Document:

REGISTRATION
      RIGHTS AGREEMENT

     

    Registration
      Rights 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. (the “Holder”).

     

    WHEREAS,
      upon the terms and subject to the conditions of the Securities Purchase
      Agreement dated as of even date herewith, by and between the Holder and the
      Company (the “Securities
      Purchase Agreement”),
      the
      Company has agreed to issue and sell to the Holder a Convertible Debenture
      (the
“Debenture”)
      of the
      Company in the aggregate principal amount of $500,000 which, upon the terms
      of
      and subject to the conditions contained therein, is convertible into shares
      of
      the Company’s Common Stock (the “Common
      Stock”)
      and a
      Warrant to purchase shares (the “Warrants”)
      of the
      Company’s Common Stock (the “Warrant
      Shares”);
      and

     

    WHEREAS,
      to induce the Holder to execute and deliver the Securities Purchase Agreement,
      the Company has agreed to provide with respect to the Common Stock issued upon
      conversion of the Debenture and the Warrant Shares certain registration rights
      under the Securities Act;

     

    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:

     

    1.  Definitions

     

    (A)  As
      used
      in this Agreement, the following terms shall have the meanings:

     

    (1)  “Affiliate”
      of any
      specified Person means any other Person who directly, or indirectly through
      one
      or more intermediaries, is in control of, is controlled by, or is under common
      control with, such specified Person. For purposes of this definition, control
      of
      a Person means the power, directly or indirectly, to direct or cause the
      direction of the management and policies of such Person whether by contract,
      securities ownership or otherwise; and the terms “controlling”
      and
“controlled”
      have the
      respective meanings correlative to the foregoing.

     

    (2)  “Closing
      Date”
      means
      the date of this Agreement.

     

    (3)  “Commission”
      means
      the Securities and Exchange Commission.

     

    (4)  “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      of the Commission thereunder, or any similar successor statute.

     

    (5)  “Investor”
      means
      each of the Holder and any transferee or assignee of Registrable Securities
      which agrees to become bound by all of the terms and provisions of this
      Agreement in accordance with Section 8 hereof. 
       

      
        
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    (6)  “Person”
      means
      any individual, partnership, corporation, limited liability company, joint
      stock
      company, association, trust, unincorporated organization, or a government or
      agency or political subdivision thereof.

     

    (7)  “Prospectus”
      means
      the prospectus (including, without limitation, any preliminary prospectus and
      any final prospectus filed pursuant to Rule 424(b) under the Securities Act,
      including any prospectus that discloses information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      on
      Rule 430A under the Securities Act) included in the Registration Statement,
      as
      amended or supplemented by any prospectus supplement with respect to the terms
      of the offering of any portion of the Registrable Securities covered by the
      Registration Statement and by all other amendments and supplements to such
      prospectus, including all material incorporated by reference in such prospectus
      and all documents filed after the date of such prospectus by the Company under
      the Exchange Act and incorporated by reference therein.

     

    (8)  “Public
      Offering”
      means an
      offer registered with the Commission and the appropriate state securities
      commissions by the Company of its Common Stock and made pursuant to the
      Securities Act.

     

    (9)  “Registrable
      Securities”
      means
      the Common Stock issued or issuable (i) upon conversion or redemption of
      the Debenture, (ii) exercise of the Warrants (iii) pursuant to the terms
      and provisions of the Debenture or the Securities Purchase Agreement,
      (iv) in connection with any distribution, recapitalization, stock-split,
      stock adjustment or reorganization of the Company; provided,
      however,
      a share
      of Common Stock shall cease to be a Registrable Security for purposes of this
      Agreement when it no longer is a Restricted Security.

     

    (10)  “Registration
      Statement”
      means a
      registration statement of the Company filed on an appropriate form under the
      Securities Act providing for the registration of, and the sale on a continuous
      or delayed basis by the holders of, all of the Registrable Securities pursuant
      to Rule 415 under the Securities Act, including the Prospectus contained therein
      and forming a part thereof, any amendments to such registration statement and
      supplements to such Prospectus, and all exhibits to and other material
      incorporated by reference in such registration statement and
      Prospectus.

     

    (11)  “Restricted
      Security”
      means
      any share of Common Stock issued upon conversion or redemption of the Debenture
      or Warrant except any such share that (i) has been registered pursuant to an
      effective registration statement under the Securities Act and sold in a manner
      contemplated by the prospectus included in such registration statement, (ii)
      has
      been transferred in compliance with the resale provisions of Rule 144 under
      the
      Securities Act (or any successor provision thereto) or is transferable pursuant
      to paragraph (k) of Rule 144 under the Securities Act (or any successor
      provision thereto) or (iii) otherwise has been transferred and a new share
      of
      Common Stock not subject to transfer restrictions under the Securities Act
      has
      been delivered by or on behalf of the Company.

     

    (12)  “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and the rules and regulations of the
      Commission thereunder, or any similar successor statute.

     

    (B)  All
      capitalized terms used and not defined herein have the respective meaning
      assigned to them in the Securities Purchase Agreement or the Debenture. 
       

