Document:

EX 10.1

    THIS
      NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
      THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS.

    

    
      	
              No.
                1

            	
              Original
                Issue Date: December 7, 2006

            

    

    
      	
              Holder:

            	
              John
                Fife

            
	 	
            
	
              Address:
                

            	
              303
                East Wacker Drive

            
	 	
              Suite
                301

            
	 	
              Chicago,
                IL 60601

            

    

     

    ORIGINAL
      ISSUE DISCOUNT SECURED NOTE

    

    This
      Note
      is one of a duly authorized issue of Notes of PHANTOM ENTERTAINMENT, INC.,
      a
      Delaware corporation, having a principal place of business at 800 Fifth Avenue,
      Suite 4100, Seattle, Washington 98004 (the “Company”),
      designated as its Note (the “Note”)
      in an
      aggregate face amount of up to Eighty Three Thousand Three Hundred Thirty Three
      and 00/100 Dollars ($83,333.00) (the “Maturity Amount”). The Note shall be due
      (i) on January 7, 2007, or (ii) upon an event of default, as defined below
      (collectively, the “Maturity Date”).

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay the Maturity Amount to the Holder or
      registered assigns on the Maturity Date. Upon an event of default the Maturity
      Amount shall bear interest at the rate of 18% per annum from the day such
      interest is due hereunder through and including the date of payment. The
      principal of, and interest on, this Note are payable in such coin or currency
      of
      the United States of America as at the time of payment is legal tender for
      payment of public and private debts, at the address of the Holder last appearing
      on the Note Register.

    

    This
      Note
      is subject to the following additional provisions:

    

    Section
      1.    The
      Notes
      are exchangeable for an equal aggregate principal amount of Notes of different
      authorized denominations, as requested by the Holder surrendering the same
      but
      shall not be issuable in denominations of less than integral multiples of Ten
      Thousand Dollars ($10,000) unless such amount represents the full principal
      balance of Notes outstanding to such Holder. No service charge will be made
      for
      such registration of transfer or exchange.

    

     Section
      2.    Transfer
      of Note.

     

    (a)    The
      Holder, by acceptance hereof, agrees to give written notice to the Company
      before transferring this Note; such notice will describe briefly the proposed
      transfer and will give the Company the name, address, and tax identification
      number of the proposed transferee, and will further provide the Company with
      an
      opinion of the Holder’s counsel that such transfer can be accomplished in
      accordance with federal and applicable state securities laws. Promptly upon
      receiving such written notice, the Company shall present copies thereof to
      the
      Company’s counsel. 

     

    (i)    If
      in the
      opinion of such counsel the proposed transfer may be effected without
      registration or qualification (under any federal or state securities laws),
      the
      Company, as promptly as practicable, shall

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    notify
      the Holder of such opinion, whereupon the Holder shall be entitled to transfer
      this Note or to dispose of Underlying Shares received upon the previous
      conversion of this Note, all in accordance with the terms of the notice
      delivered by the Holder to the Company; provided that an appropriate legend
      may
      be endorsed on this Note respecting restrictions upon transfer thereof necessary
      or advisable in the opinion of counsel and satisfactory to the Company to
      prevent further transfers which would be in violation of Section 5 of the
      Securities Act and applicable state securities laws; and provided further that
      the prospective transferee or purchaser shall execute such documents and make
      such representations, warranties, and agreements as may be required solely
      to
      comply with the exemptions relied upon by the Company for the transfer or
      disposition of the Note.

     

    (ii)    If
      in the
      opinion of the counsel referred to in this Section 2, the proposed transfer
      or
      disposition of this Note described in the written notice given pursuant to
      this
      Section 2 may not be effected without registration or qualification of this
      Note, the Company shall promptly give written notice thereof to the Holder,
      and
      the Holder will limit its activities in respect to such as, in the opinion
      of
      such counsel, are permitted by law.

     

    (b)    Prior
      to
      transfer of this Note in compliance with this Section 2, the Company and any
      agent of the Company may treat the person in whose name this Note is duly
      registered on the Note Register as the owner hereof for the purpose of receiving
      payment as herein provided and for all other purposes, whether or not this
      Note
      is overdue, and neither the Company nor any such agent shall be affected by
      notice to the contrary.

    

    Section
      3.    Events
      of Default.

