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Unassociated Document

     

    STOCK
      PLEDGE AGREEMENT

     

    This
      Stock Pledge Agreement (this “Agreement”)
      is
      dated as of January 31, 2006 by and between Acura Pharmaceuticals, Inc., a
      New
      York corporation (the “Pledgor”),
      and
      Galen Partners III, L.P., a Delaware limited partnership, acting in its capacity
      as agent for the Lenders, as hereinafter defined (the “Agent”),
      for
      the benefit of the Lenders.

     

     

    PRELIMINARY
      STATEMENTS

     

    The
      Pledgor has entered into a Loan Agreement of even date herewith (as the same
      may
      be amended, modified, supplemented or restated from time to time, the
“Loan
      Agreement;”
terms
      which are capitalized in this Agreement and not otherwise defined shall have
      the
      meanings ascribed to them in the Loan Agreement) with the Lenders party thereto
      (the “Lenders”).
      It is
      a condition precedent to the effectiveness of the Loan Agreement that the
      Pledgor shall have executed this Agreement and made the pledges referred to
      herein in favor of the Agent, for the ratable benefit of the Lenders, as
      contemplated hereby.

     

     

    AGREEMENT

     

    In
      consideration of the premises and to induce the Lenders to enter into the Loan
      Agreement, and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the Pledgor hereby agrees with
      the
      Agent as follows:

     

    ARTICLE
      1

     

    PLEDGE
      OF PLEDGED STOCK

     

    1.1  DEFINITIONS;
      INTERPRETATION OF AGREEMENT

     

    Unless
      the context otherwise requires, all terms not defined herein or in the Loan
      Agreement shall have the meaning set forth in the New York Uniform Commercial
      Code (the “Code”).
      Acceptance of or acquiescence in a course of performance rendered under this
      Agreement shall not be relevant in determining the meaning of this Agreement
      even though the accepting or acquiescing party had knowledge of the nature
      of
      the performance and opportunity for objection.

     

    1.2  PLEDGE
      OF THE PLEDGED STOCK; POWER OF ATTORNEY

     

    (a)  As
      security for the prompt payment and performance when due of the obligations
      now
      or hereafter owing by the Pledgor to the Lenders under the Loan Agreement,
      the
      Notes, the other Transaction Documents and under the agreements, documents
      and
      instruments delivered by the Pledgor pursuant thereto or in connection therewith
      (collectively, the “Obligations”),
      the
      Pledgor hereby pledges to the Agent, for the ratable benefit of the Lenders,
      and
      grants to the Agent, for the ratable benefit of the Lenders, a lien on and
      security interest having priority over any and all other security interests,
      in
      the following (collectively the “Pledged
      Collateral”):
      (i)
      all of the issued and outstanding shares of common stock of Acura Pharmaceutical
      Technologies, Inc. (“APT”
or
      “Subsidiary”),
      which
      shares are more particularly described on Schedule
      A
      attached
      hereto (the “Pledged
      Stock”),
      (ii)
      all additional shares of common stock at any time issued to the Pledgor by
      APT,
      (iii) the certificates evidencing all Pledged Collateral, (iv) subject to
      Section 1.6 hereof, all dividends, cash, securities, investment property,
      instruments and other property from time to time received, receivable or
      otherwise distributed in respect of or in exchange for any or all of the Pledged
      Stock and such shares and securities, and (v) all proceeds of any and all
      Pledged Collateral (including, without limitation, proceeds constituting any
      property of the types described above). The Pledgor shall deliver to the Agent
      original stock certificates for all of the Pledged Stock, each accompanied
      by an
      undated stock power executed in blank by the Pledgor.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)  The
      Agent
      shall have no obligation with respect to the Pledged Collateral or any other
      property held or received by it hereunder except to use reasonable care in
      the
      custody thereof. The Agent may hold the Pledged Collateral in the form in which
      it is received by it.

     

    (c)  The
      Pledgor, to the fullest extent permitted by law, hereby constitutes and
      irrevocably appoints the Agent (and any officer or agent of the Agent, with
      full
      power of substitution and revocation) as the Pledgor’s true and lawful
      attorney-in-fact, in the Pledgor’s stead and in the name of the Pledgor or in
      the name of the Agent, to transfer, upon the occurrence and during the
      continuance of an Event of Default or at any time the Agent, based on all the
      facts and circumstances then existing, and in the exercise of its commercially
      reasonable credit judgment, believes, and has so notified the Pledgor in
      writing, that, in connection with the Loan Agreement and the agreements,
      documents and instruments delivered by the Pledgor pursuant thereto or in
      connection therewith, fraud has occurred with respect to the Pledgor or any
      other Person controlling, controlled by, or under common control with the
      Pledgor which has a material adverse effect on the operations or condition
      (financial or otherwise) of the Pledgor and its subsidiaries, taken as a whole
      (a “Fraud”),
      the
      Pledged Collateral on the books of APT, in whole or in part, to the name of
      the
      Agent or such other Person or Persons as the Agent may designate and, upon
      the
      occurrence and during the continuance of an Event of Default or at any time
      the
      Agent, based on all the facts and circumstances then existing, and in the
      exercise of its commercially reasonable credit judgment, believes, and has
      so
      notified the Pledgor in writing, that Fraud has occurred, to take all such
      other
      and further actions as the Pledgor could have taken with respect to the Pledged
      Collateral which the Agent in its reasonable judgment determines to be necessary
      or appropriate to accomplish the purposes of this Agreement.

     

    (d)  The
      powers of attorney granted pursuant to this Agreement and all authority hereby
      conferred are granted and conferred solely to protect the Agent’s interests in
      the Pledged Collateral and shall not impose any duty upon the attorney-in-fact
      to exercise such powers. Such powers of attorney shall be irrevocable prior
      to
      the payment in full of the Obligations and shall not be terminated prior thereto
      or affected by any act of the Pledgor or other Persons or by operation of law.
      The foregoing power of attorney, being coupled with an interest, is irrevocable
      so long as any Obligation remains outstanding.

     

    (e)  Except
      to
      the extent that the Agent releases its pledge of any of the Pledged Collateral,
      each Person who shall be a transferee of the beneficial ownership of any of
      the
      Pledged Collateral shall be deemed to have irrevocably appointed the Agent,
      with
      full power of substitution and revocation, as such Person’s true and lawful
      attorney-in-fact in such Person’s name and otherwise to do any and all acts
      herein permitted and to exercise any and all powers herein conferred;
provided,
      however,
      that no
      Person shall exercise any such power of attorney unless an Event of Default
      shall have occurred and be continuing, and subject to the terms of the Loan
      Agreement regarding the exercise of remedies upon an Event of Default, or from
      and after such time as such Person has notified the Pledgor in writing that
      based on all the facts and circumstances then existing, and in the exercise
      of
      its commercially reasonable judgment, such Person believes that Fraud has
      occurred.

     

    
      
         

      

      
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    1.3  RIGHTS
      OF PLEDGOR; VOTING

     

    (a)  During
      the term of this Agreement, and so long as the Pledgor has not received a Voting
      Notice (as defined below) from the Agent following (i) the occurrence and during
      the continuance of an Event of Default, and subject to the terms of the Loan
      Agreement regarding the exercise of remedies upon an Event of Default, or (ii)
      from and after such time as the Agent determines that based on all the facts
      and
      circumstances then existing, and in the exercise of its commercially reasonable
      judgment, the Agent believes that Fraud has occurred, the Pledgor shall have
      the
      right to vote any of the Pledged Collateral in all corporate matters except
      those which would contravene this Agreement, the Loan Agreement or any of the
      agreements, documents and instruments delivered by the Pledgor and each
      Subsidiary pursuant thereto unless the Agent consents in writing thereto.

     

    (b)  Upon
      the
      occurrence and during the continuance of an Event of Default, and subject to
      the
      terms of the Loan Agreement regarding the exercise of remedies upon an Event
      of
      Default, or from or from and after such time as the Agent has notified the
      Pledgor in writing that based on all the facts and circumstances then existing,
      and in the exercise of its commercially reasonable judgment, Agent believes
      that
      Fraud has occurred, the Pledgor shall give the Agent at least fifteen (15)
      days’
prior notice of (i) any meeting of stockholders of the Subsidiary or any meeting
      of directors of the Subsidiary convened for any purpose and (ii) any written
      consent which the Pledgor proposes to execute as the stockholder of the
      Subsidiary or which any of the representatives of the Pledgor proposes to
      execute as a director of the Subsidiary. During the continuance of an Event
      of
      Default, and subject to the terms of the Loan Agreement regarding the exercise
      of remedies upon an Event of Default, or from and after such time as the Agent
      determines that based on all the facts and circumstances then existing, and
      in
      the exercise of its commercially reasonable judgment, the Agent believes that
      Fraud has occurred, the Pledgor hereby authorizes the Agent to send its agents
      and representatives to any such meeting of stockholders or directors of the
      Subsidiary that the Agent wishes to attend, and agrees to take such steps as
      may
      be necessary to confirm and effectuate such authority, including, without
      limitation, causing the Subsidiary to give reasonable prior written notice
      to
      the Agent of the time and place of any such meeting and the principal actions
      to
      be taken thereat.

