8-K

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 8-K

                                 CURRENT REPORT

                        Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

                        Date of Report: January 19, 2007

                              Synergy Brands, Inc.
             (Exact name of registrant as specified in its charter)

Delaware                            0-19409                   22-2993066
(State of incorporation)     (Commission File No.)           (IRS Employer
                                                            Identification No.)

                     223 UNDERHILL BLVD., SYOSSET, NY 11791
               (Address of principal executive offices) (zip code)

   Registrant's telephone number, including area code: 1-516-714-8200

                                 Not Applicable
          (Former name or former address, if changed since last report)

Check  the  appropriate  box  below  if the  Form  8-K  Filing  is  intended  to
simultaneously satisfy the filing obligations of the registrant under any of the
following provisions.

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)

[ ]  Soliciting  material  pursuant to Rule 14a-12  under  Exchange  Act (17 CFR
240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))



Item 1.01 Entry into a Material Definitive Agreement.

     Effective January 19, 2007 Synergy Brands Inc. and its subsidiary PHS Group
Inc., the latter being the designated "Borrower" within such Agreement,  entered
with Lloyd I. Miller,  III and Milfam I L.P.,  an entity with whom Mr. Miller is
affiliated,  together  both  being the  "Purchaser"  within  such  Agreement,  a
Securities Purchase Agreement, and with such same parties as Purchaser,  Synergy
Brands Inc. and its  subsidiaries  PHS Group Inc.,  SYBR.Com Inc.,  Gran Reserve
Corporation,  DealByNet.Com  Inc.,  Quality Food Brands Inc., NYCE North America
Inc., and NetCigar.Com  Inc.  entered a Security Pledge and Guaranty  Agreement,
copies of such agreements being made exhibits hereto, as well as having executed
other ancillary documentation,  the designed purpose of which was to arrange for
$6.5 million of secured  financing from the referenced  Purchasers,  proceeds of
which Synergy Brands Inc.,  intends to utilize to retire present existing higher
interest  debt owed by PHS Group Inc. to IIG  Capital LLC and for other  general
working capital purposes.  The new financing consists of $6.5 million in secured
term notes to be amortized  over a 10 year period at an interest  rate of 11.25%
that may be reduced to 11% under certain  conditions as provided in the relevant
agreements.  In connection  therewith Synergy Brands Inc. has agreed to issue to
the  stated  Purchasers  in the  aggregate  1,075,000  shares of such  Company's
unregistered   common  stock.   Lloyd  Miller  is  a  director  and  significant
shareholder  of Synergy  Brands Inc. The terms and  conditions of this financing
and the affiliated loan  documentation  were  negotiated  between Mr. Miller and
Synergy Brands Inc and stated  subsidiaries at arm's length and all parties were
represented by independent  professional  advisors in evaluating those terms and
conditions,  and all of the  material  terms  and  conditions  and  the  related
existence  of the  transaction  being  with a related  person  have  been  fully
disclosed  to the Board of  Directors  and  members  of the Audit  Committee  of
Synergy  Brands Inc. and such persons have reviewed  those terms and  conditions
and have evaluated the merits of the underlying  transaction and have determined
in using their reasonable  business  judgment that such terms and conditions are
in the best interests of the shareholders of the said registrant.

Item 3.02 Unregistered Sales of Equity Securities.

     In connection with and as  consideration  for the financing  transaction as
described  under  Item 1.01  herein  supra the  registrant  has  agreed to issue
1,075,000  aggregate shares of its  unregistered  common stock to the referenced
Purchasers  which  issuance is exempt from  registration  as provided by Section
4(2) of the Securities Act of 1933, as amended.

Item 9.01 Exhibits.

     Exhibit 10 (without schedules and exhibits)  Securities  Purchase Agreement
between PHS Group Inc., as Borrower,  Synergy  Brands Inc.,  as Parent  Company,
Lloyd I. Miller III, and Milfam I L.P., as a Purchaser dated January 19, 2007.

     Exhibit 10.1 (without  schedules and exhibits) Security Pledge and Guaranty
Agreement  by and among PHS Group  Inc.,  a  Pennsylvania  corporation,  Synergy
Brands Inc., a Delawre  corporation,  SYBR.Com  Inc., A New Jersey  corporation,
Gran Reserve Corporation, a Florida corporation,  Dealbynet.com Inc., a New York
corporation, Quality Food Brands Inc., a Nevada corporation, NYCE North America,
a New Jersey corporation, Net Cigar.Com Inc., and Lloyd I. Miller III and Milfam
I L.P. dated January 19, 2007.

     Exhibit 10.2 Term Note dated  January 19, 2007 between PHS Group Inc.,  and
Lloyd I. Miller III in the amount of $3,250,000.

     Exhibit 10.3 Term Note dated  January 19, 2007 between PHS Group Inc.,  and
Milfam I L.P. in the amount of $3,250,000.



                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                              Synergy Brands, Inc.

                              By: /s/ Mair Faibish
                                  ----------------
                                      Mair Faibish
                             Chairman of the Board

                            By: /s/ Mitchell Gerstein
                                ---------------------
                                    Mitchell Gerstein
                              Chief Financial Officer

Dated:  January 19, 2007

EX-10

                                   Exhibit 10

                          SECURITIES PURCHASE AGREEMENT

                                     between

                           PHS GROUP INC., as Borrower

                     SYNERGY BRANDS INC., as Parent Company

                      LLOYD I. MILLER, III, as a Purchaser

                                       and

                          MILFAM I L.P., as a Purchaser



                          Dated as of January 19, 2007




                                TABLE OF CONTENTS




                                                                                          

ARTICLE I PURCHASE AND SALE OF SECURITIES...........................................................- 2 -

         SECTION 1.01.     The Secured Notes........................................................- 2 -

         SECTION 1.02.     The Common Stock.........................................................- 2 -

         SECTION 1.03.     Purchase and Sale of the Securities......................................- 2 -

         SECTION 1.04.     Payments and Endorsements................................................- 3 -

         SECTION 1.05.     Interest Rate for Secured Note; Payment of Principal for Secured Note....- 3 -

         SECTION 1.06.     Prepayment of Secured Notes..............................................- 3 -

         SECTION 1.07.     Payment on Non-Business Days.............................................- 4 -

         SECTION 1.08.     Registration of Secured Notes............................................- 4 -

         SECTION 1.09.     Transfer and Exchange of Secured Notes...................................- 5 -

         SECTION 1.10.     Replacement of Secured Note..............................................- 5 -

         SECTION 1.11.     Events of Default........................................................- 5 -

         SECTION 1.12.     Cancellation of Warrants.................................................- 7 -

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE BORROWER...........................................- 8 -

         SECTION 2.01.     Organization, Qualifications and Corporate Power.........................- 8 -

         SECTION 2.02.     Authorization of Agreements, Etc.........................................- 8 -

         SECTION 2.03.     Validity.................................................................- 9 -

         SECTION 2.04.     Authorized Capital Stock.................................................- 9 -

         SECTION 2.05.     SEC Filings, Other Filings and Regulatory Compliance.....................- 9 -

         SECTION 2.06.     Listing.................................................................- 10 -

         SECTION 2.07.     Governmental Approvals..................................................- 10 -

         SECTION 2.08.     Offering of the Securities..............................................- 10 -

         SECTION 2.09.     No Integrated Offering..................................................- 10 -

         SECTION 2.10.     Material Changes........................................................- 11 -

         SECTION 2.11.     Litigation..............................................................- 11 -

         SECTION 2.12.     Ownership of Property; Liens............................................- 12 -

         SECTION 2.13.     Intellectual Property Rights............................................- 12 -

         SECTION 2.14.     Insurance...............................................................- 12 -







                                                                                              

         SECTION 2.15.     Compliance with Other Instruments.......................................- 12 -

         SECTION 2.16.     Tax Returns and Payments................................................- 13 -

         SECTION 2.17.     Environmental and Safety Laws...........................................- 13 -

         SECTION 2.18.     ERISA...................................................................- 13 -

         SECTION 2.19.     Brokers.................................................................- 13 -

         SECTION 2.20.     Labor Relations.........................................................- 14 -

         SECTION 2.21.     Customers...............................................................- 14 -

         SECTION 2.22.     Solvency................................................................- 14 -

         SECTION 2.23.     Representations Complete................................................- 14 -

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......................................- 14 -

         SECTION 3.01.     Requisite Power and Authority...........................................- 14 -

         SECTION 3.02.     Investment Representations..............................................- 15 -

         SECTION 3.03.     Purchaser Bears Economic Risk...........................................- 15 -

         SECTION 3.04.     Acquisition for Own Account.............................................- 15 -

         SECTION 3.05.     Purchaser Can Protect Its Interest......................................- 15 -

         SECTION 3.06.     Accredited Investor.....................................................- 15 -

         SECTION 3.07.     Legends.................................................................- 15 -

ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS.........................................- 16 -

         SECTION 4.01.     Security, Pledge and Guaranty Agreement.................................- 16 -

         SECTION 4.02.     Subordination Agreement.................................................- 16 -

         SECTION 4.03.     Legal Opinion...........................................................- 16 -

         SECTION 4.04.     Representations and Warranties to be True and Correct...................- 16 -

         SECTION 4.05.     Performance.............................................................- 17 -

         SECTION 4.06.     All Proceedings to be Satisfactory......................................- 17 -

         SECTION 4.07.     Borrowing Base Certificate..............................................- 17 -

         SECTION 4.08.     Consent and Waiver......................................................- 17 -

         SECTION 4.09.     Control Agreement.......................................................- 17 -

         SECTION 4.10.     Supporting Documents....................................................- 17 -

ARTICLE V COVENANTS OF THE BORROWER AND THE PARENT COMPANY.........................................- 18 -

         SECTION 5.01.     Financial Statements, Reports, Etc......................................- 18 -

         SECTION 5.02.     Corporate Existence; Maintenance of Business............................- 19 -

         SECTION 5.03.     Listing.................................................................- 19 -







                                                                                             

         SECTION 5.04.     Properties, Insurance...................................................- 19 -

         SECTION 5.05.     Use of Proceeds.........................................................- 19 -

         SECTION 5.06.     Compliance with Laws....................................................- 20 -

         SECTION 5.07.     Keeping of Records and Books of Account.................................- 20 -

         SECTION 5.08.     Dividends and Certain Other Restricted Payments.........................- 20 -

         SECTION 5.09.     Capital Expenditures....................................................- 20 -

         SECTION 5.10.     Mergers, Consolidations and Asset Sales.................................- 20 -

         SECTION 5.11.     Acquisitions............................................................- 20 -

         SECTION 5.12.     Prepayment of Indebtedness..............................................- 20 -

         SECTION 5.13.     Incurrence of Indebtedness..............................................- 20 -

         SECTION 5.14.     Change in the Nature of Business........................................- 21 -

         SECTION 5.15.     Access to Facilities....................................................- 21 -

         SECTION 5.16.     Taxes...................................................................- 21 -

         SECTION 5.17.     Reissuance of Securities................................................- 22 -

         SECTION 5.18.     Good Standing Certificates..............................................- 22 -

         SECTION 5.19.     Notice of Payment.......................................................- 23 -

         SECTION 5.20.     No Modification of IIG Loan and Interline Notes.........................- 23 -

ARTICLE VI BORROWING BASE..........................................................................- 23 -

         SECTION 6.01.     Borrowing Base..........................................................- 23 -

ARTICLE VII REGISTRATION...........................................................................- 24 -

         SECTION 7.01.     Piggyback Registration..................................................- 24 -

ARTICLE VIII INDEMNIFICATION.......................................................................- 25 -

         SECTION 8.01.     Borrower Indemnification................................................- 25 -

         SECTION 8.02.     Purchaser Indemnification...............................................- 25 -

ARTICLE IX MISCELLANEOUS...........................................................................- 25 -

         SECTION 9.01.     Expenses................................................................- 25 -

         SECTION 9.02.     Survival of Agreements..................................................- 26 -

         SECTION 9.03.     Parties in Interest.....................................................- 26 -

         SECTION 9.04.     Notices.................................................................- 26 -

         SECTION 9.05.     Governing Law...........................................................- 27 -

         SECTION 9.06.     Entire Agreement........................................................- 27 -

         SECTION 9.07.     Counterparts............................................................- 27 -

         SECTION 9.08.     Due Diligence...........................................................- 27 -







                                                                                              

         SECTION 9.09.     Successors and Assigns..................................................- 28 -

         SECTION 9.10.     Amendments and Waivers..................................................- 28 -

         SECTION 9.11.     Severability............................................................- 28 -

         SECTION 9.12.     Titles and Subtitles....................................................- 28 -

         SECTION 9.13.     Jointly Drafted.........................................................- 28 -

         SECTION 9.14.     Broker's Fees...........................................................- 28 -

         SECTION 9.15.     Confidentiality.........................................................- 28 -

         SECTION 9.16.     Further Assurances......................................................- 29 -





     THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is dated as of January
19, 2007,  among PHS Group Inc., a Pennsylvania  corporation  (the  "Borrower"),
Synergy  Brands Inc.  (the "Parent  Company")  and the  purchasers  named in the
attached Schedule 1 hereto (each individually a "Purchaser" and collectively the
"Purchasers").

     WHEREAS,  the Borrower  currently has outstanding loans owed to IIG Capital
LLC ("IIG") pursuant to that certain Loan and Security  Agreement,  entered into
as of  November  13,  2002,  by and between the  Borrower  and IIG (as  amended,
supplemented,   or  otherwise   modified  from  time  to  time,  the  "IIG  Loan
Agreement"); and

     WHEREAS, in connection with the IIG Loan Agreement,  the Borrower granted a
first  priority  security  interest in all of the assets of the Borrower to IIG;
and

     WHEREAS,  the Parent Company currently has outstanding loans owed to Laurus
Master Fund, Ltd.  ("Laurus")  pursuant to that certain (i) Secured  Convertible
Term Note,  dated April 2, 2004,  issued by the Parent  Company to Laurus in the
original principal amount of $1,500,000.00,  (ii) Secured Convertible Term Note,
dated January 25, 2005,  issued by the Parent  Company to Laurus in the original
principal amount of $500,000.00, (iii) Secured Convertible Term Note, dated June
21,  2005,  issued by the  Parent  Company to Laurus in the  original  principal
amount of $500,000.00 and (iv) Secured Term Note,  dated March 14, 2006,  issued
by  the  Parent  Company  to  Laurus  in  the  original   principal   amount  of
$1,750,000.00  (as amended,  supplemented,  or otherwise  modified  from time to
time, collectively, the "Laurus Secured Note Agreements"); and

     WHEREAS, in connection with the Laurus Secured Note Agreements,  Laurus was
granted a security interest in all of the respective assets of the Borrower, the
Parent Company and Gran Reserve Corporation ("Gran Reserve") and the obligations
of the Parent Company were guaranteed by both the Borrower and Gran Reserve; and

     WHEREAS, the Borrower wishes to issue and sell to the Purchasers $6,500,000
in  aggregate  principal  amount of its secured  promissory  notes (as  amended,
supplemented,  or otherwise  modified  from time to time,  and together with any
note or notes issued in exchange for or in replacement thereof,  individually, a
"Secured Note" and, collectively, the "Secured Notes"); and

     WHEREAS,  the Parent  Company wishes to issue and sell to the Purchasers an
aggregate  1,075,000  shares  (the  "Common  Shares" and  collectively  with the
Secured Notes, the  "Securities") of common stock, par value $0.01 per share, of
the Parent Company ("Common Stock"); and

     WHEREAS, as a condition to the Purchasers buying the Securities, the Parent
Company and its  Subsidiaries  (as defined  herein) have agreed to guarantee the
obligations of the Borrower  underlying the Loan Documents (as defined  herein);
and

     WHEREAS, as a condition to the Purchasers buying the Securities, the Parent
Company and certain of its Subsidiaries have agreed to grant a security interest
in  substantially  all of their  respective  assets  to secure  the  obligations
underlying the Loan Documents; and

                                       1



     WHEREAS,  the Borrower will use the funds  received in connection  with the
purchase of the Securities by the Purchasers as follows:  (i) to repay in part a
portion of the  outstanding  debt owed to IIG pursuant to the IIG Loan Agreement
and (ii) the remainder of such funds shall be used for general  working  capital
purposes of the Borrower; and

     WHEREAS,  as a  condition  to  the  Purchasers  agreeing  to  purchase  the
Securities,  Laurus  shall  agree in  writing  to  subordinate,  in favor of the
Secured Notes and the security interest being granted to the Purchasers, Laurus'
security  interests in the assets of the Borrower,  the Parent  Company and Gran
Reserve   pursuant  to  the  terms  and  conditions  of  a   subordination   and
intercreditor agreement; and

     WHEREAS, subject to the foregoing recitals, the Purchasers, severally, wish
to purchase the  Securities on the terms and subject to the conditions set forth
in this Agreement.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:

                               ARTICLE I

                         PURCHASE AND SALE OF SECURITIES

     SECTION 1.01. The Secured Notes. On the terms and subject to the conditions
hereof,  the  Borrower  has  authorized  and  agreed  to  issue  and sell to the
Purchasers,  in the  respective  principal  amounts set forth in the schedule of
Purchasers  attached  hereto in Schedule 1 (the "Schedule of  Purchasers"),  the
Borrower's Secured Promissory Notes, due January 15, 2012 (the "Maturity Date"),
in the original aggregate principal amount of $6,500,000. The Secured Notes will
be substantially in the form set forth in Exhibit A hereto.

     SECTION 1.02. The Common Stock.  On the terms and subject to the conditions
hereof,  the Parent  Company has authorized and agreed to issue and sell to each
Purchaser that number of Common Shares set forth opposite such  Purchaser's name
on the Schedule of Purchasers.

     SECTION  1.03.  Purchase  and  Sale of the  Securities.  Subject  to and in
reliance  upon the  representations,  warranties,  terms and  conditions of this
Agreement,  the Purchasers,  severally and not jointly,  agree to purchase,  the
Securities  set  forth  opposite  their  respective  names  in the  Schedule  of
Purchasers for the aggregate cash purchase price set forth therein.  The closing
of such purchase and sale (the  "Closing") will be held at the office of Andrews
Kurth LLP, 450  Lexington  Ave.,  New York,  NY 10017,  on January 19, 2007 (the
"Closing Date") at 10:00 A.M.,  Eastern Standard Time, or on such other date and
at such time as may be mutually  agreed upon. At the Closing,  the Borrower will
issue and deliver to each  Purchaser one Secured  Note,  payable to the order of
such Purchaser, in the principal amount set forth opposite such Purchaser's name
in the Schedule of Purchasers  and the Parent  Company will issue and deliver to
each Purchaser a stock certificate, registered in the name of such Purchaser and
evidencing the number of Common Shares set opposite such Purchaser's name in the
Schedule of  Purchases.  Such  deliveries  will be made against  delivery to the
Borrower of a wire transfer by each Purchaser to the account of the Borrower, in
the amount  (subject  to  reduction  as set forth in the next  sentence  of this

                                       2



Section 1.03) set forth  opposite the name of such  Purchaser in the Schedule of
Purchasers  under the heading  "Aggregate  Purchase Price for  Securities".  The
Aggregate  Purchase Price for Securities  owed by each Purchaser to the Borrower
has been  calculated by taking into account a fee payable by the Borrower to the
Purchasers  equal to three percent (3.00%) of the aggregate  principal amount of
the Secured Notes. The amount of such fee is set forth opposite the name of each
Purchaser on the Schedule of Purchasers under the heading "Fee Amount."

     SECTION 1.04. Payments and Endorsements. Payments of principal and interest
on the Secured Notes will be made to the account of the respective  Purchaser by
wire transfer  referred to in the Schedule of Purchasers  attached as Schedule 1
or at such other address or account as such Purchaser may  subsequently  request
in any notice delivered by such Purchaser to the Borrower.

     SECTION  1.05.  Interest  Rate for Secured  Note;  Payment of Principal for
Secured Note.  The Secured Notes will accrue  interest at the rate of 11.25% per
annum.  Interest will be due and payable quarterly in arrears on the last day of
each  calendar  quarter  (each,  an  "Interest  Payment  Date"),  with the first
interest payment due March 31, 2007.  Principal will be amortized over ten years
and  payable  in  equal  monthly  installments  on the  last  day of each  month
beginning on January 31, 2007. The principal amount owed to the Purchasers under
the Secured Notes and all accrued but unpaid  interest  thereon shall be due and
payable in full on the Maturity  Date unless  earlier  redeemed  pursuant to the
terms and  conditions  set forth in Section  1.06  herein.  Notwithstanding  the
foregoing,  the  interest  rate set forth  above  shall be  reduced to a rate of
11.00% per annum (the "Reduced  Rate") once the Purchasers have obtained a first
priority  secured  interest  in all of the  assets of the  Borrower,  the Parent
Company and Gran Reserve.  In order for the Reduced Rate to be  applicable,  the
Parent  Company and the Borrower must provide  written  notice to the Purchasers
evidencing that all prior security  interests  granted to IIG in connection with
or related to the IIG Loan  Agreement (the "IIG Security  Interests")  have been
duly  terminated  and are of no further  force and effect.  Such notice shall be
subject to the  independent  confirmation  of the Purchasers  that in their sole
discretion the IIG Security  Interests  have been duly  terminated and are of no
further  force and  effect.  From and after the date upon  which the  Purchasers
provide  written  notice  to the  Borrower  confirming  that  the  IIG  Security
Interests  have been duly  terminated,  the  Secured  Notes will begin  accruing
interest at the Reduced  Rate.  In the event any payment under a Secured Note is
not timely made when due, interest will accrue on such late payment at an amount
equal to 18% per annum from and  including the date such late payment was due to
(but  excluding)  the date  such late  payment  is paid to the  Purchasers.  All
amounts  payable under the Secured  Notes and hereunder  shall be paid in lawful
money of the United States without setoff or withholding of any kind.

     SECTION  1.06.  Prepayment  of Secured  Notes.  The  Secured  Notes will be
payable by the Borrower  prior to the Maturity Date as follows (all  prepayments
made by the Borrower to the  Purchasers  under this  Agreement  shall be made by
wire transfer of immediately available funds):

     (a) Voluntary  Prepayment  by the  Borrower.  At any time until the Secured
Notes have been repaid in full, the Borrower may, at its sole option, redeem the
entire outstanding  principal amount of the Secured Notes (including any and all
accrued  but unpaid  interest  on such  principal  amount)  through  the date of

                                       3



repayment on such principal amount (such entire  outstanding  principal  amount,
plus all such accrued but unpaid interest,  hereinafter referred to for purposes
of this Section 1.06 as the "Prepayment Amount") by paying to the holders of the
Secured  Notes the  Prepayment  Amount,  with such  payments  to be  apportioned
ratably  among the  Purchasers  or their  transferees  according  to the  unpaid
principal balance and accrued but unpaid interest thereon to which such payments
relate;  provided,  however, that the Borrower shall provide the Purchasers with
not less than five (5) Business Days' advance notice of any such prepayment. For
purposes of this  Agreement,  the term  "Business Day" shall mean any day of the
week  other  than  Saturday,  Sunday  or any  other  day of the  week  on  which
commercial  banks in the State of New York are  authorized or required by law to
be closed.

