Document:

SOUND FEDERAL SAVINGS

              AMENDED AND RESTATED SEVERANCE PLAN FOR KEY EMPLOYEES

                          Effective on January 1, 2005

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                              SOUND FEDERAL SAVINGS

              AMENDED AND RESTATED SEVERANCE PLAN FOR KEY EMPLOYEES

                                    ARTICLE I

                                     PURPOSE

     Section 1.1 Statement of Purpose

     Sound Federal  Savings adopts this Severance Plan for Key Employees for the
benefit of its eligible  employees and those of other  Participating  Employers.
The Bank recognizes that it may be subject to the possibility of a negotiated or
unsolicited  Change of Control which may result in a loss of employment for some
of its Key  Employees.  The purpose of the Plan is to  encourage  the Bank's Key
Employees  and those of other  Participating  Employers to continue  working for
their employers with their full time and attention  devoted to their  employer's
affairs by providing  prescribed income security and benefit continuation in the
event of an Involuntary Severance following a Change of Control.

     Section 1.2 Other Severance Plans, Policies, and Practices Superseded

     As of the Effective  Date,  this Plan  supersedes in its entirety any plan,
policy,  or practice of the Bank for the provision of severance  benefits to Key
Employees  in the  event of  termination  of  employment  following  a Change of
Control,  whether written or oral or formal or informal.  No severance  benefits
shall be provided to any person who incurs a termination of employment  with the
Bank on or after the  Effective  Date  following a Change of Control,  except as
provided under the terms of the Plan or as provided under the terms of a written
executed employment agreement specifically providing for the payment of benefits
following  termination  of  employment  with  the  Bank or  other  Participating
Employer.

                                   ARTICLE II

                                   DEFINITIONS

     For  purposes of the Plan,  the  following  terms  shall have the  meanings
assigned to them below,  unless a different  meaning is plainly indicated by the
context:

     Section 2.1 Affiliated  Employer means the Bank; any corporation which is a
member of a controlled  group of  corporations  (as defined in section 414(b) of
the  Code)  that  includes  the  Bank;  any trade or  business  (whether  or not
incorporated)  that is under common control (as defined in section 414(c) of the
Code) with the Bank; any organization  (whether or not  incorporated)  that is a
member of an affiliated service group (as defined in section 414(m) of the Code)
that includes the Bank; any leasing  organization  (as defined in section 414(n)
of the Code) to the extent that any of its  employees  are required  pursuant to
section 414(n) of the Code to be treated as employees of the Bank; and any other
entity that is required to be aggregated  with the Bank pursuant to  regulations
under section 414(o) of the Code.

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     Section 2.2 Bank means Sound Federal Savings.

     Section  2.3 Base  Salary  means,  for any Key  Employee  as of any date of
reference, the Key Employee's annual rate of base salary.

     Section 2.4 Board means the Board of  Directors of Sound  Federal  Savings.

     Section 2.5 Cause  means,  with respect to the conduct of a Key Employee in
connection  with  his  employment  with  any  Participating  Employer,  personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal  profit,  intentional  failure to  perform  stated  duties,  or willful
violation  of any law,  rule or  regulation  (other than traffic  violations  or
similar offenses) or final cease and desist order, or any material breach of any
material  provision  of this Plan,  in each case as measured  against  standards
generally  prevailing at the relevant time in the  community  banking  industry;
provided,  however,  that, solely for purposes of the Plan, a Key Employee shall
not be deemed to have been  discharged  for Cause unless and until the Committee
determines  (after  reasonable  notice  to the  Key  Employee  and a  reasonable
opportunity for the Key Employee to make oral and written  presentations  to the
Committee, on his own behalf, or through a representative,  who may be his legal
counsel,  to refute the grounds for the  proposed  determination)  that  grounds
exist for discharging the Key Employee for "Cause".  No act or failure to act on
the part of the Key Employee  shall be  considered  "willful"  unless  done,  or
omitted to be done, by the Key Employee not in good faith and without reasonable
belief that the Key  Employee's  action or omission was in the best  interest of
the Bank.

     Section 2.6 Change of Control shall be deemed to have occurred at such time
as (a) any  "person"  (as the term is used in  Sections  13(d)  and l4(d) of the
Securities  Exchange Act of 1934 ("Exchange Act")) is or becomes the "beneficial
owner"  (as  defined  in  Rule  l3d-3  under  the  Exchange  Act),  directly  or
indirectly,  of  securities  of the  Company  representing  25% or  more  of the
combined  voting power of the Company's  outstanding  securities  except for any
securities  purchased by the Bank's  employee stock  ownership plan or trust; or
(b)  individuals  who  constitute  the Board on the date hereof (the  "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least  three-quarters  of the directors  comprising
the  Incumbent  Board,  or  whose  nomination  for  election  by  the  Company's
stockholders  was approved by the same  Nominating  Committee  serving  under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a  member  of the  Incumbent  Board;  or (c)  consummation  of a plan of
reorganization,  merger,  consolidation,  sale of all or  substantially  all the
assets of the Bank or the  Company or similar  transaction  unless,  immediately
following such  transaction,  at least a majority of the members of the board of
directors or other  governing  body of the  resulting  or  surviving  entity are
individuals who were members of the Board  immediately  prior to the transaction
and equity interests representing at least a majority of the voting power in the
election  of  directors  or other  members  of the board of  directors  or other
governing  board of the  resulting  or surviving  entity are owned,  immediately
following  such  transaction,  by persons who owned  common stock of the Company
immediately  prior to such  transaction and in  substantially  the same relative
proportions as their ownership of common stock of the Company  immediately prior
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to such transaction; or (d) consummation of a tender offer pursuant to which the
shareholders  owning  beneficially  or of record 25% or more of the  outstanding
securities  of the Company have  tendered  their shares  pursuant to such tender
offer and such tendered shares have been accepted by the tender offeror;  or (e)
consummation  of a  dissolution  or  complete  liquidation  of the  Bank  or the
Company,  or  shareholder  approval  of a plan for the  dissolution  or complete
liquidation of the Bank or the Company.

     Section 2.7 Code Section 409A Key Employee  means a "key  employee"  within
the meaning of section 409A of the Internal Revenue Code of 1986.

     Section 2.8  Committee  means the  Benefits  Committee  of the Bank or such
other  person or entity as the Board may  specify to  perform  the duties of the
Committee under the Plan; provided,  however, that following a Change of Control
the Committee  shall consist  exclusively  of those  individuals  serving on the
Committee  immediately prior to the Change of Control and such other individuals
as may be appointed by the incumbent members of the Committee.

     Section 2.9 Company means Sound Federal Bancorp, Inc.

     Section 2.10 Effective Date means January 1, 2005.

     Section 2.11 Key Employee means an employee of a Participating  Employer at
the level of Assistant Vice President or above,  other than: (a) a person who is
classified as an "independent  contractor" by a  Participating  Employer even if
considered an employee under applicable law; (b) an employee receiving long-term
disability  benefits;  (c) a person who is  employed on a  temporary,  seasonal,
"peak-period"  or other  irregular  basis; or (d) a person who has an employment
contract,  change of control agreement,  special termination  agreement or other
agreement or arrangement with the Bank or who is covered by other programs which
provide  severance  benefits as a multiple of  compensation or base salary or by
their terms exclude such person from participation in this Plan.

     Section 2.12 FDI Act means the Federal  Deposit  Insurance Act, as the same
may be  amended  from  time to time,  and the  corresponding  provisions  of any
successor statute.

     Section 2.13 Involuntary  Severance means (a) the discharge or dismissal of
a Key  Employee  by a  Participating  Employer  other  than  for  Cause;  or (b)
termination  of  employment  at a  Key  Employee's  election  after  any  action
following  a Change of  Control  which,  either  alone or  together  with  other
actions,  results in: (i) the  material  reduction  of the Key  Employee's  base
compensation  or benefits;  (ii) the relocation of the Key Employee's  principal
place of employment by more than 30 miles from its location immediately prior to
the Change in Control;  or (iii) a material adverse change in the Key Employee's
title, position or responsibilities at a Participating Employer.

     Section  2.14  Participating  Employer  means the Bank and its wholly owned
subsidiaries and any successor thereto and any other Affiliated  Employer which,
with the prior  written  approval  of the Board and  subject  to such  terms and
conditions as may be imposed by the Board, shall adopt this Plan.

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     Section  2.15 Plan means this Sound  Federal  Savings  Amended and Restated
Severance Plan for Key Employees, as the same may be amended from time to time.

     Section 2.16 Separation  from Service means  separation from service within
the meaning of section 409A of the Internal Revenue Code of 1986.

     Section 2.17  Severance  Period means (a) in the case of a Key Employee who
is a Vice  President,  a  number  of  months  equal  to the  number  of the  Key
Employee's  Years of  Service,  but in no event less than  twelve (12) months or
more than twenty-four (24) months;  and (b) in the case of a Key Employee who is
an Assistant Vice  President,  a number of months equal to the number of the Key
Employee's  Years of  Service,  but in no event less than six (6) months or more
than twenty four (24) months.

     Section 2.18 Years of Service  means years of service as an employee of the
Bank or any other Participating Employer. For all purposes of the Plan, Years of
Service shall be measured in whole years,  and partial years shall be rounded up
or down, as applicable.

                                   ARTICLE III

                                    BENEFITS

     Section 3.1 Severance Benefits for Key Employees.

     (a) A Key Employee whose  employment  with all  Participating  Employers is
terminated under circumstances  constituting an Involuntary  Severance and whose
termination  occurs  upon or within  twelve  (12)  months  following a Change of
Control  shall be entitled to the following  benefits:  a lump sum payment in an
amount equal to one twelfth of the Key Employee's Base Salary at the time of the
Change of Control or Involuntary Severance,  whichever is higher,  multiplied by
the number of the Key Employee's Years of Service; provided, however, that in no
event shall any Key Employee who is a Vice  President  receive as severance  pay
under this Plan a lump sum payment  representing  less than one hundred  percent
(100%) of Base Salary or more than two hundred  percent  (200%) of Base  Salary,
and in no event  shall  any Key  Employee  who is an  Assistant  Vice  President
receive as severance  pay under this Plan a lump sum payment  representing  less
than fifty percent (50%) of Base Salary or more than two hundred  percent (200%)
of Base Salary. Except as provided in section 3.4, the lump sum shall be due and
payable on the date of the Key Employee's Involuntary Severance. Notwithstanding
anything  in the  Plan  to the  contrary:  (a) if a Key  Employee's  Involuntary
Severance  occurs prior to his Separation  from Service,  his severance  benefit
shall be deferred until and shall be payable on the date of his Separation  from
Service and (b) if a Key Employee is also a Code Section 409A Key Employee,  his
severance  benefit shall be deferred until and shall be payable in a lump sum on
the  six-month  anniversary  of the later of his  Involuntary  Severance  or his
Separation from Service.  Any severance  benefit that is not paid in full within
eight (8) calendar days following the  recipient's  Involuntary  Severance shall
accrue  interest  at the rate of 6% per  annum,  credited  daily and  compounded
annually, from the date of Involuntary Severance to the actual date of payment.

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     (b)  Notwithstanding  the  preceding  paragraphs of this section 3.1, in no
event shall the benefits payable hereunder,  when aggregated with other benefits
subject to Section 280G of the  Internal  Revenue  Code of 1986,  constitute  an
"excess  parachute  payment" under Section 280G of the Internal  Revenue Code of
1986 or any successor thereto, and in order to avoid such a result, the benefits
payable  hereunder  will be reduced,  if necessary,  to an amount,  the value of
which is one dollar  ($1.00) less than the amount which would be  considered  an
excess parachute payment.

     Section 3.2 Insurance Benefits.

     A Key Employee who is eligible for  severance  benefits  under  section 3.1
shall also be  eligible  for  continuation  of  coverage  under any group  life,
medical,  dental and other plans which  constitute  "group health plans" (within
the meaning of section 607(1) of ERISA) for a period equal to the Key Employee's
Severance Period.  Such coverage shall be substantially  comparable and on terms
and  conditions  (including,  but  not  limited  to,  coverage  of  spouses  and
dependents and any  premium-sharing  arrangements)  no less favorable to the Key
Employee than those in effect immediately prior to his Involuntary Severance. If
the Key Employee is eligible for a  continuation  of coverage under this section
3.2 and a continuation of coverage under applicable federal, state or local law,
the periods of coverage shall run concurrently.

     Section 3.3 Vesting.

     The benefits to be provided under sections 3.1 and 3.2 of the Plan shall be
completely vested and nonforfeitable upon the occurrence of a Change of Control.

