<PAGE>

                                                                     EXHIBIT 4.4

        THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
        UNDER THE U.S. SECURITIES ACT, AS AMENDED, OR ANY OTHER APPLICABLE
        SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
        THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
        SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
        HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
        OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR ACRES GAMING INCORPORATED SHALL
        HAVE RECEIVED AN OPINION OF COUNSEL FROM THE TRANSFEREE THAT
        REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
        PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

No. ___                                                         $_______________
Dated:  December 21, 2001

                            ACRES GAMING INCORPORATED

                      6% CONVERTIBLE SUBORDINATED DEBENTURE

                              DUE DECEMBER 21, 2003

THIS DEBENTURE is one of a series of duly authorized and issued debentures of
Acres Gaming Incorporated, a Nevada corporation, having a principal place of
business at 7115 Amigo Street, Suite 150, Las Vegas, NV 89119 (the "Company"),
designated as its 6% Convertible Subordinated Debentures (the "Debentures" and
this debenture, this "Debenture"), issued pursuant to the Convertible
Subordinated Debentures and Warrants Purchase Agreement, originally dated
December 21, 2001 among the Company and the investors signatory thereto (the
"Purchase Agreement"). CAPITALIZED TERMS NOT DEFINED IN SECTION 16 OR ELSEWHERE
IN THIS DEBENTURE SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE PURCHASE
AGREEMENT.

        FOR VALUE RECEIVED, the Company promises to pay to ______________, or
its registered assigns (the "Holder"), the principal sum of _____________
Dollars ($______________),

<PAGE>

or such lesser amount reflecting the principal balance then-outstanding, on
December 21, 2003 or such earlier or later date as this Debenture is required or
permitted to be repaid as provided hereunder (the "Maturity Date") and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture at the rate of 6% per annum, payable in cash
or shares of Common Stock as set forth herein. On each conversion of this
Debenture, the Company and the Holder shall agree in writing as to the
unconverted principal amount then-outstanding following each such conversion.
Subject to the terms and conditions herein, the decision whether to pay interest
hereunder in registered shares of Common Stock or cash shall be at the
discretion of the Company. Semi-annual interest payments shall be due and
payable on April 30 and September 30 of each year, commencing with April 30,
2002. Not less than 10 Trading Days prior to the date such payment is due, the
Company shall provide the Holder with written notice of its election to pay
interest payments due hereunder either in cash or registered shares of Common
Stock (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised). Payment in shares
shall be based on the average of the VWAPs during the 5 Trading Days immediately
prior to the interest payment date and otherwise subject to conversions pursuant
to Section 4. Failure to timely provide such written notice shall be deemed an
election by the Company to pay interest in cash, except that, if the Company
shall not have delivered any cash due as payment of interest hereon by the third
Trading Day after the date such interest is due, the Holder may, by notice to
the Company, require the Company to issue shares of Common Stock, except that
for such purpose the conversion price applicable thereto shall be the lesser of
(A) the Mandatory Conversion Price on the Conversion Date, and (B) the Mandatory
Conversion Price on the date of the Holder's demand. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily commencing on
the Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register"). All overdue
accrued and unpaid interest to be paid in cash hereunder shall entail a late fee
at the rate of 12% per annum (or such lower maximum amount of interest permitted
to be charged under applicable law) (the "Late Fee") (to accrue daily, from the
date such interest is due hereunder through and including the date of payment),
payable in cash.

        This Debenture is subject to the following additional provisions:

        Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiples of Fifty Thousand Dollars
($50,000) unless such amount represents the full balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.

        Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement and
may be transferred or exchanged only in compliance with the Purchase Agreement
and the legend set forth on the face of this Debenture. Prior to due presentment
to the Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly registered on
the


                                       2
<PAGE>

Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.

        Section 3. Events of Default.

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

                      (i)    any default in the payment of the principal of, or
               interest on, any Debentures, as and when the same shall become
               due and payable; or

                      (ii)   any of the representations or warranties made by
               the Company herein, in the Purchase Agreement, the Registration
               Rights Agreement, or in any agreement, certificate or financial
               statements heretofore furnished by the Company in connection with
               the execution and delivery of this Debenture or the Purchase
               Agreement shall be false or misleading in any material respect at
               the time made; or

                      (iii)  the Company (a) fails to issue Conversion Shares to
               the Holder or to cause its Transfer Agent to issue Conversion
               Shares, or, if applicable, cash, upon proper exercise by the
               Holder of the conversion rights of the Holder in accordance with
               the terms of this Debenture, (b) fails to transfer or to cause
               its Transfer Agent to transfer any certificate for Conversion
               Shares issued to the Holder as and when required by this
               Debenture or the Registration Rights Agreement, and such transfer
               is otherwise lawful, or (c) fails to remove any restrictive
               legend or to cause its Transfer Agent to transfer any certificate
               or any Conversion Shares issued to the Holder as and when
               required by this Debenture, the Purchase Agreement or the
               Registration Rights Agreement and such legend removal is
               otherwise lawful, and any such failure described in sub clauses
               (a), (b) or (c) shall continue uncured for five (5) business days
               of notice to the Company from the Holder of such a failure; or

                      (iv)   the Company shall fail to perform or observe, in
               any material respect, any other covenant, term, provision,
               condition, agreement or obligation of the Company under the
               Purchase Agreement, the Registration Rights Agreement or this
               Debenture including but not limited to the payments of interest
               (other than semi-annual interest payments), liquidated damages
               and Late Fees, provided the Holder has provided the Company
               notice and an opportunity to cure within ten (10) Trading Days of
               any such event of default under this Section 3(a)(iv); or

                      (v)    any governmental agencies or any court of competent
               jurisdiction at the instance of any governmental agency shall
               assume custody or control of the whole or any substantial portion
               of the properties or assets of the Company and such action shall
               not be dismissed within sixty (60) days thereafter; or


                                       3
<PAGE>

                      (vi)   any money judgment, writ or warrant of attachment,
               or similar process in excess of $250,000 in the aggregate shall
               be entered or filed against the Company or any of its properties
               or other assets and shall remain unpaid, unvacated, unbonded or
               unstayed for a period of sixty (60) days or in any event later
               than 5 days prior to the date of any proposed sale thereunder; or

                      (vii)  the Registration Statement is not declared
               effective by the SEC within one hundred eighty (180) days from
               the Closing; except that, if the only reason for the delay in
               effectiveness relates to the Holder's affiliation with a
               registered broker-dealer, the disclosure of the individuals that
               exercise voting and/or investment powers over the shares of
               Common Stock to be sold by the Holders or the disclosure of the
               Holder's beneficial ownership of the Common Stock, such period
               shall be tolled accordingly; or

