Document:

SECURITIES PURCHASE AGREEMENT

            THIS SECURITIES  PURCHASE  AGREEMENT,  dated as of December 23, 2004
(this  "Agreement"),  is entered  into by and between  INFINIUM  LABS,  INC.,  a
Delaware  corporation with headquarters located at 2033 Main Street, Suite 1309,
Sarasota,  FL 34237 (the  "Company"),  and each  individual or entity named on a
signature page hereto (as used herein, each such signatory is referred to as the
"Lender")  (each agreement with a Lender being deemed a separate and independent
agreement  between  the  Company  and  such  Lender,  except  that  each  Lender
acknowledges  and consents to the rights granted to each other Lender [each,  an
"Other Lender"] under such agreement and the Transaction Agreements,  as defined
below, referred to therein).

                              W I T N E S S E T H:

            WHEREAS,  the Company and the Lender are  executing  and  delivering
this  Agreement  in  accordance  with and in reliance  upon the  exemption  from
securities  registration for offers and sales to accredited  investors afforded,
inter alia, by Rule 506 under  Regulation D  ("Regulation  D") as promulgated by
the United  States  Securities  and Exchange  Commission  (the " SEC") under the
Securities Act of 1933, as amended (the "1933 Act"),  and/or Section 4(2) of the
1933 Act; and

            WHEREAS,  the Lender  wishes to lend to the Company,  subject to and
upon the terms and conditions of this Agreement and acceptance of this Agreement
by the  Company,  the Lender's  Purchase  Price amount set forth on the Lender's
signature  page  hereto,  the  repayment  of  which  will be  represented  by 8%
Convertible   Debentures   Series  04-03  of  the  Company   (the   "Convertible
Debentures"),  which  Convertible  Debentures will be convertible into shares of
Common Stock,  $.0001 par value per share, of the Company (the "Common  Stock"),
upon the terms and subject to the  conditions  of such  Convertible  Debentures,
together with the Warrants (as defined  below)  exercisable  for the purchase of
shares of Common Stock;

            NOW  THEREFORE,  in  consideration  of the  premises  and the mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the parties agree as
follows:

            1. AGREEMENT TO PURCHASE; PURCHASE PRICE.

            A. PURCHASE OF THE SECURITIES.

            (i) Subject to the terms and  conditions  of this  Agreement and the
other  Transaction  Agreements,  the  undersigned  hereby  agrees to loan to the
Company the principal  amount set forth on the Lender's  signature  page of this

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Agreement (the "Purchase  Price"),  out of the aggregate  amount being loaned by
all Lenders of US $_____________(1) (the "Total Purchase Price"). The obligation
to repay the loan from the Lender shall be evidenced by the  Company's  issuance
of one or more  Convertible  Debentures  to  the Lender in such principal amount
(the  Convertible  Debentures  issued to the Lender,  the   "Debentures").  Each
Debenture  (i)  shall  provide  for its  conversion  into  Common  Stock  at the
Conversion  Price (as defined  below),  which price may be adjusted from time to
time as  provided  in the  Debenture,  (ii) mature on the day which is the first
anniversary  of  the  Closing  Date,   subject  to  acceleration  under  certain
circumstances described in the form of the Convertible  Debenture annexed hereto
as ANNEX I,  (iii)  will be  guaranteed  by the  Guarantor  (as  defined  below)
pursuant to, and subject to, the terms of a Personal Guarantee of Guarantor (the
"Guaranty")  attached  to the  Debenture,  and (iv)  shall  have the  terms  and
conditions of, and be  substantially  in the form attached hereto as, said ANNEX
I.

            (ii)  The  loan to be made by the  Lender  and the  issuance  of the
Debentures and the Warrants  (collectively,  the "Purchased  Securities") to the
Lender are sometimes referred to herein and in the other Transaction  Agreements
as  the  purchase and sale of the Debentures and the Warrants,  and are referred
to collectively as the "Transactions."

            b. CERTAIN  DEFINITIONS. As used herein, each of the following terms
has the meaning set forth below, unless the context otherwise requires:

            "Affiliate"  means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.

            "Certificates"  means  the  ink-signed  originals  of  (i)  (x)  the
Debentures and (y) the Warrants, each duly executed by the Company and issued on
the Closing Date in the name of the Lender,  and (ii) the  Guaranty  attached to
the Debentures, each duly executed by the Guarantor in favor of the Lender.

            "Closing  Date" means the date of  the closing of the  purchase  and
sale of the Purchased Securities.

----------
(1)   Amount to be inserted at Closing  Date (as defined  below),  not less than
      $1,000,000 and not more than $1,400,000.

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            "Closing  Price"  shall mean the 4:00 P.M.  closing bid price of the
Common Stock (in U.S.  Dollars) on the Principal  Trading Market on the relevant
Trading Day(s), as reported by the Reporting Service.

            "Company  Control  Person" means each director,  executive  officer,
promoter,  and such other  Persons  as may be deemed in  control of the  Company
pursuant  to Rule  405  under  the 1933  Act or  Section  20 of the 1934 Act (as
defined below).

            "Conversion  Price" means the amount which is  seventy-five  percent
(75%) of the lowest Closing Price during the five (5) Trading Days ending on the
Trading Day immediately before the Conversion Date; provided,  however,  that in
no event will the Conversion  Price (i) be more than  US$0.266667  (the "Maximum
Conversion  Price") or (ii) until the  earlier of the date which is the four (4)
months  after the Closing  Date or the date after the Closing  Date on which the
Company files a registration  statement on Form S-8, lower than US$0.106667 (the
"Minimum  Conversion  Price") (as each such amount may be adjusted  from time to
time as provided in the Debenture).

            "Conversion  Shares" means the shares of Common Stock  issuable upon
conversion of the Debentures  (including,  if relevant,  accrued interest on the
Debentures so converted).

            "Effective Date" means the date the Registration  Statement covering
the Registrable Securities is declared effective by the SEC.

            "Escrow Agent" means the escrow agent identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions").

            "Escrow  Funds"  means the Purchase  Price  delivered to the  Escrow
Agent as contemplated by Sections 1(c) and (d) hereof.

            "Escrow  Property"  means  the  Escrow  Funds  and the  Certificates
delivered to the Escrow Agent as contemplated by Section 1(c) hereof.

            "Exercise  Price" means the per share exercise price of the relevant
Warrant, as in effect at the relevant time.

            "Finder" means West Hastings Limited.

            "Guarantor" means the person named as guarantor in the Guaranty.

            "Holder"  means the Person  holding the relevant  Securities  at the
relevant time.

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            "Issue Date Conversion  Shares" means the number of shares of Common
Stock equal to (x) the  Purchase  Price paid by the  Lender,  divided by (y) the
Conversion Price in effect on the Closing Date.

            "Last Audited Date" means December 31, 2003.

            "Lender  Control  Person" means each  director,  executive  officer,
promoter,  and such  other  Persons  as may be deemed in  control  of the Lender
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

            "Lender's  Allocable  Share"  means  the  fraction,   of  which  the
numerator  is the  Lender's  Purchase  Price  and the  denominator  is the Total
Purchase Price.

            "Majority  in Interest  of the  Holders"  means one or more  Holders
whose respective outstanding principal amounts of the Debentures held by each of
them on the relevant date, aggregate more than seventy-five percent (75%) of the
total of the Lender's and the Other  Lenders'  aggregate  outstanding  principal
amounts of the Debentures  held by the Lender and the Other Lenders them on that
date.

            "Maximum Issue Date Conversion Shares" means the number of shares of
Common Stock equal to (x) the Purchase Price paid by the Lender,  divided by (y)
the Minimum Conversion Price in effect on the Closing Date.

            "Material  Adverse Effect " means an event or combination of events,
which  individually  or in the  aggregate,  would  reasonably be expected to (w)
adversely affect the legality,  validity or  enforceability of the Securities or
any of the  Transaction  Agreements,  (x) have or result in a  material  adverse
effect on the results of operations,  assets, prospects, or condition (financial
or  otherwise)  of the  Company  and its  subsidiaries,  taken as a  whole,  (y)
adversely  impair the  Company's  ability to perform fully on a timely basis its
obligations  under  any  of  the  Transaction  Agreements  or  the  transactions
contemplated  thereby,  or (z) materially and adversely  affect the value of the
rights granted to the Lender in the Transaction Agreements.

            "New Common  Stock" means  shares of Common Stock and/or  securities
convertible  into,  and/or other rights  exercisable for, the issuance of Common
Stock, which are offered or sold in a New Transaction.

            "New Investor" means the third party invest or,  purchaser or lender
(howsoever denominated) in a New Transaction.

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            "New Transaction" means the sale of New Common Stock by or on behalf
of the Company to a New Investor in a transaction  offered or consummated  after
the date hereof; provided,  however, that it is specifically understood that the
term "New  Transaction"  (1) includes,  but is not limited to, a transaction for
the sale of Common  Stock or of a security  convertible  into Common Stock or an
equity or credit line transaction,  but (2) does not include (a) the sale of the
Purchased  Securities to the Lender and the Other  Lenders,  (b) the issuance of
Common Stock upon the exercise or conversion of options, warrants or convertible
securities  outstanding on the date hereof, or in respect of any other financing
agreements  outstanding  on the date hereof and  identified  on Annex V attached
hereto  (provided  the same is not amended  after the date  hereof),  or (c) the
issuance of Common Stock upon the  exercise of any options or warrants  referred
to in the preceding clauses of this paragraph  (provided the same is not amended
after the date hereof).

            "Person"  means any living  person or any  entity,  such as, but not
necessarily limited to, a corporation, partnership or trust.

            "Principal Trading Market" means the Over the Counter Bulletin Board
or such other  market on which the  Common  Stock is  principally  traded at the
relevant time, but shall not include the "pink sheets."

            "Registrable  Securities"  shall have the meaning  ascribed to it in
the Registration Rights Agreement.

            "Registration   Rights  Agreement"  means  the  Registration  Rights
Agreement in the form  annexed  hereto as ANNEX IV as executed by the Lender and
the Company simultaneously with the execution of this Agreement.

            "Registration  Statement" means an effective  registration statement
covering the Registrable Securities.

            "Reporting  Service"  means  Bloomberg  LP or if that service is not
then reporting the relevant information regarding the Common Stock, a comparable
reporting  service of national  reputation  selected  by  a Majority in Interest
of the Holders and reasonably acceptable to the Company.

            "Securities"  means  the  Debentures,  the  Conversion  Shares,  the
Warrants, and the Warrant Shares.

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            "Shares" means the  shares of Common Stock  representing  any or all
of the Conversion  Shares, the Warrant Shares, or the Payment Shares (as defined
in the Registration Rights Agreement).

            "State of Incorporation" means Delaware.

            "Trading  Day"  means any day  during  which the  Principal  Trading
Market shall be open for business.

            "Transaction  Agreements" means this Securities  Purchase Agreement,
the  Debentures,   the   Registration   Rights   Agreement,   the  Joint  Escrow
Instructions, and the Warrants, and includes all ancillary documents referred to
in those agreements and documents.

            "Transfer  Agent"  means,  at any time,  the transfer  agent for the
Company's Common

            "Warrant  Shares"  means the  shares  issuable  on  exercise  of the
Warrants.

            c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.

            (i)  The  Lender  shall  pay  the  Purchase   Price  by   delivering
immediately available good funds in United States Dollars to the Escrow Agent no
later than the date prior to the Closing Date.

            (ii) No later  than the  Closing  Date,  but in any  event  promptly
following  payment by the Lender to the Escrow Agent of the Purchase Price,  the
Company shall deliver the Certificates to the Escrow Agent.

            (iii) By signing this Agreement, each of the Lender and the Company,
subject  to  acceptance  by the  Escrow  Agent,  agrees  to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.

            d. METHOD OF PAYMENT.  Payment  into  escrow of the  Purchase  Price
shall be made by wire transfer of funds to:

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               Bank of New York
               350 Fifth Avenue
               New York, New York 10001

               ABA# 021000018

               For credit to the account of Krieger & Prager LLP
               Account No.: [To be provided by Escrow Agent]
               Re: Infinium Debenture Transaction 2/[Name of Lender]

            2. LENDER REPRESENTATIONS,  WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.

            The Lender  represents  and  warrants to, and  covenants  and agrees
with, the Company as follows:

            A. Without limiting  Lender's right to sell the Securities  pursuant
to an effective  registration statement or otherwise in compliance with the 1933
Act, the Lender is purchasing  the Securities for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.

            B.  The  Lender  is (i) an  "accredited  investor"  as that  term is
defined in Rule 501 of the General Rules and  Regulations  under the 1933 Act by
reason of Rule  501(a)(3),  (ii)  experienced in making  investments of the kind
described in this Agreement and the related documents,  (iii) able, by reason of
the  business  and  financial  experience  of its  officers  (if an entity)  and
professional  advisors (who are not affiliated with or compensated in any way by
the  Company or any of its  Affiliates  or selling  agents),  to protect its own
interests in connect ion with  the transactions described in this Agreement, and
the related documents,  and to evaluate the merits and risks of an investment in
the Securities, and (iv) able to afford the entire loss of its investment in the
Securities.

            C. All  subsequent  offers and sales of the Securities by the Lender
shall be made pursuant to registration of the relevant Securities under the 1933
Act or pursuant to an exemption from registration.

            D. The Lender  understands that the Securities are being offered and
sold to it in reliance on specific exemptions from the registration requirements
of the 1933 Act and state  securities  laws and that the Company is relying upon
the  truth  and   accuracy   of,  and  the   Lender's   compliance   with,   the
representations,  warranties, agreements,  acknowledgments and understandings of

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the Lender  set forth  herein in order to  determine  the  availability  of such
exemptions and the eligibility of the Lender to acquire the Securities.

            E. The Lender and its advisors,  if any, have been furnished with or
have been given access to all materials  relating to the business,  finances and
operations  of the Company and  materials  relating to the offer and sale of the
Purchased  Securities  and the Warrants which have been requested by the Lender,
including  those set forth on in any annex attached  hereto.  The Lender and its
advisors,  if any,  have been afforded the  opportunity  to ask questions of the
Company and its management and have received  complete and satisfactory  answers
to any such  inquiries.  Without  limiting the generality of the foregoing,  the
Lender  has also had the  opportunity  to  obtain  and to review  the  Company's
filings on EDGAR listed on ANNEX VII hereto (the documents  listed on such Annex
VII, to the extent  available  on EDGAR or  otherwise  provided to the Lender as
indicated on said Annex VII, collectively, the "Company's SEC Documents").

            F. The Lender  understands  that its  investment  in the  Securities
involves a high degree of risk.

            G.  The  Lender  hereby  represents  that,  in  connection  with its
purchase of the Securities, it has not relied on any statement or representation
by the Company or the Finder or any of their respective officers,  directors and
employees or any of their respective attorneys or agents, except as specifically
set forth herein. The Finder is a third party beneficiary of this provision.