     Section 3.4 Benefits  Contingent on Execution of Release.  The provision of
severance  benefits  under the Plan to any Key Employee  shall be subject to the
condition  that  the Key  Employee  execute  and  deliver  to the  Committee  an
instrument, in such form as the Committee shall prescribe, which shall include a
release in favor of the Participating  Employers and their officers,  employees,
agents,  owners,  heirs,  successors and assigns for certain  employment-related
claims.  Such  release  shall  include,  but not be limited to, a release of any
claims which the Key Employee may have against any Participating  Employer under
the Age  Discrimination  in Employment  Act of 1967, as amended;  the Fair Labor
Standards Act, as amended;  the Worker  Adjustment  Retraining and  Notification
Act,  as amended;  the Civil  Rights Act of 1866,  as amended;  Title VII of the
Civil Rights Act of 1964, as amended; and any other federal, state or local law,
rule or regulation  under which the Key Employee may have a claim arising out of
his  employment  with a  Participating  Employer  or  the  termination  of  such
employment.  No  Participating  Employer  shall have any  obligation  to provide
benefits  under this Plan to any Key  Employee  who fails or refuses,  following
request in writing made within five (5) business  days after the Key  Employee's
Involuntary  Severance or the  occurrence  of a Change of Control  (whichever is
later) to sign and deliver such a release.  If a request for a release is timely
made, the Participating Employers' obligation to provide benefits under the Plan
shall be deferred  until such release has been executed and delivered by the Key
Employee  and any period  during  which the Key  Employee  has a legal  right to
revoke the release has expired.
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     Section 3.5 Withholding.

     Payments from this Plan shall be subject to all applicable  federal,  state
and local income withholding taxes.

                                   ARTICLE IV

                                 ADMINISTRATION

     Section 4.1 Named Fiduciaries.

     The term  "Named  Fiduciary"  shall  mean  (but  only to the  extent of the
responsibilities of each of them) the Plan Administrator,  the Committee and any
person or entity  named as a fiduciary  pursuant  to the  written  documentation
pertaining  to the Plan.  This  Article IV is intended to allocate to each Named
Fiduciary the responsibility for the prudent execution of the functions assigned
to him or it,  and none of such  responsibilities  or any  other  responsibility
shall be shared by two or more of such  Named  Fiduciaries.  Whenever  one Named
Fiduciary  is required  by the Plan to follow the  directions  of another  Named
Fiduciary, the two Named Fiduciaries shall not be deemed to have been assigned a
shared responsibility,  but the responsibility of the Named Fiduciary giving the
directions shall be deemed his sole  responsibility,  and the  responsibility of
the Named Fiduciary  receiving those  directions shall be to follow them insofar
as such instructions are on their face proper under applicable law.

     Section 4.2 Benefits Committee.

     (a) There  shall be a  Benefits  Committee,  consisting  of not less than 3
individuals  who shall be appointed by the Chief  Executive  Officer of the Bank
and who shall accept such  appointment  by  delivering a written  notice of such
acceptance to the Chief  Executive  Officer as hereinafter  provided;  provided,
however,  that  following the  occurrence  of a Change of Control,  the Benefits
Committee  shall consist solely of those  individuals  serving as members of the
Committee immediately prior to the Change in Control who consent to so serve and
any additional  individuals appointed from time to time by the incumbent members
of the  Committee.  The  Committee  shall have the  powers and  responsibilities
enumerated in section  4.2(c).  The Committee  shall elect a Chairman who shall,
and may appoint a  Secretary  who need not,  be a member of the  Committee.  Any
filing  which is required or permitted  to be made with the  Committee  shall be
deemed to be  satisfactorily  made upon mailing or delivering such filing to the
Secretary of the Committee, or, if a Secretary is not appointed, to the Chairman
of the  Committee.  A member of the Committee may resign only by giving at least
thirty (30) days' prior written  notice of  resignation  to the Committee and to
the Chairman of the Board, and such  resignation  shall be effective on the date
specified in such notice.

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     (b) The  Committee  shall  hold  meetings  at such  times and may make such
administrative  rules as it may deem  proper.  Except  as  provided  in the last
sentence of this  section  4.2(b),  any action of the  Committee  shall be taken
pursuant to a majority  vote taken at a meeting,  or  pursuant to the  unanimous
consent of its members without a meeting,  and such action shall  constitute the
action  of the  Committee  and  shall be  binding  in the same  manner as if all
members of the  Committee had joined  therein.  A majority of the members of the
Committee shall  constitute a quorum.  The Committee shall record minutes of any
actions taken at its meetings or of any other  official  action of the Committee
and  shall  report to the Board at least  once each year on its  activities.  No
member of the Committee who would be affected by a particular  matter upon which
the  Committee is scheduled  to act shall be  permitted  to  participate  in the
Committee's  action with  respect to such matter,  nor shall he be  considered a
member of the Committee for purposes of determining the existence of a quorum or
a majority or  unanimous  vote with  respect to such  action,  unless all of the
members of the  Committee  are  affected  thereby.  Any person  dealing with the
Committee  shall  be  fully  protected  in  relying  upon  any  written  notice,
instruction,  direction or other  communication  signed by the  Secretary of the
Committee or by two (2) of the members of the  Committee or by a  representative
of the Committee authorized by the Committee to sign the same in its behalf.

     (c) The Committee shall,  subject to the  responsibilities of the Board and
the terms and conditions of the Plan, have the following responsibilities:

     (i)  To review the performance of the Plan Administrator;

     (ii) To hear and decide appeals, pursuant to the claims procedure contained
          in  Article  V of the  Plan,  taken  from  the  decisions  of the Plan
          Administrator;

     (iii) To hear and decide questions,  including  interpretation of the Plan,
          as may be referred to the Committee by the Plan Administrator;

     (iv) To report and make  recommendations  to the Board regarding changes in
          the Plan,  including  changes in the operation  and  management of the
          Plan;

     (v)  To  designate an alternate  Plan  Administrator  to serve in the event
          that the  Administrator is absent or otherwise unable to discharge his
          responsibilities;

     (vi) To remove and replace the Plan Administrator or alternate,  or both of
          them, and to fill a vacancy in either office;

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     (vii) To discharge such other responsibilities or follow such directions as
          may be  assigned or given by the Board,  consistent  with the terms of
          the Plan; and

     (viii) To perform  any duty or take any action  which is  allocated  to the
          Committee under the Plan.

The Committee  shall have the power and authority  necessary or  appropriate  to
carry out its responsibilities.

     Section 4.3 Plan Administrator.

     There shall be a Plan  Administrator,  who shall be the Committee,  or such
person,  committee  or entity as shall be appointed  by the  Committee,  and who
shall,  subject to the responsibilities of the Committee and the Board, have the
responsibility   for  the   day-to-day   control,   management,   operation  and
administration of the Plan (except trust duties).  The Plan Administrator  shall
have the following responsibilities:

               (a)  To  maintain  records   necessary  or  appropriate  for  the
          administration of the Plan;

               (b) To give and receive such instructions,  notices, information,
          materials,   reports  and   certifications  as  may  be  necessary  or
          appropriate in the administration of the Plan;

               (c) To prescribe forms and make rules and regulations  consistent
          with the  terms of the Plan  and with the  interpretations  and  other
          actions of the Committee;

               (d) To require  such proof or other  evidence as to any matter as
          may be necessary or appropriate in the administration of the Plan;

               (e) To prepare and file,  distribute or furnish all reports, plan
          descriptions,  and other information  concerning the Plan,  including,
          without  limitation,  communications  with  Key  Employees  and  other
          persons;

               (f) To determine  any  question  arising in  connection  with the
          Plan,  and the Plan  Administrator's  decision  or action  in  respect
          thereof shall be final and  conclusive  and binding upon the Bank, Key
          Employees,  and any other  person  having an interest  under the Plan;
          provided,  however,  that any question  relating to  inconsistency  or
          omission in the Plan, or interpretation of the provisions of the Plan,
          shall be referred to the Committee by the Plan  Administrator  and the
          decision of the Committee in respect thereof shall be final;

               (g) Subject to the provisions of Article V, to review and dispose
          of claims under the Plan filed pursuant to Article V;

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               (h) If the Plan  Administrator  shall determine that by reason of
          illness,   senility,   insanity,  or  for  any  other  reason,  it  is
          undesirable to make any payment to a Key Employee, or any other person
          entitled  thereto,  to direct the application of any amount so payable
          to the use or  benefit of such  person in any manner  that he may deem
          advisable  or to  direct  in his  discretion  the  withholding  of any
          payment under the Plan due to any person under legal  disability until
          a representative competent to receive such payment in his behalf shall
          be appointed pursuant to law;

               (i) To  discharge  such  other  responsibilities  or follow  such
          directions  as may be assigned or given by the Committee or the Board,
          consistent with the terms of the Plan; and

               (j) To perform any duty or take any action  which is allocated to
          the Plan Administrator under the Plan.

The  Plan  Administrator  shall  have  the  power  and  authority  necessary  or
appropriate to carry out his responsibilities. The Plan Administrator may resign
only by giving at least 30 days'  prior  written  notice of  resignation  to the
Committee, and such resignation shall be effective on the date specified in such
notice.

     Section 4.4  Allocation  of Fiduciary  Responsibilities  and  Employment of
Advisors.

     Any Named Fiduciary may:

               (a)  allocate  any of his or  its  responsibilities  (other  than
          trustee  responsibilities)  under  the Plan to such  other  person  or
          persons as he or it may designate,  provided that such  allocation and
          designation  shall  be  made  in  writing  and  filed  with  the  Plan
          Administrator;

               (b) employ one or more persons to render advice to him or it with
          regard to any of his or its responsibilities under the Plan; and

               (c) consult with counsel, who may be counsel to the Bank.

     Section 4.5 Other Administrative Provisions.

     (a) Any person whose claim has been denied in whole or in part must exhaust
the administrative  review procedures  provided in Article V prior to initiating
any claim for judicial review.

     (b) No bond or other  security  shall be  required  of a member of the Plan
Administrator,  the Committee and/or any officer or employee of the Bank to whom
fiduciary responsibilities are allocated by a Named Fiduciary,  except as may be
required by applicable law.

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     (c) Subject to any  limitation on the  application  of this section  4.5(c)
pursuant to applicable law, neither the Plan Administrator nor any member of the
Committee   nor  any  officer  or  employee  of  the  Bank  to  whom   fiduciary
responsibilities are allocated by a Named Fiduciary, shall be liable for any act
of omission or commission by himself or by another  person,  except each for his
own individual willful and intentional malfeasance.

     (d) The Plan  Administrator  or the Committee  may,  except with respect to
actions under Article V or as otherwise  provided by law, shorten or extend (but
not beyond  sixty (60) days) or waive the time  required  by the Plan for filing
any  notice  or  other  form  with  the  Plan  Administrator  or  Committee,  as
applicable, or taking any other action under the Plan.

     (e) The Plan  Administrator  or the  Committee may direct that the costs of
services provided pursuant to section 4.4, and such other reasonable expenses as
may be  incurred  in the  administration  of the Plan,  shall be paid out of the
funds of the Plan, unless the Bank shall pay them.

     (f) Any person,  group of persons,  committee,  corporation or organization
may serve in more than one fiduciary capacity with respect to the Plan.

     (g) Any action taken or omitted by the Plan  Administrator or the Committee
with respect to the Plan, including any decision, interpretation,  claims denial
or  review  on  appeal,  shall be  conclusive  and  binding  on the Bank and all
interested  parties  and shall be subject to judicial  modification  or reversal
only to the extent  determined  by a court of competent  jurisdiction  that such
action or omission was arbitrary and capricious and contrary to the terms of the
Plan.

     (h) The Participating Employers, jointly and severally, shall indemnify the
Committee,  its members and the Plan Administrator  against, and defend them and
hold them harmless from, any and all losses,  costs,  expenses,  liabilities and
exposures of any name and nature  whatsoever which they may suffer or incur as a
result of service,  including acts or omissions to act, as Plan Administrator or
as  a  member  of  the   Committee.   Following  a  Change  of   Control,   such
indemnification,  defense and hold  harmless  shall be to an extent and on terms
and conditions no less favorable to the Committee members and Plan Administrator
than those in effect immediately prior to the Change of Control.

     (i) The  Participating  Employers  shall  purchase and maintain a customary
policy  of  insurance   insuring  the  Committee,   its  members  and  the  Plan
Administrator against losses, costs, expenses,  liabilities and exposures of any
name and  nature  whatsoever  which  they  may  suffer  or incur as a result  of
service,  including  acts or  omissions  to act, as Plan  Administrator  or as a
member of the Committee.  Following a Change of Control, such insurance coverage
indemnification,  defense and hold  harmless  shall be to an extent and on terms
and conditions no less favorable to the Committee members and Plan Administrator
than those in effect immediately prior to the Change of Control.

                                       10

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                                    ARTICLE V

                           BENEFIT CLAIMS AND APPEALS

     Section 5.1 General Procedures.