     (b)  Prepayment  on Change of Control.  At any time until the Secured Notes
have been repaid in full,  the Borrower  will redeem the Secured  Notes in their
entirety upon the  occurrence of a Change of Control by paying to the holders of
the Secured Notes the  applicable  Prepayment  Amount on the closing date of the
Change of Control.  Such payments will be apportioned  ratably among the Secured
Note holders  according to the unpaid  principal  balance and accrued but unpaid
interest  thereon to which such  payments  relate.  For purposes of this Section
1.06(b),  "Change of Control"  means the event of (i) a  merger,  consolidation,
recapitalization  or share  exchange in which the holders of the voting stock of
the  Parent   Company   immediately   prior  to  such   merger,   consolidation,
recapitalization  or share exchange will not own 50% or more of the voting stock
of the  continuing  or  surviving  corporation  or other  entity,  or the parent
company of such  corporation  or other  entity,  immediately  after such merger,
consolidation,  recapitalization or share exchange,  (ii) the sale,  assignment,
conveyance,  transfer,  lease or other  disposition  (other  than the grant of a
security  interest) of all or substantially  all of the assets of Parent Company
to any  person  or  group  of  related  persons,  or  (iii) any  sale  or  other
disposition of the voting stock of the Parent Company  representing  50% or more
of the total voting power of the Parent Company's outstanding capital stock in a
single  transaction or a series of related  transactions to any person, or group
of related persons.

     SECTION 1.07. Payment on Non-Business Days. Whenever any payment to be made
under any Secured Note or hereunder is due on a day that is not a Business  Day,
such payment may be made on the next succeeding Business Day, and such extension
of time will in such case be included in the  computation of payment of interest
due.

     SECTION 1.08.  Registration of Secured Notes. The Borrower will maintain at
its principal office a register of the Secured Notes and will record therein the
names and addresses of the registered  holders of the Secured Notes, the address
to which notices are to be sent and the address to which payments are to be made
as designated by the registered  holder if other than the address of the holder,
and the  particulars of all  transfers,  exchanges and  replacements  of Secured
Notes.  No transfer of a Secured Note will be valid unless made on such register
for the  registered  holder or his executors or  administrators  or his or their
duly appointed  attorney,  upon  surrender  therefor for exchange as hereinafter
provided,  accompanied  by an  instrument  in  writing,  in form  and  execution
reasonably  satisfactory  to the Borrower.  Each Secured Note issued  hereunder,
whether  originally or upon transfer,  exchange or replacement of a Secured Note
or Secured  Notes,  will be registered  on the date of execution  thereof by the
Borrower  and will be dated  the date to which  interest  has been  paid on such
Secured Notes or Secured Note. The  registered  holder of a Secured Note will be
that  person  in whose  name the  Secured  Note  has been so  registered  by the
Borrower. A registered holder will be deemed the owner of a Secured Note for all

                                       4




purposes  of this  Agreement  and,  subject to the  provisions  hereof,  will be
entitled to the principal and interest  evidenced by such Secured Note free from
all  equities or rights of setoff or  counterclaim  between the Borrower and the
transferor of such registered  holder or any previous  registered holder of such
Secured Note.

     SECTION 1.09. Transfer and Exchange of Secured Notes. The registered holder
of any Secured Note may, prior to maturity or prepayment thereof, surrender such
Secured  Note or  Secured  Notes at the  principal  office of the  Borrower  for
transfer or exchange;  provided,  however,  the registered holder of any Secured
Note or Secured Notes will not transfer any such Secured Note without  providing
notice to the  Borrower.  Within a reasonable  time after notice to the Borrower
from a  registered  holder of its  intention  to make such  exchange and without
expense  (other than transfer  taxes,  if any) to such  registered  holder,  the
Borrower will issue in exchange  therefor another Secured Note or Secured Notes,
in such  denominations  as  requested  by the  registered  holder,  for the same
aggregate principal amount as the unpaid principal amount of the Secured Note or
Secured Notes so surrendered  and having the same maturity and rate of interest,
containing  the same  provisions and subject to the same terms and conditions as
the Secured Note or Secured Notes so surrendered.  Each new Secured Note will be
made payable to such person or persons, or registered assigns, as the registered
holder of such surrendered Secured Note or Secured Notes may designate, and such
transfer  or  exchange  will be made  in such a  manner  that no gain or loss of
principal or interest will result therefrom.

     SECTION  1.10.  Replacement  of Secured  Note.  Upon  receipt  of  evidence
reasonably  satisfactory  to the  Borrower of the loss,  theft,  destruction  or
mutilation  of any Secured  Note and, if requested in the case of any such loss,
theft or  destruction,  upon delivery of an indemnity bond or other agreement or
security  reasonably  satisfactory to the Borrower,  or, in the case of any such
mutilation,  upon surrender and  cancellation of such Secured Note, the Borrower
will issue a new  Secured  Note,  of like tenor and amount and dated the date to
which  interest  has been  paid,  in lieu of such  lost,  stolen,  destroyed  or
mutilated  Secured  Note;  provided,  however,  if any  Secured  Note of which a
Purchaser  whose name is set forth in the  Schedule  of  Purchasers  attached as
Schedule 1,  its  nominee,  or any of its partners is the  registered  holder is
lost,  stolen or  destroyed,  the affidavit of the  President,  Treasurer or any
Assistant  Treasurer or any other  authorized  representative  of the registered
holder  setting  forth the  circumstances  with  respect to such loss,  theft or
destruction  will  be  accepted  as  satisfactory   evidence  thereof,   and  no
indemnification  bond or other  security  will be required as a condition to the
execution and delivery by the Borrower of a new Secured Note in  replacement  of
such lost, stolen or destroyed  Secured Note other than the registered  holder's
written agreement to indemnify the Borrower.

     SECTION 1.11.  Events of Default.  If any of the following  events (each an
"Event of Default") shall occur and be continuing:

     (a) The Borrower will fail to pay any  installment  of principal due on any
Secured Note on the date such installment is due;

     (b) The  Borrower  will fail to pay any  interest  due on any Secured  Note
within five (5) calendar days of the date such payment is due;

                                       5



     (c) Any  representation  or  warranty  made by the  Borrower  or the Parent
Company in this  Agreement,  or by the  Borrower  or the Parent  Company (or any
officers of the Borrower or the Parent Company) in any  certificate,  instrument
or written  statement  contemplated  by or made or  delivered  pursuant to or in
connection  with this  Agreement  will prove to have been incorrect when made in
any material respect;

     (d) Any representation or warranty made by the Borrower, the Parent Company
or any Subsidiary party to that certain Security,  Pledge and Guaranty Agreement
(as  defined  below),  dated  as of the date  hereof,  will  prove to have  been
incorrect when made in any material respect;

     (e) Any representation or warranty made by the Borrower, the Parent Company
or  any  Subsidiary  party  to  that  certain  Subordination  and  Intercreditor
Agreement,  substantially  in the form attached hereto as Exhibit B, dated as of
the date of this Agreement,  by and among the Borrower, the Parent Company, Gran
Reserve, SYBR.com Inc., Laurus and the Purchasers (the "Subordination Agreement"
and collectively  referred to with this Agreement,  the Secured Note, the Common
Shares and the Security, Pledge and Guaranty Agreement as the "Loan Documents"),
will prove to have been incorrect when made in any material respect;

     (f) Either the  Borrower,  the Parent  Company,  or a  Subsidiary  fails to
perform or observe any other term,  covenant or agreement  contained in the Loan
Documents to which it is a party or any agreement  executed and delivered by the
Borrower,  the Parent  Company,  or any  Subsidiary in connection  with the Loan
Documents and any such failure  remains  unremedied for  ten (10) calendar  days
after written  notice thereof will have been given to the Borrower or the Parent
Company by any registered holder of the Secured Notes;  provided,  however, that
no notice shall be required to be given by the Purchasers to the Borrower in the
event that the  Borrower  does not comply with the covenant set forth in Section
5.20 of this Agreement and an event of default shall  immediately occur upon the
Borrower failing to comply with such covenant;

     (g) Laurus  fails to perform or observe  any term,  covenant  or  agreement
contained in the Loan Documents to which it is a party or any agreement executed
and  delivered  by Laurus in  connection  with the Loan  Documents  and any such
failure  remains  unremedied  for  ten (10) calendar  days after written  notice
thereof  will have been given to  Borrower or Parent  Company by any  registered
holder of the Secured Notes;

     (h) The Borrower, the Parent Company or any Subsidiary will fail to pay any
indebtedness  in excess of an aggregate  of $100,000  for borrowed  money (other
than as  evidenced  by the  Secured  Notes)  owing by the  Borrower,  the Parent
Company or any Subsidiary or any interest or premium  thereon,  when due (or, if
permitted by the terms of the relevant  document,  within any  applicable  grace
period),  whether such  indebtedness will become due by scheduled  maturity,  by
required prepayment,  by acceleration,  by demand or otherwise,  or will fail to
perform any term,  covenant or agreement  on its part to be performed  under any
agreement or instrument  evidencing or securing or relating to any  indebtedness
in excess of an aggregate of $100,000 owing by the Borrower,  the Parent Company
or any  Subsidiary  when required to be performed (or, if permitted by the terms
of the relevant document,  within any applicable grace period), if the effect of

                                       6



such  failure  to pay or perform  is to  accelerate,  or to permit the holder or
holders  of such  indebtedness,  or the  trustee  or  trustees  under  any  such
agreement or instrument to accelerate, the maturity of such indebtedness;

     (i) The Borrower,  the Parent Company or any Subsidiary will be involved in
financial  difficulties  as  evidenced  (i) by  its  admitting  in  writing  its
inability  to  pay  its  debts  generally  as  they  become  due;   (ii) by  its
commencement  of a voluntary  case under  Title 11 of the United  States Code as
from time to time in effect, or by its authorizing,  by appropriate  proceedings
of its Board of Directors or other  governing  body, the  commencement of such a
voluntary  case which is not  dismissed  within  twenty (20) days;  (iii) by its
filing an answer or other  pleading  admitting  or failing to deny the  material
allegations of a petition filed against it commencing an involuntary  case under
said Title 11, or seeking,  consenting to or  acquiescing  in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition;  (iv) by the entry of an order for relief in any involuntary case
commenced  under said Title 11; (v) by its seeking  relief as a debtor under any
applicable  law, other than said Title 11, of any  jurisdiction  relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors,  or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent  jurisdiction  (a) finding
it to be bankrupt or  insolvent,  (b) ordering  or  approving  its  liquidation,
reorganization or any modification or alteration of the rights of its creditors,
or (c) assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property;  or (vii) by its making an assignment for
the  benefit  of,  or  entering  into a  composition  with,  its  creditors,  or
appointing or consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property;

     (j) Any  judgment,  writ,  warrant of  attachment  or  execution or similar
process will be issued or levied against the Borrower, the Parent Company or any
Subsidiary  or any of their  respective  property or other  assets for more than
$150,000.00 in the aggregate for all such  judgments,  writs, or similar process
and such  judgment,  writ, or similar  process will not be released,  vacated or
fully bonded within forty five (45) days after its issue or levy; or

     (k) The outstanding amount owed under the Secured Notes, taken together and
in the aggregate (including  principal and accrued but unpaid interest),  at any
time exceeds the Borrowing Base.

     then, and in any such event,  any holder of any Secured Note may, by notice
to the Borrower, declare the entire unpaid principal amount of the Secured Note,
all interest accrued and unpaid thereon and all other amounts payable under this
Agreement to be forthwith due and payable,  whereupon the Secured Note, all such
accrued  interest  and all such  amounts  will become and be  forthwith  due and
payable  (unless there will have  occurred an Event of Default under  subsection
1.12(i) in  which  case all  such  amounts  will  automatically  become  due and
payable),  without presentment,  demand,  protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower.

     SECTION  1.12.  Cancellation  of  Warrants.  The parties  hereto agree that
automatically  upon the Closing  Date,  that any  warrants  issued by the Parent
Company to the Purchasers  shall be deemed  cancelled and shall be of no further

                                       7



force and effect,  including without limitation,  that certain warrant issued by
the Parent  Company to Lloyd I. Miller,  III which allowed the holder to acquire
31,250 shares of the common stock of the Parent  Company at an exercise price of
$5.00 and with an expiration date of September 30, 2012.

                                   ARTICLE II

                 REPRESENTATIONS AND WARRANTIES OF THE BORROWER

     The Borrower  and the Parent  Company  each hereby  represent  and warrant,
jointly and severally,  to the Purchasers as follows (which  representations and
warranties are supplemented by the Parent  Company's  filings (the "Exchange Act
Filings") under the Securities Exchange Act of 1934 (the "Exchange Act"), copies
of which have been provided or made available to the Purchasers):

     SECTION 2.01. Organization, Qualifications and Corporate Power.

     (a) Each of the  Borrower,  the Parent  Company  and each  Subsidiary  is a
corporation,  partnership or limited liability company, as the case may be, duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of organization.  Each of the Borrower, the Parent Company and each
Subsidiary  has  the  corporate  power  and  authority  to own and  operate  its
properties and assets, and to execute and deliver, to the extent a party thereto
and to the extent  applicable,  (i) this  Agreement,  (ii) the  Securities to be
issued  in  connection  with this  Agreement,  (iii) the  Security,  Pledge  and
Guaranty  Agreement,   (iv)  the  Subordination  Agreement  and  (v)  all  other
agreements  related to this Agreement and the Securities and referred to herein,
and to issue and sell the  Securities  and to carry out the  provisions  of this
Agreement and the aforementioned related agreements and to carry on its business
as  presently  conducted.  Each of the  Borrower,  the Parent  Company  and each
Subsidiary  is duly  qualified  and is  authorized to do business and is in good
standing as a foreign corporation,  partnership or limited liability company, as
the case may be, in all  jurisdictions in which the nature of its activities and
of its properties (both owned and leased) makes such qualification necessary.

     (b) The Parent Company has no active  subsidiaries with assets of any kind,
other than as set forth on Schedule 2.01(b). The Parent Company does not (i) own
of record or  beneficially,  directly or  indirectly,  (A) any shares of capital
stock  or  securities  convertible  into  capital  stock  of  any  other  active
corporation or (B) any participating interest in any partnership,  joint venture
or  other  non-corporate  business  enterprise  or  (ii) control,   directly  or
indirectly, any other entity, other than as set forth on Schedule 2.01(b).  Each
direct and indirect  Subsidiary of the Parent Company,  the direct owner of such
Subsidiary  and its  percentage  ownership  thereof,  is set  forth on  Schedule
2.01(b).  For the purpose of this  Agreement,  a  "Subsidiary"  of any person or
entity  means (i) a  corporation  or other entity whose shares of stock or other
ownership  interests  having  ordinary  voting  power (other than stock or other
ownership  interests  having  such  power only by reason of the  happening  of a
contingency) to elect a majority of the directors of such corporation,  or other
persons or entities  performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns,  directly or indirectly,  more
than 50% of the equity interests at such time.

     SECTION 2.02. Authorization of Agreements, Etc.

                                       8




     (a) The execution and delivery by the Borrower, the Parent Company and each
applicable  Subsidiary  of  the  Loan  Documents,  and  the  performance  by the
Borrower,  the Parent Company and each applicable  Subsidiary of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Securities have
been duly authorized by all requisite  corporate action and will not (i) violate
any  provision  of law,  any order of any court or other  agency of  government,
(ii) violate  the Certificate of  Incorporation  or the By-laws of the Borrower,
the  Parent  Company  or any  Subsidiary,  each as  amended,  (iii) violate  any
provision of any indenture, agreement or other instrument to which the Borrower,
the Parent Company,  any Subsidiary or any of its properties or assets is bound,
or (iv) conflict  with,  result in a breach of or constitute (with due notice or
lapse of time or both) a default  under any such  indenture,  agreement or other
instrument.

     (b) The Securities have been duly authorized and, when issued in accordance
with this Agreement, will be free and clear of all liens, charges, restrictions,
claims  and  encumbrances  imposed  by or  through  the  Borrower  or the Parent
Company, as applicable.  Except as set forth on Schedule 2.02(b),  the issuance,
sale and delivery of the Securities  are not subject to any preemptive  right of
shareholders  of the Parent  Company,  the Borrower or any  Subsidiary or to any
right of first  refusal or other  right in favor of any  person.  When issued in
accordance  with this  Agreement,  the Common  Shares  will be duly  authorized,
validly issued, fully paid and non-assesable.

     SECTION 2.03. Validity.  Each of this Agreement and the Loan Documents have
been duly executed and delivered by the Borrower,  the Parent  Company  and/or a
Subsidiary,  as  applicable,   and  constitute  the  legal,  valid  and  binding
obligations  of the  Borrower,  the  Parent  Company  and/or  a  Subsidiary,  as
applicable, enforceable in accordance with their terms.

     SECTION 2.04. Authorized Capital Stock. The authorized capital stock of the
Parent Company consists of 15,000,000  shares of Common Stock,  $0.001 par value
per share.  As of the date of this Agreement,  6,484,275  shares of Common Stock
were validly issued and  outstanding,  fully paid and  nonassessable.  Except as
disclosed in SEC Reports (as defined below), there are no options,  warrants and
convertible  securities of the Parent  Company,  and any other rights to acquire
securities  of the Parent  Company.  All  outstanding  securities  of the Parent
Company are validly issued, fully paid and nonassessable.

     SECTION 2.05.  SEC Filings,  Other Filings and Regulatory  Compliance.  The
Parent  Company  has filed all proxy  statements,  reports  and other  documents
required  to be filed by it under the  Exchange  Act.  The  Parent  Company  has
delivered  or made  accessible  to the  Purchasers  true,  complete and accurate
copies of:  (a) the Parent  Company's  Annual Report on Form 10-K for the fiscal
year ended December 31, 2005, (b) the Borrower's  Quarterly Reports on Form 10-Q
for the fiscal  quarters  ended June 30, 2006 and  September 30,  2006,  (c) the
Borrower's  definitive  proxy  statement  dated April 27,  2006  relating to its
Annual Meeting of  Stockholders,  and (d) all the Borrower's  Current Reports on
Form 8-K filed since December 31, 2005 (collectively,  the "SEC Reports").  Each
SEC Report was, at the time of its filing,  in substantial  compliance  with the
requirements  of its  respective  form  and  none  of the SEC  Reports,  nor the
financial  statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact  required to be stated  therein or necessary
to make the statements  therein,  in light of the circumstances under which they
were made, not misleading.  The SEC Reports when filed, complied in all material

                                       9



respects  with  all  applicable   requirements  of  the  Exchange  Act  and  the
Sarbanes-Oxley Act of 2002, if and to the extent  applicable,  and the rules and
regulations of the Securities and Exchange Commission  thereunder  applicable to
the SEC Reports.  Each balance sheet included in the SEC Reports  (including any
related  notes and  schedules)  fairly  presents in all  material  respects  the
consolidated  financial  position of the Parent Company as of its date, and each
of the other  financial  statements  included in the SEC Reports  (including any
related  notes and  schedules)  fairly  presents  in all  material  respect  the
consolidated  results of operations of the Parent  Company for the periods or as
of the dates therein set forth in accordance with generally accepted  accounting
principles ("GAAP"). Such financial statements included in the SEC Reports were,
at the time they were filed, consistent with the books and records of the Parent
Company, the Borrower and the Subsidiaries in all material respects and complied
as to form in all material respects with then applicable accounting requirements
and with the rules and regulations of the SEC with respect  thereto.  The Parent
Company keeps  accounting  records in which all material assets and liabilities,
and all material transactions,  including off-balance sheet transactions, of the
Borrower are recorded in accordance with GAAP.

     SECTION  2.06.  Listing.  The Parent  Company's  Common Stock is listed for
trading  on  the  NASDAQ   SmallCap  Market  ("NASDAQ  SC")  and  satisfies  all
requirements  for the  continuation of such listing.  The Parent Company has not
received any currently  effective  notice that its Common Stock will be delisted
from  NASDAQ SC or that its  Common  Stock  does not meet all  requirements  for
listing.

     SECTION  2.07.  Governmental  Approvals.  Subject  to the  accuracy  of the
representations   and  warranties  of  the  Purchasers  set  forth  herein,   no
registration  or filing with,  or consent or approval of or other action by, any
federal,  state or other  governmental  agency  or  instrumentality,  including,
without  limitation,  the SEC or NASDAQ,  is or will be necessary  for the valid
execution,  delivery and  performance  by the Borrower or the Parent  Company of
this Agreement,  the issuance,  sale and delivery of the Securities,  other than
filings  pursuant to state  securities laws (all of which filings have been made
by the Borrower and the Parent  Company,  other than those which are required or
permitted  to be made after the  Closing and which will be duly made on a timely
basis) in connection with the sale of the Securities.

     SECTION  2.08.  Offering of the  Securities.  Assuming  the accuracy of the
representations and warranties of the Purchaser contained in this Agreement, the
offer,  sale and issuance of the Securities will be exempt from the registration
requirements  of the Securities  Act, and will have been registered or qualified
(or are exempt from  registration  and  qualification)  under the  registration,
permit  or  qualification  requirements  of all  applicable  federal  and  state
securities laws.

     SECTION  2.09.  No Integrated  Offering.  Neither the Borrower,  the Parent
Company,  nor any Subsidiary,  nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under  circumstances that would cause the offering of
the  Securities  pursuant  to this  Agreement  or any related  agreements  to be
integrated  with prior  offerings  by the  Borrower  or the Parent  Company  for
purposes of the  Securities  Act which would  prevent the Borrower or the Parent
Company from selling the  Securities  pursuant to Rule 506 under the  Securities

                                       10



Act, or any applicable  exchange-related  stockholder approval  provisions,  nor
will the Parent Company,  the Borrower nor any  Subsidiaries  take any action or
steps that would cause the  offering of the  Securities  to be  integrated  with
other offerings.

     SECTION  2.10.  Material  Changes.  Except as disclosed in any Exchange Act
Filing and as set forth in Schedule 2.10  attached hereto,  since  September 30,
2006,  there has not been (i) any change in the business,  assets,  liabilities,
condition (financial or otherwise),  properties,  operations or prospects of the
Borrower,  the Parent Company or any Subsidiaries,  which individually or in the
aggregate has had, or could  reasonably  be expected to have a material  adverse
effect on the business, assets, liabilities, condition (financial or otherwise),
properties,  operations or prospects of the Borrower,  the Parent Company or any
Subsidiaries,  taken  individually and as a whole (a "Material Adverse Effect");
(ii) any  resignation or  termination  of any officer,  key employee or group of
employees of the Borrower, the Parent Company or any of its Subsidiaries;  (iii)
any  material  change,  except  in  the  ordinary  course  of  business,  in the
contingent  obligations  of  the  Borrower,  the  Parent  Company  or any of its
Subsidiaries by way of guaranty, endorsement,  indemnity, warranty or otherwise;
(iv) any damage,  destruction or loss, whether or not covered by insurance,  has
had, or could reasonably be expected to have,  individually or in the aggregate,
a Material Adverse Effect; (v) any waiver by the Borrower, the Parent Company or
any  Subsidiaries of a valuable right or of a material debt owed to it; (vi) any
direct or  indirect  loans  made by the  Borrower,  the  Parent  Company  or any
Subsidiaries to any stockholder,  employee, officer or director of the Borrower,
the Parent Company or any Subsidiaries, other than advances made in the ordinary
course of business; (vii) any material change in any compensation arrangement or
agreement  with any employee,  officer,  director or  stockholder  of the Parent
Company or any of its  Subsidiaries;  (viii) any  declaration  or payment of any
dividend or other distribution of the assets of the Parent Company or any of its
Subsidiaries;  (ix) any debt,  obligation  or  liability  incurred,  assumed  or
guaranteed by the Parent  Company or any of its  Subsidiaries,  except those for
immaterial amounts and for current  liabilities  incurred in the ordinary course
of business;  (x) any sale,  assignment or transfer of any patents,  trademarks,
copyrights, trade secrets or other intangible assets owned by the Parent Company
or any of its Subsidiaries;  (xi) any change in any material  agreement to which
the  Borrower  or the Parent  Company  is a party or by which it is bound  which
either individually or in the aggregate has had, or could reasonably be expected
to have,  individually or in the aggregate,  a Material Adverse Effect; or (xii)
any other event or condition of any character  that,  either  individually or in
the aggregate, has had, or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.