     

    (c)  Notwithstanding
      the occurrence of an Event of Default, and subject to the terms of the Loan
      Agreement regarding the exercise of remedies upon an Event of Default, or the
      determination by the Agent that based on all the facts and circumstances then
      existing, and in the exercise of its commercially reasonable judgment, the
      Agent
      believes that Fraud has occurred, the Pledgor may continue to exercise the
      voting rights of the Pledgor as herein described (and subject to the limitations
      herein) except to the extent that the Agent elects to exercise voting power
      (as
      determined by it in its sole discretion) by providing written notice to the
      Pledgor at any time during the continuance of an Event of Default or from and
      after such time as the Agent has determined that based on all the facts and
      circumstances then existing, and in the exercise of its commercially reasonable
      judgment, the Agent believes that Fraud has occurred (a “Voting
      Notice”),
      whereupon the Agent shall have the exclusive right during the continuance of
      an
      Event of Default or from and after the Agent’s determination of Fraud to
      exercise such rights to the extent specified in such Voting Notice, and the
      Pledgor shall take all such steps as may be necessary to effectuate such rights
      until the Agent notifies the Pledgor in writing of the release of such rights.
      Once any such Event of Default has been cured or waived and such cure or waiver
      is confirmed by the Agent to the Pledgor in writing, any relevant Voting Notice
      shall be deemed to be rescinded.

     

    
      
         

      

      
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    1.4  NO
      RESTRICTIONS ON TRANSFER

     

     

    The
      Pledgor warrants and represents that except as otherwise provided in (i) the
      Watson Stock Pledge Agreement dated March 29, 2000 executed by the Pledgor
      to
      secure the Senior Note (as amended, the “Watson
      Stock Pledge Agreement”);
      (ii)
      the Stock Pledge Agreement dated as of June 22, 2005 executed by the Pledgor
      to
      secure a certain bridge loan (the “June Bridge
      Loan”)
      extended
      pursuant to the terms of that certain Loan Agreement, dated as of June 22,
      2005
      (the “June
      Bridge Loan Stock Pledge Agreement”);
      (iii)
      the Stock Pledge Agreement dated as of September 16, 2005 executed by the
      Pledgor to secure a certain bridge loan (the “September
      Bridge Loan”)
      extended
      pursuant to the terms of that certain Loan Agreement, dated as of September
      16,
      2005 (the “September
      Bridge Loan Stock Pledge Agreement”);
      and
      (iv) the Stock Pledge Agreement dated as of November 9, 2005 executed by the
      Pledgor to secure a certain bridge loan (the “November
      Bridge Loan”)
      extended
      pursuant to the terms of that certain Loan Agreement, dated as of November
      9,
      2005 (the “November
      Bridge Loan Stock Pledge Agreement”),
      there
      are no restrictions on the transfer of the Pledged Stock (except for such
      restrictions imposed by operation of law), that there are no options, warrants
      or rights pertaining thereto, and that the Pledgor has the right to transfer
      the
      Pledged Stock free of any encumbrances and without the consent of the creditors
      of the Pledgor or the consent of the Subsidiary or any other Person or any
      governmental agency whatsoever.

     

    1.5  NO
      TRANSFER OF LIENS; ADDITIONAL SECURITIES

     

    The
      Pledgor agrees that it will not sell, transfer or convey any interest in, or
      suffer or permit any lien or encumbrance to be created upon or with respect
      to,
      any of the Pledged Collateral during the term of this Agreement, except to
      or in
      favor of the Agent, or as agreed to in writing in advance by the Agent in
      accordance with the terms of the Loan Agreement. The Pledgor shall not cause,
      suffer or permit the Subsidiary to issue any common or preferred stock, or
      any
      other equity security or any other instruments convertible into equity
      securities, to any Person, unless the Agent otherwise consents in writing (which
      consent may be withheld in the Agent’s reasonable credit judgment).

     

    
      
         

      

      
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    1.6  ADJUSTMENTS
      OF CAPITAL STOCK; PAYMENT AND APPLICATION OF DIVIDENDS

     

    Subject
      to the Loan Agreement, in the event that during the term of this Agreement
      any
      stock dividend, reclassification, readjustment or other change is declared
      or
      made in the capital structure of the Subsidiary or if any other or additional
      shares of stock of the Subsidiary are issued to the Pledgor, all new,
      substituted and additional shares or other securities issued by reason of any
      such change or acquisition shall immediately be delivered by the Pledgor to
      the
      Agent and shall be deemed to be part of the Pledged Collateral under the terms
      of this Agreement in the same manner as the shares of capital stock originally
      pledged hereunder. Subject to the Loan Agreement, upon the occurrence and during
      the continuance of an Event of Default and subject to the terms of the Loan
      Agreement regarding the exercise of remedies upon an Event of Default, or from
      and after such time as the Agent determines that based on all the facts and
      circumstances then existing, and in the exercise of its commercially reasonable
      judgment, the Agent believes that Fraud has occurred, all cash dividends
      received by or payable to the Pledgor in respect of the Pledged Collateral,
      including any additional shares of stock or investment property received by
      the
      Pledgor as a result of the Pledgor’s record ownership of the Pledged Stock,
      shall immediately be delivered by the Pledgor to the Agent, to be held by the
      Agent as Pledged Collateral hereunder or to be applied by the Agent against
      the
      Obligations. Upon the occurrence and during the continuance of an Event of
      Default and subject to the terms of the Loan Agreement regarding the exercise
      of
      remedies upon an Event of Default, or from and after such time as the Agent
      determines that based on all the facts and circumstances then existing, and
      in
      the exercise of its commercially reasonable judgment, the Agent believes that
      Fraud has occurred, the Pledgor will not demand and will not be entitled to
      receive, any cash dividends or other income, interest or property in or with
      respect to the Pledged Collateral, and if the Pledgor receives any of the same,
      the Pledgor shall immediately deliver it to the Agent to be held by it and
      applied as provided in the preceding sentence.

     

    1.7  WARRANTS
      AND OPTIONS

     

    In
      the
      event that during the term of this Agreement subscription warrants or other
      rights or options shall be issued to the Pledgor in connection with the Pledged
      Collateral, all such stock warrants, rights and options shall forthwith be
      assigned to the Agent by the Pledgor, and such stock warrants, rights and
      options shall be, and, if exercised by the Pledgor, all new stock issued
      pursuant thereto shall be, pledged by the Pledgor to the Agent to be held as,
      and shall be deemed to be part of, the Pledged Collateral under the terms of
      this Agreement in the same manner as the shares of capital stock originally
      pledged hereunder.

     

    1.8  RETURN
      OF PLEDGED COLLATERAL UPON TERMINATION

     

    Upon
      the
      termination of the Loan Agreement and the indefeasible payment in full in cash
      of the Obligations and all other amounts payable under this Agreement, the
      Agent
      shall cause to be transferred or returned to the Pledgor all of the stock
      pledged by the Pledgor herein and any money, property and rights received by
      the
      Agent pursuant hereto, to the extent the Agent has not taken, sold or otherwise
      realized upon the same as permitted hereunder, together with all other documents
      reasonably required by the Pledgor to evidence termination of the pledge
      contemplated hereby.

     

    
      
         

      

      
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    ARTICLE
      2

     

    EVENTS
      OF DEFAULT; REMEDIES

     

    2.1  RIGHTS
      OF AGENT UPON DEFAULT

     

    Upon
      the
      occurrence and during the continuance of any Event of Default and subject to
      the
      terms of the Loan Agreement regarding the exercise of remedies upon an Event
      of
      Default, or from and after such time as the Agent determines that based on
      all
      the facts and circumstances then existing, and in the exercise of its
      commercially reasonable judgment, the Agent believes that Fraud has occurred,
      the Agent shall have and at any time may exercise with respect to the Pledged
      Collateral, the proceeds thereof, and any other property or money held by the
      Agent hereunder, all rights and remedies available to it under law, including,
      without limitation, those given, allowed or permitted to a secured party by
      or
      under the Code, and all rights and remedies provided for herein and in the
      Loan
      Agreement.

     

    2.2  DISPOSITION
      OF PLEDGED STOCK

     

    (a)  Without
      limiting the foregoing, in the event that the Agent elects to sell the Pledged
      Stock (such term including, for purposes of this Section 2.2, the Pledged Stock
      and all other shares of stock or securities at any time forming part of the
      Pledged Collateral), the Agent shall have the power and right in connection
      with
      any such sale, exercisable at its option and in its absolute discretion, to
      sell, assign, and deliver the whole or any part of the Pledged Stock or any
      additions thereto at a private or public sale for cash, on credit or for future
      delivery and at such price as the Agent deems to be satisfactory. Any such
      disposition which shall be made by private sale or other private proceeding
      shall be made upon not less than ten (10) days’ prior written notice to Pledgor
      specifying the date and time at which such disposition is to be made. Notice
      of
      any public sale shall be sufficient if it describes the Pledged Collateral
      to be
      sold in general terms, and is published at least once in The New York Times
      not
      less than ten (10) days prior to the date of sale. If The New York Times is
      not
      then being published, publication may be made in lieu thereof in any newspaper
      then being circulated in the City of New York, New York, as the Agent may elect.
      If any notice of a proposed sale or other disposition of Pledged Collateral
      shall be required by law, such notice shall be deemed reasonable and proper
      if
      mailed, postage prepaid, to the Pledgor at its address set forth in Section
      5.5
      hereof or such other address as the Pledgor may have, in writing, provided
      to
      the Agent. The Agent may, if it deems it reasonable, postpone or adjourn any
      sale of any collateral from time to time by an announcement at the time and
      place of the sale to be so postponed or adjourned without being required to
      give
      a new notice of sale. 

