements duly executed by the Persons named therein;
 

 
(vii)
the Put Agreement, duly executed by the Company;

(viii) by wire transfer to the account as specified in writing by the Purchaser,
the amount of $20,000, representing payment of a collateral management fee;
 
(ix) the certificates representing the shares of Common Stock being pledged by
the Principal Shareholder to Purchaser pursuant to its Security Agreement,
together with stock powers executed in blank by the Principal Shareholder with
signatures guaranteed; 

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(x)  the Guaranties, duly executed by the Subsidiaries;

(xi)  the items required to be delivered pursuant to the Security Agreement in
the form of Exhibit E-3; and

(xii) evidence that the Subsidiaries’ gaming licenses are in good standing with
the Board.

(b) On the Closing Date, the Purchaser shall deliver or cause to be delivered to
the Company the following:
 
(i) this Agreement duly executed by the Purchaser;
 
(ii) the Subscription Amount by wire transfer to the account as specified in
writing by the Company;
 
(iii) the Put Agreement, duly executed by the Purchaser; and
 
(iv) the Security Agreements, duly executed by the Purchaser.
 
2.3 Closing Conditions. 
 
(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:
 
(i) the accuracy in all material respects when made and on the Closing Date
(except for those that speak as of a specific date, which shall be true and
correct in all material respects as of such date) of the representations and
warranties of the Purchaser contained herein;
 
(ii) all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and
 
(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of
this Agreement.
 
(b) The obligations of the Purchaser hereunder in connection with the Closing
are subject to the following conditions being met:
 
(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;
 
(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;
 
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

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(iv) there shall have been no Material Adverse Effect since the date hereof; and
 
(v) if the Common Stock is traded on a Trading Market at the date hereof, from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg L.P. shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial
market which, in the case, in the reasonable judgment of the Purchaser, makes it
impracticable or inadvisable to purchase the Debenture and the Warrant at the
Closing.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the disclosure schedules delivered to the Purchaser
concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules
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 make
the representations and warranties set forth below to the Purchaser.
 
(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of the Subsidiaries, free and clear
of any Liens (other than in favor of the Purchaser), and all the issued and
outstanding shares of capital stock of the Company and the Subsidiaries are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights to subscribe for or purchase securities. The Game International
TCI, Ltd., a Turks and Caicos company, has no material assets, operations or
business activities. 
 
(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. None
of the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in the jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company’s or any Subsidiary’s ability to perform in any material respect on
a timely basis its obligations under any Transaction Document (any of (i), (ii)
or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.

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(c) Authorization; Enforcement. Each of the Company and the Subsidiaries has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of the Transaction Documents by the Company and the
Subsidiaries and the consummation by them of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the part
of the Company and the Subsidiaries and no further action is required by the
Company, the Subsidiaries, their respective boards of directors or stockholders
in connection therewith other than in connection with the Required Approvals.
Each Transaction Document to which the Company or a Subsidiary is a party has
been (or upon delivery will have been) duly executed by them and, when delivered
in accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of theirs enforceable against them in accordance with its
terms except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
 
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the Subsidiaries, and the consummation by them of
the transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, 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
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of theirs is bound
or affected, or (iii) subject to the Required Approvals, conflict with or 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
or a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of theirs is bound or affected;
except in the case of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.

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(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization 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 (including, without limitation, the
Board) or other Person in connection with the execution, delivery, assumption
and performance by them of the Transaction Documents to which any of them is a
party, other than (i) the notice and/or application(s) to the applicable Trading
Market for the issuance and sale of the Warrant Shares and the Put Note Shares
and the listing of the Warrant Shares and the Put Note Shares for trading
thereon in the time and manner required thereby, (ii) the filing of Form D with
the Commission and such filings as are required to be made under applicable
state securities laws and (iii) filings required to perfect the security
interest granted under the Security Agreements (collectively, the “Required
Approvals”).
 