            H. The Lender  understands  that no United  States  federal or state
agency or any other government or governmental  agency has passed on or made any
recommendation or endorsement of the Securities.

            I. This Agreement and the other Transaction  Agreements to which the
Lender is a party, and the transactions  contemplated   thereby,  have been duly
and validly  authorized,  executed and delivered on behalf of the Lender and are
valid and binding  agreements of the Lender enforceable in accordance with their
respective terms,  subject as to enforceability to general  principles of equity
and to bankruptcy,  insolvency,  moratorium and other similar laws affecting the
enforcement of creditors' rights generally.

            3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants
to the Lender on the date  hereof  and as of the  Closing  Date that,  except as
otherwise provided in the ANNEX VI or in the Company's SEC Documents:

            A.  RIGHTS  OF  OTHERS  AFFECTING  THE  TRANSACTIONS.  There  are no
preemptive  rights of any  shareholder  of the Company,  as such, to acquire the
Purchased Securities or the Shares.

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No party has a  currently  exercisable  right of first  refusal  which  would be
applicable to any or all of the  transactions  contemplated  by the  Transaction
Agreements.

            B. STATUS.  The Company is a  corporation  duly  organized,  validly
existing and in good standing under the laws of the State of  Incorporation  and
has the  requisite  corporate  power to own its  properties  and to carry on its
business  as now being  conducted.  The Company is duly  qualified  as a foreign
corporation  to do business and is in good standing in each  jurisdiction  where
the  nature  of the  business  conducted  or  property  owned by it  makes  such
qualification necessary,  other than those jurisdictions in which the failure to
so qualify would not have or result in a Material  Adverse  Effect.  The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section  15(d) of the  Securities  and Exchange Act of 1934,  as amended (the
"1934 Act").  The Common Stock is quoted on the Principal  Trading  Market.  The
Company has  received no notice,  either  oral or written,  with  respect to the
continued  eligibility  of the Common Stock for such  quotation on the Principal
Trading Market,  and the Company has maintained all requirements on its part for
the continuation of such quotation.

            C. AUTHORIZED SHARES.

            (i) The  authorized  capital  stock of the  Company  consists of (i)
200,000,000  shares of  Common Stock,   $.0001  par  value per  share,  of which
approximately 112,275,903 shares are outstanding as of the date hereof, and (ii)
approximately 8,407,081 shares of common stock underlying warrants.

            (ii) As of the date  hereof and as of the  Closing Date,  (1)  there
are no outstanding securities which are convertible into shares of Common Stock,
whether such conversion is currently  exercisable or exercisable  only upon some
future  date or the  occurrence  of some event in the future and (2) the Company
has not  issued any  warrants  or other  rights to acquire  shares of the Common
Stock other than those referred to in the Company's SEC  Documents.  If any such
securities are listed on Annex VI, the number or amount of each such outstanding
convertible security and the conversion terms thereof or of each such warrant or
other right and the terms of its exercise are set forth in said Annex VI.

            (iii) All issued and  outstanding  shares of Common  Stock have been
duly  authorized and validly issued and are fully paid and  non-assessable.  The
Company has sufficient  authorized and unissued shares of Common Stock as may be
necessary to effect the issuance of the Shares on the Closing Date.

            (iv) As of the  Closing  Date,  the  Shares  shall  have  been  duly
authorized by all necessary  corporate  action on the part of the Company,  and,
when issued on the Closing Date or upon conversion of the Debentures or exercise

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of the  Warrants or pursuant to other  relevant  provisions  of the  Transaction
Agreements, in each case in accordance with their respective terms, will be duly
and  validly  issued,  fully paid and  non-assessable  and will not  subject the
Holder thereof to personal liability by reason of being such Holder.

            D. TRANSACTION  AGREEMENTS AND STOCK. This Agreement and each of the
other Transaction  Agreements,  and the transactions  contemplated thereby, have
been duly and validly  authorized by the Company,  this  Agreement has been duly
executed  and  delivered  by  the  Company  and  this   Agreement  is,  and  the
Debentures,  the Warrants  and each of the other  Transaction  Agreements,  when
executed and delivered by the Company,  will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms, subject as to
enforceability  to general  principles of equity and to bankruptcy,  insolvency,
moratorium,  and other  similar laws  affecting  the  enforcement  of creditors'
rights generally.

            E.  NON-CONTRAVENTION.  The execution and delivery of this Agreement
and each of the other  Transact ion  Agreements by the Company,  the issuance of
the Securities,  and the  consummation by the Company of the other  transactions
contemplated  by this  Agreement,  the  Debentures,  the  Warrants and the other
Transaction  Agreements  do not and will not conflict with or result in a breach
by the Company of any of the terms or  provisions  of, or  constitute  a default
under (i) the certificate of  incorporation  or by-laws of the Company,  each as
currently  in effect,  (ii) any  indenture,  mortgage,  deed of trust,  or other
material agreement or instrument to which the  Company is a party or by which it
or any of its  properties or assets are bound,  including any listing  agreement
for the Common Stock except as herein set forth, or (iii) to its knowledge,  any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or  order  of any  court,  United  States  federal  or  state  regulatory  body,
administrative  agency, or other governmental body having  jurisdiction over the
Company or any of its  properties  or assets,  except such  conflict,  breach or
default which would not have or result in a Material Adverse Effect.

            F. APPROVALS.  No  authorization,  approval or consent of any court,
governmental body,  regulatory agency,  self-regulatory  organization,  or stock
exchange or market or the shareholders of the Company is required to be obtained
by the  Company for the  issuance  and sale of the  Securities  to the Lender as
contemplated  by this  Agreement,  except  such  authorizations,  approvals  and
consents that have been obtained.

            G. FILINGS.  None of the Company's SEC Documents  contained,  at the
time they were  filed,  any untrue  statement  of a material  fact or omitted to
state any material fact  required to be stated  therein or necessary to make the
statements  made  therein in light of the  circumstances  under  which they were
made, not misleading. Since January 5, 2004, the Company has filed all requisite
forms, reports and exhibits thereto required to be filed by the Company with the
SEC.

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            H. ABSENCE OF CERTAIN  CHANGES.  Since the Last Audited Date,  there
has been no material  adverse change and no Material  Adverse Effect,  except as
disclosed in the Company's  SEC Documents.  Since the Last Audited Date,  except
as provided in the Company's SEC Documents,  the Company has not (i) incurred or
become  subject to any  material  liabilities  (absolute or  contingent)  except
liabilities  incurred in the ordinary  course of business  consistent  with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material  obligation  or liability  (absolute  or  contingent),  other  than
current liabilities paid in the ordinary course of business consistent with past
practices;  (iii) declared or made any payment or  distribution of cash or other
property to  shareholders  with  respect to its capital  stock,  or purchased or
redeemed,  or made any  agreements  to  purchase  or  redeem,  any shares of its
capital stock; (iv) sold,  assigned or transferred any other tangible assets, or
canceled  any debts  owed to the  Company  by any  third  party or claims of the
Company  against any third party,   except  in the  ordinary  course of business
consistent with past practices; (v) waived any rights of material value, whether
or not in the ordinary course of business,  or suffered the loss of any material
amount of existing business;  (vi) made any increases in employee  compensation,
except in the ordinary course of business  consistent  with past  practices;  or
(vii)  experienced any material  problems with labor or management in connection
with the terms and conditions of their employment.

            I. FULL DISCLOSURE. To the best of the Company's knowledge, there is
no fact known to the Company (other than general  economic  conditions  known to
the public  generally or as disclosed in the Company's SEC  Documents)  that has
not been disclosed in writing to the Lender that would reasonably be expected to
have or result in a Material Adverse Effect.

            J.  ABSENCE OF  LITIGATION.  There is no action,  suit,  proceeding,
inquiry or  investigation  before or by any court,  public board or body pending
or, to the knowledge of the Company, threatened against or affecting the Company
before  or  by  any  governmental   authority  or  nongovernmental   department,
commission,  board,  bureau,  agency or  instrumentality  or any  other  person,
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of the
Transaction Agreements. The Company is not aware of any valid basis for any such
claim that (either  individually  or in the aggregate with all other such events
and  circumstances)  could  reasonably  be expected  to have a Material  Adverse
Effect.  There are no  outstanding or unsatisfied  judgments,  orders,  decrees,
writs,  injunctions or  stipulations to which the Company is a party or by which
it or any of its properties is bound, that involve the transaction  contemplated
herein or that, alone or in the aggregate,  could reasonably be expect to have a
Material Adverse Effect.

            K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Section 3(e)
hereof,  no Event  of  Default  (or its  equivalent  term),  as  defined  in the
respective  agreement to which the Company or its subsidiary is a party,  and no

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event  which,  with the giving of notice or the  passage of time or both,  would
become an Event of  Default  (or its  equivalent  term) (as so  defined  in such
agreement), has occurred and is continuing,  which would have a Material Adverse
Effect.

            L. ABSENCE OF CERTAIN COMPANY  CONTROL PERSON ACTIONS OR EVENTS.  To
the Company's knowledge, none of the following has occurred during the past five
(5) years with respect to a Company Control Person:

      (1) A petition under the federal  bankruptcy laws or any state  insolvency
      law was  filed by or  against,  or a  receiver,  fiscal  agent or  similar
      officer  was  appointed  by a court for the  business  or property of such
      Company  Control  Person,  or any  partnership  in which he was a  general
      partner at or within  two years  before  the time of such  filing,  or any
      corporation or business  association of which he was an executive  officer
      at or within two years before the time of such filing;

      (2) Such Company Control Person was convicted in a criminal  proceeding or
      is a named subject of a pending  criminal  proceeding  (excluding  traffic
      violations and other minor offenses);

      (3) Such Company Control Person was the subject of any order,  judgment or
      decree, not subsequently  reversed,  suspended or vacated, of any court of
      competent jurisdiction,  permanently or temporarily enjoining him from, or
      otherwise limiting, the following activities:

            (i) acting, as an investment advisor, underwriter,  broker or dealer
            in securities,  or as an affiliated person,  director or employee of
            any  investment  company,  bank,  savings  and loan  association  or
            insurance  company,  as a futures commission  merchant,  introducing
            broker,  commodity trading advisor,  commodity pool operator,  floor
            broker,  any other Person regulated by the Commodity Futures Trading
            Commission  ("CFTC")  or engaging  in or  continuing  any conduct or
            practice in connection with such activity;

            (ii) engaging in any type of business practice; or (iii) engaging in
            any activity in connection with the purchase or sale of any security
            or commodity or in connection with any violation of federal or state
            securities laws or federal commodities laws;

                                       12
<PAGE>

      (4) Such Company Control Person was the subject of any order,  judgment or
      decree, not subsequently  reversed,  suspended  or vacated, of any federal
      or state authority barring, suspending or otherwise limiting for more than
      60 days the right of such Company Control Person to engage in any activity
      described in paragraph (3) of this item, or to be associated  with Persons
      engaged in any such activity; or

      (5)  Such  Company  Control  Person  was  found  by a court  of  competent
      jurisdiction  in a civil action or by the CFTC or SEC to have violated any
      federal or state  securities law, and the judgment in such civil action or
      finding by the CFTC or SEC has not been subsequently reversed,  suspended,
      or vacated.

            M.  NO  UNDISCLOSED  LIABILITIES  OR  EVENTS.  To  the  best  of the
Company's  knowledge,  the Company has no liabilities or obligations  other than
those disclosed in the Transaction  Agreements or the Company's SEC Documents or
those incurred in the ordinary  course of the Company's  business since the Last
Audited Date, or which  individually  or in the  aggregate,  do not or would not
have a Material Adverse Effect. No event or circumstances has occurred or exists
with respect to the Company or its properties,  business, operations,  condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under  consideration  by the Board of Directors or the executive  officers of
the Company  which  proposal  would (x) change the  articles or  certificate  of
incorporation  or other  charter  document  or by-laws of the  Company,  each as
currently in effect,  with or without shareholder  approval,  which change would
reduce or otherwise  adversely  affect the rights and powers of the shareholders
of the Common Stock or (y)  materially  or  substantially  change the  business,
assets or capital of the Company, including its interests in subsidiaries.

            N.  NO  INTEGRATED  OFFERING.  Neither  the  Company  nor any of its
Affiliates  nor any  Person  acting  on its or their  behalf  has,  directly  or
indirectly,  at any time  since  May 1,  2004,  made  any  offer or sales of any
security or solicited any offers to buy any security  under  circumstances  that
would  eliminate the  availability  of  the  exemption  from registration  under
Regulation  D in  connection  with  the  offer  and  sale of the  Securities  as
contemplated hereby.

            O. DILUTION.  The number of shares  issuable upon  conversion of the
Debentures,  or upon  exercise of the Warrants or pursuant to the other terms of
the Transaction Agreements may have a dilutive effect on the ownership interests
of the other shareholders (and Persons having the right to become  shareholders)
of the Company.  The Company's executive officers and directors have studied and
fully  understand the nature of the  Securities  being sold hereby and recognize
that they have such a potential  dilutive effect.  The board of directors of the
Company has concluded,  in its good faith business judgment,  that such issuance
is in the best interests of the Company. The Company  specifically  acknowledges

                                       13
<PAGE>

that its  obligation  to issue the  Conversion  Shares  upon  conversion  of the
Debentures,  the Warrant  Shares upon exercise of the  Warrants,  or the Payment
Shares as provided in the  Registration  Rights  Agreement  is binding  upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership  interests of other shareholders of the Company,  and the Company will
honor such  obligations,  including  honoring  every  Notice of  Conversion  (as
contemplated by the  Debentures),  every Notice of Exercise (as  contemplated by
the  Warrants),  every  demand  for  Payment  Shares  (as  contemplated  by  the
Registration  Rights Agreement),  unless the Company is subject to an injunction
(which  injunction was not sought by the Company)  prohibiting  the Company from
doing so.

            P. FEES TO BROKERS,  FINDERS  AND OTHERS.  Except for payment of the
fees to the Finder's  Compensation (as defined below) to the Finder,  payment of
which is the sole responsibility of the Company, the Company has taken no action
which  would  give rise to any claim by any  Person  for  brokerage  commission,
finder's fees or similar  payments by Lender  relating to this  Agreement or the
transactions  contemplated hereby.  Lender shall have no obligation with respect
to such fees or with respect to any claims made by or on behalf of other Persons
for fees of a type  contemplated in this paragraph that may be due in connection
with the transactions  contemplated hereby. The Company shall indemnify and hold
harmless  each of  Lender,  its  employees,  officers,  directors,  agents,  and
partners, and their respective Affiliates,  from and against all claims, losses,
damages,  costs  (including  the costs of preparation  and attorney's  fees) and
expenses  suffered in respect of any such claimed or existing  fees, as and when
incurred.  The  term  "Finder's  Compensation"  means,  in  connection  with the
consummation of the transactions  contemplated by this Agreement, a cash fee and
expense  allowance in the amount and other  consideration as contemplated by the
Joint Escrow Instructions.

