THIS
        SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
        (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
        OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
        OF
        THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED
        EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
        ACT
        OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
        OF THE
        SECURITIES ACT OR SUCH OTHER LAWS.

       

      5
        1⁄4 % CONVERTIBLE DEBENTURE

       

      


      Company:
        Infinium
        Labs, Inc.

      Company
        Address: 1191
        Second Avenue, 5th
        Floor,
        Seattle, Washington 98101

      Closing
        Date: January
        24, 2006

      Maturity
        Date: January
        24, 2009

      Principal
        Amount:
        $500,000

      First
        Payment Due Date: March
        15,
        2006

       

      Infinium
        Labs, Inc., a Delaware corporation, and any successor or resulting corporation
        by way of merger, consolidation, sale or exchange of all or substantially
        all of
        the assets or otherwise (the “Company”),
        for
        value received, hereby promises to pay to the Holder (as such term is
        hereinafter defined), or such other Person (as such term is hereinafter defined)
        upon order of the Holder, on the Maturity Date, the Principal Amount (as
        such
        term is hereinafter defined), as such sum may be adjusted pursuant to Article
        3,
        and to pay interest thereon from the Closing Date, monthly in arrears, on
        the
        15th
        day of
        each month (each an “Interest
        Payment Due Date”
        and
        collectively, the “Interest
        Payment Due Dates”),
        commencing on the First Payment Due Date, at the rate of five and one-quarter
        percent (5 1⁄4 %) per annum (the “Debenture
        Interest Rate”),
        until
        the Principal Amount of this Debenture has been paid in full. All interest
        payable on the Principal Amount of this Debenture shall be calculated on
        the
        basis of a 360-day year for the actual number of days elapsed. Payment of
        interest on this Debenture shall be in cash or, at the option of the Holder,
        in
        shares of Common Stock of the Company valued at the then applicable Conversion
        Price (as defined herein). This Debenture may not be prepaid without the
        written
        consent of the Holder.

       

      ARTICLE
        1

      DEFINITIONS

       

      SECTION
        1.1 Definitions.
        The
        terms defined in this Article whenever used in this Debenture have the following
        respective meanings:

       

      (i) “Affiliate”
        has the
        meaning ascribed to such term in Rule 12b-2 under the Securities Exchange
        Act of
        1934, as amended.

       

      (ii) “Bankruptcy
        Code”
        means
        the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101
et.
        seq.).

       

      
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          1

          
            

          

        

        
          
          

        

      

       

      (iii) “Business
        Day”
        means a
        day other than Saturday, Sunday or any day on which banks located in the
        State
        of California are authorized or obligated to close.

       

      (iv) “Capital
        Shares”
        means
        the Common Stock and any other shares of any other class or series of capital
        stock, whether now or hereafter authorized and however designated, which
        have
        the right to participate in the distribution of earnings and assets (upon
        dissolution, liquidation or winding-up) of the Company.

       

      (v) “Common
        Shares”
        or
“Common
        Stock”
        means
        shares of the Company’s Common Stock.

       

      (vi) “Common
        Stock Issued at Conversion”,
        when
        used with reference to the securities deliverable upon conversion of this
        Debenture, means all Common Shares now or hereafter Outstanding and securities
        of any other class or series into which this Debenture hereafter shall have
        been
        changed or substituted, whether now or hereafter created and however
        designated.

       

      (vii) “Conversion”
        or“conversion”
        means
        the repayment by the Company of the Principal Amount of this Debenture (and,
        to
        the extent the Holder elects as permitted by Section 3.1, accrued and unpaid
        interest thereon) by the delivery of Common Stock on the terms provided in
        Section 3.2, and “convert,” “converted,” “convertible”
        and like
        words shall have a corresponding meaning.

       

      (viii) “Conversion
        Date”
        means
        any day on which all or any portion of the Principal Amount of this Debenture
        is
        converted in accordance with the provisions hereof.

       

      (ix) “Conversion
        Notice”
        means a
        written notice of conversion substantially in the form annexed hereto as
        Exhibit
        A.
        

       

      (x) “Conversion
        Price”
        on any
        date of determination means the applicable price for the conversion of this
        Debenture into Common Shares on such day as set forth in Section
        3.1(a).

       

      (xi) “Current
        Market Price”
        on any
        date of determination means the closing price of a Common Share on such day
        as
        reported on the NASDAQ OTCBB Exchange; provided
        that,
        if
        such security is not listed or admitted to trading on the NASDAQ OTCBB, as
        reported on the principal national security exchange or quotation system
        on
        which such security is quoted or listed or admitted to trading, or, if not
        quoted or listed or admitted to trading on any national securities exchange
        or
        quotation system, the closing bid price of such security on the over-the-counter
        market on the day in question as reported by Bloomberg LP or a similar generally
        accepted reporting service, as the case may be.

       

      (xii) “Deadline”
        means
        the date that is the 120th day from the Closing Date.

       

      (xiii) “Debenture”
        or
        “Debentures”
        means
        this Convertible Debenture of the Company or such other convertible debenture(s)
        exchanged therefor as provided in Section 2.1.

       

      
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          2

          
            

          

        

        
          
          

        

      

       

      (xiv) “Discount
        Multiplier”
has
        the
        meaning set forth in Section 3.1(a).

       

      (xv) “Event
        of Default”
        has the
        meaning set forth in Section 6.1.

       

      (xvi) “Holder”
        means
        Golden Gate Investors, Inc., any successor thereto, or any Person to whom
        this
        Debenture is subsequently transferred in accordance with the provisions
        hereof.

       

      (xvii) “Interest
        Payment Due Date”
        has the
        meaning set forth in the opening paragraph of this Debenture.

       

      (xviii) “Market
        Disruption Event”
        means
        any event that results in a material suspension or limitation of trading
        of the
        Common Shares.