     SECTION 2.11.  Litigation.  Except as disclosed in  Schedule 2.11  attached
hereto, there is no action, suit, proceeding or investigation pending or, to the
Borrower or the Parent Company's  knowledge,  currently  threatened  against the
Parent  Company or any of its  Subsidiaries  that questions the validity of this
Agreement or the right of the  Borrower or the Parent  Company to enter into it,
or to consummate the transactions  contemplated hereby, or that could reasonably
be expected to result,  either  individually or in the aggregate,  in a Material
Adverse Effect on the Borrower or the Parent  Company.  The foregoing  includes,
without  limitation,  actions pending or, to the Borrower's or Parent  Company's

                                       11




knowledge, threatened involving the prior employment of any of the Borrower's or
Parent  Company's  employees or their use in connection  with the  Borrower's or
Parent Company's business of any information or techniques allegedly proprietary
to any of their  former  employers.  Neither  the Parent  Company nor any of its
Subsidiaries  is a party to or subject  to the  provisions  of any order,  writ,
injunction, judgment or decree of any court or governmental authority. Except as
disclosed in Schedule 2.11 attached hereto, there is no action, suit, proceeding
or  investigation  by the Parent  Company or any of its  Subsidiaries  currently
pending or which the Parent Company or any of its Subsidiaries currently intends
to  initiate,  which could  reasonably  be  expected to have a Material  Adverse
Effect.

     SECTION 2.12. Ownership of Property; Liens. Except as set forth on Schedule
2.12 attached  hereto,  each of the Parent Company and each of its  Subsidiaries
has good and marketable  title to its  properties and assets,  and good title to
its leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than: (a) those resulting from taxes which have not
yet  become  delinquent;  (b) minor  liens and  encumbrances  which it is to the
Borrower's and Parent Company's belief do not materially  detract from the value
of the property  subject  thereto or  materially  impair the  operations  of the
Borrower or any of its Subsidiaries; and (c) those that have otherwise arisen in
the ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other  properties  owned,  leased or used by the Parent Company and
its Subsidiaries  are in good operating  condition and repair and are reasonably
fit and usable for the  purposes  for which they are being  used.  Except as set
forth on Schedule 2.12 attached hereto,  the Parent Company and its Subsidiaries
are in compliance  with all material  terms of each lease to which it is a party
or is otherwise bound.

     SECTION 2.13.  Intellectual  Property Rights. To the best of its knowledge,
the Parent Company and its Subsidiaries owns or possesses the licenses or rights
to use all patents, patent applications,  patent rights,  inventions,  know-how,
trade secrets, trademarks, trademark applications, service marks, service names,
trade names and copyrights necessary to enable it to conduct its business as now
operated (the  "Intellectual  Property").  Except as set forth in  Schedule 2.13
attached  hereto,  there  are  no  material  outstanding  options,  licenses  or
agreements relating to the Intellectual  Property,  nor is the Parent Company or
its  Subsidiaries  bound  by or a party to any  material  options,  licenses  or
agreements  relating  to  the  patents,  patent  applications,   patent  rights,
inventions, know-how, trade secrets, trademarks, trademark applications, service
marks,  service names,  trade names or copyrights of any other person or entity.
Except  as set  forth in  Schedule 2.13  attached  hereto,  there is no claim or
action or proceeding pending or, to the Borrower or Parent Company's  knowledge,
threatened that  challenges the right of the Parent Company or its  Subsidiaries
with respect to any Intellectual Property.  Except as set forth in Schedule 2.13
attached  hereto,  to the knowledge of the Borrower and the Parent Company,  the
Parent Company's and its Subsidiaries'  Intellectual  Property does not infringe
upon any intellectual  property rights of any other person which, if the subject
of an  unfavorable  decision,  ruling or finding  would have a Material  Adverse
Effect.

     SECTION  2.14.  Insurance.  The Parent  Company  and its  Subsidiaries  are
insured by insurers of recognized financial  responsibility  against such losses
and risks and in such  amounts  as  management  of the  Parent  Company  and its
Subsidiaries  believe to be prudent and customary in the businesses in which the
Parent Company and its Subsidiaries are engaged.

     SECTION 2.15. Compliance with Other Instruments. Neither the Parent Company
nor any of its  Subsidiaries  is in  violation or default of (x) any term of its
Charter  or  Bylaws,  or (y) of any  provision  of any  indebtedness,  mortgage,
indenture, contract, agreement or instrument to which it is party or by which it

                                       12



is bound or of any judgment,  decree, order or writ, which violation or default,
in the case of this clause  (y),  has had,  or could  reasonably  be expected to
have, either  individually or in the aggregate,  a Material Adverse Effect.  The
execution,  delivery and  performance of and compliance  with this Agreement and
the Loan Documents by the Parent Company and its Subsidiaries,  to which it is a
party,  and the issuance and sale of the  Securities  each  pursuant  hereto and
thereto,  will not,  with or  without  the  passage of time or giving of notice,
result in any such  material  violation,  or be in conflict with or constitute a
default  under  any  such  term  or  provision  or  result  in  the  suspension,
revocation,  impairment,  forfeiture  or  nonrenawal  of  any  permit,  license,
authorization or approval  applicable to the Parent Company or its Subsidiaries,
its businesses or operations or any of its assets or properties.

     SECTION  2.16.  Tax  Returns  and  Payments.  The  Parent  Company  and its
Subsidiaries  have  timely  filed all tax  returns  (federal,  state and  local)
required  to be filed by it.  All  taxes  shown  to be due and  payable  on such
returns,  any  assessments  imposed,  and all other taxes due and payable by the
Parent Company and its Subsidiaries on or before the Closing,  have been paid or
will be paid prior to the time they  become  delinquent.  Except as set forth on
Schedule  2.16  attached  hereto  neither  the  Parent  Company  nor  any of its
Subsidiaries has been advised:  (a) that any of its returns,  federal,  state or
other,  have  been or are being  audited  as of the date  hereof;  or (b) of any
deficiency  in assessment  or proposed  judgment to its federal,  state or other
taxes.  Neither the Parent Company nor any of its  Subsidiaries has knowledge of
any  liability of any tax to be imposed upon its  properties or assets as of the
date of this Agreement that is not adequately provided for.

     SECTION 2.17. Environmental and Safety Laws. Neither the Parent Company nor
any of its  Subsidiaries  is in  violation  of any  applicable  statute,  law or
regulation relating to the environment or occupational health and safety,  which
violation has had, or could reasonably be expected to have, either  individually
or in the aggregate with all other such  violations,  a Material  Adverse Effect
and to its knowledge,  no material expenditures are or will be required in order
to comply with any such existing statute, law or regulation.

     SECTION 2.18. ERISA. Based upon the Employee Retirement Income Security Act
of 1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) neither the Parent  Company nor any of its  Subsidiaries  has engaged in any
Prohibited  Transactions (as defined in Section 406 of ERISA and Section 4975 of
the Internal  Revenue Code of 1986,  as amended (the  "Code"));  (ii) the Parent
Company  and  its   Subsidiaries   have  met  all  applicable   minimum  funding
requirements  under Section 302 of ERISA in respect of its plans;  (iii) neither
the Parent Company nor any of its Subsidiaries has any knowledge of any event or
occurrence  which  would  cause the  Pension  Benefit  Guaranty  Corporation  to
institute  proceedings under Title IV of ERISA to terminate any employee benefit
plan(s);  (iv) neither the Parent  Company nor any of its  Subsidiaries  has any
fiduciary  responsibility  for investments with respect to any plan existing for
the  benefit of persons  other than the Parent  Company's  or such  Subsidiary's
employees;  and (v) neither the Parent Company nor any of its  Subsidiaries  has
withdrawn,  completely or partially,  from any multi-employer pension plan so as
to incur liability under the Multiemployer Pension Plan Amendments Act of 1980.

     SECTION 2.19.  Brokers.  The Parent Company and its  Subsidiaries  have not
employed,  and are not  subject  to the valid  claim  of,  any  broker,  finder,

                                       13



consultant  or  other   intermediary   in  connection   with  the   transactions
contemplated hereby who might be entitled to a fee or commission from the Parent
Company or its Subsidiaries in connection with such transactions.

     SECTION 2.20. Labor Relations. No labor or employment dispute exists or, to
the knowledge of the Borrower or Parent Company, is imminent or threatened, with
respect to any of the  employees  or  consultants  of the Parent  Company or any
Subsidiary that has, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.

     SECTION 2.21. Customers.  Except as disclosed in Schedule 2.21, neither the
Parent Company nor any Subsidiary has received any actual notice that any of its
top ten (10) customers has ceased, or intends to cease, to use its services,  or
has substantially  reduced, or intends to substantially  reduce, the use of such
services at any time.

     SECTION 2.22.  Solvency.  Based on the consolidated  financial condition of
the Parent  Company and the  Subsidiaries  as of the date  hereof,  (i) the fair
saleable  value of the Parent  Company and its  Subsidiaries  assets exceeds the
amount that will be required to be paid on or in respect of the Parent Company's
and its Subsidiaries  existing debts and other liabilities  (including known and
contingent  liabilities)  as they  mature;  (ii) the  Parent  Company's  and its
Subsidiaries'  assets do not constitute  unreasonably  small capital to carry on
its business for the current  fiscal year as now conducted and as proposed to be
conducted,  including  its  capital  needs  taking into  account the  particular
capital  requirements  of the business  conducted by the Parent  Company and its
Subsidiaries,  projected capital requirements and capital availability  thereof;
and (iii) the  current  cash flow of the Parent  Company  and its  Subsidiaries,
together with the proceeds the Parent Company would receive were it to liquidate
all of its assets,  after taking into account all anticipated  uses of the cash,
would be  sufficient  to pay all amounts on or in respect of its debts when such
amounts are required to be paid.

     SECTION 2.23.  Representations Complete. The representations and warranties
made  by the  Borrower  and  the  Parent  Company  in  this  Agreement,  and the
statements  made in any  certificates  furnished  by the Borrower and the Parent
Company  pursuant to this  Agreement,  taken as a whole, do not contain and will
not contain,  as of their  respective  dates and as of the  Closing,  any untrue
statement  of a material  fact or omit to state any material  fact  necessary in
order to make such statements,  taken as a whole, in light of the  circumstances
under which they were made, not misleading.

                                  ARTICLE III

                REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

     Each Purchaser severally,  and not jointly,  represents and warrants to the
Borrower and Parent Company that:

     SECTION  3.01.  Requisite  Power  and  Authority.  The  Purchaser  has  all
necessary power and authority under all applicable  provisions of law to execute
and deliver  this  Agreement  and to carry out their  provisions.  All action on

                                       14



Purchaser's  part  required  for  the  lawful  execution  and  delivery  of this
Agreement  have been or will be  effectively  taken prior to the  Closing.  Upon
their  execution  and  delivery,  this  Agreement  will  be  valid  and  binding
obligations of Purchaser, enforceable in accordance with their terms, except (a)
as limited by (a) applicable bankruptcy, insolvency, reorganization,  moratorium
or other laws of general application affecting enforcement of creditors' rights;
and (b) general principles of equity that restrict the availability of equitable
and legal remedies.

     SECTION 3.02.  Investment  Representations.  Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon  Purchaser's  representations
contained in the Agreement.  The Purchaser  confirms that it has received or has
had full access to all the information it considers  necessary or appropriate to
make an  informed  investment  decision  with  respect to the  Securities  to be
purchased by it under this Agreement. The Purchaser further confirms that it has
had an  opportunity  to ask questions and receive  answers from the Borrower and
the Parent Company regarding the Parent Company and its Subsidiaries'  business,
management  and financial  affairs and the terms and conditions of the offering,
and the Securities and to obtain additional  information necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.

     SECTION 3.03.  Purchaser Bears Economic Risk. The Purchaser has substantial
experience in  evaluating  and investing in private  placement  transactions  of
securities in companies  similar to the Parent Company and its  Subsidiaries  so
that it is capable of evaluating  the merits and risks of its  investment in the
Parent  Company  and its  Subsidiaries  and has the  capacity to protect its own
interests.  The Purchaser must bear the economic risk of this  investment  until
the  Securities  are sold pursuant to: (i) an effective  registration  statement
under the Securities  Act; or (ii) an exemption from  registration  is available
with respect to such sale.

     SECTION 3.04.  Acquisition for Own Account.  The Purchaser is acquiring the
Securities for the Purchaser's  own account for investment  only, and not with a
view towards or for resale in connection with their distribution in violation of
the Securities Act.

     SECTION 3.05. Purchaser Can Protect Its Interest.  The Purchaser represents
that  by  reason  of  its,  or  of  its  management's,  business  and  financial
experience,  the  Purchaser has the capacity to evaluate the merits and risks of
its  investment in the Securities and to protect its own interests in connection
with the transactions  contemplated in this Agreement.  Purchaser is aware of no
publication  or  any   advertisement   in  connection   with  the   transactions
contemplated in the Agreement.

     SECTION  3.06.  Accredited  Investor.  Purchaser  represents  that it is an
"accredited  investor"  within the meaning of Regulation D under the  Securities
Act.

     SECTION 3.07. Legends.

     (a) The Secured Notes shall bear substantially the following legend:

     "THE SECURITY  REPRESENTED BY THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE
     SECURITIES  ACT OF 1933, AS AMENDED,  OR ANY  APPLICABLE  STATE  SECURITIES
     LAWS.  ANY TRANSFER OF SUCH SECURITY WILL BE INVALID  UNLESS A REGISTRATION
     STATEMENT UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO
     SUCH TRANSFER OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."

                                       15



     (b) The Common Shares shall bear substantially the following legend:

     "THE COMMON STOCK  REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED,  OR ANY  APPLICABLE  STATE
     SECURITIES  LAWS  AND  MAY  NOT BE  SOLD,  OFFERED  FOR  SALE,  PLEDGED  OR
     HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT UNLESS
     SUCH TRANSACTION IN EXEMPT FROM, OR NOT SUBJECT TO SUCH REGISTRATION."

                                   ARTICLE IV

                 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS

     The  obligation  of each  Purchaser to purchase and pay for the  Securities
being  purchased  by it on the Closing  Date is, at its  option,  subject to the
satisfaction, on or before the Closing Date of the following conditions:

     SECTION 4.01. Security,  Pledge and Guaranty Agreement. A Security,  Pledge
and Guaranty Agreement,  dated as of the date hereof, by and among the Borrower,
Parent Company,  Gran Reserve,  SYBR.com Inc., NYCE North America Inc.,  Quality
Food Brands,  Inc.,  Dealbynet.com,  Net Cigar.Com Inc., and the Purchasers (the
"Security,  Pledge and Guaranty Agreement"),  in substantially the form attached
as Exhibit C and all related financing  statements and other similar instruments
and documents, will have been executed and delivered to the Purchasers by a duly
authorized  officer of the Parent Company and a duly authorized  officer of each
of the Subsidiaries  party thereto and the Purchasers shall have received all of
the  share   certificates   evidencing  all  of  the  equity   interest  in  the
Subsidiaries, together with stock powers, undated and executed in blank.

     SECTION 4.02.  Subordination  Agreement. The Subordination Agreement by and
among the Borrower, the Parent Company, Gran Reserve,  SYBR.com Inc., Laurus and
the  Purchasers,  dated as of the  Closing  Date,  will have been  executed  and
delivered to the Purchasers by a duly  authorized  officer of the Parent Company
and a duly authorized officer of each of the Subsidiaries party thereto.

     SECTION 4.03.  Legal Opinion.  The Purchasers will have received an opinion
of the Borrower's and Parent Company's counsel,  dated as the Closing Date, with
respect to legal  matters  customary  for  transactions  of this type, in a form
reasonably acceptable to the Purchasers.

     SECTION 4.04.  Representations  and Warranties to be True and Correct.  The
representations  and warranties  contained in Article II will be true,  complete
and  correct  on and as of the  Closing  with the same  effect  as  though  such

                                       16



representations  and  warranties had been made on and as of such date (except to
the extent that the  representation  or warranty speaks to a specific date), and
the Chief  Executive  Officer and Chief  Financial  Officer of the  Borrower and
Parent Company will have certified to such effect to the Purchasers in writing.

     SECTION  4.05.  Performance.  The  Borrower  and Parent  Company  will have
performed  and  complied  in  all  material  respects  with  all  covenants  and
agreements  contained  herein  required to be performed  or complied  with by it
prior to or at the  Closing  Date and the  Chief  Executive  Officer  and  Chief
Financial  Officer of the Borrower and Parent Company will have certified to the
Purchasers  in writing to such effect and to the further  effect that all of the
conditions set forth in this Article IV have been satisfied.

     SECTION 4.06. All Proceedings to be  Satisfactory.  All corporate and other
proceedings to be taken by the Parent Company and its Subsidiaries in connection
with the  transactions  contemplated  hereby and all documents  incident thereto
will be  satisfactory in form and substance to the Purchasers and their counsel,
and the  Purchasers  and their counsel will have  received all such  counterpart
originals or certified or other copies of such documents as they  reasonably may
request.

     SECTION 4.07.  Borrowing  Base  Certificate.  Each Purchaser and his or its
counsel will have received a Borrowing Base Certificate (as hereinafter defined)
calculated  pursuant to the terms and conditions set forth in Article VI of this
Agreement  and such  Borrowing  Base  Certificate  will show that the  aggregate
principal amount outstanding at the time of the Closing under the Secured Notes,
taken  together,  is less than the Borrowing Base as set forth in such Borrowing
Base Certificate.

     SECTION  4.08.  Consent and Waiver.  The  Purchasers  will have  received a
consent and waiver  document duly executed by an authorized  signatory on behalf
of Laurus,  whereby Laurus waives any limitation or restriction set forth in the
Laurus  Secured  Note  Agreements  to the  sale by the  Parent  Company  and the
Borrower of the  Securities  to the  Purchasers  pursuant to this  Agreement and
whereby  Laurus  also  waives any right of first  refusal  that  Laurus may have
pursuant to the Laurus Secured Note Agreements,  in a form reasonably acceptable
to the Purchasers.

     SECTION  4.09.  Control  Agreement.  The  Purchasers  will have  received a
control  agreement  duly  executed and agreed upon by and among North Fork Bank,
the Borrower,  Gran Reserve and  Purchasers,  whereby the  Purchasers  will have
received a perfected  security interest in certain deposit accounts  established
by the Borrower and Gran Reserve at such bank, in a form  reasonably  acceptable
to the Purchasers.

     SECTION 4.10. Supporting  Documents.  The Purchasers and their counsel will
have received copies of the following documents:

     (i) (A) the Certificate of Incorporation of the Parent Company, as amended,
certified  as of a  recent  date by the  Secretary  of  State  of the  State  of
Delaware,  (B) the  Certificate of  Incorporation  of the Borrower,  as amended,
certified  as of a  recent  date by the  Secretary  of  State  of the  State  of
Pennsylvania, (C) a certificate of said Secretaries dated as of a recent date as
to the due  incorporation  and good standing of the Parent Company and Borrower,

                                       17



the payment of all excise  taxes by the Parent  Company and Borrower and listing
all documents of the Parent Company and Borrower on file with said Secretary;

     (ii) a  certificate  of the  Secretary  or an  Assistant  Secretary  of the
Borrower  and  Parent  Company  dated as of the  Closing  Date  and  certifying:
(A) that  attached  thereto  is a true and  complete  copy of the  Bylaws of the
Borrower  and  Parent  Company  as in effect on the date of such  certification;
(B) that attached thereto is a true and complete copy of all resolutions adopted
by the Board of Directors of the Borrower  and Parent  Company  authorizing  the
execution,  delivery and  performance of this Agreement and the Loan  Documents,
the issuance, sale and delivery of the Securities, and that all such resolutions
are in full force and effect and are all the  resolutions  adopted in connection
with the transactions  contemplated by this Agreement;  (C) that the Certificate
of  Incorporation  of the Borrower and Parent Company has not been amended since
the date of the last amendment referred to in the certificate delivered pursuant
to clause  (i)(A) and (i)(B)  above;  and (D) to  the  incumbency  and  specimen
signature of each officer of the Borrower and Parent  Company  executing  any of
the Loan Documents and any certificate or instrument  furnished pursuant hereto,
and a certification  by another officer of the Borrower and Parent Company as to
the incumbency and signature of the officer signing the certificate  referred to
in this clause (ii); and

     (iii) such  additional  supporting  documents  and other  information  with
respect to the  operations and affairs of the Borrower and Parent Company as the
Purchasers or their counsel reasonably may request.

     All  such  documents  will be  satisfactory  in form and  substance  to the
Purchasers and their counsel.

                                   ARTICLE V

                COVENANTS OF THE BORROWER AND THE PARENT COMPANY

     The Borrower and Parent  Company  agree that,  so long as any Secured Notes
are outstanding,  except to the extent compliance in any case or cases is waived
in writing by the Purchasers:

     SECTION 5.01. Financial  Statements,  Reports, Etc. The Parent Company will
furnish to each Purchaser:

     (a) within ninety (90) days after the end of each fiscal year of the Parent
Company a consolidated  balance sheet of the Parent Company and its Subsidiaries
as of the end of such  fiscal year and the related  consolidated  statements  of
income for the fiscal year then  ended,  prepared  in  accordance  with GAAP and
certified by a firm of independent  public  accountants  of recognized  national
standing selected by the Board of Directors of the Parent Company;

     (b) within  sixty (60) days  after the end of each  fiscal  quarter in each
fiscal  year  a  consolidated  balance  sheet  of the  Parent  Company  and  its
Subsidiaries  and the related  consolidated  statements of income  unaudited but
prepared  in  accordance  with  generally  accepted  accounting  principles  and

                                       18



certified  by  the  Chief  Financial   Officer  of  the  Parent  Company,   such
consolidated  balance sheet to be as of the end of such fiscal  quarter and such
consolidated  statements  of income to be for such  fiscal  quarter  and for the
period from the beginning of the fiscal year to the end of such fiscal quarter;

     (c) promptly after the commencement thereof,  notice of all actions, suits,
claims,  proceedings,  investigations  and  inquiries  of the type  described in
Section 2.11 of this Agreement that could materially adversely affect the Parent
Company or any of its Subsidiaries;

     (d) promptly upon sending,  making  available or filing the same, all press
releases,  reports and  financial  statements  that the Parent  Company sends or
makes available to its stockholders or directors or files with the SEC;

     (e)  within  twenty  (20)  days  after  the end of each  fiscal  quarter  a
Borrowing Base  Certificate  based upon a date of determination of the last date
of such fiscal quarter  prepared in accordance  with GAAP and Article VI hereof;
and

     (f)  promptly,  from time to time,  such other  information  regarding  the
business, prospects, financial condition, operations, property or affairs of the
Parent Company and its Subsidiaries as such Purchaser reasonably may request.

     Notwithstanding  this  Section 5.01,  so  long  as the  Parent  Company  is
required to make filings  pursuant to the Exchange Act and makes such filings in
a timely  manner,  the Parent  Company  will be deemed to have  furnished to the
Purchasers  the  financial   statements  and  other  reports  required  by  this
Section 5.01;  provided,  however,  that the  foregoing  shall  not apply to the
clauses (c) and (e) above.

     SECTION 5.02.  Corporate  Existence;  Maintenance  of Business.  The Parent
Company  and the  Borrower  will,  and will cause each of its  Subsidiaries  to,
preserve and maintain its  existence.  The Parent  Company will,  and will cause
each of its Subsidiaries to, preserve and keep in force and effect all licenses,
permits, franchises,  approvals, patents, trademarks, trade names, trade styles,
copyrights,  and  other  proprietary  rights  necessary  to the  conduct  of its
business  where the  failure to do so could  reasonably  be  expected  to have a
Material Adverse Effect.

     SECTION 5.03. Listing. The Parent Company shall maintain the listing of the
Common  Stock on the NASDAQ  Small Cap (the  "Principal  Market") so long as any
other  shares of Common  Stock  shall be so  listed.  The  Parent  Company  will
maintain  the  listing of its Common  Stock on the  Principal  Market,  and will
comply in all material respects with the Parent Company's reporting,  filing and
other  obligations  under the  bylaws or rules of the  National  Association  of
Securities Dealers ("NASD") and such exchanges, as applicable.