     (a) (i) Any claim  relating to benefits  under the Plan shall be filed with
the Plan Administrator on a form prescribed by it. The Plan Administrator  shall
appoint a person to  review  and make a  determination  on the  claim.  The Plan
Administrator  shall  give the  claimant  written  notice of the  determination.
Except as provided in section 5.1(a)(ii),  a notice of determination (whether or
not adverse) on a claim under this section shall be given not later than 90 days
after receipt.

     (ii)  If  the  Plan  Administrator  finds  it  necessary,  due  to  special
circumstances  (for example,  the claimant's  failure to provide all information
required  to process  the claim or the need to hold a  hearing),  to extend this
period and so notifies the claimant in writing,  the decision  shall be rendered
as soon as  practicable,  but in no event later than 180 days after receipt of a
claim. Any notice of such an extension shall be in writing, shall be made within
the initial claim  determination  period,  and shall specify the reasons for the
extension and the date by which a decision on review is expected to be rendered.

     (iii) The notice of determination of a claim filed under this section shall
specifically set forth:

          (A) The reasons for the denial; and

          (B) The pertinent Plan provisions on which the denial was based; and

          (C) Any additional material or information  necessary for the claimant
     to perfect his claim and an explanation of why such material or information
     is needed; and

          (D) An explanation of the Plan's procedure for review of the denial of
     the claim, the time limits  applicable to such procedure and a statement of
     the claimant's right to bring a civil action to recover benefits due to him
     under the terms of the Plan and any other civil action under section 502(a)
     of ERISA following an adverse benefit determination on review.

     If a claimant does not receive a written notice of the determination of the
claim on or before the date prescribed by this section  5.1(a),  the claim shall
be deemed as having been denied on such date for the purpose of  permitting  the
claimant to request review of the claim.

                                       11

<page>
     (b) (i) Any person  whose claim filed  pursuant to section  5.1(a) has been
denied in whole or in part may  request  review  of the claim by the  Committee,
upon a form prescribed by the Committee.  The review shall not afford  deference
to the initial adverse benefit determination.  The claimant shall file such form
with the  Committee  no later than 60 days after the  claimant's  receipt of the
written notice of denial provided for in section  5.1(a),  or, if such notice is
not  provided,  within 60 days  after such claim is deemed  denied  pursuant  to
section  5.1(a).  The  claimant  may include  with such form  written  comments,
documents,  records,  and other information  relevant to the claim for benefits.
The  claimant  shall be provided,  upon  request and free of charge,  reasonable
access to and copies of all documents, records and other information relevant to
the claims. The review shall take into account the comments,  documents, records
and other  information  submitted  by the  claimant  and  relevant to the claim,
without regard to whether such  information  was submitted or considered as part
of the initial  claim  determination.  A decision on review shall be rendered by
the Committee and  communicated to the claimant by written notice.  Such written
notice  shall be given not later than 60 days after  receipt of the  request for
review.

     (ii) If the Committee finds it necessary, due to special circumstances (for
example, the need to hold a hearing),  to extend this period and so notifies the
claimant in writing, the decision shall be rendered as soon as practicable,  but
in no event  later than 120 days  after  receipt of a request  for  review.  Any
notice  of such an  extension  shall be in  writing,  shall be made  within  the
initial  claim  determination  period,  and shall  specify  the  reasons for the
extension and the date by which a decision on review is expected to be rendered.

     (iii) The notice of determination  contemplated by section  5.1(b)(i) shall
specifically set forth:

          (A) The reasons for the denial; and

          (B) The pertinent Plan provisions on which the denial was based; and

          (C) A statement that the claimant is entitled to receive, upon request
     and free of  charge,  reasonable  access  to,  and  copies  of,  documents,
     records,  and  other  information  relevant  to the  claimant's  claim  for
     benefits; and

          (D) An explanation of any voluntary  appeals process offered under the
     Plan and the claimant's  right to receive  information  concerning any such
     procedures and a statement of the claimant's  right to bring a civil action
     under section 502(a) of ERISA following an adverse benefit determination on
     review.

     Section 5.2 Appointment of Representatives.

     (a) A person filing a claim for benefits,  or filing a request for a review
of an adverse benefit determination,  may appoint a representative to act on the
claimant's behalf in any such proceeding.  Any such appointment shall be made by
written  notice to the Plan  Administrator  which shall  contain  the  following

                                       12
<Page>

information:   the  appointee's  name,  street,   mailing  and  electronic  mail
addresses,   voice  telephone  and  facsimile   telephone   numbers,  a  general
description  of the  matters  in which the  designated  representative  has been
authorized  to act in the  claimant's  behalf  and the  specific  acts which the
designated  representative  is  authorized  to perform in  connection  with such
matter.  The notice shall be signed by the claimant to evidence his agreement to
the   appointment  and  the   representative   to  evidence  his  acceptance  of
appointment,  and each signature shall be  acknowledged  before a notary public.
Following  receipt of such notice,  the Plan  Administrator,  the  Committee and
their designees shall be entitled to rely without further investigation upon the
authority of the designated  representative to act on the claimant's behalf in a
manner  consistent  with the terms of the notice  unless  and until it  receives
subsequent written notice to the contrary.

     (b) Notwithstanding section 5.2(a), if the Plan Administrator determines to
its satisfaction  that a claimant has been  determined,  by a court of competent
jurisdiction,  to be incapable of attending to his own affairs in respect of his
benefit  entitlements  under the Plan, the Plan  Administrator and the Committee
shall accept as evidence of a third party's  authority to act in the  claimant's
behalf any document or other  evidence or any  customary  document or instrument
issued pursuant to applicable state law.

     Section 5.3 Electronic Communications.

     Any written notice or other written communication  required or permitted to
be given by the Plan  Administrator  or Committee shall be deemed properly given
if given  electronically  to an electronic mail address provided by the claimant
or  his  authorized  representative,  or,  if no  authorized  representative  is
appointed,  to an  electronic  mail  address  provided  to the  claimant  by the
Employer  and  customarily  used to provide  notices to the claimant on employee
relations  matters;  provided,  however,  that:  (a) the Plan  Administrator  or
Committee,  as  applicable,  shall take  appropriate  and necessary  measures to
assure that the system for furnishing electronic  communications  results in the
addressee's  actual receipt of electronically  transmitted  documents;  (b) each
prospective recipient of electronically transmitted documents is provided notice
of the nature of the documents to be furnished electronically,  the significance
of the  documents  and the  recipient's  right to request and  receive,  free of
charge,  a paper  copy of each such  document;  and (c) upon  request,  the Plan
Administrator or Committee,  as applicable,  actually  furnishes a paper copy of
such document.

                                   ARTICLE VI

                  AMENDMENT, TERMINATION AND TAX QUALIFICATION

     Section 6.1 Amendment and Termination.

     The Bank  expects  to  continue  the Plan  indefinitely,  but  specifically
reserves the right, in its sole discretion,  at any time, by appropriate  action
of the Board or its designees or delegates,  to amend,  in whole or in part, any
or all of the  provisions  of the Plan and to  terminate  the Plan at any  time.

                                       13
<Page>

Following the occurrence of a Change in Control,  the Plan may not be amended or
terminated without the prior written consent of the Committee.  Any amendment or
termination of the Plan shall conform to the requirements of section 409A of the
Internal Revenue Code of 1986 and the regulations promulgated thereunder.

     Section 6.2 Amendment or Termination Other than by the Bank.

     In the event that an  Affiliated  Employer  shall  adopt  this  Plan,  such
Affiliated  Employer shall,  by adopting the Plan,  empower the Bank to amend or
terminate  the Plan,  insofar as it shall  cover  employees  of such  Affiliated
Employer,  upon the terms and  conditions  set forth in section  6.1;  provided,
however,  that any such  Affiliated  Employer  may,  by  action  of its board of
directors or other  governing body,  amend or terminate the Plan,  insofar as it
shall cover employees of such Affiliated  Employer,  at different times and in a
different manner. In the event of any such amendment or termination by action of
the board of directors or other  governing body of such Affiliated  Employer,  a
separate plan shall be deemed to have been established for the employees of such
Affiliated Employer.

                                   ARTICLE VII

                            MISCELLANEOUS PROVISIONS

     Section 7.1 Governing Law.

     (a) The Plan shall be construed,  administered,  and enforced  according to
the laws of the State of New York without  giving  effect to the conflict of law
principles thereof, except to the extent that such laws are preempted by federal
law.

     (b) Any dispute or  controversy  arising under or in  connection  with this
Plan shall be settled  exclusively by arbitration,  conducted  before a panel of
three  arbitrators  sitting in a location  selected by the Key  Employee  within
fifty (50) miles from the location of the Bank, in accordance  with the rules of
the American Arbitration  Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
subject to section  3.2  hereof,  the Key  Employee  shall be  entitled  to seek
specific  performance of his right to be paid during the pendency of any dispute
or controversy arising under or in connection with this Plan.

     Section 7.2 No Right to Continued Employment.

     Neither the  establishment  of the Plan,  nor any  provisions  of the Plan,
shall be held or  construed  to  confer  upon any Key  Employee  any  right to a
continuation  of employment by the Bank.  The Bank reserves the right to dismiss
any Key Employee or  otherwise  deal with any Key Employee to the same extent as
though the Plan had not been adopted.

                                       14
<page>

     Section 7.3 Construction of Language.

     Wherever appropriate in the Plan, words used in the singular may be read in
the  plural,  words used in the plural  may be read in the  singular,  and words
importing  the  masculine  gender  include  the  feminine  and the  neuter.  Any
reference  to an Article or section  number shall refer to an Article or section
of the Plan, unless otherwise indicated.

     Section 7.4 Headings.

     The headings of Articles and sections are included  solely for  convenience
of reference. If there is any conflict between such headings and the text of the
Plan, the text shall control.

     Section    7.5   Status   as   Welfare    Benefit    Plan   Under    ERISA.

     This Plan is an  "employee  welfare  benefit  plan"  within the  meaning of
section 3(1) of the Employee  Retirement Income Security Act of 1974, as amended
("ERISA") and shall be  construed,  administered  and enforced  according to the
provisions of ERISA.

     Section 7.6 Successors and Assigns.

     The Bank  shall  require  any  successor  or  assignee,  whether  direct or
indirect,  by  purchase,   merger,   consolidation  or  otherwise,   to  all  or
substantially   all  the  business  or  assets  of  the  Bank,   expressly   and
unconditionally to assume and agree to perform the Bank's obligations under this
Plan,  in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.

     Section 7.7 Source of Payments.

     All payments  provided in this Plan shall be paid in cash or check from the
general  funds  of the  Bank.  The  Company,  however,  guarantees  payment  and
provision  of all amounts and benefits due  hereunder to Key  Employees  and, if
such  amounts and  benefits due from the Bank are not timely paid or provided by
the Bank, such amounts and benefits shall be paid or provided by the Company.

     Section 7.8 Effect on Existing Benefit Plans.

     This Plan shall not affect or operate to reduce any benefit or compensation
inuring to the Key Employee of a kind elsewhere  provided.  No provision of this
Plan shall be  interpreted to mean that the Key Employee is subject to receiving
fewer benefits than those available to him without reference to this Plan.

                                       15
<Page>

     Section 7.9 Required Provisions.

     (a) The Bank may terminate the Key Employee's employment at any time. A Key
Employee shall not have the right to receive  compensation or other benefits for
any period after Termination for Cause as defined in section 2.5 hereinabove.

     (b) If the  Key  Employee  is  suspended  from  office  and/or  temporarily
prohibited from  participating  in the conduct of the Bank's affairs by a notice
served  under  Section  8(e)(3)  (12  USC  ss.1818(e)(3))  or  8(g)(1)  (12  USC
ss.1818(g)(1))  of the FDI Act, the Bank's  obligations under this Plan shall be
suspended as of the date of service,  unless stayed by appropriate  proceedings.
If the charges in the notice are  dismissed,  the Bank may in its discretion (i)
pay the Key Employee all or part of the compensation withheld while its contract
obligations  were  suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.

     (c) If the Key  Employee  is removed  and/or  permanently  prohibited  from
participating  in the  conduct of the Bank's  affairs by an order  issued  under
Section 8(e)(4) (12 USC ss.1818(e)(4)) or 8(g) (1) (12 USC ss.1818(g)(1)) of the
FDI Act, all  obligations of the Bank under this Plan shall  terminate as of the
effective date of the order, but vested rights of the contracting  parties shall
not be affected.

     (d) If the  Bank is in  default  as  defined  in  Section  3(x)(i)  (12 USC
ss.1813(x)(1)) of the FDI Act, all obligations of the Bank under this Plan shall
terminate  as of the date of default,  but this  paragraph  shall not affect any
vested rights of the contracting parties.