            Q. DISCLOSURE. All information relating to or concerning the Company
set  forth in this  Agreement  or in the  Company's  SEC  Documents  is true and
correct in all material respects and have not omitted to state any material fact
necessary in order to make the  statements  made, in light of the  circumstances
under  which  they were  made,  not  misleading.  No event or  circumstance  has
occurred or exists  with  respect to the  Company or its  business,  properties,
prospects,   operations  or financial  conditions,  which under  applicable law,
rule or regulation, requires public disclosure or announcement by the Company.

            R.  CONFIRMATION.  The Company  confirms that all  statements of the
Company  contained  herein shall  survive  acceptance  of this  Agreement by the
Lender.  The Company  agrees that,  if any events occur or  circumstances  exist
prior  to  the   Closing   Date   which   would  make   any   of  the  Company's
representations,  warranties,  agreements or other  information set forth herein
materially  untrue or materially  inaccurate as of such date,  the Company shall
immediately notify the Lender and the Escrow Agent in writing prior to such date

                                       14
<PAGE>

of such fact, specifying  which representation, warranty or covenant is affected
and the reasons therefor.

            4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

            A.  TRANSFER  RESTRICTIONS.  The  Lender  acknowledges  that (1) the
Purchased  Securities  have not  been and are not  being  registered  under  the
provisions of the 1933 Act and,  except as provided in the  Registration  Rights
Agreement or  otherwise  included in an effective  registration  statement,  the
Shares have not been and are not being  registered  under the 1933 Act,  and may
not be  transferred  unless (A)  subsequently  registered  thereunder or (B) the
Lender  shall have  delivered  to the Company an opinion of counsel,  reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred  may be sold or transferred  pursuant to an
exemption  from  such  registration;  (2)  any  sale of the  Securities  made in
reliance  on Rule  144  promulgated  under  the  1933  Act  may be made  only in
accordance  with  the  terms  of said  Rule  and  further,  if said  Rule is not
applicable,  any  resale of such  Securities  under  circumstances  in which the
seller,  or the  Person  through  whom the sale is made,  may be deemed to be an
underwriter,  as that term is used in the 1933 Act, may require  compliance with
some other  exemption under the 1933 Act or the rules and regulations of the SEC
thereunder;  and (3)  neither  the  Company  nor any  other  Person is under any
obligation to register the Securities  (other than pursuant to the  Registration
Rights  Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.

            B.  RESTRICTIVE  LEGEND.  The Lender  acknowledges  and agrees that,
until such time as the relevant Shares have been registered  under the 1933 Act,
as contemplated  by  the  Registration Rights Agreement,  and sold in accordance
with an  effective  Registration  Statement  or otherwise  in   accordance  with
another effective  registration  statement or until such Shares can otherwise be
sold without  restriction,  whichever  is earlier,  the  Certificates  and other
instruments  representing any of the Securities shall bear a restrictive  legend
in  substantially  the following form (and a  stop-transfer  order may be placed
against transfer of any such Securities):

      THESE  SECURITIES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT
      OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
      BE  SOLD OR  OFFERED  FOR  SALE  IN THE  ABSENCE   OF  AN  EFFECTIVE
      REGISTRATION  STATEMENT FOR THE  SECURITIES OR AN OPINION OF COUNSEL
      OR OTHER EVIDENCE  ACCEPTABLE TO THE COMPANY THAT SUCH  REGISTRATION
      IS NOT REQUIRED.

                                       15
<PAGE>

            C. FILINGS.  The Company undertakes and agrees to make all necessary
filings in  connection  with the sale of the  Securities to the Lender under any
United States laws and regulations applicable to the Company, or by any domestic
securities  exchange  or trading  market,  and to provide a copy  thereof to the
Lender promptly after such filing.

            D. REPORTING STATUS. So long as the  Lender beneficially owns any of
the Securities and for at least twenty (20) Trading Days thereafter, the Company
shall file all reports  required to be filed with the SEC pursuant to Section 13
or 15(d) of the 1934 Act, shall take all reasonable  action under its control to
ensure that adequate current public information with respect to the Company,  as
required  in  accordance  with  Rule  144(c)(2)  of the 1933  Act,  is  publicly
available,  and shall not  terminate  its status as an issuer  required  to file
reports  under the 1934 Act even if the 1934 Act or the  rules  and  regulations
thereunder would permit such  termination.  The Company will take all reasonable
action under its control to maintain the  continued  listing and  quotation  and
trading of its Common Stock  (including,  without  limitation,  all  Registrable
Securities) on the Principal Trading Market or a listing on the NASDAQ/Small Cap
or National  Markets,  and, to the extent  applicable  to it, will comply in all
material  respects with the Company's  reporting,  filing and other  obligations
under the by-laws or rules of the  Principal Trading  Market and/or the National
Association of Securities Dealers, Inc., as the case may be, applicable to it at
least  through  the date which is sixty (60) days after the later of the date on
which (x) all of the Debentures have been converted or have been paid in full or
(y) all of the Warrants have been exercised or have expired.

            E. USE OF  PROCEEDS.  The  Company  will use the  proceeds  received
hereunder for the general corporate purposes.

            F. WARRANTS.

            (i) The Company  agrees to issue to the Lender on the Closing Date a
transferable warrant (each, a "Warrant"), designated as Class 2004-A2.

            (ii) Each  Warrant  shall be for the purchase the a number of shares
of Common Stock equal to fifty percent (50%) of the number of Maximum Issue Date
Conversion  Shares.   Each  Warrant  will  be  exercisable   commencing  on  the
Commencement  Date  specified  in the Warrant and expire on the date which is on
the last day of the calendar month in which the fifth annual  anniversary of the
Closing Date occurs.

            (iii) Each Warrant shall have an exercise price (each,  an "Exercise
Price") of  US$0.266667;  such  Exercise  Price will be subject to adjustment as
provided in the respective Warrant.

                                       16
<PAGE>

            (iv) Each of the  Warrants  shall be in the form  annexed  hereto as
Annex IV (v) All  Warrant  Shares  shall be  subject  to the  provisions  of the
Registration Rights Agreement.

            G. CERTAIN AGREEMENTS.

            (i) The Company agrees that, in the event there is a New Transaction
during the period  (the "New  Transaction  Period")  from the  Closing  Date and
continuing  through and  including  the Final New  Transaction  Date (as defined
below) where either (X) any one or more of the following conditions apply:

      (I) the  Applicable  Percentage is below the Current  Percentage (as those
      terms are defined below),

      (II) during such time as the Minimum  Conversion  Price is  applicable  to
      conversions of the Debenture, the New Transaction Price (as defined below)
      is less than the then applicable Minimum Conversion Price, or

      (III) either the Fixed New  Transaction  Price or the Maximum  Formula New
      Transaction  Price (as those terms are defined below), as the case may be,
      is or could be lower than the then applicable Maximum Conversion Price, or

(Y) the New  Transaction  Exercise  Price of any New  Transaction  Warrants  (as
defined below) is or could be lower than the then applicable  Exercise Price for
the Class A Warrants (a New Transaction meeting the conditions of either or both
of clauses (X) and (Y) of the immediately preceding sentence is referred to as a
"Lower Price Transaction"), then

      (1) if the  Applicable  Percentage  is  lower  than  the then   applicable
      Current Percentage, then, effective as of the closing date of the relevant
      New Transaction,  the Current Percentage for Unconverted  Debentures shall
      be adjusted to be equal to the Applicable Percentage; and

      (2) if the New Transaction  Price is a Formula New  Transaction  Price (as
      defined below), then:

          (i) if the Minimum Formula New  Transaction  Price (as defined
          below) is less  than the then  applicable  Minimum  Conversion
          Price, then,  effective as of the closing date of the relevant
          New Transaction

                                       17
<PAGE>

          and  for as  long  as a  Minimum  Conversion  Price  shall  be
          applicable  under  the  terms of the  Debenture,  the  Minimum
          Conversion  Price  of  any  Unconverted   Debenture  shall  be
          adjusted  to be equal to the Minimum  Formula New  Transaction
          Price; and

          (ii) if the Maximum Formula New Transaction  Price (as defined
          below) is less  than the then  applicable  Maximum  Conversion
          Price, then,  effective as of the closing date of the relevant
          New   Transaction,   the  Maximum   Conversion  Price  of  any
          Unconverted  Debenture  shall be  adjusted  to be equal to the
          Maximum Formula New Transaction Price; and

      (3) if the lower of the Fixed New Transaction  Price (as defined below) or
      the New  Transaction  Exercise  Price is less  than  the  then  applicable
      Maximum  Conversion Price, the Maximum Conversion Price of any Unconverted
      Debenture  shall be  adjusted  to be equal to the  lower of the  Fixed New
      Transaction Price or the New Transaction Exercise Price, and

      (4) if the New  Transaction  Exercise  Price is or could be lower than the
      then effective  Exercise Price on the Class A Warrants,  then the Exercise
      Price of the Class A Warrants  shall be adjusted to equal the lower of (x)
      the New  Transaction  Exercise  Price,  or (y) one hundred  sixty-six  and
      67/100 percent  (166.67%) of the New  Transaction  Price;  but in no event
      shall the Exercise Price of any Class A Warrant be adjusted to an Exercise
      Price  higher than the  Exercise  Price for such Class A Warrant in effect
      immediately before the relevant New Transaction.

            (ii) For purposes of this Agreement,  the following terms shall have
meanings indicated:

      (A) "Applicable  Percentage"  means,  with respect a New Transaction,  the
      lower of (i) if the conversion  price, if any,  applicable to convert  the
      convertible securities in the New Transaction is determined by multiplying
      a  market  price  of  the  Common  Stock  (howsoever   denominated)  by  a
      percentage,  the percentage so provided(2),  or (ii) if the purchase price
      for the Common Stock or if the conversion  price applicable to convert the
      convertible  securities  in the  New  Transaction  is a fixed  price,  the
      percentage equal to the fraction, of which (1) the numerator is such fixed

----------
(2)   If the  conversion  is stated as a  discount  from the market  price,  the
      Applicable  Percentage  will be 100% less the stated  discount.  By way of
      illustration, if the conversion price is stated as a 30% discount from the
      market price, the Applicable Percentage would be 100% - 30%, or 70%.

                                       18
<PAGE>

      price and (2) the  denominator is the lowest Closing Price during the five
      (5)  Trading  Days  ending  on the  Trading  Day  immediately  before  the
      consummation of the New Transaction.

      (B) "Current Percentage" means the lower of (1) seventy-five percent (75%)
      or (2) the  lowest  Applicable  Percentage,  if any,  from any  prior  New
      Transaction.

      (C) "Final New Transaction  Date" means the date which is ninety (90) days
      after the Effective  Date, but not counting for such purposes the days, if
      any,  during which sale of Registrable  Securities was suspended after the
      Effective Date(3),  except that, with respect to the provisions of Section
      4(g)(i)(4) [with respect to adjustments to the Exercise Price of the Class
      A Warrants],  it means the date which is three  hundred  sixty-five  (365)
      days after the  Effective  Date,  but not counting  for such  purposes the
      days, if any,  during which sale of  Registrable  Securities was suspended
      after the Effective Date.(4)

      (D) "Fixed New Transaction  Price" means a New Transaction  Price which is
      fixed and which is not a Formula New Transaction Price.

      (E) "Formula New Transaction Price" means a New Transaction Price which is
      not fixed but is determined by  application  of a formula  provided in the
      New Transaction.

      (F) "Maximum Formula New Transaction  Price" means, if the New Transaction
      Price is a Formula New Transaction Price, but there is a maximum price for
      the New Transaction Price, that maximum price.

      (G) "Minimum Formula New Transaction  Price" means, if the New Transaction
      Price is a Formula New Transaction Price, but there is a minimum price for
      the New Transaction Price, that minimum price.

      (H) "New  Transaction  Conversion  Price" means conversion price or put or
      call  price  which  would  be  applicable  under  the  terms  of  the  New
      Transaction;  in each such case, whether such purchase or conversion price
      or put or call  price  is  stated  or could  result  from  adjustments  or
      revisions  contemplated in the relevant agreements for the New Transaction
      and whenever such adjustment or revision would be applicable.

----------
(3)   By  way of  illustration:  If  the  sale  of  Registrable  Securities  was
      suspended  for ten (10)  days in the  interim,  the  applicable  Final New
      Transaction  Date will be one hundred (100) days after the Effective Date.
      If on day 95, the sale of Registrable  Securities was suspended  again for
      five (5) days,  the Final New  Transaction  Date will be one hundred  five
      (105) days after the Effective Date.
(4)   See footnote 3 for illustration of application of this provision.

                                       19
<PAGE>

      (I) "New Transaction  Exercise Price" means the lowest exercise price  per
      share applicable to a New Transaction Warrant, whether such exercise price
      is stated or could result from  adjustments or revisions  contemplated  in
      the relevant agreements for the New Transaction and whenever such exercise
      price would be applicable.

      (J) "New  Transaction  Price"  means the  lowest of (1) the  lowest  fixed
      purchase price of any shares of the New Common Stock  contemplated  in the
      New Transaction, (2) the New Transaction Exercise Price, or (3) the lowest
      New  Transaction  Conversion  Price;  provided,  however,  if  any  of the
      foregoing is not a fixed amount and no minimum  purchase  price,  exercise
      price or New Transaction  Conversion Price, as the case may be, is set, it
      shall be assumed that such minimum  purchase price,  exercise price or New
      Transaction Conversion Price is zero(5)); and provided,  further, that, if
      the securities issued in the New Transaction are issued at a discount, the
      New Transaction Price shall be adjusted to reflect such discount.(6)

      (K) "New  Transaction  Warrants"  means the  warrant,  option  or  similar
      instrument   (howsoever   denominated;   collectively,   "New  Transaction
      Warrants") included in a New Transaction.

            (iii)  Nothing  in  the  foregoing  provisions  reflects  either  an
obligation on the part of any Lender to participate in any New  Transaction or a
limitation on any Lender from participating in any New Transaction.

            (iv) Any of the  foregoing  provisions  of this  Section 4(g) or any
other provision of this Agreement or any of the other Transaction  Agreements to
the contrary notwithstanding,  the Company shall not engage in any offers, sales
or other  transactions  of its  securities  which  would  adversely  affect  the
exemption from registration  available for the transactions  contemplated by the
Transaction Agreements.

            H. RESERVED.

----------
(5)   It is the intention of this provision that, in such event,  there shall no
      longer be a Minimum Conversion Price for the Debentures.
(6)   By way of  illustration,  if convertible  preferred shares having a stated
      value of $1 million and a fixed  conversion price of $0.05 were sold for a
      purchase price of $800,000,  the effective New Transaction  Price would be
      $0.04.