     SECTION  5.04.   Properties,   Insurance.   The  Parent   Company  and  its
Subsidiaries  will maintain as to its properties and business,  with financially
sound  and  reputable   insurers,   insurance   against  such   casualties   and
contingencies  and of  such  types  and in  such  amounts  as is  customary  for
companies similarly situated.

     SECTION 5.05. Use of Proceeds.  The Borrower will use the proceeds from the
sale of the Securities as set forth on Schedule 5.05 attached hereto.

                                       19



     SECTION 5.06. Compliance with Laws. The Parent Company and its Subsidiaries
will  comply  with  all  applicable   laws,   rules,   regulations  and  orders,
noncompliance  with which  could  materially  adversely  affect its  business or
condition, financial or otherwise.

     SECTION 5.07.  Keeping of Records and Books of Account.  The Parent Company
and its Subsidiaries  will keep adequate records and books of account,  in which
complete entries will be made in accordance with generally  accepted  accounting
principles  consistently applied,  reflecting all financial  transactions of the
Parent  Company and its  Subsidiaries,  and in which,  for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence,  amortization, taxes,
bad debts and other purposes in connection with its business will be made.

     SECTION 5.08. Dividends and Certain Other Restricted  Payments.  The Parent
Company  will not,  nor will it permit any of its  Subsidiaries  to  directly or
indirectly  declare or pay any  dividends,  other than (i) dividends paid to the
Borrower  or any of its  wholly-owned  Subsidiaries  or (ii)  dividends  paid in
connection with preferred  stock currently  issued and outstanding by the Parent
Company.

     SECTION 5.09. Capital  Expenditures.  The Parent Company will not, nor will
it permit any of its Subsidiaries to, incur any Capital  Expenditures other than
in the  ordinary  course  consistent  with past  practice.  For purposes of this
Agreement,  "Capital  Expenditures"  means, with respect to any person or entity
for any period,  the aggregate amount of all expenditures  (whether paid in cash
or accrued as a liability)  by such person or entity  during that period for the
acquisition or leasing  (pursuant to a capital lease) of fixed or capital assets
or  additions  to  property,   plant,  or  equipment  (including   replacements,
capitalized  repairs,  and  improvements)  which  should be  capitalized  on the
balance sheet of such person or entity in accordance with GAAP.

     SECTION 5.10.  Mergers,  Consolidations and Asset Sales. The Parent Company
will  not,  nor will it  permit  any of its  Subsidiaries  to, be a party to any
merger or consolidation, or sell, transfer, lease or otherwise dispose of all or
any  substantial  part of its  assets.  Provided  that no Event of  Default  has
occurred, nothing contained in this Section 5.10 shall be deemed to prohibit the
Parent Company and its  Subsidiaries  from the sale of inventory in the ordinary
course of business.

     SECTION 5.11. Acquisitions. The Parent Company will not, nor will it permit
any  of  its  Subsidiaries  to,  directly  or  indirectly,  acquire  all  or any
substantial  part of the  assets or  business  of any other  entity or  division
thereof.

     SECTION 5.12. Prepayment of Indebtedness.  The Parent Company will not, nor
will it permit any of its Subsidiaries,  to prepay any indebtedness for borrowed
money; provided,  however, that this Section 5.12 will not prohibit the Borrower
from  prepaying  the Secured  Notes  pursuant to the terms of this  Agreement or
paying the  indebtedness  for borrowed money owed to IIG Capital LLC pursuant to
the IIG Loan Agreement.

     SECTION 5.13.  Incurrence of Indebtedness.  The Borrower and Parent Company
will not and will not  permit  any of its  Subsidiaries  to (i)  create,  incur,
assume  or suffer  to exist  any  indebtedness,  or issue or suffer to exist any

                                       20



preferred equity interests  (exclusive of unsecured trade debt and debt incurred
to finance the purchase of equipment  and/or inventory in the ordinary course of
business)  whether  secured or  unsecured;  (ii)  cancel any debt owing to it in
excess of $50,000 in the  aggregate  during any 12 month  period;  (iii) assume,
guarantee,  endorse or  otherwise  become  directly  or  contingently  liable in
connection  with any  obligations  of any other  person or  entity,  except  the
endorsement  of  negotiable  instruments  by the  Parent  Company  or any of its
Subsidiaries  for deposit or collection or similar  transactions in the ordinary
course of business or  guarantees  of  indebtedness  otherwise  permitted  to be
outstanding  pursuant to this  clause;  provided,  however,  that the  foregoing
limitation shall not apply to (x) the Borrower's  indebtedness to the Purchasers
hereunder, (y) indebtedness and preferred equity interests set forth on Schedule
5.13 attached hereto and made a part hereof and any refinancings or replacements
thereof on terms no less favorable to the Purchasers  than the  indebtedness  or
preferred  equity  interests  being  refinanced  or  replaced,   (z)  additional
indebtedness incurred, and/or preferred equity issuances issued (with the amount
of such  preferred  equity  interests  to equal the  greater of the  liquidation
preference  with respect  thereto and the maximum  fixed  repurchase  price with
respect  thereto),  not to exceed one  million  dollars  ($1,000,000.00)  in the
aggregate at any time  outstanding,  so long as the  obligation of the Borrower,
the Parent Company  and/or any of its  Subsidiaries  to repay such  indebtedness
and/or redeem such preferred  equity interests  incurred or issued,  as the case
may  be,  pursuant  to  this  clause  (z),  shall  be  unsecured  and  expressly
subordinated  (in  writing  in a  form  acceptable  to  the  Purchasers  in  the
Purchasers  sole   discretion)  to  the  Borrower,   Parent  Company's  and  its
Subsidiaries'  obligations to the  Purchasers  under this Agreement and the Loan
Documents,  including,  without limitation, its obligation to payment in full of
the Secured Notes.

     SECTION  5.14.  Change in the Nature of Business.  The Parent  Company will
not, nor will it permit any of its  Subsidiaries  to,  engage in any business or
activity  other than the general  nature of the business  engaged in by it as of
the Closing  Date or  discontinue  its  engagement  in any  business or activity
engaged in by it as of the Closing Date.

     SECTION 5.15. Access to Facilities. As long as any principal,  interest and
fees with respect to the Secured  Notes remain  outstanding,  each of the Parent
Company and each of its Subsidiaries will permit any representatives  designated
by the Purchasers (or any successor of the Purchasers),  upon reasonable advance
notice and during  normal  business  hours  reasonably  convenient to the Parent
Company,  its Subsidiaries  and/or  representatives of the Parent Company and/or
any of its Subsidiaries that are responsible for the maintenance of such records
at such  person's  expense and  accompanied  by a  representative  of the Parent
Company  and/or the applicable  Subsidiary,  to (a) visit and inspect any of the
properties  of the Parent  Company or any of its  Subsidiaries,  (b) examine the
corporate and financial records of the Parent Company or any of its Subsidiaries
(unless such  examination is not permitted by federal,  state or local law or by
contract)  and make copies  thereof or extracts  therefrom,  and (c) discuss the
affairs,  finances and accounts of the Parent Company or any of its Subsidiaries
with the directors,  officers and independent  accountants of the Parent Company
or any of its Subsidiaries.  Notwithstanding the foregoing, neither the Borrower
nor any of its Subsidiaries will provide any material, non-public information to
the  Purchasers  unless the  Purchasers  sign a  confidentiality  agreement  and
otherwise complies with Regulation FD, under the federal securities laws.

     SECTION 5.16.  Taxes. The Parent Company and its Subsidiaries will promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all

                                       21



lawful taxes,  assessments and  governmental  charges or levies imposed upon the
income,   profits,   property  or  business  of  the  Parent   Company  and  its
Subsidiaries;  provided, however, that any such tax, assessment,  charge or levy
need not be paid if the validity  thereof  shall  currently be contested in good
faith  by  appropriate  proceedings  and  if  the  Parent  Company  and/or  such
Subsidiary  shall have set aside on its books  adequate  reserves  with  respect
thereto,  and provided,  further,  that the Parent Company and its  Subsidiaries
will pay all such  taxes,  assessments,  charges  or levies  forthwith  upon the
commencement  of  proceedings  to foreclose  any lien which may have attached as
security therefor.

     SECTION  5.17.  Reissuance  of  Securities.  The Parent  Company  agrees to
reissue  certificates  representing  the Common  Shares  without the legends set
forth above at such time as: (a) the holder  thereof is  permitted to dispose of
such Common Shares pursuant to Rule 144(k) under the Securities Act; or (b) upon
resale subject to an effective  registration  statement after such Common Shares
are registered  under the Securities Act. The Parent Company agrees to cooperate
with the Purchasers in connection  with all resales  pursuant to Rule 144(d) and
Rule  144(k) and provide  legal  opinions  deemed  reasonably  necessary  by the
Purchasers  (at the Parent  Company's  cost) to allow such resales  provided the
Parent Company and its counsel receive reasonably requested representations from
the selling Purchaser and broker, if any, and the Parent Company and its counsel
are reasonably satisfied with the validity of such representations.

     SECTION  5.18.  Good  Standing  Certificates.  To the extent  that any good
standing  certificate for any applicable  jurisdiction  has not been provided to
the Purchasers on the Closing Date, the Parent Company and/or the Borrower shall
provide a good  standing  certificate  for each of the  Parent  Company  and its
Subsidiaries  to the  Purchasers  as soon as possible and in no event later than
three (3) months after the Closing  Date.  In the event,  the  Purchasers do not
receive  a  good  standing  certificate  for  any  entity  referred  to  in  the
immediately preceding sentence,  the Parent Company shall issue 50,000 shares of
Common Stock pro rata to the Purchasers  (based on the principal  amount of such
Purchaser's  Secured  Note  then  outstanding)  and  deliver  to each  Purchaser
registered  in such  Purchaser's  name and  evidencing  the  number of shares of
Common Stock so issued to such Purchaser a physical stock certificate; provided,
further,  that in the event that the Parent  Company  and/or the Borrower do not
satisfy the  obligations set forth in this section within nine (9) months of the
Closing Date,  the Parent  Company  shall issue an  additional  50,000 shares of
Common Stock pro rata to the Purchasers  (based on the principal  amount of such
Purchaser's  Secured  Note  then  outstanding)  and  deliver  to each  Purchaser
registered  in such  Purchaser's  name and  evidencing  the  number of shares of
Common  Stock so issued to such  Purchaser  a physical  stock  certificate;  and
provided, further, that in the event that the Parent Company and/or the Borrower
do not satisfy the  obligations  set forth in this section  within  fifteen (15)
months of the Closing Date, the Parent Company shall issue a further  additional
50,000 shares of Common Stock pro rata to the Purchasers (based on the principal
amount of such  Purchaser's  Secured Note then  outstanding) and deliver to each
Purchaser  registered  in such  Purchaser's  name and  evidencing  the number of
shares of Common Stock so issued to such Purchaser a physical stock certificate.
The  Parent  Company  covenants  and  agrees  that all  shares  to be  issued in
connection  with the  obligations  set forth in this section when issued will be
duly  authorized,  validly issued,  fully paid and  non-assessable  and free and
clear of all liens, charges,  restrictions,  claims and encumbrances of any kind
whatsoever.

                                       22



     SECTION  5.19.  Notice of Payment.  The  Borrower  shall  promptly  provide
written  notice  to the  Purchasers  once  the  Borrower  has  paid in full  and
satisfied all obligations  owed to (i) IIG under the IIG Loan Agreement and (ii)
Lawrence K. Fleischman,  Edmond O' Donnell, and DBMK Partners,  Ltd. under those
certain secured  promissory notes (the "Interline Notes") currently existing and
outstanding  as of the date of this  Agreement.  In no event  shall the  written
notice to be  provided  by the  Borrower to the  Purchasers,  referenced  in the
immediately preceding sentence, exceed five (5) calendar days from and after the
date that either of the foregoing obligations are paid in full.

     SECTION 5.20. No Modification of IIG Loan and Interline Notes. The Borrower
agrees not to amend,  supplement  or otherwise  modify the existing  terms under
either the IIG Loan Agreement or the Interline Notes without first obtaining the
prior written consent of the Purchasers.

                                   ARTICLE VI

                                 BORROWING BASE

     SECTION  6.01.   Borrowing   Base.  The  following  terms  shall  have  the
definitions  set forth below in connection  with this  Section.  All other terms
which are not  specifically  defined herein shall have the meanings  provided in
the UCC (as hereinafter defined) to the extent the same are used herein.  Unless
otherwise   specified  herein,   all  accounting  terms  used  herein  shall  be
interpreted,  all  accounting  determinations  hereunder  shall be made, and all
financial  statements  required to be delivered  hereunder  shall be prepared in
accordance with GAAP consistently applied.

     (a)  "Borrowing  Base"  means the sum of (a) 85% of the Net Face  Amount of
Borrower's Eligible Accounts and (b) the sum of (i) 50% of the liquidation value
of  Eligible  Inventory  and (ii) 50% of the invoice  cost of Eligible  Goods in
Transit.

     (b) "Borrowing Base Certificate" means a certificate,  completed and signed
by Borrower  calculating  the  Borrowing  Base,  in the form  annexed  hereto as
Exhibit D.

     (c)  "Eligible  Account"  means an  Account  subject to  Purchasers'  first
priority,  perfected  security  interest,  but excluding the following:  (i) any
Account which remain uncollected for more than 60 days from invoice date (each a
"Delinquent  Account");  (ii) any  Account  due from an Account  Debtor  that is
insolvent; (iii) any Account due from an Account Debtor affiliated with Borrower
in any manner;  (iv) any Account which is not unconditionally due and owing; (v)
any  Account  with  respect to which the  Account  Debtor is not a  resident  or
citizen of,  located in, or subject to service of process in, the United States,
and which are not either (A) covered by credit insurance in form and amount, and
by an  insurer,  satisfactory  to  Purchaser,  or (B)  supported  by one or more
letters of credit  issued by a financial  institution,  acceptable to Purchaser;
(vi) any Account due from an Account  Debtor who is any national,  federal state
or municipal  government,  including,  without limitation,  any instrumentality,
division, agency, body or department thereof, except where the Account Debtor is
bound to make payment directly to Purchaser;  (vii) Accounts due from an Account
Debtor as to which 25%  percent or more of the  aggregate  dollar  amount of all
outstanding  Accounts owing from such Account  Debtor are  Delinquent  Accounts;

                                       23



(viii) that portion of Accounts due from an Account Debtor which is in excess of
30% percent of Borrower's  aggregate  dollar amount of all outstanding  Accounts
Receivable;  (ix)  Accounts  which  are  not  free of all  liens,  encumbrances,
charges,  rights and  interest of any kind,  except in favor of  Purchasers  and
Laurus;  and (x) Accounts  which are  supported or  represented  by a promissory
note, post-dated check or letter of credit unless Lender holds a first perfected
security interest therein.

     (d)  "Eligible  Goods in Transit"  means  Inventory  of the Borrower not in
Borrower's  possession and evidenced by (a) an invoice from the supplier of such
inventory to Borrower,  (b) a bill of lading  showing the shipment of such goods
to  Borrower,  and (c)  proof of  insurance  coverage  on such  inventory  by an
insurance  carrier  and in an  amount  not less  than  100% of the value of such
inventory.

     (e) "Eligible  Inventory" means Inventory of Borrower which is: (i) subject
to Purchasers' first priority,  perfected security  interest;  (ii) not owned by
Borrower for more than ninety days; and (iii) otherwise  acceptable to Purchaser
in its sole discretion.

     (f) "Net Face  Amount"  means with  respect to an  Account,  the gross face
amount of such Account less all trade  discounts or other  deductions and claims
to which the Account Debtor is entitled.

     (g) "UCC"  means the Uniform  Commercial  Code as in effect in the state of
New York at the date on which a determination thereunder is to be made.

                                  ARTICLE VII

                                  REGISTRATION

     SECTION 7.01.  Piggyback  Registration.  If the Parent Company  proposes to
register  (including  for this  purpose a  registration  effected  by the Parent
Company  for  stockholders  other  than the  Purchasers)  the sale of any of its
securities  under the Securities Act, then the Parent Company will promptly give
the Purchasers  written notice thereof and will use its reasonable  best efforts
to include in such  registration  all or any part of the Common Shares issued by
the Parent Company to the Purchasers hereto and any other restricted  securities
that may be or may have  previously  been  issued by the  Parent  Company to the
Purchasers  hereto  and any  affiliates  of the  Purchasers  (collectively,  the
"Registrable Securities"). Each Purchaser must give its request for registration
under this  paragraph to the Parent  Company in writing  within 10 business days
after receipt from the Parent Company of notice of such pending registration. If
the  registration for which the Parent Company gives notice is a public offering
involving an  underwriting,  the Parent Company will so advise the Purchasers as
part of the  above-described  written  notice.  In that event,  if the  managing
underwriter(s)  of the  public  offering  impose a  limitation  on the number of
shares  of Common  Stock  that may be  included  in the  Registration  Statement
because, in such underwriter(s)' judgment, such limitation would be necessary to
effect an orderly public distribution, then the Parent Company will be obligated
to include only such limited portion, if any, of the Registrable Securities with
respect  to  which  the  Purchasers  have  requested  inclusion  hereunder.  Any
exclusion of Registrable  Securities  will be made pro rata among all holders of
the Parent  Company's  securities  seeking to include  shares of Common Stock in
proportion  to the number of shares of Common  Stock  sought to be  included  by

                                       24



those  holders.  However,  the Parent  Company will not exclude any  Registrable
Securities  unless  the  Parent  Company  has  first  excluded  all  outstanding
securities  the holders of which are not  entitled by right to inclusion of such
securities in such Registration Statement or are not entitled pro rata inclusion
with the Registrable Securities.

                                  ARTICLE VIII

                                 INDEMNIFICATION

     SECTION 8.01. Borrower Indemnification. The Borrower and the Parent Company
agree to jointly and severally  indemnify,  hold harmless,  reimburse and defend
the Purchasers, each of the Purchasers' officers, directors, agents, affiliates,
employees, control persons, and principal shareholders, against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature,  incurred by or imposed upon the Purchasers which results, arises
out of or is based upon: (i) any  misrepresentation by the Parent Company or any
of its  Subsidiaries  or breach of any warranty by the Parent  Company or any of
its  Subsidiaries in this Agreement,  any other Loan Document or in any exhibits
or schedules attached hereto or thereto,  in each case, in any material respect;
or (ii) any breach or default in performance by the Parent Company or any of its
Subsidiaries of any covenant or undertaking to be performed by Parent Company or
any of its  Subsidiaries  hereunder,  under any other Loan Document or any other
agreement  entered into by the Parent Company and/or any of its Subsidiaries and
Purchaser relating hereto or thereto, in each case, in any material respect.

     SECTION  8.02.   Purchaser   Indemnification.   Each  Purchaser  agrees  to
severally, and not jointly,  indemnify, hold harmless,  reimburse and defend the
Borrower and the Parent Company and each of the Borrower's and Parent  Company's
officers,   directors,   agents,  affiliates,   control  persons  and  principal
shareholders,  against any claim, cost, expense, liability,  obligation, loss or
damage (including  reasonable legal fees) of any nature,  incurred by or imposed
upon the Borrower or Parent  Company  which  results,  arises out of or is based
upon:  (i) any  misrepresentation  by  Purchaser  or breach of any  warranty  by
Purchaser in this Agreement or in any exhibits or schedules  attached  hereto or
any Loan Document,  in each case, in any material respect; or (ii) any breach or
default in  performance  by  Purchaser  of any  covenant  or  undertaking  to be
performed by Purchaser  hereunder,  or any other  agreement  entered into by the
Borrower, the Parent Company and Purchaser relating hereto, in each case, in any
material respect.

                                   ARTICLE IX

                                  MISCELLANEOUS

     SECTION  9.01.  Expenses.  Each party  hereto will pay its own  expenses in
connection  with  the  transactions  contemplated  hereby,  whether  or not such
transactions  will be  consummated;  provided,  however,  that the  Borrower and
Parent  Company will pay a fee to the Purchasers in an amount equal to 3% of the
aggregate original principal amount set forth in the Secured Notes issued by the
Borrower  to the  Purchasers  pursuant  to the  terms  and  conditions  of  this
Agreement.  The Borrower and Parent  Company shall also promptly pay upon demand

                                       25



the fees and  disbursements  of Purchasers'  counsel incurred in connection with
any  amendments,  modifications,  supplements or waivers in connection with this
Agreement or any ancillary  document related thereto.  The Parent Company and/or
the Borrower shall also promptly pay upon demand the fees and  disbursements  of
Purchasers'  counsel incurred in connection with performing annual due diligence
to confirm the good standing of the Parent  Company and its  Subsidiaries.  Such
fee amount  connected  solely to the  immediately  foregoing  sentence  shall be
capped at an annual amount of $5,000.

     SECTION  9.02.   Survival  of  Agreements.   All   covenants,   agreements,
representations  and warranties made in this Agreement and the Loan Documents or
any  certificate  or instrument  delivered to the  Purchasers  pursuant to or in
connection  with this Agreement or the Loan Documents will survive the execution
and delivery of this Agreement,  the Loan Documents,  and the issuance, sale and
delivery of the Securities.

     SECTION  9.03.  Parties in Interest.  All  representations,  covenants  and
agreements  contained  in this  Agreement  by or on behalf of any of the parties
hereto  will bind and inure to the  benefit  of the  respective  successors  and
assigns of the parties hereto whether so expressed or not.  Without limiting the
generality of the  foregoing,  all  representations,  covenants  and  agreements
benefiting  the  Purchasers  will inure to the benefit of any and all subsequent
holders from time to time of the Securities.

     SECTION  9.04.  Notices.   All  notices,   requests,   consents  and  other
communications  hereunder  will be in writing and will be  delivered  in person,
mailed by certified or registered  mail,  return receipt  requested,  or sent by
telecopier or recognized overnight courier service, addressed as follows:

         if to the Borrower or Parent Company:

         PHS Group Inc.
         Synergy Brands Inc.
         Attn:  Mair Faibish
         223 Underhill Blvd.
         Syosset, New York 11791
         Telephone:  516-714-8200
         Facsimile:  801-340-6434
         E-mail:  mf@sybr.com

         with a copy to:

         Randall J. Perry, Esq.
         44 Union Avenue
         P.O. Box 108
         Rutherford, NJ 07070
         Facsimile:  201-939-7348

                                       26



         If to any Purchaser:

         Lloyd I. Miller, III
         4550 Gordon Drive
         Naples, Florida, 34102
         Facsimile:  (239) 262-8025

         with a copy to:

         Paul N. Silverstein, Esq.
         Andrews Kurth LLP
         450 Lexington Avenue
         New York, NY 10017
         fax:  (212) 850-2929

     SECTION 9.05. Governing Law. THIS AGREEMENT AND EACH LOAN DOCUMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT  REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER
PARTY  AGAINST  THE  OTHER  CONCERNING  THE  TRANSACTIONS  CONTEMPLATED  BY THIS
AGREEMENT  AND EACH LOAN  DOCUMENT  SHALL BE BROUGHT ONLY IN THE STATE COURTS OF
NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES
AND THE  INDIVIDUALS  EXECUTING  THIS  AGREEMENT  AND THE RELATED  AGREEMENTS ON
BEHALF OF THE BORROWER AND PARENT COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF
SUCH COURTS AND WAIVE  TRIAL BY JURY.  IN THE EVENT THAT ANY  PROVISION  OF THIS
AGREEMENT OR ANY RELATED AGREEMENT  DELIVERED IN CONNECTION  HEREWITH IS INVALID
OR  UNENFORCEABLE  UNDER  ANY  APPLICABLE  STATUTE  OR RULE OF  LAW,  THEN  SUCH
PROVISION  SHALL  BE  DEEMED  INOPERATIVE  TO THE  EXTENT  THAT IT MAY  CONFLICT
THEREWITH  AND SHALL BE DEEMED  MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF
LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR  UNENFORCEABLE  UNDER ANY LAW
SHALL NOT AFFECT THE VALIDITY,  ENFORCEABILITY OR MEANING OF ANY OTHER PROVISION
OF THIS AGREEMENT OR ANY RELATED AGREEMENT.