     

    (b)  Because
      federal and state securities laws may restrict the methods of disposition of
      the
      Pledged Stock which are readily available to the Agent, and specifically because
      a public sale thereof may be impossible or impracticable by reason of certain
      restrictions under the Securities Act or under applicable “blue sky” or other
      state securities laws as now or hereafter in effect, the Pledgor agrees that
      the
      Agent may from time to time attempt to sell the Pledged Stock by means of a
      private placement restricting the offering or sale to a limited number of
      prospective purchasers who meet suitability standards the Agent deems
      appropriate and who agree that they are purchasing for their own accounts for
      investment and not with a view to distribution, and the Agent’s acceptance of
      the highest offer obtained therefrom shall be deemed to be a commercially
      reasonable disposition of the Pledged Stock. To the extent permitted by law,
      the
      Agent or its assigns may purchase all or any part of the Pledged Stock and
      any
      purchaser thereof shall thereafter hold the same absolutely free from any right
      or claim of any kind. To the fullest extent permitted by law, the Agent shall
      not be obligated to make any such sale pursuant to notice and may, without
      notice or publication, adjourn any public or private sale by announcement at
      the
      time and place fixed for the sale, and such sale may be held at any time or
      place to which the same may be adjourned. If any of the Pledged Stock is sold
      by
      the Agent upon credit or for future delivery, the Agent shall not be liable
      for
      the failure of the purchaser to pay for same and, in such event, the Agent
      may
      resell such Pledged Stock and the Pledgor shall continue to be liable to the
      Agent for the full amount of the Obligations to the extent the Agent does not
      receive full and final payment in cash therefor.

     

    
      
         

      

      
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    (c)  Except
      as
      otherwise provided in the Loan Agreement or by applicable law, the Agent shall
      have the sole right to determine the order in which Obligations shall be deemed
      discharged by the application of the proceeds of Pledged Stock or any other
      property or money held hereunder or any amount realized thereon.

     

    ARTICLE
      3

     

    REPRESENTATIONS
      AND WARRANTIES

     

    The
      Pledgor represents and warrants to the Agent that:

     

    3.1  CAPITALIZATION;
      GOOD TITLE

     

    (a)  All
      shares of Pledged Stock are fully paid, duly and properly issued, nonassessable
      and owned by the Pledgor free and clear of any lien or encumbrance of any kind
      whatsoever, excepting those herein granted to the Agent hereunder and in
      connection with the June Bridge Loan Agreement, the September Bridge Loan
      Agreement and the November Bridge Loan Agreement and those granted to the
      holders of the Senior Note. The Pledged Stock constitutes all of the outstanding
      securities of any class or kind of the Subsidiary.

     

    (b)  Except
      in
      the case of the liens granted to the holders of the Senior Note and the June
      Bridge Loan lenders, the September Bridge Loan lenders and the November Bridge
      Loan lenders, no effective financing statement or other instrument similar
      in
      effect covering all or any part of the Pledged Collateral is on file in any
      recording office.

     

    3.2  VALID
      SECURITY INTEREST

     

    The
      pledge of the Pledged Collateral pursuant to this Agreement creates a valid
      and
      perfected first-priority security interest, securing the payment of the
      Obligations, and all filings and other actions necessary or desirable to perfect
      and protect such security interest having been duly made or taken.

     

    
      
         

      

      
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    3.3  CONSENTS

     

    Except
      for the consent of the holders of the Senior Note, the June Bridge Loan lenders,
      the September Bridge Loan lenders and the November Bridge Loan lenders, no
      authorization, approval or other action by, and no notice to or filing with,
      any
      governmental authority or regulatory body is required for (a) the pledge by
      the
      Pledgor of the Pledged Collateral pursuant to this Agreement, the grant by
      the
      Pledgor of the assignment or security interest granted hereby or the execution,
      delivery or performance of this Agreement by the Pledgor, (b) the perfection
      of
      or exercise by the Agent of its rights and remedies provided for in this
      Agreement, or (c) the exercise by the Agent of the voting or other rights
      provided for in this Agreement or the remedies in respect of the Pledged
      Collateral pursuant to this Agreement (except as may be required in connection
      with a judicial foreclosure, if applicable, or the disposition of the Pledged
      Stock by laws affecting the offering and sale of securities
      generally).

     

    3.4  AUTHORIZATION;
      ENFORCEABILITY

     

    The
      Pledgor has full right, power and authority to enter into this Agreement and
      to
      grant the security interest in the Pledged Collateral made hereby, and this
      Agreement constitutes the legal, valid and binding obligation of the Pledgor
      enforceable against the Pledgor in accordance with its terms, except as the
      enforceability thereof may be (a) limited by bankruptcy, insolvency,
      reorganization, moratorium or similar laws affecting the enforceability of
      creditors’ rights generally, and (b) subject to general principles of equity
      (regardless of whether such enforceability is considered in a proceeding in
      equity or at law).

     

    3.5  NO
      CONFLICT

     

    The
      execution, delivery and performance by the Pledgor of this Agreement will not
      result in any violation, conflict with, or result in a breach of any of the
      terms of, or constitute a default under, any agreements, contracts, court orders
      or consent decrees, the Certificate of Incorporation or the By-laws, as amended,
      of the Pledgor.

     

    ARTICLE
      4

     

    Indemnity
      and Expenses

     

    4.1  INDEMNITY

     

    The
      Pledgor agrees to and hereby indemnifies the Agent and each of the Lenders
      from
      and against any and all Losses arising out of, or in connection with, or
      resulting from this Agreement (including, without limitation, enforcement of
      this Agreement) unless resulting from or arising out of the gross negligence
      or
      willful misconduct of the Agent or such Lender.

     

    
      
         

      

      
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    4.2  EXPENSES

     

    The
      Pledgor agrees promptly upon the Agent’s or such Lender’s demand to pay or
      reimburse the Agent or such Lender for all reasonable expenses (including,
      without limitation, reasonable fees and disbursements of counsel) incurred
      by
      the Agent or such Lender in connection with (a) any modification or amendment
      to
      or waiver of any provision of this Agreement requested by the Pledgor, (b)
      the
      custody or preservation of the Pledged Collateral, (c) any actual or attempted
      sale or exchange of, or any enforcement, collection, compromise or settlement
      respecting, the Pledged Collateral or any other property or money held hereunder
      or any other action taken by the Agent or such Lender hereunder reasonably
      necessary to enforce its rights, whether directly or as attorney-in-fact
      pursuant to the power of attorney herein conferred, or (d) the failure by the
      Pledgor to perform or observe any of the provisions hereof. All such expenses
      shall be deemed a part of the Obligations for all purposes of this Agreement
      and
      the Agent may apply the Pledged Collateral or any other property or money held
      hereunder to payment of or reimbursement for such expenses after notice and
      demand to the Pledgor.

     

    ARTICLE
      5

     

    MISCELLANEOUS

     

    5.1  AGENT
      MAY PERFORM

     

    If
      the
      Pledgor fails to perform any representation, warranty, covenant or agreement
      required to be performed by it contained herein, the Agent may, but shall not
      be
      obligated to, perform, or cause performance of, such representation, warranty,
      covenant or agreement, and the out-of-pocket expenses of the Agent incurred
      in
      connection therewith shall be payable by the Pledgor.

     

    5.2  WAIVERS
      AND AMENDMENT

     

    The
      rights and remedies given hereby are in addition to all others however arising,
      but it is not intended that any right or remedy be exercised in any jurisdiction
      in which such exercise would be prohibited by law. No action, failure to act
      or
      knowledge of the Agent shall be deemed to constitute a waiver of any power,
      right or remedy hereunder, nor shall any single or partial exercise thereof
      preclude any further exercise thereof or the exercise of any other power, right
      or remedy. Any right or power of the Agent hereunder in respect of the Pledged
      Collateral and any other property or money held hereunder may at the option
      of
      the Agent be exercised as to all or any part of the same and the term the
“Pledged Collateral” wherever used herein, unless the context clearly requires
      otherwise, shall be deemed to mean (and shall be read as) “the Pledged
      Collateral and any other property or money held hereunder or any part thereof.”
This Agreement shall not be amended nor shall any right hereunder be deemed
      waived except by a written agreement expressly setting forth the amendment
      or
      waiver and signed by the Agent.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    5.3  CONTINUING
      SECURITY INTEREST; ASSIGNMENTS OF SECURED DEBT

     

    This
      Agreement shall create a continuing security interest having priority over
      any
      and all security interests in the Pledged Collateral and shall (a) remain in
      full force and effect, (b) be binding upon the Pledgor, and the Pledgor’s
      successors and assigns, and upon the Subsidiary, and their successors and
      assigns, and (c) inure, together with the rights and remedies of the Agent
      and
      the Lenders hereunder, to the benefit of the Agent, its successors and permitted
      assigns. Without limiting the generality of the foregoing clause (c), the Agent
      may assign or otherwise transfer all or any portion of its rights and
      obligations under this Agreement to any other Person, to the extent and in
      the
      manner provided in the Loan Agreement and such other Person shall thereupon
      become vested with all the benefits in respect hereof granted to the Agent
      herein; the Agent shall, however, retain all of its rights and powers with
      respect to any part of the Pledged Collateral not transferred. Any agent or
      nominee of the Agent shall have the benefit of this Agreement as if named herein
      and may exercise all the rights and powers given to the Agent
      hereunder.

     

    5.4  GOVERNING
      LAW; CONSENT TO JURISDICTION

     

    (a)  This
      Agreement and the rights of the parties hereunder shall be governed in all
      respects by the laws of the State of New York wherein the terms of this
      Agreement were negotiated, excluding to the greatest extent permitted by law
      any
      rule of law that would cause the application of the laws of any jurisdiction
      other than the State of New York.

     

    (b)  Each
      of
      the parties hereto hereby irrevocably and unconditionally submits, for itself
      and its property, to the nonexclusive jurisdiction of any New York State court
      or United States Federal court sitting in New York City, and any appellate
      court
      from any thereof, in any action or proceeding arising our of or relating to
      this
      Agreement or any of the other Transaction Documents to which it is a party,
      or
      for recognition or enforcement of any judgment, and each of the parties hereto
      irrevocably and unconditionally agrees that all claims in respect of any such
      action or proceeding may be heard and determined in any such New York State
      court or, to the fullest extent permitted by law, in such United States Federal
      court. Each of the parties hereto agrees that a final judgment in any such
      action or proceeding shall be conclusive and may be enforced in other
      jurisdictions by suit on the right that any party may otherwise have to bring
      any action or proceeding relating to this Agreement or any of the other
      Transaction Documents in the courts of any other jurisdiction. 