(f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Warrant Shares and the Put Note Shares,
when issued in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock for issuance of the Warrant
Shares and Put Note Shares at least equal to the Required Minimum on the date
hereof.
 
(g) Capitalization. The authorized and issued capitalization of the Company is
as set forth on Schedule 3.1(g). No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities and as described on Schedule 3.1(g),
there are no outstanding options, warrant, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company, the
Board or others is required for the issuance and sale of the Securities. There
are no stockholders agreements, voting agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company’s
stockholders.

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(h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, as
applicable, 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. 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 United
States generally accepted accounting principles 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 and its
consolidated subsidiaries 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.
 
(i) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP, (iii) the Company has not materially altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing stock option plans.

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(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by the Board, any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “Action”) which (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Board or any
governmental authority involving the Company or any Subsidiary or any current or
former director or officer of the Company or any Subsidiary.
 
(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company or
any Subsidiary which could reasonably be expected to result in a Material
Adverse Effect.
 
(l) Compliance. Neither the Company nor any Subsidiary (i) is 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) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of the Board, any governmental
authority, including without limitation all foreign, federal, state and local
laws applicable to its business and all such laws that affect the environment,
except in the case as could not have or reasonably be expected to result in a
Material Adverse Effect. The Company and the Subsidiaries are in compliance in
all material respects with all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants.
 
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities (including the Board) necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not have or reasonably be
expected to result in a Material Adverse Effect (“Material Permits”), and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
 
(n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to their
respective businesses and good and marketable title in all personal property
owned by them that is material to their businesses, including without limitation
those assets set forth on Schedule 3.1(n), in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.

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(o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights necessary or material for use in
connection with their respective businesses and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a notice (written
or otherwise) that the Intellectual Property Rights used by them violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
 
(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged.
 
(q) Transactions With Affiliates and Employees. None of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in the case in excess of $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the .Company.
 
(r) Sarbanes-Oxley. The Company is in material compliance with all provisions of
the Sarbanes-Oxley Act of 2002 which are applicable to it.
 
(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents. The Purchaser shall have
no obligation with respect to any fees or with respect to any claims made by or
on behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents.

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(t) Private Placement. Assuming the accuracy of the Purchaser representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchaser as contemplated hereby. The issuance and sale of any Additional
Warrant or the Warrant hereunder does not contravene the applicable rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or designated.
 
(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after issuance of the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company shall conduct its business in a manner so that it
will not become subject to the Investment Company Act of 1940, as amended.
 
(v) Registration Rights. Other than as set forth in Schedule 3.1(v), no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
 
(w) Listing and Maintenance Requirements. Except as set forth in Schedule
3.1(w), the Company has not, in the 12 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements to which it
is now subject.
 
(x) Application of Takeover Protections. The Company and its Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to
the Purchaser as a result of the Purchaser and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Purchaser’s ownership of the Securities.
 
(y) Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Purchaser or its agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Purchaser regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, with respect to the representations
and warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that the Purchaser has
not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.

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(z) No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provision of any Trading Market on which any of the securities of the Company
are listed or designated.
 
(aa) Solvency. Based on the financial condition of the Company as of the Closing
Date after giving effect to the receipt by the Company of the proceeds of the
Subscription Amount, the Company is solvent and has the necessary capital to pay
its liabilities and obligations as they become due.
 
(bb) Tax Status.   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 and the Subsidiaries have filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.
 
(cc) No General Solicitation. Neither the Company nor any person acting on its
behalf has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for
sale only to the Purchaser and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.
 
(dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on its behalf, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to foreign or domestic political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the
Company (or made by any person acting on its behalf of which the Company is
aware) which is in violation of law, or (iv) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
 
(ee) Seniority. As of the Closing Date, no indebtedness or other claim against
the Company is senior to the Debenture or any Additional Debenture in right of
payment, whether with respect to interest or upon liquidation or dissolution, or
otherwise.

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(ff) Manipulation of Price.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.

3.2  Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to the
Company as follows:
 
(a) Own Account. The Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law.
 