     SECTION 9.06. Entire Agreement. This Agreement, including the schedules and
exhibits  hereto  and the  Loan  Documents,  constitutes  the  sole  and  entire
agreement  of the  parties  with  respect  to the  subject  matter  hereof.  All
schedules and exhibits hereto are hereby incorporated herein by reference. There
are no  other  agreements  of  the  parties  and  no  party  is  relying  on any
representations  of the other not  expressly  set forth herein or any  ancillary
document related hereto or thereto.

     SECTION 9.07.  Counterparts.  This Agreement may be executed in two or more
counterparts,  each of  which  will be  deemed  an  original,  but all of  which
together will constitute one and the same instrument.

     SECTION 9.08. Due Diligence.  The parties hereto acknowledge and agree that
the  Purchasers'  due  diligence  review  of  any  information  related  to  the
transactions  contemplated hereby and any information received by the Purchasers

                                       27



in  connection  therewith  or  otherwise  in  connection  with the  transactions
contemplated  herein shall not in any manner limit the Purchasers' right to rely
on  the  representations,  warranties,  indemnification  obligations  and  other
covenants of the  Borrower and Parent  Company set forth herein and in the other
Loan Documents.

     SECTION 9.09. Successors and Assigns.  Purchasers may sell, assign, grant a
participation  in, or  otherwise  transfer all or any portion of its interest in
the Loan Documents  provided that the Purchasers  provide notice to the Borrower
and Parent  Company of such  transfer.  The Borrower and Parent  Company may not
delegate  their  respective  obligations  under  this  Agreement  nor  the  Loan
Documents without the prior written consent of the Purchasers.

     SECTION 9.10. Amendments and Waivers. No amendment of any provision of this
Agreement shall be effective  unless it is in writing and signed by the parties,
and no waiver of any provision of this  Agreement,  nor consent to any departure
by either party from it,  shall be effective  unless it is in writing and signed
by the affected  party,  and then such waiver or consent shall be effective only
in the  specific  instance  and for the  specific  purpose for which  given.  No
failure  on the part of a party to  exercise,  and no delay in  exercising,  any
right or  remedy  under the Loan  Documents  shall  operate  as a waiver by such
party, nor shall any single or partial exercise of any right or remedy under the
Loan Documents preclude any other or further exercise thereof or the exercise of
any other right or remedy. The rights and remedies of each party provided herein
(a) are  cumulative and are in addition to, and are not exclusive of, any rights
or remedies  provided by law and (b) are not  conditional  or  contingent on any
attempt by such party to exercise any of its rights or remedies  under any other
related document or against the other party or any other entity.

     SECTION  9.11.  Severability.  If any provision of this  Agreement  will be
declared void or unenforceable by any judicial or administrative  authority, the
validity of any other provision and of the entire Agreement will not be affected
thereby.

     SECTION 9.12.  Titles and Subtitles.  The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.

     SECTION 9.13. Jointly Drafted.  This Agreement and the other Loan Documents
shall be deemed to have been jointly  drafted by the parties  hereto and thereto
and no provision of it shall be interpreted or construed for or against  another
party  because such party  actually or  purportedly  prepared or requested  such
provision, any other provision or the Agreement or Loan Documents as a whole.

     SECTION 9.14. Broker's Fees. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the  authority  of such party  hereto is or will be entitled to any  broker's or
finder's fee or any other  commission  directly or indirectly in connection with
the transactions contemplated herein.

     SECTION 9.15. Confidentiality. Except as expressly provided below, no party
will make, issue or release any public announcement, press release, statement or
acknowledgment  (collectively,  "Public  Announcement")  of the existence of, or
reveal  publicly  the  terms,   conditions  and  status  of,  the   transactions

                                       28



contemplated hereby,  without the prior written consent of the other party as to
the  content  and  time of  release  of and  the  media  in  which  such  Public
Announcement  is to be  made;  provided,  however,  that in the case of a Public
Announcement  which a party is  required by law to make,  issue or release,  the
making,  issuing or  releasing  of any such Public  Announcement,  by a party so
required to do so will not  constitute a breach if such party has given,  to the
extent reasonably possible,  not less than two (2) business days prior notice to
the other party, and has attempted,  to the extent reasonably possible, to allow
the  other  party to review  and  approve  such  Public  Announcement;  provided
further,  however,  that upon the Parent Company's making of Public Announcement
regarding  the  existence  of, or the  terms,  conditions  and  status  of,  the
transactions  contemplated hereby,  whether pursuant to the filing of a Form 8-K
or otherwise,  subject to the consent of the Parent  Company,  which consent may
not be  unreasonably  withheld,  the Purchasers may advertise the closing of the
transactions  contemplated by this Agreement, and make appropriate announcements
of the financial arrangements entered into among the parties hereto,  including,
without limitation,  announcements  commonly known as tombstones,  in such trade
publications,  business journals,  newspapers of general circulation and to such
selected parties as the Purchasers will deem reasonably appropriate.

     SECTION 9.16. Further Assurances. The Borrower and Parent Company agree and
agree to cause its  Subsidiaries  to  (i) execute  and  deliver,  or cause to be
executed and  delivered,  all such other and further  agreements,  documents and
instruments  and  (ii) take  or cause to be taken  all such  other  and  further
actions as any Purchaser  may  reasonably  request to effectuate  the intent and
purposes, and carry out the terms, of this Agreement.

                            [Signature page follows]

                                       29



     IN WITNESS WHEREOF, the Borrower and Parent Company and the Purchasers have
executed this Securities  Purchase  Agreement as of the day and year first above
written.

                             SYNERGY BRANDS INC., as Parent Company

                             By:
                                  -------------------------------------
                             Name:
                                  -------------------------------------
                             Title:
                                   -------------------------------------


                             PHS GROUP INC., as Borrower

                             By:
                                  -------------------------------------
                             Name:
                                  -------------------------------------
                             Title:
                                   -------------------------------------

PURCHASERS:

LLOYD I. MILLER, III


By:
- --------------------------
Name: Lloyd I. Miller, III

MILFAM I L.P.

By:  Milfam LLC
Its:  General Partner

By:
- ---------------------------
Name:  Lloyd I. Miller, III
Title:  Manage

EX-10.1

                                  Exhibit 10.1

                     SECURITY, PLEDGE AND GUARANTY AGREEMENT

     SECURITY,  PLEDGE AND GUARANTY  AGREEMENT (this  "Agreement"),  dated as of
January 19, 2007 by and among PHS Group Inc., a  Pennsylvania  corporation  (the
"Borrower"), and Synergy Brands Inc., (the "Parent Company"), and SYBR.Com Inc.,
a New Jersey  corporation,  Gran  Reserve  Corporation,  a Florida  corporation,
Dealbynet.com Inc., a New York corporation,  Quality Food Brands, Inc., a Nevada
corporation,  NYCE North America Inc., a New Jersey  corporation,  Net Cigar.Com
Inc.,  a  Florida  corporation,  (each  of  the  foregoing  a  "Subsidiary"  and
collectively  referred to herein as the "Subsidiaries") and Lloyd I. Miller, III
and  Milfam  I L.P.  (collectively  referred  to  herein  as the  "Purchasers").
Together the Borrower,  the Parent Company and the  Subsidiaries are referred to
herein as the  "Debtors".  Certain  defined  terms are set forth in  Article  10
hereof.

                                    Recitals

     WHEREAS, the Borrower, the Parent Company and the Purchasers are parties to
a Securities  Purchase  Agreement  dated as of the date hereof (the  "Securities
Purchase Agreement"); and

     WHEREAS,  as a condition to the  Purchasers'  obligation  to enter into the
Securities  Purchase  Agreement and to extend credit to the Borrower  thereunder
that the  Debtors  execute  and  deliver  this  Security,  Pledge  and  Guaranty
Agreement as security for the payment and  performance of all obligations of the
Borrower  and  Parent  Company to the  Purchasers  and to  guarantee  all of the
obligations  of the Borrower and Parent  Company under the  Securities  Purchase
Agreement:

     NOW,  THEREFORE,  in consideration of the premises contained herein and for
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                   ARTICLE 1.

                                GRANT OF SECURITY

     Section 1.1 Grant of Security. The Debtors hereby grant to the Purchasers a
lien and continuing  security  interest  ("Security  Interest") in and to, and a
right of set-off against, all of the following personal property and fixtures of
the  Debtors,  whether  now owned by or owing to, or  hereafter  acquired  by or
arising in favor of, such Debtor  (including  under any trade  names,  styles or
derivations thereof), and whether owned or consigned by or to, or leased from or
to, such Debtor, and regardless of where located (all of which being hereinafter
collectively referred to as the "Collateral"):

     (a) all Accounts;

     (b) all Chattel Paper;

     (c) all documents;



     (d) all General Intangibles (including Marks, Copyrights,  Patents, payment
intangibles, Proprietary Information and Trade Secrets);

     (e) all Goods (including Inventory, Equipment and Fixtures);

     (f) all Instruments;

     (g) all Investment Property,  including (i) all shares of the capital stock
or membership interests of each subsidiary owned or held by each Debtor, whether
now owned or hereafter formed or acquired (those shares and membership interests
being listed and described on Schedule A attached hereto), and all substitutions
and  additions  to such shares  (herein,  the  "Pledged  Securities"),  (ii) all
dividends,  distributions,  and sums  distributable  or payable from, upon or in
respect of the Pledged  Securities,  and (iii) all  other rights and  privileges
incident to the  Pledged  Securities  (all of the  foregoing  being  hereinafter
referred to collectively as the "Stock Collateral");

     (h) all Deposit  Accounts of such Debtor,  including all blocked  accounts,
concentration  accounts,  disbursement accounts, and all other bank accounts and
all deposits therein;

     (i) all money, cash or cash equivalents of such Debtor;

     (j) all Supporting Obligations and Letter-of-Credit Rights of such Debtor;

     (k) the commercial tort claims identified on Schedule B hereto; and

     (l) to the  extent not  otherwise  included,  all  Proceeds,  tort  claims,
insurance  claims and other  rights to payments  not  otherwise  included in the
foregoing and products of the foregoing and all accessions to, substitutions and
replacements  for, and rents and profits of, each of the foregoing and all other
tangible and intangible personal property whatsoever of any Debtor including all
cash, products,  offspring, rents, revenues, issues, profits, royalties, income,
benefits,  accessions,  additions,  substitutions and replacements of and to any
and all of the  foregoing,  including all Proceeds of and to any of the property
of any of the Debtors described in the preceding  paragraphs of this Section 1.1
(including, without limitation, any loss proceeds or other Proceeds of insurance
thereon (whether or not any Purchaser is loss payee thereof), and any indemnity,
warranty or  guarantee,  payable by any reason of loss or damage to or otherwise
with  respect to any of the  foregoing,  and all  causes of  action,  claims and
warranties  now or  hereafter  held by any Debtor in respect of any of the items
listed above).

     Notwithstanding  the  foregoing,  a security  interest in the assets of the
Borrower is not granted  under this  Agreement  if and to the extent that such a
grant of a security interest is prohibited by the terms of that certain Loan and
Security Agreement,  entered into as of November 11, 2002 (as amended,  the "IIG
Loan and Security  Agreement")  by and between the Borrower and IIG Capital LLC;
provided,  however, that from and after the date upon which all obligations owed
by the Borrower to IIG Capital LLC under the IIG Loan and Security Agreement are
paid in full  the  exclusion  of a grant  under  this  Agreement  of a  security

                                       2



interest  in the  assets  of the  Borrower,  that is  called  for  above,  shall
immediately  cease to have any force and effect and the assets of Borrower shall
immediately be subject to the grant of a security interest under this Agreement,
without any action being  required on the part of any party to this Agreement or
any other person or entity.  Additionally, a security interest in 288,000 shares
(the  "Interline  Shares") of common stock of Interline  Travel & Tour,  Inc., a
Texas corporation, owned by SYBR.com Inc. is not granted under this Agreement if
and to the extent that such a grant of a security  interest is prohibited by the
terms of certain outstanding  promissory notes (the "Interline Notes") issued by
the Borrower to Lawrence K.  Fleischman,  Edmond  O'Donnell,  and DBMK Partners,
Ltd. (collectively,  the "Interline Holders");  provided, however, that from and
after the date upon which all obligations  owed by the Borrower to the Interline
Holders  under the  Interline  Notes are paid in full the  exclusion  of a grant
under this  Agreement of a security  interest in the Interline  Shares,  that is
called for above,  shall  immediately cease to have any force and effect and the
Interline  Shares  shall  immediately  be  subject  to the  grant of a  security
interest under this Agreement,  without any action being required on the part of
any party to this Agreement or any other person or entity.

     Section 1.2  Security  for  Obligations.  This  Agreement  and the Security
Interest shall secure the payment and performance of the Obligations.

                                   ARTICLE 2.

                GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     Each Debtor  represents,  warrants and  covenants,  which  representations,
warranties and covenants shall survive execution and delivery of this Agreement,
as follows:

     Section 2.1  Necessary  Filings.  All  financing  statements  necessary  or
appropriate  to perfect  the  security  interest  granted by each  Debtor to the
Purchasers  hereby in respect of the  Collateral,  which can be perfected by the
filing of a  financing  statement,  have been  filed and the  Security  Interest
granted to the Purchasers  pursuant to this Agreement in and to such  Collateral
constitutes a perfected  Security  Interest therein (to the extent that the same
can be perfected by filing) prior to the rights of all other persons or entities
therein (other than any such rights pursuant to the Permitted Liens) and subject
to no other  Liens  (other  than  Permitted  Liens) and is  entitled  to all the
rights,  priorities and benefits afforded by the Uniform  Commercial Code of the
State of New York to perfected security interests.

     Section 2.2 No Liens.  Each Debtor is, and as to Collateral  acquired by it
from time to time after the date  hereof  such  Debtor will be, the owner of all
Collateral  pledged  by it  hereunder  free  from any Lien,  security  interest,
encumbrance  or other  right,  title or interest of any person or entity  (other
than Permitted Liens),  and each Debtor shall defend the Collateral  against all
claims and demands of all persons or entities at any time  claiming  the same or
any interest  therein (other than in connection with Permitted Liens) adverse to
the Purchasers.

     Section  2.3 Other  Financing  Statements.  To the best  knowledge  of each
Debtor,  as of the date  hereof,  there is no  financing  statement  covering or
purporting to cover any interest of any kind in the  Collateral  (other than (i)
the  financing  statements  filed in  respect  of  Permitted  Liens and (ii) the

                                       3



financing  statements  identified  in  Schedule C hereof  for which  termination
statements  will be  filed  prior  to the  date  hereof  or on the  date of this
Agreement),  and so long as any  Obligations  are  outstanding,  no Debtor  will
execute or authorize to be filed in any public  office any  financing  statement
(or  similar  statement  or  instrument  of  registration  under  the law of any
jurisdiction)  or  statements  relating  to  the  Collateral,  except  financing
statements  filed  or to be  filed  in  respect  of and  covering  the  security
interests granted hereby by such Debtor or in connection with Permitted Liens.

     Section 2.4 Chief Executive Office; Records.

     (a) As of the date  hereof,  the chief  executive  office of each Debtor is
located at the address indicated on Schedule D hereto for such Debtor. No Debtor
will move its chief executive  office except to such new location as such Debtor
may  establish  in  accordance  with the last  sentence of this  Section  2.4. A
complete  set of books of account  and  records of each  Debtor  relating to the
Accounts, Chattel Paper and Documents are, and will continue to be, kept at such
chief executive  office,  at one or more of the other record locations set forth
on Schedule D hereto for such Debtor or at such new locations as such Debtor may
establish in accordance with the last sentence of this Section 2.4.

     (b) All Accounts,  Chattel Paper and Documents of each Debtor are, and will
continue to be, maintained at, and controlled and directed  (including,  without
limitation,   for  general  accounting  purposes)  from,  the  office  locations
described  above or such new location  established  in accordance  with the last
sentence of this Section 2.4. No Debtor shall  establish  new locations for such
offices until (a) it shall have given to the  Purchasers  not less than 30 days'
prior written  notice of its  intention to do so,  clearly  describing  such new
location and providing  such other  information  in connection  therewith as the
Purchasers may reasonably request and (b) with respect to such new location,  it
shall  have taken all  action  reasonably  satisfactory  to the  Purchasers,  to
maintain the security  interest of the Purchasers in the Collateral  intended to
be granted hereby at all times fully perfected and in full force and effect.

     Section 2.5 Location of Inventory and Equipment. As of the date hereof, all
Inventory and  Equipment  held by each Debtor is located at one of the locations
shown on Schedule E hereto.  Each Debtor agrees that all Inventory and Equipment
now  held or  subsequently  acquired  by it  shall  be kept at (or  shall  be in
transport to) any one of the locations  shown on Schedule E hereto,  or such new
location as such Debtor may  establish in  accordance  with the last sentence of
this Section 2.5.  Each Debtor may  establish a new location for  Inventory  and
Equipment in a  jurisdiction  in which such Debtor  currently  does business and
with respect to which the Purchasers have a first perfected security interest in
such  Inventory  and  Equipment  (subject to Permitted  Liens).  Each Debtor may
establish a new location  outside of a  jurisdiction  in which it currently does
business  and  with  respect  to which  the  Purchasers  have a first  perfected
security  interest in such  Inventory  and  Equipment  only if (a) it shall have
given to the  Purchasers  not less  than 30 days'  prior  written  notice of its
intention so to do,  clearly  describing  such new location and  providing  such
other  information  in connection  therewith as the  Purchasers  may  reasonably
request  and (b) with  respect  to such new  location,  it shall  have taken all
action  reasonably  satisfactory  to the  Purchasers  to maintain  the  security
interest of the  Purchasers in the  Collateral  intended to be granted hereby at
all times fully perfected and in full force and effect.

                                       4



     Section 2.6  Recourse.  This  Agreement is made with full  recourse to each
Debtor and pursuant to and upon all the warranties,  representations,  covenants
and agreements on the part of each Debtor  contained  herein,  in the Securities
Purchase Agreement and otherwise in writing in connection herewith or therewith.

     Section  2.7  Trade  Names;  Change  of Name.  Each  Debtor's  legal  name,
jurisdiction of organization  and  organizational  number (if any) are correctly
set forth on Schedule F of this Agreement.  No Debtor has transacted business at
any  time  during  the  immediately  preceding  five-year  period,  and does not
currently  transact  business,  under any other legal names or trade names other
than the prior  legal  names and trade  names (if any) set forth on  Schedule  F
attached hereto. No Debtor shall change its jurisdiction of organization without
the Purchasers' prior written consent.  No Debtor shall change its legal name or
transact business under any other trade name without first giving 30 days' prior
written  notice of its intent to do so to the  Purchasers.  With respect to such
new name or  jurisdiction  of  organization,  such  Debtor  shall have taken all
action reasonably requested by the Purchasers, to maintain the Security Interest
at all times fully perfected and in full force and effect.

                                   ARTICLE 3.

                          SPECIAL PROVISIONS CONCERNING
                              ACCOUNTS; INSTRUMENTS

     Section 3.1 Additional  Representations and Warranties. As of the time when
each of its Accounts arises, each Debtor shall be deemed to have represented and
warranted  that such Account,  and all records,  papers and  documents  relating
thereto  are what they  purport to be in all  material  respects,  and that such
Account  will,  to the best  knowledge of each Debtor,  evidence  true and valid
obligations of the account debtor named therein.

     Section 3.2  Maintenance of Records.  Each Debtor will keep and maintain at
its own cost and expense,  records of its Accounts and each Debtor will make the
same available on such Debtor's  premises to the Purchasers for  inspection,  at
such Debtor's own cost and expense, at any and all commercially reasonable times
upon  commercially  reasonable prior notice to such Debtor.  Upon the occurrence
and  during  the  continuance  of an Event of  Default  and at the  commercially
reasonable  request of the  Purchasers,  each Debtor shall,  at its own cost and
expense,  deliver all  tangible  evidence of its  Accounts,  including,  without
limitation,  all documents evidencing the Accounts and such books and records to
the Purchasers or to its representatives (copies of which evidence and books and
records may be retained by each Debtor).  If the Purchasers so direct,  upon the
occurrence and during the continuance of an Event of Default,  each Debtor shall
legend, in form and manner satisfactory to the Purchasers, the Accounts, as well
as books,  records and documents of such Debtor evidencing or pertaining to such
Receivables  and Contracts with an  appropriate  reference to the fact that such
Receivables  and  Contracts  have been assigned to the  Purchasers  and that the
Purchasers have a security interest therein.

     Section 3.3 Direction to Account Debtors;  Contracting  Parties;  Etc. Upon
the  occurrence and during the  continuance  of an Event of Default,  and if the
Purchasers  so direct each Debtor,  each Debtor agrees (a) to cause all payments
on account of the Accounts,  Deposit Accounts or General  Intangibles to be made

                                       5



directly to the Cash Collateral  Account,  (b) that the Purchasers may, at their
option,  directly  notify the  obligors  with respect to any  Accounts,  Deposit
Accounts  or  General  Intangibles  to make  payments  with  respect  thereto as
provided  in  preceding  clause  (a) and (c) that  the  Purchasers  may  enforce
collection of any such Accounts, Deposit Accounts or General Intangibles and may
adjust,  settle or compromise the amount of payment thereof,  in the same manner
and to the same  extent  as such  Debtor.  Without  notice  to or assent by each
Debtor,  the  Purchasers  may apply any or all  amounts  then in, or  thereafter
deposited in, the Cash Collateral Account which application shall be effected in
the  manner  provided  in this  Agreement.  The  reasonable  costs and  expenses
(including reasonable  attorneys' fees) of collection,  whether incurred by such
Debtor or the Purchasers,  shall be borne by such Debtor.  The Purchasers  shall
deliver a copy of each notice  referred to in the  preceding  clause (b) to such
Debtor; provided,  however, that the failure by the Purchasers to so notify such
Debtor shall not affect the  effectiveness of such notice or the other rights of
the Purchasers created by this Section 3.3.

     Section 3.4  Modification of Terms;  etc. No Debtor shall rescind or cancel
any  indebtedness  evidenced by any Account,  or modify any term thereof or make
any adjustment with respect thereto,  or extend or renew the same, or compromise
or  settle  any  material  dispute,  claim,  suit or legal  proceeding  relating
thereto,  or sell any Account,  or interest  therein,  without the prior written
consent of the Purchasers,  except in accordance with such Debtor's commercially
reasonable business practices.

     Section 3.5  Collection.  Each Debtor  shall  endeavor in  accordance  with
commercially  reasonable  business  practices to cause to be collected  from the
account  debtor  named in each of its  Accounts,  as and  when  due  (including,
without limitation,  amounts which are delinquent,  such amounts to be collected
in accordance with generally accepted lawful collection  procedures) any and all
amounts  owing under or on account of such  Accounts  and apply  forthwith  upon
receipt thereof all such amounts as are so collected to the outstanding  balance
of  such  Account.  The  reasonable  costs  and  expenses  (including,   without
limitation,  attorneys'  fees) of collection,  if incurred by each Debtor or the
Purchasers, shall be borne by such Debtor.