     

    (c)  Each
      of
      the parties hereto irrevocably and unconditionally waives, to the fullest extent
      it may legally and effectively do so, any objection that it may now or hereafter
      have to the laying of venue of any suit, action or proceeding arising out of
      or
      in relation to this Agreement or any other Transaction Document to which it
      is a
      party in any such New York State or United States Federal court sitting in
      New
      York City. Each of the parties hereto hereby irrevocably waives, to the fullest
      extent permitted by law, the defense of an inconvenient forum to the maintenance
      of such action or proceeding in any such court.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    5.5  NOTICES

     

    All
      notices hereunder shall be in writing (except only as otherwise provided in
      Section 5.2) and shall be conclusively deemed to have been received and shall
      be
      effective (a) on the day on which delivered if delivered personally (including
      delivery by courier or overnight mail providing evidence of delivery), or
      transmitted by telex or telegram or telecopier with transmission confirmed,
      or
      (b) five (5) days after the date on which the same is deposited in the United
      States mail (certified or registered if required under Section 5.4), with
      postage prepaid and properly addressed, and any notice mailed shall be
      addressed:

     

    (a) 
 in
      the
      case of the Pledgor, to:

     

    Acura
      Pharmaceuticals, Inc.

    616
      N.
      North Court, Suite 120

    Palatine,
      Illinois 60067

    Telecopier
      No.: (847) 705-5399

    

    with
      copies to:

    

    St.
      John
& Wayne

    2
      Penn
      Plaza East

    Newark,
      New Jersey 07105

    Attention:
      John P. Reilly, Esq.

    Telephone
      No.: (973) 491-3600

    Telecopier
      No.: (973) 491-3555

    

    (b) 
 in
      the
      case of the Agent, to:

     

    Galen
      Partners III, L.P.

    610
      Fifth
      Avenue, Fifth Floor

    New
      York,
      NY 10020

    Telecopier
      No.: (212) 218-4999

    Attention:
      Bruce F. Wesson

    with
      a
      copies to:

    

    Blank
      Rome, LLP

    Chrysler
      Building

    405
      Lexington Avenue

    New
      York,
      New York 10174

    Attention:
      George N. Abrahams, Esq.

    Telephone
      No.: (212) 885-5207

    Telecopier
      No.: (917) 332-3763

    

    or
      at
      such other address as the party giving such notice shall have been advised
      of in
      writing for such purpose by the party to whom or to which the same is
      directed.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    5.6  SEVERABILITY;
      ENTIRE AGREEMENT

     

    (a)  If
      any
      provision of this Agreement shall be invalid, illegal, or unenforceable in
      any
      jurisdiction, the validity, legality or enforceability of any such provision
      in
      any other jurisdiction shall not be affected or impaired, and to the extent
      any
      provision is held invalid, illegal or unenforceable, then such provision shall
      be deemed severable from, and shall in no way affect the validity or
      enforceability of the remaining provisions of this Agreement.

     

    (b)  This
      Agreement, together with the other Transaction Documents, constitutes the entire
      agreement of the Pledgor and replaces any other or prior agreements or
      undertakings, with respect to the subject matter hereof, and there are no other
      agreements or undertakings, oral or written, respecting such subject matter
      which are intended to have any force or effect after the execution
      hereof.

     

    5.7  SUCCESSORS
      AND ASSIGNS; HEADINGS

     

    This
      Agreement shall be binding upon and shall inure to the benefit of the Pledgor
      and the Agent and their respective successors and permitted assigns. Section
      headings used herein are for convenience only and shall not affect the meaning
      or construction of any of the provisions hereof.

     

    5.8  COUNTERPARTS

     

    This
      Agreement may be executed in any number of counterparts, including by facsimile
      copy, each executed counterpart constituting an original but all counterparts
      together constituting only one instrument.

     

    5.9  FURTHER
      ASSURANCES

     

    Pledgor
      shall execute, in a proper and timely manner, at or after the date hereof,
      such
      additional documents and instruments as may be reasonably requested by the
      Agent
      in connection with the consummation or confirmation of the transactions
      contemplated by this Agreement.

     

    5.10  NO
      ASSIGNMENT

     

    This
      Agreement may not be assigned by the Pledgor without the prior express written
      consent of the Agent.

     

    5.11  WAIVERS
      OF JURY TRIAL

     

    THE
      PLEDGOR AND, BY ITS ACCEPTANCE HEREOF, THE AGENT HEREBY IRREVOCABLY WAIVE ALL
      RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
      ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY TRANSACTION
      DOCUMENT OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION,
      PERFORMANCE OR ENFORCEMENT THEREOF.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    5.12  WAIVERS
      OF CONSEQUENTIAL DAMAGES

     

    NEITHER
      THE PLEDGOR, THE AGENT OR ANY LENDER, NOR ANY EMPLOYEE, AGENT OR ATTORNEY OF
      ANY
      OF THEM, SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES ARISING FROM
      ANY
      BREACH OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS AGREEMENT OR THE
      ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF THE OBLIGATIONS, EXCEPT FOR
      BAD
      FAITH.

     

    5.13  LIMITATION
      OF LIABILITY

     

    THE
      AGENT
      AND THE LENDERS SHALL NOT HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER SOUNDING
      IN
      TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION
      WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS
      CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
      CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
      JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR LENDER, AS APPLICABLE, THAT
      THE
      LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
      WILLFUL MISCONDUCT.

     

    

    

    [SIGNATURE
      PAGE TO FOLLOW]

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the Pledgor has caused this Stock Pledge Agreement to be
      executed by its duly authorized officer as of the date first written
      above.

     

    
      	 	 	 
	 	ACURA
              PHARMACEUTICALS, INC.
	 
 	 
 	 
 
	 	By:  	/s/ Andrew
              D.
              Reddick
	 	
              
Name:
              Andrew D. Reddick
	 	Title:
              President and Chief Executive Officer

    

    

    Accepted
      and Agreed to:

    

    GALEN
      PARTNERS III, L.P.

    on
      behalf
      of itself and as Agent

    By:
      Claudius, L.L.C, General Partner

    610
      Fifth
      Avenue, 5th
      Fl.

    New
      York,
      New York 10019

    

    

    By:  /s/
      Bruce F. Wesson    

    Name:
      Bruce F. Wesson, its General Partner

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

    SCHEDULE
      A

    

    

    Designation
      and Number of

    shares
      of
      capital stock owned by Pledgor

    

    

    

    
      	
               

               

              Issuer

            	
               

               

               Certificate
                No.

            	
               

               

              Designation

            	
               

              Number
                of Shares

            
	
               

              Acura
                Pharmaceutical Technologies, Inc.

            	
               

              1

            	
               

              Common
                Stock, $.01 par value

            	
               

              100SECURITIES
      PURCHASE AGREEMENT

     

    Securities
      Purchase Agreement dated as of January 24, 2006 (this “Agreement”)
      by and
      between Infinium Labs, Inc., a Delaware corporation, with principal executive
      offices located at 1191 Second Avenue, 5th
      Floor,
      Seattle, Washington 98101 (the “Company”),
      and
      Golden Gate Investors, Inc. (“Holder”).
      

     

    WHEREAS,
      Holder desires to purchase from the Company, and the Company desires to issue
      and sell to Holder, upon the terms and subject to the conditions of this
      Agreement, a Convertible Debenture of the Company in the aggregate principal
      amount of $500,000 (the “Debenture”);
      and

     

    WHEREAS,
      in conjunction with the Debenture, the Company has issued a Warrant to Purchase
      Common Stock to the Holder (the “Warrant”);
      and

     

    WHEREAS,
      upon the terms and subject to the conditions set forth in the Debenture and
      the
      Warrant, the Debenture and Warrant are convertible and exercisable,
      respectively, into shares of the Company’s Common Stock (the “Common
      Stock”).

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants contained
      herein, the parties hereto, intending to be legally bound, hereby agree as
      follows:

     

    
      	I.          
               	
              PURCHASE
                AND SALE OF DEBENTURE

            

    

     

    A.  Transaction.
      Holder
      hereby agrees to purchase from the Company, and the Company has offered and
      hereby agrees to issue and sell to Holder in a transaction exempt from the
      registration and prospectus delivery requirements of the Securities Act of
      1933,
      as amended (the “Securities
      Act”),
      the
      Debenture.

     

    B.  Purchase
      Price; Form of Payment.
      The
      purchase price for the Debenture to be purchased by Holder hereunder shall
      be
      $500,000 (the “Purchase
      Price”).
      Simultaneously with the execution of this Agreement, Holder shall pay the
      Purchase Price by wire transfer of immediately available funds to the Company.
      Simultaneously with the execution of this Agreement, the Company shall deliver
      the Convertible Debenture and the Warrants (which shall have been duly
      authorized, issued and executed I/N/O Holder or, if the Company otherwise has
      been notified, I/N/O Holder’s nominee). 

     

    
      	II.          
               	
              HOLDER’S
                REPRESENTATIONS AND
                WARRANTIES

            

    

     

    Holder
      represents and warrants to and covenants and agrees with the Company as
      follows:

     

    1.  Holder
      is
      purchasing the Debenture and the Common Stock issuable upon conversion or
      redemption of the Debenture (the “Conversion
      Shares”
and,
      collectively with the Debenture and the Warrant Shares, the “Securities”)
      for
      its own account, for investment purposes only and not with a view towards or
      in
      connection with the public sale or distribution thereof in violation of the
      Securities Act.

     

    
      
        	_______ 	
                 _______

              
	Initials 	
                 Initials

              

      

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    2.  Holder
      is
      (i) an “accredited investor” within the meaning of Rule 501 of Regulation D
      under the Securities Act, (ii) experienced in making investments of the kind
      contemplated by this Agreement, (iii) capable, by reason of its business and
      financial experience, of evaluating the relative merits and risks of an
      investment in the Securities, and (iv) able to afford the loss of its investment
      in the Securities.