       

      (xix) “Market
        Price”
        per
        Common Share means the lowest price of the Common Shares during any Trading
        Day
        as reported on the NASDAQ OTCBB; provided
        that, if
        such security is not listed or admitted to trading on the NASDAQ OTCBB, as
        reported on the principal national security exchange or quotation system
        on
        which such security is quoted or listed or admitted to trading, or, if not
        quoted or listed or admitted to trading on any national securities exchange
        or
        quotation system, the lowest price of the Common Shares during any Trading
        Day
        on the over-the-counter market as reported by Bloomberg LP or a similar
        generally accepted reporting service, as the case may be.

       

      (xx) “Maximum
        Rate”
        has the
        meaning set forth in Section 6.4.

       

      (xxi) “Outstanding”
        when
        used with reference to Common Shares or Capital Shares (collectively,
“Shares”)
        means,
        on any date of determination, all issued and outstanding Shares, and includes
        all such Shares issuable in respect of outstanding scrip or any certificates
        representing fractional interests in such Shares; provided,
        however,
        that
        any such Shares directly or indirectly owned or held by or for the account
        of
        the Company or any Subsidiary of the Company shall not be deemed “Outstanding”
        for
        purposes hereof.

       

      (xxii) “Person”
        means an
        individual, a corporation, a partnership, an association, a limited liability
        company, an unincorporated business organization, a trust or other entity
        or
        organization, and any government or political subdivision or any agency or
        instrumentality thereof.

       

      (xxiii) “Principal
        Amount”
        means,
        for any date of calculation, the principal sum set forth in the first paragraph
        of this Debenture (but only such principal amount as to which the Holder
        has (a)
        actually advanced pursuant to the Securities Purchase Agreement, and (b)
        not
        theretofore furnished a Conversion Notice in compliance with Section
        3.2).

       

      (xxiv) “Registration
        Rights Agreement”
        means
        that certain Registration Rights Agreement of even date herewith by and between
        the Company and Holder, as the same may be amended from time to
        time.

       

      (xxv) “SEC”
        means
        the United States Securities and Exchange Commission.

       

      
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          3

          
            

          

        

        
          
          

        

      

       

      (xxvi) “Securities
        Act”
        means
        the Securities Act of 1933, as amended, and the rules and regulations of
        the SEC
        thereunder, all as in effect at the time.

       

      (xxvii) “Securities
        Purchase Agreement”
        means
        that certain Securities Purchase Agreement of even date herewith by and among
        the Company and Holder, as the same may be amended from time to
        time.

       

      (xxviii) “Subsidiary”
        means
        any entity of which securities or other ownership interests having ordinary
        voting power to elect a majority of the board of directors or other persons
        performing similar functions are owned directly or indirectly by the
        Company.

       

      (xxix) “Trading
        Day”
        means
        any day on which (i) purchases and sales of securities on the principal national
        security exchange or quotation system on which the Common Shares are traded
        are
        reported thereon, or, if not quoted or listed or admitted to trading on any
        national securities exchange or quotation system, as reported by Bloomberg
        LP or
        a similar generally accepted reporting service, as the case may be, (ii)
        at
        least one bid for the trading of Common Shares is reported and (iii) no Market
        Disruption Event occurs.

       

      (xxx) “Volume
        Weighted Average Price” per
        Common Share means the volume weighted average price of the Common Shares
        during
        any Trading Day as reported on the NASDAQ OTCBB; provided
        that, if
        such security is not listed or admitted to trading on the NASDAQ OTCBB, as
        reported on the principal national security exchange or quotation system
        on
        which such security is quoted or listed or admitted to trading, or, if not
        quoted or listed or admitted to trading on any national securities exchange
        or
        quotation system, the volume weighted average price of the Common Shares
        during
        any Trading Day on the over-the-counter market as reported by Bloomberg LP
        or a
        similar generally accepted reporting service, as the case may be.

       

      All
        references to “cash” or “$” herein means currency of the United States of
        America.

       

      ARTICLE
        2

      EXCHANGES,
        TRANSFER AND REPAYMENT

       

      SECTION
        2.1 Registration
        of Transfer of Debentures.
        This
        Debenture, when presented for registration of transfer, shall (if so required
        by
        the Company) be duly endorsed, or be accompanied by a written instrument
        of
        transfer in form reasonably satisfactory to the Company duly executed, by
        the
        Holder duly authorized in writing.

       

      SECTION
        2.2 Loss,
        Theft, Destruction of Debenture.
        Upon
        receipt of evidence satisfactory to the Company of the loss, theft, destruction
        or mutilation of this Debenture and, in the case of any such loss, theft
        or
        destruction, upon receipt of indemnity or security reasonably satisfactory
        to
        the Company, or, in the case of any such mutilation, upon surrender and
        cancellation of this Debenture, the Company shall make, issue and deliver,
        in
        lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture
        of
        like tenor and unpaid Principal Amount dated as of the date hereof (which
        shall
        accrue interest from the most recent Interest Payment Due Date on which an
        interest payment was made in full). This Debenture shall be held and owned
        upon
        the express condition that the provisions of this Section 2.2 are exclusive
        with
        respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
        and shall preclude any and all other rights and remedies notwithstanding
        any law
        or statute existing or hereafter enacted to the contrary with respect to
        the
        replacement of negotiable instruments or other securities without the surrender
        thereof.

       

      
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          4

          
            

          

        

        
          
          

        

      

       

      SECTION
        2.3 Who
        Deemed Absolute Owner.
        The
        Company may deem the Person in whose name this Debenture shall be registered
        upon the registry books of the Company to be, and may treat it as, the absolute
        owner of this Debenture (whether or not this Debenture shall be overdue)
        for the
        purpose of receiving payment of or on account of the Principal Amount of
        this
        Debenture, for the conversion of this Debenture and for all other purposes,
        and
        the Company shall not be affected by any notice to the contrary. All such
        payments and such conversions shall be valid and effectual to satisfy and
        discharge the liability upon this Debenture to the extent of the sum or sums
        so
        paid or the conversion or conversions so made.

       

      SECTION
        2.4 Repayment
        at Maturity.
        At the
        Maturity Date, the Company shall repay the outstanding Principal Amount of
        this
        Debenture in whole in cash, together with all accrued and unpaid interest
        thereon, in cash, to the Maturity Date. 