     

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

    

    (i)    any
      default in the payment of the principal of, interest on, or other obligations
      in
      respect of, this Note, free of any claim of subordination, as and when the
      same
      shall become due and payable, (whether on the Maturity Date or by acceleration
      or otherwise), and said default in payment is not cured within five (5) business
      days; or

    

    (ii)    the
      Company or any Pledgor shall fail to observe or perform any other covenant,
      agreement or warranty contained in, or otherwise commit any breach of, this
      Note
      or the Stock Pledge Agreement, including, but not limited to, the obligation
      of
      the Pledgor to issue the True-up Shares and the Company’s failure to offer the
      Holder a right of first refusal with respect to the issuance by the Company
      of
      common stock, or any instruments convertible or exercisable into common stock,
      as set forth in Section 5 of this Note, and such failure or breach shall not
      have been remedied within 10 days after the date on which notice of such failure
      or breach shall have been given; or

    

    (iii)    the
      Company shall commence a voluntary case under the United States Bankruptcy
      Code
      or insolvency laws as now or hereafter in effect or any successor thereto (the
      "Bankruptcy
      Code");
      or an
      involuntary case is commenced against the Company under the Bankruptcy Code
      and
      the petition is not controverted within 30 days, or is not dismissed within
      60
      days, after commencement of such involuntary case; or a "custodian" (as defined
      in the Bankruptcy Code) is appointed for, or takes charge of, all or any
      substantial part of the property of the Company or the Company commences any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Company or
      there
      is commenced against the Company any such proceeding which remains undismissed
      for a period of 60 days; or the Company is adjudicated insolvent or bankrupt;
      or
      any order of relief or other order approving any such case or proceeding is
      entered; or the Company suffers any appointment of any custodian or the like
      for

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    it
      or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of 60 days; or the Company makes a general assignment for the benefit
      of
      creditors; or the Company shall fail to pay, or shall state that it is unable
      to
      pay its debts generally as they become due; the Company shall call a meeting
      of
      all of its creditors with a view to arranging a composition or adjustment of
      its
      debts; or the Company shall by any act or failure to act indicate its consent
      to, approval of or acquiescence in any of the foregoing; or any corporate or
      other action is taken by the Company for the purpose of effecting any of the
      foregoing; or

    

    (iv)    the
      Company shall default in any of its obligations under any mortgage, credit
      agreement or other facility, indenture, agreement or other instrument under
      which there may be issued, or by which there may be secured or evidenced any
      indebtedness of the Company in an amount exceeding $2,500,000.00, whether such
      indebtedness now exists or shall hereafter be created and such default shall
      result in such indebtedness becoming or being declared due and payable prior
      to
      the date on which it would otherwise become due and payable; or

    

    (v)    the
      Company shall be a party to any Change of Control Transaction (as defined in
      Section 7), shall sell or dispose of all or in excess of 49% of its assets
      (based on book value calculation as reflected in the Company’s most recent
      financial statements) in one or more transactions (whether or not such sale
      would constitute a Change of Control Transaction); or

    

    (vi)    the
      Company shall have its common stock suspended or delisted from trading for
      in
      excess of three (3) Trading Days; or

    

    (vii)    the
      Company shall fail to file any reports required by Section 13 or 15(d) of the
      Exchange Act in a timely manner; or

    

    (viii)    a
      determination by the U.S. Securities and Exchange Commission or National
      Association of Securities Dealers that the Company has violated U.S. Securities
      Laws; or

    

    (ix)    the
      representations and warranties of the Company and Guarantor are not true and
      correct in all material respects as of the date when made and as of the Closing
      Date as though made at that time, except for representations and warranties
      that
      are expressly made as of a particular date, which shall be true and correct
      in
      all material respects as of such date; 

    

    (x)    an
      action, suit or proceeding in the ordinary course of business is commenced
      against the Company seeking damages in an amount against which the Company
      is
      not insured exceeding $2,500,000;

     

    (xi)    an
      action, suit or proceeding not in the ordinary course of business is commenced
      against the Company seeking damages in an amount against which the Company
      is
      not insured exceeding $2,500,000;

    

    (xii)    the
      Company enters into a transaction or a series of transactions that would trigger
      the “twenty percent rule” if the Company’s common stock is listed for trading on
      the New York Stock Exchange, the American Stock Exchange, the Nasdaq or the
      Nasdaq Capital Market, notwithstanding the fact that the Company’s common stock
      is not listed for trading on such markets;

    

    (xiii)    a
      decline
      in the value of the Pledged Shares (as defined in Section 14 of this Note)
      in an
      amount equal to less than two and one-quarters (2.25) times the Maturity Amount,
      measured by the average daily volume weighted average price of the Company's
      common stock for the five (5) trading days subsequent to the most recent weekly
      anniversary date of this Note ; provided that, sufficient True-up Shares are
      not
      delivered by the Company to the Holder on or prior to 5 business days after
      such
      a decline in value; or

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (xiv)    a
      decline
      in the value of the Pledged Shares in an amount equal to less than the Maturity
      Amount, measured by the closing bid price of the Company common stock on the
      trading day prior to such a decline in value. 

