Unassociated Document


    SECURITIES
      PURCHASE AGREEMENT

     

    SECURITIES
      PURCHASE AGREEMENT
      (the
      "Agreement"),
      dated
      as of July 7, 2008, by and between Green Screen Interactive Software, Inc.,
      a Delaware corporation, with headquarters located at 575 Broadway, New York,
      New
      York 10012 (the "Company"),
      and
      Driftwood Ventures, Inc. ("Buyer").
      

     

    WHEREAS:

     

    A. The
      Company and Buyer are executing and delivering this Agreement in reliance upon
      the exemption from securities registration afforded by Section 4(2) of the
      Securities Act of 1933, as amended (the "1933
      Act"),
      and
      Rule 506 of Regulation D ("Regulation D")
      as
      promulgated by the United States Securities and Exchange Commission (the
      "SEC")
      under
      the 1933 Act.

     

    B. The
      Company has authorized a new series of senior secured notes of the Company,
      in
      the form attached hereto as Exhibit
      A
      (the
“Notes”).

     

    C. Buyer
      wishes to purchase, and the Company wishes to sell, upon the terms and
      conditions stated in this Agreement, that aggregate principal amount of the
      Notes set forth opposite Buyer's name in column (3) on the Schedule of Buyers
      attached hereto (which aggregate amount shall be up to $7,000,000).

     

    D. The
      Notes
      are sometimes referred to herein as the "Securities".

     

    E. The
      Notes
      will rank senior to all outstanding and future indebtedness of the Company,
      subject to Permitted Indebtedness (as defined in the Notes) and will be secured
      by a perfected security interest in all of the assets of the Company (subject
      only to the security interest granted in connection with Existing Indebtedness)
      and the stock and assets of each of the Company's Subsidiaries (as defined
      below), as evidenced by the pledge agreement attached hereto as Exhibit
      B
      (the
      "Pledge
      Agreement")
      and
      the Security Agreement attached hereto as Exhibit
      C
      (the
      "Security
      Agreement")
      and
      the guarantee from each Subsidiary in the form attached hereto as Exhibit
      D
      (the
      "Guarantees",
      and
      together with the Pledge Agreement and the Security Agreement, collectively
      the
      "Security
      Documents").

     

    NOW,
      THEREFORE,
      the
      Company and Buyer hereby agree as follows:

     

    1. PURCHASE
      AND SALE OF NOTES; ADVANCES UNDER NOTES.

     

    (a) Purchase
      of Notes.

     

    (i) Notes. Subject
      to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
      7
      below, the Company shall issue and sell to Buyer, and Buyer agrees to purchase
      from the Company on the Closing Date (as defined below), a principal amount
      of
      Notes as is set forth opposite Buyer's name in column (3) on the Schedule of
      Buyers (the "Closing").

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ii) Closing.
      The
      date and time of the Closing (the "Closing
      Date")
      shall
      be 10:00 a.m., New York City time, on the date hereof.

     

    (iii) Purchase
      Price.
      The
      aggregate purchase price for the Notes to be purchased by Buyer at the Closing
      (the "Purchase
      Price")
      shall
      be the amount set forth opposite Buyer's name in column (5) of the Schedule
      of
      Buyers.

     

    (b) Form
      of Payment.
      On the
      Closing Date, (i) except as provided herein and in the Note, Buyer shall pay
      its
      Purchase Price to the Company for the Notes to be issued and sold to Buyer
      at
      the Closing, by wire transfer of immediately available funds in accordance
      with
      the Company's written wire instructions and (ii) the Company shall deliver
      to Buyer the Notes, duly executed on behalf of the Company and registered in
      the
      name of such Buyer or its designee. The Company acknowledges receipt of
      $3,028,888.89 as its first Advance (as defined below) under the Note, as payment
      of the Purchase Price ($1,000,000 of which will be sent to the Company and
      the
      remaining $2,028,888.89 will be sent by Buyer on behalf of the Company to
      Mandalay Media, Inc. for the repayment of the debt owed by the Company to
      Mandalay Media, Inc. 

     

    (c) Advances.
      Notwithstanding anything to the contrary contained herein or in the Notes,
      and
      subject to the terms and conditions of this Agreement and the Notes, and
      provided that no default has been declared under the Transaction Documents,
      the
      Buyer will lend the Company, from time to time until September 30, 2008 (the
      “Termination
      Date”),
      such
      sums as the Company may request, but which shall not exceed, in the aggregate
      principal amount $7,000,000 (the “Revolving
      Loan”).
      Subject to the foregoing limitations, the Company may borrow on a weekly basis,
      repay without penalty or premium, and reborrow amounts under this Section 1(c),
      from the date of this Agreement until the Termination Date, provided that any
      Advance made by the Buyer to the Company is contingent upon a mutually agreed
      upon budget for the use of such Advance by the Company, which agreement shall
      not be unreasonably withheld by Buyer. Notwithstanding the foregoing, Buyer
      may
      withhold its agreement if any portion of an Advance will be used for the payment
      of bonuses to any employees of the Company or its subsidiaries. 

     

    (d) Procedure
      for Advances.
      The
      Company may request Advances hereunder by written notice not later than 10:00
      a.m. New York City time on the date the Company proposes to receive an Advance.
      The Buyer shall not be required to honor a request for an Advance unless given
      by Ron Chaimowitz or such other Person or Persons as shall be so authorized
      by
      duly adopted resolutions of the board of directors of the Company from time
      to
      time, certified copies of which resolutions shall have been furnished to the
      Buyer. Subject to the terms and conditions of this Agreement and the Notes,
      and
      provided that no default has been declared under the Transaction Documents,
      the
      Buyer will make available to the Company the amount of such Advance, in United
      States Dollars and in immediately available funds on or before the second
      business day following the date of such request. For purposes of this Agreement,
      an “Advance”
means
      each loan of money or credit made to the Company by the Buyer pursuant to
      Section 1 of this Agreement. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    2. BUYER'S
      REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants that:


     

    (a) No
      Sale or Distribution.
      Buyer
      is acquiring the Notes for its own account and not with a view towards, or
      for
      resale in connection with, the public sale or distribution thereof, except
      pursuant to sales registered or exempted under the 1933 Act; provided, however,
      that by making the representations herein, Buyer does not agree to hold any
      of
      the Securities for any minimum or other specific term and reserves the right
      to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act and pursuant to the
      applicable terms of the Transaction Documents (as defined in Section 3(b)).
      Buyer does not presently have any agreement or understanding, directly or
      indirectly, with any Person to distribute any of the Securities.