       

      ARTICLE
        3

      CONVERSION
        OF DEBENTURE

       

      SECTION
        3.1 Conversion;
        Conversion Price; Valuation Event.
        

       

      (a)
        At
        the option of the Holder, this Debenture may be converted, either in whole
        or in
        part, up to the full Principal Amount hereof into Common Shares (calculated
        as
        to each such conversion to the nearest 1/100th of a share), at any time and
        from
        time to time on any Business Day, subject to compliance with Section 3.2.
        The
        number of Common Shares into which this Debenture may be converted is equal
        to
        the dollar amount of the Debenture being converted multiplied by eleven,
        minus
        the product of the Conversion Price multiplied by ten times the dollar amount
        of
        the Debenture being converted, and the entire foregoing result shall be divided
        by the Conversion Price. In addition, the Company shall pay to the Holder
        on the
        Conversion Date, in cash, any accrued and unpaid interest on the Debenture
        being
        converted not included at the option of the Holder in clause (i) of the
        immediately preceding sentence. The “Conversion
        Price”
        shall be
        equal to the lesser of (i) $0.10, or (ii) 80% of the average of the 3 lowest
        Volume Weighted Average Prices during the 20 Trading Days prior to Holder’s
        election to convert, or (iii) 80% of the Volume Weighted Average Price on
        the
        Trading Day prior to Holder’s election to convert (the percentage figure being a
“Discount
        Multiplier”);
        provided,
        that in
        the event the Registration Statement has not been declared effective by the
        SEC
        by the Deadline then the applicable Discount Multiplier shall decrease by
        0.5
        percentage points for each month or partial month occurring after the Deadline
        that the Registration Statement is not effective or, if the Registration
        Statement has theretofore been declared effective but is not thereafter
        effective, then the applicable Discount Multiplier shall decrease by 0.5
        percentage points for each week or partial week occurring after the Deadline
        that the Registration Statement is not effective. In addition, if the
        Registration Statement has theretofore been declared effective but is not
        thereafter effective, Holder, at its option, shall be entitled to the Conversion
        Price on the date that the Registration Statement is no longer effective,
        for a
        period beginning on the date that the Registration Statement is declared
        effective and continuing for the number of days that a Registration Statement
        was not effective.

       

      
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          5

          
            

          

        

        
          
          

        

      

       

      Beginning
        in the first full calendar month after the Registration Statement is declared
        effective, Holder shall convert at least 5%, but no more than 10% (such 10%
        maximum amount to be cumulative from the Deadline) of the face value of the
        Debenture per calendar month into Common Shares of the Company, provided
        that
        the Common Shares are available, registered and freely tradable. If Holder
        converts more than 5% of the face value of the Debenture in any calendar
        month,
        the excess over 5% shall be credited against the next month’s minimum conversion
        amount. In the event Holder does not convert at least 5% of the Debenture
        in any
        particular calendar month, the Company’s remedy shall be that Holder shall not
        be entitled to collect interest on the Debenture for that month if the Company
        gives Holder written notice, at least 5 Business Days prior to the end of
        the
        month, of Holder’s failure to convert the minimum required amount for that
        month.

       

      If
        the
        Holder elects to convert a portion of the Debenture and, on the day that
        the
        election is made, the Volume Weighted Average Price is below $0.01, the Company
        shall have the right to prepay that portion of the Debenture that Holder
        elected
        to convert, plus any accrued and unpaid interest, at 130% of such amount.
        In the
        event that the Company elects to prepay that portion of the Debenture, Holder
        shall have the right to withdraw its Conversion Notice. If, at anytime during
        the month, the Volume Weighted Average Price is below $0.01, Holder shall
        not be
        obligated to convert any portion of the Debenture during that
        month.

       

      (b) Notwithstanding
        the provisions of Section 3.1(a), in the event the Company’s Registration
        Statement has not been declared effective by the Deadline or, if the
        Registration Statement has theretofore been declared effective but is not
        thereafter effective, the following will also apply in addition to any damages
        incurred by the Holder as a result thereof:

       

      (i) The
        Holder may demand repayment of one hundred and thirty percent (130%) of the
        Principal Amount of the Debenture, together with all accrued and unpaid interest
        thereon, in cash, at any time prior to the Company’s Registration Statement
        being declared effective by the SEC or during the period that the Company’s
        Registration Statement is not effective, such repayment to be made within
        three
        (3) Business Days of such demand. In the event that the Debenture is so
        accelerated, in addition interest shall accrue at the rate of 18% per annum,
        or
        such lower maximum amount of interest permitted to be charged under applicable
        law.

       

      
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      SECTION
        3.2 Exercise
        of Conversion Privilege.
        (a)
        Conversion of this Debenture may be exercised on any Business Day by the
        Holder
        by telecopying an executed and completed Conversion Notice to the Company.
        Each
        date on which a Conversion Notice is telecopied to the Company in accordance
        with the provisions of this Section 3.2 shall constitute a Conversion Date.
        The
        Company shall convert this Debenture and issue the Common Stock Issued at
        Conversion in the manner provided below in this Section 3.2, and all voting
        and
        other rights associated with the beneficial ownership of the Common Stock
        Issued
        at Conversion shall vest with the Holder, effective as of the Conversion
        Date at
        the time specified in the Conversion Notice. The Conversion Notice also shall
        state the name or names (with addresses) of the persons who are to become
        the
        holders of the Common Stock Issued at Conversion in connection with such
        conversion. As promptly as practicable after the receipt of the Conversion
        Notice as aforesaid, but in any event not more than three (3) Business Days
        after the Company’s receipt of such Conversion Notice, the Company shall (i)
        issue the Common Stock Issued at Conversion in accordance with the provisions
        of
        this Article 3 and (ii) cause to be mailed for delivery by overnight courier,
        or
        if a Registration Statement covering the Common Stock has been declared
        effective by the SEC cause to be electronically transferred, to Holder (x)
        a
        certificate or certificate(s) representing the number of Common Shares to
        which
        the Holder is entitled by virtue of such conversion, (y) cash, as provided
        in
        Section 3.3, in respect of any fraction of a Common Share deliverable upon
        such
        conversion and (z) cash or shares of Common Stock, as applicable, representing
        the amount of accrued and unpaid interest on this Debenture as of the Conversion
        Date. Such conversion shall be deemed to have been effected at the time at
        which
        the Conversion Notice indicates, and at such time the rights of the Holder
        of
        this Debenture, as such (except if and to the extent that any Principal Amount
        thereof remains unconverted), shall cease and the Person and Persons in whose
        name or names the Common Stock Issued at Conversion shall be issuable shall
        be
        deemed to have become the holder or holders of record of the Common Shares
        represented thereby, and all voting and other rights associated with the
        beneficial ownership of such Common Shares shall at such time vest with such
        Person or Persons. The Conversion Notice shall constitute a contract between
        the
        Holder and the Company, whereby the Holder shall be deemed to subscribe for
        the
        number of Common Shares which it will be entitled to receive upon such
        conversion and, in payment and satisfaction of such subscription (and for
        any
        cash adjustment to which it is entitled pursuant to Section 3.4), to surrender
        this Debenture and to release the Company from all liability thereon (except
        if
        and to the extent that any Principal Amount thereof remains unconverted).
        No
        cash payment aggregating less than $1.00 shall be required to be given unless
        specifically requested by the Holder.