      
        
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    2.  Registration

     

    (A)  Filing
      and Effectiveness of Registration Statement.
      The
      Company shall prepare and file with the Commission as soon as practicable a
      Registration Statement relating to the offer and sale of the Registrable
      Securities and shall use its best efforts to cause the Commission to declare
      such Registration Statement effective under the Securities Act as promptly
      as
      practicable but in no event later than the Deadline (as defined in the
      Debenture). The Company shall promptly (and, in any event, no more than 24
      hours
      after it receives comments from the Commission), notify the Holder when and
      if
      it receives any comments from the Commission on the Registration Statement
      and
      promptly forward a copy of such comments, if they are in writing, to the Holder.
      At such time after the filing of the Registration Statement pursuant to this
      Section 2(A) as the Commission indicates, either orally or in writing, that
      it has no further comments with respect to such Registration Statement or that
      it is willing to entertain appropriate requests for acceleration of
      effectiveness of such Registration Statement, the Company shall promptly, and
      in
      no event later than two (2) business days after receipt of such indication
      from
      the Commission, request that the effectiveness of such Registration Statement
      be
      accelerated within forty-eight (48) hours of the Commission’s receipt of such
      request. The Company shall notify the Holder by written notice that such
      Registration Statement has been declared effective by the Commission within
      24
      hours of such declaration by the Commission.

     

    (B)  Eligibility
      for Use of Form S-3 or an SB-2.
      The
      Company agrees that at such time as it meets all the requirements for the use
      of
      a Securities Act Registration Statement on Form S-3 or SB-2, it shall file
      all
      reports and information required to be filed by it with the Commission in a
      timely manner and take all such other action so as to maintain such eligibility
      for the use of such form.

     

    (C)  Additional
      Registration Statement.
      In the
      event the Current Market Price declines to a price per share the result of
      which
      is that the Company cannot satisfy its conversion obligations to Holder
      hereunder, the Company shall, to the extent required by the Securities Act
      (because the additional shares were not covered by the Registration Statement
      filed pursuant to Section 2(a)), as reasonably determined by the Holder, file
      an
      additional Registration Statement with the Commission for such additional number
      of Registrable Securities as would be issuable upon conversion of the Debenture
      (the “Additional
      Registrable Securities”)
      in
      addition to those previously registered. The Company shall use its best efforts
      to cause the Commission to declare such Registration Statement effective under
      the Securities Act as promptly as practicable but not later than the Deadline.
      The Company shall not include any other securities in the Registration Statement
      relating to the offer and sale of such Additional Registrable
      Securities.

     

    (D)  Piggyback
      Registration Rights.(i)If
      the
      Company proposes to register any of its warrants, Common Stock or any other
      shares of common stock of the Company under the Securities Act (other than
      a
      registration (A) on Form S-8 or S-4 or any successor or similar forms,
      (B) relating to Common Stock or any other shares of common stock of the
      Company issuable upon exercise of employee share options or in connection with
      any employee benefit or similar plan of the Company or (C) in connection
      with a direct or indirect acquisition by the Company of another Person or any
      transaction with respect to which Rule 145 (or any successor provision) under
      the Securities Act applies), whether or not for sale for its own account, it
      will each such time, give prompt written notice at least 20 days prior to the
      anticipated filing date of the registration statement relating to such
      registration to each Investor, which notice shall set forth such Investor’s
      rights under this Section 2(D) and shall offer such Investor the
      opportunity to include in such registration statement such number of Registrable
      Securities as such Investor may request. Upon the written request of any
      Investor made within 10 days after the receipt of notice from the Company (which
      request shall specify the number of Registrable Securities intended to be
      disposed of by such Investor), the Company will use its best efforts to effect
      the registration under the Securities Act of all Registrable Securities that
      the
      Company has been so requested to register by each Investor, to the extent
      requisite to permit the disposition of the Registrable Securities so to be
      registered; provided,
      however,
      that
      (A) if such registration involves a Public Offering, each Investor must
      sell its Registrable Securities to any underwriters selected by the Company
      with
      the consent of such Investor on the same terms and conditions as apply to the
      Company and (B) if, at any time after giving written notice of its
      intention to register any Registrable Securities pursuant to this Section 2
      and
      prior to the effective date of the registration statement filed in connection
      with such registration, the Company shall determine for any reason not to
      register such Registrable Securities, the Company shall give written notice
      to
      each Investor and, thereupon, shall be relieved of its obligation to register
      any Registrable Securities in connection with such registration. The Company’s
      obligations under this Section 2(D) shall terminate on the date that the
      registration statement to be filed in accordance with Section 2(A) is declared
      effective by the Commission. 
       