     

    (b) Reliance
      on Exemptions.
      Buyer
      understands that the Securities are being offered and sold to it in reliance
      on
      specific exemptions from the registration requirements of United States federal
      and state securities laws and that the Company is relying in part upon the
      truth
      and accuracy of, and Buyer's compliance with, the representations, warranties,
      agreements, acknowledgments and understandings of such Buyer set forth herein
      in
      order to determine the availability of such exemptions and the eligibility
      of
      such Buyer to acquire the Securities.

     

    (c) Information.
      Buyer
      and its advisors, if any, have been furnished with all materials relating to
      the
      business, finances and operations of the Company and materials relating to
      the
      offer and sale of the Securities that have been requested by Buyer. Buyer and
      its advisors, if any, have been afforded the opportunity to ask questions of
      the
      Company. Neither such inquiries nor any other due diligence investigations
      conducted by Buyer or its advisors, if any, or its representatives shall modify,
      amend or affect Buyer's right to rely on the Company's representations and
      warranties contained herein. Buyer understands that its investment in the
      Securities involves a high degree of risk and is able to afford a complete
      loss
      of such investment. Buyer has sought such accounting, legal and tax advice
      as it
      has considered necessary to make an informed investment decision with respect
      to
      its acquisition of the Securities.

     

    (d) No
      Governmental Review.
      Buyer
      understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    (e) Transfer
      or Resale.
      Buyer
      understands that: (i) the Securities have not been and are not being registered
      under the 1933 Act or any state securities laws, and may not be offered for
      sale, sold, assigned or transferred unless (A) subsequently registered
      thereunder, (B) Buyer shall have delivered to the Company an opinion of counsel,
      in a generally acceptable form, to the effect that such Securities to be sold,
      assigned or transferred may be sold, assigned or transferred pursuant to an
      exemption from such registration, or (C) Buyer provides the Company with
      reasonable assurance that such Securities can be sold, assigned or transferred
      pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended,
      (or a successor rule thereto) (collectively, "Rule
      144");
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person (as defined in Section 3(s)) through whom the sale is made)
      may
      be deemed to be an underwriter (as that term is defined in the 1933 Act) may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      Person is under any obligation to register the Securities under the 1933 Act
      or
      any state securities laws or to comply with the terms and conditions of any
      exemption thereunder. The Securities may be pledged in connection with a bona
      fide margin account or other loan or financing arrangement secured by the
      Securities and such pledge of Securities shall not be deemed to be a transfer,
      sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
      of Securities shall be required to provide the Company with any notice thereof
      or otherwise make any delivery to the Company pursuant to this Agreement or
      any
      other Transaction Document (as defined in Section 3(b)), including without
      limitation, this Section 2(f).

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (f) Validity;
      Enforcement.
      This
      Agreement and the Security Documents to which Buyer is a party have been duly
      and validly authorized, executed and delivered on behalf of Buyer and shall
      constitute the legal, valid and binding obligations of Buyer enforceable against
      Buyer in accordance with their respective terms, except as such enforceability
      may be limited by general principles of equity or to applicable bankruptcy,
      insolvency, reorganization, moratorium, liquidation and other similar laws
      relating to, or affecting generally, the enforcement of applicable creditors'
      rights and remedies. 

     

    (g) No
      Conflicts.
      The
      execution, delivery and performance by Buyer of this Agreement and the Security
      Documents to which Buyer is a party and the consummation by Buyer of the
      transactions contemplated hereby and thereby will not (i) result in a violation
      of the organizational documents of Buyer or (ii) conflict with, or constitute
      a
      default (or an event which with notice or lapse of time or both would become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of, any agreement, indenture or instrument to
      which
      Buyer is a party, or (iii) result in a violation of any law, rule, regulation,
      order, judgment or decree (including federal and state securities laws)
      applicable to Buyer, except in the case of clauses (ii) and (iii) above, for
      such conflicts, defaults, rights or violations which would not, individually
      or
      in the aggregate, reasonably be expected to have a material adverse effect
      on
      the ability of Buyer to perform its obligations hereunder.

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY. The Company represents and warrants to Buyer
      that:

     