(b) Purchaser Status. At the time the Purchaser was offered the Securities, it
was, and at the date hereof it is, and on the date on which it exercises the
Warrants or any Additional Warrant it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1 Transfer Restrictions. The Securities may only be disposed of in compliance
with state and federal securities laws, and the certificates representing the
Securities shall contain a legend to such effect, except that certificates
evidencing the Put Note Shares and the Warrant Shares shall not contain any
restrictive or other legend: (i) while a registration statement covering the
resale of such Security is effective under the Securities Act, or (ii) following
any sale of such Put Note Shares or Warrant Shares pursuant to Rule 144, or
(iii) if such Put Note Shares or Warrant Shares are eligible for sale under Rule
144 without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Securities and without
volume or manner-of-sale restrictions, or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the occurrence of any of the foregoing events if
required by the Company’s transfer agent to effect the removal of any legend on
any of the Put Note Shares and Warrant Shares. The Company agrees that following
the occurrence of any of the foregoing events, it will, no later than three
Trading Days following the delivery by the Purchaser to the Company or the
Company’s transfer agent of a certificate representing Put Note Shares and
Warrant Shares, as applicable, issued with a restrictive legend (such third
Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to the
Purchaser a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section. Certificates for Put
Note Shares and Warrant Shares subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Purchaser by crediting
the account of the Purchaser’s prime broker with the Depository Trust Company
System. In addition to the Purchaser’s other available remedies, the Company
shall pay to the Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Put Note Shares or Warrant Shares (based on the VWAP
of the Common Stock on the date such Securities are submitted to the Company’s
transfer agent) delivered for removal of the restrictive legend, $10 per Trading
Day (increasing to $20 per Trading Day five Trading Days after such damages have
begun to accrue) for the Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit the
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Put Note Shares or Warrant Shares as required by
the Transaction Documents, and the Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief, without the necessity
of posting a bond.

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4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions.
 
4.3 Furnishing of Information. As long as the Purchaser owns any Additional
Warrant, the Warrant, any Put Note Shares or any Warrant Shares, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as the
Purchaser owns any Additional Warrant, the Warrant, any Put Note Shares or any
Warrant Shares, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchaser and make publicly
available in accordance with Rule 144(c) such information as is required for the
Purchaser to sell the Put Note Shares and Warrant Shares under Rule 144. The
Company further covenants that it will take such further action as any holder of
any Additional Warrant, the Warrant, any Put Note Shares or any Warrant
Shares may reasonably request, to the extent required from time to time to
enable such Person to sell Put Note Shares and Warrant Shares without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
 
4.4 Integration. The Company shall not sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser or that would be integrated
with the offer or sale of the Securities for purposes of the applicable rules
and regulations of any Trading Market.
 
4.5 Publicity.  The Company and the Purchaser shall consult with the other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor the Purchaser shall issue any such press
release or otherwise make any such public statement without the prior consent of
the Company, with respect to any press release of the Purchaser, or without the
prior consent of the Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication; it being understood and agreed however, that the Purchaser may
place “tombstone” advertisements with respect to the transactions contemplated
hereby without the Company’s consent, .

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4.6 Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that the Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that the Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchaser.
 
4.7 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide the Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto the Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
 
4.8 Use of Proceeds; Financial Calculations. The Company shall use the net
proceeds of the Subscription Amount and any Additional Subscription Amount for
working capital for itself and the Subsidiaries. Unless otherwise specifically
stated, all financial calculations required to be made pursuant to the
Transaction Documents shall be made in accordance with GAAP.
 
4.9 Reimbursement. If the Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by the
Purchaser to or with any other stockholder), solely as a result of the
Purchaser’s acquisition of the Securities under this Agreement, the Company
agrees to reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Securities under this
Agreement.

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4.10 Indemnification of Purchaser. Subject to the provisions of this Section
4.10, the Company will indemnify and hold the Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), the Persons who
control the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling Persons (the, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made to the Purchaser in this Agreement or
in the other Transaction Documents or (b) any action instituted against the
Purchaser, or any of its Affiliates, by any stockholder of the Company who is
not an Affiliate of the Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of the Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings the Purchaser may have
with any such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance).
 