     Section  3.6  Instruments.  If a Debtor  owns or  acquires  any  Instrument
constituting  Collateral,  at Purchasers' request upon the occurrence and during
the continuation of an Event of Default,  such Debtor will promptly deliver such
Instrument  to  the  Purchasers  appropriately  endorsed  to  the  order  of the
Purchasers as further  security  hereunder.  At the  Purchasers'  request,  such
Debtor that owns or acquires any other Instrument  constituting Collateral will,
within  five  (5)  business  days,  promptly  deliver  such  Instrument  to  the
Purchasers  appropriately  endorsed  to the order of the  Purchasers  as further
security hereunder.

                                   ARTICLE 4.

                       SPECIAL PROVISIONS CONCERNING MARKS

     Section  4.1  Additional   Representations  and  Warranties.   Each  Debtor
represents and warrants  that, as of the date hereof,  it is the true and lawful
owner of all right,  title and interest to or otherwise has the right to use the

                                       6



registered  Marks  listed in  Schedule G hereto and that,  as of the date hereof
said listed Marks constitute all the marks and applications for marks registered
in the United States Patent and Trademark Office that such Debtor presently owns
or uses in connection  with its business.  Each Debtor  represents  and warrants
that it owns,  is licensed to use or otherwise has the right to use all material
Marks that it uses. Each Debtor further warrants that it has no knowledge of any
third  party  claim that any  aspect of such  Debtor's  present or  contemplated
business  operations  infringes or will infringe any trademark,  service mark or
trade name in any respect which could  reasonably be expected to have a material
adverse effect on the business,  operations,  property,  assets,  liabilities or
condition  (financial or otherwise) of such Debtor.  Each Debtor  represents and
warrants  that  except as listed on  Schedule G, as of the date hereof it is the
beneficial  and record owner of all  trademark  registrations  and  applications
listed  in  Schedule  G  hereto  and  that  said  registrations  are  valid  and
subsisting,  and that no Debtor is aware of any  third-party  claim  that any of
said  registrations in respect of any material Mark is invalid or unenforceable.
Each Debtor  hereby grants to the  Purchasers  an absolute  power of attorney to
sign, upon the occurrence and during the continuance of an Event of Default, any
document which may be required by the United States Patent and Trademark  Office
in order to effect an absolute  assignment  of all right,  title and interest in
each Mark, and record the same.

     Section 4.2  Infringements.  Each Debtor  agrees,  promptly  upon  learning
thereof,  to notify the Purchasers in writing of the name and address of, and to
furnish such  pertinent  information  that may be available with respect to, any
party who such Debtor believes is infringing or diluting or otherwise  violating
in any material respect any of such Debtor's rights in and to any material Mark,
or with  respect to any party  claiming  that such  Debtor's use of any material
Mark  violates in any material  respect any property  right of that party.  Each
Debtor  further  agrees to prosecute any Person  infringing any material Mark in
accordance with commercially reasonable business practices.

     Section 4.3  Preservation of Marks.  Each Debtor agrees to use its Marks as
required in each of the applicable  jurisdictions  during the time in which this
Agreement  is  in  effect,   sufficiently   to  preserve  such  Marks  (and  any
registrations  thereto)  as  trademarks  or service  marks under the laws of the
United  States  and any  other  applicable  law;  provided,  that,  prior to any
Default,  no Debtor  shall be  obligated  to preserve any Mark in the event such
Debtor determines,  in its commercially  reasonable business judgment,  that the
preservation of such Mark is no longer desirable in the conduct of its business.

     Section 4.4  Maintenance  of  Registration.  Each Debtor shall,  at its own
expense, diligently process all documents required by the Trademark Act of 1946,
15 U.S.C.  Section 1051 et seq. to maintain trademark  registrations,  including
but  not  limited  to  affidavits  of  use  and  applications  for  renewals  of
registration  in the United States  Patent and  Trademark  Office for all of its
registered Marks pursuant to 15 U.S.C. Section 1058(a), 1059 and 1065, and shall
pay all fees and disbursements in connection therewith and shall not abandon any
such filing of affidavit of use or any such  application of renewal prior to the
exhaustion of all  administrative  and judicial  remedies  without prior written
consent of the Purchasers; provided, that, prior to any Default, no Debtor shall
be obligated to maintain any Mark in the event that such Debtor  determines,  in
its commercially reasonable business judgment, that the maintenance of such Mark
is no longer necessary or desirable in the conduct of its business.

                                       7



     Section  4.5  Future  Registered  Marks.  If any Mark  registration  issues
hereafter to a Debtor as a result of any  application  now or hereafter  pending
before the United States Patent and Trademark Office,  within 60 days of receipt
of such certificate,  such Debtor shall deliver to the Purchasers a copy of such
certificate,  and an assignment for security in such Mark, to the Purchasers and
at the expense of such Debtor,  confirming  the  assignment for security in such
Mark to the Purchasers hereunder, in such form as may be reasonably satisfactory
to the Purchasers.

     Section 4.6 Remedies. If an Event of Default shall occur and be continuing,
the  Purchasers  may take any or all of the following  actions:  (a) declare the
entire  right,  title and  interest  of such Debtor in and to each of the Marks,
together with all trademark rights and rights of protection to the same,  vested
in the Purchasers for the benefit of the Purchasers,  in which event the rights,
title and interest shall  immediately vest, in the Purchasers for the benefit of
the  Purchasers,  and the Purchasers  shall be entitled to exercise the power of
attorney referred to in Section 4.1 hereof to execute,  cause to be acknowledged
and notarized and record said absolute  assignment  with the applicable  agency;
(b) take and use or sell the Marks and the  goodwill of such  Debtor's  business
symbolized  by the  Marks  and the  right to carry on the  business  and use the
assets of such Debtor in connection with which the Marks have been used; and (c)
direct such Debtor to refrain,  in which event such Debtor shall  refrain,  from
using the Marks in any  manner  whatsoever,  directly  or  indirectly,  and,  if
requested by the  Purchasers,  change such Debtor's  corporate name to eliminate
therefrom any use of any Mark and execute such other and further  documents that
the Purchasers may request to further confirm this and to transfer  ownership of
the Marks and registrations and any pending trademark  application in the United
States Patent and Trademark Office to the Purchasers.

     Section 4.7  Collateral  Assignment.  This Agreement is made for collateral
security purposes only. This Agreement and Purchasers'  Security Interest in the
Marks shall continue in full force and effect as long as any  Obligations  shall
be owed to the Purchasers (or any of said  Purchasers).  Upon payment in full of
the  Obligations  and  termination of the Securities  Purchase  Agreement,  this
Agreement shall terminate and Purchasers  shall promptly  execute and deliver to
each Debtor,  at such Debtor's  expense,  all  termination  statements and other
instruments  as may be  necessary or proper to  terminate  Purchasers'  security
interest in the Marks,  subject to any  disposition  thereof which may have been
made  by  Purchasers  pursuant  to this  Agreement  or the  Securities  Purchase
Agreement.

                                   ARTICLE 5.

                          SPECIAL PROVISIONS CONCERNING
                      PATENTS, COPYRIGHTS AND TRADE SECRETS

     Section  5.1  Additional   Representations  and  Warranties.   Each  Debtor
represents and warrants  that, as of the date hereof,  it is the true and lawful
owner  of  all  rights  in  (a)  all  material  Trade  Secrets  and  Proprietary
Information  necessary to operate the  business of such Debtor,  (b) the Patents
listed in Schedule H hereto for the Debtor and that said Patents  constitute all
the patents and applications for patents that the Debtor owns on the date hereof

                                       8



and (c) the  Copyrights  listed in  Schedule I hereto  and that said  Copyrights
constitute  all  registrations  of  copyrights  and  applications  for copyright
registrations  that such Debtor  owns on the date  hereof.  Each Debtor  further
warrants  that it has no  knowledge  of any third party claim that any aspect of
such Debtor's  present or  contemplated  business  operations  infringes or will
infringe  any patent or any  copyright  or such Debtor has  misappropriated  any
Trade Secret or Proprietary Information, in each case in any respect which could
reasonably  be  expected  to have a  material  adverse  effect on the  business,
operations,  property, assets, liabilities or condition (financial or otherwise)
of such Debtor. Each Debtor hereby grants to the Purchasers an absolute power of
attorney to sign,  upon the occurrence and during the continuance of an Event of
Default,  any  document  which may be required by the United  States  Patent and
Trademark  Office or the United  States  Copyright  Office in order to effect an
absolute  assignment  of all  right,  title  and  interest  in each  Patent  and
Copyright, and to record the same.

     Section 5.2  Infringements.  Each Debtor  agrees,  promptly  upon  learning
thereof,  to furnish the  Purchasers in writing with all  pertinent  information
available  to  such  Debtor  with  respect  to  any  infringement,  contributing
infringement  or active  inducement  to  infringe  in any  material  respect any
material  Patent or  Copyright or to any claim that the practice of any material
Patent or the use of any material Copyright violates in any material respect any
property right of a third party, or with respect to any  misappropriation of any
material  Trade  Secret Right or any claim that  practice of any material  Trade
Secret  Right  violates in any material  respect any  property  right of a third
party.  Each Debtor further agrees,  to the extent  consistent with commercially
reasonable business practices,  to prosecute any Person infringing any Patent or
Copyright or any Person misappropriating any Trade Secret Right.

     Section 5.3 Maintenance of Patents.  At its own expense,  each Debtor shall
make timely  payment of all  post-issuance  fees required  pursuant to 35 U.S.C.
Section 41 to maintain in force rights under each Patent,  absent prior  written
consent  of the  Purchasers;  provided,  that no Debtor  shall be  obligated  to
maintain  any Patent in the event such Debtor  determines,  in its  commercially
reasonable  business judgment,  that the maintenance of such Patent is no longer
necessary or desirable in the conduct of its business.

     Section 5.4  Prosecution of Patent  Application.  At its own expense,  each
Debtor shall  diligently  prosecute all applications for Patents for such Debtor
and  shall  not  abandon  any  such  application  prior  to  exhaustion  of  all
administrative and judicial remedies,  absent written consent of the Purchasers;
provided,  that no Debtor shall be obligated to prosecute any application in the
event such Debtor determines,  in its commercially reasonable business judgment,
that the prosecuting of such  application is no longer necessary or desirable in
the conduct of its business.

     Section 5.5 Other Patents and Copyrights. Within 60 days of the acquisition
or  issuance of a Patent,  registration  of a  Copyright,  or  acquisition  of a
registered copyright, each Debtor shall deliver to the Purchasers a copy of said
Copyright or certificate or  registration  of said Patents,  as the case may be,
with an assignment for security as to such Patent or Copyright,  as the case may
be,  to the  Purchasers  and at the  expense  of  such  Debtor,  confirming  the
assignment for security,  in such form as may be reasonably  satisfactory to the
Purchasers.

                                       9



     Section 5.6 Remedies. If an Event of Default shall occur and be continuing,
the  Purchasers  may take any or all of the following  actions:  (a) declare the
entire  right,  title,  and  interest  of such Debtor in each of the Patents and
Copyrights vested in the Purchasers for the benefit of the Purchasers,  in which
event such right,  title, and interest shall  immediately vest in the Purchasers
for the  benefit  of the  Purchasers,  in  which  case the  Purchasers  shall be
entitled to exercise the power of attorney  referred to in Section 5.1 hereof to
execute,  cause to be  acknowledged  and  notarized  and to record said absolute
assignment with the applicable agency; (b) take and practice or sell the Patents
and  Copyrights;  and (c) direct  such  Debtor to  refrain,  in which event such
Debtor  shall  refrain,  from  practicing  the Patents and using the  Copyrights
directly or  indirectly,  and such Debtor  shall  execute such other and further
documents as the Purchasers may request  further to confirm this and to transfer
ownership of the Patents and Copyrights to the Purchasers for the benefit of the
Purchasers.

                                   ARTICLE 6.

                 SPECIAL PROVISIONS CONCERNING STOCK COLLATERAL

     Section 6.1 Additional  Representations.  Each Debtor has the right to vote
the Pledged  Securities  and there are no  restrictions  upon the voting  rights
associated  with, or the transfer of, any of the Pledged  Securities,  except as
provided  by  federal  and  state  laws  applicable  to the  sale of  securities
generally  and the terms of this  Agreement.  The Pledged  Securities  have been
validly  issued  and,  except as  described  on  Schedule A,  are fully paid and
non-assessable.  Except as set  forth on  Schedule A,  there are no  outstanding
commitments or other obligations of the issuers of any of the Pledged Securities
to issue,  and no options,  warrants or other rights of any individual or entity
to acquire,  any share of any class or series of capital  stock of such issuers.
The  Pledged  Securities  listed and  described  on  Schedule A attached  hereto
constitute  the percentage of the issued and  outstanding  capital stock of each
series  and  class of the  issuers  thereof  as set forth  thereon  owned by the
relevant  Debtor.  Each Debtor  agrees  that in the event any such issuer  shall
issue  any  additional  capital  stock of any  series or class  (whether  or not
entitled  to vote) to such  Debtor or  otherwise  on  account  of its  ownership
interest therein,  such Debtor will forthwith pledge  hereunder,  or cause to be
pledged hereunder, all such additional shares of such capital stock.

     Section 6.2 Delivery of  Certificates.  The  certificates for all shares or
units of the Pledged Securities evidenced by a certificate shall be delivered by
the relevant  Debtor to the  Purchasers  duly  endorsed in blank for transfer or
accompanied  by an  appropriate  assignment  or  assignments  or an  appropriate
undated  stock  power or powers,  in every case  sufficient  to  transfer  title
thereto.  The  Purchasers  may, at any time after the  occurrence of an Event of
Default,  cause to be transferred  into its name or into the name of its nominee
or nominees any and all of the Pledged  Securities.  The Purchasers shall at all
times have the right to  exchange  the  certificates  representing  the  Pledged
Securities for certificates of smaller or larger denominations.

     Section 6.3  Remedies.  Unless and until an Event of Default  hereunder has
occurred and is  continuing  and  thereafter  until  notified by the  Purchasers
hereof:

                                       10



     (a) Each Debtor shall be entitled to exercise all voting and/or  consensual
powers pertaining to the Collateral of such Debtor, or any part thereof, for all
purposes not inconsistent with the terms of this Agreement or any other document
evidencing or otherwise relating to any of the Obligations.

     (b) Each Debtor shall be entitled to receive and retain all  dividends  and
distributions  in respect of the Collateral which are paid in cash of whatsoever
nature;  such  dividends and  distributions  representing  stock or  liquidating
dividends  or a  distribution  or return of  capital  upon or in  respect of the
Pledged Securities or any part thereof or resulting from a split-up, revision or
reclassification  of the Pledged  Securities  or any part thereof or received in
addition to, in substitution of or in exchange for the Pledged Securities or any
part thereof as a result of a merger, consolidation or otherwise, shall be paid,
delivered or transferred, as appropriate, directly to the Purchasers immediately
upon the receipt thereof by such Debtor and may, in the case of cash, be applied
by the Purchasers to the Obligations, whether or not the same may then be due or
otherwise  adequately  secured  and  shall,  in the case of all other  property,
together  with any cash  received and not applied as  aforesaid,  be held in the
Cash Collateral  Account as part of the Collateral  pledged under and subject to
the terms of this Agreement.

     (c) In  order  to  permit  each  Debtor  to  exercise  such  voting  and/or
consensual  powers which it is entitled to exercise under  subsection (a)  above
and to receive such  distributions  which such Debtor is entitled to receive and
retain under subsection (b)  above, the Purchasers will, if necessary,  upon the
written  request of such  Debtor,  from time to time execute and deliver to such
Debtor appropriate proxies and dividend orders.

                                   ARTICLE 7.

                      PROVISIONS CONCERNING ALL COLLATERAL

     Section 7.1  Protection of  Purchasers'  Security.  Each Debtor will at all
times keep its Inventory and Equipment  insured in favor of the  Purchasers,  at
such  Debtor's  own  expense to the extent  and in the  manner  provided  in the
Securities Purchase Agreement. All policies or certificates with respect to such
insurance  (a) shall be  endorsed  to the  Purchasers'  commercially  reasonable
satisfaction for the benefit of the Purchasers  (including,  without limitation,
by naming the  Purchasers  as  additional  insured and loss payee) and (b) shall
state that such insurance  policies shall not be canceled without 30 days' prior
written notice thereof by the insurer to the Purchasers Certified copies of such
policies or  certificates  with  respect  thereto  shall be  deposited  with the
Purchasers.  If a Debtor  shall fail to insure its  Inventory  and  Equipment in
accordance  with the preceding  sentence,  or if Debtor shall fail to so endorse
and deposit all policies or certificates  with respect  thereto,  the Purchasers
shall  have the right  (but shall be under no  obligation),  upon prior  written
notice to such  Debtor,  to procure  such  insurance  and each Debtor  agrees to
promptly  reimburse  the  Purchasers  for all  reasonable  costs and expenses of
procuring such insurance. The Purchasers shall, at the time any proceeds of such
insurance are distributed to the  Purchasers,  apply such proceeds in accordance
with Section 9.4 hereof. Each Debtor assumes all liability and responsibility in
connection  with the Collateral  acquired by it and the liability of such Debtor
to pay the  Obligations  shall in no way be affected or  diminished by reason of
the fact that such Collateral may be lost, destroyed, stolen, damaged or for any
reason whatsoever unavailable to such Debtor.

                                       11




     Section 7.2 Further  Actions.  Each Debtor will, at its own expense,  make,
execute, endorse,  acknowledge,  file and/or deliver to the Purchasers from time
to time such lists,  descriptions and designations of its Collateral,  warehouse
receipts,  receipts  in the  nature  of  warehouse  receipts,  bills of  lading,
documents of title, vouchers,  invoices,  schedules,  confirmatory  assignments,
conveyances,  transfer endorsements,  powers of attorney, certificates,  reports
and other  assurances or instruments and take such further steps relating to the
Collateral and other property or rights covered by the security  interest hereby
granted,  which the  Purchasers  deem  reasonably  appropriate  or  advisable to
perfect, preserve or protect its security interest in the Collateral.

     Section 7.3  Financing  Statements;  Etc. Each Debtor agrees to execute and
deliver to the Purchasers such further agreements, assignments, instruments, and
documents,  and to do all such other things,  as the  Purchasers  may reasonably
deem  necessary or  appropriate  to assure the  Purchasers its lien and Security
Interest hereunder, including, without limitation, (i) such financing statements
or other  instruments  and  documents  as the  Purchasers  may from time to time
reasonably  require to comply  with the  Uniform  Commercial  Code and any other
applicable  law,  (ii) such  agreements  with  respect to  patents,  trademarks,
copyrights,  and similar intellectual property rights as the Purchasers may from
time to time  reasonably  require to comply with the filing  requirements of the
United  States  Patent and  Trademark  Office and the  United  States  Copyright
Office,  and (iii) such  control  agreements  with respect to Deposit  Accounts,
Investment Property,  Letter-of-Credit Rights, and electronic Chattel Paper, and
to cause the relevant depository  institutions,  financial  intermediaries,  and
issuers to execute and deliver such control  agreements,  as the  Purchasers may
from time to time reasonably  require.  Each Debtor hereby agrees that a carbon,
photographic  or other  reproduction  of this  Agreement  or any such  financing
statement is sufficient  for filing as a financing  statement by the  Purchasers
without  notice  thereof to such Debtor  wherever the  Purchasers  in their sole
discretion desire to file the same. Each Debtor hereby authorizes the Purchasers
to file any and all  financing  statements  covering the  Collateral or any part
thereof as the Purchasers may require, including financing statements describing
the  Collateral  as "all  assets" or "all  personal  property"  or words of like
meaning.  In the event for any reason the law of any jurisdiction other than New
York becomes or is applicable to the  Collateral or any part thereof,  or to any
of the  Obligations,  each  Debtor  agrees  to  execute  and  deliver  all  such
agreements,  assignments,  instruments,  and  documents and to do all such other
things as the Purchasers  reasonably  deem necessary or appropriate to preserve,
protect,  and enforce the security  interest of the Purchasers  under the law of
such other jurisdiction.

                                   ARTICLE 8.

                                    GUARANTEE

     Section  8.1 The  Guarantee.  To induce  the  Purchasers  to enter into the
Securities  Purchase  Agreement  and in  consideration  of benefits  expected to
accrue to the  Borrower  and the  Parent  Company  by  reason of the  Securities
Purchase  Agreement  and for other good and valuable  consideration,  receipt of

                                       12



which is hereby  acknowledged,  the Parent Company and the  Subsidiaries  hereby
unconditionally  and  irrevocably   guarantees  jointly  and  severally  to  the
Purchasers,  the due and punctual payment of all present and future Obligations,
in each case as and when the same  shall  become  due and  payable,  whether  at
stated maturity,  by acceleration,  or otherwise,  according to the terms hereof
and  thereof  (including  interest  which,  but for the filing of a petition  in
bankruptcy,  would otherwise  accrue on any such  indebtedness,  obligation,  or
liability).  In case of failure by the Borrower or other  obligor  punctually to
pay any Obligations  guaranteed  hereby, the Parent Company and the Subsidiaries
hereby  unconditionally  agrees to make such payment or to cause such payment to
be made punctually as and when the same shall become due and payable, whether at
stated maturity, by acceleration, or otherwise, and as if such payment were made
by the Borrower or such obligor.

     Section 8.2 Guarantee Unconditional.  The obligations of the Parent Company
and the Subsidiaries  under this Article 8 shall be  unconditional  and absolute
and,  without  limiting the generality of the foregoing,  shall not be released,
discharged, or otherwise affected by:

     (a) any extension, renewal, settlement,  compromise,  waiver, or release in
respect of any  obligation of the Borrower,  the Parent Company or other obligor
or of any other  guarantor  under  this  Agreement  or the  Securities  Purchase
Agreement or by operation of law or otherwise;

     (b) any modification or amendment of or supplement to this Agreement or the
Securities Purchase Agreement;

     (c) any change in the corporate existence,  structure,  or ownership of, or
any  insolvency,   bankruptcy,   reorganization,  or  other  similar  proceeding
affecting,  the  Borrower,  the  Parent  Company  or other  obligor,  any  other
guarantor,  or any of their  respective  assets,  or any  resulting  release  or
discharge of any obligation of the Borrower, the Parent Company or other obligor
or of any other guarantor contained in this Agreement or the Securities Purchase
Agreement;

     (d) the existence of any claim, set-off, or other rights which the Borrower
or other  obligor  or any  other  guarantor  may have at any  time  against  the
Purchasers  or any other person or entity,  whether or not arising in connection
herewith;

     (e) any failure to assert,  or any assertion of, any claim or demand or any
exercise  of, or  failure  to  exercise,  any  rights or  remedies  against  the
Borrower, the Parent Company or other obligor, any other guarantor, or any other
person or entity or property;

     (f) any application of any sums by whomsoever paid or howsoever realized to
any obligation of the Borrower or other obligor,  regardless of what obligations
of the Borrower or other obligor remain unpaid;

     (g) any invalidity or unenforceability  relating to or against the Borrower
or other obligor or any other  guarantor for any reason of this  Agreement or of
the  Securities  Purchase  Agreement  or  any  provision  of  applicable  law or
regulation  purporting  to prohibit the payment by the Borrower or other obligor
or any other  guarantor of the  principal of or interest on the Secured Notes or

                                       13



Obligations or any other amount payable under the Securities Purchase Agreement;
or

     (h)  any  other  act or  omission  to  act or  delay  of  any  kind  by the
Purchasers,  or any other person or entity or any other circumstance  whatsoever
that might,  but for the  provisions  of this  paragraph,  constitute a legal or
equitable   discharge  of  the   obligations  of  the  Parent  Company  and  the
Subsidiaries under this Article 8.