    (a) Organization
      and Qualification.
      The
      Company and its "Subsidiaries"
      (which
      for purposes of this Agreement means any entity in which the Company, directly
      or indirectly, owns more than 50% of the capital stock or holds an equity or
      similar interest) are entities duly organized and validly existing and, to
      the
      extent legally applicable, in good standing under the laws of the jurisdiction
      in which they are formed, and have the requisite power and authorization to
      own
      their properties and to carry on their business as now being conducted. Each
      of
      the Company and its Subsidiaries is duly qualified as a foreign entity to do
      business and to the extent legally applicable, is in good standing in every
      jurisdiction in which its ownership of property or the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have a Material
      Adverse Effect. As used in this Agreement, "Material
      Adverse Effect"
      means
      any material adverse effect on the business, properties, assets, operations,
      results of operations, condition (financial or otherwise) or prospects of the
      Company and its Subsidiaries, taken as a whole, or on the transactions
      contemplated hereby and the other Transaction Documents or by the agreements
      and
      instruments to be entered into in connection herewith or therewith, or on the
      authority or ability of the Company to perform its obligations under the
      Transaction Documents (as defined below). The Company has no Subsidiaries except
      as set forth on Schedule
      3(a).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (b) Authorization;
      Enforcement; Validity.
      The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under this Agreement, the Notes, the Security Documents
      and each of the other agreements entered into by the parties hereto in
      connection with the transactions contemplated by this Agreement (collectively,
      the "Transaction
      Documents")
      and
      the Agreement and Plan of Merger, by and among the Buyer, DFTW Merger Sub,
      Inc.
      and the Company, dated July 7, 2008 (the “Merger
      Agreement”),
      and
      to issue the Securities in accordance with the terms hereof and thereof. The
      execution and delivery of the Transaction Documents by the Company and the
      consummation by the Company of the transactions contemplated hereby and thereby,
      including, without limitation, the issuance of the Notes and the granting of
      a
      security interest in the Collateral (as defined in the Security Documents)
      have
      been duly authorized by the Company's Board of Directors and other than as
      set
      forth in Section 3(e), no further filing, consent or authorization is required
      by the Company, its Board of Directors or its stockholders. This Agreement
      and
      the other Transaction Documents of even date herewith have been duly executed
      and delivered by the Company, and constitute the legal, valid and binding
      obligations of the Company enforceable against the Company in accordance with
      their respective terms, except as such enforceability may be limited by general
      principles of equity or applicable bankruptcy, insolvency, reorganization,
      moratorium, liquidation or similar laws relating to, or affecting generally,
      the
      enforcement of applicable creditors' rights and remedies. 

     

    (c) Issuance
      of Securities.
      The
      issuance of the Notes are duly authorized and are free from all taxes, liens
      and
      charges with respect to the issue thereof. Assuming the accuracy of each of
      the
      representations and warranties set forth in Section 2 of this Agreement, the
      offer and issuance by the Company of the Securities is exempt from registration
      under the 1933 Act.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Notes and the
      granting of a security interest in the Collateral will not (i) result in a
      violation of any certificate of incorporation, certificate of formation, any
      certificate of designations or other constituent documents of the Company or
      any
      of is Subsidiaries, any capital stock of the Company or any of its Subsidiaries
      or bylaws of the Company or any of its Subsidiaries or (ii) conflict with,
      or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) in any respect under, or give to others any rights
      of
      termination, amendment, acceleration or cancellation of, any agreement,
      indenture or instrument to which the Company or any of its Subsidiaries is
      a
      party, or (iii) result in a violation of any law, rule, regulation, order,
      judgment or decree (including foreign, federal and state securities laws and
      regulations applicable to the Company or any of its Subsidiaries or by which
      any
      property or asset of the Company or any of its Subsidiaries is bound or
      affected. Buyer acknowledges and agrees that the execution, delivery and
      performance of the Transaction Documents themselves shall not be deemed a
      violation of the Merger Agreement, except as otherwise set forth in the Merger
      Agreement. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (e) Consents.
      Neither
      the Company nor any of its Subsidiaries is required to obtain any consent,
      authorization or order of, or make any filing or registration with, any court,
      governmental agency or any regulatory or self-regulatory agency or any other
      Person in order for it to execute, deliver or perform any of its obligations
      under or contemplated by the Transaction Documents, in each case in accordance
      with the terms hereof or thereof, except for the following consents,
      authorizations, orders, filings and registrations (none of which is required
      to
      be filed or obtained before the Closing): the filing of appropriate UCC
      financing statements with the appropriate states and other authorities pursuant
      to the Pledge and Security Agreement.

     

    (f) No
      General Solicitation; Placement Agent's Fees.
      Neither
      the Company, nor any of its affiliates, nor any Person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D) in connection with the offer or sale of
      the
      Securities. The Company shall be responsible for the payment of any placement
      agent's fees, financial advisory fees, or brokers' commissions (other than
      for
      persons engaged by any Buyer or its investment advisor) relating to or arising
      out of the transactions contemplated hereby. The Company has not engaged any
      placement agent or other agent in connection with the sale of the
      Securities.

     

    (g) Absence
      of Certain Changes.
      Since
      December 31, 2007, there has been no material adverse change and no material
      adverse development in the business, properties, operations, condition
      (financial or otherwise), results of operations or prospects of the Company
      or
      its Subsidiaries. Except as disclosed in Schedule
      3(g),
      since
      December 31, 2007, the Company has not (i) declared or paid any dividends,
      (ii)
      sold any assets, individually or in the aggregate, in excess of $100,000 outside
      of the ordinary course of business or (iii) had capital expenditures,
      individually or in the aggregate, in excess of $100,000. The Company has not
      taken any steps to seek protection pursuant to any bankruptcy law nor does
      the
      Company have any knowledge or reason to believe that its creditors intend to
      initiate involuntary bankruptcy proceedings or any actual knowledge of any
      fact
      that would reasonably lead a creditor to do so. The Company and its
      Subsidiaries, individually and on a consolidated basis, are not as of the date
      hereof, and after giving effect to the transactions contemplated hereby to
      occur
      at the Closing, will not be Insolvent (as defined below). For purposes of this
      Section 3(g), "Insolvent"
      means,
      with respect to any Person (as defined in Section 3(l)), (i) the present fair
      saleable value of such Person's assets is less than the amount required to
      pay
      such Person's total Indebtedness (as defined in Section 3(l)), (ii) such Person
      is unable to pay its debts and liabilities, subordinated, contingent or
      otherwise, as such debts and liabilities become absolute and matured, (iii)
      such
      Person intends to incur or believes that it will incur debts that would be
      beyond its ability to pay as such debts mature or (iv) such Person has
      unreasonably small capital with which to conduct the business in which it is
      engaged as such business is now conducted and is proposed to be
      conducted.