     (e) All obligations of the Bank under this Plan shall be terminated, except
to the extent  determined  that  continuation  of the Plan is necessary  for the
continued  operation  of the Bank,  (i) by the  Director of the Office of Thrift
Supervision ("Director") or his or her designee, at the time the Federal Deposit
Insurance  Corporation  enters into an agreement to provide  assistance to or on
behalf of the Bank  under  the  authority  contained  in  Section  13(c) (12 USC
ss.1823(c))  of the FDI Act; or (ii) by the  Director or his or her  designee at
the time the Director or his or her designee  approves a  supervisory  merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the  Director  to be in an unsafe or  unsound  condition.  Any  rights of the
parties that have already vested, however, shall not be affected by such action.

     (f) Notwithstanding anything herein contained to the contrary, any payments
to the Key Employee by the Bank, whether pursuant to this Plan or otherwise, are
subject to and conditioned  upon their  compliance with Section 18(k) of the FDI
Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12
C.F.R. Part 359.

The vested  rights of the parties  shall not be  affected.  If and to the extent
that any of the foregoing  provisions is not, or shall cease to be,  required by
applicable  law, rule or  regulation,  the same shall become  inoperative in the
case of the Bank as though eliminated by formal amendment of this Plan.

                                       16
<Page>

     Section 7.10  Conformity  to Section  409A of the Internal  Revenue Code of
1986.

     The Plan is intended to be a  non-qualified  termination  pay plan to which
Section 409A of the  Internal  Revenue  Code of 1986 is not  applicable.  To the
extent it is subsequently  determined that the Plan is a non-qualified  deferred
compensation  plan to which Section 409A of the Internal Revenue Code of 1986 is
applicable,  the Plan shall be  operated,  administered  and  construed so as to
conform to the  requirements  of Section  409A.  In addition,  the Plan shall be
subject to amendment,  with or without advance notice to Participants  and other
interested parties, and on a prospective or retroactive basis, including but not
limited  to  amendment  in  a  manner  that  adversely  affects  the  rights  of
Participants  and other  interested  parties,  to the extent necessary to effect
such compliance.<PAGE>

                                                                    EXHIBIT 10.1

                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

            THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT is made as of
September 21, 2005, by and among PowerHouse Technologies Group, Inc. (the
"COMPANY"), a corporation organized under the laws of the State of Delaware,
with its principal offices at 555 Twin Dolphin Drive, Redwood City, California,
and the purchaser whose name and address is set forth on the signature page
hereof (the "PURCHASER").

            IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:

            SECTION 1. Authorization of Sale of the Shares and Warrants. Subject
to the terms and conditions of this Agreement, the Company has authorized (i)
the sale of up to 23,033,463 shares (the "SHARES") of common stock, par value
$0.0001 per share (the "COMMON STOCK"), of the Company, (ii) the issuance of
warrants in substantially the form attached hereto as Exhibit A to purchase up
to 6,293,799 shares of Common Stock (the "A WARRANTS") and (iii) the issuance of
warrants in substantially the form attached hereto as Exhibit B to purchase up
to 6,293,799 shares of Common Stock (the "B WARRANTS", and together with the A
Warrants, the "WARRANTS", which together with the Shares are the "SECURITIES").
The shares issuable upon exercise of the Warrants are the "WARRANT SHARES".

            SECTION 2. Agreement to Sell and Purchase the Shares and Warrants.
At the Closing (as defined herein), the Company will sell to the Purchaser, and
the Purchaser will buy from the Company, upon the terms and conditions
hereinafter set forth, the number of Shares at the purchase price set forth
below (the "PURCHASE PRICE") and Warrants shown below:

<TABLE>
<CAPTION>
                                             Number of Shares to   Price Per Share    Aggregate
               Purchaser                        Be Purchased          In Dollars        Price       A Warrants   B Warrants
------------------------------------------   -------------------   ---------------   -----------    ----------   ----------
<S>                                          <C>                   <C>               <C>            <C>          <C>
Shea Diversified Investment, INC                 1,189,381.00           $0.32        $380,601.92      328,831      328,831
SRB Greenway Capital                                90,625.00           $0.32        $ 29,000.00       22,656       22,656
SRB Greenway Offshore Operating Fund, L.P.          58,750.00           $0.32        $ 18,800.00       14,688       14,688
SRB Greenway Capital (QP), L.P.                    631,875.00           $0.32        $202,200.00      157,969      157,969
Cap Partners                                     1,562,500.00           $0.32        $500,000.00      390,625      390,625
Nite Capital L.P                                   312,500.00           $0.32        $100,000.00       78,125       78,125
Andy Arno                                          408,131.00           $0.32        $130,601.92      133,519      133,519
Elizabeth Arno                                     156,250.00           $0.32        $ 50,000.00       39,063       39,063
Andrew Arno ACF CUST Jess Arno UGMA NY              78,125.00           $0.32        $ 25,000.00       19,531       19,531
Andrew Arno ACF CUST                                78,125.00           $0.32        $ 25,000.00       19,531       19,531
</TABLE>

                                       1
<PAGE>

<TABLE>
<S>                                              <C>                    <C>          <C>              <C>          <C>
Matthew Arno UGMA NY
Iroquois Master Fund Ltd                           781,250.00           $0.32        $250,000.00      195,313      195,313
John French                                        156,250.00           $0.32        $ 50,000.00       39,063       39,063
Cordillera Fund                                  1,033,131.00           $0.32        $330,601.92      289,769      289,769
Schottenfeld Qualified Associates, LP            1,562,500.00           $0.32        $500,000.00      390,625      390,625
Little Wing LP                                   1,561,256.00           $0.32        $499,601.92      421,800      421,800
Tradewinds                                         253,125.00           $0.32        $ 81,000.00       63,281       63,281
SF Capital Partners                              1,562,500.00           $0.32        $500,000.00      390,625      390,625
Governing Dynamics Investment Trust              2,187,500.00           $0.32        $700,000.00      546,875      546,875
Software Seed Capital Partners, IV, L.P          3,073,789.00           $0.32        $983,612.48      957,358      957,358
LBI Group, INC                                   1,562,500.00           $0.32        $500,000.00      390,625      390,625
LH Financial                                       350,000.00           $0.32        $112,000.00       87,500       87,500
</TABLE>

            The Company and Purchaser mutually agree, in the event that
Purchaser converts a Company Secured Convertible Promissory Note dated June 9,
2005 (the "NOTE") as payment for all, or a portion of, the Purchase Price for
Purchaser's Securities, such portion of the Purchase Price shall be reduced to
75% of the amount set forth above (i.e. $0.24). Further, such Note holder shall
complete the Note Conversion Election attached hereto as Exhibit C.

            The Company proposes to enter into this same form of purchase
agreement with certain other investors (the "OTHER PURCHASERS") and expects to
complete sales of the Securities to them. The Purchaser and the Other Purchasers
are hereinafter sometimes collectively referred to as the "PURCHASERS," and this
Agreement and the agreements executed by the Other Purchasers are hereinafter
sometimes collectively referred to as the "AGREEMENTS." The term "PLACEMENT
AGENT" shall mean C.E. Unterberg Towbin, LLC.

            SECTION 3. Closing and Delivery of the Securities.

            3.1 Closing. As soon as practicable after the execution of the
Agreements by the Company and the Purchasers and upon satisfaction of all
closing conditions set forth in Section 3.3, including, without limitation, the
Minimum Amount (as defined below), the initial purchase and sale of the
Securities (the "CLOSING") shall occur at the offices of Cadwalader, Wickersham
& Taft LLP ("COMPANY COUNSEL") at the time and date (the "CLOSING DATE") as
shall be agreed upon by the Company and the Placement Agent.

            3.2 Delivery of the Shares. At the Closing, the Company shall
deliver to the Purchaser (i) one or more stock certificates registered in the
name of the Purchaser, or in such nominee name(s) as designated by the Purchaser
in writing (under circumstances which such nominee would not be considered an
"underwriter" for purposes of the Securities Act of 1933, as

                                       2
<PAGE>

amended (the "SECURITIES ACT")), representing the number of Shares set forth in
Section 2 above and bearing the legend specified in Section 5.7 hereof referring
to the fact that the Shares were sold in reliance upon the exemption from
registration under the Securities Act provided by Section 4(2) thereof and Rule
506 of Regulation D thereunder and (ii) Warrants exercisable for that number of
Warrant Shares set forth in Section 2 (subject to adjustment as set forth in
such Warrants). The name(s) in which the stock certificates and Warrants are to
be registered are set forth in the Questionnaire attached hereto as Exhibit D.
Upon the written request of Purchaser and surrender of the Shares or Warrant
Shares, as the case may be, the Company will, as promptly as reasonably
practicable, but in no event later then five Business Days (as defined herein)
following receipt of such written notice and certificate(s), substitute one or
more replacement certificates without the legend following such time as the
Registration Statement becomes effective. In the event that the Company breaches
its obligations under this Section 3.2, the Company agrees to pay Purchaser 3%
of the Purchase Price paid for such Shares or Warrant Shares, as the case may
be, for each 30 Business Day period until the Company cures its breach of this
section. This 3% payment will be in addition to any other remedies Purchaser may
have against the Company for breach of this Agreement and paid to the Purchaser
within ten Business Days following the end of each 30 Business Day period as to
which payment is due hereunder. "BUSINESS DAY" means any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.

            3.3 Conditions to Closing.

            (a) The Company's obligation to complete the purchase and sale of
the Securities and deliver such stock certificate(s) to the Purchaser at the
Closing shall be subject to the following conditions, any one or more of which
may be waived by the Company: (i) receipt of this Agreement (including all
information to be provided by the Purchaser on the signature page hereto) duly
executed by Purchaser; (ii) receipt of the Registration Rights Agreement in the
form attached as Exhibit E (the "REGISTRATION RIGHTS AGREEMENT", together with
the Agreement, the "TRANSACTION DOCUMENTS") duly executed by Purchaser; (iii)
receipt by the Placement Agent, to be held in escrow on behalf of the Company
pending the Closing, of same-day funds, or the Note for surrender, or a
combination thereof, in the full amount of the Purchase Price for the Securities
being purchased hereunder; (iv) the completion of the purchase and sale of at
least an aggregate of 16,783,463 Shares (the "MINIMUM AMOUNT") under this form
of Agreement with all Purchasers; (v) the accuracy in all material respects of
the representations and warranties made by the Purchaser and the fulfillment of
those undertakings of the Purchaser to be fulfilled prior to the Closing; (vi)
receipt by the Company of a completed version of Exhibit C (if Purchaser
surrenders a Note as payment, or partial payment, of the Purchase Price),
Exhibit D, Exhibit F and Exhibit G attached hereto, (vii) all holders of Senior
Preferred (as defined herein) shall have agreed to convert all outstanding
shares of Senior Preferred into Common Stock at a rate of 5.3684 shares of
Common Stock for each share of Senior Preferred so converted, and such
conversion takes place prior to or concurrently with the Closing (the "SENIOR
CONVERSION") and, to the extent necessary, the Company's Certificate of
Incorporation (including that certain Certificate of Designations, Preferences
and Rights of Series A Senior Convertible Preferred Stock dated as of May 21,
2004) shall have been amended as required to effect the Senior Conversion,
(viii) all necessary actions shall have been taken such that the Series A Senior
Preferred Equity Security Agreement dated as of April 23, 2004 shall have been
terminated and

                                       3
<PAGE>

any and all liens on the intellectual property and assets of the Company and the
Company rights under management employment contracts of the Company shall be
terminated effective as of the Closing, including the execution and delivery of
Uniform Commercial Code termination statements to evidence such termination, to
the extent necessary, (ix) to the extent that all of the Company's outstanding
Notes are not converted into Securities at the Closing, such outstanding Notes
(principle and accrued interest) shall be repaid by the Company concurrently
with the Closing, (x) all of the Company's outstanding Series A Warrants shall
have been exchanged for an aggregate of 700,000 Common Stock Warrants with a
$0.40 per share exercise price, subject to adjustment (the "WARRANT CONVERSION")
and (xi) the Company shall have reserved an aggregate of 9,025,800 shares of
Common Stock for issuance to employees, directors and consultants pursuant to
the Company's 2004 Omnibus Stock Incentive Plan (the "PLAN"), duly adopted by
the Board of Directors and, to the extent necessary, approved by the
stockholders of the Company.