4.11 Reservation and Listing of Securities.
 
(a) The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance as Put Note Shares or pursuant to any Additional
Warrant and the Warrant in an amount equal to the Required Minimum.
 
(b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company’s certificate or articles of
incorporation to increase the number of authorized but unissued shares of Common
Stock to at least the Required Minimum at such time, as soon as possible and in
any event not later than the 75th day after such date.
 
(c) The Company shall, if and when applicable to the Common Stock: (i) in the
time and manner required by the principal Trading Market for the Common Stock,
prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on such Trading
Market as soon as possible thereafter, (iii) provide to the Purchaser evidence
of such listing, and (iv) maintain the listing of such Common Stock on any date
at least equal to the Required Minimum on such date on such Trading Market or
another Trading Market.

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4.12 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of the Purchaser. The Company shall take such
action as it shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Securities for, sale to the Purchaser at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of the Purchaser.
 
4.13 Certain Notices. Within one Trading Day after the Company enters into any
agreement, arrangement or understanding that could reasonably be expected to
result in a Change of Control Transaction, the Company shall notify the
Purchaser thereof and shall furnish the Purchaser with a copy of any writing
evidencing such agreement, arrangement or understanding. The Company shall
further notify the Purchaser promptly of all events relating to any such Change
of Control Transaction, including, without limitation, the consummation thereof.
The failure of the Company to provide any such notice or any defect therein
shall not have any effect on the Company’s obligation to pre-pay the Debenture
when required by the holder thereof in accordance with the terms thereof.
 
4.14 Participation in Future Financings.
 
(a) In connection with the issuance by the Company or any of its Subsidiaries of
any promissory note, debenture or other debt security on terms that are
equivalent to those provided in the Transaction Documents (a “Subsequent
Financing”) at any time that any amount is owing to the Purchaser under the
Debenture or any other Transaction Document, the Purchaser shall have the right
(in addition to the rights set forth in Section 4.15) to participate in up to an
amount of the Subsequent Financing equal to 100% of the Subsequent Financing
(the “Participation Maximum”) on the same terms, conditions and price provided
for in the Subsequent Financing.
 
(b) At least 15 Trading Days prior to the closing of any Subsequent Financing,
the Company shall deliver to the Purchaser a written notice of its intention to
effect such Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask the
Purchaser if it wants to review the details of such financing (such additional
notice, a “Subsequent Financing Notice”). Upon the request of the Purchaser, and
only upon a request by the Purchaser, for a Subsequent Financing Notice, the
Company shall promptly, but no later than one Trading Day after such request,
deliver a Subsequent Financing Notice to the Purchaser. The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be affected and shall include a term sheet or similar document relating thereto
as an attachment, if such document is available.
 
(c) If the Purchaser desires to participate in such Subsequent Financing, it
must provide written notice to the Company by not later than 5:30 p.m. (New York
City time) on the 10th Trading Day after it has received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount of
the Purchaser’s participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from the Purchaser as of
such fifth Trading Day, the Purchaser shall be deemed to have notified the
Company that it does not elect to participate.

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(d) If by 5:30 p.m. (New York City time) on the 10th Trading Day after the
Purchaser has received the Pre-Notice, notification by the Purchaser of its
willingness to participate in the Subsequent Financing (or to cause its
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice.
 
(e) The Company must provide the Purchaser with a second Subsequent Financing
Notice, and the Purchaser will again have the right of participation set forth
above in this Section 4.14, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Trading Days after the date
of the initial Subsequent Financing Notice.
 
(f) Notwithstanding the foregoing, this Section 4.14 shall not apply in respect
of (i) an Exempt Issuance or (ii) an underwritten public offering of securities
of the Company.