                      (viii) the Company or any of its respective subsidiaries
               shall commence, or there shall be commenced against any of them a
               case under any applicable bankruptcy or insolvency laws as now or
               hereafter in effect or any successor thereto, or the Company or
               any of its respective subsidiaries commences any other proceeding
               under any reorganization, arrangement, adjustment of debt, relief
               of debtors, dissolution, insolvency or liquidation or similar law
               of any jurisdiction whether now or hereafter in effect relating
               to the Company or any of its respective subsidiaries or there is
               commenced against the Company or any of its respective
               subsidiaries any such bankruptcy, insolvency or other proceeding
               which remains undismissed for a period of 60 days; or the Company
               or any of its respective subsidiaries is adjudicated insolvent or
               bankrupt; or any order of relief or other order approving any
               such case or proceeding is entered; or the Company or any of its
               respective subsidiaries suffers any appointment of any custodian
               or the like for it or any substantial part of its property which
               continues undischarged or unstayed for a period of 60 days; or
               the Company or any of its subsidiaries makes a general assignment
               for the benefit of creditors; or the Company or any of its
               subsidiaries shall fail to pay, or shall state that it is unable
               to pay, or shall be unable to pay, its debts generally as they
               become due; or the Company or any of its subsidiaries shall call
               a meeting of its creditors with a view to arranging a
               composition, adjustment or restructuring of its debts; or the
               Company or any of its subsidiaries shall by any act or failure to
               act expressly indicate its consent to, approval of or
               acquiescence in any of the foregoing; or any corporate or other
               action is taken by the Company or any of its subsidiaries for the
               purpose of effecting any of the foregoing; or

                      (ix)   the Company (or any subsidiary thereof if
               guaranteed by the Company) shall default in any of its
               obligations under any other Debenture or any mortgage, credit
               agreement or other facility, indenture agreement, factoring
               agreement or other instrument under which there may be issued, or
               by which there may be secured or evidenced any indebtedness for
               borrowed money or money due under any long term leasing or
               factoring arrangement of the Company in an amount exceeding an


                                       4
<PAGE>

               aggregate of $250,000, whether such indebtedness now exists or
               shall hereafter be created and such default shall result in such
               indebtedness becoming or being declared due and payable prior to
               the date on which it would otherwise become due and payable; or

                      (x)    the Common Stock shall be delisted from the
               Principal Market or suspended from trading on the Principal
               Market without resuming trading and/or being relisted or thereon
               or listed on another Principal Market or having such suspension
               lifted, in either case, for more than either three (3)
               consecutive Trading Days or five (5) Trading Days in the
               aggregate during any twelve (12) month period (which need not be
               consecutive Trading Days); or

                      (xi)   the Company shall be a party to any Change of
               Control Transaction, shall agree to sell or dispose all or in
               excess of 40% of its assets in one or more transactions (whether
               or not such sale would constitute a Change of Control
               Transaction), or shall redeem or repurchase more than a de
               minimis number of shares of Common Stock or other equity
               securities of the Company except for redemptions or repurchases
               pursuant to an employee stock option or stock plan of the Company
               or that do not have a material adverse effect on the Holder; or

                      (xii)  the Company shall have suspended the Holder's
               conversion rights for more than four (4) Trading Days in the
               aggregate during any 12 month period (provided, however, that
               this Event of Default shall not be deemed to grant the Company
               any right to any such suspensions) except that a suspension
               pursuant to Section 3(h) of the Registration Rights Agreement
               relating to a blackout period alone shall not trigger this Event
               of Default; or

                      (xiii) if the effectiveness of the Registration Statement
               lapses for any reason or the Holder shall not be permitted to
               resell Registrable Securities (as defined in the Registration
               Rights Agreement) under the Registration Statement, in either
               case, for more than 30 Trading Days, in the aggregate, during any
               12 month period; except that, if the only reason for the delay in
               effectiveness relates to the Holder's affiliation with a
               registered broker-dealer, the disclosure of the individuals that
               exercise voting and/or investment powers over the shares of
               Common Stock to be sold by the Holders or the disclosure of the
               Holder's beneficial ownership of the Common Stock, such period
               shall be tolled accordingly.

               (b)    During the time that any portion of this Debenture remains
        outstanding, if any Event of Default occurs and is continuing, unless
        such Event of Default shall have been waived in writing by the Holder
        (which waiver shall not be deemed to be a waiver of any subsequent
        default) at the option of the Holder and in the Holder's sole
        discretion, the Holder may consider this Debenture immediately due and
        payable in cash, without presentment, demand, protest or notice of any
        kind, all of which are hereby expressly waived, anything herein or in
        any note or other instruments contained to the contrary notwithstanding,
        and the


                                       5
<PAGE>

        Holder may immediately enforce any and all of the Holder's rights and
        remedies provided herein or any other rights or remedies afforded by
        law. The aggregate amount payable upon an Event of Default shall be
        equal to the Mandatory Default Amount. Interest shall accrue on the
        amount due hereunder from the seventh day after such amount is due
        (being the date of an Event of Default) through the date of redemption
        in full thereof at the rate of 12% per annum (or such lesser maximum
        amount that is permitted to be paid by applicable law), to accrue daily
        from the date such payment is due hereunder through and including the
        date of payment. All Debentures and Conversion Shares for which the full
        redemption price hereunder shall have been paid in accordance herewith
        shall promptly be surrendered to or as directed by the Company. The
        Holder need not provide and the Company hereby waives any presentment,
        demand, protest or other notice of any kind, and the Holder may
        immediately and without expiration of any grace period enforce any and
        all of its rights and remedies hereunder and all other remedies
        available to it under applicable law. Such declaration may be rescinded
        and annulled by Holder at any time prior to payment hereunder. No such
        rescission or annulment shall affect any subsequent Event of Default or
        impair any right consequent thereon.

        Section 4. Conversion.

               (a)    Right to Convert

                      (i)    CONVERSION AT OPTION OF HOLDER. At the option of
               the Holder, subject to the provisions of Section 3(h) in the
               Registration Rights Agreement, this Debenture shall be
               convertible into Conversion Shares, in whole or in part, at any
               time and from time to time, after the Original Issue Date
               (subject to the limitations on conversion set forth in Section
               4). The number of Conversion Shares issuable hereunder shall be
               determined by dividing (1) the outstanding principal amount of
               this Debenture to be converted by (2) $4.6433 (110% of the
               average of the VWAPs during the 5 consecutive Trading Days
               immediately prior to the Original Issue Date)(subject to
               adjustments herein)(the "Set Price"), provided that if the
               Company has not elected to pay the accrued and unpaid interest on
               such Debenture in shares of Common Stock within the prescribed
               time period, then the number of shares shall be determined by
               dividing the outstanding principal amount of this Debenture to be
               converted plus the amount of such interest by the Set Price.

                      (ii)   CONVERSION AT THE OPTION OF THE COMPANY. Subject to
               the limitations herein, if, after the Original Issue Date, the
               closing bid price of the Common Stock on the Principal Market (as
               reported by Bloomberg Financial L.P.) for 20 consecutive Trading
               Days (the "Trigger Period") is greater than 175% of the Set
               Price, then the Company shall have the right, within 5 calendar
               days of the Trigger Period, to cause the Holder to convert all or
               part of the principal amount then outstanding of this Debenture
               at the Set Price plus any accrued but unpaid interest at the
               average of the VWAPs during the 5 Trading Days immediately prior
               to the Mandatory Conversion Date (as defined below) by providing
               prior written notice to