     

    (h) Conduct
      of Business; Regulatory Permits.
      Neither
      the Company nor its Subsidiaries is in violation of any term of or in default
      under its Certificate of Incorporation, any certificate of designations of
      any
      outstanding series of preferred stock of the Company or Bylaws or their
      organizational charter or bylaws, respectively. Neither the Company nor any
      of
      its Subsidiaries is in violation of any judgment, decree or order or any
      statute, ordinance, rule or regulation applicable to the Company or its
      Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
      its business in violation of any of the foregoing, except for possible
      violations which could not, individually or in the aggregate, reasonably be
      expected to have a Material Adverse Effect. The Company and its Subsidiaries
      possess all certificates, authorizations and permits issued by the appropriate
      regulatory authorities necessary to conduct their respective businesses, except
      where the failure to possess such certificates, authorizations or permits would
      not have, individually or in the aggregate, a Material Adverse Effect, and
      neither the Company nor any such Subsidiary has received any notice of
      proceedings relating to the revocation or modification of any such certificate,
      authorization or permit.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (i) Foreign
      Corrupt Practices.
      Neither
      the Company, nor any of its Subsidiaries, nor any director, officer, agent,
      employee or other Person acting on behalf of the Company or any of its
      Subsidiaries has, in the course of its actions for, or on behalf of, the Company
      or any of its Subsidiaries (i) used any corporate funds for any unlawful
      contribution, gift, entertainment or other unlawful expenses relating to
      political activity; (ii) made any direct or indirect unlawful payment to any
      foreign or domestic government official or employee from corporate funds; (iii)
      violated or is in violation of any provision of the U.S. Foreign Corrupt
      Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    (j) Transactions
      With Affiliates.
      None of
      the officers, directors or employees of the Company or any of its Subsidiaries
      is presently a party to any transaction with the Company or any of its
      Subsidiaries (other than for ordinary course services as employees, officers
      or
      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 such
      officer, director or employee or, to the knowledge of the Company, any
      corporation, partnership, trust or other entity in which any such officer,
      director, or employee has a substantial interest or is an officer, director,
      trustee or partner.

     

    (k) Equity
      Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of
      50,000,000 shares of common stock, par value $0.0001 per share (“Common
      Stock”)
      of
      which as of the date hereof, 3,694,737 are issued and outstanding, 10,000,000
      shares of preferred stock, of which as of the date hereof, no shares are issued
      and outstanding, 354,605 shares are reserved for issuance pursuant to the
      Company's stock option and purchase plans and 246,243 shares are reserved for
      issuance pursuant to securities (other than the aforementioned options and
      the
      Notes) exercisable or exchangeable for, or convertible into, shares of Common
      Stock. All of such outstanding shares have been, or upon issuance will be,
      validly issued and are fully paid and nonassessable. Except as disclosed in
      Schedule
      3(k):
      (i)
      none of the Company's capital stock is subject to preemptive rights or any
      other
      similar rights or any liens or encumbrances suffered or permitted by the
      Company; (ii) there are no outstanding options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its Subsidiaries, or contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      Subsidiaries is or may become bound to issue additional capital stock of the
      Company or any of its Subsidiaries or options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its Subsidiaries; (iii) there are no
      outstanding debt securities, notes, credit agreements, credit facilities or
      other agreements, documents or instruments evidencing Indebtedness of the
      Company or any of its Subsidiaries or by which the Company or any of its
      Subsidiaries is or may become bound; (iv) there are no financing statements
      securing obligations in any material amounts, either singly or in the aggregate,
      filed in connection with the Company or any of its Subsidiaries; (v) there
      are
      no agreements or arrangements under which the Company or any of its Subsidiaries
      is obligated to register the sale of any of their securities under the 1933
      Act;
      (vi) there are no outstanding securities or instruments of the Company or any
      of
      its Subsidiaries which contain any redemption or similar provisions, and there
      are no contracts, commitments, understandings or arrangements by which the
      Company or any of its Subsidiaries is or may become bound to redeem a security
      of the Company or any of its Subsidiaries; (vii) there are no securities or
      instruments containing anti-dilution or similar provisions that will be
      triggered by the issuance of the Securities; (viii) the Company does not have
      any stock appreciation rights or "phantom stock" plans or agreements or any
      similar plan or agreement; and (ix) the Company and its Subsidiaries have no
      liabilities or obligations, other than those incurred in the ordinary course
      of
      the Company's or its Subsidiaries' respective businesses and which, individually
      or in the aggregate, do not or would not have a Material Adverse Effect. The
      Company has furnished to the Buyer true, correct and complete copies of the
      Company's Certificate of Incorporation, as amended and as in effect on the
      date
      hereof (the "Certificate
      of Incorporation"),
      and
      the Company's Bylaws, as amended and as in effect on the date hereof (the
      "Bylaws"),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (l) Indebtedness
      and Other Contracts.
      Except
      as disclosed in Schedule
      3(l),
      neither
      the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
      (as
      defined below), (ii) is a party to any contract, agreement or instrument, the
      violation of which, or default under which, by the other party(ies) to such
      contract, agreement or instrument could reasonably be expected to result in
      a
      Material Adverse Effect, (iii) is in violation of any term of or in default
      under any contract, agreement or instrument relating to any Indebtedness, except
      where such violations and defaults would not result, individually or in the
      aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
      agreement or instrument relating to any Indebtedness, the performance of which,
      in the judgment of the Company's officers, has or is expected to have a Material
      Adverse Effect. Schedule
      3(l)
      provides
      a detailed description of the material terms of any such outstanding
      Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
      of any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services, including (without limitation) "capital leases" in
      accordance with generally accepted accounting principles (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of property, assets or businesses, (E) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by any Person, even though the Person which
      owns such assets or property has not assumed or become liable for the payment
      of
      such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; (y) "Contingent
      Obligation"
      means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto; and (z) "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (m) Absence
      of Litigation.
      Except
      as set forth in Schedule
      3(m),
      there
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      or, to the knowledge of the Company, threatened against or affecting the Company
      or any of its Subsidiaries, the Common Stock or any of the Company's
      Subsidiaries or any of the Company's or its Subsidiaries' officers or directors.
      