 
4.15
Additional Closing.

(a) At any time from the Closing Date until the one-year anniversary of the
Closing Date, the Purchaser shall have (in addition to the rights set forth in
Section 4.14) the option, in its sole and absolute discretion, to purchase at up
to (but no more than) three Additional Closings, Additional Debentures with an
aggregate face value of $1,125,000. The amount the Purchaser shall pay for each
Additional Debenture shall be equal to 88.889% of the face value of the
Additional Debenture (the “Additional Subscription Amount”) and the Purchaser
may purchase at each Additional Closing Additional Debentures with any face
value that it shall determine (up to an aggregate face value of $1,125,000) that
is in excess of $200,000. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT
OR OF ANY OTHER TRANSACTION DOCUMENT, THE PURCHASER SHALL HAVE NO OBLIGATION TO
PURCHASE ANY ADDITIONAL DEBENTURE, WHICH PURCHASE SHALL BE MADE IN THE SOLE AND
ABSOLUTE DISCRETION OF THE PURCHASER. 

(b)  The Purchaser shall exercise its option to purchase one or more Additional
Debentures by delivering a notice thereof (an “Additional Closing Notice”) to
the Company not more than 15 Trading Days and not less than five Trading Days
prior to the Additional Closing Date for such purchase. Each Additional Closing
Notice shall specify (i) the Additional Closing Date and (ii) the face value and
Additional Subscription Amount of the Additional Debenture to be purchased at
such Additional Closing.

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(c) On each Additional Closing Date specified in an Additional Closing Notice,
upon the terms and subject to the conditions set forth herein, the Company shall
sell, and the Purchaser shall purchase, the Additional Debenture in the amount
specified in such Additional Closing Notice and an Additional Warrant
exercisable for the Additional Warrant Share Amount. The Purchaser shall deliver
to the Company via wire transfer or a certified check in immediately available
funds equal to the Additional Subscription Amount for the Additional Debentures
to be purchased at such Additional Closing Date and the Company shall deliver to
the Purchaser such Additional Debenture and Additional Warrant and the other
items set forth in Section 4.15(d). Upon satisfaction of the conditions set
forth in Sections 4.15(f) and 4.15(g), the Additional Closing shall occur at the
offices of FW, or such other location as the parties shall mutually agree.
 
(d) On each Additional Closing Date, the Company shall deliver or cause to be
delivered to the Purchaser (or as otherwise specified) the following:
 
(i) a legal opinion of Company Counsel, in the form of Exhibit F attached
hereto;
 
(ii) the Additional Debenture to be purchased at such Additional Closing, duly
executed by the Company (in the event the Additional Debenture purchased at an
Additional Closing has a face value of less than $1,125,000, the repayment terms
of the form of Additional Debenture attached hereto as Exhibit A shall be
adjusted in the Additional Debenture executed and delivered by the Company at
such Additional Closing to correspond to that portion of such maximum face value
represented by the face value of such Additional Debenture);
 
(iii) the Additional Warrant to be purchased at such Additional Closing
registered in the name of the Purchaser to purchase up to the Additional Warrant
Share Amount of such Additional Warrant;
 
(iv) resolutions duly adopted by the respective Boards of Directors of the
Company and the Subsidiaries authorizing the execution, delivery and performance
of the documents delivered at such Additional Closing;
 
(v) by wire transfer to the account as specified in writing by the Purchaser, an
amount equal to 2.00% of the Additional Subscription Amount paid at such
Additional Closing, representing payment of a collateral management fee;
 
(vi) a certificate of the chief executive officer of the Company confirming the
compliance by the Company with the conditions set forth in Section 4.15(g);
 
(vii) payment of the fees and expenses of the Purchaser’s counsel in connection
with such Additional Closing; and
 
(viii) evidence that the Subsidiaries’ gaming licenses are in good standing with
the Board.

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(e)  On each Additional Closing Date, the Purchaser shall deliver or cause to be
delivered to the Company, the Additional Subscription Amount of the Additional
Debenture to be purchased at such Additional Closing, by wire transfer to the
account as specified in writing by the Company.