                                       6
<PAGE>

               the Holder (the "Mandatory Conversion Notice") setting forth (i)
               the "Mandatory Conversion Date," which is the date upon which the
               conversion of the Debentures will occur and which date must be
               within 45 calendar days of the Trigger Period and no less than 30
               calendar days from the end of the Trigger Period, and (ii) the
               principal amount of this Debenture to be converted; provided,
               however, that this provision shall not relieve the Company of any
               of its obligations hereunder, including its obligation to make
               any Mandatory Redemptions which become due pursuant to Section 5
               prior to the Mandatory Conversion Date or limit the Holder's
               right to convert any portion of this Debenture pursuant to
               Section 4(a)(i); provided, further, the Company may only deliver
               a Mandatory Conversion Notice to the Holder if, on the date of
               the Mandatory Conversion Notice, (i) there is an effective
               Registration Statement pursuant to which the Holder is permitted
               to utilize the prospectus thereunder to resell all of the
               Conversion Shares issued to the Holder and all of the Conversion
               Shares as are issuable to the Holder upon conversion in full of
               the Debentures subject to the Mandatory Conversion Notice are
               registered for resale by the Holder (and the Company believes, in
               good faith, that such effectiveness will continue uninterrupted
               for the foreseeable future), (ii) the Common Stock is listed for
               trading on a Principal Market (and the Company believes, in good
               faith, that trading of the Common Stock on the Principal Market
               will continue uninterrupted for the foreseeable future) and (iii)
               the closing bid price of the Common Stock on the Principal Market
               (as reported by Bloomberg Financial L.P.) is not less than 125%
               of the Set Price. If any of the foregoing conditions shall cease
               to be in effect on any day between the date of the Mandatory
               Conversion Notice and the Mandatory Conversion Date, then the
               Holder subject to such Mandatory Conversion Notice may elect, by
               written notice to the Company given at any time after any of the
               foregoing conditions shall cease to be in effect, to invalidate
               ab initio such conversion, notwithstanding anything herein
               contained to the contrary. The Company shall have the right to
               effect only one conversion pursuant to a Mandatory Conversion
               Notice hereunder in any twelve (12) month period, except that, in
               the event any such conversion is limited by Section 4(d)(i), the
               Company shall have the right to effect an additional conversion
               pursuant to a Mandatory Conversion Notice to the extent such
               prior conversion was limited. Nothing in this Section 4(a)(ii)
               shall be deemed to restrict or otherwise limit the Holder's right
               to convert any portion of the outstanding principal amount of the
               Debenture at any time pursuant to Section 4(a)(i), whether or not
               such principal amount is subject to a Mandatory Conversion
               Notice.

                      (iii)  Notwithstanding anything to the contrary contained
               herein, if on any Conversion Date:

                             (A)    the Common Stock is not listed or quoted on
                      a Principal Market;


                                       7
<PAGE>

                             (B)    the Company has failed to timely satisfy its
                      conversion obligations hereunder with respect to
                      Debentures submitted for conversion on such conversion
                      date; or

                             (C)    the issuance of such shares of Common Stock
                      would result in a violation of Sections 4(d)(ii).

                      then, at the option of the Holder, the Company, in lieu of
               delivering Conversion Shares, shall deliver, within three (3)
               Trading Days of each applicable Conversion Date, an amount in
               cash equal to the product of the number of Conversion Shares
               otherwise deliverable to the Holder in connection with such
               Conversion Date and the highest VWAP during the period commencing
               on the Conversion Date and ending on the Trading Day prior to the
               date such payment is made.

               (b)    Failure to Register Shares. Notwithstanding anything in
        Section 4(a) to the contrary, in addition to all other rights and
        remedies hereunder and in the Purchase Agreement, if the Registration
        Statement is not declared effective for any reason within one hundred
        fifty (150) days following the Original Issue Date primarily for reasons
        other than those relating to any disclosure in the Registration
        Statement relating to the Holder, the Holder shall have the right to
        convert, at any time, from time to time thereafter, all or part of the
        then outstanding balance of this Debenture at the Mandatory Conversion
        Price.

               (c)    Conversion Procedure.

                      (i)    OPTIONAL CONVERSION NOTICES. The Holder shall
               effect conversions by surrendering, if applicable, this Debenture
               (but only if the Holder is converting the entire outstanding
               principal amount of this Debenture), together with the form of
               conversion notice attached hereto (a "Conversion Notice") to the
               Company and the Company's transfer agent. Each Conversion Notice
               shall specify the principal amount of this Debenture to be
               converted and the date on which such conversion is to be
               effected, which date may not be prior to the date such Conversion
               Notice is deemed to have been delivered hereunder (a "Optional
               Conversion Date"). If the Holder is converting less than all of
               the principal amount represented by this Debenture, the Holder
               shall convert at least $50,000 in principal amount of this
               Debenture. If no Optional Conversion Date is specified in a
               Conversion Notice, the Optional Conversion Date shall be the date
               that such Conversion Notice is deemed delivered hereunder. Unless
               otherwise provided for by the terms hereunder, each Conversion
               Notice, once given, shall be irrevocable. If the Holder is
               converting less than all of the principal amount represented by
               this Debenture, it shall not be required to surrender this
               Debenture but may exercise its right to convert solely by the
               delivery of a Conversion Notice. If a conversion hereunder cannot
               be effected in full for any reason, the Company shall honor such
               conversion to the extent permissible hereunder. At anytime the
               Holder may elect, upon delivery of this Debenture to the


                                       8
<PAGE>

               Company, to receive a new Debenture for such principal amount as
               has not been converted.

                      (ii)   MANDATORY CONVERSION NOTICES. The Holder shall
               surrender, if applicable, this Debenture (but only if the Company
               is converting the entire outstanding principal amount of this
               Debenture) to the Company prior to the Mandatory Conversion Date.
               If the Holder fails for any reason to deliver the Debenture prior
               to the Mandatory Redemption Date, this Debenture will be
               cancelled and converted as set forth in the Mandatory Conversion
               Notice. If the Company is converting less than all of the
               principal amount represented by this Debenture, the Holder shall
               not be required to surrender this Debenture. At any time the
               Holder may elect, upon delivery of this Debenture to the Company,
               to receive a new Debenture for such principal amount as has not
               been converted.

                      (iii)  DELIVERY OF CONVERSION SHARES. Not later than three
               (3) Trading Days after any Conversion Date, the Company will
               deliver to the Holder, at an address in the United States
               supplied by the Holder, (A) a certificate or certificates which
               shall be free of restrictive legends and trading restrictions
               (other than those permitted by the Purchase Agreement)
               representing the number of shares of Common Stock being acquired
               upon the conversion of this Debenture (subject to the limitations
               set forth in Section 4(d) hereof), (B) if applicable, a new
               Debenture in a principal amount equal to the principal amount of
               Debentures not converted (if the Holder elects to surrender this
               Debenture and a principal amount remains outstanding after
               conversion), and (C) a bank wire or a bank or certified check in
               the amount of accrued and unpaid interest (if the Company is
               required to pay accrued interest in cash). The Company shall,
               upon request of the Holder, if available, use its best efforts to
               deliver any certificate or certificates required to be delivered
               by the Company under this Section electronically through the
               Depository Trust Corporation or another established clearing
               corporation performing similar functions.