    

    
      
        Upon
          the
          occurrence and during the continuation of any Event of Default specified
          in this
          Section 3, at the option of the Holder the Company shall pay to the Holder
          an amount equal to the sum of (1) the outstanding principal amount of this
          Note
plus
          (2)
          accrued and unpaid default interest, if any, thereon at the rate provided
          in
          this Note to the date of payment, (X) the Holder shall be entitled to exercise
          all rights and remedies under the Stock Pledge Agreement and Guaranty,
          and (Y)
          the Holder shall be entitled to exercise all other rights and remedies
          available
          at law or in equity

         

        Section
          4.    Interest
          Rate Limitation.
          The
          parties intend to conform strictly to the applicable usury laws in effect
          from
          time to time during the term of the Loan. Accordingly, if any transaction
          contemplated hereby would be usurious under such laws, then notwithstanding
          any
          other provision hereof: (i) the aggregate of all interest that is contracted
          for, charged, or received under this Agreement or under any other Loan
          Document
          shall not exceed the maximum amount of interest allowed by applicable law
          (the
          "Highest Lawful Rate"), and any excess shall be promptly credited to Borrower
          by
          Lender (or, to the extent that such consideration shall have been paid,
          such
          excess shall be promptly refunded to Borrower by Lender); (ii) neither
          Borrower
          nor any other Person now or hereafter liable hereunder shall be obligated
          to pay
          the amount of such interest to the extent that it is in excess of the Highest
          Lawful Rate; and (iii) the effective rate of interest shall be reduced
          to the
          Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for
          the use,
          forbearance, and detention of the debt of Borrower to Lender shall, to
          the
          extent permitted by applicable law, be allocated throughout the full term
          of the
          Note until payment is made in full so that the actual rate of interest
          does not
          exceed the Highest Lawful Rate in effect at any particular time during
          the full
          term thereof. If at any time the rate of interest under the Note exceeds
          the
          Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement
          shall be limited, notwithstanding anything to the contrary in this Agreement,
          to
          the Highest Lawful Rate, but any subsequent reductions in the Base Rate
          shall
          not reduce the interest to accrue pursuant to this Agreement below the
          Highest
          Lawful Rate until the total amount of interest accrued equals the amount
          of
          interest that would have accrued if a varying rate per annum equal to the
          interest rate under the Note had at all times been in effect. If the total
          amount of interest paid or accrued pursuant to this Agreement under the
          foregoing provisions is less than the total amount of interest that would
          have
          accrued if a varying rate per annum equal to the interest rate under the
          Note
          had been in effect, then Borrower agrees to pay to Lender an amount equal
          to the
          difference between (x) the lesser of (A) the amount of interest that would
          have
          accrued if the Highest Lawful Rate had at all times been in effect, or
          (B) the
          amount of interest that would have accrued if a varying rate per annum
          equal to
          the interest rate under the Note had at all times been in effect, and (y)
          the
          amount of interest accrued in accordance with the other provisions of this
          Agreement.

         

      

    

    Section
      5.    Right
      of First Refusal. From
      the
      date hereof until the one
      hundred eightieth (180th)
      day
      following the date that all the outstanding principal amount of this Note is
      repaid by the Company, upon
      any
      financing (a “Subsequent Financing”) by the Company of its common stock or
      securities convertible or exercisable into shares of common stock, the Holder
      shall have the right to participate in up to 100% of such Subsequent Financing.
      At least five (5) Business Days prior to the closing of the Subsequent
      Financing, the Company shall deliver to the Holder a written notice of its
      intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice
      shall ask the Holder if it wants to review the details of such financing (such
      additional notice, a “Subsequent Financing Notice”). Upon the request of the
      Holder, and only upon a request by the Holder, for a Subsequent Financing
      Notice, the Company shall promptly, but no later than one Business Day after
      such request, deliver a Subsequent Financing Notice to the Holder.
      Subsequent Financing Notice shall describe in reasonable detail the proposed
      terms of such Subsequent Financing, the amount of proceeds intended to be raised
      thereunder, and attached to which shall be a term

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    sheet
      or
      similar document relating thereto. The
      Holder
      shall
      notify the Company by 5:00 p.m. (New York City time) on the fifth (5th)
      Business Day after receipt of the Subsequent Financing Notice of its willingness
      to provide the Subsequent Financing on the terms described in the Subsequent
      Financing Notice, subject to completion of mutually acceptable documentation.
      If
the
      Holder
      fails to
      notify the Company of its willingness to provide all of the Subsequent
      Financing, the Company may effect the Subsequent Financing. Notwithstanding
      the
      foregoing, this Section 5 shall not apply in respect of the issuance of (a)
      shares of common stock or options to employees, consultants, officers or
      directors of the Company pursuant to any stock or option plan duly adopted
      by a
      majority of the Board of Directors of the Company, (b) securities upon the
      exercise of or conversion of any convertible securities, options or warrants
      issued and outstanding on the date of this Note, (c) securities issued pursuant
      to a merger, acquisition or strategic transaction approved by a majority of
      the
      Board of Directors of the Company (collectively, “Excluded
      Issuances”).

    

    Section
      6.    Prepayment.

    

    (a)    The
      Company shall have the right to prepay this Note in whole or in part thereon
      prior to the Maturity Date. 