                                       20
<PAGE>

            I. AVAILABLE SHARES. The Company shall have at all times authorized
and reserved for issuance,  free from preemptive rights, a number of shares (the
"Minimum  Available  Shares") at least equal to one hundred fifty percent (150%)
of (x) the  number of shares of Common  Stock  issuable  as may be  required  to
satisfy the  conversion  rights of the Holders of principal  on all  Unconverted
Debentures  outstanding  at any time  Debentures  plus (y) the  number of shares
issuable  upon  exercise of all  outstanding  Warrants held by all Holders as of
such date (in each case,  whether such  Debentures or Warrants  were  originally
issued to the Holder,  the Lender or to any other  party).  For the  purposes of
such  calculations,  the Company should assume that all  Convertible  Debentures
were then  convertible and all related Warrants were then  exercisable,  in each
case without regard to any  restrictions  (including  restrictions as to date or
amount) which might limit any Holder's  right to convert any of the  Convertible
Debentures or to exercise any of the Warrants held by any Holder.

            J.  PUBLICITY,  FILINGS,  RELEASES,  ETC. Each of the parties agrees
that it  will  not  disseminate  any  information  relating  to the  Transaction
Agreements or the transactions contemplated thereby, including issuing any press
releases,  holding any press  conferences or other forums, or filing any reports
(collectively,  "Publicity"),  without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such  Publicity any statement or statements or other  material to
which the other party reasonably  objects,  unless in the reasonable  opinion of
counsel  to the party  proposing  such  statement,  such  statement  is  legally
required to be  included.  In  furtherance  of the  foregoing,  the Company will
provide to the Lender  drafts of the  applicable  text of the first  filing of a
Current  Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
intended to be made with the  SEC which refers to the Transaction  Agreements or
the transactions  contemplated  thereby as soon as practicable (but at least two
(2)  Trading  Days  before  such  filing  will be made) will not include in such
filing any statement or  statements  or other  material to which the other party
reasonably  objects,  unless in the  reasonable  opinion of counsel to the party
proposing such  statement,  such  statement is legally  required to be included.
Notwithstanding  the  foregoing,  each of the  parties  hereby  consents  to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
as well as any  descriptive  text  accompanying  or part of such filing which is
accurate  and  reasonably  determined  by the  Company's  counsel  to be legally
required.  Notwithstanding,  but subject to, the  foregoing  provisions  of this
Section 4(j), the Company will,  after the Closing Date,  promptly issue a press
release and file a Current Report on Form 8-K or, if appropriate, a quarterly or
annual  report  on  the  appropriate   form,   referring  to  the   transactions
contemplated by the Transaction Agreements.

            K.  INDEPENDENT  NATURE OF  LENDERS'  OBLIGATIONS  AND  RIGHTS.  The
obligations of each Lender under the Transaction  Agreements are several and not
joint  with  the  obligations  of any  other  Lender,  and no  Lender  shall  be
responsible  in any way for the  performance  of the  obligations  of any  Other
Lender under any one or more of the Transaction Agreements. The decision of each
Lender  or  Other  Lender  to  purchase  Purchased  Securities  pursuant  to the
Transaction Agreements has been made by such Lender independently of any Other

                                       21
<PAGE>

Lender. Nothing contained herein or in any Transaction Agreement,  and no action
taken by any Lender pursuant  thereto,  shall be deemed to constitute any two or
more Lenders as a partnership, an association, a joint venture or any other kind
of entity,  or create a  presumption  that the  Lenders are in any way acting in
concert  or as a group  with  respect to such  obligations  or the  transactions
contemplated by the Transaction  Agreements.  Each Lender  acknowledges  that no
Other  Lender has acted as agent for such Lender in  connection  with making its
investment  hereunder  and that no Lender  will be acting as agent of such Other
Lender in connection with monitoring its investment in the Purchased  Securities
or enforcing its rights under the Transaction  Agreements.  Each Lender shall be
entitled to  independently  protect and  enforce its rights,  including  without
limitation  the  rights  arising  out of  this  Agreement  or  out of the  other
Transaction Agreements, and it shall not be necessary for any Other Lender to be
joined as an additional  party in any proceeding  for such purpose.  The Company
acknowledges  that  each  of  the  Lenders  has  been  provided  with  the  same
Transaction  Agreements  for the purpose of closing a transaction  with multiple
Lenders and not because it was required or requested to do so by any Lender.

            L. EQUAL TREATMENT OF LENDERS.  No consideration shall be offered or
paid to any  person  to amend or  consent  to a waiver  or  modification  of any
provision of any of the Transaction  Agreements unless the same consideration is
also offered to all of the parties to the Transaction Agreements.

            M. INDEPENDENT INVESTMENT DECISION. No Lender has agreed to act with
any Other Lender for the purpose of acquiring,  holding,  voting or disposing of
the  Securities  purchased  hereunder  for  purposes of Section  13(d) under the
Exchange  Act,  and each  Lender is acting   independently  with  respect to its
investment in the Securities.  The decision of each Lender to purchase Purchased
Securities pursuant to this Agreement has been made by such Lender independently
of  any  other  purchase  and  independently  of  any  information,   materials,
statements  or  opinions  as  to  the  business,  affairs,  operations,  assets,
properties,   liabilities,   results  of  operations,  condition  (financial  or
otherwise) or prospects of the Company or its  subsidiaries  which may have made
or given by any Other  Lender or by any agent or employee  of any Other  Lender,
and no Lender or any of its agents or employees  shall have any liability to any
Other  Lender  (or any  other  person)  relating  to or  arising  from  any such
information, materials, statements or opinions.

            5. TRANSFER AGENT INSTRUCTIONS.

            A. The Company warrants that, with respect to the Securities,  other
than the stop transfer  instructions  to give effect to Section 4(a) hereof,  it
will give the Transfer Agent no instructions  inconsistent  with instructions to
issue  Common  Stock from time to time upon  conversion  of the   Debentures  or
exercise of the Warrants or in connection  with the issuance of Payment  Shares,

                                       22
<PAGE>

as may be applicable  from time to time, in such amounts as specified  from time
to time by the Company to the Transfer  Agent,  bearing the  restrictive  legend
specified in Section 4(b) of this Agreement  prior to registration of the Shares
under the 1933 Act,  registered  in the name of the Lender or its nominee and in
such denominations to be specified by the Holder in connection therewith. Except
as so provided,  the Shares shall otherwise be freely  transferable on the books
and records of the Company as and to the extent  provided in this  Agreement and
the other  Transaction  Agreements.  Nothing in this Section shall affect in any
way the  Lender's  obligations  and  agreement  to  comply  with all  applicable
securities  laws upon  resale of the  Securities.  If the  Lender  provides  the
Company with an opinion of counsel  reasonably  satisfactory to the Company that
registration  of a resale by the Lender of any of the  Securities  in accordance
with clause (1)(B) of Section 4(a) of this  Agreement is not required  under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this  Agreement)  permit the transfer of the Securities  and, in the case of the
Conversion  Shares,  Warrant Shares,  or Payment  Shares,  as may be applicable,
promptly  instruct  the  Transfer  Agent to issue one or more  certificates  for
Common Stock without legend in such name and in such  denominations as specified
by the Lender.

            B. Subject to the  provisions  of this  Agreement,  the Company will
permit the Lender to exercise its right to convert the  Debentures in the manner
provide  in  the   Debentures  and  to  exercise  the  Warrants  in  the  manner
contemplated by the Warrants.

            C. (i) The Company  understands  that a delay in the issuance of the
Shares of Common Stock beyond the  Delivery  Date (as defined in the  Debenture)
could result in economic loss to the Lender.  As  compensation to the Lender for
such  loss,  the  Company  agrees to pay late  payments  to the  Lender for late
issuance of Shares upon  conversion  in accordance  with the following  schedule
(where "No.  Business  Days Late"  refers to the number of Trading Days which is
beyond two (2) Trading Days after the Delivery Date):(7)

----------
(7)   Example:  Notice of Conversion is delivered on Monday, August 1, 2005. The
      Delivery  Date would be  Thursday,  August 4 (the third  Trading Day after
      such delivery ). If the  certificate  is delivered by Monday,  August 8 (2
      Trading Days after the Delivery  Date), no payment under this provision is
      due. If the  certificates  are  delivered on August 9, that is 1 "Business
      Day  Late" in the table  below;  if  delivered  on  August  16,  that is 6
      "Business Days Late" in the table.

                                       23
<PAGE>

                                                LATE PAYMENT FOR EACH $10,000
                                                   OF PRINCIPAL OR INTEREST
            NO. BUSINESS DAYS LATE                     BEING CONVERTED
            ----------------------              ------------------------------

               1                                        $  100
               2                                        $  200
               3                                        $  300
               4                                        $  400
               5                                        $  500
               6                                        $  600
               7                                        $  700
               8                                        $  800
               9                                        $  900
               10                                       $1,000
              >10                                       $1,000+ $200 for each
                                                        Business Day Late beyond
                                                        10 days

The Company shall pay any payments  incurred  under this Section in  immediately
available  funds upon demand as the Lender's  exclusive  remedy  (other than the
following  provisions  of this  Section  5(c)) for such delay.  Furthermore,  in
addition to any other  remedies  which may be  available  to the Lender,  in the
event that the Company fails for any reason to effect delivery of such shares of
Common  Stock by close of  business  on the  Delivery  Date,  the Lender will be
entitled to revoke the relevant  Notice of  Conversion by delivering a notice to
such effect to the Company,  whereupon  the Company and the Lender shall each be
restored to their  respective  positions  immediately  prior to delivery of such
Notice of Conversion;  provided,  however,  that an amount equal to any payments
contemplated  by this Section  5(c) which have accrued  through the date of such
revocation   notice  shall  remain  due  and  owing  to  the  Converting  Holder
notwithstanding such revocation.

            (ii) If, by the relevant  Delivery  Date,  the Company fails for any
reason to deliver the Shares to be issued  upon  conversion  of a Debenture  and
after such  Delivery  Date,  the Holder of the  Debentures  being  converted  (a
"Converting  Holder")  purchases,  in an arm's-length open market transaction or
otherwise,  shares of Common  Stock  (the  "Covering  Shares")  in order to make
delivery in  satisfaction  of a sale of Common Stock  by the  Converting  Holder
(the "Sold Shares"),  which delivery such Converting Holder  anticipated to make
using the Shares to be issued upon such conversion (a "Buy-In"),  the Converting
Holder shall have the right, in addition to and not in lieu of all other amounts
contemplated in other provisions of the Transaction Agreements,  including,  but
not limited to, the provisions of the immediately  preceding  Section  5(c)(i)),
the Buy-In Adjustment Amount (as defined below).  The "Buy-In Adjustment Amount"
is the amount equal to the number of Sold Shares  multiplied  by the excess,  if

                                       24
<PAGE>

any, of (x) the Converting  Holder's  total purchase price per share  (including
brokerage  commissions,  if any)  for the  Covering  Shares(8)  over (y) the net
proceeds  per  share  (after  brokerage  commissions,  if any)  received  by the
Converting  Holder from the sale of the Sold Shares.  The Company  shall pay the
Buy-In Adjustment Amount to the Converting Holder in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing,  if the Converting  Holder  purchases  shares of
Common Stock having a total purchase price (including brokerage  commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.

            D. In lieu of  delivering  physical  certificates  representing  the
Common Stock issuable upon  conversion of the Debenture or exercise of a Warrant
or at the request of the Holder with  respect to any Shares  previously  issued,
provided the Transfer Agent is  participating  in the  Depository  Trust Company
("DTC") Fast Automated  Securities Transfer program,  upon request of the Holder
and its compliance with the provisions  contained in this paragraph,  so long as
the  certificates  therefor  do not bear a legend and the Holder  thereof is not
obligated to return such certificate for the placement of a legend thereon,  the
Company shall use its best efforts to cause the Transfer Agent to electronically
transmit  to the  Holder  the  Common  Stock  issuable  upon  conversion  of the
Debenture or exercise of the Warrant or in replacement of any Shares  previously
issued by  crediting  the account of Holder's  Prime Broker with DTC through its
Deposit Withdrawal Agent Commission system.

            E. The  Company  shall  assume any fees or  charges of the  Transfer
Agent or Company counsel  regarding (i) the removal of a legend or stop transfer
instructions  with respect to Registrable  Securities,  and (ii) the issuance of
certificates or DTC registration to or in the name of the Holder or the Holder's
designee  or  to a  transferee  as  contemplated  by an  effective  Registration
Statement.

----------
(8)   Provided, however, that if the Covering Shares were acquired other than by
      way of an arm's length open market  transaction,  the total purchase price
      for such shares (before brokerage commissions,  if any) shall be the lower
      of (x) the  amount  actually  charged  to the  Converting  Holder for such
      shares or (y) the  closing  sale price for  shares of Common  Stock on the
      Principal  Trading Market, as reported by the Reporting  Service,  for the
      Trading Day on which the Covering  Shares were  transferred to or credited
      to the Converting  Holder's account,  multiplied by the number of Covering
      Shares.

                                       25
<PAGE>

            F. The holder of any  Debenture  shall be entitled  to exercise  its
conversion   privilege  with  respect  to  the  Debenture   notwithstanding  the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the  Company is a debtor  under the  Bankruptcy  Code,  the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C.  ss.362 in respect of such 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.  ss.362 in respect of the  conversion of the Debenture.
The  Company  agrees,  without  cost or  expense to such  holder,  to take or to
consent to any and all action  necessary  to  effectuate  relief under 11 U.S.C.
ss.362.

            G. The Company will authorize the Transfer Agent to give information
relating to the Company  directly to the Lender or the Lender's  representatives
upon the  request of the Lender or any such  representative,  to the extent such
information  relates  to (i) the  status of shares  of  Common  Stock  issued or
claimed to be issued to the Lender in connection  with a Notice of Conversion or
a Notice of Exercise,  or (ii) the  aggregate  number of  outstanding  shares of
Common Stock of all  shareholders  (as a group,  and not  individually)  as of a
current or other specified date. At the request of the Lender,  the Company will
provide the Lender  with a copy of the  authorization  so given to the  Transfer
Agent.

            6. CLOSING DATE.

            A. The  Closing  Date  shall  occur on the date  which is the  first
Trading Day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.

            B.  The  closing  of the  purchase  and  issuance  of the  Purchased
Securities  shall occur on the Closing  Date at the offices of the Escrow  Agent
and shall take place no later than 3:00 P.M., New York time, on such day or such
other time as is mutually agreed upon by the Company and the Lender.

            C.  Notwithstanding  anything to the contrary  contained herein, the
Escrow Agent will be  authorized  to release the Escrow Funds to the Company and
to others and to release the other  Escrow  Property  on the  Closing  Date upon
satisfaction  of the  conditions  set forth in  Sections  7 and 8 hereof  and as
provided in the Joint Escrow Instructions.