                      (iv)   FAILURE TO DELIVER CONVERSION SHARES IN A TIMELY
               MANNER. If the Company fails for any reason to deliver to the
               Holder such certificate or certificates by the third Trading Day
               after the Conversion Date in accordance with Section 4(c)(iii)
               (or, in the event that shares are to be delivered in certificated
               form, the obligation of the Company to deliver such shares
               without any restrictive legend (except as permitted by the
               Purchase Agreement) within five Trading Days after the Conversion
               Date), the Company shall pay to such Holder, in cash, as
               liquidated damages and not as a penalty, for each $5,000 of
               principal amount being converted, $50 per Trading Day (increasing
               to $100 per Trading Day after 3 Trading Days and increasing to
               $200 per Trading Day 6 Trading Days after such damages begin to
               accrue) after such third Trading Day until such certificates are
               delivered; provided, however, in the event the Holder elects to
               rescind a conversion notice, liquidated damages shall accrue only
               up to the date of such rescission notice but not thereafter with
               respect to such rescinded conversion. If in the case of any
               conversion hereunder


                                       9
<PAGE>

               such certificate or certificates are not delivered to or as
               directed by the applicable Holder by the third Trading Day after
               a Conversion Date, the Holder shall be entitled by written notice
               to the Company at any time on or before its receipt of such
               certificate or certificates thereafter, to rescind such
               conversion, in which event the Company shall immediately return
               the certificates representing the principal amount of Debentures
               tendered for conversion. Nothing herein shall limit a Holder's
               right to pursue actual damages or declare an Event of Default
               pursuant to Section 3 herein for the Company's failure to deliver
               certificates representing shares of Common Stock upon conversion
               within the period specified herein and such Holder shall have the
               right to pursue all remedies available to it at law or in equity
               including, without limitation, a decree of specific performance
               and/or injunctive relief. The exercise of any such rights shall
               not prohibit the Holders from seeking to enforce damages pursuant
               to any other Section hereof or under applicable law. The Company
               acknowledges that a breach by it of its obligation to honor
               conversions under this Debenture will cause irreparable harm to
               the Investors 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
               obligation pursuant to this Section 4 will be inadequate and
               agrees, in the event of a breach or threatened breach by the
               Company of the provision under this Debenture, that the Investors
               shall be entitled, in addition to all other available remedies,
               to an order and/or injunction restraining any breach and
               requiring immediate issuance and transfer, without the necessity
               of showing economic loss and without any bond or other security
               being required.

                      (v)    BUY-IN. In addition to any other rights available
               to the Holder, if the Company fails to deliver to the Holder such
               certificate or certificates by the third Trading Day after the
               Conversion Date in accordance with Section 4(c)(ii), and if after
               such third Trading Day the Holder purchases (in an open market
               transaction or otherwise) Common Stock to deliver in satisfaction
               of a sale by such Holder of the Conversion Shares which the
               Holder anticipated receiving upon such conversion (a "Buy-In"),
               then the Company shall (A) pay in cash to the Holder (in addition
               to any remedies available to or elected by the Holder) the amount
               by which (x) the Holder's total purchase price (including
               brokerage commissions, if any) for the Common Stock so purchased
               exceeds (y) the product of (1) the aggregate number of shares of
               Common Stock that such Holder anticipated receiving from the
               conversion at issue multiplied by (2) the market price of the
               Common Stock at the time of the sale giving rise to such purchase
               obligation, and (B) at the option of the Holder, (x) deliver the
               Conversion Shares not yet delivered under the Conversion Notice
               and subject to this provision, or (y) reinstate the principal and
               interest of this Debenture subject to such Conversion Notice. For
               example, if the Holder purchases Common Stock having a total
               purchase price of $11,000 to cover a Buy-In with respect to an
               attempted conversion of this Debentures with respect to which the
               market price of the Conversion Shares on the date of conversion
               was a total of $10,000, the Company shall be required to pay the
               Holder $1,000. The Holder shall provide the Company


                                       10
<PAGE>

               written notice indicating the amounts payable to the Holder in
               respect of the Buy-In and the basis for determining such amount.
               Notwithstanding anything contained herein to the contrary, if a
               Holder requires the Company to make payment in respect of a
               Buy-In for the failure to timely deliver certificates hereunder
               and the Company timely pays in full such payment, the Company
               shall not be required to pay such Holder liquidated damages under
               Section 4(c)(iii) in respect of the certificates resulting in
               such Buy-In.

               (d)    Conversion Restrictions.

                      (i)    BENEFICIAL OWNERSHIP LIMITATION. Notwithstanding
               anything herein to the contrary, the Holder may not convert, and
               the Company may not cause the Holder to convert, this Debenture
               or receive shares of Common Stock as payment of interest
               hereunder to the extent such conversion or receipt of such
               interest payments would result in the Holder, together with any
               affiliate thereof, beneficially owning (as determined in
               accordance with Section 13(d) of the Exchange Act and the rules
               promulgated thereunder) in excess of 4.999% of the then issued
               and outstanding shares of Common Stock, including shares issuable
               upon conversion of, and payment of interest on, this Debenture or
               any other debenture of the Company held by such Holder after
               application of this Section. Since the Holder will not be
               obligated to report to the Company the number of shares of Common
               Stock it may hold at the time of a conversion hereunder, unless
               the conversion at issue would result in the issuance of shares of
               Common Stock in excess of 4.999% of the then outstanding shares
               of Common Stock without regard to any other shares which may be
               beneficially owned by the Holder or an affiliate thereof, the
               Holder shall have the authority and obligation to determine
               whether the restriction contained in this Section will limit any
               particular conversion hereunder and to the extent that the Holder
               determines that the limitation contained in this Section applies,
               the determination of which portion of the principal amount of
               this Debenture is convertible shall be the responsibility and
               obligation of the Holder. If the Holder has delivered a
               Conversion Notice for a principal amount of this Debenture that,
               without regard to any other shares that the Holder or its
               affiliates may beneficially own, would result in the issuance in
               excess of the permitted amount hereunder, the Company shall
               notify the Holder of this fact and shall honor the conversion for
               the maximum principal amount permitted to be converted on such
               Conversion Date in accordance with this Section. If this
               Debenture was not surrendered on the Conversion Date, the Company
               shall provide the Holder written notice of the amount actually
               converted. If the Holder surrendered this Debenture on the
               Conversion Date, the Company shall, at the option of the Holder,
               either retain any principal amount tendered for conversion in
               excess of the permitted amount hereunder for future conversions
               or return such excess principal amount to the Holder. The
               provisions of this Section may be waived by a Holder (but only as
               to itself and not to any other Holder) upon not less than 61 days
               prior notice to the Company. Other Holders shall be unaffected by
               any such waiver.


                                       11
<PAGE>

                      (ii)   LIMITATION ON NUMBER OF SHARES ISSUABLE.
               Notwithstanding anything herein to the contrary, the Company
               shall not be required to issue to the Holder and any other
               holders of the Debentures, Common Stock in excess of 19.999% of
               the Company's outstanding Common Stock on the Closing Date at a
               price below the market price of the Common Stock on the Closing
               Date, or such greater number of shares of Common Stock permitted
               pursuant to Nasdaq Rule 4350(i), as confirmed in writing by
               counsel to the Company, upon conversion of the Debentures (the
               "Maximum Aggregate Share Amount"), unless the Company first
               obtains shareholder approval permitting such issuances in
               accordance with Nasdaq rules. If the number of shares of Common
               Stock which would, notwithstanding the limitation set forth
               herein, be issuable and sold to the Holder equals or exceeds the
               Maximum Aggregate Share Amount, then, at any time, from time to
               time thereafter at the sole election of the Holder, in whole or
               in part, the Company shall: (i) honor the conversion of this
               Debenture by the Holder at the lowest possible conversion price
               which would permit such conversion without violating Nasdaq Rule
               4350(i), and (ii) redeem the portion of this Debenture submitted
               to the Company, the conversion of which would exceed the Maximum
               Aggregate Share Amount, otherwise in accordance with Section
               5(a).

               (e)    Anti-Dilution Provisions.