    

    (b)    The
      Company shall give at least five (5) business days, but not more than ten (10)
      business days, written notice of any intention to prepay this Note prior to
      the
      Maturity Date to the Holder which notice shall specify the “Prepayment
      Date”.

    

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

    

    
      	 	
              "Business
                Day"
                means any day except Saturday, Sunday and any day which shall be
                a legal
                holiday or a day on which banking institutions in the State of New
                York
                are authorized or required by law or other government action to
                close.

            

    

    

    
      	 	
              "Change
                of Control Transaction"
                means the occurrence of any of (i) an acquisition after the date
                hereof by
                an individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
                promulgated under the Exchange Act) of in excess of 49% of the voting
                securities of the Company coupled with a replacement of more than
                one-half
                of the members of the Company's board of directors which is not approved
                by those individuals who are members of the board of directors on
                the date
                hereof in one or a series of related transactions, or (ii) the merger
                of
                the Company with or into another entity, consolidation or sale of
                all or
                substantially all of the assets of the Company in one or a series
                of
                related transactions, unless following such transaction, the holders
                of
                the Company's securities continue to hold at least 40% of such securities
                following such transaction. The execution by the Company of an agreement
                to which the Company is a party or by which it is bound providing
                for any
                of the events set forth above in (i) or (ii) does not constitute
                the
                occurrence of the event until after the event in fact occurs.
                

            

    

    

    Section
      8.    Except
      as
      expressly provided herein, no provision of this Note shall alter or impair
      the
      obligation of the Company, which is absolute and unconditional, to pay the
      principal of, interest and liquidated damages (if any) on, this Note at the
      time, place, and rate, and in the coin or currency, herein prescribed. This
      Note
      is a direct obligation of the Company. 

    

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
      10.    Choice
      of Law and Venue; Submission to Jurisdiction; Service of
      Process.

    

    (a)    THE
      VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND
      THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
      CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA (WITHOUT REFERENCE
      TO THE CHOICE OF LAW PRINCIPLES THEREOF). THE PARTIES AGREE THAT ALL ACTIONS
      OR
      PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND LITIGATED
      ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF FLORIDA, STATE
      OF
      FLORIDA OR, AT THE SOLE OPTION OF HOLDER, IN ANY OTHER COURT IN WHICH HOLDER
      SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
      JURISDICTION OVER THE MATTER IN CONTROVERSY. 

    

    (b)    COMPANY
      HEREBY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
      UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES, TO
      THE
      EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE
      DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
      PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. 

    

    (c)    COMPANY
      HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, OR OTHER PROCESS
      ISSUED IN ANY ACTION OR PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS,
      COMPLAINT, OR OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
      ADDRESSED TO COMPANY.

    

    (d)    NOTHING
      IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF HOLDER
      TO
      SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
      ENFORCEMENT BY HOLDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
      TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
      APPROPRIATE FORUM OR JURISDICTION.

    

    
      	
              (e)
                

            	
              To
                the extent determined by such court, the Company shall reimburse
                the
                Holder for any reasonable legal fees and disbursements incurred by
                the
                Holder in enforcement of or protection of any of its rights under
                any of
                this Note.

            

    

    

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

    

    Section
      12.    If
      any
      provision of this Note is invalid, illegal or unenforceable, the balance of
      this
      Note shall remain in effect, and if any provision is inapplicable to any person
      or circumstance, it shall nevertheless remain applicable to all other persons
      and circumstances.

     

    Section
      13.    Whenever
      any payment or other obligation hereunder shall be due on a day other than
      a
      Business Day, such payment shall be made on the next succeeding Business Day
      (or, if such next succeeding Business Day falls in the next calendar month,
      the
      preceding Business Day in the appropriate calendar month).

    

    Section
      14.    Security.
      The
      obligation of the Company for payment of principal, interest and all other
      sums
      hereunder, in the event of a default and failure of the Company to perform
      hereunder, is secured by the pledge of 130,000,000 shares of common stock (the
      “Pledged
      Shares”)
      by the
      Company as Pledgor under the terms and conditions of a Stock Pledge Agreement,
      and a Guaranty executed and delivered by Timothy Roberts. 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
      15.    Payment
      of Legal Fees.
      The
      Company shall pay legal fees and expenses incurred by the Holder in connection
      with negotiating and entering into the Note in an amount not to exceed Five
      Thousand ($5,000) Dollars.

     

    Section
      16.    Waiver
      of Jury Trial.

     

    THE
      COMPANY HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
      CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE . COMPANY REPRESENTS
      THAT
      EACH HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
      TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
      LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
      TRIAL BY THE COURT.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      the
      Company has caused this instrument to be duly executed by an officer duly
      authorized for such purpose, as of the date first above indicated.

    

    PHANTOM
      ENTERTAINMENT, INC.

     

    By: 
      /s/
      Greg
      Koler

      
        

      

    

    Name: 
      Greg
      Koler

    Title: 
      Chief
      Executive OfficerEX 10.2

    THIS
      NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
      THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS.