            (b) The Purchaser's obligation to accept delivery of such stock
certificate(s), Warrants and to pay for the Securities evidenced thereby shall
be subject to the following conditions: (i) receipt of this Agreement duly
executed by the Company; (ii) receipt of the Registration Rights Agreement duly
executed by the Company; (iii) the accuracy in all material respects of the
representations and warranties made by the Company herein and the fulfillment in
all material respects of those undertakings of the Company to be fulfilled prior
to the Closing, (iv) the completion of the purchase and sale of at least the
Minimum Amount under the Agreements with all Purchasers; (v) the Senior
Conversion shall have occurred, (vi) all necessary actions shall have been taken
such that the Series A Senior Preferred Equity Security Agreement dated as of
April 23, 2004 shall have been terminated and the senior lien on the
intellectual property of the Company and the Company rights under management
employment contracts of the Company shall be terminated effective as of the
Closing, including the execution and delivery of Uniform Commercial Code
termination statements to evidence such termination, to the extent necessary,
(vii) to the extent that all of the Company's outstanding Notes are not
converted into Securities at the Closing, such outstanding Notes (principle and
accrued interest) shall be repaid by the Company concurrently with the Closing,
(viii) the Warrant Conversion shall have occurred, (ix) the Company shall have
reserved an aggregate of 9,025,800 shares of Common Stock for issuance to
employees, directors and consultants pursuant to the Plan, duly adopted by the
Board of Directors and, to the extent necessary, approved by the stockholders of
the Company and (x) the Company shall have delivered to the Purchasers a
certificate executed by the Chairman of the Board and the Chief Executive
Officer of the Company pursuant to Section 4.21 hereof.

            SECTION 4. Representations, Warranties and Covenants of the Company.
Except as otherwise described in the Company's periodic reports on Forms 10-QSB
and 10-KSB and in the Company's current reports on Form 8-K as filed by the
Company with the Securities and Exchange Commission (the "SEC") since March 31,
2005 (the "SEC DOCUMENTS" and collectively, including the documents incorporated
by reference therein, the "COMPANY INFORMATION"), and, with respect to Section
4.2(c), 4.2(d) and 4.10 only, except as described in the Company's Disclosure
Schedule, which qualify the following representations and warranties in their
entirety, the Company, and its Subsidiaries as applicable, hereby represents and
warrants to, and covenants with, the Purchaser, as follows:

                                       4
<PAGE>

            4.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and the Company is qualified to do business as a
foreign corporation in each jurisdiction in which qualification is required,
except where failure to so qualify would not have a Material Adverse Effect (as
defined herein) on the Company. All of the subsidiaries of the Company are
listed on Exhibit 21 (the "SUBSIDIARIES") to the Company's Annual Report on Form
10-KSB for the year ended March 31, 2005 (the "FORM 10-KSB") along with the
Company's percentage ownership of each subsidiary and each subsidiary's
jurisdiction of incorporation. Each Subsidiary is duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect.

            4.2 Authorized Capital Stock. The capitalization of the Company
immediately prior to the Closing is as set forth below:

            (a) Preferred Stock. Five million (5,000,000) shares of Preferred
Stock, par value $0.0001 (the "Preferred Stock"), four million (4,000,000) of
which have been designated Series A Senior Convertible Preferred Stock (the
"Senior Preferred"), three million eight hundred forty-nine thousand four
hundred thirty-one (3,842,431) of which are issued and outstanding which shall
convert into an aggregate of twenty million six hundred twenty-seven thousand
seven hundred eighty-eight (20,627,788) shares of Common Stock in connection
with the Closing, and one million (1,000,000) shares of which have been
designated Series A Junior Preferred (the "Junior Preferred"), seven hundred
ninety-five thousand, two hundred fifty (795,250) of which are issued and
outstanding. The rights, privileges and preferences of the Senior Preferred and
Junior Preferred are as stated in the Company's Certificate of Incorporation.

            (b) Common Stock. Seventy-five million (75,000,000) shares of Common
Stock, of which four million two hundred fifty-eight thousand four hundred ten
(4,258,410) shares are issued and outstanding immediately prior to the Closing.

            (c) The Company has reserved twenty one million four hundred
twenty-three thousand thirty-eight (21,423,038) shares of Common Stock for
issuance upon conversion of the Senior Preferred and Junior Preferred. Except
for (i) the conversion privileges of the Senior Preferred and Junior Preferred,
(ii) warrants to purchase nine million seven hundred twenty-six thousand seven
hundred seventy (9,726,770) shares of Common Stock, and (iii) shares of Common
Stock reserved for issuance pursuant to the Plan, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. The Company has reserved an
aggregate of nine million twenty-five thousand eight hundred (9,025,800) shares
of its Common Stock for issuance to employees, directors and consultants of the
Company pursuant to the Plan. Of such reserve, there are no shares of Common
Stock issued and outstanding as a result of exercises of options granted under
the Plan, outstanding options to purchase an additional five hundred forty seven
thousand five hundred (547,500) shares of Common Stock under the Plan, and eight
million four hundred seventy-eight thousand three hundred (8,478,300) shares of
Common Stock available for future grant under the Plan. The Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company's knowledge, there is no agreement or understanding between any persons
that affects

                                       5
<PAGE>

or relates to the voting or giving of written consents with respect to any
security or the voting by a director of the Company. The Company has not
declared or paid any dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock.

            (d) The issued and outstanding shares of the Company's Common Stock,
Senior Preferred and Junior Preferred have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform in all material respects to the description thereof
contained in the SEC Documents. Except as disclosed in or contemplated by the
SEC Documents, the Company does not have outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock. The description of the Company's
stock, stock bonus and other stock plans or arrangements and the options or
other rights granted and exercised thereunder, set forth in the SEC Documents,
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights. With respect to each
Subsidiary, (i) the Company owns 100% of the Subsidiary's capital stock, (ii)
all the issued and outstanding shares of the Subsidiary's capital stock have
been duly authorized and validly issued, are fully paid and nonassessable, have
been issued in compliance with applicable federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and (iii) there are no
outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of the Subsidiary's
capital stock or any such options, rights, convertible securities or
obligations.

            (e) Upon the purchase and sale of Securities to the Purchasers
acquiring such shares pursuant to this Agreement, the conversion of the Senior
Preferred to Section 3.2(b) at or prior to the Closing, all Purchasers will, in
the aggregate, have acquired 30.7% (assuming 16,783,463 Shares are sold, the
"Minimum Amount") excluding nine million four hundred fifty six thousand four
hundred thirteen (9,456,413) shares for issuance upon exercise of the Warrants
or 37.3% (assuming 23,025,217 Shares are sold the "Maximum Amount") excluding
twelve million five hundred eighty one thousand four hundred thirteen
(12,581,413) shares for issuance upon exercise of the Warrants of the fully
diluted outstanding Common Stock (the "Purchasers Ownership Percentage"),
assuming for purposes of this Section 4.2(e) the conversion of all securities
convertible at any time into shares of Common Stock and the exercise of all
options or warrants or other rights to purchase or receive shares of the Common
Stock (other than the Warrants). In the event that the aggregate Purchase Price
of Securities sold as of the Closing Date is greater than the Minimum Amount and
less than the Maximum Amount, the Purchasers Ownership Percentage shall be
pro-rated accordingly.

            4.3 Issuance, Sale and Delivery of the Securities. The Shares and
Warrant Shares have been duly authorized and, when issued, delivered and paid
for in the manner set forth in this Agreement or the Warrants, as the case may
be, will be duly authorized, validly issued, fully paid and nonassessable. No
preemptive rights or other rights to subscribe for or purchase exist with
respect to the issuance and sale of the Shares and Warrant Shares by the Company
pursuant to this Agreement or the Warrants, as the case may be. No stockholder
of the Company has any

                                       6
<PAGE>

right (which has not been waived or has not expired by reason of lapse of time
following notification of the Company's intent to file the registration
statement to be filed by the Company pursuant to the Registration Rights
Agreement (the "REGISTRATION STATEMENT")) to require the Company to register the
sale of any shares owned by such stockholder under the Securities Act (a
"REGISTRATION OBLIGATION") in the Registration Statement and the Company does
not owe any fees or penalties with respect to any Registration Obligations. No
further approval or authority of the stockholders or the Board of Directors of
the Company will be required for the issuance and sale of the Securities to be
sold by the Company as contemplated herein.

            4.4 Due Execution, Delivery and Performance of the Transaction
Documents. The Company has full legal right, corporate power and authority to
enter into the Transaction Documents and perform the transactions contemplated
hereby. The Transaction Documents have been duly authorized, executed and
delivered by the Company. The making and performance of the Transaction
Documents by the Company and the consummation of the transactions therein
contemplated will not violate any provision of the organizational documents of
the Company and will not result in the creation of any lien, charge, security
interest or encumbrance upon any assets of the Company pursuant to the terms or
provisions of, or will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or any Subsidiary is
a party or by which the Company or its properties, or any Subsidiary or such
Subsidiary's properties, may be bound or affected and in each case which would
have a material adverse effect on the condition (financial or otherwise),
properties, business, prospects or results of operations of the Company in the
aggregate (a "MATERIAL ADVERSE EFFECT") or, to the Company's knowledge, any
statute or any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other governmental body
applicable to the Company or any Subsidiary or any of their respective
properties. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is required
for the execution and delivery of the Transaction Documents or the consummation
of the transactions contemplated therein, except for compliance with the Blue
Sky laws and federal securities laws applicable to the offering of the
Securities. Upon their execution and delivery, and assuming the valid execution
thereof by the respective Purchasers, the Transaction Documents will constitute
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Company in the Registration
Rights Agreement may be legally unenforceable.

            4.5 Accountants. Both BDO Seidman, LLP and Hein & Associates LLP
have expressed their respective opinions with respect to the consolidated
financial statements to be incorporated by reference from the Form 10-KSB into
the Registration Statement and the Prospectus which forms a part thereof, and
both BDO Seidman, LLP and Hein & Associates LLP are registered public accounting
firms as required by the Securities Act and the rules and regulations
promulgated thereunder (the "RULES AND REGULATIONS").

                                       7
<PAGE>

            4.6 No Defaults. Except as to defaults, violations and breaches
which individually or in the aggregate would not be material to the Company, the
Company is not in violation or default of any provision of its certificate of
incorporation or bylaws, or other organizational documents, or in breach of or
default with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of fact which, with notice or lapse of
time or both, would constitute an event of default on the part of the Company as
defined in such documents, except such defaults which individually or in the
aggregate would not be material to the Company.

            4.7 Contracts. The contracts described in the SEC Documents as being
in effect that are material to the Company, are in full force and effect on the
date hereof; and the Company is not, nor to the Company's knowledge is any other
party, in breach of or default under any of such contracts which would have a
Material Adverse Effect.

            4.8 No Actions. There are no legal or governmental actions, suits or
proceedings pending or, to the Company's knowledge, threatened to which the
Company or any Subsidiary is or may be a party or of which property owned or
leased by the Company or any Subsidiary is or may be the subject, or related to
environmental or discrimination matters, or instituted by the SEC, any markets
or exchanges on which the Common Stock has been, or is, listed or quoted for
trading, any state securities commission or other governmental or regulatory
agency, which actions, suits or proceedings, individually or in the aggregate,
might prevent or might reasonably be expected to materially and adversely affect
the transactions contemplated by the Transaction Documents or would, if
successfully resolved against the Company, result in a Material Adverse Effect;
and no labor disturbance by the employees of the Company or any Subsidiary
exists or, to the Company's knowledge, is imminent which might reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is a party to or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.

            4.9 Properties. Each of the Company and its Subsidiaries has good
and marketable title to all the properties and assets reflected as owned by it
in the consolidated financial statements included in the SEC Documents, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such consolidated financial statements (including
the notes thereto), or (ii) those which are not material in amount and do not
adversely affect the use made and proposed to be made of such property by the
Company. Such leased properties are held under valid and binding leases, with
such exceptions as are not materially significant in relation to its business.
The Company or a Subsidiary owns or leases all such properties as are necessary
to its operations as now conducted.

            4.10 No Material Change. Since March 31, 2005 (i) neither the
Company nor any Subsidiary has incurred any material liabilities or obligations,
indirect, or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could reasonably be expected to result in a material reduction in the
future earnings of the Company; (ii) neither the Company nor any Subsidiary has
sustained any material loss or interference with its respective businesses or
properties from fire, flood, windstorm, accident or other calamity not covered
by insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock and

                                       8
<PAGE>

neither the Company nor any Subsidiary is in default in the payment of principal
or interest on any outstanding debt obligations; (iv) there has not been any
change in the capital stock of the Company other than the sale of the Securities
hereunder and shares or options issued pursuant to employee equity incentive
plans or purchase plans approved by the Company's Board of Directors, or
indebtedness material to the Company (other than in the ordinary course of
business); and (v) there has not been any change to the condition (financial or
otherwise), properties, business, prospects or results of operations of the
Company which would constitute a Material Adverse Effect.