      
        
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    (ii)  If
      a
      registration pursuant to this Section 2(D) involves a Public Offering and the
      managing underwriter thereof advises the Company that, in its view, the number
      of shares of Common Stock that the Company and the Investors intend to include
      in such registration exceeds the largest number of shares of Common Stock that
      can be sold without having an adverse effect on such Public Offering (the
“Maximum
      Offering Size”),
      the
      Company will include in such registration only such number of shares of Common
      Stock as does not exceed the Maximum Offering Size, and the number of shares
      in
      the Maximum Offering Size shall be allocated among the Company, the Investors
      and any other sellers of Common Stock in such Public Offering (“Third-Party
      Sellers”),
      first,
      pro rata
      among the Investors until all the shares of Common Stock originally proposed
      to
      be offered for sale by the Investors have been allocated, and second,
      pro rata
      among the Company and any Third-Party Sellers, in each case on the basis of
      the
      relative number of shares of Common Stock originally proposed to be offered
      for
      sale under such registration by each of the Investors, the Company and the
      Third-Party Sellers, as the case may be. If as a result of the proration
      provisions of this Section 2(D)(ii), any Investor is not entitled to include
      all
      such Registrable Securities in such registration, such Investor may elect to
      withdraw its request to include any Registrable Securities in such registration.
      With respect to registrations pursuant to this Section 2(D), the number of
      securities required to satisfy any underwriters’ over-allotment option shall be
      allocated among the Company, the Investors and any Third Party Seller pro rata
      on the basis of the relative number of securities offered for sale under such
      registration by each of the Investors, the Company and any such Third Party
      Sellers before the exercise of such over-allotment option.

     

    3.  Obligations
      of the Company

     

    In
      connection with the registration of the Registrable Securities, the Company
      shall: 
       

      
        
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    (A)  Promptly
      (i) prepare and file with the Commission such amendments (including
      post-effective amendments) to the Registration Statement and supplements to
      the
      Prospectus as may be necessary to keep the Registration Statement continuously
      effective and in compliance with the provisions of the Securities Act applicable
      thereto so as to permit the Prospectus forming part thereof to be current and
      useable by Investors for resales of the Registrable Securities for a period
      of
      five (5) years from the date on which the Registration Statement is first
      declared effective by the Commission (the “Effective
      Time”)
      or such
      shorter period that will terminate when all the Registrable Securities covered
      by the Registration Statement have been sold pursuant thereto in accordance
      with
      the plan of distribution provided in the Prospectus, transferred pursuant to
      Rule 144 under the Securities Act or otherwise transferred in a manner that
      results in the delivery of new securities not subject to transfer restrictions
      under the Securities Act (the “Registration
      Period”)
      and
      (ii) take all lawful action such that each of (A) the Registration
      Statement and any amendment thereto does not, when it becomes effective, contain
      an untrue statement of a material fact or omit to state a material fact required
      to be stated therein or necessary to make the statements therein, not misleading
      and (B) the Prospectus forming part of the Registration Statement, and any
      amendment or supplement thereto, does not at any time during the Registration
      Period include an untrue statement of a material fact or omit to state a
      material fact required to be stated therein or necessary to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading;

     

    (B)  During
      the Registration Period, comply with the provisions of the Securities Act with
      respect to the Registrable Securities of the Company covered by the Registration
      Statement until such time as all of such Registrable Securities have been
      disposed of in accordance with the intended methods of disposition by the
      Investors as set forth in the Prospectus forming part of the Registration
      Statement;

     

    (C)  (i) Prior
      to the filing with the Commission of any Registration Statement (including
      any
      amendments thereto) and the distribution or delivery of any Prospectus
      (including any supplements thereto), provide (A) draft copies thereof to
      the Investors and reflect in such documents all such comments as the Investors
      (and their counsel) reasonably may propose and (B) to the Investors a copy
      of the accountant’s consent letter to be included in the filing and
      (ii) furnish to each Investor whose Registrable Securities are included in
      the Registration Statement and its legal counsel identified to the Company,
      (A) promptly after the same is prepared and publicly distributed, filed
      with the Commission, or received by the Company, one copy of the Registration
      Statement, each Prospectus, and each amendment or supplement thereto and
      (B) such number of copies of the Prospectus and all amendments and
      supplements thereto and such other documents, as such Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor;

     

    (D)  (i) Register
      or qualify the Registrable Securities covered by the Registration Statement
      under such securities or “blue sky” laws of such jurisdictions as the Investors
      who hold a majority-in-interest of the Registrable Securities being offered
      reasonably request, (ii) prepare and file in such jurisdictions such
      amendments (including post-effective amendments) and supplements to such
      registrations and qualifications as may be necessary to maintain the
      effectiveness thereof at all times during the Registration Period,
      (iii) take all such other lawful actions as may be necessary to maintain
      such registrations and qualifications in effect at all times during the
      Registration Period and (iv) take all such other lawful actions reasonably
      necessary or advisable to qualify the Registrable Securities for sale in such
      jurisdictions; provided,
      however,
      that
      the Company shall not be required in connection therewith or as a condition
      thereto to (A) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 3(D), (B) subject itself
      to general taxation in any such jurisdiction or (C) file a general consent
      to
      service of process in any such jurisdiction; 
       

      
        
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    (E)  As
      promptly as practicable after becoming aware of such event, notify each Investor
      of the occurrence of any event, as a result of which the Prospectus included
      in
      the Registration Statement, as then in effect, includes an 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, in light of the circumstances under
      which they were made, not misleading, and promptly prepare an amendment to
      the
      Registration Statement and supplement to the Prospectus to correct such untrue
      statement or omission, and deliver a number of copies of such supplement and
      amendment to each Investor as such Investor may reasonably request;