                      (i)    DIVIDENDS, STOCK SPLITS, ETC. If the Company, at
               any time while this Debenture is outstanding, (A) shall pay a
               stock dividend or otherwise make a distribution or distributions
               on shares of its Common Stock or any other equity or equity
               equivalent securities payable in shares of Common Stock, (B)
               subdivide outstanding shares of Common Stock into a larger number
               of shares, (C) combine (including by way of reverse stock split)
               outstanding shares of Common Stock into a smaller number of
               shares, or (D) issue by reclassification of shares of the Common
               Stock any shares of capital stock of the Company, then the Set
               Price shall be multiplied by a fraction of which the numerator
               shall be the number of shares of Common Stock (excluding treasury
               shares, if any) outstanding before such event and of which the
               denominator shall be the number of shares of Common Stock
               outstanding after such event. Any adjustment made pursuant to
               this Section shall become effective immediately after the record
               date for the determination of stockholders entitled to receive
               such dividend or distribution and shall become effective
               immediately after the effective date in the case of a
               subdivision, combination or re-classification.

                      (ii)   RIGHTS, OPTIONS, WARRANTS, ETC. If the Company, at
               any time while this Debenture is outstanding, shall issue rights,
               options or warrants to all holders of Common Stock (and not to
               holders of the Debentures) entitling them to subscribe for or
               purchase shares of Common Stock at a price per share less than
               the Set Price (the "Lower Price"), then the Set Price shall be
               multiplied by a fraction, of which the


                                       12
<PAGE>

               denominator shall be the number of shares of the Common Stock
               (excluding treasury shares, if any) outstanding on the date of
               issuance of such rights or warrants plus the number of additional
               shares of Common Stock offered for subscription or purchase, and
               of which the numerator shall be the number of shares of the
               Common Stock (excluding treasury shares, if any) outstanding on
               the date of issuance of such rights or warrants plus the number
               of shares which the aggregate offering price of the total number
               of shares so offered would purchase at the Set Price. Such
               adjustment shall be made whenever such rights or warrants are
               issued, and shall become effective immediately after the record
               date for the determination of stockholders entitled to receive
               such rights, options or warrants. However, upon the expiration of
               any such right, option or warrant to purchase shares of the
               Common Stock the issuance of which resulted in an adjustment in
               the Set Price pursuant to this Section, if any such right, option
               or warrant shall expire and shall not have been exercised, the
               Set Price shall immediately upon such expiration be recomputed
               and effective immediately upon such expiration be increased to
               the price which it would have been (but reflecting any other
               adjustments in the Set Price made pursuant to the provisions of
               this Section after the issuance of such rights or warrants) had
               the adjustment of the Set Price made upon the issuance of such
               rights, options or warrants been made on the basis of offering
               for subscription or purchase only that number of shares of the
               Common Stock actually purchased upon the exercise of such rights,
               options or warrants actually exercised.

                      (iii)  NO ADJUSTMENT. No adjustment to the Set Price
               pursuant to this Section will be made: (A) upon the exercise of
               any warrants, options, convertible securities or other rights
               issued and outstanding as of the original issuance date of this
               Debenture in accordance with the terms of such securities as of
               such date; (B) upon issuance, grant or exercise of shares,
               warrants, options or convertible securities to employees,
               officers, consultants or directors of the Company in accordance
               with plans approved by the Board of Directors; (C) upon the
               issuance of shares or other securities of the Company pursuant to
               an agreement or other written obligation entered into prior to
               the initial issuance of this Debenture; (D) upon the issuance of
               shares of Common Stock upon conversion of this or similar
               Debentures and exercise of Warrants being issued in connection
               with the issuance of this and similar Debentures; and (E) any
               securities issued in any bona fide firmly underwritten public
               offering, which shall not include equity lines of credit or
               similar transactions.

                      (iv)   RIGHTS OF SHAREHOLDERS, ETC. If the Company, at any
               time while this Debenture is outstanding, shall distribute to all
               holders of Common Stock (and not to Holders) evidences of its
               indebtedness or assets or rights or warrants to subscribe for or
               purchase any security, then in each such case the Set Price at
               which this Debenture shall thereafter be convertible shall be
               determined by multiplying the Set Price in effect immediately
               prior to the record date fixed for determination of stockholders
               entitled to receive such distribution by a fraction of which the
               denominator shall be the VWAP determined as of the record date
               mentioned above,


                                       13
<PAGE>

               and of which the numerator shall be such VWAP on such record date
               less the then fair market value at such record date of the
               portion of such assets or evidence of indebtedness so distributed
               applicable to one outstanding share of the Common Stock as
               determined by the Board of Directors in good faith. In either
               case the adjustments shall be described in a statement provided
               to the Holder of the portion of assets or evidences of
               indebtedness so distributed or such subscription rights
               applicable to one share of Common Stock. Such adjustment shall be
               made whenever any such distribution is made and shall become
               effective immediately after the record date mentioned above.

               (f)    Miscellaneous.

                      (i)    All calculations under this Section 4 shall be made
               to the nearest cent or the nearest 1/100th of a share, as the
               case may be. No adjustments in the Set Price shall be required if
               such adjustment is less than $0.01, provided, however, that any
               adjustments which by reason of this Section are not required to
               be made shall be carried forward and taken into account in any
               subsequent adjustment.

                      (ii)   Whenever the Set Price is adjusted hereunder, the
               Company shall promptly mail to each Holder a notice setting forth
               the Set Price after such adjustment and setting forth a brief
               statement of the facts requiring such adjustment.

                      (iii)  The Company covenants that it will at all times
               reserve and keep available out of its authorized and unissued
               shares of Common Stock solely for the purpose of issuance upon
               conversion of this Debenture and payment of interest on this
               Debenture, each as herein provided, free from preemptive rights
               or any other actual contingent purchase rights of persons other
               than the Holder, not less than such number of shares of the
               Common Stock as shall (subject to any additional requirements of
               the Company as to reservation of such shares set forth in the
               Purchase Agreement) be issuable (taking into account the
               adjustments and restrictions of Section 4) upon the conversion of
               the outstanding principal amount of this Debenture and payment of
               interest hereunder. The Company covenants that all shares of
               Common Stock that shall be so issuable shall, upon issue, be duly
               and validly authorized, issued, fully paid and nonassessable.

                      (iv)   Upon a conversion hereunder, the Company shall not
               be required to issue stock certificates representing fractions of
               shares of the Common Stock, but may if otherwise permitted, make
               a cash payment in respect of any final fraction of a share based
               on the VWAP on the date immediately prior the date such payment
               is due. If the Company elects not, or is unable, to make such a
               cash payment, the Holder shall be entitled to receive, in lieu of
               the final fraction of a share, one whole share of Common Stock.


                                       14
<PAGE>

                      (v)    The issuance of certificates for shares of the
               Common Stock on conversion of this Debenture shall be made
               without charge to the Holder for any documentary stamp or similar
               taxes that may be payable in respect of the issue or delivery of
               such certificate, provided that the Company shall not be required
               to pay any tax that may be payable in respect of any transfer
               involved in the issuance and delivery of any such certificate
               upon conversion in a name other than that of the Holder and the
               Company shall not be required to issue or deliver such
               certificates unless or until the person or persons requesting the
               issuance thereof shall have paid to the Company the amount of
               such tax or shall have established to the satisfaction of the
               Company that such tax has been paid.

        Section 5. Redemption.