            4.11 Intellectual Property. The Company and its Subsidiaries
exclusively own or possess adequate and enforceable rights to use the
inventions, patent applications, patents, patent rights, trademarks (both
registered and unregistered), service marks, tradenames, copyrights, trade
secrets and know-how necessary for the conduct of the Company's and its
Subsidiaries' business as currently conducted and as the SEC Documents indicate
the Company and its Subsidiaries contemplate conducting (collectively, the
"INTELLECTUAL PROPERTY"), except where the failure to currently own or possess
such Intellectual Property would not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received any notice of, or is aware of
any infringement of or conflict with asserted rights of others with respect to
any Intellectual Property which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could reasonably be expected to have
a Material Adverse Effect. To the Company's knowledge, none of the patent
rights, service marks, tradenames and copyrights owned or licensed by the
Company or any of its Subsidiaries are unenforceable or invalid. The Company is
the assignee of record of the Intellectual Property and the Intellectual
Property is free and clear of all mortgages, pledges, charges, liens, equities,
security interests, or other encumbrances or similar agreements. No current or
former employee or consultant of the Company owns any rights in or to any of the
Intellectual Property. The Company is not aware of any violation or infringement
by a third party of any of the Intellectual Property. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all trade secrets used in the business of the Company (the "COMPANY TRADE
SECRETS"), including, without limitation, requiring all Company employees and
consultants and all other persons with access to Company Trade Secrets to
execute a binding confidentiality agreement and, to the Company's knowledge,
there has not been any breach by any party to such confidentiality agreements.
The Company has not directly or indirectly granted any rights, licenses or
interests in the source code of the Intellectual Property, and since the Company
developed the source code of the Intellectual Property, the Company has not,
other than to its employees and consultants, provided or disclosed the source
code of the Intellectual Property to any person or entity.

            4.12 Compliance. The Company has not been advised, and has no reason
to believe, that it is not conducting its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations; except where failure to be so in
compliance would not have a Material Adverse Effect.

            4.13 Taxes. The Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon, and the

                                       9
<PAGE>

Company has no knowledge of a tax deficiency which has been or might be asserted
or threatened against it which could have a Material Adverse Effect.

            4.14 Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to the
Purchaser hereunder will be, or will have been, fully paid or provided for by
the Company and all laws imposing such taxes will be or will have been fully
complied with.

            4.15 Investment Company. The Company is not an "investment company"
or an "affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

            4.16 Offering Materials. The Company has not distributed and will
not distribute prior to the Closing Date any offering material in connection
with the offering and sale of the Securities. The Company has not in the past
nor will it hereafter take any action independent of the Placement Agent to
sell, offer for sale or solicit offers to buy any securities of the Company
which would bring the offer, issuance or sale of the Securities, as contemplated
by this Agreement, within the provisions of Section 5 of the Securities Act,
unless such offer, issuance or sale was or shall be within the exemptions of
Section 4 of the Securities Act.

            4.17 Insurance. The Company maintains insurance of the types and in
the amounts that the Company reasonably believes is adequate for its business,
including, but not limited to, insurance covering all real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against by similarly situated
companies, all of which insurance is in full force and effect.

            4.18 Corrupt Practices. Neither the Company nor, to the knowledge of
the Company, any agent or other person acting on behalf of the Company, have (i)
directly or indirectly, used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, (iii) failed to disclose fully any contribution
made by the Company or made by any person acting on its behalf and of which the
Company is aware in violation of law, or (iv) violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended.

            4.19 Additional Information. The Company represents and warrants
that the information contained in the following documents, which the Placement
Agent has made available to the Purchaser through the SEC's website
(www.sec.gov) prior to the date of the Closing, is or will be true and correct
in all material respects as of their respective filing dates:

            (a) the Company's Annual Report on Form 10-KSB for the year ended
March 31, 2005;

            (b) the Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 2005;

                                       10
<PAGE>

            (c) the Company's Current Reports on Form 8-K filed April 11, 2005,
June 3, 2005, June 14, 2005 and June 16, 2005; and

            (d) all other documents, if any, filed by the Company with the SEC
since March 31, 2005 pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").

            4.20 Legal Opinion. Prior to the Closing, Cadwalader, Wickersham &
Taft LLP, counsel to the Company, will deliver its legal opinion to the
Placement Agent, in form and substance reasonably satisfactory to the Placement
Agent and its counsel. The opinion shall also state that each of the Purchasers
may rely thereon as though it were addressed directly to such Purchaser.

            4.21 Certificate. At the Closing, the Company will deliver to
Purchaser a certificate executed by the Chairman of the Board and Chief
Executive Officer of the Company, dated the Closing Date, in form and substance
reasonably satisfactory to the Purchasers, to the effect that the
representations and warranties of the Company set forth in this Section 4 are
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions herein on its part to be performed or satisfied on
or prior to such Closing Date.

            4.22 Compliance and Listing. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is designated for
quotation or listed on the Over The Counter Bulletin Board (the "OTCBB") and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the OTCBB. The Company shall comply with all
requirements of the National Association of Securities Dealers, Inc. with
respect to the issuance of the Shares and Warrant Shares and the listing thereof
on the OTCBB.

            4.23 Price of Common Stock. The Company has not taken any action
intended to stabilize or manipulate the price of the Company's shares of the
Common Stock to facilitate the sale or resale of the Shares. The Company has not
repurchased any of its shares of Common Stock since March 31, 2005.

            4.24 Accounting and Disclosure Controls. The Company and its
subsidiaries maintain systems of internal accounting controls sufficient to
provide reasonable assurance that (i) the Company makes and keeps accurate books
and records; (ii) transactions are executed in accordance with management's
general or specific authorizations; (iii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iv) access
to assets is permitted only in accordance with management's general or specific
authorization; and (v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) under the
Exchange Act) that (i) are designed to ensure that material information relating
to the Company, including its consolidated subsidiaries, is made known to the
Company's principal executive officer and its principal financial officer by
others within those entities in order for timely decisions for required
disclosure in the periodic reports that will be filed by the Company

                                       11
<PAGE>

under the Exchange Act; and (ii) are effective in all material respects to
perform the functions for which they were established. Since the date of the
most recent balance sheet of the Company and its consolidated subsidiaries
reviewed or audited by BDO Seidman LLP and the audit committee of the board of
directors of the Company (or persons fulfilling the equivalent function) the
Company has not become aware of (i) any significant deficiencies in the design
or operation of internal controls which could adversely affect the ability of
the Company and each of its subsidiaries to record, process, summarize and
report financial data, or any material weakness in internal controls; and (ii)
any fraud, whether or not material, that involves management or other employees
who have a significant role in the internal controls of the Company and each of
its subsidiaries. Since the date of the most recent evaluation of such
disclosure controls and procedures, there have been no significant changes in
the Company's internal controls or in other factors that would significantly
affect the Company's internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

            4.25 Proctor, et al. The Superior Court of the State of California
in and for the County of Los Angeles, South West District (the "Superior Court")
issued a judgment in favor of the Company against Joseph Ford Proctor, the Chief
Executive Officer of MayFair Capital Group Limited, BrickHouse Capital Venture
Limited, Julie Holfinger, and other named defendants therein (collectively the
"Proctor Group") relating to litigation engaged between the Company and the
Proctor Group since September 15, 2003 as described in the SEC Reports. On
November 10, 2004, the Superior Court issued the judgment in favor of the
Company against the Proctor Group for (i) monetary damages and costs of
$12,805,264 (comprised of $3,790,759 as special damages, $9,000,000 as punitive
damages, and $14,505 as costs), (ii) the return of all corporate books and
records of PowerHouse Studios, its predecessors, subsidiaries and affiliated
companies, and (iii) the cancellation of the stock certificates held by the
Proctor Group with respect to approximately 7,000,000 shares of Common Stock
claimed by the Proctor Group, which represented approximately 67% of the total
shares of Common Stock then outstanding (the "Proctor Group Shares", 7,250,000
shares of Common Stock of PowerHouse Studios) and a declaration that the Proctor
Group Shares, and all legal and beneficial ownership interests therein, were
null and void as of the date of issuance. The defendants' right to appeal
expired on January 17, 2005, and, as of January 18, 2005, no appeal was filed by
any of the defendants.

            4.26 Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. There has not
been any material change with respect to any of the Actions described under
"Legal Proceedings" in the Company's Form 10-KSB. Neither the Company nor any
Subsidiary, nor, to the knowledge of the Company, any director or officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or, to the Company's knowledge, former director or

                                       12
<PAGE>

officer of the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Securities Act.

            4.27 The Rescission Offer and the Junior A Units Offering. The
Rescission Offer and the Junior A Units Offering (each as defined in the Form
10-KSB) were made in compliance with federal and state securities laws.

            4.28 Disclosure; Securities Laws Disclosure; Publicity. The Company
confirms that, neither the Company nor, to its knowledge, any other person
acting on its behalf has provided any of the Purchasers or their agents or
counsel with any information that constitutes or might constitute material,
non-public information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All written disclosure provided to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such representations
and warranties and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in 5 hereof. The
Company shall, by 8:30 a.m. Eastern time on the first Business Day following the
Closing, issue a Current Report on Form 8-K, reasonably acceptable to the
Placement Agent disclosing the material terms of the transactions contemplated
hereby, and shall include the Transaction Documents as exhibits thereto. The
Company and Placement Agent shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release or statement of any Purchaser, or without the prior
consent of Placement Agent, with respect to any press release or statement of
the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the Company shall promptly provide
Placement Agent with prior notice of such public statement or communication or
the Purchaser shall promptly provide the Company with prior notice of such
public statement or communication, as the case may be. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the SEC or any regulatory
agency, without the prior written consent of Placement Agent, except (i) as
required by federal securities law in connection with the Registration Statement
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law, in which case the Company shall provide Placement
Agent with prior notice of such disclosure permitted under subclause (i) or
(ii).

            4.29 Securities Act and Exchange Act Reporting. The Company shall
file with the SEC in a timely manner all reports and other documents required of
the Company under the Securities Act and the Exchange Act.

                                       13
<PAGE>

            4.30 Board of Directors. Following the Closing, the Company's Board
of Directors shall consist of four directors comprised of (i) Jay Elliot, (ii)
Greg Osborn, (iii) Kent Heyman and (v) Alex Mashinsky.

            4.31 Use of Proceeds. The Company will utilize the net proceeds from
the sale of the Securities for working capital and general corporate purposes,
including research and development, and the repayment of the Notes, to the
extent that the Notes are not converted at the Closing.

            4.32 Preferred Stock Issuances. Until two years following the
Closing, the Company shall not, without the consent of the Purchasers holding a
majority of the Shares issued at the Closing and, to the extent issued and
outstanding, Warrant Shares, issue shares of Preferred Stock.

            4.33 Participation in Future Financing. The Company shall not effect
the next equity or debt financing after the date of this Agreement in which it
raises at least, in the aggregate, $1,000,000 in gross proceeds (the "Next
Financing") unless (a) the Company delivers to each Purchaser a written notice
at least 5 Trading Days prior to the closing of such Next Financing (the "Next
Financing Notice") of its intention to effect the Next Financing, which Next
Financing Notice shall describe in reasonable detail the proposed terms of the
Next Financing, the amount of proceeds intended to be raised thereunder, the
Person with whom the Next Financing is proposed to be effected, and attached to
which shall be a term sheet or similar document relating thereto and (b) such
Purchaser shall not have notified the Company by 6:30 p.m. (Pacific time) on the
third (3rd) Trading Day after its receipt of the Next Financing Notice of its
willingness to provide (or to cause its designee to provide), subject to
completion of mutually acceptable documentation and compliance with applicable
securities laws, all or part of such financing to the Company on the same terms
set forth in the Next Financing Notice within 15 calendar days of such
Purchaser's notification of its intent to participate (the "Next Financing
Participation Period"). If one or more Purchasers shall fail to so notify the
Company of their willingness to participate in the Next Financing, the Company
may effect the remaining portion of the Next Financing on the terms and to the
Persons set forth in the Next Financing Notice; provided that, in such event,
the Company must provide the Purchasers with a second Next Financing Notice, and
the Purchasers will again have the participation right as set forth above in
this Section 4.33, if the Next Financing subject to the initial Next Financing
Notice is not consummated for any reason on the terms set forth in the Next
Financing Notice within 60 Trading Days after the date of the initial Next
Financing Notice with the Persons identified in the Next Financing Notice. In
the event the Company receives responses to Next Financing Notices from
Purchasers seeking to purchase more than the financing sought by the Company in
the Next Financing such Purchasers shall have the right to purchase their Pro
Rata Portion (as defined below) of the capital shares or capital shares
equivalents to be issued in such Next Financing. "Pro Rata Portion" is the ratio
of (x) such Purchaser's Shares and (y) the aggregate sum of all of the
Subscription Amounts. If any Purchaser no longer holds any Shares, then the Pro
Rata Portions shall be re-allocated among the remaining Purchasers and such
Purchaser who no longer holds any Shares shall not have any Pro Rata Portion.
Notwithstanding anything to the contrary herein, this Section 4.33 shall not
apply to the following (a) the granting of options or restricted stock to
employees, officers, consultants and directors of the Company pursuant to the
Plan or any other stock option or restricted stock plan or agreement duly
adopted by a majority of the

                                       14
<PAGE>

non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, or (b) the exercise of any security issued by the Company in connection
with the offer and sale of the Securities pursuant to this Agreement, or (c) the
exercise of or conversion of any convertible securities, options or warrants
issued and outstanding on the date hereof, or (d) acquisitions, collaborations,
licensing transactions or strategic investments, the primary purpose of which is
not to raise capital, or (e) in connection with bank credit agreements and
equipment or land lease lines with a non-equity financing purpose or (f) debt
with banking institutions not to exceed $3,000,000.