       

      (b) If,
        at
        any time after the date of this Debenture, (i) the Company challenges, disputes
        or denies the right of the Holder hereof to effect the conversion of this
        Debenture into Common Shares or otherwise dishonors or rejects any Conversion
        Notice delivered in accordance with this Section 3.2 or (ii) any third party
        who
        is not and has never been an Affiliate of the Holder commences any lawsuit
        or
        legal proceeding or otherwise asserts any claim before any court or public
        or
        governmental authority which seeks to challenge, deny, enjoin, limit, modify,
        delay or dispute the right of the Holder hereof to effect the conversion
        of this
        Debenture into Common Shares, then the Holder shall have the right, but not
        the
        obligation, by written notice to the Company, to require the Company to promptly
        redeem this Debenture for cash at one hundred and thirty (130%) of the Principal
        Amount thereof, together with all accrued and unpaid interest thereon to
        the
        date of redemption. Under any of the circumstances set forth above, the Company
        shall be responsible for the payment of all costs and expenses of the Holder,
        including reasonable legal fees and expenses, as and when incurred in defending
        itself in any such action or pursuing its rights hereunder (in addition to
        any
        other rights of the Holder).

       

      (c) The
        Holder shall be entitled to exercise its conversion privilege notwithstanding
        the commencement of any case under the Bankruptcy Code. In the event the
        Company
        is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest
        extent permitted any rights to relief it may have under 11 U.S.C. § 362 in
        respect of the Holder’s conversion privilege. The Company hereby waives to the
        fullest extent permitted any rights to relief it may have under 11 U.S.C.
§ 362
        in respect of the conversion of this Debenture. The Company agrees, without
        cost
        or expense to the Holder, to take or consent to any and all action necessary
        to
        effectuate relief under 11 U.S.C. § 362.

       

      
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      SECTION
        3.3 Fractional
        Shares.
        No
        fractional Common Shares or scrip representing fractional Common Shares shall
        be
        delivered upon conversion of this Debenture. Instead of any fractional Common
        Shares which otherwise would be delivered upon conversion of this Debenture,
        the
        Company shall pay a cash adjustment in respect of such fraction in an amount
        equal to the same fraction multiplied by the Current Market Price on the
        Conversion Date. No cash payment of less than $1.00 shall be required to
        be
        given unless specifically requested by the Holder.

       

      SECTION
        3.4 Adjustments.
        The
        Conversion Price and the number of shares deliverable upon conversion of
        this
        Debenture are subject to adjustment from time to time as follows:

       

      (i) Reclassification,
        Etc.
        In case
        the Company shall reorganize its capital, reclassify its capital stock,
        consolidate or merge with or into another Person (where the Company is not
        the
        survivor or where there is a change in or distribution with respect to the
        Common Stock of the Company), sell, convey, transfer or otherwise dispose
        of all
        or substantially all its property, assets or business to another Person,
        or
        effectuate a transaction or series of related transactions in which more
        than
        fifty percent (50%) of the voting power of the Company is disposed of (each,
        a
“Fundamental
        Corporate Change”)
        and,
        pursuant to the terms of such Fundamental Corporate Change, shares of common
        stock of the successor or acquiring corporation, or any cash, shares of stock
        or
        other securities or property of any nature whatsoever (including warrants
        or
        other subscription or purchase rights) in addition to or in lieu of common
        stock
        of the successor or acquiring corporation (“Other
        Property”)
        are to
        be received by or distributed to the holders of Common Stock of the Company,
        then the Holder of this Debenture shall have the right thereafter, at its
        sole
        option, to (x) require the Company to prepay this Debenture for cash at one
        hundred and thirty percent (130%) of the Principal Amount thereof, together
        with
        all accrued and unpaid interest thereon to the date of prepayment,
        (y) receive the number of shares of common stock of the successor or
        acquiring corporation or of the Company, if it is the surviving corporation,
        and
        Other Property as is receivable upon or as a result of such
        Fundamental Corporate Change by a holder of the number of shares of Common
        Stock
        into which the outstanding portion of this Debenture may be converted at
        the
        Conversion Price applicable immediately prior to such Fundamental Corporate
        Change or (z) require the Company, or such successor, resulting or
        purchasing corporation, as the case may be, to, without benefit of any
        additional consideration therefor, execute and deliver to the Holder a debenture
        with substantial identical rights, privileges, powers, restrictions and other
        terms as this Debenture in an amount equal to the amount outstanding under
        this
        Debenture immediately prior to such Fundamental Corporate Change. For purposes
        hereof, “common
        stock of the successor or acquiring corporation”
        shall
        include stock of such corporation of any class which is not preferred as
        to
        dividends or assets over any other class of stock of such corporation and
        which
        is not subject to prepayment and shall also include any evidences of
        indebtedness, shares of stock or other securities which are convertible into
        or
        exchangeable for any such stock, either immediately or upon the arrival of
        a
        specified date or the happening of a specified event and any warrants or
        other
        rights to subscribe for or purchase any such stock. The foregoing provisions
        shall similarly apply to successive Fundamental Corporate Changes. 