    

    
      	
              No.
                1

            	
              Original
                Issue Date: December 7, 2006

            

    

    
      	
              Holder:

            	
              John
                Fife

            
	 	
            
	
              Address:
                

            	
              303
                East Wacker Drive

            
	 	
              Suite
                301

            
	 	
              Chicago,
                IL 60601

            

    

     

    ORIGINAL
      ISSUE DISCOUNT SECURED NOTE

    

    
      This
        Note
        is one of a duly authorized issue of Notes of PHANTOM ENTERTAINMENT, INC.,
        a
        Delaware corporation, having a principal place of business at 800 Fifth Avenue,
        Suite 4100, Seattle, Washington 98004 (the “Company”),
        designated as its Note (the “Note”)
        in an
        aggregate face amount of up to Eighty Three Thousand Three Hundred Thirty
        Three
        and 00/100 Dollars ($83,333.00) (the “Maturity Amount”). The Note shall be due
        (i) on March 7, 2007, or (ii) upon an event of default, as defined below
        (collectively, the “Maturity Date”).

       

      FOR
        VALUE
        RECEIVED, the Company promises to pay the Maturity Amount to the Holder or
        registered assigns on the Maturity Date. Upon an event of default the Maturity
        Amount shall bear interest at the rate of 18% per annum from the day such
        interest is due hereunder through and including the date of payment. The
        principal of, and interest on, this Note are payable in such coin or currency
        of
        the United States of America as at the time of payment is legal tender for
        payment of public and private debts, at the address of the Holder last appearing
        on the Note Register.

    

    

    This
      Note
      is subject to the following additional provisions:

    

    Section
      1.    The
      Notes
      are exchangeable for an equal aggregate principal amount of Notes of different
      authorized denominations, as requested by the Holder surrendering the same
      but
      shall not be issuable in denominations of less than integral multiples of Ten
      Thousand Dollars ($10,000) unless such amount represents the full principal
      balance of Notes outstanding to such Holder. No service charge will be made
      for
      such registration of transfer or exchange.

    

     Section
      2.    Transfer
      of Note.

     

    (a)    The
      Holder, by acceptance hereof, agrees to give written notice to the Company
      before transferring this Note; such notice will describe briefly the proposed
      transfer and will give the Company the name, address, and tax identification
      number of the proposed transferee, and will further provide the Company with
      an
      opinion of the Holder’s counsel that such transfer can be accomplished in
      accordance with federal and applicable state securities laws. Promptly upon
      receiving such written notice, the Company shall present copies thereof to
      the
      Company’s counsel. 

     

    (i)    If
      in the
      opinion of such counsel the proposed transfer may be effected without
      registration or qualification (under any federal or state securities laws),
      the
      Company, as promptly as practicable, shall

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    notify
      the Holder of such opinion, whereupon the Holder shall be entitled to transfer
      this Note or to dispose of Underlying Shares received upon the previous
      conversion of this Note, all in accordance with the terms of the notice
      delivered by the Holder to the Company; provided that an appropriate legend
      may
      be endorsed on this Note respecting restrictions upon transfer thereof necessary
      or advisable in the opinion of counsel and satisfactory to the Company to
      prevent further transfers which would be in violation of Section 5 of the
      Securities Act and applicable state securities laws; and provided further that
      the prospective transferee or purchaser shall execute such documents and make
      such representations, warranties, and agreements as may be required solely
      to
      comply with the exemptions relied upon by the Company for the transfer or
      disposition of the Note.

     

    (ii)    If
      in the
      opinion of the counsel referred to in this Section 2, the proposed transfer
      or
      disposition of this Note described in the written notice given pursuant to
      this
      Section 2 may not be effected without registration or qualification of this
      Note, the Company shall promptly give written notice thereof to the Holder,
      and
      the Holder will limit its activities in respect to such as, in the opinion
      of
      such counsel, are permitted by law.

     

    (b)    Prior
      to
      transfer of this Note in compliance with this Section 2, the Company and any
      agent of the Company may treat the person in whose name this Note is duly
      registered on the Note Register as the owner hereof for the purpose of receiving
      payment as herein provided and for all other purposes, whether or not this
      Note
      is overdue, and neither the Company nor any such agent shall be affected by
      notice to the contrary.

    

    Section
      3.    Events
      of Default.