            4.34 No Security Interests. There are no outstanding security
interests, or financing statements on file in any public office, in favor of
third parties with respect to the Company's assets, including its intellectual
property (such as the Company's patents, registered copyrights, and trademarks,
and all proceeds thereof, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits).

            SECTION 5. Representations, Warranties and Covenants of the
Purchaser. The Purchaser hereby represents and warrants to, and covenants with,
the Company, effective as of the Closing Date, as follows:

            5.1 Investment Representations and Covenants. The Purchaser
represents and warrants to, and covenants with, the Company that: (i) the
Purchaser is knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in shares representing
an investment decision like that involved in the purchase of the Securities,
including investments in securities issued by the Company, and has requested,
received, reviewed and considered all information it deems relevant in making an
informed decision to purchase the Securities; (ii) the Purchaser is acquiring
the Securities set forth in Section 2 above in the ordinary course of its
business and for its own account for investment (as defined for purposes of the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 and the regulations
thereunder) only and with no present intention of distributing any of such
Securities or any arrangement or understanding with any other persons regarding
the distribution of such Shares within the meaning of Section 2(11) of the
Securities Act; (iii) the Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) any of the Securities except
in compliance with the Securities Act and the Rules and Regulations promulgated
thereunder; (iv) the Purchaser has completed or caused to be completed the
Questionnaire attached hereto as Exhibit D and the Registration Statement
Questionnaire attached hereto as Exhibit F, for use in preparation of the
Registration Statement and the Investor Questionnaire attached hereto as Exhibit
G and the answers thereto are true and correct as of the date hereof and will be
true and correct as of the effective date of the Registration Statement; (v) the
Purchaser will notify the Company immediately of any change in information
which, in order to comply with the provisions of the Securities Act, would
necessitate an amendment or supplement to the Registration Statement and the
prospectus used in connection with such Registration Statement until such time
as the Purchaser has sold all of its Shares and Warrant Shares or until the
Company is no longer required to keep the Registration Statement effective; (vi)
the Purchaser has, in connection with its decision to purchase the Securities
set forth in Section 2 above, relied solely upon the SEC Documents and the
documents included therein and the representations and warranties of the Company
contained herein; and (vi) the Purchaser is an "accredited investor"

                                       15
<PAGE>

within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act and has completed the Investor Questionnaire attached hereto as Exhibit G.

            5.2 Compliance with Resale Requirements. Unless such sale is
pursuant to an applicable exemption from the Securities Act, the Purchaser
hereby covenants with the Company not to make any sale of the Shares and Warrant
Shares without satisfying the prospectus delivery requirement under the
Securities Act. The Purchaser acknowledges that there may occasionally be times
when the Company must suspend the use of the prospectus forming a part of the
Registration Statement until such time as an amendment or supplement to the
Registration Statement or such prospectus has been filed by the Company and
declared effective by the SEC, or until such time as the Company has filed an
appropriate report with the SEC pursuant to the Exchange Act. The Purchaser
hereby covenants that it will not sell any Shares or Warrant Shares pursuant to
said prospectus during the period commencing at the time at which the Company
gives the Purchaser written notice of the suspension of the use of said
prospectus and ending at the time the Company gives the Purchaser written notice
that the Purchaser may thereafter effect sales pursuant to said prospectus.

            5.3 Authorization; Validity of Transaction Documents. The Purchaser
further represents and warrants to, and covenants with, the Company that (i) the
Purchaser has full right, power, authority and capacity to enter into the
Transaction Documents and to consummate the transactions contemplated hereby and
has taken all necessary action to authorize the execution, delivery and
performance of the Transaction Documents, and (ii) upon the execution and
delivery of the Transaction Documents, the Transaction Documents shall
constitute a valid and binding obligation of the Purchaser enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Purchaser in the
Registration Rights Agreement may be legally unenforceable.

            5.4 Requirements of Foreign Jurisdictions. The Purchaser
acknowledges, represents and agrees that no action has been or will be taken in
any jurisdiction outside the United States by the Company or the Placement Agent
that would permit an offering of the Securities, or possession or distribution
of offering materials in connection with the issue of the Securities, in any
jurisdiction outside the United States where action for that purpose is
required. Each Purchaser outside the United States will comply with all
applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Securities or has in its possession or
distributes any offering material, in all cases at its own expense. The
Placement Agent is not authorized to make any representation or use any
information in connection with the issue, placement, purchase and sale of the
Securities.

            5.5 Restriction on Short Sales and Hedging. The Purchaser will not,
prior to the 90th calendar day following the Closing Date or if the Registration
Statement receives SEC review, then the one hundred twentieth (120th) calendar
day after the Closing Date, sell, offer to sell, solicit offers to buy, dispose
of, loan, pledge or grant any right with respect to (collectively, a
"DISPOSITION"), the Common Stock, nor will the Purchaser engage in any hedging
or other transaction which is designed to or could reasonably be expected to
lead to or result in a

                                       16
<PAGE>

Disposition of Common Stock by the Purchaser or any other person or entity. Such
prohibited hedging or other transactions would include, without limitation,
effecting any short sale or having in effect any short position (whether or not
such sale or position is against the box and regardless of when such position
was entered into) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to the Common Stock or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from the
Common Stock.

            5.6 No Legal, Tax or Investment Advice. The Purchaser understands
that nothing in this Agreement or any other materials presented to the Purchaser
in connection with the purchase and sale of the Securities constitutes legal,
tax or investment advice. The Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of Securities.

            5.7 Restrictive Legend. The Purchaser understands that, until such
time as the Registration Statement has been declared effective or the Securities
may be sold pursuant to Rule 144 under the Securities Act without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the Securities may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for the Shares or Warrant Shares):

            "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
            SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
            OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
            ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
            REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
            REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
            SAID ACT."

            SECTION 6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser herein and in the certificates for the Shares
or Warrants delivered pursuant hereto shall survive the execution of this
Agreement, the delivery to the Purchaser of the Securities being purchased and
the payment therefor.

            SECTION 7. Broker's Fee. The Company represents and warrants, and
the Purchaser acknowledges, that, subject to the fee reduction in the following
sentence, the Company is obligated to pay the Placement Agent the following fees
(i) cash equal to 3.0% of the proceeds from the sale of the Securities to the
Purchasers and (ii) warrants, in substantially the form attached hereto as
Exhibit H, exercisable for a number of shares of Common Stock equal to 7% of the
total number of Shares sold to the Purchasers. In the event that the Company's
management team introduces the Placement Agent to Purchasers, the Placement
Agent fees referenced in the preceding sentence shall be reduced with respect to
the first $500,000 of proceeds from the sale of Securities to such introduced
Purchasers to cash equal to 5.0% of the proceeds from the sale of Securities to
such Purchasers. Each of the parties hereto

                                       17
<PAGE>

hereby represents that, on the basis of any actions and agreements by it, there
are no other brokers or finders entitled to compensation in connection with the
sale of the Securities to the Purchasers.

            SECTION 8. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, facsimile (with receipt confirmed by telephone)
or nationally recognized overnight express courier postage prepaid, and shall be
deemed given when so mailed and shall be delivered as addressed as follows:

            (a) if to the Company, to:

                        PowerHouse Technologies Group, Inc.
                        555 Twin Dolphin Drive, Suite 650
                        Redwood City, California 94065
                        Attention: Jay Elliot

                  with a copy to:

                        Cadwalader, Wickersham & Taft LLP
                        One World Financial Center
                        New York, New York  10281
                        Attention: Gerald A. Eppner, Esq.

                  or to such other person at such other place as the Company
                  shall designate to the Purchaser in writing; and

            (b) if to the Purchaser, at its address as set forth on the
signature page of this Agreement, or at such other address or addresses as may
have been furnished by Purchaser to the Company in writing,

                  with a copy to:

                        C.E. Unterberg, Towbin
                        350 Madison Avenue
                        New York, New York 10017
                        Attention:  Jennifer Buckley

                  and

                        Pillsbury Winthrop Shaw Pittman LLP
                        2475 Hanover Street
                        Palo Alto, California 94304-1115
                        Attention: Gabriella A. Lombardi

            SECTION 9. Changes. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and Purchaser
any such waiver or amendment shall be binding upon the Company and all holders
of Shares.

                                       18
<PAGE>

            SECTION 10. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.

            SECTION 11. Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

            SECTION 12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the principles of conflicts of laws.

            SECTION 13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.

            SECTION 14. Independent Nature of the Purchaser's Obligations and
Rights. The obligations of the Purchaser under this Agreement are several and
not joint with the obligations of any Other Purchaser of the Company's
securities, and the Purchaser shall not be responsible in any way for the
performance of the obligations of any other third party purchasers of the
Company's securities. Each of the Purchaser and the Company agree and
acknowledge that (i) the decision of the Purchaser to purchase the Securities
pursuant to this Agreement has been made by the Purchaser independently of any
Other Purchasers of the Company's securities and (ii) no Other Purchasers of the
Company's securities have acted as agent for the Purchaser in connection with
the Purchaser making its investment hereunder and that no such Other Purchaser
will be acting as agent of the Purchaser in connection with monitoring its
investment hereunder or enforcing its rights under this Agreement. Nothing
contained herein or in any other document contemplated hereby or any agreement
of any such Other Purchaser, and no action taken by the Purchaser pursuant
hereto or any Other Purchaser pursuant thereto, shall be deemed to constitute
the Purchaser or any such Other Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchaser or any such Other Purchasers are in any way acting in concert or as a
group with respect to any matters. The Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or our of any of the other documents
contemplated hereby, and it shall not be necessary for any such Other Purchasers
to be joined as an additional party in any proceeding for such purpose. To the
extent that any such Other Purchasers purchase the same or similar securities as
the Purchaser hereunder or on the same or similar terms and conditions or
pursuant to the same or similar documents, all such matters are solely in the
control of the Company, not the action or decision of the Purchaser, and would
be solely for the convenience of the Company and not because it was required or
requested to do so by the Purchaser or any such Other Purchaser.

                  [Remainder of Page Intentionally Left Blank]

                                       19
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.

                                          POWERHOUSE TECHNOLOGIES GROUP, INC.

                                          By ________________________________
                                             Name:
                                             Title:

Print or Type:

                                          Name of Purchaser
                                           (Individual or Institution):

                                           __________________________________

                                          Name of Individual representing
                                           Purchaser (if an Institution):

                                           __________________________________

                                          Title of Individual representing
                                           Purchaser (if an Institution):

                                           __________________________________

                                          Signature by:
                                          Individual Purchaser or Individual
                                           representing Purchaser:

                                           __________________________________

                                          Address: _____________________________

                                          Telephone: ___________________________

                                          Telecopier: __________________________

                                          Email Address: _______________________

                                       20
<PAGE>

                     SUMMARY INSTRUCTION SHEET FOR PURCHASER

           (to be read in conjunction with the entire Common Stock and
                           Warrant Purchase Agreement)

A.    Complete the following items ON EACH OF THE TWO COPIES of the Common Stock
      Purchase Agreement:

      1.    Signature Page: Provide the information regarding the Purchaser
            requested on the signature page. The agreement must be executed by
            an individual authorized to bind the Purchaser.

      2.    Exhibit C - Note Conversion Election: To be completed in the event
            Purchaser is surrendering a Note as payment, or partial payment, of
            the Purchase Price. The election must be executed by an individual
            authorized to bind the Purchaser.

      3.    Exhibit D - Questionnaire: Provide the information requested by the
            Questionnaire.

      3.    Exhibit E - Signature Page to the Registration Rights Agreement. The
            agreement must be executed by an individual authorized to bind the
            Purchaser.

      4.    Exhibit F - Registration Statement Questionnaire: Provide the
            information requested by the Registration Statement Questionnaire.

      5.    Exhibit G - Investor Questionnaire: Provide the information
            requested by the Investor Questionnaire.

B.    Return the properly completed and signed Common Stock and Warrant Purchase
      Agreement and Registration Rights Agreement signature pages and Exhibits C
      (if applicable), D, F and G to:

            C.E. Unterberg Towbin, LLC
            350 Madison Avenue
            New York, New York 10017
            Attention:  Jennifer Buckley

C.    Instructions regarding the transfer of funds for the purchase of
      Securities will be sent by facsimile to the Purchaser by the Placement
      Agent at a later date.

