Exhibit 10.2
 
EXHIBIT A

THIS DEBENTURE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS DEBENTURE MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS DEBENTURE.
 
Original Issue Date: July 25, 2008
 
$1,125,000.00

$1,125,000 SECURED ORIGINAL ISSUE DISCOUNT DEBENTURE

THIS DEBENTURE is a duly authorized and validly issued Debenture of Syzygy
Entertainment, Ltd., a Nevada corporation, having its principal place of
business at The Rotunda, 4201 Congress Street, Suite 145, Charlotte, NC 28209
(the “Company”), designated as its $1,125,000 Secured Original Issue Discount
Debenture (the “Debenture”).

FOR VALUE RECEIVED, the Company promises to pay to Shelter Island Opportunity
Fund, LLC or its registered assigns (the “Holder”), or shall have paid pursuant
to the terms hereunder, the principal sum of $1,125,000.00 (the “Face Value”) by
the Maturity Date, and to pay interest to the Holder on the aggregate
outstanding principal amount of this Debenture in accordance with the provisions
hereof. This Debenture is subject to the following additional provisions:

Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Securities Purchase Agreement
and (b) the following terms shall have the following meanings:

“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) of the Company commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof; (b) there is commenced against
the Company or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order
of relief or other order approving any such case or proceeding is entered; (d)
the Company or any Significant Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property that is not
discharged or stayed within 60 calendar days after such appointment; (e) the
Company or any Significant Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) the Company or any Significant
Subsidiary thereof, by any act or failure to act, expressly indicates its
consent in writing to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

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“Change of Control Transaction” means the occurrence after the date hereof of
any of (i) an acquisition by an individual or legal entity or “group” (as
described in Rule 13d-5(b)(1) promulgated under the Exchange Act), of effective
control (whether through legal or beneficial ownership of capital stock of the
Company, by contract or otherwise) of in excess of 35% of the voting securities
of the Company, or (ii) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 50% of the aggregate voting power of the
Company or the successor entity of such transaction, or (iii) the Company sells
or transfers all or substantially all of its assets to another Person, whether
in one transaction or in a series of related transactions.

“Event of Default” shall have the meaning set forth in Section 5.

“Maturity Date” means the earlier of (i) July 23, 2009 and (ii) the date this
Debenture is permitted or required to be paid in accordance with the terms
hereof (whether as a result of a prepayment, acceleration or otherwise).

“Original Issue Date” means the date of the first issuance of this Debenture,
regardless of any transfers of this Debenture and regardless of the number of
instruments which may be issued to evidence this Debenture.

Permitted Lien” means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens on property that was purchased
with the proceeds of, and that secures only, indebtedness in an aggregate
principal amount not to exceed $50,000 that was incurred solely to purchase such
property; and (c) Liens imposed by law which were incurred in the ordinary
course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company or (y) are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing for the foreseeable future the
forfeiture or sale of the property or asset subject to such Lien.
 
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“Securities Purchase Agreement” means the Securities Purchase Agreement between
the Company and the original Holder, dated as of the Original Issue Date, as
amended, modified or supplemented from time to time in accordance with its
terms.

Section 2. Interest and Payments.
 
a) Interest Rate. Interest shall accrue each day on the aggregate outstanding
Face Value at the rate per annum equal to 13.00%.

b) Payments of Principal and Interest. The outstanding Face Value, and all
accrued interest thereon, will be payable in 14 equal monthly installments, each
in the amount of $75,000, commencing on October 15, 2008 and continuing on the
last day of each month thereafter until the Maturity Date. The unpaid Face
Value, and all accrued interest thereon, will be paid in full on the Maturity
Date.

c) Method of Payment. All payments hereunder shall be made in immediately
available funds on the date the same is due in such manner as directed by the
Holder, including by direct debit from the Company’s checking account.

d) Interest Calculations. Interest shall be calculated on the basis of a 360-day
year and shall accrue daily commencing on the Original Issue Date until payment
in full of the Face Value, together with all accrued and unpaid interest and
other amounts which may become due hereunder, has been made.

e) Prepayment. The Company may prepay all or any portion of the Face Value upon
at least two Trading Days’ notice to the Holder by paying the amount desired to
be prepaid together with a payment equal to 10% of the amount being prepaid. All
prepayments of Face Value hereunder shall be applied to the payment obligation
of the Company under Section 2(b) in inverse order of maturity. At the option of
the Holder upon notice to the Company, the Face Value and all accrued and unpaid
interest thereon, shall become due and payable on the date on which a Change of
Control Transaction shall have been consummated.

Section 3.  Registration of Transfers and Exchanges.
 
a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debenture of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be
payable for such registration of transfer or exchange.
 
b) Investment Representations. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Securities
Purchase Agreement and may be transferred or exchanged only in compliance with
the Securities Purchase Agreement and applicable federal and state securities
laws and regulations.