     

    (n) Insurance.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such Subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and when
      such coverage expires or to obtain similar coverage from similar insurers as
      may
      be necessary to continue its business at a cost that would not have a Material
      Adverse Effect. 

     

    (o) Employee
      Relations.
      Neither
      the Company nor any of its Subsidiaries is a party to any collective bargaining
      agreement or employs any member of a union. The Company and its Subsidiaries
      believe that their relations with their employees are good. No executive officer
      of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
      1933
      Act) has notified the Company or any of such Subsidiary that such officer
      intends to leave the Company or any of such Subsidiary or otherwise terminate
      such officer's employment with the Company or any of such Subsidiary. No
      executive officer of the Company or any of its Subsidiaries, is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement,
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company or any of its Subsidiaries to any liability with respect
      to
      any of the foregoing matters.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (ii) The
      Company and its Subsidiaries are in compliance with all federal, state, local
      and foreign laws and regulations respecting labor, employment and employment
      practices and benefits, terms and conditions of employment and wages and hours,
      except where failure to be in compliance would not, either individually or
      in
      the aggregate, reasonably be expected to result in a Material Adverse
      Effect.

     

    (p) Title.
      The
      Company and its Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and its Subsidiaries,
      in
      each case free and clear of all liens, encumbrances and defects such as are
      described in Schedule
      3(p)
      or such
      as do not materially affect the value of such property and do not interfere
      with
      the use made and proposed to be made of such property by the Company and any
      of
      its Subsidiaries. Any real property and facilities held under lease by the
      Company and any of its Subsidiaries are held by them under valid, subsisting
      and
      enforceable leases with such exceptions as are not material and do not interfere
      with the use made and proposed to be made of such property and buildings by
      the
      Company and its Subsidiaries.

     

    (q) Intellectual
      Property Rights.
      The
      Company and its Subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, service marks and all applications and registrations therefor,
      trade names, patents, patent rights, copyrights, original works of authorship,
      inventions, trade secrets and other intellectual property rights ("Intellectual
      Property Rights")
      necessary to conduct their respective businesses as now conducted. None of
      the
      Company's registered, or applied for, Intellectual Property Rights have expired
      or terminated or have been abandoned, or are expected to expire or terminate
      or
      expected to be abandoned, within three years from the date of this Agreement.
      The Company does not have any knowledge of any infringement by the Company
      or
      its Subsidiaries of Intellectual Property Rights of others. There is no claim,
      action or proceeding being made or brought, or to the knowledge of the Company,
      being threatened, against the Company or its Subsidiaries regarding its
      Intellectual Property Rights. The Company is unaware of any facts or
      circumstances which might give rise to any of the foregoing infringements or
      claims, actions or proceedings. The Company and its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of all of their Intellectual Property Rights.

     

    (r) Environmental
      Laws.
      The
      Company and its Subsidiaries (i) are in compliance with any and all
      Environmental Laws (as hereinafter defined), (ii) have received all permits,
      licenses or other approvals required of them under applicable Environmental
      Laws
      to conduct their respective businesses and (iii) are in compliance with all
      terms and conditions of any such permit, license or approval where, in each
      of
      the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
      reasonably expected to have, individually or in the aggregate, a Material
      Adverse Effect. The term "Environmental
      Laws"
      means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants, contaminants, or toxic or
      hazardous substances or wastes (collectively, "Hazardous
      Materials") into
      the
      environment, or otherwise relating to the manufacture, processing, distribution,
      use, treatment, storage, disposal, transport or handling of Hazardous Materials,
      as well as all authorizations, codes, decrees, demands or demand letters,
      injunctions, judgments, licenses, notices or notice letters, orders, permits,
      plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (s) Subsidiary
      Rights.
      The
      Company or one of its Subsidiaries has the unrestricted right to vote, and
      (subject to limitations imposed by applicable law) to receive dividends and
      distributions on, all capital securities of its Subsidiaries as owned by the
      Company or such Subsidiary.

     

    (t) Tax
      Status.
      The
      Company and each of its Subsidiaries (i) has made or filed all foreign, federal
      and state income and all other tax returns, reports and declarations required
      by
      any jurisdiction to which it is subject, (ii) has paid all taxes and other
      governmental assessments and charges that are material in amount, shown or
      determined to be due on such returns, reports and declarations, except those
      being contested in good faith and (iii) has set aside on its books provision
      reasonably adequate for the payment of all taxes for periods subsequent to
      the
      periods to which such returns, reports or declarations apply. There are no
      unpaid taxes in any material amount claimed to be due by the taxing authority
      of
      any jurisdiction, and the officers of the Company know of no basis for any
      such
      claim.

     

    (u) Internal
      Accounting and Disclosure Controls.
      The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management's general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset and liability accountability, (iii) access to assets or
      incurrence of liabilities is permitted only in accordance with management's
      general or specific authorization and (iv) the recorded accountability for
      assets and liabilities is compared with the existing assets and liabilities
      at
      reasonable intervals and appropriate action is taken with respect to any
      difference.

     

    (v) Ranking
      of Notes.
      Except
      as set forth on Schedule
      3(v),
      no
      Indebtedness of the Company is senior to or ranks pari
      passu
      with the
      Notes in right of payment, whether with respect of payment of redemptions,
      interest, damages or upon liquidation or dissolution or otherwise.

     

    (w) Investment
      Company Status.
      The
      Company is not, and upon consummation of the sale of the Securities will not
      be,
      an "investment company," a company controlled by an "investment company" or
      an
      "affiliated person" of, or "promoter" or "principal underwriter" for, an
      "investment company" as such terms are defined in the Investment Company Act
      of
      1940, as amended.