     

    (F)  As
      promptly as practicable after becoming aware of such event, notify each Investor
      who holds Registrable Securities being sold (or, in the event of an underwritten
      offering, the managing underwriters) of the issuance by the Commission of any
      stop order or other suspension of the effectiveness of the Registration
      Statement at the earliest possible time and take all lawful action to effect
      the
      withdrawal, rescission or removal of such stop order or other
      suspension;

     

    (G)  Cause
      all
      the Registrable Securities covered by the Registration Statement to be listed
      on
      the principal national securities exchange, and included in an inter-dealer
      quotation system of a registered national securities association, on or in
      which
      securities of the same class or series issued by the Company are then listed
      or
      included;

     

    (H)  Maintain
      a transfer agent and registrar, which may be a single entity, for the
      Registrable Securities not later than the effective date of the Registration
      Statement;

     

    (I)  Cooperate
      with the Investors who hold Registrable Securities being offered to facilitate
      the timely preparation and delivery of certificates for the Registrable
      Securities to be offered pursuant to the registration statement and enable
      such
      certificates for the Registrable Securities to be in such denominations or
      amounts, as the case may be, as the Investors reasonably may request and
      registered in such names as the Investor may request; and, within three (3)
      business days after a registration statement which includes Registrable
      Securities is declared effective by the Commission, deliver and cause legal
      counsel selected by the Company to deliver to the transfer agent for the
      Registrable Securities (with copies to the Investors whose Registrable
      Securities are included in such registration statement) an appropriate
      instruction and, to the extent necessary, an opinion of such
      counsel;

     

    (J)  Take
      all
      such other lawful actions reasonably necessary to expedite and facilitate the
      disposition by the Investors of their Registrable Securities in accordance
      with
      the intended methods therefor provided in the Prospectus which are customary
      under the circumstances;

     

    (K)  Make
      generally available to its security holders as soon as practicable, but in
      any
      event not later than three (3) months after (i) the effective date (as defined
      in Rule 158(c) under the Securities Act) of the Registration Statement and
      (ii)
      the effective date of each post-effective amendment to the Registration
      Statement, as the case may be, an earnings statement of the Company and its
      subsidiaries complying with Section 11 (a) of the Securities Act and the rules
      and regulations of the Commission thereunder (including, at the option of the
      Company, Rule 158); 
       

      
        
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    (L)  In
      the
      event of an underwritten offering, promptly include or incorporate in a
      Prospectus supplement or post-effective amendment to the Registration Statement
      such information as the managers reasonably agree should be included therein
      and
      to which the Company does not reasonably object and make all required filings
      of
      such Prospectus supplement or post-effective amendment as soon as practicable
      after it is notified of the matters to be included or incorporated in such
      Prospectus supplement or post-effective amendment;

     

    (M)  (i) Make
      reasonably available for inspection by Investors, any underwriter participating
      in any disposition pursuant to the Registration Statement, and any attorney,
      accountant or other agent retained by such Investors or any such underwriter
      all
      relevant financial and other records, pertinent corporate documents and
      properties of the Company and its subsidiaries, and (ii) cause the
      Company’s officers, directors and employees to supply all information reasonably
      requested by such Investors or any such underwriter, attorney, accountant or
      agent in connection with the Registration Statement, in each case, as is
      customary for similar due diligence examinations; provided,
      however,
      that
      all records, information and documents that are designated in writing by the
      Company, in good faith, as confidential, proprietary or containing any material
      nonpublic information shall be kept confidential by such Investors and any
      such
      underwriter, attorney, accountant or agent (pursuant to an appropriate
      confidentiality agreement in the case of any such holder or agent), unless
      such
      disclosure is made pursuant to judicial process in a court proceeding (after
      first giving the Company an opportunity promptly to seek a protective order
      or
      otherwise limit the scope of the information sought to be disclosed) or is
      required by law, or such records, information or documents become available
      to
      the public generally or through a third party not in violation of an
      accompanying obligation of confidentiality; and provided,
      further,
      that,
      if the foregoing inspection and information gathering would otherwise disrupt
      the Company’s conduct of its business, such inspection and information gathering
      shall, to the maximum extent possible, be coordinated on behalf of the Investors
      and the other parties entitled thereto by one firm of counsel designated by
      and
      on behalf of the majority in interest of Investors and other
      parties;

     

    (N)  In
      connection with any underwritten offering, make such representations and
      warranties to the Investors participating in such underwritten offering and
      to
      the managers, in form, substance and scope as are customarily made by the
      Company to underwriters in secondary underwritten offerings;

     

    (O)  In
      connection with any underwritten offering, obtain opinions of counsel to the
      Company (which counsel and opinions (in form, scope and substance) shall be
      reasonably satisfactory to the managers) addressed to the underwriters, covering
      such matters as are customarily covered in opinions requested in secondary
      underwritten offerings (it being agreed that the matters to be covered by such
      opinions shall include, without limitation, as of the date of the opinion and
      as
      of the Effective Time of the Registration Statement or most recent
      post-effective amendment thereto, as the case may be, the absence from the
      Registration Statement and the Prospectus, including any documents incorporated
      by reference therein, of an untrue statement of a material fact or the omission
      of a material fact required to be stated therein or necessary to make the
      statements therein (in the case of the Prospectus, in light of the circumstances
      under which they were made) not misleading, subject to customary limitations);
      