     

    3.  Holder
      understands that the Securities are being offered and sold by the Company in
      reliance on an exemption from the registration requirements of the Securities
      Act and equivalent state securities and “blue sky” laws, and that the Company is
      relying upon the accuracy of, and Holder’s compliance with, Holder’s
      representations, warranties and covenants set forth in this Agreement to
      determine the availability of such exemption and the eligibility of Holder
      to
      purchase the Securities;

     

    4.  Holder
      understands that the Securities have not been approved or disapproved by the
      Commission or any state or provincial securities commission.

     

    5.  This
      Agreement has been duly and validly authorized, executed and delivered by Holder
      and is a valid and binding agreement of Holder enforceable against it in
      accordance with its terms, subject to applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium and similar laws affecting
      creditors’ rights and remedies generally and except as rights to indemnity and
      contribution may be limited by federal or state securities laws or the public
      policy underlying such laws.

     

    
      	III.  	
              THE
                COMPANY’S REPRESENTATIONS

            

    

     

    The
      Company represents and warrants to Holder, as of the Closing Date, that, except
      as provided in Exhibit 1 or the Company’s Commission Filings:

     

    A.  Capitalization.

     

    1.  The
      authorized capital stock of the Company consists of 600,000,000 shares of Common
      Stock of which, as of December 31, 2005, 398,000,000 shares are issued and
      outstanding as of the date hereof and are fully paid and nonassessable. The
      amount, exercise, conversion or subscription price and expiration date for
      each
      outstanding option and other security or agreement to purchase shares of Common
      Stock is accurately set forth on Schedule
      II.A.1 or in the Company’s Commission Filings.

     

    2.  The
      Conversion Shares and the Warrant Shares have been duly and validly authorized
      and reserved for issuance by the Company, and, when issued by the Company upon
      conversion of the Debenture, will be duly and validly issued, fully paid and
      nonassessable and will not subject the holder thereof to personal liability
      by
      reason of being such holder.

     

    3.  Except
      as
      disclosed on Schedule II.A.3
      or in the Company’s Commission Filings.,
      there
      are no preemptive, subscription, “call,” right of first refusal or other similar
      rights to acquire any capital stock of the Company or other voting securities
      of
      the Company that have been issued or granted to any person and no other
      obligations of the Company to issue, grant, extend or enter into any security,
      option, warrant, “call,” right, commitment, agreement, arrangement or
      undertaking with respect to any of their respective capital stock. 
       

      
        
          	_______ 	
                   _______

                
	Initials 	
                   Initials

                

        

      

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    B.  Organization;
      Reporting Company Status.

     

    1.  The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the state or jurisdiction in which it is incorporated and
      is
      duly qualified as a foreign corporation in all jurisdictions in which the
      failure so to qualify would reasonably be expected to have a material adverse
      effect on the business, properties, prospects, condition (financial or
      otherwise) or results of operations of the Company or on the consummation of
      any
      of the transactions contemplated by this Agreement (a “Material
      Adverse Effect”).

     

    2.  The
      Company is subject to the reporting requirements of the Securities Exchange
      Act
      of 1934, as amended (the “Exchange
      Act”).
      The
      Common Stock is traded on the OTC Bulletin Board service of the National
      Association of Securities Dealers, Inc. (“OTCBB”)
      and
      the Company has not received any notice regarding, and to its knowledge there
      is
      no threat of, the termination or discontinuance of the eligibility of the Common
      Stock for such trading.

     

    C.  Authorization.
      The
      Company (i) has duly and validly authorized and reserved for issuance shares
      of
      Common Stock, which is a number sufficient for the conversion of the Debenture
      and the exercise of the Warrant and (ii) at all times from and after the date
      hereof shall have a sufficient number of shares of Common Stock duly and validly
      authorized and reserved for issuance to satisfy the conversion of the Debenture
      in full and the exercise of the Warrant. The Company understands and
      acknowledges the potentially dilutive effect on the Common Stock of the issuance
      of the Conversion Shares and the Warrant Shares. The Company further
      acknowledges that its obligation to issue Conversion Shares upon conversion
      of
      the Debenture and the exercise of the Warrant in accordance with this Agreement
      is absolute and unconditional regardless of the dilutive effect that such
      issuance may have on the ownership interests of other stockholders of the
      Company and notwithstanding the commencement of any case under 11 U.S.C.
§ 101 et
      seq.
      (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 conversion of the Debenture. The
      Company agrees, without cost or expense to Holder, to take or consent to any
      and
      all action necessary to effectuate relief under 11 U.S.C.
§ 362.

     

    D.  Authority;
      Validity and Enforceability.
      The
      Company has the requisite corporate power and authority to enter into the
      Documents (as such term is hereinafter defined) and to perform all of its
      obligations hereunder and thereunder (including the issuance, sale and delivery
      to Holder of the Securities). The execution, delivery and performance by the
      Company of the Documents and the consummation by the Company of the transactions
      contemplated hereby and thereby (including, without limitation, the issuance
      of
      the Debenture and the issuance and reservation for issuance of the Conversion
      Shares and the Warrant Shares) have been duly and validly authorized by all
      necessary corporate action on the part of the Company. Each of the Documents
      has
      been duly and validly executed and delivered by the Company and each Document
      constitutes a valid and binding obligation of the Company enforceable against
      it
      in accordance with its terms, subject to applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium and similar laws affecting
      creditors’ rights and remedies generally and except as rights to indemnity and
      contribution may be limited by federal or state securities laws or the public
      policy underlying such laws. The Securities have been duly and validly
      authorized for issuance by the Company and, when executed and delivered by
      the
      Company, will be valid and binding obligations of the Company enforceable
      against it in accordance with their respective terms, subject to applicable
      bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
      similar laws affecting creditors’ rights and remedies generally. For purposes of
      this Agreement, the term “Documents”
means
      (i) this Agreement; (ii) the Registration Rights Agreement dated as of even
      date
      herewith between the Company and Holder; (iii) the Debenture; and (iv) the
      Warrant. 
       

      
        
          	_______ 	
                   _______

                
	Initials 	
                   Initials

                

        

      

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    E.  Validity
      of Issuance of the Securities.
      The
      Debenture, the Conversion Shares upon their issuance in accordance with the
      Debenture, and the Warrant Shares will be validly issued and outstanding, fully
      paid and nonassessable, and not subject to any preemptive rights, rights of
      first refusal, tag-along rights, drag-along rights or other similar
      rights.

     

    F.  Non-contravention.
      The
      execution and delivery by the Company of the Documents, the issuance of the
      Securities, and the consummation by the Company of the other transactions
      contemplated hereby and thereby do not, and compliance with the provisions
      of
      this Agreement and other Documents will not, conflict with, or result in any
      violation of, or default (with or without notice or lapse of time, or both)
      under, or give rise to a right of termination, cancellation or acceleration
      of
      any obligation or loss of a material benefit under, or result in the creation
      of
      any Lien (as such term is hereinafter defined) upon any of the properties or
      assets of the Company or any of its Subsidiaries under, or result in the
      termination of, or require that any consent be obtained or any notice be given
      with respect to (i) the Articles or Certificate of Incorporation or By-Laws
      of
      the Company or the comparable charter or organizational documents of any of
      its
      Subsidiaries, in each case as amended to the date of this Agreement, (ii) any
      loan or credit agreement, Debenture, bond, mortgage, indenture, lease, contract
      or other agreement, instrument or permit applicable to the Company or any of
      its
      Subsidiaries or their respective properties or assets or (iii) any Law (as
      such
      term is hereinafter defined) applicable to, or any judgment, decree or order
      of
      any court or government body having jurisdiction over, the Company or any of
      its
      Subsidiaries or any of their respective properties or assets.

     

    G.  Approvals.
      No
      authorization, approval or consent of any court or public or governmental
      authority is required to be obtained by the Company for the issuance and sale
      of
      the Securities to Holder as contemplated by this Agreement, except such
      authorizations, approvals and consents as have been obtained by the Company
      prior to the date hereof.

     

    H.  Commission
      Filings.
      The
      Company has properly and timely filed with the Commission all reports, proxy
      statements, forms and other documents required to be filed with the Commission
      under the Securities Act and the Exchange Act since becoming subject to such
      Acts (the “Commission
      Filings”).
      As of
      their respective dates, (i) the Commission Filings complied in all material
      respects with the requirements of the Securities Act or the Exchange Act, as
      the
      case may be, and the rules and regulations of the Commission promulgated
      thereunder applicable to such Commission Filings and (ii) none of the Commission
      Filings contained at the time of its filing any untrue statement of a material
      fact or omitted to state a material fact required to be stated therein or
      necessary in order to make the statements therein, in light of the circumstances
      under which they were made, not misleading. The financial statements of the
      Company included in the Commission Filings, as of the dates of such documents,
      were true and complete in all material respects and complied with applicable
      accounting requirements and the published rules and regulations of the
      Commission with respect thereto, were prepared in accordance with generally
      accepted accounting principles in the United States (“GAAP”)
      (except in the case of unaudited statements permitted by Form 10-Q under the
      Exchange Act) applied on a consistent basis during the periods involved (except
      as may be indicated in the notes thereto) and fairly presented the consolidated
      financial position of the Company and its Subsidiaries as of the dates thereof
      and the consolidated results of their operations and cash flows for the periods
      then ended (subject, in the case of unaudited statements, to normal year-end
      audit adjustments that in the aggregate are not material and to any other
      adjustment described therein). 
       