     

    (x) Disclosure.
      The
      Company understands and confirms that the Buyer will rely on the foregoing
      representations in effecting transactions in securities of the Company. All
      disclosure provided to the Buyer regarding the Company, its business and the
      transactions contemplated hereby, including the Schedules to this Agreement,
      furnished by or on behalf of the Company is true and correct and does 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 the light of
      the
      circumstances under which they were made, not misleading.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    4. COVENANTS.

     

    (a) Form
      D
      and Blue Sky.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to Buyer promptly after such filing.
      The Company shall, on or before the Closing Date, take such action as the
      Company shall reasonably determine is necessary in order to obtain an exemption
      for or to qualify the Securities for sale to the Buyer at the Closing pursuant
      to this Agreement under applicable securities or "Blue Sky" laws of the states
      of the United States (or to obtain an exemption from such qualification), and
      shall provide evidence of any such action so taken to the Buyers on or prior
      to
      the Closing Date. The Company shall make all filings and reports relating to
      the
      offer and sale of the Securities required under applicable securities or "Blue
      Sky" laws of the states of the United States following the Closing
      Date.

     

    (b) Use
      of
      Proceeds; Budget.
      The
      Company will use the proceeds from the sale of the Securities solely as
      contemplated under Section 1(c) and for the repayment of the debt owed to
      Mandalay Media, Inc. 

     

    (c) Financial
      Information.
      The
      Company shall deliver to the Buyer quarterly financial statements within 45
      days after quarter-end, and annual financial statements within 90 days of
      year-end. In addition, Buyer shall receive monthly statements of cash flow
      for the immediately preceding month and projections of cash flow for the next
      month within 10 days of the end of each calendar month.

     

    (d) Restriction
      on Redemption and Cash Dividends.
      So long
      as any Notes are outstanding, the Company shall not, directly or indirectly,
      redeem, or declare or pay any cash dividend or distribution on, the Common
      Stock
      without the prior express written consent of the holders of Notes representing
      not less than a majority of the aggregate principal amount of the then
      outstanding Notes.

     

    (e) Additional
      Notes; Variable Securities.
      So long
      as Buyer beneficially owns any Securities, the Company will not issue any Notes
      other than to the Buyer as contemplated hereby and the Company shall not issue
      any other securities that would cause a breach or default under the Notes.
      Except as contemplated by the Merger Agreement, for so long as any Notes remain
      outstanding, the Company shall not, in any manner, issue or sell any rights,
      warrants or options to subscribe for or purchase Common Stock or directly or
      indirectly convertible into or exchangeable or exercisable for Common Stock.
      

     

    (f) Corporate
      Existence.
      So long
      as Buyer beneficially owns any Securities, and except with respect to the Merger
      Agreement, the Company shall not be party to any Fundamental Transaction (as
      defined in the Notes) unless the Company is in compliance with the applicable
      provisions governing Fundamental Transactions set forth in the
      Notes.

     

    (g) Conduct
      of Business.
      The
      business of the Company and its Subsidiaries shall not be conducted in violation
      of any law, ordinance or regulation of any governmental entity, except where
      such violations would not result, either individually or in the aggregate,
      in a
      Material Adverse Effect.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (h) Additional
      Issuances of Securities.

     

    (i) For
      purposes of this Section 4(i), the following definitions shall
      apply.

     

    (A) "Convertible
      Securities"
      means
      any stock or securities (other than Options) convertible into or exercisable
      or
      exchangeable for shares of Common
      Stock.

     

    (B) "Options"
      means
      any rights, warrants or options to subscribe for or purchase shares of
Common
      Stock or
      Convertible Securities.

     

    (C) "Common
      Stock Equivalents"
      means,
      collectively, Options and Convertible Securities.

     

    (ii) From
      the
      date hereof until the Notes are paid in full, except to the extent as
      contemplated by the Merger Agreement, the Company will not, directly or
      indirectly, offer, sell, grant any option to purchase, or otherwise dispose
      of
      (or announce any offer, sale, grant or any option to purchase or other
      disposition of) any of its or its Subsidiaries' equity or equity equivalent
      securities, including without limitation any debt, preferred stock or other
      instrument or security that is, at any time during its life and under any
      circumstances, convertible into or exchangeable or exercisable for shares of
      Common Stock or Common Stock Equivalents (any such offer, sale, grant,
      disposition or announcement being referred to as a "Subsequent
      Placement").

     

    (i) Incurrence
      of Liens.
      So long
      as any Notes are outstanding, the Company shall not, directly or indirectly,
      allow or suffer to exist any Lien, other than Permitted Liens (as defined in
      the
      Notes), upon any property or assets (including accounts and contract rights)
      owned by the Company.

     

    5. [INTENTIONALLY
      LEFT BLANK].

     

    6. CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder
      to issue and sell the Notes to Buyer at the Closing is subject to the
      satisfaction, at or before the Closing Date, of each of the following
      conditions, provided that these conditions are for the Company's sole benefit
      and may be waived by the Company at any time in its sole discretion by providing
      Buyer with prior written notice thereof:

     

    (a) Buyer
      shall have executed each of the Transaction Documents to which it is a party
      and
      delivered the same to the Company

     

    (b) Buyer
      shall have delivered to the Company the Purchase Price, in accordance with
      the
      terms hereof and the Note by wire transfer of immediately available funds
      pursuant to the wire instructions provided by the Company.

     

    (c) The
      representations and warranties of Buyer shall be true and correct in all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date), and Buyer shall have performed, satisfied and complied
      in all material respects with the covenants, agreements and conditions required
      by this Agreement to be performed, satisfied or complied with by Buyer at or
      prior to the Closing Date.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    7. CONDITIONS
      TO BUYER'S OBLIGATION TO PURCHASE. The obligation of Buyer hereunder to
      purchase the Notes at the Closing is subject to the satisfaction, at or before
      the Closing Date, of each of the following conditions, provided that these
      conditions are for Buyer's sole benefit and may be waived by Buyer at any time
      in its sole discretion by providing the Company with prior written notice
      thereof:

     

    (a) The
      Company shall have duly executed and delivered to Buyer (i) each of the
      Transaction Documents and (ii) the Notes, being purchased by Buyer at the
      Closing pursuant to this Agreement. 