       

      
        
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    (P)  In
      connection with any underwritten offering, obtain “cold comfort” letters and
      updates thereof from the independent public accountants of the Company (and,
      if
      necessary, from the independent public accountants of any subsidiary of the
      Company or of any business acquired by the Company, in each case for which
      financial statements and financial data are, or are required to be, included
      in
      the Registration Statement), addressed to each underwriter participating in
      such
      underwritten offering (if such underwriter has provided such letter,
      representations or documentation, if any, required for such cold comfort letter
      to be so addressed), in customary form and covering matters of the type
      customarily covered in “cold comfort” letters in connection with secondary
      underwritten offerings;

     

    (Q)  In
      connection with any underwritten offering, deliver such documents and
      certificates as may be reasonably required by the managers, if any,
      and

     

    (R)  In
      the
      event that any broker-dealer registered under the Exchange Act shall be an
      “Affiliate”
      (as
      defined in Rule 2729(b)(1) of the rules and regulations of the National
      Association of Securities Dealers, Inc. (the “NASD
      Rules”)
      (or any
      successor provision thereto)) of the Company or has a “conflict
      of interest”
      (as
      defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision
      thereto)) and such broker-dealer shall underwrite, participate as a member
      of an
      underwriting syndicate or selling group or assist in the distribution of any
      Registrable Securities covered by the Registration Statement, whether as a
      holder of such Registrable Securities or as an underwriter, a placement or
      sales
      agent or a broker or dealer in respect thereof, or otherwise, the Company shall
      assist such broker-dealer in complying with the requirements of the NASD Rules,
      including, without limitation, by (A) engaging a “qualified
      independent underwriter”
      (as
      defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision
      thereto)) to participate in the preparation of the Registration Statement
      relating to such Registrable Securities, to exercise usual standards of due
      diligence in respect thereof and to recommend the public offering price of
      such
      Registrable Securities, (B) indemnifying such qualified independent
      underwriter to the extent of the indemnification of underwriters provided in
      Section 6 hereof and (C) providing such information to such broker-dealer
      as may be required in order for such broker-dealer to comply with the
      requirements of the NASD Rules.

     

    4.  Obligations
      of the Investors

     

    In
      connection with the registration of the Registrable Securities, the Investors
      shall have the following obligations:

     

    (A)  It
      shall
      be a condition precedent to the obligations of the Company to complete the
      registration pursuant to this Agreement with respect to the Registrable
      Securities of a particular Investor that such Investor shall furnish to the
      Company such information regarding itself, the Registrable Securities held
      by it
      and the intended method of disposition of the Registrable Securities held by
      it
      as shall be reasonably required to effect the registration of such Registrable
      Securities and shall execute such documents in connection with such registration
      as the Company may reasonably request; 
       

      
        
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        8

        
          

        

      

      
        
        

      

    

     

    (B)  Each
      Investor by its acceptance of the Registrable Securities agrees to cooperate
      with the Company in connection with the preparation and filing of the
      Registration Statement hereunder, unless such Investor has notified the Company
      in writing of its election to exclude all of its Registrable Securities from
      the
      Registration Statement; and

     

    (C)  Each
      Investor agrees that, upon receipt of any notice from the Company of the
      occurrence of any event of the kind described in Section 3(E) or 3(F), it shall
      immediately discontinue its disposition of Registrable Securities pursuant
      to
      the Registration Statement covering such Registrable Securities until such
      Investor’s receipt of the copies of the supplemented or amended Prospectus
      contemplated by Section 3(E) and, if so directed by the Company, such Investor
      shall deliver to the Company (at the expense of the Company) or destroy (and
      deliver to the Company a certificate of destruction) all copies in such
      Investor’s possession, of the Prospectus covering such Registrable Securities
      current at the time of receipt of such notice.

     

    5.  Expenses
      of Registration

     

    All
      expenses, other than underwriting discounts and commissions, incurred in
      connection with registrations, filings or qualifications pursuant to Section
      3,
      but including, without limitation, all registration, listing, and qualifications
      fees, printing and engraving fees, accounting fees, and the fees and
      disbursements of counsel for the Company shall be borne by the
      Company.

     

    6.  Indemnification
      and Contribution

     