      
        
          	_______ 	
                   _______

                
	Initials 	
                   Initials

                

        

      

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    I.  Full
      Disclosure.
      There is
      no fact known to the Company (other than general economic or industry conditions
      known to the public generally) that has not been fully disclosed in the
      Commission Filings that (i) reasonably could be expected to have a Material
      Adverse Effect or (ii) reasonably could be expected to materially and
      adversely affect the ability of the Company to perform its obligations pursuant
      to the Documents.

     

    J.  Absence
      of Events of Default.
      No
“Event
      of Default”
(as
      defined in any agreement or instrument to which the Company is a party) and
      no
      event which, with notice, lapse of time or both, would constitute an Event
      of
      Default (as so defined), has occurred and is continuing.

     

    K.  Securities
      Law Matters.
      Assuming
      the accuracy of the representations and warranties of Holder set forth in
      Article I.C, the offer and sale by the Company of the Securities is exempt
      from
      (i) the registration and prospectus delivery requirements of the Securities
      Act
      and the rules and regulations of the Commission thereunder and (ii) the
      registration and/or qualification provisions of all applicable state and
      provincial securities and “blue sky” laws. The Company shall not directly or
      indirectly take, and shall not permit any of its directors, officers or
      Affiliates directly or indirectly to take, any action (including, without
      limitation, any offering or sale to any person or entity of any security similar
      to the Debenture) which will make unavailable the exemption from Securities
      Act
      registration being relied upon by the Company for the offer and sale to Holder
      of the Debenture, the Conversion Shares and the Warrant Shares as contemplated
      by this Agreement. No form of general solicitation or advertising has been
      used
      or authorized by the Company or any of its officers, directors or Affiliates
      in
      connection with the offer or sale of the Debenture (and the Conversion Shares)
      as contemplated by this Agreement or any other agreement to which the Company
      is
      a party.

     

    L.  Registration
      Rights.
      Except
      as set forth on Schedule II.L.,
      no
      Person has, and as of the Closing (as such term is hereinafter defined), no
      Person shall have, any demand, “piggy-back” or other rights to cause the Company
      to file any registration statement under the Securities Act relating to any
      of
      its securities or to participate in any such registration
      statement.

     

    M.  Interest.
      The
      timely payment of interest on the Debenture is not prohibited by the Articles
      or
      Certificate of Incorporation or By-Laws of the Company, in each case as amended
      to the date of this Agreement, or any agreement, contract, document or other
      undertaking to which the Company is a party. 
       

      
        
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    N.  No
      Misrepresentation.
      No
      representation or warranty of the Company contained in this Agreement or any
      of
      the other Documents, any schedule, annex or exhibit hereto or thereto or any
      agreement, instrument or certificate furnished by the Company to Holder pursuant
      to this Agreement contains any untrue statement of a material fact or omits
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading.

     

    O.  Finder’s
      Fee.
      Except
      for a 3% cash and stock fee to Falcon Financial Group, there is no finder’s fee,
      brokerage commission or like payment in connection with the transactions
      contemplated by this Agreement for which Holder is liable or
      responsible.

     

    
      	IV.         
               	
              CERTAIN
                COVENANTS AND
                ACKNOWLEDGMENTS

            

    

     

    A.  Filings.
      The
      Company shall make all necessary Commission Filings and “blue sky” filings
      required to be made by the Company in connection with the sale of the Securities
      to Holder as required by all applicable laws, and shall provide a copy thereof
      to Holder promptly after such filing.

     

    B.  Reporting
      Status.
      So long
      as Holder beneficially owns any of the Securities, the Company shall timely
      file
      all reports required to be filed by it with the Commission pursuant to Section
      13 or 15(d) of the Exchange Act.

     

    C.  Listing.
      Except
      to the extent the Company lists its Common Stock on The New York Stock Exchange,
      The American Stock Exchange or The Nasdaq Stock Market, the Company shall use
      its best efforts to maintain its listing of the Common Stock on OTCBB. If the
      Common Stock is delisted from OTCBB, the Company will use its best efforts
      to
      list the Common Stock on the most liquid national securities exchange or
      quotation system that the Common Stock is qualified to be listed
      on.

     

    D.  Reserved
      Conversion Common Stock.
      The
      Company will initially reserve 50,000,000 shares of Common Stock until it
      receives shareholder approval to increase its authorized shares. The Company
      at
      all times from and after the date thereof shall have such number of shares
      of
      Common Stock duly and validly authorized and reserved for issuance as shall
      be
      sufficient for the conversion in full of the Debenture and the exercise of
      the
      Warrant.

     

    E.  Information.
      Each of
      the parties hereto acknowledges and agrees that Holder shall not be provided
      with, nor be given access to, any material non-public information relating
      to
      the Company.

     

    F.  Accounting
      and Reserves.
      The
      Company shall maintain a standard and uniform system of accounting and shall
      keep proper books and records and accounts in which full, true, and correct
      entries shall be made of its transactions, all in accordance with GAAP applied
      on consistent basis through all periods, and shall set aside on such books
      for
      each fiscal year all such reserves for depreciation, obsolescence, amortization,
      bad debts and other purposes in connection with its operations as are required
      by such principles so applied.

     

    G.  Transactions
      with Affiliates.
      So long
      as the Debenture is outstanding, neither the Company nor any of its Subsidiaries
      shall, directly or indirectly, enter into any material transaction or agreement
      with any stockholder, officer, director or Affiliate of the Company or family
      member of any officer, director or Affiliate of the Company, unless the
      transaction or agreement is (i) reviewed and approved by a majority of
      Disinterested Directors (as such term is hereinafter defined) and (ii) on
      terms no less favorable to the Company or the applicable Subsidiary than those
      obtainable from a nonaffiliated person. A “Disinterested
      Director”
shall
      mean a director of the Company who is not and has not been an officer or
      employee of the Company and who is not a member of the family of, controlled
      by
      or under common control with, any such officer or employee. 
       

      
        
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    H.  Certain
      Restrictions.
      So long
      as the Debenture is outstanding, no dividends shall be declared or paid or
      set
      apart for payment nor shall any other distribution be declared or made upon
      any
      capital stock of the Company, nor shall any capital stock of the Company be
      redeemed, purchased or otherwise acquired (other than a redemption, purchase
      or
      other acquisition of shares of Common Stock made for purposes of an employee
      incentive or benefit plan (including a stock option plan) of the Company or
      pursuant to any of the security agreements listed on Schedule
      III.H)
      for any
      consideration by the Company, directly or indirectly, nor shall any moneys
      be
      paid to or made available for a sinking fund for the redemption of any Common
      Stock.

     

    I. Short
      Selling.  So
      long
      as the Debenture is outstanding, Holder agrees and covenants on its behalf
      and
      on behalf of its affiliates that neither Holder nor its affiliates shall at
      any
      time engage in any short sales with respect to the Company’s Common Stock, or
      sell put options or similar instruments with respect to the Company’s Common
      Stock. The parties acknowledge that Holder shall be entitled to sell the Common
      Stock from each Debenture conversion and Warrant exercise immediately upon
      submission of the applicable Debenture Conversion Notice and Warrant Notice
      of
      Exercise, and payment of the purchase price, to the Company for such Common
      Stock.

     

    
      	V.  	
              ISSUANCE
                OF COMMON STOCK 

            

    

     

    A.  The
      Company undertakes and agrees that no instruction other than the instructions
      referred to in this Article V and customary stop transfer instructions prior
      to
      the registration and sale of the Common Stock pursuant to an effective
      Securities Act registration statement shall be given to its transfer agent
      for
      the Conversion Shares and the Warrant Shares and that the Conversion Shares
      and
      the Warrant Shares shall otherwise be freely transferable on the books and
      records of the Company as and to the extent provided in this Agreement, the
      Registration Rights Agreement and applicable law. Nothing contained in this
      Section V.A. shall affect in any way Holder’s obligations and agreement to
      comply with all applicable securities laws upon resale of such Common Stock.
      

     

    B.  Holder
      shall have the right to convert the Debenture and exercise the Warrant by
      telecopying an executed and completed Conversion Notice (as such term is defined
      in the Debenture) or Warrant Notice of Exercise (as such term is defined in
      the
      Warrant) to the Company. Each date on which a Conversion Notice or Warrant
      Notice of Exercise is telecopied to and received by the Company in accordance
      with the provisions hereof shall be deemed a Conversion Date (as such term
      is
      defined in the Debenture). The Company shall cause the transfer agent to
      transmit the certificates evidencing the Common Stock issuable upon conversion
      of the Debenture (together with a new debenture, if any, representing the
      principal amount of the Debenture not being so converted) or exercise of the
      Warrant (together with a new Warrant, if any, representing the amount of the
      Warrant not being so exercised) to Holder via express courier, or if a
      Registration Statement covering the Common Stock has been declared effective
      by
      the SEC by electronic transfer, within three (3) business days after receipt
      by
      the Company of the Conversion Notice or Warrant Notice of Exercise (the
“Delivery
      Date”).
      
       

      
        
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    C.  Upon
      the
      conversion of the Debenture or exercise of the Warrant or part thereof, the
      Company shall, at its own cost and expense, take all necessary action (including
      the issuance of an opinion of counsel) to assure that the Company's transfer
      agent shall issue stock certificates in the name of Holder (or its nominee)
      or
      such other persons as designated by Holder and in such denominations to be
      specified at conversion representing the number of shares of common stock
      issuable upon such conversion or exercise. The Company warrants that the
      Conversion Shares and Warrant Shares will be unlegended, free-trading, and
      freely transferable, and will not contain a legend restricting the resale or
      transferability of the Company Common Stock provided the Conversion Shares
      and
      Warrant Shares are being sold pursuant to an effective registration statement
      covering the Common Stock to be sold or is otherwise exempt from registration
      when sold. 