                                       26
<PAGE>

            7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

            The Lender  understands  that the  Company's  obligation to sell the
Purchased  Securities  to the Lender  pursuant to this  Agreement on the Closing
Date is conditioned upon:

            A. The  execution  and delivery by the Lender of this  Agreement and
the other  Transactions  Agreements  required  to be signed by the  Lender on or
before the Closing Date;

            B. Delivery by the Lender to the Escrow Agent by the Closing Date of
good  funds as  payment  in full of an  amount  equal to the  Purchase  Price in
accordance with this Agreement;

            C. The  accuracy on such  Closing  Date of the  representations  and
warranties of the Lender  contained in this  Agreement,  each as if made on such
date, and the  performance by the Lender on or before such date of all covenants
and  agreements  of the Lender  required to be performed on or before such date;
and

            D.  There  shall  not be in  effect  any  law,  rule  or  regulation
prohibiting or restricting the transactions  contemplated  hereby,  or requiring
any consent or approval which shall not have been obtained.

            8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.

            The Company understands that the Lender's obligation to purchase the
Purchased Securities on the Closing Date is conditioned upon:

            A. The execution  and delivery by the Company of this  Agreement and
the other  Transaction  Agreements  required  to be signed by the  Company on or
before the Closing Date;

            B.  Delivery  by the Company to the Escrow  Agent of the  ink-signed
original Certificates in accordance with this Agreement;

            C. Delivery by the  Guarantor to the Escrow Agent of the  ink-signed
original Guaranty for each Debenture;

            D. On such Closing Date, each of the Transaction Agreements executed
by the  Company on or before such date shall be in full force and effect and the
Company shall not be in default thereunder;

                                       27
<PAGE>

            E. The  accuracy in all  material  respects  on such Closing Date of
the  representations  and warranties of the Company contained in this Agreement,
each as if made on such date,  and the  performance  by the Company on or before
such  date  of all  covenants  and  agreements  of the  Company  required  to be
performed on or before such date;

            F. On such Closing Date, the Escrow Agent,  on behalf of the Lender,
shall have received an ink-signed  original  opinion of counsel for the Company,
dated such Closing Date, and addressed to the Lender and the Other  Lenders,  in
form, scope and substance reasonably  satisfactory to the Lender,  substantially
to the effect set forth in ANNEX III attached hereto;

            G.  There  shall  not be in  effect  any  law,  rule  or  regulation
prohibiting or restricting the transactions  contemplated  hereby,  or requiring
any consent or approval which shall not have been obtained; and

            H. From and after the date hereof to and including the Closing Date,
each of the following  conditions will remain in effect:  (i) the trading of the
Common  Stock  shall  not have  been  suspended  by the SEC or on the  Principal
Trading Market;  (ii) trading in securities  generally on the Principal  Trading
Market shall not have been  suspended or limited;  (iii) no minimum prices shall
have been established for securities traded on the Principal Trading Market; and
(iv) there  shall not have been any  material  adverse  change in any  financial
market.

            9. INDEMNIFICATION AND REIMBURSEMENT.

            A. (i) The Company  agrees to indemnify and hold harmless the Lender
and its officers,  directors,  employees,  and agents,  and each Lender  Control
Person from and against any losses,  claims,  damages,  liabilities  or expenses
incurred (collectively,  "Damages"), joint or several, and any action in respect
thereof to which the Lender,  its  partners,  Affiliates,  officers,  directors,
employees,  and duly  authorized  agents,  and any such  Lender  Control  Person
becomes  subject  to,  resulting  from,  arising  out  of  or  relating  to  any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred,  except to the extent such Damages  result  primarily
from  Lender's  failure to perform any covenant or  agreement  contained in this
Agreement or the Lender's or its officer's,  director's,  employee's, agent's or
Lender  Control  Person's  gross  negligence,   recklessness  or  bad  faith  in
performing its obligations under this Agreement.

                  (ii) The Company hereby agrees that, if the Lender, other than
by reason of its gross negligence,  illegal or willful misconduct (in each case,
as  determined  by a  non-appealable  judgment  to such  effect  ), (x)  becomes
involved in any capacity in any action,  proceeding or investigation  brought by
any  shareholder  of the  Company,  in  connection  with or as a  result  of the

                                       28
<PAGE>

consummation  of the  transactions  contemplated  by this Agreement or the other
Transaction  Agreements,  or if the  Lender  is  impleaded  in any such  action,
proceeding  or  investigation  by any  Person,  or (y)  becomes  involved in any
capacity in any action,  proceeding  or  investigation  brought by the SEC,  any
self-regulatory  organization  or other  body  having  jurisdiction,  against or
involving the Company or in connection  with or as a result of the  consummation
of the  transactions  contemplated  by this  Agreement or the other  Transaction
Agreements,  or (z) is impleaded in any such action, proceeding or investigation
by any Person,  then in any such case, the Company shall  indemnify,  defend and
hold harmless the Lender from and against and in respect of all losses,  claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the
Lender,  directly or  indirectly,  and reimburse  such Lender for its reasonable
legal  and  other  expenses   (including  the  cost  of  any  investigation  and
preparation)  incurred in connection  therewith,  as such expenses are incurred.
The  indemnification  and  reimbursement  obligations  of the Company under this
paragraph  shall be in addition to any liability which the Company may otherwise
have,  shall extend upon the same terms and  conditions to any Affiliates of the
Lender who are actually named in such action,  proceeding or investigation,  and
partners,  directors,  agents, employees and Lender Control Persons (if any), as
the case may be, of the Lender and any such Affiliate, and shall be binding upon
and  inure  to the  benefit  of any  successors,  assigns,  heirs  and  personal
representatives  of the Company,  the Lender,  any such  Affiliate  and any such
Person.  The Company also agrees that neither the Lender nor any such Affiliate,
partner,  director,  agent,  employee or Lender  Control  Person  shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in  connection  with or as a result of the  consummation  of this
Agreement or the other  Transaction  Agreements,  except as may be expressly and
specifically provided in or contemplated by this Agreement.

            B. All  claims  for  indemnification  by any  Indemnified  Party (as
defined below) under this Section shall be asserted and resolved as follows:

            (i) In the event any claim or demand in  respect of which any Person
claiming  indemnification  under any provision of this Section (an  "Indemnified
Party")  might seek  indemnity  under  paragraph (a) of this Section is asserted
against or sought to be collected from such Indemnified  Party by a Person other
than a party  hereto or an  Affiliate  thereof  (a  "Third  Party  Claim"),  the
Indemnified Party shall deliver a written notification,  enclosing a copy of all
papers  served,  if any, and specifying  the  nature of and basis for such Third
Party Claim and for the Indemnified  Party's claim for  indemnification  that is
being  asserted  under any  provision  of this  Section  against any Person (the
"Indemnifying  Party"),  together  with the  amount  or, if not then  reasonably
ascertainable,  the estimated  amount,  determined in good faith,  of such Third
Party Claim (a "Claim  Notice") with reasonable  promptness to the  Indemnifying
Party.  If the  Indemnified  Party  fails  to  provide  the  Claim  Notice  with
reasonable  promptness after the Indemnified Party receives notice of such Third
Party Claim,  the  Indemnifying  Party shall not be  obligated to indemnify  the

                                       29
<PAGE>

Indemnified  Party with respect to such Third Party Claim to the extent that the
Indemnifying  Party's  ability to defend has been  prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as  practicable  within the period  ending  thirty  (30)  calendar  days
following  receipt  by the  Indemnifying  Party of  either a Claim  Notice or an
Indemnity  Notice  (as  defined  below)  (the  "Dispute   Period")  whether  the
Indemnifying  Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.

      (x) If the Indemnifying  Party notifies the Indemnified Party within
      the Dispute Period that the Indemnifying Party desires to defend the
      Indemnified  Party with respect to the Third Party Claim pursuant to
      this  paragraph (b) of this Section,  then the   Indemnifying  Party
      shall have the right to defend, with counsel reasonably satisfactory
      to the  Indemnified  Party,  at the  sole  cost and  expense  of the
      Indemnifying  Party,  such  Third  Party  Claim  by all  appropriate
      proceedings,  which  proceedings  shall be vigorously and diligently
      prosecuted by the  Indemnifying  Party to a final conclusion or will
      be settled at the  discretion  of the  Indemnifying  Party (but only
      with  the  consent  of the  Indemnified  Party  in the  case  of any
      settlement  that  provides  for any relief other than the payment of
      monetary  damages  or that  provides  for the  payment  of  monetary
      damages as to which the  Indemnified  Party shall not be indemnified
      in full pursuant to paragraph (a) of this Section). The Indemnifying
      Party  shall have full  control  of such  defense  and  proceedings,
      including any compromise or settlement thereof;  provided,  however,
      that the Indemnified  Party may, at the sole cost and expense of the
      Indemnified  Party,  at any time prior to the  Indemnifying  Party's
      delivery  of the notice  referred  to in the first  sentence of this
      subparagraph (x), file any motion, answer or other pleadings or take
      any other act ion that  the Indemnified Party reasonably believes to
      be  necessary or  appropriate  protect its  interests;  and provided
      further,   that  if  requested  by  the   Indemnifying   Party,  the
      Indemnified  Party  will,  at  the  sole  cost  and  expense  of the
      Indemnifying   Party,   provide   reasonable   cooperation   to  the
      Indemnifying  Party in  contesting  any Third  Party  Claim that the
      Indemnifying  Party  elects to contest.  The  Indemnified  Party may
      participate  in, but not control,  any defense or  settlement of any
      Third Party Claim controlled by the  Indemnifying  Party pursuant to
      this  subparagraph  (x),  and except as  provided  in the  preceding
      sentence,  the  Indemnified  Party  shall  bear  its own  costs  and
      expenses with respect to such  participation.  Notwithstanding   the
      foregoing,  the  Indemnified  Party may take over the control of the
      defense  or  settlement  of a Third  Party  Claim  at any time if it
      irrevocably  waives its right to indemnity  under  paragraph  (a) of
      this Section with respect to such Third Party Claim.

                                       30
<PAGE>

      (y) If the Indemnifying  Party fails to notify the Indemnified Party
      within the Dispute  Period that the  Indemnifying  Party  desires to
      defend the Third  Party  Claim  pursuant  to  paragraph  (b) of this
      Section, or if the Indemnifying Party gives such notice but fails to
      prosecute vigorously and diligently or settle the Third Party Claim,
      or if the  Indemnifying  Party  fails to give any notice  whatsoever
      within the Dispute Period, then the Indemnified Party shall have the
      right to defend,  at the sole cost and  expense of the  Indemnifying
      Party, the Third Party Claim by all appropriate  proceedings,  which
      proceedings  shall  be  prosecuted  by the  Indemnified  Party  in a
      reasonable  manner  and in good  faith  or will  be  settled  at the
      discretion  of  the  Indemnified  Party  (with  the  consent  of the
      Indemnifying   Party,   which  consent  will  not  be   unreasonably
      withheld).  The  Indemnified  Party  will have full  control of such
      defense and  proceedings,  including  any  compromise  or settlement
      thereof;  provided,  however,  that if requested by the  Indemnified
      Party, the Indemnifying  Party will, at the sole cost and expense of
      the  Indemnifying  Party,  provide  reasonable  cooperation  to  the
      Indemnified  Party and its  counsel in  contesting  any Third  Party
      Claim which the Indemnified Party is contesting. Notwithstanding the
      foregoing  provisions of this  subparagraph (y), if the Indemnifying
      Party has notified the  Indemnified  Party within the Dispute Period
      that the Indemnifying  Party disputes its liability or the amount of
      its  liability  hereunder to the  Indemnified  Party with respect to
      such Third Party  Claim and if such  dispute is resolved in favor of
      the  Indemnifying  Party in the manner provided in subparagraph  (z)
      below, the Indemnifying Party will not be required to bear the costs
      and expenses of the  Indemnified  Party's  defense  pursuant to this
      subparagraph  (y)  or  of  the  Indemnifying  Party's  participation
      therein at the  Indemnified  Party's  request,  and the  Indemnified
      Party  shall  reimburse  the  Indemnifying  Party  in  full  for all
      reasonable costs and expenses incurred by the Indemnifying  Party in
      connection  with  such  litigation.   The  Indemnifying   Party  may
      participate   in,  but  not  control,   any  defense  or  settlement
      controlled by the  Indemnified  Party pursuant to this  subparagraph
      (y),  and the  Indemnifying  Party  shall  bear  its own  costs  and
      expenses with respect to such participation.

      (z) If the Indemnifying Party notifies the Indemnified Party that it
      does not dispute its liability or the amount of its liability to the
      Indemnified  Party  with  respect  to the Third  Party  Claim  under
      paragraph  (a) of this  Section or fails to notify  the  Indemnified
      Party  within the  Dispute  Period  whether the  Indemnifying  Party
      disputes  its  liability  or  the  amount  of its  liability  to the
      Indemnified  Party  with  respect to such  Third  Party  Claim,  the
      amount  of  Damages   specified   in  the  Claim   Notice  shall  be
      conclusively  deemed a liability  of the  Indemnifying   Party under
      paragraph (a) of this Section and the  Indemnifying  Party shall pay
      the amount of such Damages to the  Indemnified  Party on demand.  If
      the  Indemnifying  Party has timely  disputed  its  liability or the

                                       31
<PAGE>

      amount of its liability with respect to such claim, the Indemnifying
      Party and the  Indemnified  Party  shall  proceed  in good  faith to
      negotiate a resolution of such dispute;  provided,  however, that if
      the dispute is not resolved  within thirty (30) days after the Claim
      Notice,  the Indemnifying  Party shall be entitled to institute such
      legal action as it deems appropriate.

                  (ii) In the event any  Indemnified  Party  should have a claim
under paragraph (a) of this Section against the Indemnifying Party that does not
involve a Third Party  Claim,  the  Indemnified  Party  shall  deliver a written
notification  of a claim  for  indemnity  under  paragraph  (a) of this  Section
specifying the nature of and basis for such claim,  together with the amount or,
if not then reasonably  ascertainable,  the estimated amount, determined in good
faith, of such claim (an "Indemnity  Notice") with reasonable  promptness to the
Indemnifying  Party. The failure by any Indemnified  Party to give the Indemnity
Notice shall not impair such party's rights  hereunder except to the extent that
the Indemnifying  Party  demonstrates  that it has been  irreparably  prejudiced
thereby.  If the Indemnifying  Party notifies the Indemnified Party that it does
not dispute  the claim or the amount of the claim  described  in such  Indemnity
Notice or fails to notify  the  Indemnified  Party  within  the  Dispute  Period
whether the  Indemnifying  Party  disputes  the claim or the amount of the claim
described  in such  Indemnity  Notice,  the amount of Damages  specified  in the
Indemnity  Notice will be  conclusively  deemed a liability of the  Indemnifying
Party under paragraph (a) of this  Section and the Indemnifying  Party shall pay
the  amount  of  such  Damages  to the   Indemnified  Party  on  demand.  If the
Indemnifying  Party has  timely  disputed  its  liability  or the  amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall  proceed in good faith to  negotiate a resolution  of such  dispute;
provided,  however,  that if the dispute is not resolved within thirty (30) days
after the Claim Notice,  the  Indemnifying  Party shall be entitled to institute
such legal action as it deems appropriate.