    (A)  Indemnification
      by the Company. The
      Company shall indemnify and hold harmless each Investor (each such person being
      sometimes hereinafter referred to as an “Indemnified
      Person”)
      from
      and against any losses, claims, damages or liabilities, joint or several, to
      which such Indemnified Person may become subject under the Securities Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon an untrue statement of a
      material fact contained in any Registration Statement or an omission or alleged
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein, not misleading, or arise out of or
      are
      based upon an untrue statement of a material fact contained in any Prospectus
      or
      an omission or alleged omission to state therein a material fact required to
      be
      stated therein or necessary to make the statements therein, in the light of
      the
      circumstances under which they were made, not misleading; and the Company hereby
      agrees to reimburse such Indemnified Person for all reasonable legal and other
      expenses incurred by them in connection with investigating or defending any
      such
      action or claim as and when such expenses are incurred; provided,
      however,
      that
      the Company shall not be liable to any such Indemnified Person in any such
      case
      to the extent that any such loss, claim, damage or liability arises out of
      or is
      based upon (i) an untrue statement or alleged untrue statement made in, or
      an
      omission or alleged omission from, such Registration Statement or Prospectus
      in
      reliance upon and in conformity with written information furnished to the
      Company by such Indemnified Person expressly for use therein or (ii) in the
      case
      of the occurrence of an event of the type specified in Section 3(E), the use
      by
      the Indemnified Person of an outdated or defective Prospectus after the Company
      has provided to such Indemnified Person an updated Prospectus correcting the
      untrue statement or alleged untrue statement or omission or alleged omission
      giving rise to such loss, claim, damage or liability. 
       

      
        
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    (B)  Notice
      of Claims, etc.
      Promptly
      after receipt by a party seeking indemnification pursuant to this Section 6
      (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 Section 6 is being sought (the “Indemnifying
      Party”)
      of the
      commencement thereof; but the omission to so 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 and 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, costs
      and expenses, (y) the Indemnified Party and the Indemnifying Party shall
      reasonably have concluded that representation of the Indemnified Party by 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 counsel for the Indemnified Party (together with appropriate local
      counsel). The Indemnified Party shall not, without the prior written consent
      of
      the Indemnifying 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 Indemnifying Party from all
      liabilities with respect to such Claim or judgment.

     

    (C)  Contribution.
      If the
      indemnification provided for in this Section 6 is unavailable to or insufficient
      to hold harmless an Indemnified Person under subsection (A) above in respect
      of
      any losses, claims, damages or liabilities (or actions in respect thereof)
      referred to therein, then each Indemnifying Party shall contribute to the amount
      paid or payable by such Indemnified Party as a result of such losses, claims,
      damages or liabilities (or actions in respect thereof) in such proportion as
      is
      appropriate to reflect the relative fault of the Indemnifying Party and the
      Indemnified Party in connection with the statements or omissions which resulted
      in such losses, claims, damages or liabilities (or actions in respect thereof),
      as well as any other relevant equitable considerations. The relative fault
      of
      such Indemnifying Party and Indemnified Party shall be determined by reference
      to, among other things, whether the untrue or alleged untrue statement of a
      material fact or omission or alleged omission to state a material fact relates
      to information supplied by such Indemnifying Party or by such Indemnified Party,
      and the parties’ relative intent, knowledge, access to information and
      opportunity to correct or prevent such statement or omission. The parties hereto
      agree that it would not be just and equitable if contribution pursuant to this
      Section 6(D) were determined by pro rata allocation (even if the Investors
      or
      any underwriters were treated as one entity for such purpose) or by any other
      method of allocation which does not take account of the equitable considerations
      referred to in this Section 6(D). The amount paid or payable by an Indemnified
      Party as a result of the losses, claims, damages or liabilities (or actions
      in
      respect thereof) referred to above shall be deemed to include any legal or
      other
      fees or expenses reasonably incurred by such Indemnified Party in connection
      with investigating or defending any such action or claim. No person guilty
      of
      fraudulent misrepresentation (within the meaning of Section 11(f) of the
      Securities Act) shall be entitled to contribution from any person who was not
      guilty of such fraudulent misrepresentation. The obligations of the Investors
      and any underwriters in this Section 6(D) to contribute shall be several in
      proportion to the percentage of Registrable Securities registered or
      underwritten, as the case may be, by them and not joint. 
       

      
        
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    (D)  Notwithstanding
      any other provision of this Section 6, in no event shall any (i) Investor be
      required to undertake liability to any person under this Section 6 for any
      amounts in excess of the dollar amount of the proceeds to be received by such
      Investor from the sale of such Investor’s Registrable Securities (after
      deducting any fees, discounts and commissions applicable thereto) pursuant
      to
      any Registration Statement under which such Registrable Securities are to be
      registered under the Securities Act and (ii) underwriter be required to
      undertake liability to any Person hereunder for any amounts in excess of the
      aggregate discount, commission or other compensation payable to such underwriter
      with respect to the Registrable Securities underwritten by it and distributed
      pursuant to the Registration Statement.

     

    (E)  The
      obligations of the Company under this Section 6 shall be in addition to any
      liability which the Company may otherwise have to any Indemnified Person and
      the
      obligations of any Indemnified Person under this Section 6 shall be in addition
      to any liability which such Indemnified Person may otherwise have to the
      Company. The remedies provided in this Section 6 are not exclusive and shall
      not
      limit any rights or remedies which may otherwise be available to an indemnified
      party at law or in equity.

     

    7.  Rule
      144

     

    With
      a
      view to making available to the Investors the benefits of Rule 144 under the
      Securities Act or any other similar rule or regulation of the Commission that
      may at any time permit the Investors to sell securities of the Company to the
      public without registration (“Rule
      144”),
      the
      Company agrees to use its best efforts to:

     

    (1)  comply
      with the provisions of paragraph (c) (1) of Rule 144 and

     

    (2)  file
      with
      the Commission in a timely manner all reports and other documents required
      to be
      filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act;
      and, if at any time it is not required to file such reports but in the past
      had
      been required to or did file such reports, it will, upon the request of any
      Investor, make available other information as required by, and so long as
      necessary to permit sales of, its Registrable Securities pursuant to
      Rule 144. 
       