     

    D.  The
      Company understands that a delay in the delivery of the Common Stock in the
      form
      required pursuant to this section, or the Mandatory Redemption Amount described
      in Section E hereof, beyond the Delivery Date or Mandatory Redemption Payment
      Date (as hereinafter defined) could result in economic loss to the Holder.
      As
      compensation to the Holder for such loss, the Company agrees to pay late
      payments to the Holder for late issuance of Common Stock in the form required
      pursuant to Section E hereof upon Conversion of the Debenture or late payment
      of
      the Mandatory Redemption Amount, in the amount of $100 per business day after
      the Delivery Date or Mandatory Redemption Payment Date, as the case may be,
      for
      each $10,000 of Debenture principal amount being converted or redeemed. The
      Company shall pay any payments incurred under this Section in immediately
      available funds upon demand. Furthermore, in addition to any other remedies
      which may be available to the Holder, in the event that the Company fails for
      any reason to effect delivery of the Common Stock by the Delivery Date or make
      payment by the Mandatory Redemption Payment Date, the Holder will be entitled
      to
      revoke all or part of the relevant Notice of Conversion or rescind all or part
      of the notice of Mandatory Redemption by delivery of a notice to such effect
      to
      the Company whereupon the Company and the Holder shall each be restored to
      their
      respective positions immediately prior to the delivery of such notice, except
      that late payment charges described above shall be payable through the date
      notice of revocation or rescission is given to the Company. 

     

    E.  Mandatory
      Redemption. In the event the Company is prohibited from issuing Common Stock,
      or
      fails to timely deliver Common Stock on a Delivery Date, or upon the occurrence
      of an Event of Default (as defined in the Debenture) or for any reason other
      than pursuant to the limitations set forth herein, or upon the occurrence of
      an
      Event of Default as defined in the Debenture, then at the Holder's election,
      the
      Company must pay to the Holder ten (10) business days after request by the
      Holder or on the Delivery Date (if requested by the Holder) a sum of money
      determined by multiplying up to the outstanding principal amount of the
      Debenture designated by the Holder by 120%, together with accrued but unpaid
      interest thereon ("Mandatory Redemption Payment"). The Mandatory Redemption
      Payment must be received by the Holder on the same date as the Company Common
      Stock otherwise deliverable or within ten (10) business days after request,
      whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of
      the
      Mandatory Redemption Payment, the corresponding Debenture principal and interest
      will be deemed paid and no longer outstanding. 
       

      
        
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    F. 
      Buy-In.
      In addition to any other rights available to the Holder, if the Company fails
      to
      deliver to the Holder such Common Stock issuable upon conversion of a Debenture
      or exercise of a Warrant by the Delivery Date and if ten (10) days after the
      Delivery Date the Holder purchases (in an open market transaction or otherwise)
      shares of Common Stock to deliver in satisfaction of a sale by the Holder of
      the
      Common Stock which the Holder anticipated receiving upon such conversion (a
      "Buy-In"), then the Company shall pay in cash to the Holder (in addition to
      any
      remedies available to or elected by the Holder) the amount by which (A) the
      Holder's total purchase price (including brokerage commissions, if any) for
      the
      shares of Common Stock so purchased exceeds (B) the aggregate principal and/or
      interest amount of the Debenture or Warrant for which such conversion or
      exercise was not timely honored, together with interest thereon at a rate of
      15%
      per annum, accruing until such amount and any accrued interest thereon is paid
      in full (which amount shall be paid as liquidated damages and not as a penalty).
      For example, if the Holder purchases shares of Common Stock having a total
      purchase price of $11,000 to cover a Buy-In with respect to an attempted
      conversion of $10,000 of Debenture or Warrant principal and/or interest, the
      Company shall be required to pay the Holder $1,000, plus interest. The Holder
      shall provide the Company written notice indicating the amounts payable to
      the
      Holder in respect of the Buy-In. 

     

    
      	VI.         
               	
              CLOSING
                DATE

            

    

     

    The
      Closing shall occur by the delivery: (i) to the Holder of the certificate
      evidencing the Debenture and all other Agreements, and (ii) to the Company
      the
      Purchase Price. 

     

    
      	VII.        
               	
              CONDITIONS
                TO THE COMPANY’S
                OBLIGATIONS

            

    

     

    Holder
      understands that the Company’s obligation to sell the Debenture on the Closing
      Date to Holder pursuant to this Agreement is conditioned upon:

     

    A.  Delivery
      by Holder to the Company of the Initial Purchase Price;

     

    B.  The
      accuracy on the Closing Date of the representations and warranties of Holder
      contained in this Agreement as if made on the Closing Date (except for
      representations and warranties which, by their express terms, speak as of and
      relate to a specified date, in which case such accuracy shall be measured as
      of
      such specified date) and the performance by Holder in all material respects
      on
      or before the Closing Date of all covenants and agreements of Holder required
      to
      be performed by it pursuant to this Agreement on or before the Closing Date;
      and

     

    C.  There
      shall not be in effect any law or order, ruling, judgment or writ of any court
      or public or governmental authority restraining, enjoining or otherwise
      prohibiting any of the transactions contemplated by this Agreement. 
       

      
        
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      	VIII.       
               	
              CONDITIONS
                TO HOLDER’S OBLIGATIONS

            

    

     

    The
      Company understands that Holder’s obligation to purchase the Securities on the
      Closing Date pursuant to this Agreement is conditioned upon:

     

    A.  Delivery
      by the Company of the Debenture, the Warrant and the other Agreements (I/N/O
      Holder or I/N/O Holder’s nominee);

     

    B.  The
      accuracy on the Closing Date of the representations and warranties of the
      Company contained in this Agreement as if made on the Closing Date (except
      for
      representations and warranties which, by their express terms, speak as of and
      relate to a specified date, in which case such accuracy shall be measured as
      of
      such specified date) and the performance by the Company in all respects on
      or
      before the Closing Date of all covenants and agreements of the Company required
      to be performed by it pursuant to this Agreement on or before the Closing Date,
      all of which shall be confirmed to Holder by delivery of the certificate of
      the
      chief executive officer of the Company to that effect;

     

    C.  There
      not
      having occurred (i) any general suspension of trading in, or limitation on
      prices listed for, the Common Stock on the OTCBB/Pink Sheet, (ii) the
      declaration of a banking moratorium or any suspension of payments in respect
      of
      banks in the United States, (iii) the commencement of a war, armed hostilities
      or other international or national calamity directly or indirectly involving
      the
      United States or any of its territories, protectorates or possessions or
      (iv) in the case of the foregoing existing at the date of this Agreement, a
      material acceleration or worsening thereof;

     

    D.  There
      not
      having occurred any event or development, and there being in existence no
      condition, having or which reasonably and foreseeably could have a Material
      Adverse Effect;

     

    E.  There
      shall not be in effect any Law, order, ruling, judgment or writ of any court
      or
      public or governmental authority restraining, enjoining or otherwise prohibiting
      any of the transactions contemplated by this Agreement;

     

    F. The
      Company shall have obtained all consents, approvals or waivers from governmental
      authorities and third persons necessary for the execution, delivery and
      performance of the Documents and the transactions contemplated thereby, all
      without material cost to the Company;

     

    G.  Holder
      shall have received such additional documents, certificates, payment,
      assignments, transfers and other deliveries as it or its legal counsel may
      reasonably request and as are customary to effect a closing of the matters
      herein contemplated;

    

    H. Delivery
      by the Company of an enforceability opinion from its outside counsel in form
      and
      substance satisfactory to Holder.

     

    
      	IX.         
               	
              SURVIVAL;
                INDEMNIFICATION

            

    

     

    A.  The
      representations, warranties and covenants made by each of the Company and Holder
      in this Agreement, the annexes, schedules and exhibits hereto and in each
      instrument, agreement and certificate entered into and delivered by them
      pursuant to this Agreement shall survive the Closing and the consummation of
      the
      transactions contemplated hereby. In the event of a breach or violation of
      any
      of such representations, warranties or covenants, the party to whom such
      representations, warranties or covenants have been made shall have all rights
      and remedies for such breach or violation available to it under the provisions
      of this Agreement or otherwise, whether at law or in equity, irrespective of
      any
      investigation made by or on behalf of such party on or prior to the Closing
      Date. 
       

      
        
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    B.  The
      Company hereby agrees to indemnify and hold harmless Holder, its affiliates
      and
      their respective officers, directors, partners and members (collectively, the
      “Holder
      Indemnitees”)
      from
      and against any and all losses, claims, damages, judgments, penalties,
      liabilities and deficiencies (collectively, “Losses”)
      and
      agrees to reimburse Holder Indemnitees for all out-of-pocket expenses (including
      the fees and expenses of legal counsel), in each case promptly as incurred
      by
      Holder Indemnitees and to the extent arising out of or in connection
      with:

     

    1.  any
      misrepresentation, omission of fact or breach of any of the Company’s
      representations or warranties contained in this Agreement or the other
      Documents, or the annexes, schedules or exhibits hereto or thereto or any
      instrument, agreement or certificate entered into or delivered by the Company
      pursuant to this Agreement or the other Documents;

     

    2.  any
      failure by the Company to perform any of its covenants, agreements, undertakings
      or obligations set forth in this Agreement or the other Documents or any
      instrument, certificate or agreement entered into or delivered by the Company
      pursuant to this Agreement or the other Documents;

     

    3.  the
      purchase of the Debenture, the conversion of the Debenture, the payment of
      interest on the Debenture, the issuance of the Warrant Shares, the consummation
      of the transactions contemplated by this Agreement and the other Documents,
      the
      use of any of the proceeds of the Purchase Price by the Company, the purchase
      or
      ownership of any or all of the Securities, the performance by the parties hereto
      of their respective obligations hereunder and under the Documents or any claim,
      litigation, investigation, proceedings or governmental action relating to any
      of
      the foregoing, whether or not Holder is a party thereto; or

     

    4.  resales
      of the Common Stock by Holder in the manner and as contemplated by this
      Agreement and the Registration Rights Agreement.