       

      
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      SECTION
        3.5 Certain
        Conversion Limits.

       

      For
        a
        period of one year after the Closing Date, if and to the extent that, on
        any
        date, the holding by the Holder of this Debenture would result in the Holder’s
        being deemed the beneficial owner of
        more
        than 9.99% of the then Outstanding shares of Common Stock, then the Holder
        shall
        not have the right, and the Company shall not have the obligation, to convert
        any portion of this Debenture as shall cause such Holder to be deemed the
        beneficial owner of more than 9.99% of the then Outstanding shares of Common
        Stock. If any court of competent jurisdiction shall determine that the foregoing
        limitation is ineffective to prevent a Holder from being deemed the beneficial
        owner of more than 9.99% of the then Outstanding shares of Common Stock,
        then
        the Company shall prepay such portion of this Debenture as shall cause such
        Holder not to be deemed the beneficial owner of more than 9.99% of the then
        Outstanding shares of Common Stock. Upon such determination by a court of
        competent jurisdiction, the Holder shall have no interest in or rights under
        such portion of the Debenture. Any and all interest paid on or prior to the
        date
        of such determination shall be deemed interest paid on the remaining portion
        of
        this Debenture held by the Holder. Such prepayment shall be for cash at a
        prepayment price of one hundred and thirty percent (130%) of the Principal
        Amount thereof, together with all accrued and unpaid interest thereon to
        the
        date of prepayment.

       

      SECTION
        3.6 Surrender
        of Debentures.
        Upon
        any redemption of this Debenture pursuant to Sections 3.2, 3.5 or 6.2, or
        upon
        maturity pursuant to Section 2.4, the Holder shall either deliver this Debenture
        by hand to the Company at its principal executive offices or surrender the
        same
        to the Company at such address by nationally recognized overnight courier.
        Payment of the redemption price or the amount due on maturity specified in
        Section 2.4, shall be made by the Company to the Holder against receipt of
        this
        Debenture (as provided in this Section 3.5) by wire transfer of immediately
        available funds to such account(s) as the Holder shall specify by written
        notice
        to the Company. If payment of such redemption price is not made in full by
        the
        redemption date, or the amount due on maturity is not paid in full by the
        Maturity Date, the Holder shall again have the right to convert this Debenture
        as provided in Article 3 hereof or to declare an Event of Default.

       

      ARTICLE
        4

       

      STATUS;
        RESTRICTIONS ON TRANSFER

       

      SECTION
        4.1 Status
        of Debenture.
        This
        Debenture constitutes a legal, valid and binding obligation of the Company,
        enforceable in accordance with its terms subject, as to enforceability, to
        general principles of equity and to principles of bankruptcy, insolvency,
        reorganization and other similar laws of general applicability relating to
        or
        affecting creditors’ rights and remedies generally.

       

      SECTION
        4.2 Restrictions
        on Transfer.
        This
        Debenture, and any Common Shares deliverable upon the conversion hereof,
        have
        not been registered under the Securities Act. The Holder by accepting this
        Debenture agrees that this Debenture and the shares of Common Stock to be
        acquired as interest on and upon conversion of this Debenture may not be
        assigned or otherwise transferred unless and until (i) the Company has received
        the opinion of counsel for the Holder that this Debenture or such shares
        may be
        sold pursuant to an exemption from registration under the Securities Act
        or (ii)
        a registration statement relating to this Debenture or such shares has been
        filed by the Company and declared effective by the SEC. 

       

      
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      Each
        certificate for shares of Common Stock deliverable hereunder shall bear a
        legend
        as follows unless and until such securities have been sold pursuant to an
        effective registration statement under the Securities Act:

       

      “The
        securities represented by this certificate have not been registered under
        the
        Securities Act of 1933, as amended (the “Securities Act”). The securities may
        not be offered for sale, sold or otherwise transferred except (i) pursuant
        to an
        effective registration statement under the Securities Act or (ii) pursuant
        to an
        exemption from registration under the Securities Act in respect of which
        the
        issuer of this certificate has received an opinion of counsel satisfactory
        to
        the issuer of this certificate to such effect. Copies of the agreement covering
        both the purchase of the securities and restrictions on their transfer may
        be
        obtained at no cost by written request made by the holder of record of this
        certificate to the Secretary of the issuer of this certificate at the principal
        executive offices of the issuer of this certificate.”

       

      ARTICLE
        5

      COVENANTS

       

      SECTION
        5.1 Conversion.
        The
        Company shall cause the transfer agent, not later than three (3) Business
        Days
        after the Company’s receipt of a Conversion Notice, to issue and deliver to the
        Holder the requisite shares of Common Stock Issued at Conversion. Such delivery
        shall be by electronic transfer if a Registration Statement covering the
        Common
        Stock has been declared effective by the SEC.

       

      SECTION
        5.2 Notice
        of Default.
        If any
        one or more events occur which constitute or which, with notice, lapse of
        time,
        or both, would constitute an Event of Default, the Company shall forthwith
        give
        notice to the Holder, specifying the nature and status of the Event of Default
        or such other event(s), as the case may be.

       

      SECTION
        5.3 Payment
        of Obligations.
        So long
        as this Debenture shall be outstanding, the Company shall pay, extend, or
        discharge at or before maturity, all its respective material obligations
        and
        liabilities, including, without limitation, tax liabilities, except where
        the
        same may be contested in good faith by appropriate proceedings.

       

      SECTION
        5.4 Compliance
        with Laws.
        So long
        as this Debenture shall be outstanding, the Company shall comply with all
        applicable laws, ordinances, rules, regulations and requirements of governmental
        authorities, except for such noncompliance which would not have a material
        adverse effect on the business, properties, prospects, condition (financial
        or
        otherwise) or results of operations of the Company and the
        Subsidiaries.