            C. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar rights of the  indemnified  party against the
indemnifying  party or others,  and (ii) any liabilities the indemnifying  party
may be subject to.

            10. JURY TRIAL  WAIVER.  The Company and the Lender  hereby  waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
Parties  hereto  against  the other in respect of any matter  arising  out or in
connection with the Transaction Agreements.

            11. GOVERNING LAW: MISCELLANEOUS.

            A. (i)  This  Agreement  shall be  governed  by and  interpreted  in
accordance  with the laws of the  State of New York for  contracts  to be wholly
performed  in such state and without  giving  effect to the  principles  thereof
regarding  the conflict of laws.  Each of the parties  consents to the exclusive
jurisdiction  of the federal  courts whose  districts  encompass any part of the
County of New York or the state  courts of the State of New York  sitting in the

                                       32
<PAGE>

County of New York in connection  with any dispute  arising under this Agreement
or any of the other  Transaction   Agreements and hereby waives,  to the maximum
extent permitted by law, any objection,  including any object ion based on forum
non conveniens,  to the bringing of any such proceeding in such jurisdictions or
to any claim that such venue of the suit,  action or proceeding is improper.  To
the extent  determined by such court, the Company shall reimburse the Lender for
any  reasonable  legal  fees  and  disbursements   incurred  by  the  Lender  in
enforcement  of or protection of any of its rights under any of the  Transaction
Agreements.  Nothing in this  Section  shall  affect or limit any right to serve
process in any other manner permitted by law.

                  (ii) The  Company  and the Lender  acknowledge  and agree that
irreparable  damage would occur in the event that any of the  provisions of this
Agreement or the other  Transaction  Agreements were not performed in accordance
with their specific  terms or were otherwise breached.  It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure  breaches of the  provisions of this  Agreement  and the other  Transaction
Agreements  and to  enforce  specifically  the terms and  provisions  hereof and
thereof,  this being in addition to any other remedy to which any of them may be
entitled by law or equity.

            B.  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.

            C. This Agreement shall inure to  the benefit of and be binding upon
the successors and assigns of each of the parties hereto.

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

            E. A facsimile  transmission of this signed Agreement shall be legal
and binding on all parties hereto.

            F. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an  original.

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

            H.  If  any  provision  of  this  Agreement   shall  be  invalid  or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or  enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

                                       33
<PAGE>

            I. This  Agreement  may be amended only by an  instrument in writing
signed by the party to be charged with enforcement thereof.

            J. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.

            12.  NOTICES.  Any notice  required or permitted  hereunder shall be
given in  writing  (unless  otherwise  specified  herein)  and  shall be  deemed
effectively given on the earliest of

            (a) the date delivered, if delivered by personal delivery as against
            written receipt therefor or by confirmed facsimile transmission,

            (b) the fifth Trading Day after  deposit,  postage  prepaid,  in the
            United States Postal Service by registered or certified mail, or

            (c) the third Trading Day after mailing by domestic or international
            express courier, with delivery costs and fees prepaid,

in each case,  addressed to each of the other parties thereunto  entitled at the
following  addresses (or at such other addresses as such party  may designate by
ten (10)  days'  advance  written  notice  similarly  given to each of the other
parties hereto):

COMPANY:       At the address set forth at the head of this Agreement.
               Attn: President
               Telephone No.: (941) 917-0788
               Telecopier No.: (941) 917-0782

               with a copy to:

               Sichenzia Ross Friedman Ference LLP
               1065 Avenue of the Americas, 21st Floor
               New York, NY 10018
               Attn: Darrin Ocasio, Esq.
               Telephone No.: (212) 930-9700
               Telecopier No.: (212) 930-9725

                                       34
<PAGE>

LENDER:        At the address set forth on the signature page of this Agreement.

               with a copy to:

               Krieger & Prager LLP , Esqs.
               39 Broadway
               Suite 1440
               New York, NY 10006
               Attn: Samuel M. Krieger, Esq.
               Telephone No.: (212) 363-2900
               Telecopier No. (212) 363-2999

ESCROW AGENT:  Krieger & Prager LLP , Esqs.
               39 Broadway
               Suite 1440
               New York, NY 10006
               Attn: Samuel Krieger, Esq.
               Telephone No.: (212) 363-2900
               Telecopier No. (212) 363-2999

            13. SURVIVAL OF  REPRESENTATIONS  AND WARRANTIES.  The Company's and
the Lender's  representations  and warranties herein shall survive the execution
and  delivery of this  Agreement  and the delivery of the  Certificates  and the
payment of the Purchase Price,  for a period of five (5) years after the Closing
Date,  and shall  inure to the  benefit of the Lender and the  Company and their
respective successors and assigns.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]

                                       35
<PAGE>

                 [SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]

            IN WITNESS  WHEREOF,  with respect to the Purchase  Price  specified
below, each the undersigned  represents that the foregoing statements made by it
above are true and  correct  and that it has caused  this  Agreement  to be duly
executed  on its behalf (if an entity,  by one of its  officers  thereunto  duly
authorized) as of the date first above written.

PURCHASE PRICE:                                 $________________________

                                             LENDER:

_________________________________            ___________________________________
Address                                      Printed Name of Lender

_________________________________            By:________________________________
Telecopier No.                                  (Signature of Authorized Person)

                                             ___________________________________
                                             Printed Name and Title

_________________________________
Jurisdiction of Incorporation
or Organization

                                             COMPANY:

INFINIUM LABS, INC.

By:______________________________

Title:___________________________

<PAGE>

ANNEX I                  FORM OF DEBENTURE AND GUARANTY

ANNEX II                 JOINT ESCROW INSTRUCTIONS

ANNEX III                OPINION OF COUNSEL

ANNEX IV                 REGISTRATION RIGHTS AGREEMENT

ANNEX V                  FORM OF WARRANT

ANNEX VI                 COMPANY DISCLOSURE MATERIAL

ANNEX VII                COMPANY'S SEC DOCUMENTS AVAILABLE ON EDGARANNEX IV
                                                                              TO
                                                   SECURITIES PURCHASE AGREEMENT

                          REGISTRATION RIGHTS AGREEMENT

            THIS REGISTRATION  RIGHTS  AGREEMENT,  dated as of December 23, 2004
(this  "Agreement"),  is made by and between  INFINIUM  LABS,  INC.,  a Delaware
corporation with headquarters located at 2033 Main Street, Suite 1309, Sarasota,
FL 34237 (the  "Company"),  and each  entity  named on a  signature  page hereto
(each, an "Initial  Investor")  (each  agreement with an Initial  Investor being
deemed a separate and independent agreement between the Company and such Initial
Investor,  except that each Initial  Investor  acknowledges  and consents to the
rights granted to each other Initial Investor under such agreement).

                              W I T N E S S E T H:

            WHEREAS,  upon  the  terms  and  subject  to the  conditions  of the
Securities  Purchase  Agreement,  dated as of  December  23,  2004,  between the
Initial  Investor  and  the  Company  (the  "Securities   Purchase   Agreement";
capitalized  terms not otherwise defined herein shall have the meanings ascribed
to them in the Securities Purchase  Agreement),  the Company has agreed to issue
and sell to the Initial Investors the Debentures and the Warrants; and

            WHEREAS,  the Debentures are convertible into shares of Common Stock
(the  "Conversion  Shares";  which term, for purposes of this  Agreement,  shall
include  shares of  Common  Stock of the  Company  issuable  in lieu of  accrued
interest,  as contemplated by the Debentures)  upon the terms and subject to the
conditions contained in the Debentures; and

            WHEREAS,  the Warrant  Shares may be issued upon the exercise of the
Warrants; and

            WHEREAS,  to induce the Initial  Investor to execute and deliver the
Securities  Purchase  Agreement,  the  Company  has  agreed to  provide  certain
registration rights under the Securities Act of 1933, as amended,  and the rules
and regulations thereunder, or any similar successor statute (collectively,  the
"Securities  Act"),  with  respect to the  Registrable  Securities  (as  defined
below);

            NOW,  THEREFORE,  in  consideration  of the  premises and the mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Initial Investor hereby agree as follows:

<PAGE>

            1.    DEFINITIONS.  As used in this  Agreement,  the following terms
shall have the following meanings:

            "Company Counsel" means Sichenzia Ross Friedman Ference LLP, or such
other reputable law firm as may be retained by the Company from time to time.

            "Effective  Date"  means the date the SEC  declares  a  Registration
Statement covering  Registrable  Securities and otherwise meeting the conditions
contemplated hereby to be effective.

            "Held Shares  Value" means,  for shares of Common Stock  acquired by
the  Investor  upon a conversion  of a Debenture  within the twenty (20) Trading
Days  (excluding  any  Trading  Days on  which  the on  which  the  Investor  is
restricted from making sales of Registrable Securities covered by any previously
effective  Registration  Statement)  preceding the Restricted Sale Date, but not
yet sold by the Investor,  the principal amount of the Debentures converted into
such Conversion Shares;  provided,  however,  that if the Investor effected more
than one such  conversion  during such  twenty (20)  Trading Day period and sold
less than all of such  shares,  the sold  shares  shall be deemed to be  derived
first from the  conversions  in the sequence of such  conversions  (that is, for
example, until the number of shares from the first of such conversions have been
sold,  all shares shall be deemed to be from the first  conversion;  thereafter,
from the second conversion until all such shares are sold).

            "Investor" means the Initial  Investor and any permitted  transferee
or assignee who agrees to become bound by the  provisions  of this  Agreement in
accordance  with  Section  9 hereof  and who  holds  Debentures  or  Registrable
Securities.

            "Other Issuable Shares" means (i) the Payment Shares, if any, issued
or  issuable  to the  Holder as of the date of the  filing  of the  Registration
Statement and any amendment  thereto or as of any subsequent  date, and (ii) the
good faith estimate of the Company of the number of other Payment Shares, as the
case may be, which the Company anticipates,  as of the date of the filing of the
Registration Statement and any amendment thereto or any subsequent date, will be
issuable to the Holder pursuant to the provisions of the Transaction Agreements.

            "Payment  Shares" means shares of Common Stock issued by the Company
as provided in Section 2(b) below.

            "Permitted  Suspension  Period"  means up to two periods  during any
consecutive  12-month period during which the Holder's right to sell Registrable
Securities  under  the  Registration  Statement  is  suspended,  each  of  which
suspension  period  shall  neither  (i) be for more  than ten (10) days nor (ii)
begin  less than ten (10)  business  days  after  the last day of the  preceding
suspension  (whether  or not such  last  day was  during  or  after a  Permitted
Suspension Period).

                                       2
<PAGE>

            "Potential  Material  Event"  means  any of the  following:  (i) the
possession by the Company of material  information  not ripe for disclosure in a
registration  statement,  which shall be  evidenced by a  determination  in good
faith  by the  Board  of  Directors  of the  Company  that  disclosure  of  such
information in the  registration  statement would be detrimental to the business
and affairs of the Company;  or (ii) any material  engagement or activity by the
Company which would, in the good faith  determination  of the Board of Directors
of the Company, be adversely affected by disclosure in a registration  statement
at such time, in each case where such  determination  shall be  accompanied by a
good faith  determination  by the Board of  Directors  of the  Company  that the
registration  statement would be materially  misleading  absent the inclusion of
such information.

            "Register," "Registered," and "Registration" refer to a registration
effected by  preparing  and filing a  Registration  Statement or  Statements  in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any  successor  rule  providing  for offering  securities on a continuous
basis ("Rule 415"),  and the  declaration or ordering of  effectiveness  of such
Registration Statement by the SEC.

            "Registrable Securities" means, collectively, the Conversion Shares,
the Warrant Shares,  the Other Issuable  Shares,  and, if issuable in accordance
with the terms of the Agreement, the Additional Warrant Shares.

            "Registration  Statement"  means  a  registration  statement  of the
Company under the Securities Act covering  Registrable  Securities on Form SB-2,
if the Company is then eligible to file using such form, and if not eligible, on
Form S-1 or other appropriate form.

            "Required  Effective Date" means,  initially,  the Initial  Required
Effective  Date or the  Increased  Required  Effective  Date (as those terms are
defined below), as the case may be.

            "Restricted  Sale  Date"  means the first  date,  other  than a date
during a Permitted  Suspension  Period (as defined below), on which the Investor
is  restricted  from  making  sales of  Registrable  Securities  covered  by any
previously effective Registration Statement.

            2.    REGISTRATION.

            (a)   MANDATORY REGISTRATION.

                                       3
<PAGE>

            (i)   The Company  shall cause  Company  Counsel to prepare and file
with the SEC, as soon as  practicable  after the Closing  Date but no later than
January  15,  2005  (the  "Required  Filing  Date"),  a  Registration  Statement
registering  for resale by the Investor a sufficient  number of shares of Common
Stock  for  the  Initial   Investors   to  sell  the   Registrable   Securities.
Notwithstanding  the  requirement to register all  Registrable  Securities,  the
Company's  obligation to register the Registrable  Securities shall initially be
satisfied by the  registration  of the Initial Number of Shares to Be Registered
(as defined below).  The "Initial Number of Shares to Be Registered" is a number
of shares of Common  Stock which is at least equal to the sum of (x) two hundred
percent  (200%) of the  number  of shares  into  which  the  Debentures  and all
dividends  thereon through the Maturity Date would be convertible at the time of
filing of such Registration  Statement (assuming for such purposes that all such
Debentures  had been  eligible to be  converted,  and had been  converted,  into
Conversion  Shares  in  accordance  with  their  terms,   whether  or  not  such
eligibility,  accrual of interest or conversion  had in fact occurred as of such
date),  based on the Conversion Price then in effect,  (y) the number of Warrant
Shares covered by the Warrants (assuming for such purposes that all the Warrants
actually  issued or  issuable  as of the date of the filing of the  Registration
Statement  or any  pre-effective  amendment  thereto  had  been  eligible  to be
exercised  and had  been  exercised  for  the  issuance  of  Warrant  Shares  in
accordance with their terms,  whether or not such eligibility or exercise had in
fact occurred as of such date),  and (z) the number of Other Issuable  Shares as
of the date of the filing of the Registration Statement or any amendment thereto
(provided,  however,  that for purposes of this  provision,  the number of Other
Issuable  Shares  shall not be greater  than the number of such shares which the
SEC permits to be included in the Registration Statement).  If, after the filing
of the  Registration  Statement and prior to the Effective  Date, the Conversion
Price or the number of shares  covered by the  Warrants  or both is or are to be
adjusted or if the number of Other Issuable Shares increases,  the Company shall
file an amendment to the Registration  Statement reflecting the registration of
the adjusted number of shares  reflected in the foregoing  formula based on such
adjustments.  Unless otherwise  specifically  agreed to in writing in advance by
the  Holder,  the  Registration   Statement  (X)  shall  include  only  (1)  the
Registrable  Securities,  (2) the shares  issuable on  exercise of the  Finder's
Warrants (as defined in the Joint Escrow Instructions) and (3) the shares listed
in Schedule 1 annexed hereto,  and (Y) shall also state that, in accordance with
Rule 416 and 457 under the  Securities  Act, it also  covers such  indeterminate
number of  additional  shares of Common Stock as may become  issuable to prevent
dilution resulting from stock splits, or stock dividends.