     

    C.  Holder
      hereby agrees to indemnify and hold harmless the Company, its Affiliates and
      their respective officers, directors, partners and members (collectively, the
      “Company
      Indemnitees”)
      from
      and against any and all Losses, and agrees to reimburse the Company Indemnitees
      for all out-of-pocket expenses (including the fees and expenses of legal
      counsel), in each case promptly as incurred by the Company Indemnitees and
      to
      the extent arising out of or in connection with: 
       

      
        
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    1.  any
      misrepresentation, omission of fact or breach of any of Holder’s representations
      or warranties contained in this Agreement or the other Documents, or the
      annexes, schedules or exhibits hereto or thereto or any instrument, agreement
      or
      certificate entered into or delivered by Holder pursuant to this Agreement
      or
      the other Documents; or

     

    2.  any
      failure by Holder to perform in any material respect any of its covenants,
      agreements, undertakings or obligations set forth in this Agreement or the
      other
      Documents or any instrument, certificate or agreement entered into or delivered
      by Holder pursuant to this Agreement or the other Documents.

     

    D.  Promptly
      after receipt by either party hereto seeking indemnification pursuant to this
      Article VIII (an “Indemnified
      Party”)
      of
      written notice of any investigation, claim, proceeding or other action in
      respect of which indemnification is being sought (each, a “Claim”),
      the
      Indemnified Party promptly shall notify the party against whom indemnification
      pursuant to this Article VIII is being sought (the “Indemnifying
      Party”)
      of the
      commencement thereof, but the omission so to notify the Indemnifying Party
      shall
      not relieve it from any liability that it otherwise may have to the Indemnified
      Party except to the extent that the Indemnifying Party is materially prejudiced
      and forfeits substantive rights or defenses by reason of such failure. In
      connection with any Claim as to which both the Indemnifying Party and the
      Indemnified Party are parties, the Indemnifying Party shall be entitled to
      assume the defense thereof. Notwithstanding the assumption of the defense of
      any
      Claim by the Indemnifying Party, the Indemnified Party shall have the right
      to
      employ separate legal counsel and to participate in the defense of such Claim,
      and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
      and expenses of such separate legal counsel to the Indemnified Party if (and
      only if): (x) the Indemnifying Party shall have agreed to pay such fees,
      out-of-pocket costs and expenses, (y) the Indemnified Party and the
      Indemnifying Party reasonably shall have concluded that representation of the
      Indemnified Party and the Indemnifying Party by the same legal counsel would
      not
      be appropriate due to actual or, as reasonably determined by legal counsel
      to
      the Indemnified Party, potentially differing interests between such parties
      in
      the conduct of the defense of such Claim, or if there may be legal defenses
      available to the Indemnified Party that are in addition to or disparate from
      those available to the Indemnifying Party or (z) the Indemnifying Party
      shall have failed to employ legal counsel reasonably satisfactory to the
      Indemnified Party within a reasonable period of time after notice of the
      commencement of such Claim. If the Indemnified Party employs separate legal
      counsel in circumstances other than as described in clauses (x), (y) or (z)
      above, the fees, costs and expenses of such legal counsel shall be borne
      exclusively by the Indemnified Party. Except as provided above, the Indemnifying
      Party shall not, in connection with any Claim in the same jurisdiction, be
      liable for the fees and expenses of more than one firm of legal counsel for
      the
      Indemnified Party (together with appropriate local counsel). The Indemnifying
      Party shall not, without the prior written consent of the Indemnified Party
      (which consent shall not unreasonably be withheld), settle or compromise any
      Claim or consent to the entry of any judgment that does not include an
      unconditional release of the Indemnified Party from all liabilities with respect
      to such Claim or judgment.

     

    E.  In
      the
      event one party hereunder should have a claim for indemnification that does
      not
      involve a claim or demand being asserted by a third party, the Indemnified
      Party
      promptly shall deliver notice of such claim to the Indemnifying Party. If the
      Indemnified Party disputes the claim, such dispute shall be resolved by mutual
      agreement of the Indemnified Party and the Indemnifying Party or by binding
      arbitration conducted in accordance with the procedures and rules of the
      American Arbitration Association. Judgment upon any award rendered by any
      arbitrators may be entered in any court having competent jurisdiction thereof.
      
       

      
        
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      	X.         
               	
              GOVERNING
                LAW

            

    

     

    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of California, without regard to the conflicts of law principles
      of
      such state.

     

    
      	XI.        
               	
              SUBMISSION
                TO JURISDICTION

            

    

     

    Each
      of
      the parties hereto consents to the exclusive jurisdiction of the federal courts
      whose districts encompass any part of the City of San Diego or the state courts
      of the State of California sitting in the City of San Diego in connection with
      any dispute arising under this Agreement and the other Documents. Each party
      hereto hereby irrevocably and unconditionally waives, to the fullest extent
      it
      may effectively do so, any defense of an inconvenient forum or improper venue
      to
      the maintenance of such action or proceeding in any such court and any right
      of
      jurisdiction on account of its place of residence or domicile. Each party hereto
      irrevocably and unconditionally consents to the service of any and all process
      in any such action or proceeding in such courts by the mailing of copies of
      such
      process by registered or certified mail (return receipt requested), postage
      prepaid, at its address specified in Article XVII. Each party hereto agrees
      that
      a final judgment in any such action or proceeding shall be conclusive and may
      be
      enforced in other jurisdictions by suit on the judgment or in any other manner
      provided by law.

     

    
      	   
              XII.            	
              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
      AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
      SUBJECT MATTER OF THIS AGREEMENT 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 AGREEMENT BY, AMONG OTHER THINGS, THE
      MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.

     

    
      	XIII.            	
              COUNTERPARTS;
                EXECUTION

            

    

     

    This
      Agreement may be executed in counterparts, each of which when so executed and
      delivered shall be an original, but both of which counterparts shall together
      constitute one and the same instrument. A facsimile transmission of this signed
      Agreement shall be legal and binding on both parties hereto. 
       

      
        
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        13

        
          

        

      

      
        
        

      

    

     

    
      	XIV.            	
              HEADINGS

            

    

     

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

     

    
      	XV.            	
              SEVERABILITY

            

    

     

    In
      the
      event any one or more of the provisions contained in this Agreement or in the
      other Documents should be held invalid, illegal or unenforceable in any respect,
      the validity, legality and enforceability of the remaining provisions contained
      herein or therein shall not in any way be affected or impaired thereby. The
      parties shall endeavor in good-faith negotiations to replace the invalid,
      illegal or unenforceable provisions with valid provisions, the economic effect
      of which comes as close as possible to that of the invalid, illegal or
      unenforceable provisions.

     

    
      	XVI.            	
              ENTIRE
                AGREEMENT; REMEDIES, AMENDMENTS AND
                WAIVERS

            

    

     

    This
      Agreement and the Documents constitute the entire agreement between the parties
      hereto pertaining to the subject matter hereof and supersede all prior
      agreements, understandings, negotiations and discussions, whether oral or
      written, of such parties. No supplement, modification or waiver of this
      Agreement shall be binding unless executed in writing by both parties. No waiver
      of any of the provisions of this Agreement shall be deemed or shall constitute
      a
      waiver of any other provision hereof (whether or not similar), nor shall such
      waiver constitute a continuing waiver unless otherwise expressly
      provided.

     

    
      	XVII.            	
              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:

     

    A.  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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        14

        
          

        

      

      
        
        

      

    

    

     

    

     

    

     

    B.  If
      to
      Holder, to:

     

    Golden
      Gate Investors, Inc.

    7817
      Herschel Avenue, Suite 200

    La
      Jolla,
      California 92037

    Telephone: 858-551-8789

    Facsimile: 858-551-8779

     

    The
      Company or Holder may change the foregoing address by notice given pursuant
      to
      this Article XVII.

     

    
      	XVIII.   
               	
              CONFIDENTIALITY

            

    

     

    Each
      of
      the Company and Holder agrees to keep confidential and not to disclose to or
      use
      for the benefit of any third party the terms of this Agreement or any other
      information which at any time is communicated by the other party as being
      confidential without the prior written approval of the other party; provide,
      however, that this provision shall not apply to information which, at the time
      of disclosure, is already part of the public domain (except by breach of this
      Agreement) and information which is required to be disclosed by law (including,
      without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the
      Securities Act and the Exchange Act).

     

    
      	XIX.      
               	
              ASSIGNMENT

            

    

     

    This
      Agreement shall not be assignable by either of the parties hereto.

    

    

    IN
      WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be
      executed and delivered on the date first above written.

    

    

    Infinium
      Labs, Inc.      Golden
      Gate Investors, Inc.

    

    By:
      /s/ Greg Koler____________    By:
      /s/ Travis Huff_______________

    

    Title:
      President and Chief Executive
      officer                         
Title:
      Portfolio Manager___________

    
       

      
        
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    SCHEDULE
      II.A.1

     

    The
      amount, exercise, conversion or subscription price and expiration date for
      each
      outstanding option and other security or agreement to purchase shares of Common
      Stock is accurately set forth in the Company’s Commission Filings except as
      to:

     

    (1)
      Shares to be issued to Falcon Financial Group pursuant to Section III (O) of
      the
      Securities Purchase Agreement.

     

    (2)
      Greg
      Koler, the Company’s President and CEO will be granted an aggregate of 5,000,000
      restricted shares of the Company's common stock, in accordance with the
      following vesting schedule: (i) 1,000,000 shares will be fully vested upon
      execution of Mr. Koler’s Employment Agreement and a Stock Vesting Agreement
      dated as of January 11, 2006; and (ii) the remaining 4,000,000 shares of common
      stock shall vest quarterly over two years, 1/8 per quarter, to the extent Mr.
      Koler is employed with the Company at the pertinent vesting date and that the
      Company’s shareholders have authorized additional common stock. 
       

      
        
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        16

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