     

    (b) Such
      Buyer shall have received the opinion of the Company's outside counsel, dated
      as
      of the Closing Date, in substantially the form of Exhibit
      E
      attached
      hereto.

     

    (c) The
      Company shall have delivered to such Buyer a certificate evidencing the
      formation and good standing of the Company and each of its Subsidiaries in
      such
      entity's jurisdiction of formation issued by the Secretary of State (or
      comparable office) of such jurisdiction, as of a date within 10 days of the
      Closing Date.

     

    (d) The
      Company shall have delivered to such Buyer a certificate evidencing the
      Company's qualification as a foreign corporation and good standing issued by
      the
      Secretary of State of the State of Delaware (or comparable office) of each
      jurisdiction in which the Company conducts business, each as of a date within
      10
      days of the Closing Date.

     

    (e) The
      Company shall have delivered to such Buyer a certificate, executed by the
      Secretary of the Company and dated as of the Closing Date, as to (i) the
      resolutions consistent with Section 3(b) as adopted by the Company's Board
      of
      Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the Closing in the
      form
      attached hereto as Exhibit
      F.

     

    (f) The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except for those representations and warranties that are
      qualified by materiality or Material Adverse Effect, which shall be true and
      correct in all respects) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date) and the Company shall have performed, satisfied and
      complied in all material respects with the covenants, agreements and conditions
      required by the Transaction Documents to be performed, satisfied or complied
      with by the Company at or prior to the Closing Date. Buyer shall have received
      a
      certificate, executed by the Chief Executive Officer of the Company, dated
      as of
      the Closing Date, to the foregoing effect and as to such other matters as may
      be
      reasonably requested by Buyer in the form attached hereto as Exhibit
      G.

     

    (g) The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for the sale of the Securities.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (h) In
      accordance with the terms of the Security Documents, the Company shall
      have:

     

    (i) filed
      such financing statements and other documents in such offices as the Buyer
      may
      request to perfect the security interests granted by the Security Agreement
      (it
      being understood that in no event shall financing statements be filed against
      fixtures in the local jurisdictions of their location); and

     

    (ii) delivered
      to the Buyer all certificates evidencing any of the Pledged Shares (as defined
      in the Pledge Agreement), accompanied by undated stock or other powers duly
      executed in blank.

     

    (i) The
      Company shall have delivered to Buyer such other documents relating to the
      transactions contemplated by this Agreement as Buyer or its counsel may
      reasonably request.

     

    8. INTENTIONALL
      LEFT BLANK.

     

    9. MISCELLANEOUS.

     

    (a) Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) that would
      cause the application of the laws of any jurisdictions other than the State
      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, 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 brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. 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 to such party at the address for such notices to it
      under
      this Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY. 

     

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (c) Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    (e) Entire
      Agreement; Amendments.
      This
      Agreement and the other Transaction Documents supersede all other prior oral
      or
      written agreements between the Buyers, the Company, their affiliates and Persons
      acting on their behalf with respect to the matters discussed herein, and this
      Agreement, the other Transaction Documents and the instruments referenced herein
      and therein contain the entire understanding of the parties with respect to
      the
      matters covered herein and therein and, except as specifically set forth herein
      or therein, neither the Company nor Buyer makes any representation, warranty,
      covenant or undertaking with respect to such matters. No provision of this
      Agreement may be amended other than by an instrument in writing signed by the
      Company and Buyer. No provision hereof may be waived other than by an instrument
      in writing signed by the party against whom enforcement is sought. No such
      amendment shall be effective to the extent that it applies to less than all
      of
      the holders of the applicable Securities then outstanding. 

     

    (f) Notices.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of transmission is
      mechanically or electronically generated and kept on file by the sending party);
      or (iii) one Business Day after deposit with an overnight courier service,
      in
      each case properly addressed to the party to receive the same. The addresses
      and
      facsimile numbers for such communications shall be:

     

    If
      to the
      Company:

     

    575
      Broadway 

    New
      York,
      New York 10012

    Telephone:
      (212) 400-4856

    Attention: Chief
      Executive Officer

    


    with
      a
      copy to:

     

    Paul
      Berg, Esq.

    Berkowitz,
      Trager & Trager, LLC

    8
      Wright
      Street

    Westport,
      Connecticut 06880

    Telephone:
      (203) 291-8220

    Facsimile:
      (203) 226-3801


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    


    If
      to
      Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
      with copies to such Buyer's representatives as set forth on the Schedule of
      Buyers

     

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such change. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender's facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by an
      overnight courier service shall be rebuttable evidence of personal service,
      receipt by facsimile or receipt from an overnight courier service in accordance
      with clause (i), (ii) or (iii) above, respectively.

     

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns, including any purchasers of the Notes.
      The Company shall not assign this Agreement or any rights or obligations
      hereunder without the prior written consent of the Buyer. Buyer may assign
      some
      or all of its rights hereunder without the consent of the Company, in which
      event such assignee shall be deemed to be Buyer hereunder with respect to such
      assigned rights

     

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    (i) Survival.
      The
      representations and warranties of the Company and the Buyer contained in
      Sections 2 and 3, and the agreements and covenants set forth in Sections 4,
      5
      and 9 shall survive the Closing. Buyer shall be responsible only for its own
      representations, warranties, agreements and covenants hereunder.