            (ii)  The Company and Company Counsel will use their reasonable best
efforts to cause such Registration  Statement to be declared effective on a date
(the "Initial  Required  Effective  Date") which is no later than the earlier of
(Y)  five  (5)  days  after  oral or  written  notice  by the SEC that it may be
declared effective or (Z) March 16, 2005.

                                       4
<PAGE>

            (iii) If at any time (an "Increased  Registered  Shares Date"),  the
number of shares of Common  Stock  represented  by the  Registrable  Securities,
issued or to be issued as contemplated by the  Transaction  Agreements,  exceeds
the aggregate  number of shares of Common Stock then  registered or sought to be
registered  in  a  Registration  Statement  which  has  not  yet  been  declared
effective, the Company shall either

      (X) amend the relevant  Registration  Statement filed by the Company
      pursuant  to the  preceding  provisions  of this  Section 2, if such
      Registration Statement has not been declared effective by the SEC at
      that  time,  to  register  the  Increased  Number  of  Shares  to Be
      Registered (as defined below). The "Increased Number of Shares to Be
      Registered"  is a number of shares of Common Stock which is at least
      equal to (A) the sum of the number of shares  theretofore  issued on
      conversion  of  the  Debentures  (including  any  interest  paid  on
      conversion by the issuance of Conversion  Shares) and on exercise of
      the Warrants,  plus the Other Issuable  Shares issued or issuable as
      of that date plus (B) the sum of (I) two hundred  percent  (200%) of
      the number of shares into which the  Unconverted  Debentures and all
      interest  thereon  through the Maturity Date would be convertible at
      the time of  filing  of such  Registration  Statement  or  amendment
      (assuming  for such  purposes  that all  Debentures,  reduced by any
      previously converted Debentures,  had been eligible to be converted,
      and had been converted,  into  Conversion  Shares in accordance with
      their terms, whether or not such eligibility, accrual of interest or
      conversion had in fact occurred as of such date), (II) the number of
      Warrant  Shares covered by the  unexercised  Warrants  (assuming for
      such  purposes  that all the  Warrants,  including  all the Warrants
      actually  issued or issuable as of the Increased  Registered  Shares
      Date,  reduced by any  exercised  Warrants,  had been eligible to be
      exercised and had been  exercised for the issuance of Warrant Shares
      in  accordance  with  their terms,   whether  or not such  issuance,
      eligibility  or exercise had in fact occurred as of such date),  and
      (III)  the  number  of Other  Issuable  Shares as of the date of the
      filing of such amendment to the  Registration  Statement  (provided,
      however,  that for purposes of this  provision,  the number of Other
      Issuable  Shares shall not be greater than the number of such shares
      which the SEC permits to be included in the Registration Statement),
      or

      (Y) if such  Registration  Statement has been declared  effective by
      the SEC at that time,  file with the SEC an additional  Registration
      Statement (an "Additional  Registration  Statement") to register the
      number of shares  equal to the  excess  of the  Increased  Number of
      Shares  to Be  Registered  over the  aggregate  number  of shares of
      Common Stock already registered.

                                       5
<PAGE>

The Company and Company Counsel will use their  reasonable best efforts to cause
such  Registration  Statement  to be  declared  effective  on a date  (each,  an
"Increased  Required Effective Date") which is no later than (q) with respect to
a Registration Statement under clause (X) of this subparagraph (ii), the Initial
Required  Effective  Date and (r) with  respect  to an  Additional  Registration
Statement,  the earlier of (I) five (5) days after notice by the SEC that it may
be declared  effective or (II) thirty (30) days after the  Increased  Registered
Shares Date.

            (b)   PAYMENTS BY THE COMPANY.

            (i)   If  the  Registration   Statement   covering  the  Registrable
Securities is not filed as  contemplated  by this  Agreement with the SEC by the
Required Filing Date, the Company will make payments to the Initial  Investor in
such amounts and at such times as shall be  determined  pursuant to this Section
2(b).(1)

            (ii)  If  the  Registration   Statement   covering  the  Registrable
Securities in form as contemplated by this  Agreement(2) is not effective by the
relevant  Required  Effective  Date or if there is a Restricted  Sale Date,  the
Company will make  payments to the Initial  Investor in such amounts and at such
times as shall be determined pursuant to this Section 2(b).

            (iii) The amount (the  "Periodic  Amount") to be paid by the Company
to the Initial  Investor  shall be  determined as of each  Computation  Date (as
defined below) and such amount shall be equal to the Periodic Amount Percent age
(as defined  below) of the Purchase Price for all Debentures for the period from
the date following the relevant  Required Filing Date or the Required  Effective
Date or a  Restricted  Sale  Date,  as the case may be,  to the  first  relevant
Computation  Date (each, a "First  Period"),  and thereafter to each  subsequent
Computation Date (each, a "Subsequent Period"). The "Periodic Amount Percentage"
means (i) two percent (2%) of the Purchase Price for the First Period,  and (ii)
two percent (2%)  of  the Purchase Price for each Subsequent Period  thereafter.
Anything in the  preceding  provisions of this  paragraph  (iii) to the contrary
notwithstanding,  after the relevant  Effective Date the Purchase Price shall be
deemed to refer to the sum of the principal of the  Unconverted  Debentures plus
the Held Shares  Value.  By way of  illustration  and not in  limitation  of the
foregoing, if the Registration Statement is filed on or before

----------
(1)   The Company  acknowledges  that a  Registration  Statement  that  includes
      shares  not  otherwise  permitted  to  be  included  in  the  Registration
      Statement,  or which is not filed not in compliance with the provisions of
      Section 3 hereof, including, but not limited to Section 3(c), shall not be
      a  Registration  Statement  filed or effective  "as  contemplated  by this
      Agreement."
(2)   See footnote 1.

                                       6
<PAGE>

the Required Filing Date, but is not declared  effective until seventy-five (75)
days after the  Initial  Required  Effective  Date,  the  Periodic  Amount  will
aggregate six percent (5%) of the Purchase Price (2% for days 1-30,  plus 2% for
days 31-60, plus 2% for days 61-75).

            (iv)  Each Periodic Amount,  if any, will be payable by the Company,
except  as  provided  in the  other  provisions  of the  immediately  succeeding
subparagraph (v), in cash or other  immediately  available funds to the Investor
(1) on the day after the  Required Filing Date, the Required Effective Date or a
Restricted  Sale Date,  as the case may be,  and (2) on the  earlier of (A) each
thirtieth  day  thereafter,  (B) the  third  business  day  after  the  date the
Registration  Statement  is filed or is  declared  effective,  or (C) the  third
business day after the Registration Statement has its restrictions removed after
the relevant  Effective Date, in each case without  requiring demand therefor by
the Investor.

            (v)   Notwithstanding  the provisions of the  immediately  preceding
subparagraph  (iv), at the option of the Investor,  exercisable  in its sole and
absolute  discretion  by written  notice to the  Company at any time before  the
Periodic  Amount is paid, all or a portion of the Periodic  Amount shall be paid
by the issuance of additional shares of Common Stock  to the Investor  ("Payment
Shares") in an amount equal to the Periodic Amount being paid thereby divided by
the then applicable Conversion Price; provided, further that the "Delivery Date"
for the  Payment  Shares  shall be three (3)  business  days  after the date the
Investor gives the notice contemplated by this subparagraph,  and the provisions
of Sections 5(c) and (d) shall apply with respect thereto.

            (vi)  The parties acknowledge that the damages which may be incurred
by the  Investor  if the  Registration  Statement  is not filed by the  Required
Filing Date or the Registration  Statement has not been declared  effective by a
Required Effective Date,  including if the right to sell Registrable  Securities
under a previously effective  Registration  Statement is suspended or the shares
of the Company's stock are not listed on the Principal  Trading  Market,  may be
difficult to ascertain.  The parties agree that the amounts payable  pursuant to
the foregoing provisions of this Section 2(b) represent a reasonable estimate on
the part of the parties, as of the date of this Agreement, of the amount of such
damages.

            (vii) Notwithstanding  the   foregoing,  the amounts  payable by the
Company  pursuant to this provision shall not be payable to the extent any delay
in the filing or effectiveness  of the Registration  Statement occurs because of
an act of, or a failure to act or to act timely by the  Initial  Investor or its
counsel.

            (viii) "Computation Date" means (A) the date which is the earlier of
(1) thirty (30) days after the Required Filing Date, the Required Effective Date
or a  Restricted  Sale  Date,  as the case may be,  or (2) the  date  after  the

                                       7
<PAGE>

Required  Filing Date, the Required  Effective  Date or Restricted  Sale Date on
which the  Registration  Statement  is filed (with  respect to  payments  due as
contemplated  by Section  2(b)(i)  hereof) or is declared  effective  or has its
restrictions  removed  or the  shares of the  Company's  stock are listed on the
Principal  Trading  Market  (with  respect to payments  due as  contemplated  by
Section  2(b)(ii)  hereof),  as the case may be,  and (B) each date which is the
earlier of (1) thirty (30) days after the previous  Computation  Date or (2) the
date after the previous Computation Date on which the Registration  Statement is
filed (with respect to payments due as  contemplated  by Section 2(b)(i) hereof)
or is declared  effective or has its  restrictions  removed or the shares of the
Company's  stock are listed on the  Principal  Trading  Market (with  respect to
payments due as contemplated by Section 2(b)(ii) hereof), as the case may be.

            (c)   SUBSEQUENT REGISTRATIONS. If, for any reason, the SEC does not
permit the registration of any specific component of the Registrable Securities,
such  excluded Registrable  Securities shall be registered by the Company at the
earliest possible time thereafter.

            3.    OBLIGATIONS   OF  THE   COMPANY.   In   connection   with  the
registration  of the  Registrable  Securities,  the Company shall do each of the
following:

            (a)   Prepare  promptly,  and  file  with  the  SEC by the  Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable  Securities  provided in Sect ion 2(a) above, and thereafter use its
reasonable  best  efforts  to cause  such  Registration  Statement  relating  to
Registrable  Securities to become  effective by the Required  Effective Date and
keep the  Registration  Statement  effective  at all  times  other  than  during
Permitted  Suspension  Periods  during the period  (the  "Registration  Period")
continuing  until the  earlier of (i) the date when the  Investors  may sell all
Registrable  Securities  under Rule 144 without volume or other  restrictions or
limits (the  "Unrestricted  Sale Date") or (ii) the date the Investors no longer
own any of the Registrable  Securities,  which Registration Statement (including
any amendments or supplements thereto and prospectuses  contained therein) shall
not contain any 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 in which they were made, not misleading;

            (b)   Prepare  and  file  with the SEC  such  amendments  (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus  used  in  connection  with  the  Registration  Statement  as  may be
necessary to keep the Registration  Statement  effective at all times during the
Registration  Period,  and,  during the  Registration  Period,  comply  with the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
Registrable  Securities  of the Company  covered by the  Registration  Statement
until such time as all of such  Registrable  Securities have been disposed of in

                                       8
<PAGE>

accordance  with the intended  methods of  disposition  by the seller or sellers
thereof as set forth in the Registration Statement;

            (c)   Permit a single  firm of  counsel  designated  by the  Initial
Investors (which,  until further notice,  shall be deemed to be Krieger & Prager
LLP,  Attn:  Samuel M. Krieger,  Esq.,  which firm has requested to receive such
notification;   each,  an  "Investor's  Counsel")  to  review  the  Registration
Statement and all amendments and supplements thereto a reasonable period of time
(but not less than three (3) business  days) prior to their filing with the SEC,
and not file any document in a form to which such counsel reasonably objects.

            (d)   Notify  each  Investor  and  the  Investor's  Counsel  and any
managing  underwriters  immediately  (and, in the case of (i)(A) below, not less
than three (3) business days prior to such filing) and (if requested by any such
person)  confirm  such  notice in  writing no later  than one (1)  business  day
following  the day (i)(A) when a  Prospectus  or any  Prospectus  supplement  or
post-effective  amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC  notifies the Company  whether  there will be a "review" of
such   Registration   Statement;   (C)  whenever  the  Company  receives  (or  a
representative  of the  Company  receives  on its  behalf)  any oral or  written
comments from the SEC in respect of a Registration  Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the  Company  to the  Investors);  and  (D)  with  respect  to the  Registration
Statement or any post-effective  amendment,  when the same has become effective;
(ii) of any  request  by the SEC or any  other  Federal  or  state  governmental
authority  for  amendments  or  supplements  to the  Registration  Statement  or
Prospectus or for  additional  information;  (iii) of the issuance by the SEC of
any stop  order  suspending  the  effectiveness  of the  Registration  Statement
covering  any or all of the  Registrable  Securities  or the  initiation  of any
proceedings for that purpose;  (iv) if at any time any of the representations or
warranties of the Company contained in any agreement (including any underwriting
agreement)  contemplated  hereby  ceases to be true and correct in all  material
respects;  (v) of the receipt by the Company of any notification with respect to
the suspension of the  qualification  or exemption from  qualification of any of
the Registrable  Securities for sale in any  jurisdiction,  or the initiation or
threatening of any  proceeding  for such purpose;  and (vi) of the occurrence of
any event that to the best  knowledge of the Company makes any statement made in
the Registration  Statement or Prospectus or any document incorporated or deemed
to be incorporated  therein by reference  untrue in any material respect or that
requires  any  revisions  to the  Registration  Statement,  Prospectus  or other
documents so that, in the case of the Registration  Statement or the Prospectus,
as the case may be, it will not contain any untrue  statement of a material fact
or omit to state any 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.  In addition,  the Company shall communicate with the
Investor's Counsel with regard to its proposed written responses to the comments
contemplated  in  clause  (C) of this  Section  3(d),  so  that,  to the  extent
practicable, the Investors shall have the opportunity to comment thereon;

                                       9
<PAGE>

            (e)   Furnish  to  each  Investor  and  to  Investor's  Counsel  (i)
promptly  after the same is prepared  and publicly  distributed,  filed with the
SEC, or received by the  Company,  one (1) copy of the  Registration  Statement,
each  preliminary  prospectus and  prospectus,  and each amendment or supplement
thereto, and (ii) such number of copies of a 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;

            (f)   As promptly  as  practicable  after  becoming  aware  thereof,
notify  each  Investor  of the  happening  of any event of which the Company has
knowledge,  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 use its best efforts promptly to prepare a supplement
or amendment to the Registration  Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of  such  supplement  or  amendment  to each  Investor  as  such  Invest  or may
reasonably request;