               (a)    Optional Redemption by the Company. Upon the public
        announcement of the pendency of a Change in Control Transaction as
        defined in Section 16(c)(iii) and (iv) only, the Company shall have the
        right, upon at least 10 Trading Days' notice to the Holder (an "Optional
        Redemption Notice" and the date such notice is received by the Holder,
        the "Notice Date"), on the close of such Change of Control transaction,
        to redeem for cash no less than the entire outstanding principal amount
        of this Debenture at such closing, at a price equal to 110% of the
        outstanding principal amount of this Debenture (the "Optional Redemption
        Price") plus any accrued but unpaid interest hereon; provided, however,
        if at anytime during the period beginning on the Notice Date and ending
        on the date the Optional Redemption Price is paid in full, (i) the
        Registration Statement is not effective, or (ii) the Common Stock is not
        listed for trading on a Principal Market, then the Holder may elect to
        receive, as to the Sold Portion (as defined below), in lieu of the
        Optional Redemption Price, an amount in cash equal to the product of the
        Sold Shares (as defined below) and the highest VWAP during the period
        commencing on the Notice Date and ending on the Trading Day prior to the
        date such payment is made. The principal amount of this Debenture
        subject to the Optional Redemption Price shall then be reduced by the
        Sold Portion. The "Sold Shares" shall be the number of shares of Common
        Stock purchased by the Holder (in an open market transaction or
        otherwise) and delivered in satisfaction of a sale(s) of Common Stock by
        such Holder, made pursuant to the terms of this Agreement, such sale(s)
        occurring prior to the date of such public announcement. The "Sold
        Portion" shall be equal to the product of the Sold Shares and the Set
        Price. Nothing in this Section 5(a) shall be deemed to restrict or
        otherwise limit the Holder's right to convert any portion of the
        outstanding principal amount of the Debenture at any time pursuant to
        Section 4(a)(i), whether or not such principal amount is subject to an
        Optional Redemption Notice.

               (b)    Mandatory Redemption. On each Mandatory Redemption Date,
        the Company shall redeem the Holder's pro-rata share (based on the
        Investors' initial purchases of the Convertible Subordinated Debentures
        pursuant to the Purchase Agreement, adjusted upward in the event any
        Convertible Subordinated Debentures are no longer outstanding) of the
        Mandatory Redemption Amount. As to any Mandatory Redemption, in lieu of
        a cash redemption payment, the Company may elect to pay 100% of a
        Mandatory Redemption in


                                       15
<PAGE>

        Conversion Shares based on a conversion price equal to the lesser of (i)
        90% of the Adjusted VWAP during the 22 Trading Days immediately prior to
        the applicable Mandatory Redemption Date, and (ii) the Set Price (the
        "Mandatory Conversion Price"); provided, however, that the Mandatory
        Redemption shall only occur if, on the Mandatory Redemption Date and
        during the 30 calendar days prior thereto, (i) there is an effective
        Registration Statement pursuant to which the prospectus thereunder is
        available to resell all of the Conversion Shares issued to the Holder
        and all of the Conversion Shares as are issuable to the Holder upon
        conversion in full of this Debenture in respect of such Mandatory
        Redemption (and the Company believes, in good faith, that such
        effectiveness will continue uninterrupted for the foreseeable future),
        (ii) the Common Stock is listed for trading on a Principal Market (and
        the Company believes, in good faith, that trading of the Common Stock on
        the Principal Market will continue uninterrupted for the foreseeable
        future), and (iii) on or prior 25 calendar days prior to such Mandatory
        Redemption Date, the Company irrevocably notifies the Holder that it
        will issue Conversion Shares in lieu of cash and the Company includes in
        such notification the amount to be converted. In the event the Company
        elects to redeem this Debenture by the issuance of Conversion Shares,
        the Holder shall have the right, in its sole discretion, by notice to
        the Company on or prior to the applicable Mandatory Redemption Date, to
        decrease the amount to be converted at such time to anywhere between $0
        and the Mandatory Redemption Amount. In the event the Mandatory
        Redemption Amount is reduced by the Holder, such amount not converted
        but subject to the Mandatory Redemption, if not for the preceding
        sentence, shall be deferred to the end of this redemption schedule and
        cumulated with any other amounts so deferred. The Maturity Date and the
        Mandatory Redemption schedule shall be extended at the rate of one (1)
        month for each cumulated deferral payment equal to the Holder's Pro-rata
        share (based on the Investors' initial purchases of the Convertible
        Subordinated Debentures pursuant to the Purchase Agreement, adjusted
        upward in the event any Convertible Subordinated Debentures are no
        longer outstanding) of $500,000 (or such lesser amount if all
        outstanding principal amounts of the Convertible Subordinated Debentures
        are being redeemed hereunder for such Payment Period). The Mandatory
        Conversion Price for any deferred Mandatory Redemption Amounts, provided
        at such later time the Company elects to pay in Conversion Shares rather
        than cash in accordance with the terms herein, shall be calculated at
        the date when actually converted, not at the time of deferral. By way of
        example, assume that the Original Issue Date is January 1, 2002, the
        Effective Date is March 5, 2002 and $4,000,000 in principal is
        outstanding on this Debenture. Assume further that on June 1, 2002 the
        Company provides the Holder notice that it will redeem the Mandatory
        Redemption Amount (assume $300,000) of this Debenture by the issuance of
        Conversion Shares rather than cash. During the entire month of June and
        on July 1, 2002, the Registration Statement is maintained effective as
        to the Conversion Shares and the Common Stock trades uninterrupted on
        the Principal Market. Finally, assume that on June 30, 2002 the Holder
        notifies the Company that it elects to reduce the amount to be converted
        to $200,000. Under these circumstances, on July 1, 2002, the Company
        shall redeem $100,000 principal amount of this Debenture, which amount
        shall be paid by the issuance of Conversion Shares based on the
        Mandatory Conversion Price on the Mandatory Redemption Date. The
        Mandatory Redemption of $200,000 principal amount of this Debenture
        shall be deferred until after the


                                       16
<PAGE>

        remaining principal amount outstanding of this Debenture has been
        subject to this Mandatory Redemption provision. Except as otherwise set
        forth under this Section 5(b), as to any conversions hereunder, the
        Mandatory Redemption Date shall be deemed the Conversion Date and such
        conversions shall be made as if pursuant to Section 4(a)(ii) and the
        other sub-sections relating thereto, including but not limited to,
        liquidated damages and fees for late delivery of Conversion Shares. The
        Holder may convert any portion of the outstanding principal amount of
        the Debentures subject to a Mandatory Redemption prior to the date that
        the Mandatory Redemption is due and paid in full pursuant to Section
        4(a)(i). Nothing herein shall preclude the Holder from converting this
        Debenture to the extent this Debenture remains unpaid and unconverted
        after the Mandatory Redemption Date.