     

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

    

    (i)    any
      default in the payment of the principal of, interest on, or other obligations
      in
      respect of, this Note, free of any claim of subordination, as and when the
      same
      shall become due and payable, (whether on the Maturity Date or by acceleration
      or otherwise), and said default in payment is not cured within five (5) business
      days; or

    

    (ii)    the
      Company or any Pledgor shall fail to observe or perform any other covenant,
      agreement or warranty contained in, or otherwise commit any breach of, this
      Note
      or the Stock Pledge Agreement, including, but not limited to, the obligation
      of
      the Pledgor to issue the True-up Shares and the Company’s failure to offer the
      Holder a right of first refusal with respect to the issuance by the Company
      of
      common stock, or any instruments convertible or exercisable into common stock,
      as set forth in Section 5 of this Note, and such failure or breach shall not
      have been remedied within 10 days after the date on which notice of such failure
      or breach shall have been given; or

    

    (iii)    the
      Company shall commence a voluntary case under the United States Bankruptcy
      Code
      or insolvency laws as now or hereafter in effect or any successor thereto (the
      "Bankruptcy
      Code");
      or an
      involuntary case is commenced against the Company under the Bankruptcy Code
      and
      the petition is not controverted within 30 days, or is not dismissed within
      60
      days, after commencement of such involuntary case; or a "custodian" (as defined
      in the Bankruptcy Code) is appointed for, or takes charge of, all or any
      substantial part of the property of the Company or the Company commences any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Company or
      there
      is commenced against the Company any such proceeding which remains undismissed
      for a period of 60 days; or the Company is adjudicated insolvent or bankrupt;
      or
      any order of relief or other order approving any such case or proceeding is
      entered; or the Company suffers any appointment of any custodian or the like
      for

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    it
      or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of 60 days; or the Company makes a general assignment for the benefit
      of
      creditors; or the Company shall fail to pay, or shall state that it is unable
      to
      pay its debts generally as they become due; the Company shall call a meeting
      of
      all of its creditors with a view to arranging a composition or adjustment of
      its
      debts; or the Company shall by any act or failure to act indicate its consent
      to, approval of or acquiescence in any of the foregoing; or any corporate or
      other action is taken by the Company for the purpose of effecting any of the
      foregoing; or

    

    (iv)    the
      Company shall default in any of its obligations under any mortgage, credit
      agreement or other facility, indenture, agreement or other instrument under
      which there may be issued, or by which there may be secured or evidenced any
      indebtedness of the Company in an amount exceeding $2,500,000.00, whether such
      indebtedness now exists or shall hereafter be created and such default shall
      result in such indebtedness becoming or being declared due and payable prior
      to
      the date on which it would otherwise become due and payable; or

    

    (v)    the
      Company shall be a party to any Change of Control Transaction (as defined in
      Section 7), shall sell or dispose of all or in excess of 49% of its assets
      (based on book value calculation as reflected in the Company’s most recent
      financial statements) in one or more transactions (whether or not such sale
      would constitute a Change of Control Transaction); or

    

    (vi)    the
      Company shall have its common stock suspended or delisted from trading for
      in
      excess of three (3) Trading Days; or

    

    (vii)    the
      Company shall fail to file any reports required by Section 13 or 15(d) of the
      Exchange Act in a timely manner; or

    

    (viii)    a
      determination by the U.S. Securities and Exchange Commission or National
      Association of Securities Dealers that the Company has violated U.S. Securities
      Laws; or

    

    (ix)    the
      representations and warranties of the Company and Guarantor are not true and
      correct in all material respects as of the date when made and as of the Closing
      Date as though made at that time, except for representations and warranties
      that
      are expressly made as of a particular date, which shall be true and correct
      in
      all material respects as of such date; 

    

    (x)    an
      action, suit or proceeding in the ordinary course of business is commenced
      against the Company seeking damages in an amount against which the Company
      is
      not insured exceeding $2,500,000;

     

    (xi)    an
      action, suit or proceeding not in the ordinary course of business is commenced
      against the Company seeking damages in an amount against which the Company
      is
      not insured exceeding $2,500,000;

    

    (xii)    the
      Company enters into a transaction or a series of transactions that would trigger
      the “twenty percent rule” if the Company’s common stock is listed for trading on
      the New York Stock Exchange, the American Stock Exchange, the Nasdaq or the
      Nasdaq Capital Market, notwithstanding the fact that the Company’s common stock
      is not listed for trading on such markets;

    

    (xiii)    a
      decline
      in the value of the Pledged Shares (as defined in Section 14 of this Note)
      in an
      amount equal to less than two and one-quarters (2.25) times the Maturity Amount,
      measured by the average daily volume weighted average price of the Company's
      common stock for the five (5) trading days subsequent to the most recent weekly
      anniversary date of this Note ; provided that, sufficient True-up Shares are
      not
      delivered by the Company to the Holder on or prior to 5 business days after
      such
      a decline in value; or

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (xiv)    a
      decline
      in the value of the Pledged Shares in an amount equal to less than the Maturity
      Amount, measured by the closing bid price of the Company common stock on the
      trading day prior to such a decline in value. 