       

      
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      SECTION
        5.5 Inspection
        of Property, Books and Records.
        So long
        as this Debenture shall be outstanding, the Company shall keep proper books
        of
        record and account in which full, true and correct entries shall be made
        of all
        material dealings and transactions in relation to its business and activities
        and shall permit representatives of the Holder at the Holder’s expense to visit
        and inspect any of its respective properties, to examine and make abstracts
        from
        any of its respective books and records, not reasonably deemed confidential
        by
        the Company, and to discuss its respective affairs, finances and accounts
        with
        its respective officers and independent public accountants, all at such
        reasonable times and as often as may reasonably be desired.

       

      SECTION
        5.6 Right
        of First Refusal on Other Financing. In
        the
        event that the Company obtains a commitment for any other financing (either
        debt, equity, or a combination thereof) which is to close within 180 days
        from
        the Closing Date, Holder shall be entitled to a right of first refusal to
        enable
        it to match the terms of the other financing, up to an amount equal to 30%
        of
        the amount of the other financing. The Company shall deliver to Holder, at
        least
        5 days prior to the proposed closing date of such transaction, written notice
        describing the proposed transaction, including the terms and conditions thereof,
        and providing Holder an option during the 5 day period following delivery
        of
        such notice to provide the financing being offered in such transaction on
        the
        same terms as contemplated by such transaction, in the amount of up to 30%
        of
        such other financing.

       

      ARTICLE
        6

      EVENTS
        OF DEFAULT; REMEDIES

       

      SECTION
        6.1 Events
        of Default.
        “Event
        of Default”
        wherever
        used herein means any one of the following events:

       

      (i) the
        Company shall default in the payment of principal of or interest on this
        Debenture as and when the same shall be due and payable and, in the case
        of an
        interest payment default, such default shall continue for five (5) Business
        Days
        after the date such interest payment was due, or the Company shall fail to
        perform or observe any other covenant, agreement, term, provision, undertaking
        or commitment under this Debenture, the Warrants (as defined in the Securities
        Purchase Agreement), the Securities Purchase Agreement or the Registration
        Rights Agreement and such default shall continue for a period of ten (10)
        Business Days after the delivery to the Company of written notice that the
        Company is in default hereunder or thereunder; 

       

      (ii) any
        of
        the representations or warranties made by the Company herein, in the Securities
        Purchase Agreement, the Registration Rights Agreement or in any certificate
        or
        financial or other written statements heretofore or hereafter furnished by
        or on
        behalf of the Company in connection with the execution and delivery of this
        Debenture, the Warrants, the Securities Purchase Agreement or the Registration
        Rights Agreement shall be false or misleading in a material respect on the
        Closing Date and not cured within 10 days of notice from Holder; 

       

      (iii) under
        the
        laws of any jurisdiction not otherwise covered by clauses (iv) and (v) below,
        the Company or any Subsidiary (A) becomes insolvent or generally not able
        to pay
        its debts as they become due, (B) admits in writing its inability to pay
        its
        debts generally or makes a general assignment for the benefit of creditors,
        (C)
        institutes or has instituted against it any proceeding seeking (x) to adjudicate
        it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
        arrangement, adjustment, protection, relief or composition of it or its debts
        under any law relating to bankruptcy, insolvency, reorganization or relief
        of
        debtors including any plan of compromise or arrangement or other corporate
        proceeding involving or affecting its creditors or (z) the entry of an order
        for
        relief or the appointment of a receiver, trustee or other similar person
        for it
        or for any substantial part of its properties and assets, and in the case
        of any
        such official proceeding instituted against it (but not instituted by it),
        either the proceeding remains undismissed or unstayed for a period of sixty
        (60)
        calendar days, or any of the actions sought in such proceeding (including
        the
        entry of an order for relief against it or the appointment of a receiver,
        trustee, custodian or other similar official for it or for any substantial
        part
        of its properties and assets) occurs or (D) takes any corporate action to
        authorize any of the above actions; 

       

      
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      (iv) the
        entry
        of a decree or order by a court having jurisdiction in the premises adjudging
        the Company or any Subsidiary a bankrupt or insolvent, or approving as properly
        filed a petition seeking reorganization, arrangement, adjustment or composition
        of or in respect of the Company under the Bankruptcy Code or any other
        applicable Federal or state law, or appointing a receiver, liquidator, assignee,
        trustee or sequestrator (or other similar official) of the Company or of
        any
        substantial part of its property, or ordering the winding-up or liquidation
        of
        its affairs, and any such decree or order continues and is unstayed and in
        effect for a period of sixty (60) calendar days;

       

      (v) the
        institution by the Company or any Subsidiary of proceedings to be adjudicated
        a
        bankrupt or insolvent, or the consent by it to the institution of bankruptcy
        or
        insolvency proceedings against it, or the filing by it of a petition or answer
        or consent seeking reorganization or relief under the Bankruptcy Code or
        any
        other applicable federal or state law, or the consent by it to the filing
        of any
        such petition or to the appointment of a receiver, liquidator, assignee,
        trustee
        or sequestrator (or other similar official) of the Company or of any substantial
        part of its property, or the making by it of an assignment for the benefit
        of
        creditors, or the admission by it in writing of its inability to pay its
        debts
        generally as and when they become due, or the taking of corporate action
        by the
        Company in furtherance of any such action; 

       

      (vi) a
        final
        judgment or final judgments for the payment of money shall have been entered
        by
        any court or courts of competent jurisdiction against the Company and remains
        undischarged for a period (during which execution shall be effectively stayed)
        of thirty (30) days, provided
        that the
        aggregate amount of all such judgments at any time outstanding (to the extent
        not paid or to be paid, as evidenced by a written communication to that effect
        from the applicable insurer, by insurance) exceeds One Million Dollars
        ($1,000,000.00);

       

      (vii) the
        Common Shares shall be delisted from the NASDAQ OTCBB (the “Trading
        Market”
        or, to
        the extent the Company becomes eligible to list its Common Stock on any other
        national security exchange or quotation system, upon official notice of listing
        on any such exchange or system, as the case may be, it shall be the “Trading
        Market”)
        or
        suspended from trading on the Trading Market, and shall not be reinstated,
        relisted or such suspension lifted, as the case may be, within five (5) Business
        Days or;

       