               (c)    Redemption Procedure. The Optional Redemption Price is due
        on the 10th Trading Day following the applicable Notice Date and payment
        of cash and/or issuance of Conversion Shares pursuant to the Mandatory
        Redemption shall be made on the Mandatory Redemption Date. If any
        portion of the Optional Redemption Price or cash payment for the
        Mandatory Redemption shall not be paid by the Company by expiration of
        such 10th Trading Day or the Mandatory Redemption Date, as the case may
        be, interest shall accrue thereon at the rate of 12% per annum (or the
        maximum rate permitted by applicable law, whichever is less) until the
        Optional Redemption Price or cash payment of the Mandatory Redemption
        plus all such interest is paid in full. In addition, if any portion of
        the Optional Redemption Price or payment for the Mandatory Redemption
        remains unpaid after such date, the Holders subject to such redemption
        may elect, by written notice to the Company given at any time
        thereafter, to invalidate ab initio such redemption, notwithstanding
        anything herein contained to the contrary. As to an Optional Redemption
        Notice, if the Company fails to make the redemption payment in a timely
        manner, it shall lose its right to deliver an Optional Redemption Notice
        to the Holder in the future. If a Holder elects to invalidate such
        redemption the Company shall promptly, and, in any event, not later than
        3 Trading Days from receipt of such Holder's notice of such election,
        return to such Holder all of the Debentures for which the Optional
        Redemption Price shall not have been paid in full.

        Section 6. Dividends, Mergers, Consolidations, Reclassifications, Etc.

               (a)    Notice of Certain Events. If (i) the Company shall declare
        a dividend (or any other distribution) on the Common Stock; (ii) the
        Company shall declare a special nonrecurring cash dividend on or a
        redemption of the Common Stock; (iii) the Company shall authorize the
        granting to all holders of the Common Stock rights or warrants to
        subscribe for or purchase any shares of capital stock of any class or of
        any rights; (iv) the approval of any stockholders of the Company shall
        be required in connection with any reclassification of the Common Stock,
        any consolidation or merger to which the Company is a party, any sale or
        transfer of all or substantially all of the assets of the Company, or
        any compulsory share exchange whereby the Common Stock is converted into
        other securities, cash or property; or (v) the Company shall authorize
        the voluntary or involuntary dissolution, liquidation or winding up of
        the affairs of the Company; then, in each case, the Company


                                       17
<PAGE>

        shall cause to be filed at each office or agency maintained for the
        purpose of conversion of the Debentures, and shall cause to be mailed to
        the Holder at their last addresses as they shall appear upon the stock
        books of the Company, at least 20 calendar days prior to the applicable
        record or effective date hereinafter specified, a notice stating (i) the
        date on which a record is to be taken for the purpose of such dividend,
        distribution, redemption, rights or warrants, or if a record is not to
        be taken, the date as of which the holders of the Common Stock of record
        to be entitled to such dividend, distributions, redemption, rights or
        warrants are to be determined, or (ii) the date on which such
        reclassification, consolidation, merger, sale, transfer or share
        exchange is expected to become effective or close, and the date as of
        which it is expected that holders of the Common Stock of record shall be
        entitled to exchange their shares of the Common Stock for securities,
        cash or other property deliverable upon such reclassification,
        consolidation, merger, sale, transfer or share exchange, provided, that
        the failure to mail such notice or any defect therein or in the mailing
        thereof shall not affect the validity of the corporate action required
        to be specified in such notice. The Holder is entitled to convert this
        Debenture during the 20-day period commencing the date of such notice to
        the effective date of the event triggering such notice.

               (b)    Change of Control. In case of any Change of Control for
        which the Company does not elect to exercise its optional right of
        redemption pursuant to Section 5(a), the Holder shall have the right to
        either (i) declare an Event of Default, (ii) convert its aggregate
        principal amount of Debentures then outstanding into the shares of stock
        and other securities, cash and property receivable upon or deemed to be
        held by holders of Common Stock following such merger, consolidation or
        sale, and such Holder shall be entitled upon such event or series of
        related events to receive such amount of securities, cash and property
        as the shares of Common Stock into which such aggregate principal amount
        of Debentures could have been converted immediately prior to such
        merger, consolidation or sale would have been entitled, or (iii) in the
        case of Change of Control involving a merger in which the Company is not
        the surviving corporation or a consolidation, (A) require the surviving
        entity to issue convertible subordinated debentures in such face amount
        equal to the aggregate principal amount of Debentures then held by the
        Holder, plus all accrued and unpaid interest and other amounts owing
        thereon, which newly issued debentures shall have terms identical
        (including with respect to conversion) to the terms of this Debenture
        and shall be entitled to all of the rights and privileges of a Holder of
        this Debenture and the agreements pursuant to which this Debenture was
        issued (including, without limitation, as such rights relate to the
        acquisition, transferability, registration and listing of such shares of
        stock or other securities issuable upon conversion thereof) provided
        that if such surviving entity is not a public company, such securities
        shall not be required to include a grant of registration rights to the
        Holder, and (B) simultaneously with the issuance of such convertible
        subordinated debentures, shall have the right to convert such instrument
        only into shares of stock and other securities, cash and property
        receivable upon or deemed to be held by holders of Common Stock
        following such merger or consolidation. In the case of clause (iii), the
        conversion price applicable for the newly issued convertible
        subordinated debentures shall be based upon the amount of securities,
        cash and property that each share of Common Stock would receive in such
        transaction and the Set Price in effect immediately prior to the
        effectiveness


                                       18
<PAGE>

        or closing date for such transaction. The terms of any such merger, sale
        or consolidation shall include such terms so as to continue to give the
        Holders the right to receive the securities, cash and property set forth
        in this Section upon any conversion or redemption following such event.
        This provision shall similarly apply to such successive events. The
        terms of any agreement to be executed in connection with any Change of
        Control transaction shall include terms requiring any successor or
        surviving entity to comply with the provisions of this Section.

               (c)    Reclassification. In case of any reclassification of the
        Common Stock (other than a change in par value or a change from par
        value to no par value) or any compulsory share exchange pursuant to
        which the Common Stock is converted into other securities, cash or
        property, the Holder shall have the right thereafter, at its option, (i)
        to convert, at any time, in whole or in part, the then outstanding
        principal amount, together with all accrued but unpaid interest and any
        other amounts then owing hereunder in respect of this Debenture only
        into the shares of stock and other securities, cash and property
        receivable upon or deemed to be held by holders of the Common Stock
        following such reclassification or share exchange, and the Holder of
        this Debenture shall be entitled upon such event to receive such amount
        of securities, cash or property as the shares of the Common Stock of the
        Company into which the then outstanding principal amount, together with
        all accrued but unpaid interest and any other amounts then owing
        hereunder in respect of this Debenture could have been converted
        immediately prior to such reclassification or share exchange would have
        been entitled, or (ii) to cause the Company to exercise its right to
        redeem the aggregate outstanding principal amount of this Debenture,
        plus all interest and other amounts due and payable thereon, pursuant to
        Section 5. The entire redemption price due hereunder shall be paid in
        cash. This provision shall similarly apply to successive
        reclassifications or share exchanges.

        Section 7. Notices. Any and all notices or other communications or
deliveries to be provided by the Holders hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, as
set forth in the Purchase Agreement, or such other address or facsimile number
as the Company may specify for such purposes by notice to the Holders delivered
in accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 4:30 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
4:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such


                                       19
<PAGE>

date, (iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.

        Section 8. Company's Obligations. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, interest
and liquidated damages (if any) on, this Debenture at the time, place, and rate,
and in the coin or currency, herein prescribed. This Debenture is a direct
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein. As long as
this Debenture is outstanding, the Company shall not and shall cause it
subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder of this Debenture; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities other than as to the Conversion Shares
to the extent permitted or required under the Purchase Agreement or this
Debenture, except for the repurchase of shares of Common Stock pursuant to an
employee stock incentive or stock purchase plan; or (iii) enter into any
agreement with respect to any of the foregoing. The Company may only voluntarily
prepay the outstanding principal amount of this Debenture in accordance with
Section 5(a) hereof or on the Maturity Date.