      
        
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    8.  Assignment

     

    The
      rights to have the Company register Registrable Securities pursuant to this
      Agreement shall be automatically assigned by the Investors to any permitted
      transferee of all or any portion of such Registrable Securities (or all or
      any
      portion of the Debenture or Warrant of the Company which is convertible into
      such securities) only if (a) the Investor agrees in writing with the transferee
      or assignee to assign such rights, and a copy of such agreement is furnished
      to
      the Company within a reasonable time after such assignment, (b) the Company
      is,
      within a reasonable time after such transfer or assignment, furnished with
      written notice of (i) the name and address of such transferee or assignee and
      (ii) the securities with respect to which such registration rights are being
      transferred or assigned, (c) immediately following such transfer or assignment,
      the securities so transferred or assigned to the transferee or assignee
      constitute Restricted Securities and (d) at or before the time the Company
      received the written notice contemplated by clause (b) of this sentence the
      transferee or assignee agrees in writing with the Company to be bound by all
      of
      the provisions contained herein.

     

    9.  Amendment
      and Waiver

     

    Any
      provision of this Agreement may be amended and the observance thereof may be
      waived (either generally or in a particular instance and either retroactively
      or
      prospectively), only with the written consent of the Company and Investors
      who
      hold a majority-in-interest of the Registrable Securities. Any amendment or
      waiver effected in accordance with this Section 9 shall be binding upon each
      Investor and the Company.

     

    10.  Changes
      in Common Stock

     

    If,
      and
      as often as, there are any changes in the Common Stock by way of stock split,
      stock dividend, reverse split, combination or reclassification, or through
      merger, consolidation, reorganization or recapitalization, or by any other
      means, appropriate adjustment shall be made in the provisions hereof, as may
      be
      required, so that the rights and privileges granted hereby shall continue with
      respect to the Common Stock as so changed.

     

    11.  Miscellaneous

     

    (A)  A
      person
      or entity shall be deemed to be a holder of Registrable Securities whenever
      such
      person or entity owns of record such Registrable Securities. If the Company
      receives conflicting instructions, notices or elections from two or more persons
      or entities with respect to the same Registrable Securities, the Company shall
      act upon the basis of instructions, notice or election received from the
      registered owner of such Registrable Securities.

     

    (B)  If,
      after
      the date hereof and prior to the Commission declaring the Registration Statement
      to be filed pursuant to Section 2(a) effective under the Securities Act, the
      Company grants to any Person any registration rights with respect to any Company
      securities which are more favorable to such other Person than those provided
      in
      this Agreement, then the Company forthwith shall grant (by means of an amendment
      to this Agreement or otherwise) identical registration rights to all Investors
      hereunder.

     

    (C)  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:
      
       

      
        
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    (1) If
      to the
      Company, to:

    

    Infinium
      Labs, Inc.

    1191
      Second Avenue, 5th
      Floor

    Seattle,
      Washington 98101   

    Telephone: 206-393-3000

    Facsimile: 206-393-3031

    

    

    (2) If
      to the
      Investor, to:

    

    Golden
      Gate Investors, Inc.

    7817
      Herschel Avenue, Suite 200

    La
      Jolla,
      California 92037

    Telephone: 858-551-8789

    Facsimile: 858-551-8779

     

    (3) If
      to any
      other Investor, at such address as such Investor shall have provided in writing
      to the Company.

     

    The
      Company, the Holder or any Investor may change the foregoing address by notice
      given pursuant to this Section 11(C).

     

    (D)  Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

     

    (E)  This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of California. Each of the parties consents to the 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 hereby waives,
      to
      the maximum extent permitted by law, any objection including any objection
      based
      on forum non conveniens, to the bringing of any such proceeding in such
      jurisdictions.

     

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

      
        
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    (G)  The
      remedies provided in this Agreement are cumulative and not exclusive of any
      remedies provided by law. If any term, provision, covenant or restriction of
      this Agreement is held by a court of competent jurisdiction to be invalid,
      illegal, void or unenforceable, the remainder of the terms, provisions,
      covenants and restrictions set forth herein shall remain in full force and
      effect and shall in no way be affected, impaired or invalidated, and the parties
      hereto shall use their best efforts to find and employ an alternative means
      to
      achieve the same or substantially the same result as that contemplated by such
      term, provision, covenant or restriction. It is hereby stipulated and declared
      to be the intention of the parties that they would have executed the remaining
      terms, provisions, covenants and restrictions without including any of such
      that
      may be hereafter declared invalid, illegal, void or unenforceable.