     Section 8.3 Discharge Only upon Payment in Full;  Reinstatement  in Certain
Circumstances.  The  Parent  Company  and  Subsidiaries  obligations  under this
Article 8 shall  remain in full force and effect until the  Securities  Purchase
Agreement is  terminated  and the principal of and interest on the Secured Notes
and all other  amounts  payable by the Borrower  under the  Securities  Purchase
Agreement  and this Security  Agreement  shall have been paid in full. If at any
time any payment of the  principal  of or  interest on the Secured  Notes or any
Obligation  or any other amount  payable by the Borrower or other obligor or the
Parent Company or the Subsidiaries  under the Securities  Purchase  Agreement or
this  Agreement is rescinded or must be otherwise  restored or returned upon the
insolvency, bankruptcy, or reorganization of the Borrower, the Parent Company or
other  obligor or of any  guarantor,  or otherwise,  the Parent  Company and the
Subsidiaries obligations under this Article 8 with respect to such payment shall
be  reinstated  at such time as though  such  payment had become due but had not
been made at such time.

     Section 8.4  Subrogation.  The Parent Company and  Subsidiaries  each agree
that it will not exercise any rights which it may acquire by way of  subrogation
by any payment made hereunder,  or otherwise,  until all the  Obligations  shall
have been  paid in full and  subsequent  to the  termination  of the  Securities
Purchase  Agreement and related Loan  Documents.  If any amount shall be paid to
the  Subsidiary on account of such  subrogation  rights at any time prior to the
later of  (x) the  payment  in full of the  Obligations  and all  other  amounts
payable by the Borrower  hereunder  and the  Securities  Purchase  Agreement and
(y) the termination of the Securities  Purchase Agreement,  such amount shall be
held in trust for the benefit of the Purchasers  and shall  forthwith be paid to
the Purchasers or be credited and applied upon the Obligations.

     Section 8.5 Waivers. The Parent Company and Subsidiaries  irrevocably waive
acceptance hereof, presentment, demand, protest, and any notice not provided for
herein,  as well as any requirement  that at any time any action be taken by the
Purchasers, or any other person or entity against the Borrower or other obligor,
another guarantor, or any other person or entity.

     Section 8.6 Limit on Recovery.  Notwithstanding any other provision hereof,
the right of recovery against the Parent Company and the Subsidiaries under this
Article 8 shall not exceed $1.00 less than the lowest  amount which would render
the Parent Company or such Subsidiary's obligations under this Article 8 void or
voidable  under  applicable  law,  including,  without  limitation,   fraudulent
conveyance law.

     Section 8.7 Stay of  Acceleration.  If acceleration of the time for payment
of any amount  payable by the Borrower or other obligor under this  Agreement or
the Securities Purchase Agreement, is stayed upon the insolvency,  bankruptcy or

                                       14



reorganization  of the  Borrower or such  obligor,  all such  amounts  otherwise
subject to  acceleration  under the terms of this  Agreement  or the  Securities
Purchase  Agreement,  shall  nonetheless  be payable  by the  Parent  Company or
Subsidiaries hereunder forthwith on demand by the Purchasers.

     Section 8.8 Benefit to Subsidiaries and Parent Company.  The Borrower,  the
Parent  Company  and the  Subsidiaries  are  engaged in related  businesses  and
integrated to such an extent that the financial  strength and flexibility of the
Borrower  has a direct  impact on the  success  of the  Parent  Company  and the
Subsidiaries.  The Parent Company and the Subsidiaries  will derive  substantial
direct and indirect benefit from the extensions of credit hereunder.

     Section 8.9 Subsidiaries Covenants. The Subsidiaries shall take such action
as the Parent  Company  and  Borrower is  required  by the  Securities  Purchase
Agreement or this Agreement to cause the Subsidiaries to take, and shall refrain
from taking such  action as the Parent  Company and  Borrower is required by the
Securities  Purchase  Agreement or this  Agreement to prohibit the  Subsidiaries
from taking.

                                   ARTICLE 9.

                  REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT

     Section 9.1 Remedies;  Obtaining the Collateral  Upon Default.  Each Debtor
agrees that, if an Event of Default shall have occurred and be continuing,  then
and in every  such  case,  the  Purchasers,  in  addition  to any  rights now or
hereafter  existing  under  applicable  law,  shall have all rights as a secured
creditor under the UCC in all relevant jurisdictions and may:

     (a) personally,  or by agents or attorneys,  immediately take possession of
the  Collateral  or any part  thereof,  from the Debtors or any other Person who
then has  possession  of any part thereof  with or without  notice or process of
law, and for that purpose may enter upon such Debtor's premises where any of the
Collateral  is  located  and  remove  the same and use in  connection  with such
removal  any and all  services,  supplies,  aids and  other  facilities  of such
Debtor;

     (b) instruct the obligor or obligors on any agreement,  instrument or other
obligation  (including,  without  limitation,  the  Accounts)  constituting  the
Collateral  to make  any  payment  required  by the  terms  of  such  agreement,
instrument or other obligation directly to the Purchasers;

     (c) withdraw all monies,  securities and instruments in the Cash Collateral
Account  and/or in any other cash  collateral  account  for  application  to the
Obligations in accordance with Section 9.4 hereof;

     (d) sell, assign or otherwise liquidate any or all of the Collateral or any
part thereof in  accordance  with  Section 9.2 hereof,  or direct such Debtor to
sell,  assign or otherwise  liquidate  any or all of the  Collateral or any part
thereof,  and, in each case, take possession of the proceeds of any such sale or
liquidation;

                                       15



     (e) take possession of the Collateral or any part thereof, by directing the
Debtors in writing to deliver the same to the  Purchasers at any place or places
reasonably designated by the Purchasers, in which event such Debtor shall at its
own expense:

     (i)  forthwith  cause  the  same to be  moved to the  place  or  places  so
designated by the Purchasers and there delivered to the Purchasers;

     (ii) store and keep any  Collateral so delivered to the  Purchasers at such
place or places pending  further action by the Purchasers as provided in Section
9.2 hereof; and

     (iii) while the Collateral shall be so stored and kept, provide such guards
and  maintenance  services  as shall be  necessary  to  protect  the same and to
preserve and maintain them in good condition; and

     (f) license or sublicense,  whether on an exclusive or nonexclusive  basis,
any Marks, Patents or Copyrights included in the Collateral for such term and on
such conditions and in such manner as the Purchasers shall in their commercially
reasonable judgment determine;

it being  understood that each Debtor's  obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity  having  jurisdiction,  the  Purchasers  shall be  entitled to a
decree requiring  specific  performance by each Debtor of said  obligation.  The
Purchasers  agree that this Agreement may be enforced by holders of the majority
in outstanding principal amount of Secured Notes, it being understood and agreed
that such rights and remedies may be exercised by the Purchasers for the benefit
of the Purchasers upon the terms of this Agreement.

     Section  9.2  Remedies:  Disposition  of  the  Collateral.  Any  Collateral
repossessed  by the  Purchasers  under or pursuant to Section 9.1 hereof and any
other Collateral  whether or not so repossessed by the Purchasers,  may be sold,
assigned,  leased or otherwise  disposed of under one or more contracts or as an
entirety,  and  without  the  necessity  of  gathering  at the place of sale the
property to be sold,  and in general in such manner,  at such time or times,  at
such place or places and on such terms as the Purchasers may, in compliance with
any mandatory  requirements  of  applicable  law,  determine to be  commercially
reasonable.  Any of the Collateral may be sold, leased or otherwise disposed of,
in the condition in which the same existed when taken by the Purchasers or after
any overhaul or repair at the expense of each Debtor which the Purchasers  shall
determine to be commercially  reasonable.  Any such disposition which shall be a
private sale or other private  proceedings  permitted by such requirements shall
be made upon not less than 10 days' written notice to each Debtor specifying the
time at which  such  disposition  is to be made and the  intended  sale price or
other consideration  therefor,  and shall be subject,  for the 10 days after the
giving of such notice, to the right of each Debtor or any nominee of each Debtor
to acquire the Collateral involved at a price or for such other consideration at
least equal to the intended sale price or other consideration so specified,  but
in no event in an amount  greater  than the  Obligations  then  outstanding  and
provision  for  any  contingent   Obligations   reasonably   acceptable  to  the
Purchasers.  Any such disposition which shall be a public sale permitted by such
requirements  shall be made upon not less than 10 days'  written  notice to each

                                       16



Debtor  specifying  the time and  place of such  sale  and,  in the  absence  of
applicable  requirements  of law,  shall be by public auction (which may, at the
Purchasers' option, be subject to reserve),  after publication of notice of such
auction  not less  than 10 days  prior  thereto  in two  newspapers  in  general
circulation  in  New  York,  New  York.  To the  extent  permitted  by any  such
requirement  of law, the  Purchasers may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section
without  accountability  to the Debtors.  If, under  mandatory  requirements  of
applicable  law, the  Purchasers  shall be required to make  disposition  of the
Collateral within a period of time which does not permit the giving of notice to
the Debtors as hereinabove specified,  the Purchasers need give the Debtors only
such notice of  disposition  as shall be reasonably  practicable in view of such
mandatory requirements of applicable law.

     Section  9.3  Waiver  of  Claims.  Except  as  otherwise  provided  in this
Agreement or prohibited by applicable  law, (a) THE DEBTORS HEREBY WAIVE, TO THE
EXTENT  PERMITTED BY APPLICABLE LAW,  NOTICE AND JUDICIAL  HEARING IN CONNECTION
WITH THE PURCHASERS' TAKING POSSESSION OR THE PURCHASERS'  DISPOSITION OF ANY OF
THE  COLLATERAL,  INCLUDING,  WITHOUT  LIMITATION,  ANY AND ALL PRIOR NOTICE AND
HEARING FOR ANY  PREJUDGMENT  REMEDY OR  REMEDIES  AND ANY SUCH RIGHT WHICH SUCH
DEBTOR WOULD OTHERWISE HAVE UNDER THE  CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR OF ANY STATE,  (b) the Debtors  hereby  further  waive,  to the extent
permitted by law:

     (a) all damages  occasioned by such taking of possession except any damages
which are determined by a final,  non-appealable court order to have been caused
by the Purchasers' gross negligence or willful misconduct; and

     (b) all other requirements as to the time, place and terms of sale or other
requirements  with  respect  to  the  enforcement  of  the  Purchasers'   rights
hereunder; and

     (c) all rights of redemption,  appraisement,  valuation, stay, extension or
moratorium  now or  hereafter  in force  under  any  applicable  law in order to
prevent or delay the  enforcement  of this Agreement or the absolute sale of the
Collateral or any portion thereof,  and each Debtor,  for itself and all who may
claim under it,  insofar as it or they now or  hereafter  lawfully  may,  hereby
waives the benefit of all such laws.

Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral  shall operate to divest all right,  title,  interest,  claim and
demand,  either at law or in equity,  of the Debtors  therein and  thereto,  and
shall be a  perpetual  bar both at law and in equity  against  the  Debtors  and
against  any and all persons or entities  claiming  or  attempting  to claim the
Collateral  so sold,  optioned  or realized  upon,  or any part  thereof,  from,
through and under the Debtors.

     Section 9.4 Application of Proceeds.

     (a)  All  monies  collected  by the  Purchasers  upon  any  sale  or  other
disposition of the  Collateral,  together with all other moneys  received by the
Purchasers hereunder, shall be applied to the payment of the Obligations.

                                       17



     (b) It is understood and agreed that each Debtor shall remain liable to the
extent of any  deficiency  between the amount of the proceeds of the  Collateral
hereunder and the aggregate amount of the Obligations.

     Section 9.5 Remedies  Cumulative.  Each and every  right,  power and remedy
hereby  specifically given to the Purchasers shall be in addition to every other
right, power and remedy specifically given under this Agreement,  the Securities
Purchase  Agreement,  the Loan Documents or now or hereafter existing at law, in
equity  or by  statute  and each and  every  right,  power  and  remedy  whether
specifically  herein given or otherwise  existing may be exercised  from time to
time or simultaneously and as often and in such order as may be deemed expedient
by the Purchasers.  All such rights, powers and remedies shall be cumulative and
the  exercise  or the  beginning  of the  exercise  of one shall not be deemed a
waiver of the right to exercise any other or others. No delay or omission of the
Purchasers in the exercise of any such right,  power or remedy and no renewal or
extension of any of the Obligations shall impair any such right, power or remedy
or shall be  construed  to be a waiver of any  Default or Event of Default or an
acquiescence  therein.  No notice to or demand on the  Debtors in any case shall
entitle  it to any  other or  further  notice  or  demand  in  similar  or other
circumstances  or constitute a waiver of any of the rights of the  Purchasers to
any other or further action in any  circumstances  without notice or demand.  In
the event that the Purchasers  shall bring any suit to enforce any of its rights
hereunder  and shall be entitled to judgment,  then in such suit the  Purchasers
may recover reasonable expenses,  including reasonable  attorneys' fees, and the
amounts thereof shall be included in such judgment.

     Section 9.6  Discontinuance  of Proceedings.  In case the Purchasers  shall
have instituted any proceeding to enforce any right,  power or remedy under this
Agreement by foreclosure,  sale,  entry or otherwise,  and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely  to the  Purchasers,  then and in every  such  case the  Debtors,  the
Purchasers and each holder of any of the Obligations  shall be restored to their
former positions and rights hereunder with respect to the Collateral  subject to
the Security Interest created under this Agreement, and all rights, remedies and
powers  of the  Purchasers  shall  continue  as if no such  proceeding  had been
instituted.

     Section 9.7 Attorney-in-Fact. Without limiting any rights or powers granted
by this Agreement to the Purchasers,  while no Event of Default has occurred and
is continuing,  upon the  occurrence and during the  continuance of any Event of
Default the Purchasers are hereby appointed the  attorney-in-fact of the Debtors
for the purpose of carrying out the  provisions of this Agreement and taking any
action  and  executing  any  instruments  which may be  reasonably  required  to
accomplish  the  purposes  hereof,  which  appointment  as  attorney-in-fact  is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Purchasers shall have the right and power to receive, endorse and
collect all checks made  payable to the order of the  Debtors  representing  any
dividend, payment or other distribution in respect of the Collateral or any part
thereof and give full discharge for the same.

                                       18



                                  ARTICLE 10.

                                   DEFINITIONS

     Capitalized  terms  used in this  Agreement  without  definition  have  the
respective meanings ascribed to such terms in the Securities Purchase Agreement.
All other  capitalized  terms contained in this Security  Agreement,  unless the
context  indicates  otherwise,  have the  meanings  provided  for by the Uniform
Commercial Code as in effect in the State of New York to the extent the same are
used or  defined  therein.  In  addition,  the  following  terms  shall have the
meanings herein specified.  Such definitions shall be equally  applicable to the
singular and plural forms of the terms defined.

     "Agreement" shall mean this Security,  Pledge and Guaranty Agreement as the
same may be modified,  supplemented  or amended from time to time in  accordance
with its terms.

     "Cash Collateral Account" shall mean a non-interest bearing cash collateral
account maintained with, and in the sole dominion and control of, the Purchasers
for the benefit of the Purchasers.

     "Copyrights"  shall mean any United States  copyright  owned (or subject to
the rights of ownership)  by each Debtor,  including  any  registrations  of any
copyright, in the United States Copyright Office, as well as any application for
a copyright  registration now or hereafter made with the United States Copyright
Office by such Debtor.

     "Default"  shall mean any event  which,  with  notice or lapse of time,  or
both, would constitute an Event of Default.

     "Event of Default"  shall mean any Event of Default  under,  and as defined
in,  the  Securities  Purchase  Agreement  and  shall  in  any  event,   without
limitation,  include any  payment  default on any of the  Obligations  after the
expiration of any applicable grace period.

     "Loan  Documents"  shall  have the  meaning  set  forth  in the  Securities
Purchase Agreement

     "Marks"  shall mean any United States  trademarks,  service marks and trade
names now owned,  subject to a right of ownership or hereafter  acquired by each
Debtor,  including any  registration  of, or application for, any trademarks and
service marks in the United States  Patent and Trademark  Office,  and any trade
dress including logos and/or designs used by either of the Debtors in the United
States.

     "Obligations"  shall mean (a) the full and prompt payment when due (whether
at the stated  maturity,  by  acceleration  or otherwise) of all obligations and
liabilities of the Debtors now existing or hereafter incurred under, arising out
of or in connection with the Securities  Purchase Agreement or Loan Documents as
such relates to the Secured Notes issued  thereunder and the due performance and
compliance by the Debtors with the terms of the Loan Documents;  (b) any and all
sums advanced by the  Purchasers in accordance  with the terms of this Agreement
or the  Securities  Purchase  Agreement in order to preserve the  Collateral  or
preserve their security interest in the Collateral;  and (c) in the event of any
proceeding for the  collection or enforcement of any  obligations or liabilities

                                       19



referred to in clause (a),  after an Event of Default shall have occurred and be
continuing, the reasonable expenses of re-taking, holding, preparing for sale or
lease,  selling or otherwise disposing of or realizing on the Collateral,  or of
any  exercise  by the  Purchasers  of  their  rights  hereunder,  together  with
reasonable attorneys' fees and court costs.

     "Patents" shall mean any United States patent owned,  subject to a right of
ownership  by  or  hereafter   acquired  by  the  Debtors  and  any   divisions,
continuations, reissues, reexaminations, extensions or renewals thereof, as well
as any application for a United States patent now or hereafter made by either of
the Debtors or subject to a right of ownership in such Debtor.

     "Permitted Liens" shall mean any Liens set forth on Schedule J hereto.

     "Proceeds" shall have the meaning  provided in the Uniform  Commercial Code
as in effect in the State of New York on the date hereof or under other relevant
law and,  in any event,  shall  include,  but not be limited to, (a) any and all
proceeds  of any  insurance,  indemnity,  warranty  or  guaranty  payable to the
Purchasers  or  the  Debtors  from  time  to  time  with  respect  to any of the
Collateral,  (b) any and all payments (in any form  whatsoever)  made or due and
payable to the Debtors  from time to time in  connection  with any  requisition,
confiscation,  condemnation,  seizure  or  forfeiture  of all or any part of the
Collateral  by any  governmental  authority (or any person acting under color of
governmental authority) and (c) any and all other amounts from time to time paid
or payable under or in connection with any of the Collateral.

     "Proprietary  Information"  means all information  and know-how  worldwide,
including, without limitation,  technical data, manufacturing data, research and
development  data,  manufacturing  data,  research and  development  data,  data
relating  to  compositions,   processes  and  formulations,   manufacturing  and
production  know-how and experience,  management  know-how,  training  programs,
manufacturing,  engineering  and  other  drawings,  specifications,  performance
criteria,  operating instructions,  maintenance manuals,  technology,  technical
information,  software,  engineering and computer data and databases, design and
engineering  specifications,  catalogs,  promotional  literature  and financial,
business and marketing plans, inventions and invention disclosures.

     "Secured Notes" shall have the meaning set forth in the Securities Purchase
Agreement.

     "Termination  Date" shall have the meaning provided in Section 11.8 of this
Agreement.

     "Trade  Secrets"  means any secretly  held existing  engineering  and other
data,  information,  production  procedures and other  know-how  relating to the
design, manufacture, assembly, installation, use, operation, marketing, sale and
servicing of any products or business of the Debtors  worldwide  whether written
or not written.

                                  ARTICLE 11.

                                  MISCELLANEOUS

     Section 11.1 Notices.  Except as otherwise  specified herein,  all notices,
requests,  demands or other  communications  to or upon the  respective  parties
hereto shall be deemed to have been duly given or made when personally delivered

                                       20



to the party to which such notice,  request,  demand or other  communication  is
required or  permitted  to be given or made under this  Agreement,  addressed as
follows:

(a)      if to the Borrower, the Parent Company or any Subsidiary:

                           Attn:  Mair Faibish
                           223 Underhill Blvd.
                           Syosset, New York 11791
                           Telephone:  516-714-8200
                           Facsimile:  801-340-6434
                           E-mail:  mf@sybr.com

                           with a copy to:

                           Randall J. Perry, Esq.
                           44 Union Avenue
                           P.O. Box 108
                           Rutherford, NJ 07070
                           Facsimile:  201-939-7348


     (b) if to any  Purchaser,  at such  address  as such  Purchaser  shall have
specified in the Securities Purchase Agreement, with a copy to:

                           Andrews Kurth LLP
                           450 Lexington Ave., 15th Floor
                           New York, New York 10017
                           Attention:  Paul N. Silverstein, Esq.

     or at such other  address as shall  have been  furnished  in writing by any
person or entity described above to the party required to give notice hereunder.

     Section 11.2 Waiver;  Amendment.  None of the terms and  conditions of this
Agreement may be changed,  waived,  modified or varied in any manner  whatsoever
unless in writing duly signed by each Debtor and the Purchasers.

     Section 11.3 Obligations Absolute. The obligations of the Debtors hereunder
shall  remain in full  force and  effect  without  regard  to,  and shall not be
impaired  by,  (a)  any  bankruptcy,  insolvency,  reorganization,  arrangement,
readjustment,  composition,  liquidation  or the like of the  Debtors  except as
required by  applicable  law;  (b) any  exercise or  non-exercise  of any right,
remedy, power or privilege under or in respect of this Agreement, the Securities
Purchase  Agreement,  the Secured  Notes issued  thereunder or any waiver of any
right,  remedy,  power  or  privilege  under  any  other  agreement;  or (c) any
amendment  to  or  modification  of  this  Agreement,  the  Securities  Purchase
Agreement,  the Secured  Notes issued  thereunder or any security for any of the
Obligations, other than amendments or modifications of this Agreement.

                                       21



     Section 11.4  Successors and Assigns.  This Agreement shall be binding upon
the Debtors and their  successors  and assigns and shall inure to the benefit of
the Purchasers and their  respective  successors  and assigns.  All  agreements,
statements,  representations and warranties made by the Debtors herein or in any
certificate or other instrument  delivered by the Debtors or on its behalf under
this  Agreement  shall be considered to have been relied upon by the  Purchasers
and shall survive the execution and delivery of this  Agreement,  the Securities
Purchase  Agreement or the Secured  Notes issued  thereunder  regardless  of any
investigation made by the Purchasers or on their behalf.

     Section 11.5 Headings Descriptive.  The headings of the several sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Agreement.

     Section 11.6 Governing  Law. THIS AGREEMENT AND THE RIGHTS AND  OBLIGATIONS
OF THE PARTIES  HEREUNDER  SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK  WITHOUT  REGARD  FOR  CONFLICTS  OF LAWS OF
CHOICE OF LAWS PRINCIPLES.

     Section 11.7  Debtor's  Duties.  It is expressly  agreed,  anything  herein
contained to the contrary notwithstanding,  that the Debtors shall remain liable
to perform all of the  obligations,  if any,  assumed by it with  respect to the
Collateral and the Purchasers shall not have any obligations or liabilities with
respect to any  Collateral  by reason of or arising out of this  Agreement,  nor
shall the  Purchasers  be  required  or  obligated  in any  manner to perform or
fulfill  any of the  obligations  of the  Debtors  under or with  respect to any
Collateral.

     Section  11.8  Termination;  Release.  After  the  Termination  Date,  this
Agreement  shall  terminate  (provided  that all  indemnities  set  forth in the
Securities   Purchase   Agreement  shall  survive  such   termination)  and  the
Purchasers, at the request and expense of the Debtors, will promptly execute and
deliver to the Debtors a proper  instrument or  instruments  (including  Uniform
Commercial  Code  termination   statements  on  form  UCC-3)  acknowledging  the
satisfaction and termination of this Agreement,  and will duly assign,  transfer
and deliver to the Debtors (without  recourse and without any  representation or
warranty)  such of the  Collateral as may be in the possession of the Purchasers
and has not theretofore been sold or otherwise  applied or released  pursuant to
this  Agreement.  As used in this Agreement,  "Termination  Date" shall mean the
date upon which all  Obligations  then due and payable have been paid in full in
cash and no SecuredNote is outstanding.

     Section 11.9 Counterparts.  This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,  each
of which when so executed and delivered  shall be an original,  but all of which
shall together  constitute one and the same  instrument.  A set of  counterparts
executed  by all the  parties  hereto  shall be lodged  with the Debtors and the
Purchasers.