        Section 9. Rights as Holder. 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 10. Replacement Debentures. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated Debenture, or
in lieu of or in substitution for a lost, stolen or destroyed debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost, stolen
or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Company.

        Section 11. Governing Law. This Debenture shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of laws thereof. The Company and the Holder hereby
irrevocably submit to the jurisdiction of the state and federal courts sitting
in the City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or that such suit, action or
proceeding is improper. Each of the Company and the Holder hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by receiving a copy thereof sent to the Company
or Holder, as applicable, at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient


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<PAGE>

service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.

        Section 12. Waivers. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.

        Section 13. Severability. If any provision of this Debenture is held to
be invalid, illegal or unenforceable, by a court of competent jurisdiction, the
balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances. If it shall be found that any
interest or other amount deemed interest due hereunder shall violate applicable
laws governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of interest. The
Company covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Debentures as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Holder.

        Section 14. Non Trading Days. Whenever any payment or other obligation
hereunder shall be due on a day other than a Trading Day, such payment shall be
made on the next succeeding Trading Day.

        Section 15. Headings. The headings used in this Debenture are used for
convenience only and are not to be considered in construing or interpreting this
Debenture.

        Section 16. Definitions. For the purposes hereof, the following terms
shall have the following meanings:

               (a)    "Adjusted VWAP" with respect to a period means the result
        obtained by selecting the 5 lowest VWAPs during such period.

               (b)    "Buy In" shall have the meaning assigned to such term in
        Section 4(c)(iv).

               (c)    "Change of Control Transaction" means the occurrence of
        any of (i) an acquisition after the date hereof by an individual or
        legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
        under the Exchange Act) of effective control (whether through


                                       21
<PAGE>

        legal or beneficial ownership of capital stock of the Company, by
        contract or otherwise) of in excess of 40% of the voting securities of
        the Company in a transaction or series of transactions not approved by
        the board of directors of the Company, (ii) a replacement at one time or
        over time of more than one-half of the members of the Company's board of
        directors which is not approved by a majority of those individuals who
        are members of the board of directors on the date hereof (or by those
        individuals who are serving as members of the board of directors on any
        date whose nomination to the board of directors was approved by a
        majority of the members of the board of directors who are members on the
        date hereof), (iii) the consolidation or merger of the Company with or
        into another entity (other than a merger or consolidation of a
        subsidiary of the Company into the Company or the Company into a
        wholly-owned subsidiary of the Company) where (A) the shareholders of
        the Company immediately prior to such transaction do not collectively
        own at least 51% of the outstanding voting securities of the surviving
        corporation of such consolidation or merger immediately following such
        transaction or (B) the common stock of such surviving corporation is not
        listed for trading on a Principal Market immediately after the
        completion of such transaction, (iv) the sale of all or substantially
        all of the assets of the Company in one or a series of related
        transactions, or (v) the execution by the Company of an agreement to
        which the Company is a party or by which it is bound, providing for any
        of the events set forth above in (i), (ii), (iii) or (iv).

               (d)    "Conversion Dates" means the Optional Conversion Dates and
        the Mandatory Redemption Dates.

               (e)    "Conversion Notice" shall have the meaning ascribed to
        such term in Section 4(c).

               (f)    "Conversion Shares" means the shares of Common Stock
        issuable upon conversion of Debentures or as payment of interest in
        accordance with the terms hereof.

               (g)    "Debenture(s)" shall have the meanings ascribed to such
        terms in the opening paragraph of this Debenture.

               (h)    "Debenture Register" shall have the meaning ascribed to
        such term in the second opening paragraph of this Debenture.

               (i)    "Event of Default" shall have the meaning ascribed to such
        term in Section 3(a).

               (j)    "Holder" shall have the meaning ascribed to such term in
        the second opening paragraph of this Debenture.

               (k)    "Mandatory Conversion Notice" shall have the meaning
        ascribed to such term in Section 4(a)(2).


                                       22
<PAGE>

               (l)    "Mandatory Conversion Price" shall have the meaning
        ascribed to such term in Section 5(b).

               (m)    "Mandatory Default Amount" for this Debenture shall equal
        the sum of (i) the greater of (A) 150% of the principal amount of this
        Debenture outstanding, plus all accrued and unpaid interest thereon, and
        (B) the principal amount of this Debenture to be prepaid, plus all
        accrued and unpaid interest thereon, divided by the then applicable
        conversion price on the date of acceleration multiplied by the VWAP on
        (x) the date the Mandatory Redemption Amount is demanded or otherwise
        due or (y) the date immediately prior to the date the Mandatory
        Redemption Amount is paid in full, whichever is greater, and (ii) all
        other amounts, costs, expenses and liquidated damages due in respect of
        this Debenture. Notwithstanding anything to the contrary in the
        preceding sentence, the Mandatory Default Amount pursuant solely to
        Section 3(a)(xi) shall be equal to 110% of the principal amount of this
        Debenture outstanding, plus all accrued and unpaid interest thereon.

               (n)    "Mandatory Payment" shall have the meaning ascribed to
        such term in Section 4(b).

               (l)    "Mandatory Redemption" shall have the meaning ascribed to
        such term in Section 5(b).

               (m)    "Mandatory Redemption Date" shall have the meaning
        ascribed to such term in Section 5(b).

               (m)    "Maturity Date" shall have the meaning ascribed to such
        term in the second opening paragraph of this Debenture.

               (n)    "Maximum Aggregate Share Amount" shall have the meaning
        ascribed to such term in Section 4(d)(ii).

               (o)    "Notice Date" shall have the meaning ascribed to such term
        in Section 5(a).

               (p)    "Optional Conversion Date" shall have the meaning ascribed
        to such term in Section 4(a)(i).

               (q)    "Optional Redemption Notice" shall have the meaning
        ascribed to such term in Section 5(a).

               (r)    "Optional Redemption Price" shall have the meaning
        ascribed to such term in Section 5(a).

               (s)    "Original Issue Date" shall mean the date of the first
        issuance of the Debentures regardless of the number of transfers of any
        Debenture and regardless of the number of instruments which may be
        issued to evidence such Debenture.


                                       23
<PAGE>

               (t)    "Person" means a corporation, an association, a
        partnership, organization, a business, an individual, a government or
        political subdivision thereof or a governmental agency.

               (u)    "Purchase Agreement" shall have the meaning ascribed to
        such term in the first paragraph of this Debenture.

               (v)    "Set Price" shall have the meaning ascribed to such term
        in Section 4(a)(i).

                       ***********************************



                                       24
<PAGE>

               IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed by a duly authorized officer as of the date first above indicated.

                                        ACRES GAMING INCORPORATED

                                        By:_____________________________________
                                           Name:
                                           Title:



                                       25
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to Convert the Debenture)

The undersigned hereby elects to convert its 6% Convertible Subordinated
Debenture into shares of common stock, $.01 par value per share (the "Common
Stock"), of Acres Gaming Incorporated (the "Company") according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.

Conversion calculations:          ______________________________________________
                                  Date to Effect Conversion

                                  ______________________________________________
                                  Principal Amount of Debentures to be Converted

                                  ______________________________________________
                                  Number of shares of Common Stock to be Issued

                                  ______________________________________________
                                  Conversion Price

                                  ______________________________________________
                                  Signature

                                  ______________________________________________
                                  Name

                                  ______________________________________________
                                  Address




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