D.    Upon the resale of the Shares or Warrant Shares by the Purchasers after
      the Registration Statement covering the Shares and Warrant Shares is
      effective, as described in the Agreement, the Purchaser must deliver a
      current prospectus of the Company to the buyer (prospectuses must be
      obtained from the Company at the Purchaser's request)

                                       21
<PAGE>

                                    EXHIBIT A

                                FORM OF A WARRANT

                                       A-1
<PAGE>

                                    EXHIBIT B

                                FORM OF B WARRANT

                                       B-1
<PAGE>

                                    EXHIBIT C

                        FORM OF NOTE CONVERSION ELECTION

                                       C-1
<PAGE>

                                    EXHIBIT D

                                  QUESTIONNAIRE

      Pursuant to Section 3.2 of the Common Stock and Warrant Purchase
Agreement, please provide us with the following information:

      1.    The exact name that your Securities are to be Registered in (this is
            the name that will appear on your stock certificate(s) and
            warrant(s). You may use a nominee name if appropriate:
            ____________________________________________________________________

      2.    The relationship between the Purchaser of the Securities and the
            Registered Holder listed in response to item 1 above:
            ____________________________________________________________________

      3.    The mailing address of the Registered Holder listed in response to
            item 1 above:
            ____________________________________________________________________

      4.    The Social Security Number or Tax Identification Number of the
            Registered Holder listed in response to item 1 above:

                                       D-1
<PAGE>

                                    EXHIBIT E

                          REGISTRATION RIGHTS AGREEMENT

                                       E-1
<PAGE>

                                    EXHIBIT F

                      REGISTRATION STATEMENT QUESTIONNAIRE

      In connection with the preparation of the Registration Statement, please
provide us with the following information:

      1.    Pursuant to the "Selling Stockholder" section of the Registration
            Statement, please state your or your organization's name exactly as
            it should appear in the Registration Statement:
            ____________________________________________________________________

      2.    Please provide the number of shares of PowerHouse Technologies
            Group, Inc. Common Stock that you or your organization will own
            immediately after the Closing, including those purchased by you or
            your organization pursuant to this Agreement and those shares of
            Common Stock purchased by you or your organization through other
            transactions:
            ____________________________________________________________________

      3.    Have you or your organization had any position, office or other
            material relationship within the past three years with the Company
            or its affiliates?

            _____ Yes _____ No

            If yes, please indicate the nature of any such relationships below:

            ____________________________________________________________________

            ____________________________________________________________________

            ____________________________________________________________________

                                       F-1
<PAGE>

                                    EXHIBIT G

                             INVESTOR QUESTIONNAIRE

                       CONFIDENTIAL INVESTOR QUESTIONNAIRE

                     INVESTOR NAME: ________________________
                     CO-INVESTOR NAME: _____________________

PowerHouse Technologies Group, Inc. (the "Company") is relying exclusively upon
this questionnaire to determine the suitability of the undersigned (the
"Investor") as a potential investor in securities of the Company.

1.1   INVESTOR CATEGORY The Investor represents and warrants that the Investor
      comes within one category MARKED BELOW, and that for any category marked,
      the Investor has truthfully set forth, where applicable, the factual basis
      or reason the Investor comes within that category. ALL INFORMATION IN
      RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The
      undersigned shall furnish any additional information which the Company
      deems necessary in order to verify the answers set forth below.

(please check the appropriate box)

CATEGORY A []     The undersigned is an individual (not a partnership,
                  corporation, etc.) whose individual net worth, or joint net
                  worth with his or her spouse, presently exceeds US$1,000,000.

                        EXPLANATION. In calculating net worth you may include
                  equity in personal property and real estate, including your
                  principal residence, cash, short-term investments, stock and
                  securities. Equity in personal property and real estate should
                  be based on the fair market value of such property less debt
                  secured by such property.

CATEGORY B []     The undersigned is an individual (not a partnership,
                  corporation, etc.) who had an individual income in excess of
                  US$200,000 in each of the two most recent years, or joint
                  income with his or her spouse in excess of US$300,000 in each
                  of those years (in each case including foreign income, tax
                  exempt income and full amount of capital gains and losses but
                  excluding any income of other family members and any
                  unrealized capital appreciation) and has a reasonable
                  expectation of reaching the same income level in the current
                  year.

CATEGORY C []     The undersigned is a director or executive officer of the
                  Company which is issuing and selling the Common Stock.

CATEGORY D []     The undersigned is a bank; a savings and loan association;
                  insurance company; registered investment company; registered
                  business

                                      G-1
<PAGE>

                  development company; licensed small business investment
                  company ("SBIC"); or employee benefit plan within the meaning
                  of Title 1 of ERISA and (a) the investment decision is made by
                  a plan fiduciary which is either a bank, savings and loan
                  association, insurance company or registered investment
                  advisor, or (b) the plan has total assets in excess of
                  US$5,000,000 or is a self directed plan with investment
                  decisions made solely by persons that are accredited
                  investors.

                                          ______________________________________
                                                      (describe entity)

CATEGORY E []     The undersigned is a private business development company as
                  defined in section 202(a)(22) of the Investment Advisors Act
                  of 1940.

                                          ______________________________________
                                                      (describe entity)

CATEGORY F []     The undersigned is either a corporation, partnership,
                  Massachusetts business trust, or non-profit organization
                  within the meaning of Section 501(c)(3) of the Internal
                  Revenue Code, in each case not formed for the specific purpose
                  of acquiring the Common Stock and with total assets in excess
                  of US$5,000,000.

                                          ______________________________________
                                                      (describe entity)

CATEGORY G []     The undersigned is a trust with total assets in excess of
                  US$5,000,000, not formed for the specific purpose of acquiring
                  the Common Stock, where the purchase is directed by a
                  "sophisticated person" as defined in Regulation 506(b)(2)(ii)
                  under the Act.

CATEGORY H []     The undersigned is an entity (other than a trust) all the
                  equity owners of which are "accredited investors" within one
                  or more of the above categories. If relying upon this Category
                  alone, each equity owner must complete a separate copy of this
                  Agreement.

                                          ______________________________________
                                                      (describe entity)

CATEGORY I []     The undersigned is not within any of the categories above and
                  is therefore NOT AN ACCREDITED INVESTOR.

                  The undersigned agrees that the undersigned will notify the
                  Company at any time on or prior to the execution of this
                  Agreement in the event that the representations and warranties
                  in this Agreement shall cease to be true, accurate and
                  complete.

                                      G-2
<PAGE>

1.2   SUITABILITY  (please answer each question)

                  (a) For an individual Investor, please describe your current
                      employment, including the company by which you are
                      employed and its principal business:

                  ______________________________________________________________

                  ______________________________________________________________

                  (b) For an individual Investor, please describe any college or
                  graduate degrees held by you:

                  ______________________________________________________________

                  ______________________________________________________________

                  (c) For all Investors, please list types of prior investments:

                  ______________________________________________________________

                  ______________________________________________________________

                  ______________________________________________________________

                  (d) For all Investors, please state whether you have you
                  participated in other private placements before:

                                          [] YES [] NO

                  (e) If your answer to question (d) above was "YES", please
                  indicate frequency of such prior participation in private
                  placements of:

<TABLE>
<CAPTION>
                        Public                             Private
                      Companies                           Companies
                      ---------                           ---------
<S>                   <C>                                 <C>
Frequently               []                                    []
Occasionally             []                                    []
Never                    []                                    []
</TABLE>

                  (f) For individual Investors, do you expect your current level
                  of income to significantly decrease in the foreseeable future:

                                          [] YES [] NO

                        If so, please explain:
                        ________________________________________________________

                  (g) For trust, corporate, partnership and other institutional
                  Investors, do you expect your total assets to significantly
                  decrease in the foreseeable

                                      G-3
<PAGE>

                  future:

                                          [] YES [] NO

                        If so, please explain:
                        ________________________________________________________

                  (h) For all Investors, do you have any other investments or
                  contingent liabilities which you reasonably anticipate could
                  cause you to need sudden cash requirements in excess of cash
                  readily available to you:

                                          [] YES [] NO

                  (i) For all Investors, are you familiar with the risk aspects
                  and the non-liquidity of investments such as the Common Stock
                  for which you seek to subscribe?

                                          [] YES [] NO

                  (j) For all Investors, do you understand that there is no
                  guarantee of financial return on this investment and that you
                  run the risk of losing your entire investment?

                                          [] YES [] NO

                  (k) For all Investors, please state whether or not you have
                  been indicted or convicted of any felony or any criminal
                  conduct in any foreign, federal, state or local proceeding:

                                          [] YES [] NO

                        (1) If you answered yes to item (k) above, please
                  describe such activity and the penalty, if any, imposed upon
                  you.

                  ______________________________________________________________

                  ______________________________________________________________

                        (2) You hereby authorize us to perform a background
                  check upon you and your affiliates, if necessary, in order to
                  provide to us sufficient information to determine your
                  suitability as an investor.

                                          [] YES [] NO

1.3   MANNER IN WHICH TITLE IS TO BE HELD  (check one)

                                          [] Individual Ownership

                                      G-4
<PAGE>

                                          [] Community Property

                                          [] Joint Tenant with Right of
                                                Survivorship
                                                (both parties must sign)

                                          [] Partnership*

                                          [] Tenants in Common

                                          [] Corporation*

                                          [] Trust*

                                          [] Limited Liability Company*

                                          [] Other

                  *If the Common Stock is being subscribed for by an entity, the
                  attached Certificate of Signatory must also be completed.

1.4   NASD AFFILIATION

                  Are you affiliated or associated with an NASD member firm
                  (please check one):

                                          [] YES [] NO

                  If Yes, please describe:

                  ______________________________________________________________

                  ______________________________________________________________

                  *If Investor is a Registered Representative with an NASD
                  member firm, have the following acknowledgment signed by the
                  appropriate party:

                  The undersigned NASD member firm acknowledges receipt of the
                  notice required by Rule 3050 of the NASD Conduct Rules.

                  ________________________
                  Name of NASD Member Firm

                  By: ________________________________
                        Authorized Officer

                  Date: ______________________________

1.5   The undersigned has been informed of the significance to the Company of
      the foregoing representations and answers contained in the Confidential
      Investor Questionnaire contained in this Section and such answers have
      been provided under the assumption that the Company will rely on them.

                                      G-5
<PAGE>

                                 SIGNATURE PAGE

                        INVESTOR NAME:__________________
                        CO-INVESTOR NAME:_______________

          INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
                                  CONFIDENTIAL

                  (1) Address Information
Please complete the following contact information for the address where Investor
wishes to receive all correspondence concerning this matter.

______________________________________    ______________________________________
Address for Correspondence                Address for Correspondence

______________________________________    ______________________________________
City, State and Zip Code                  City, State and Zip Code

E-mailAddress ________________________    E-mail Address _______________________

______________________________________    ______________________________________
Telephone (Business)                      Telephone (Business)

______________________________________    ______________________________________
Telephone (Residence)                     Telephone (Residence)

______________________________________    ______________________________________
Facsimile (Business)                      Facsimile (Business)

______________________________________    ______________________________________
Facsimile (Residence)                     Facsimile (Residence)

______________________________________    ______________________________________
Tax ID # or Social Security #             Tax ID # or Social Security #

AGREED AND SUBSCRIBED                     AGREED AND SUBSCRIBED
THIS __ DAY OF SEPTEMBER, 2005            THIS __ DAY OF SEPTEMBER, 2005

BY:___________________________________    BY:___________________________________
   SIGNATURE OF INVESTOR                  SIGNATURE OF JOINT INVESTOR (IF ANY)

______________________________________    ______________________________________
INVESTOR NAME (TYPED OR PRINTED)          ADDITIONAL INVESTOR NAME (TYPED OR
                                          PRINTED)

                                      G-6
<PAGE>

                  (2) Alternate Legal Address Information

If the address information set forth above is not the Investor's primary legal
residence (in the case of an individual) or primary place of business (in the
case of an entity), please set forth such primary address information below.

      ________________________________    ______________________________________
      Legal Address                       Legal Address

      ________________________________    ______________________________________
      City, State, and Zip Code           City, State, and Zip Code

                            CERTIFICATE OF SIGNATORY

 (TO BE COMPLETED ONLY IF THE COMMON STOCK IS BEING SUBSCRIBED FOR BY AN ENTITY)

            I, _________________________________________________, am the
_______________________________ (title) of
_____________________________________________ (the "Entity").

      I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Common Stock And Warrant Purchase Agreement and
to purchase and hold the Common Stock, and certify further that the Common Stock
And Warrant Purchase Agreement has been duly and validly executed on behalf of
the Entity and constitutes a legal and binding obligation of the Entity.

      IN WITNESS WHEREOF, I have set my hand this ____ day of _________________,
2005.

                                          ______________________________________
                                                      (Signature)

                                      G-7
<PAGE>

                                    EXHIBIT H

                         FORM OF PLACEMENT AGENT WARRANT

                                      H-1

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