      
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      (viii) the
        Company shall default (giving effect to any applicable grace period) in the
        payment of principal or interest as and when the same shall become due and
        payable, under any indebtedness, individually or in the aggregate, of more
        than
        Five Million Dollars ($5,000,000.00);

       

      SECTION
        6.2 Acceleration
        of Maturity; Rescission and Annulment.
        If an
        Event of Default occurs and is continuing, then and in every such case the
        Holder may, by a notice in writing to the Company, rescind any outstanding
        Conversion Notice and declare that all amounts owing or otherwise outstanding
        under this Debenture are immediately due and payable and upon any such
        declaration this Debenture shall become immediately due and payable in cash
        at a
        price of one hundred and thirty percent (130%) of the Principal Amount thereof,
        together with all accrued and unpaid interest thereon to the date of payment;
        provided,
        however,
        in the
        case of any Event of Default described in clauses (iii), (iv), (v) or (vii)
        of
        Section 6.1, such amount automatically shall become immediately due and payable
        without the necessity of any notice or declaration as aforesaid.

       

      SECTION
        6.3 Maximum
        Interest Rate. Notwithstanding
        anything herein to the contrary, if at any time the applicable interest rate
        as
        provided for herein shall exceed the maximum lawful rate which may be contracted
        for, charged, taken or received by the Holder in accordance with any applicable
        law (the “Maximum
        Rate”),
        the
        rate of interest applicable to this Debenture shall be limited to the Maximum
        Rate. To the greatest extent permitted under applicable law, the Company
        hereby
        waives and agrees not to allege or claim that any provisions of this Note
        could
        give rise to or result in any actual or potential violation of any applicable
        usury laws.

       

      SECTION
        6.4 Remedies
        Not Waived.
        No
        course of dealing between the Company and the Holder or any delay in exercising
        any rights hereunder shall operate as a waiver by the Holder.

       

      SECTION
        6.5 Remedies. The
        Company acknowledges that a breach by it of its obligations hereunder will
        cause
        irreparable harm to the Holder, by vitiating the intent and purpose of the
        transaction contemplated hereby. Accordingly, the Company acknowledges that
        the
        remedy at law for a breach of its obligations under this Debenture will be
        inadequate and agrees, in the event of a breach or threatened breach by the
        Company of the provisions of this Debenture, that the Holder shall be entitled
        to all other available remedies at law or in equity, and in addition to the
        penalties assessable herein, to an injunction or injunctions restraining,
        preventing or curing any breach of this Debenture and to enforce specifically
        the terms and provisions thereof, without the necessity of showing economic
        loss
        and without any bond or other security being required. 

       

      SECTION
        6.6 Payment
        of Certain Amounts. Whenever
        pursuant to this Debenture the Company is required to pay an amount in excess
        of
        the Principal Amount plus accrued and unpaid interest, the Company and the
        Holder agree that the actual damages to the Holder from the receipt of cash
        payment on this Debenture may be difficult to determine and the amount to
        be so
        paid by the Company represents stipulated damages and not a penalty and is
        intended to compensate the Holder in part for loss of the opportunity to
        convert
        this Debenture and to earn a return from the sale of shares of Common Stock
        acquired upon conversion of this Debenture at a price in excess of that price
        paid for such shares pursuant to this Debenture. The Company and the Holder
        hereby agree that such amount of stipulated damages is not disproportionate
        to
        the possible loss to the Holder from the receipt of a cash payment without
        the
        opportunity to convert this Debenture into shares of Common Stock.

       

      
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      ARTICLE
        7

      MISCELLANEOUS

       

      SECTION
        7.1 Notice
        of Certain Events.
        In the
        case of the occurrence of any event described in Section 3.4 of this Debenture,
        the Company shall cause to be mailed to the Holder of this Debenture at its
        last
        address as it appears in the Company’s security registry, at least twenty (20)
        days prior to the applicable record, effective or expiration date hereinafter
        specified (or, if such twenty (20) days’ notice is not possible, at the earliest
        possible date prior to any such record, effective or expiration date), a
        notice
        thereof, including, if applicable, a statement of (y) the date on which a
        record
        is to be taken for the purpose of such dividend, distribution, issuance or
        granting of rights, options or warrants, or if a record is not to be taken,
        the
        date as of which the holders of record of Common Stock to be entitled to
        such
        dividend, distribution, issuance or granting of rights, options or warrants
        are
        to be determined or (z) the date on which such reclassification, consolidation,
        merger, sale, transfer, dissolution, liquidation or winding-up is expected
        to
        become effective, and the date as of which it is expected that holders of
        record
        of Common Stock will be entitled to exchange their shares for securities,
        cash
        or other property deliverable upon such reclassification, consolidation,
        merger,
        sale transfer, dissolution, liquidation or winding-up.

       

      SECTION
        7.2 Register.
        The
        Company shall keep at its principal office a register in which the Company
        shall
        provide for the registration of this Debenture. Upon any transfer of this
        Debenture in accordance with Articles 2 and 4 hereof, the Company shall register
        such transfer on the Debenture register.

       

      SECTION
        7.3 Withholding.
        To the
        extent required by applicable law, the Company may withhold amounts for or
        on
        account of any taxes imposed or levied by or on behalf of any taxing authority
        in the United States having jurisdiction over the Company from any payments
        made
        pursuant to this Debenture.

       

      SECTION
        7.4 Transmittal
        of Notices.
        Except
        as may be otherwise provided herein, any notice or other communication or
        delivery required or permitted hereunder shall be in writing and shall be
        delivered personally, or sent by telecopier machine or by a nationally
        recognized overnight courier service, and shall be deemed given when so
        delivered personally, or by telecopier machine or overnight courier service
        as
        follows:

       

      (1) If
        to the
        Company, to:

      


      Infinium
        Labs, Inc.

      1191
        Second Avenue, 5th
        Floor

      Seattle,
        Washington 98101 

      Telephone: 206-393-3000

      Facsimile: 206-393-3031

       

      
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      (2) If
        to the
        Holder, to:

       

      Golden
        Gate Investors, Inc.