     

    (j) Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as any other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (k) Indemnification.
      In
      consideration of Buyer's execution and delivery of the Transaction Documents
      and
      acquiring the Securities thereunder and in addition to all of the Company's
      other obligations under the Transaction Documents, the Company shall defend,
      protect, indemnify and hold harmless each Buyer and each other holder of the
      Securities and all of their stockholders, partners, members, officers,
      directors, employees and direct or indirect investors and any of the foregoing
      Persons' agents or other representatives (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the "Indemnitees")
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys' fees
      and disbursements (the "Indemnified
      Liabilities"),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (a)
      any misrepresentation or breach of any representation or warranty made by the
      Company in the Transaction Documents or any other certificate, instrument or
      document contemplated hereby or thereby, (b) any breach of any covenant,
      agreement or obligation of the Company contained in the Transaction Documents
      or
      any other certificate, instrument or document contemplated hereby or thereby
      or
      (c) any cause of action, suit or claim brought or made against such Indemnitee
      by a third party (including for these purposes a derivative action brought
      on
      behalf of the Company) and arising out of or resulting from (i) the execution,
      delivery, performance or enforcement of the Transaction Documents or any other
      certificate, instrument or document contemplated hereby or thereby, (ii) any
      transaction financed or to be financed in whole or in part, directly or
      indirectly, with the proceeds of the issuance of the Securities, (iii) any
      disclosure made by Buyer pursuant to Section 4(h), or (iv) the status of Buyer
      or holder of the Securities as an investor in the Company pursuant to the
      transactions contemplated by the Transaction Documents. To the extent that
      the
      foregoing undertaking by the Company may be unenforceable for any reason, the
      Company shall make the maximum contribution to the payment and satisfaction
      of
      each of the Indemnified Liabilities that is permissible under applicable
      law.

     

    (l) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    (m) Remedies.
      Each
      Buyer and each holder of the Securities shall have all rights and remedies
      set
      forth in the Transaction Documents and all rights and remedies which such
      holders have been granted at any time under any other agreement or contract
      and
      all of the rights which such holders have under any law. Any Person having
      any
      rights under any provision of this Agreement shall be entitled to enforce such
      rights specifically (without posting a bond or other security), to recover
      damages by reason of any breach of any provision of this Agreement and to
      exercise all other rights granted by law. Furthermore, the Company recognizes
      that in the event that it fails to perform, observe, or discharge any or all
      of
      its obligations under the Transaction Documents, any remedy at law may prove
      to
      be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
      shall be entitled to seek temporary and permanent injunctive relief in any
      such
      case without the necessity of proving actual damages and without posting a
      bond
      or other security.

     

    (n) Rescission
      and
      Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever Buyer 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 Buyer 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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

     

    (o) Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to Buyer hereunder or
      pursuant to any of the other Transaction Documents or the Buyer enforces or
      exercises its rights hereunder or 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, foreign, 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.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      Buyer
      and the Company have caused their respective signature page to this Securities
      Purchase Agreement to be duly executed as of the date first written
      above.

     

    
      	 	
              COMPANY:

            
	 	
               

               

              GREEN
                SCREEN INTERACTIVE SOFTWARE, INC.

              


              By:
                /s/
                Ron Chaimowitz

              Name:
                Ron
                Chaimowitz

              Title:
                Chief Executive Officer

            


    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    


    IN
      WITNESS WHEREOF,
      Buyer
      and the Company have caused their respective signature page to this Securities
      Purchase Agreement to be duly executed as of the date first written
      above.

     

    
      	 	
              BUYER:

            
	 	 

              DRIFTWOOD
                VENTURES, INC.

              


              By:
                /s/
                Charles Bentz

              Name:
                Charles
                Bentz

              Title:
                Chief
                Financial Officer

            


    

    


    
      
        
        

      

      
        
          [Signature
            Page to Securities Purchase Agreement]

        

        
          

        

      

      
        
        

      

    

    


    SCHEDULE
      OF BUYERS

    


    
      	
              (1)

            	 	
              (2)

            	 	
              (3)

            	 	
              (4)

            	 	
              (5)

            	 
	
               

              Buyer

            	 	
               

              Address
                and Facsimile Number

            	 	
              Principal
                Amount of Notes

            	 	
              Purchase
                Price

            	 	
               

              Legal
                Representative's

              Address
                and Facsimile Number

            
	 	 	 	 	 	 	 	 	 
	
              Driftwood
                Ventures, Inc.

            	 	
              2121
                Avenue of the Stars, 25th
                Floor

              Los
                Angeles, CA 90067 

              Facsimile:
                (310) 277-2741

              Telephone:
                (310) 601-2500

            	 	
              $

            	
              7,000,000

            	 	
              $

            	
              7,000,000

            	 	
              Mintz
                Levin

               

              666
                Third Avenue

              New
                York, New York 10022

              Attention:
                Kenneth Koch, Esq.

              Facsimile:
                (212) 983-3115

              Telephone:
                (212) 692-6768

            


    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    EXHIBITS

    


    
      	Exhibit
              A	
              Form
                of Notes

            


    

    
      	Exhibit
              B	
              Form
                of Pledge Agreement

            


    

    
      	Exhibit
              C	
              Form
                of Security Agreement

            


    

    
      	Exhibit
              D	
              Form
                of Guarantee

            


    

    
      	Exhibit
              E	
              Form
                of Opinion of Company’s Counsel

            


    

    
      	Exhibit
              F	
              Form
                of Secretary's Certificate

            


    

    
      	Exhibit
              G	
              Form
                of Officers Certificate

            


    

    


    


    SCHEDULES

     

    
      	Schedule
              3(a)	
              Subsidiaries

            


    

    
      	Schedule
              3(l)	
              Absence
                of Certain Changes

            


    

    
      	Schedule
              3(q)	
              Transactions
                with Affiliates

            


    

    
      	Schedule

              3(r)	
              Equity
                Capitalization

            


    

    
      	Schedule
              3(s)	
              Indebtedness
                and Other Contracts

            


    

    
      	Schedule
              3(t)	
              Absence
                of Litigation

            


    

    
      	Schedule
              3(w)	
              Title

            


    

    
      	Schedule
              3(cc)	
              Ranking
                of Notes

            


    

    
      	Schedule
              4(d)	
              Use
                of Proceeds