     

    (H)  The
      Company shall not enter into any agreement with respect to its securities that
      is inconsistent with the rights granted to the holders of Registrable Securities
      in this Agreement or otherwise conflicts with the provisions hereof. The Company
      is not currently a party to any agreement granting any registration rights
      with
      respect to any of its securities to any person which conflicts with the
      Company’s obligations hereunder or gives any other party the right to include
      any securities in any Registration Statement filed pursuant hereto, except
      for
      such rights and conflicts as have been irrevocably waived. Without limiting
      the
      generality of the foregoing, without the written consent of the holders of
      a
      majority in interest of the Registrable Securities, the Company shall not grant
      to any person the right to request it to register any of its securities under
      the Securities Act unless the rights so granted are subject in all respect
      to
      the prior rights of the holders of Registrable Securities set forth herein,
      and
      are not otherwise in conflict or inconsistent with the provisions of this
      Agreement. The restrictions on the Company’s rights to grant registration rights
      under this paragraph shall terminate on the date the Registration Statement
      to
      be filed pursuant to Section 2(A) is declared effective by the
      Commission.

     

    (I)  This
      Agreement, the Securities Purchase Agreement, the Debenture and the Conversion
      Warrants Agreement, of even date herewith among the Company and the Holder
      constitute the entire agreement among the parties hereto with respect to the
      subject matter hereof. There are no restrictions, promises, warranties or
      undertakings, other than those set forth or referred to herein. These Agreements
      supersede all prior agreements and undertakings among the parties hereto with
      respect to the subject matter hereof.

     

    (J)  Subject
      to the requirements of Section 8 hereof, this Agreement shall inure to the
      benefit of and be binding upon the successors and assigns of each of the parties
      hereto.

     

    (K)  All
      pronouns and any variations thereof refer to the masculine, feminine or neuter,
      singular or plural, as the context may require.

     

    (L)  The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning thereof.

     

    (M)  The
      Company acknowledges that any failure by the Company to perform its obligations
      under Section 3, or any delay in such performance, could result in direct
      damages to the Investors and the Company agrees that, in addition to any other
      liability the Company may have by reason of any such failure or delay, the
      Company shall be liable for all direct damages caused by such failure or delay.
      
       

      
        
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    (N)  This
      Agreement may be executed in counterparts, each of which shall be deemed an
      original but both of which shall constitute one and the same agreement. A
      facsimile transmission of this signed Agreement shall be legal and binding
      on
      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.
	 
 	 
 	 
 
	 	By:  	/s/
              Greg Koler
	 	Name: Greg Koler
	 	Title:
              Predient and CEO

    

     

    
      	 	 	 
	 	Golden
              Gate
              Investors, Inc.
	 
 	 
 	 
 
	 	By:  	/s/
              Travis Huff
	 	Name: Travis Huff
	 	Title:
              Portfolio Manager

    

     

     

    
      
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        15THIS
        SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
        (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
        OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
        OF
        THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED
        EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
        ACT
        OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
        OF THE
        SECURITIES ACT OR SUCH OTHER LAWS.

       

      5
        1⁄4 % CONVERTIBLE DEBENTURE

       

      

      Company:
        Infinium
        Labs, Inc.

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

      Closing
        Date: January
        24, 2006

      Maturity
        Date: January
        24, 2009

      Principal
        Amount:
        $500,000

      First
        Payment Due Date: March
        15,
        2006

       

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

       

      ARTICLE
        1

      DEFINITIONS

       

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

       

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

       

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

       

      
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          1

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      ARTICLE
        2

      EXCHANGES,
        TRANSFER AND REPAYMENT

       

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

       

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

       

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

       

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

       

      ARTICLE
        3

      CONVERSION
        OF DEBENTURE

       

      SECTION
        3.1 Conversion;
        Conversion Price; Valuation Event.
        

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
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      SECTION
        3.5 Certain
        Conversion Limits.

       

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

       

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

       

      ARTICLE
        4

       

      STATUS;
        RESTRICTIONS ON TRANSFER

       

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

       

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

       

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

       

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

       

      ARTICLE
        5

      COVENANTS

       

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

       

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

       

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

       

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

       

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

       

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

       

      ARTICLE
        6

      EVENTS
        OF DEFAULT; REMEDIES

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
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      ARTICLE
        7

      MISCELLANEOUS

       

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

       

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

       

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

       

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

       

      (1) If
        to the
        Company, to:

      

      Infinium
        Labs, Inc.

      1191
        Second Avenue, 5th
        Floor

      Seattle,
        Washington 98101 

      Telephone: 206-393-3000

      Facsimile: 206-393-3031

       

      
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      (2) If
        to the
        Holder, to:

       

      Golden
        Gate Investors, Inc.

      7817
        Herschel Avenue, Suite 200

      La
        Jolla,
        California 92037

      Telephone: 858-551-8789

      Facsimile: 858-551-8779

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      

       

      
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      EXHIBIT A

      DEBENTURE
        CONVERSION NOTICE

       

      

      TO: Infinium
        Labs, Inc.

      

      

       

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

       

      Date
        and
        time: __________________

       

      ______________________________

       

      By:
        ___________________________

       

      Title:
        _________________________

       

      Fill
        in
        for registration of Debenture:

      Please
        print name and address

      (including
        ZIP code number):

      ______________________________

      
        
          ______________________________

          
            ______________________________

             

            
               

            

             

            
              
                
                

              

              
                A-1

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