      7817
        Herschel Avenue, Suite 200

      La
        Jolla,
        California 92037

      Telephone: 858-551-8789

      Facsimile: 858-551-8779

       

      Each
        of
        the Holder or the Company may change the foregoing address by notice given
        pursuant to this Section 7.4.

       

      SECTION
        7.5 Attorneys’
        Fees.
        Should
        any party hereto employ an attorney for the purpose of enforcing or construing
        this Debenture, or any judgment based on this Debenture, in any legal proceeding
        whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief
        or
        other litigation, the prevailing party shall be entitled to receive from
        the
        other party or parties thereto reimbursement for all reasonable attorneys'
        fees
        and all reasonable costs, including but not limited to service of process,
        filing fees, court and court reporter costs, investigative costs, expert
        witness
        fees, and the cost of any bonds, whether taxable or not, and that such
        reimbursement shall be included in any judgment or final order issued in
        that
        proceeding. The "prevailing party" means the party determined by the court
        to
        most nearly prevail and not necessarily the one in whose favor a judgment
        is
        rendered. 

       

      SECTION
        7.6 Governing
        Law.
        This
        Debenture shall be governed by, and construed in accordance with, the laws
        of
        the State of California (without giving effect to conflicts of laws principles).
        With respect to any suit, action or proceedings relating to this Debenture,
        the
        Company irrevocably submits to the exclusive jurisdiction of the courts of
        the
        State of California sitting in San Diego and the United States District Court
        located in the City of San Diego and hereby waives, to the fullest extent
        permitted by applicable law, any claim that any such suit, action or proceeding
        has been brought in an inconvenient forum. Subject to applicable law, the
        Company agrees that final judgment against it in any legal action or proceeding
        arising out of or relating to this Debenture shall be conclusive and may
        be
        enforced in any other jurisdiction within or outside the United States by
        suit
        on the judgment, a certified copy of which judgment shall be conclusive evidence
        thereof and the amount of its indebtedness, or by such other means provided
        by
        law.

       

      SECTION
        7.7 Waiver
        of Jury Trial.
        To the
        fullest extent permitted by law, each of the parties hereto hereby knowingly,
        voluntarily and intentionally waives its respective rights to a jury trial
        of
        any claim or cause of action based upon or arising out of this Debenture
        or any
        other document or any dealings between them relating to the subject matter
        of
        this Debenture and other documents. Each party hereto (i) certifies that
        neither
        of their respective representatives, agents or attorneys has represented,
        expressly or otherwise, that such party would not, in the event of litigation,
        seek to enforce the foregoing waivers and (ii) acknowledges that it has been
        induced to enter into this Debenture by, among other things, the mutual waivers
        and certifications herein.

       

      
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      SECTION
        7.8 Headings.
        The
        headings of the Articles and Sections of this Debenture are inserted for
        convenience only and do not constitute a part of this Debenture.

       

      SECTION
        7.9 Payment
        Dates.
        Whenever any payment hereunder shall be due on a day other than a Business
        Day,
        such payment shall be made on the next succeeding Business Day.

       

      SECTION
        7.10 Binding
        Effect.
        Each
        Holder by accepting this Debenture agrees to be bound by and comply with
        the
        terms and provisions of this Debenture.

       

      SECTION
        7.11 No
        Stockholder Rights.
        Except
        as otherwise provided herein, this Debenture shall not entitle the Holder
        to any
        of the rights of a stockholder of the Company, including, without limitation,
        the right to vote, to receive dividends and other distributions, or to receive
        any notice of, or to attend, meetings of stockholders or any other proceedings
        of the Company, unless and to the extent converted into shares of Common
        Stock
        in accordance with the terms hereof.

       

      SECTION
        7.12 Facsimile
        Execution.
        Facsimile execution shall be deemed originals.

       

      IN
        WITNESS WHEREOF, the Company has caused this Debenture to be signed by its
        duly
        authorized officer on the date of this Debenture.

       

      
        	 	 	Infinium Labs, Inc. 
	 	 	 
	 	 	By:  /s/
                Greg Koler
	 	 	 
	 	 	Title: President and
                CEO


      

       

      
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      EXHIBIT A

      DEBENTURE
        CONVERSION NOTICE

       

      


      TO: Infinium
        Labs, Inc.

      


      


       

      The
        undersigned owner of this Convertible Debenture due January ___, 2009 (the
“Debenture”)
        issued
        by Infinium Labs, Inc. (the “Company”)
        hereby
        irrevocably exercises its option to convert $__________ Principal Amount
        of the
        Debenture into shares of Common Stock in accordance with the terms of the
        Debenture. The undersigned hereby instructs the Company to convert the portion
        of the Debenture specified above into shares of Common Stock Issued at
        Conversion in accordance with the provisions of Article 3 of the Debenture.
        The
        undersigned directs that the Common Stock and certificates therefor deliverable
        upon conversion, the Debenture reissued in the Principal Amount not being
        surrendered for conversion hereby, [the check or shares of Common Stock in
        payment of the accrued and unpaid interest thereon to the date of this Notice,]
        together with any check in payment for fractional Common Stock, be registered
        in
        the name of and/or delivered to the undersigned unless a different name has
        been
        indicated below. All capitalized terms used and not defined herein have the
        respective meanings assigned to them in the Debenture. The conversion pursuant
        hereto shall be deemed to have been effected at the date and time specified
        below, and at such time the rights of the undersigned as a Holder of the
        Principal Amount of the Debenture set forth above shall cease and the Person
        or
        Persons in whose name or names the Common Stock Issued at Conversion shall
        be
        registered shall be deemed to have become the holder or holders of record
        of the
        Common Shares represented thereby and all voting and other rights associated
        with the beneficial ownership of such Common Shares shall at such time vest
        with
        such Person or Persons.

       

      Date
        and
        time: __________________

       

      ______________________________

       

      By:
        ___________________________

       

      Title:
        _________________________

       

      Fill
        in
        for registration of Debenture:

      Please
        print name and address

      (including
        ZIP code number):

      ______________________________

      
        
          ______________________________

          
            ______________________________

             

            
               

            

             

            
              
                
                

              

              
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