(f) The obligations of the Company hereunder in connection with each Additional
Closing are subject to the following conditions being met:
 
(i) the accuracy in all material respects when made and on such Additional
Closing Date of the representations and warranties of the Purchaser contained
herein;
 
(ii) all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to such Additional Closing Date shall have been performed;
and
 
(iii) the delivery by the Purchaser of the item set forth in Section 4.15(e) of
this Agreement.
 
(g) The obligations of the Purchaser hereunder in connection with each
Additional Closing are subject to the following conditions being met:
 
(i) the accuracy in all material respects on such Additional Closing Date of the
representations and warranties of the Company contained herein;
 
(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to such Additional Closing Date shall have been performed;
 
(iii) the delivery by the Company of the items set forth in Section 4.15(d) of
this Agreement;
 
(iv) there shall have been no Material Adverse Effect since the date hereof; and
 
(v) if the Common Stock is traded on a Trading Market at the date hereof, from
the date hereof to such Additional Closing Date, trading in the Common Stock
shall not have been suspended, and, at any time prior to such Additional Closing
Date, trading in securities generally as reported by Bloomberg L.P. shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in the case, in the reasonable
judgment of the Purchaser, makes it impracticable or inadvisable to purchase the
Additional Debenture and the Additional Warrant to be purchased at such
Additional Closing.

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ARTICLE V.
MISCELLANEOUS
 
5.1 Termination. This Agreement may be terminated by the Purchaser if the
Closing has not been consummated on or before the Transaction End Date;
provided, however, that no such termination will affect the right of any party
to sue for any breach by the other party (or parties).
 
5.2 Fees and Expenses. At the Closing, the Company shall pay FW the legal fees
and expenses incurred by the Purchaser in connection with the preparation,
execution and delivery of the Transaction Documents. Except as expressly set
forth in the Transaction Documents to the contrary, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchaser.
 
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
 
5.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c)
the 2nd Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.
 
5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waived provision is sought. No waiver
of any default with respect to any provision, condition or requirement of this
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 any party to exercise any
right hereunder in any manner impair the exercise of any such right.

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5.6 Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
 
5.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. The Purchaser may assign any
or all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the “Purchaser”.
 
5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.10.
 
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees 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 improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or 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 other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If any party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

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5.10 Survival. The representations, warranties, covenants and other agreements
contained herein shall survive the Closing and the delivery and/or exercise of
the Securities, as applicable for the applicable statue of limitations.
 
5.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by the party and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.PDF” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.PDF” signature page were an original thereof.
 
5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
 
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of an exercise of the Warrant, the
Purchaser shall be required to return any shares of Common Stock subject to any
such rescinded exercise notice.
 
5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
 
5.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, the Purchaser and the
Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

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5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchaser pursuant to any Transaction Document or the Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
 
5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by the Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to the Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by the Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at the Purchaser’s election.
 
5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of theirs and shall not terminate until all unpaid partial liquidated
damages and other amounts have been paid notwithstanding the fact that the
instrument or security pursuant to which such partial liquidated damages or
other amounts are due and payable shall have been canceled.
 
5.19 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
 
(Signature Pages Follow)

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
SYZYGY ENTERTAINMENT, LTD.
 
Address for Notice:
       
By:    
/s/ Sean Sullivan
 
The Rotunda
 Name: Sean Sullivan
 
4201 Congress Street, Suite 145
 Title: President
 
Charlotte, NC 28209

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
SHELTER ISLAND OPPORTUNITY FUND , LLC
By: By: Shelter Island GP, LLC, its Manager
 
Address for Notice:
     
By:
/s/  
One East 52nd Street
 
Name:
 
Sixth Floor
 
Title:
 
New York, NY 10022
       
With a copy to (which shall not constitute notice):
Feldman Weinstein & Smith LLP
420 Lexington Avenue
New York, New York 10170-0002
Telecopy: 212 997 4242
Attention: Saul H. Finkelstein, Esq.
   

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