                                       22



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

                                         DEBTORS:

                                            SYNERGY BRANDS INC.


                                            By:
                                            Name:
                                            Title:

                                            SYBR.COM INC.

                                            By:
                                            Name:
                                            Title:

                                            GRAN RESERVE CORPORATION

                                            By:
                                            Name:
                                            Title:

                                            DEALBYNET.COM INC.

                                            By:
                                            Name:
                                            Title:

                                            QUALITY FOOD BRANDS, INC.

                                            By:
                                            Name:
                                            Title:

                                            NYCE NORTH AMERICA INC.

                                            By:
                                            Name:
                                            Title:

                                            NET CIGAR.COM INC.

                                            By:
                                            Name:
                                            Title:

                                 Signature page



PURCHASERS:

MILFAM I L.P.

By:  Milfam LLC
Its:  General Partner

By:
Name:  Lloyd I. Miller, III
Title:  Manager

LLOYD I. MILLER, III

By:
Name: Lloyd I. Miller, III

                                 Signature page

EX-10.2

                                  Exhibit 10.2

     THE SECURITY  REPRESENTED  BY THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY
TRANSFER OF SUCH SECURITY WILL BE INVALID UNLESS A REGISTRATION  STATEMENT UNDER
THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH  TRANSFER OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.


                                 PHS Group Inc.

                             Secured Promissory Note

Note No. 2007-01
$3,250,000.00                                                   January 19, 2007

     FOR VALUE  RECEIVED,  subject to the terms and  conditions  of this Secured
Promissory Note (the "Note"),  PHS GROUP INC., a Pennsylvania  corporation  with
its principal  offices located at 223 Underhill Blvd,  Syosset,  New York, 11971
(the  "Borrower"),  hereby promises to pay to the order of LLOYD I. MILLER,  III
(the "Holder") with his principal  office located at 4550 Gordon Drive,  Naples,
Florida,  34102,  the  principal  sum of THREE  MILLION,  TWO  HUNDRED AND FIFTY
THOUSAND  dollars  ($3,250,000.00)  on January 15, 2012 or, if such day is not a
regular Business Day, on the next Business Day thereafter,  with all accrued but
unpaid interest (as provided below) to such date (the "Maturity Date").  Subject
to the terms and  conditions of this Note,  the Borrower also promises to pay to
the Holder interest  accrued on the outstanding  unpaid  principal amount hereof
until such principal amount is paid at the rate of 11.25% per annum, compounding
quarterly,  from the date hereof.  Said  interest  shall become due quarterly in
arrears and shall be payable on the last day of each calendar  quarter (each, an
"Interest  Payment  Date") in respect  of the  immediately  preceding  completed
calendar  quarter.  The first  Interest  Payment  Date  will be March 31,  2007.
Notwithstanding  the  foregoing,  the  interest  rate set forth  above  shall be
reduced  to a rate of 11.00%  per annum  (the  "Reduced  Rate")  upon the Holder
obtaining  a  first  priority  secured  interest  in all of  the  assets  of the
Borrower,   Synergy  Brands  Inc.  (the  "Parent   Company")  and  Gran  Reserve
Corporation.  In order for the Reduced Rate to be applicable,  the Borrower must
provide  written  notice  to the  Holder  evidencing  that  all  prior  security
interests  granted  to  IIG  Capital  LLC  (the  "IIG  Security  Interests")  in
connection with or related to the IIG Loan Agreement (as such term is defined in
the  Securities  Purchase  Agreement)  have been duly  terminated  and are of no
further  force and  effect.  Such  notice  shall be subject  to the  independent
confirmation  of the  Holder  that  in its  sole  discretion  the  IIG  Security
Interests have been duly terminated and are of no further force and effect. From
and after the date upon which the Holder provides written notice to the Borrower
confirming  that the IIG  Security  Interests  have  been duly  terminated,  the
Secured Notes will begin accruing  interest at the Reduced Rate.  Principal will

                                       1



be amortized  over ten years and  payable,  as set forth on Schedule A, in equal
monthly  installments  on the last day of each month  beginning  on January  31,
2007, with the balance to be paid in full on the Maturity Date. In the event any
payment is not timely paid when due,  interest shall accrue on such late payment
at a per annum rate of eighteen  percent  (18%) from and  including  the date of
such late payment to (but excluding) the date such late payment is paid in full.
All payments due hereunder  (whether of principal or interest)  shall be payable
in lawful money of the United States in immediately available funds.

     This Note is one of the Notes issued  pursuant to that  certain  Securities
Purchase Agreement dated as of the date hereof,  among the Borrower,  the Parent
Company and the purchasers named therein (the "Securities  Purchase  Agreement")
and shall be entitled to the  benefits  thereof.  The Holder has been  granted a
security interest in certain assets of the Borrower, the Parent Company, and its
Subsidiaries  as more  fully  described  in that  certain  Security,  Pledge and
Guaranty  Agreement (the "Security  Agreement") dated as of the date hereof. The
obligations of the Borrower under this Note have also been guaranteed by certain
Subsidiaries of the Parent Company  pursuant to and as set forth in the Security
Agreement.  The Holder of this Note is also  entitled to the rights and benefits
granted  pursuant to that certain  Subordination  and  Intercreditor  Agreement,
dated as of the date  hereof,  by and among the  Borrower,  the Parent  Company,
certain Subsidiaries thereto,  Laurus Master Fund, Ltd., the Holder and Milfam I
L.P.

     1. Definitions.  Unless the context otherwise requires, the following terms
shall have the following respective meanings:

     "Borrower" has the meaning  ascribed to such term in the first paragraph of
this Note.

     "Business Day" means any day of the week other than Saturday, Sunday or any
other  day of the  week on which  commercial  banks  in New  York,  New York are
authorized or required by law to close.

     "Event of Default" has the meaning ascribed to such term in Section 4(a) of
this Note.

     "Holder"  has the meaning  ascribed to such term in the first  paragraph of
this Note.

     "Maturity  Date"  has  the  meaning  ascribed  to such  term  in the  first
paragraph of this Note.

     "Note" has the meaning ascribed to such term in the first paragraph of this
instrument.

                                       2



     "Security  Agreement"  has the meaning  ascribed to such term in the second
paragraph of this Note.

     "Securities  Purchase  Agreement" has the meaning  ascribed to such term in
the second paragraph of this Note.

     "Subsidiaries"  has the  meaning  ascribed  to such term in the  Securities
Purchase Agreement.

     2. Accounting Terms. All accounting terms not specifically  defined in this
Note shall be construed in  accordance  with United  States  generally  accepted
accounting  principles and, if applicable,  consistent with those applied in the
preparation of the financial statements of the Borrower.

     3.  Prepayment.  The Note may be paid prior to the Maturity  Date  provided
that prior to such  repayment  the  Borrower  provides  the Holder with five (5)
Business Days' advance written notice.

     4. Events of Default.

     (a) Events Constituting An Event of Default. Any of the events set forth in
Section 1.11 of the Security Purchase  Agreement,  which section is incorporated
herein by reference, shall constitute an "Event of Default" under this Note.

     (b) Consequences of an Event of Default. Upon the occurrence of an Event of
Default or at any time  thereafter,  the Holder may, by notice to the  Borrower,
declare the entire unpaid principal amount of the Note, all interest accrued and
unpaid thereon and all other amounts payable under this Note to be forthwith due
and payable,  whereupon the Note, all such accrued interest and all such amounts
will become and be forthwith due and payable (unless there will have occurred an
Event of Default under Section 1.11(i) of the Securities Purchase Agreement,  in
which case all such amounts will  automatically  become due and payable) without
offset or counterclaim of any kind and without presentment,  demand,  protest or
further  notice of any kind, and without regard to the running of the statute of
limitations, all of which are by this Note expressly waived by the Borrower.

     5. General Matters.

     (a)  Applicable  Law. This Note shall be governed by the internal laws (and
not the law of conflicts) of the State of New York.

     (b) Fees and  Expenses.  In the event that any suit or action is instituted
to enforce any provision  under this Note, the prevailing  party in such dispute
shall be entitled to recover from the losing party all fees,  costs and expenses
of enforcing  any right of such  prevailing  party under or with respect to this
Note,  including  without  limitation,  such  reasonable  fees and  expenses  of

                                       3



attorneys and accountants,  which shall include,  without limitation,  all fees,
costs and  expenses of appeals.  Notwithstanding  the  foregoing,  the  Borrower
agrees to pay and hold Holder harmless against  liability for the payment of the
reasonable  fees  and  expenses  of  Holder  (including,   without   limitation,
reasonable attorneys' fees and expenses and out of pocket expenses of Holder and
its  representatives,  including,  without  limitation,  fees and  expenses  for
travel, background investigations and outside consultants) arising in connection
with any refinancing or restructuring of the credit arrangements  provided under
this  Note in the  nature of a  "work-out"  or  pursuant  to any  insolvency  or
bankruptcy  proceedings.  If  default is made in the  payment of this Note,  the
Borrower  shall  pay to  Holder's  costs  of  collection,  including  reasonable
attorney's fees.

     (c)  Amendment  or Waiver.  Any term of this Note may be  amended,  and the
observance  of any term of this Note may be  waived  (either  generally  or in a
particular  instance  and either  retroactively  or  prospectively)  only by the
written consent of the Holder.

     (d) Headings.  The headings in this Note are for purposes of convenience of
reference only, and shall not be deemed to constitute a part of this Note.

     (e) Notices.  All  notices,  requests,  consents  and other  communications
required  or  permitted  hereunder  shall be in writing  (including  telecopy or
similar  writing) and shall be sent to the address of the party set forth in the
Securities  Purchase   Agreement.   Any  notice,   request,   consent  or  other
communication  hereunder  shall be deemed to have been given and received on the
day on  which  it is  delivered  (by  any  means  including  personal  delivery,
overnight air courier, United States mail) or telecopied (or, if such day is not
a  Business  Day or if the  notice,  request,  consent or  communication  is not
telecopied  during  business  hours of the intended  recipient,  at the place of
receipt,  on the next following Business Day). Any of the parties hereto may, by
notice given hereunder, designate any further or different address and/or number
to which subsequent  notices or other  communications  shall be sent. Unless and
until such written  notice is received,  the  addresses  and numbers as provided
herein shall be deemed to continue in effect for all purposes hereunder.

     (f) Failure or  Indulgence  Not Waiver.  No failure or delay on the part of
the Holder  hereof in the exercise of any power,  right or  privilege  hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other  right,  power or  privilege.  All  rights  and  remedies  existing
hereunder  are  cumulative  to, and not  exclusive  of,  any rights or  remedies
otherwise available.

     (g) Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument,  shall mean this instrument as originally  executed,
or if later amended,  supplemented or modified, then as so amended, supplemented
or modified.

                                       4



     (h)  Assignability.  This Note shall be binding  upon the  Borrower and its
successors  and  assigns,  and shall  inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements  of the  Securities  Purchase  Agreement.  This  Note  shall not be
assigned and none of the obligations related hereunder shall be delegated by the
Borrower without the prior written consent of the Holder.

     (i) Usury  Limitation.  In no event  shall the amount  paid or agreed to be
paid to the Holder for the use or forbearance of money to be advanced  hereunder
exceed the highest lawful rate permissible under the then applicable usury laws.
If it is  hereafter  determined  by a court of competent  jurisdiction  that the
interest  payable  hereunder  is in excess of the  amount  which the  Holder may
legally collect under the then applicable usury laws, such amount which would be
excessive  interest  shall be  applied to the  payment  of the unpaid  principal
balance due  hereunder  and not to the payment of interest or, if all  principal
shall previously have been paid, promptly repaid by the Holder to the Borrower.

     (j) Severability. Every provision of this Note is intended to be severable.
If any term or provision hereof is declared by a court of competent jurisdiction
to be illegal or invalid,  such illegal or invalid  term or provision  shall not
affect  the  balance  of the  terms  and  provisions  hereof,  which  terms  and
provisions shall remain binding and enforceable.

     (k) Certain Borrower  Waivers.  The Borrower and any endorsers of this Note
hereby waive diligence,  presentment,  protest,  demand and notice of every kind
and, to the fullest  extent  permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder.


                  [Remainder of Page Intentionally Left Blank]

                                       5



     IN WITNESS WHEREOF,  the Borrower has caused this Note to be executed as of
the day and year first above written.


                                     PHS GROUP INC.,
                                     a Pennsylvania corporation

                                     By:

                                     Name:

                                     Title:

                                       6

EX-10.3

                                  Exhibit 10.3

     THE SECURITY  REPRESENTED  BY THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. ANY
TRANSFER OF SUCH SECURITY WILL BE INVALID UNLESS A REGISTRATION  STATEMENT UNDER
THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH  TRANSFER OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.


                                 PHS Group Inc.

                             Secured Promissory Note

Note No. 2007-02
$3,250,000.00                                                   January 19, 2007

     FOR VALUE  RECEIVED,  subject to the terms and  conditions  of this Secured
Promissory Note (the 'Note'),  PHS GROUP INC., a Pennsylvania  corporation  with
its principal  offices located at 223 Underhill Blvd,  Syosset,  New York, 11971
(the  "Borrower"),  hereby  promises  to pay to the order of MILFAM I L.P.  (the
"Holder")  with its  principal  office  located at 4550  Gordon  Drive,  Naples,
Florida,  34102,  the  principal  sum of THREE  MILLION,  TWO  HUNDRED AND FIFTY
THOUSAND  dollars  ($3,250,000.00)  on January 15, 2012 or, if such day is not a
regular Business Day, on the next Business Day thereafter,  with all accrued but
unpaid interest (as provided below) to such date (the 'Maturity Date").  Subject
to the terms and  conditions of this Note,  the Borrower also promises to pay to
the Holder interest  accrued on the outstanding  unpaid  principal amount hereof
until such principal amount is paid at the rate of 11.25% per annum, compounding
quarterly,  from the date hereof.  Said  interest  shall become due quarterly in
arrears and shall be payable on the last day of each calendar  quarter (each, an
"Interest  Payment  Date") in respect  of the  immediately  preceding  completed
calendar  quarter.  The first  Interest  Payment  Date  will be March 31,  2007.
Notwithstanding  the  foregoing,  the  interest  rate set forth  above  shall be
reduced  to a rate of 11.00%  per annum  (the  "Reduced  Rate")  upon the Holder
obtaining  a  first  priority  secured  interest  in all of  the  assets  of the
Borrower,   Synergy  Brands  Inc.  (the  "Parent   Company")  and  Gran  Reserve
Corporation.  In order for the Reduced Rate to be applicable,  the Borrower must
provide  written  notice  to the  Holder  evidencing  that  all  prior  security
interests  granted  to  IIG  Capital  LLC  (the  "IIG  Security  Interests")  in
connection with or related to the IIG Loan Agreement (as such term is defined in
the  Securities  Purchase  Agreement)  have been duly  terminated  and are of no
further  force and  effect.  Such  notice  shall be subject  to the  independent
confirmation  of the  Holder  that  in its  sole  discretion  the  IIG  Security
Interests have been duly terminated and are of no further force and effect. From
and after the date upon which the Holder provides written notice to the Borrower
confirming  that the IIG  Security  Interests  have  been duly  terminated,  the
Secured Notes will begin accruing  interest at the Reduced Rate.  Principal will



be amortized  over ten years and  payable,  as set forth on Schedule A, in equal
monthly  installments  on the last day of each month  beginning  on January  31,
2007, with the balance to be paid in full on the Maturity Date. In the event any
payment is not timely paid when due,  interest shall accrue on such late payment
at a per annum rate of eighteen  percent  (18%) from and  including  the date of
such late payment to (but excluding) the date such late payment is paid in full.
All payments due hereunder  (whether of principal or interest)  shall be payable
in lawful money of the United States in immediately available funds.

     This Note is one of the Notes issued  pursuant to that  certain  Securities
Purchase Agreement dated as of the date hereof,  among the Borrower,  the Parent
Company and the purchasers named therein (the "Securities  Purchase  Agreement")
and shall be entitled to the  benefits  thereof.  The Holder has been  granted a
security interest in certain assets of the Borrower,  the Parent Company and its
Subsidiaries  as more  fully  described  in that  certain  Security,  Pledge and
Guaranty  Agreement (the "Security  Agreement") dated as of the date hereof. The
obligations of the Borrower under this Note have also been guaranteed by certain
Subsidiaries of the Parent Company  pursuant to and as set forth in the Security
Agreement.  The Holder of this Note is also  entitled to the rights and benefits
granted  pursuant to that certain  Subordination  and  Intercreditor  Agreement,
dated as of the date  hereof,  by and among the  Borrower,  the Parent  Company,
certain Subsidiaries thereto,  Laurus Master Fund, Ltd., the Holder and Lloyd I.
Miller, III.

     1. Definitions.  Unless the context otherwise requires, the following terms
shall have the following respective meanings:

     "Borrower" has the meaning  ascribed to such term in the first paragraph of
this Note.

     "Business Day" means any day of the week other than Saturday, Sunday or any
other  day of the  week on which  commercial  banks  in New  York,  New York are
authorized or required by law to close.

     "Event of Default" has the meaning ascribed to such term in Section 4(a) of
this Note.

     "Holder"  has the meaning  ascribed to such term in the first  paragraph of
this Note.

     "Maturity  Date"  has  the  meaning  ascribed  to such  term  in the  first
paragraph of this Note.

     "Note" has the meaning ascribed to such term in the first paragraph of this
instrument.

                                       2



     "Security  Agreement" has the meaning  ascribed to such term in the second
paragraph of this Note.

     "Securities  Purchase  Agreement" has the meaning  ascribed to such term in
the second paragraph of this Note.

     "Subsidiaries"  has the  meaning  ascribed  to such term in the  Securities
Purchase Agreement.

     2. Accounting Terms. All accounting terms not specifically  defined in this
Note shall be construed in  accordance  with United  States  generally  accepted
accounting  principles and, if applicable,  consistent with those applied in the
preparation of the financial statements of the Borrower.

     3.  Prepayment.  The Note may be paid prior to the Maturity  Date  provided
that prior to such  repayment  the  Borrower  provides  the Holder with five (5)
Business Days' advance written notice.

     4. Events of Default.

     (a) Events Constituting An Event of Default. Any of the events set forth in
Section 1.11 of the Security Purchase  Agreement,  which section is incorporated
herein by reference, shall constitute an "Event of Default" under this Note.

     (b) Consequences of an Event of Default. Upon the occurrence of an Event of
Default or at any time  thereafter,  the Holder may, by notice to the  Borrower,
declare the entire unpaid principal amount of the Note, all interest accrued and
unpaid thereon and all other amounts payable under this Note to be forthwith due
and payable,  whereupon the Note, all such accrued interest and all such amounts
will become and be forthwith due and payable (unless there will have occurred an
Event of Default under Section 1.11(i) of the Securities Purchase Agreement,  in
which case all such amounts will  automatically  become due and payable) without
offset or counterclaim of any kind and without presentment,  demand,  protest or
further  notice of any kind, and without regard to the running of the statute of
limitations, all of which are by this Note expressly waived by the Borrower.

     5. General Matters.

     (a)  Applicable  Law. This Note shall be governed by the internal laws (and
not the law of conflicts) of the State of New York.

     (b) Fees and  Expenses.  In the event that any suit or action is instituted
to enforce any provision  under this Note, the prevailing  party in such dispute
shall be entitled to recover from the losing party all fees,  costs and expenses
of enforcing  any right of such  prevailing  party under or with respect to this

                                       3



Note,  including  without  limitation,  such  reasonable  fees and  expenses  of
attorneys and accountants,  which shall include,  without limitation,  all fees,
costs and  expenses of appeals.  Notwithstanding  the  foregoing,  the  Borrower
agrees to pay and hold Holder harmless against  liability for the payment of the
reasonable  fees  and  expenses  of  Holder  (including,   without   limitation,
reasonable attorneys' fees and expenses and out of pocket expenses of Holder and
its  representatives,  including,  without  limitation,  fees and  expenses  for
travel, background investigations and outside consultants) arising in connection
with any refinancing or restructuring of the credit arrangements  provided under
this  Note in the  nature of a  "work-out"  or  pursuant  to any  insolvency  or
bankruptcy  proceedings.  If  default is made in the  payment of this Note,  the
Borrower  shall  pay to  Holder's  costs  of  collection,  including  reasonable
attorney's fees.

     (c)  Amendment  or Waiver.  Any term of this Note may be  amended,  and the
observance  of any term of this Note may be  waived  (either  generally  or in a
particular  instance  and either  retroactively  or  prospectively)  only by the
written consent of the Holder.

     (d) Headings.  The headings in this Note are for purposes of convenience of
reference only, and shall not be deemed to constitute a part of this Note.

     (e) Notices.  All  notices,  requests,  consents  and other  communications
required  or  permitted  hereunder  shall be in writing  (including  telecopy or
similar  writing) and shall be sent to the address of the party set forth in the
Securities  Purchase   Agreement.   Any  notice,   request,   consent  or  other
communication  hereunder  shall be deemed to have been given and received on the
day on  which  it is  delivered  (by  any  means  including  personal  delivery,
overnight air courier, United States mail) or telecopied (or, if such day is not
a  Business  Day or if the  notice,  request,  consent or  communication  is not
telecopied  during  business  hours of the intended  recipient,  at the place of
receipt,  on the next following Business Day). Any of the parties hereto may, by
notice given hereunder, designate any further or different address and/or number
to which subsequent  notices or other  communications  shall be sent. Unless and
until such written  notice is received,  the  addresses  and numbers as provided
herein shall be deemed to continue in effect for all purposes hereunder.

     (f) Failure or  Indulgence  Not Waiver.  No failure or delay on the part of
the Holder  hereof in the exercise of any power,  right or  privilege  hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other  right,  power or  privilege.  All  rights  and  remedies  existing
hereunder  are  cumulative  to, and not  exclusive  of,  any rights or  remedies
otherwise available.

     (g) Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument,  shall mean this instrument as originally  executed,
or if later amended,  supplemented or modified, then as so amended, supplemented
or modified.

                                       4



     (h)  Assignability.  This Note shall be binding  upon the  Borrower and its
successors  and  assigns,  and shall  inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements  of the  Securities  Purchase  Agreement.  This  Note  shall not be
assigned and none of the obligations related hereunder shall be delegated by the
Borrower without the prior written consent of the Holder.

     (i) Usury  Limitation.  In no event  shall the amount  paid or agreed to be
paid to the Holder for the use or forbearance of money to be advanced  hereunder
exceed the highest lawful rate permissible under the then applicable usury laws.
If it is  hereafter  determined  by a court of competent  jurisdiction  that the
interest  payable  hereunder  is in excess of the  amount  which the  Holder may
legally collect under the then applicable usury laws, such amount which would be
excessive  interest  shall be  applied to the  payment  of the unpaid  principal
balance due  hereunder  and not to the payment of interest or, if all  principal
shall previously have been paid, promptly repaid by the Holder to the Borrower.

     (j) Severability. Every provision of this Note is intended to be severable.
If any term or provision hereof is declared by a court of competent jurisdiction
to be illegal or invalid,  such illegal or invalid  term or provision  shall not
affect  the  balance  of the  terms  and  provisions  hereof,  which  terms  and
provisions shall remain binding and enforceable.

     (k) Certain Borrower  Waivers.  The Borrower and any endorsers of this Note
hereby waive diligence,  presentment,  protest,  demand and notice of every kind
and, to the fullest  extent  permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder.


                  [Remainder of Page Intentionally Left Blank]

                                       5



     IN WITNESS WHEREOF,  the Borrower has caused this Note to be executed as of
the day and year first above written.


                           PHS GROUP INC.,
                           a Pennsylvania corporation

                           By:

                           Name:

                           Title:

                                       6