    

    
      
        Upon
          the
          occurrence and during the continuation of any Event of Default specified
          in this
          Section 3, at the option of the Holder the Company shall pay to the Holder
          an amount equal to the sum of (1) the outstanding principal amount of this
          Note
plus
          (2)
          accrued and unpaid default interest, if any, thereon at the rate provided
          in
          this Note to the date of payment, (X) the Holder shall be entitled to exercise
          all rights and remedies under the Stock Pledge Agreement and Guaranty,
          and (Y)
          the Holder shall be entitled to exercise all other rights and remedies
          available
          at law or in equity

         

        Section
          4.    Interest
          Rate Limitation.
          The
          parties intend to conform strictly to the applicable usury laws in effect
          from
          time to time during the term of the Loan. Accordingly, if any transaction
          contemplated hereby would be usurious under such laws, then notwithstanding
          any
          other provision hereof: (i) the aggregate of all interest that is contracted
          for, charged, or received under this Agreement or under any other Loan
          Document
          shall not exceed the maximum amount of interest allowed by applicable law
          (the
          "Highest Lawful Rate"), and any excess shall be promptly credited to Borrower
          by
          Lender (or, to the extent that such consideration shall have been paid,
          such
          excess shall be promptly refunded to Borrower by Lender); (ii) neither
          Borrower
          nor any other Person now or hereafter liable hereunder shall be obligated
          to pay
          the amount of such interest to the extent that it is in excess of the Highest
          Lawful Rate; and (iii) the effective rate of interest shall be reduced
          to the
          Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for
          the use,
          forbearance, and detention of the debt of Borrower to Lender shall, to
          the
          extent permitted by applicable law, be allocated throughout the full term
          of the
          Note until payment is made in full so that the actual rate of interest
          does not
          exceed the Highest Lawful Rate in effect at any particular time during
          the full
          term thereof. If at any time the rate of interest under the Note exceeds
          the
          Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement
          shall be limited, notwithstanding anything to the contrary in this Agreement,
          to
          the Highest Lawful Rate, but any subsequent reductions in the Base Rate
          shall
          not reduce the interest to accrue pursuant to this Agreement below the
          Highest
          Lawful Rate until the total amount of interest accrued equals the amount
          of
          interest that would have accrued if a varying rate per annum equal to the
          interest rate under the Note had at all times been in effect. If the total
          amount of interest paid or accrued pursuant to this Agreement under the
          foregoing provisions is less than the total amount of interest that would
          have
          accrued if a varying rate per annum equal to the interest rate under the
          Note
          had been in effect, then Borrower agrees to pay to Lender an amount equal
          to the
          difference between (x) the lesser of (A) the amount of interest that would
          have
          accrued if the Highest Lawful Rate had at all times been in effect, or
          (B) the
          amount of interest that would have accrued if a varying rate per annum
          equal to
          the interest rate under the Note had at all times been in effect, and (y)
          the
          amount of interest accrued in accordance with the other provisions of this
          Agreement.

         

      

    

    Section
      5.    Right
      of First Refusal. From
      the
      date hereof until the one
      hundred eightieth (180th)
      day
      following the date that all the outstanding principal amount of this Note is
      repaid by the Company, upon
      any
      financing (a “Subsequent Financing”) by the Company of its common stock or
      securities convertible or exercisable into shares of common stock, the Holder
      shall have the right to participate in up to 100% of such Subsequent Financing.
      At least five (5) Business Days prior to the closing of the Subsequent
      Financing, the Company shall deliver to the Holder a written notice of its
      intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice
      shall ask the Holder if it wants to review the details of such financing (such
      additional notice, a “Subsequent Financing Notice”). Upon the request of the
      Holder, and only upon a request by the Holder, for a Subsequent Financing
      Notice, the Company shall promptly, but no later than one Business Day after
      such request, deliver a Subsequent Financing Notice to the Holder.
      Subsequent Financing Notice shall describe in reasonable detail the proposed
      terms of such Subsequent Financing, the amount of proceeds intended to be raised
      thereunder, and attached to which shall be a term

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    sheet
      or
      similar document relating thereto. The
      Holder
      shall
      notify the Company by 5:00 p.m. (New York City time) on the fifth (5th)
      Business Day after receipt of the Subsequent Financing Notice of its willingness
      to provide the Subsequent Financing on the terms described in the Subsequent
      Financing Notice, subject to completion of mutually acceptable documentation.
      If
the
      Holder
      fails to
      notify the Company of its willingness to provide all of the Subsequent
      Financing, the Company may effect the Subsequent Financing. Notwithstanding
      the
      foregoing, this Section 5 shall not apply in respect of the issuance of (a)
      shares of common stock or options to employees, consultants, officers or
      directors of the Company pursuant to any stock or option plan duly adopted
      by a
      majority of the Board of Directors of the Company, (b) securities upon the
      exercise of or conversion of any convertible securities, options or warrants
      issued and outstanding on the date of this Note, (c) securities issued pursuant
      to a merger, acquisition or strategic transaction approved by a majority of
      the
      Board of Directors of the Company (collectively, “Excluded
      Issuances”).

    

    Section
      6.    Prepayment.

    

    (a)    The
      Company shall have the right to prepay this Note in whole or in part thereon
      prior to the Maturity Date. 