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c) Reliance on Debenture Register. Prior to due presentment for transfer to the
Company of this Debenture, the Company and any agent of the Company may treat
the Person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is overdue,
and neither the Company nor any such agent shall be affected by notice to the
contrary.

Section 4. Covenants. As long as any portion of this Debenture remains
outstanding, the Company agrees as follows:

a) it shall not (and shall cause each Subsidiary not to) enter into,
create incur, assume, guarantee or suffer to exist any indebtedness for borrowed
money of any kind (other than as contemplated in clause (b) of the definition of
“Permitted Lien” contained in this Debenture), including but not limited to, a
guarantee, unless the obligations of the Company (or such Subsidiary) with
respect thereto are not secured, directly or indirectly, by any assets of the
Company (or such Subsidiary) or are subordinated to the obligations of the
Company hereunder and under any Additional Debenture on terms satisfactory to
the Holder;
 
b) other than Permitted Liens or as permitted by Section 4(a), it shall not
enter into, create, incur, assume or suffer to exist any Liens of any kind, on
or with respect to any of its (or any Subsidiary’s) property or assets now owned
or hereafter acquired or any interest therein or any income or profits
therefrom;

c) it shall not amend its (or any Subsidiary’s) charter documents, including
without limitation, the certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of the Holder;

d) it and the Subsidiaries shall not engage in any business that is materially
different from that described in its SEC Reports filed with the Commission prior
to the Original Issue Date and all activities related thereto;

e) it shall not enter into any agreement with respect to any of the foregoing;

f) it shall permit the Holder, or its representative, at the Company’s expense,
to review and inspect the Company’s and each Subsidiary’s books, records, assets
and operations; and

g) it shall retain and utilize the services of two investor relations firms
satisfactory to the Holder.
 
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Section 5. Events of Default.

a) “Event of Default” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

i. any default in the payment of (A) the principal amount of this Debenture or
(B) interest or other amounts owing to the Holder on this Debenture within one
Trading Day as and when the same shall become due and payable (whether on the
Maturity Date or by acceleration or otherwise);
 
ii. the Company or any Subsidiary shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any other Transaction
Document to which it is a party which failure is not cured, if possible to cure,
within the earlier to occur of (A) two Trading Days after notice of such failure
sent by the Holder and (B) three Trading Days after the Company has become or
should have become aware of such failure;

iii. a default or event of default (subject to any grace or cure period provided
in the applicable agreement, document or instrument) shall occur under (A) any
of the Transaction Documents or (B) any other material agreement, lease,
document or instrument to which the Company or any Subsidiary is obligated (and
not covered by clause (vi) below);

iv. any representation or warranty made in this Debenture, any other Transaction
Documents, any written statement pursuant hereto or thereto or any other report,
financial statement or certificate made or delivered to the Holder or any other
Holder shall be untrue or incorrect in any material respect as of the date when
made or deemed made;

v. the Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;
 
vi. the Company or any Subsidiary shall default on any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that involves an obligation
greater than $50,000, whether such indebtedness now exists or shall hereafter be
created; or

vii. any monetary judgment, writ or similar final process shall be entered or
filed against the Company, any Subsidiary or any of their respective property or
other assets for more than $50,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

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b) Remedies Upon Event of Default. If any Event of Default hereunder occurs, the
outstanding Face Value plus accrued but unpaid interest and other amounts owing
in respect thereof through the date of acceleration, shall become, at the
Holder’s election, immediately due and payable. Commencing after the occurrence
of any Event of Default hereunder and during its continuance, the interest rate
on this Debenture shall accrue at an interest rate equal to 18.00% per annum. In
connection with such acceleration described herein, the Holder need not provide,
and the Company hereby waives, any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law and the Transaction Documents.
Such acceleration may be rescinded and annulled by Holder at any time prior to
payment hereunder and the Holder shall have all rights as a holder of the
Debenture until such time, if any, as the Holder receives full payment pursuant
to this Section 5(b). No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.

Section 6. Miscellaneous.

a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder shall be delivered as set forth in the
Securities Purchase Agreement.

b) Absolute Obligation. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and accrued interest, as
applicable, on this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct, unconditional and
secured debt obligation of the Company.
 
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, reasonably satisfactory to the
Company.

d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture 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 conflict of laws thereof.

e) Waiver. Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver by the Holder must be
in writing.

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f) Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law.

g) Next Business Day. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.

(Signature Page Follows)

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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by
a duly authorized officer as of the date first above indicated.
 
SYZYGY ENTERTAINMENT, LTD.
     
By:
Sean Sullivan
 
Name:
Sean Sullivan
 
Title:
President

 
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