    

    (b)    The
      Company shall give at least five (5) business days, but not more than ten (10)
      business days, written notice of any intention to prepay this Note prior to
      the
      Maturity Date to the Holder which notice shall specify the “Prepayment
      Date”.

    

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

    

    
      	 	
              "Business
                Day"
                means any day except Saturday, Sunday and any day which shall be
                a legal
                holiday or a day on which banking institutions in the State of New
                York
                are authorized or required by law or other government action to
                close.

            

    

    

    
      	 	
              "Change
                of Control Transaction"
                means the occurrence of any of (i) an acquisition after the date
                hereof by
                an individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
                promulgated under the Exchange Act) of in excess of 49% of the voting
                securities of the Company coupled with a replacement of more than
                one-half
                of the members of the Company's board of directors which is not approved
                by those individuals who are members of the board of directors on
                the date
                hereof in one or a series of related transactions, or (ii) the merger
                of
                the Company with or into another entity, consolidation or sale of
                all or
                substantially all of the assets of the Company in one or a series
                of
                related transactions, unless following such transaction, the holders
                of
                the Company's securities continue to hold at least 40% of such securities
                following such transaction. The execution by the Company of an agreement
                to which the Company is a party or by which it is bound providing
                for any
                of the events set forth above in (i) or (ii) does not constitute
                the
                occurrence of the event until after the event in fact occurs.
                

            

    

    

    Section
      8.    Except
      as
      expressly provided herein, no provision of this Note shall alter or impair
      the
      obligation of the Company, which is absolute and unconditional, to pay the
      principal of, interest and liquidated damages (if any) on, this Note at the
      time, place, and rate, and in the coin or currency, herein prescribed. This
      Note
      is a direct obligation of the Company. 

    

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Section
      10.    Choice
      of Law and Venue; Submission to Jurisdiction; Service of
      Process.

    

    (a)    THE
      VALIDITY OF THIS NOTE, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND
      THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
      CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA (WITHOUT REFERENCE
      TO THE CHOICE OF LAW PRINCIPLES THEREOF). THE PARTIES AGREE THAT ALL ACTIONS
      OR
      PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND LITIGATED
      ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF FLORIDA, STATE
      OF
      FLORIDA OR, AT THE SOLE OPTION OF HOLDER, IN ANY OTHER COURT IN WHICH HOLDER
      SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
      JURISDICTION OVER THE MATTER IN CONTROVERSY. 

    

    (b)    COMPANY
      HEREBY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
      UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES, TO
      THE
      EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE
      DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
      PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. 

    

    (c)    COMPANY
      HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, OR OTHER PROCESS
      ISSUED IN ANY ACTION OR PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS,
      COMPLAINT, OR OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
      ADDRESSED TO COMPANY.

    

    (d)    NOTHING
      IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF HOLDER
      TO
      SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
      ENFORCEMENT BY HOLDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
      TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
      APPROPRIATE FORUM OR JURISDICTION.

    

    
      	
              (e)
                

            	
              To
                the extent determined by such court, the Company shall reimburse
                the
                Holder for any reasonable legal fees and disbursements incurred by
                the
                Holder in enforcement of or protection of any of its rights under
                any of
                this Note.

            

    

    

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

    

    Section
      12.    If
      any
      provision of this Note is invalid, illegal or unenforceable, the balance of
      this
      Note shall remain in effect, and if any provision is inapplicable to any person
      or circumstance, it shall nevertheless remain applicable to all other persons
      and circumstances.

     

    Section
      13.    Whenever
      any payment or other obligation hereunder shall be due on a day other than
      a
      Business Day, such payment shall be made on the next succeeding Business Day
      (or, if such next succeeding Business Day falls in the next calendar month,
      the
      preceding Business Day in the appropriate calendar month).

    

    Section
      14.    Security.
      The
      obligation of the Company for payment of principal, interest and all other
      sums
      hereunder, in the event of a default and failure of the Company to perform
      hereunder, is secured by the pledge of 130,000,000 shares of common stock (the
      “Pledged
      Shares”)
      by the
      Company as Pledgor under the terms and conditions of a Stock Pledge Agreement,
      and a Guaranty executed and delivered by Timothy Roberts. 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
      15.    Payment
      of Legal Fees.
      The
      Company shall pay legal fees and expenses incurred by the Holder in connection
      with negotiating and entering into the Note in an amount not to exceed Five
      Thousand ($5,000) Dollars.

     

    Section
      16.    Waiver
      of Jury Trial.

     

    THE
      COMPANY HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
      CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE . COMPANY REPRESENTS
      THAT
      EACH HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
      TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
      LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
      TRIAL BY THE COURT.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      the
      Company has caused this instrument to be duly executed by an officer duly
      authorized for such purpose, as of the date first above indicated.

    

    PHANTOM
      ENTERTAINMENT, INC.

     

    By: 
      /s/
      Greg
      Koler

      
        

      

    

    Name: 
      Greg
      Koler

    Title: 
      Chief
      Executive Officer

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]