            (g)   As promptly  as  practicable  after  becoming  aware  thereof,
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 SEC of a Notice of  Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of  the Registration Statement at
the earliest possible time;

            (h)   Comply with  Regulation  FD or any similar rule or  regulation
regarding  the  dissemination  of  information  regarding  the  Company,  and in
furtherance of the foregoing, and not in limitation thereof, not disclose to the
Investor any non-public material information regarding the Company;

            (i)   Notwithstanding the foregoing,  if at any time or from time to
time after the date of effectiveness of the Registration Statement,  the Company
notifies the  Investors in writing that the  effectiveness  of the  Registration
Statement is suspended for any reason, whether due to a Potential Material Event
or otherwise,  the Investors shall not offer or sell any Registrable Securities,
or engage in any other  transaction  involving  or relating  to the  Registrable
Securities,  from the time of the  giving of such  notice  until  such  Investor
receives  written  notice from the Company  that such the  effectiveness  of the
Registration Statement has been restored, whether because the Potential Material

                                       10
<PAGE>

Event has been  disclosed to the public or it no longer  constitutes a
Potential Material Event or otherwise;  provided,  however, that the Company may
not so suspend the right to such holders of  Registrable  Securities  during the
periods the Registration Statement is required to be in effect other than during
a Permitted  Suspension  Period (and the  applicable  provisions of Section 2(b)
shall apply with  respect to any such  suspension  other than during a Permitted
Suspension Period);

            (j)   Use  its  reasonable   efforts  to  secure  and  maintain  the
designation  of all  the  Registrable  Securities  covered  by the  Registration
Statement on the Principal  Trading Market and the quotation of the  Registrable
Securities on the Principal Trading Market;

            (k)   Provide a transfer  agent  ("Transfer  Agent") and  registrar,
which may be a single entity, for the Registrable  Securities not later than the
initial Effective Date;

            (l)   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  may
reasonably  request,  and,  within five (5) business  days after a  Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall 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 opinion of such counsel,  which shall
include,  without  limitation,   directions  to  the  Transfer  Agent  to  issue
certificates of Registrable  Securities (including certificates  for Registrable
Securities to be issued after the Effective  Date and  replacement  certificates
for  Registrable  Securities   previously   issued)  without  legends  or  other
restrictions,  subject to  compliance  with  applicable  law and other rules and
regulations, including, without limitation,  prospectus  delivery  requirements;

            (m)   Take all other  reasonable  administrative  steps and  actions
(including  the  participation  of Company  counsel)  necessary  to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the  Registration  Statement;  provided,  however,  that the foregoing  does not
require that the Company take any steps whatsoever  regarding the identification
or selection of a broker to sell the Registrable Securities,  the identification
of buyers of the  Registrable  Securities,  or the negotiation of the sale terms
of the Registrable Securities; and

            (n)   Not file any  other  registration  statement  (other  than the
Registration  Statement and amendments  thereto) during the period commencing on
the Closing Date and ending on the Effective Date.

                                       11
<PAGE>

            4.    OBLIGATIONS   OF  THE  INVESTORS.   In  connection   with  the
registration  of the  Registrable  Securities,  the  Investors  shall  have  the
following obligations:

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

            (b)   Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f), (g)
or  (i)  above,  such  Investor  will  immediately  discontinue  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(f), (g) or (i),
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 reasonable expenses (other than
underwriting  discounts and commissions of the Investor)  incurred in connection
with  registrations,   filings   or  qualifications  pursuant  to Section 3, but
including,  without limitation,  all registration,  listing,  and qualifications
fees,  printers and accounting  fees, the fees and  disbursements of counsel for
the  Company  shall be borne by the  Company.  In  addition,  a fee for a single
counsel for the Investors (as a group and not individually)  equal to $4,500 for
the review of the initial Registration  Statement (and pre-effective  amendments
thereto)  and  $2,000  for the  review  of each  post-effective  amendment  to a
Registration Statement shall be borne by the Company.

            6.    INDEMNIFICATION.  In the event any Registrable  Securities are
included in a Registration Statement under this Agreement:

            (a)   To the extent  permitted by law,  the Company  will  indemnify

and hold  harmless  each  Investor who holds such  Registrable  Securities,  the
directors, if any, of such Investor, the officers, if any, of such Investor, and
each Lender Control Person (each, an "Indemnified  Party"),  against any losses,
claims,   damages,   liabilities  or  expenses   (joint  or  several)   incurred
(collectively,  "Claims")  to which  any of them may  become  subject  under the
Securities Act, the  Securities  Exchange Act of 1934, as amended (the "Exchange
Act") or otherwise,  insofar as such Claims (or actions or proceedings,  whether
commenced or threatened,  in respect thereof) arise out of or are based upon any
of the  following  statements,  omissions  or  violations  in  the  Registration
Statement,  or any post-effective  amendment thereof, or any prospectus included
therein:

                                       12
<PAGE>

(i) any  untrue  statement  or  alleged  untrue  statement  of a  material  fact
contained in the Registration Statement or any post-effective  amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated  therein or necessary to make the statements  therein not  misleading,
(ii) any  untrue  statement  or alleged  untrue  statement  of a  material  fact
contained in the final  prospectus (as amended or  supplemented,  if the Company
files any amendment thereof or supplement  thereto with the SEC) or the omission
or alleged  omission to state  therein any material  fact  necessary to make the
statements  made  therein,  in  light  of  the  circumstances  under  which  the
statements  therein were made,  not misleading or (iii) any violation or alleged
violation by the Company of the  Securities  Act, the Exchange  Act,  any  state
securities  law or any rule or regulation under the Securities Act, the Exchange
Act or any state  securities  law (the  matters  in the  foregoing  clauses  (i)
through  (iii)  being,  collectively  referred to as  "Violations").  Subject to
clause  (b) of this  Section  6, the  Company  shall  reimburse  the  Investors,
promptly as such  expenses are  incurred and are due and payable,  for any legal
fees  or  other  reasonable   expenses  incurred  by  them  in  connection  with
investigating  or  defending  any such  Claim.  Notwithstanding  anything to the
contrary  contained  herein,  the  indemnification  agreement  contained in this
Section  6(a)  shall not (I) apply to any Claim  arising  out of or based upon a
Violation  which  occurs in reliance  upon and in  conformity  with  information
furnished  in writing to the Company by or on behalf of such  Indemnified  Party
expressly  for  use in  connection  with  the  preparation  of the  Registration
Statement  or  any  such  amendment  thereof  or  supplement  thereto,  if  such
prospectus  was timely made  available  by the Company  pursuant to Section 3(b)
hereof;  (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the  prospectus  made  available by
the  Company or the  amendment  or  supplement  thereto  made  available  by the
Company; (III) be available to the extent such Claim is based on the delivery of
a  prospectus  by the Investor  after  receiving  notice from the Company  under
Section 3(f), (g) or (i) hereof (other than a notice regarding the effectiveness
of the  Registration  Statement or any amendment or supplement thereto), or (IV)
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior  written  consent of the Company,  which  consent shall not be
unreasonably  withheld or delayed.  The Investor will  indemnify the Company and
its officers,  directors and agents (each, an  "Indemnified  Party") against any
claims  arising out of or based upon a Violation  which occurs in reliance  upon
and in conformity with information  furnished in writing to the Company,  by  or
on behalf of such Investor, expressly for use in connection with the preparation
of the Registration Statement or the amendment or supplement thereto, subject to
such  limitations  and  conditions  as are  applicable  to  the  indemnification
provided by the Company to this Section 6; provided,  however, that except where
the  Investor  has  committed  fraud  (other  than  a  fraud  by  reason  of the
information included or omitted from the Registration  Statement as to which the
Company  has not  given  notice as  contemplated  under  Section  3  hereof)  or
intentional misconduct, such indemnification by the Investor shall be limited in
amount to the net amount of  proceeds  received  by such seller from the sale of
such  Registrable  Securities.  Such  indemnity  shall  remain in full force and

                                       13
<PAGE>

effect regardless of any  investigation  made by or on behalf of the Indemnified
Party and shall  survive  the  transfer  of the  Registrable  Securities  by the
Investors pursuant to Section 9; provided,  however, that the Investor shall not
obligated to make any indemnification  payment to the Company under this Section
6 unless and until there has been a final  adjudication of liability on the part
of the Investor.

            (b)   Promptly  after  receipt by an  Indemnified  Party  under this
Section  6  of  notice  of  the  commencement  of  any  action   (including  any
governmental  action),  such  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against  any  indemnifying  party  under this  Section 6,
deliver to the indemnifying party  a written notice of the commencement  thereof
and the  indemnifying  party shall have the right to participate in, and, to the
extent the indemnifying  party so desires,  jointly with any other  indemnifying
party similarly  noticed,  to assume control of the defense thereof with counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Party, as
the case may be. In case any such  action is  brought  against  any  Indemnified
Party, and it notifies the indemnifying party of the commencement  thereof,  the
indemnifying  party will be entitled to participate  in, and, to the extent that
it may wish,  jointly  with any other  indemnifying  party  similarly  notified,
assume the defense  thereof,  subject to the provisions  herein stated and after
notice from the indemnifying  party to such Indemnified Party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
Indemnified  Party  under  this  Section  6 for any  legal or  other  reasonable
out-of-pocket  expenses  subsequently  incurred  by such  Indemnified  Party  in
connection   with  the  defense   thereof   other  than   reasonable   costs  of
investigation,  unless the indemnifying party shall not pursue the action to its
final conclusion.  The Indemnified Party shall have the right to employ separate
counsel in any such action and to  participate in the defense  thereof,  but the
fees and reasonable  out-of-pocket  expenses of such counsel shall not be at the
expense of the  indemnifying  party if the  indemnifying  party has  assumed the
defense of the action with  counsel  reasonably  satisfactory to the Indemnified
Party provided such counsel is of the opinion that all defenses available to the
Indemnified  Party  can be  maintained  without  prejudicing  the  rights of the
indemnifying  party.  The failure to deliver written notice to the  indemnifying
party within a reasonable time of the  commencement of any such action shall not
relieve such indemnifying  party of any liability to the Indemnified Party under
this Section 6, except to the extent that the  indemnifying  party is prejudiced
in its  ability to defend  such  action.  The  indemnification  required by this
Section 6 shall be made by periodic  payments of the amount  thereof  during the
course  of the  investigation  or  defense,  as such  expense,  loss,  damage or
liability is incurred and is due and payable.

            7.    CONTRIBUTION.   To  the  extent  any   indemnification  by  an
indemnifying  party is  prohibited  or limited by law,  the  indemnifying  party
agrees to make the maximum contribution with respect to any amounts for which it
would  otherwise be liable under  Section 6 to the fullest  extent  permitted by
law;  provided,   however,   that  (a)  no  contribution  shall  be  made  under

                                       14
<PAGE>

circumstances  where the maker would not  have  been liable for  indemnification
under the fault  standards set forth in Section 6; (b) no seller of  Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to  contribution  from any seller
of   Registrable   Securities   who  was   not   guilty   of   such   fraudulent
misrepresentation;  and (c) except where the seller has  committed  fraud (other
than a  fraud  by  reason  of the  information  included  or  omitted  from  the
Registration  Statement  as to  which  the  Company  has  not  given  notice  as
contemplated under Section 3 hereof) or intentional misconduct,  contribution by
any  seller of  Registrable  Securities  shall be  limited  in amount to the net
amount of proceeds  received  by such  seller from the sale of such  Registrable
Securities.

            8.    REPORTS UNDER  SECURITIES ACT AND EXCHANGE ACT. With a view to
making  available  to Investor the  benefits of Rule 144  promulgated  under the
Securities  Act or any other  similar rule or  regulation of the SEC that may at
any time permit Investor to sell securities of the Company to the public without
Registration ("Rule 144"), the Company agrees to:

            (a)   make and keep public information available, as those terms are
understood and defined in Rule 144;

            (b)   file with the SEC in a timely  manner  all  reports  and other
documents required of the Company under the Securities Act and the Exchange Act;
and

            (c)   until the Unrestricted  Sale Date,  furnish to the Investor so
long as the Investor owns Registrable  Securities,  promptly upon request, (i) a
written  statement  by the  Company  that it has  complied  with  the  reporting
requirements  of Rule 144, the  Securities Act and the Exchange Act, (ii) if not
available  on the  SEC's  EDGAR  system,  a copy of the most  recent  annual  or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other  information as may be reasonably  requested to
permit  the  Investor  to sell  such  securities  pursuant  to Rule 144  without
Registration; and

            (d)   at the request of any Investor holding Registrable  Securities
(a "Holder"), give  its  Transfer Agent instructions (supported by an opinion of
Company  counsel,  if required or requested by the Transfer Agent) to the effect
that, upon the Transfer Agent's receipt from such Holder of

      (i) a certificate (a "Rule 144 Certificate") certifying (A) that the
      Holder's  holding  period  (as  determined  in  accordance  with the
      provisions  of Rule 144) for the  shares of  Registrable  Securities
      which the Holder proposes to sell (the  "Securities  Being Sold") is
      not less than (1) year and (B) as to  such  other  matters as may be
      appropriate in accordance  with Rule 144 under the  Securities  Act,
      and

                                       15
<PAGE>

      (ii) an opinion  of counsel  acceptable  to the  Company  (for which
      purposes it is agreed that the initial  Investor's  Counsel shall be
      deemed  acceptable if not given by Company  Counsel) that,  based on
      the Rule 144 Certificate, Securities Being Sold may be sold pursuant
      to the  provisions  of Rule 144, even in the absence of an effective
      Registration Statement,

the Transfer  Agent is to effect the transfer of the  Securities  Being Sold and
issue to the buyer(s) or  transferee(s)  thereof one or more stock  certificates
representing  the  transferred  Securities  Being Sold  without any  restrictive
legend and without  recording any  restrictions on the  transferability  of such
shares on the Transfer  Agent's books and records (except to the extent any such
legend or restriction  results from facts other than the identity of the Holder,
as the seller or  transferor  thereof,  or the status,  including  any  relevant
legends or  restrictions,  of the shares of the Securities Being Sold while held
by the  Holder).  If the  Transfer  Agent  reasonably  requires  any  additional
documentation at the time of the transfer, the Company shall deliver or cause to
be delivered all such reasonable additional documentation as may be necessary to
effectuate the issuance of an unlegended certificate.

            9.    ASSIGNMENT OF THE REGISTRATION  RIGHTS. The rights to have the
Company  register  Registrable  Securities  pursuant to this Agreement  shall be
automatically  assigned by the Investor to any  transferee  of the   Registrable
Securities or other Securities (such transfer or assignment being subject to the
provisions of Section 4(a) of the  Securities  Purchase  Agreement)  only if the
Company  is,  within a  reasonable  time  after  such  transfer  or  assignment,
furnished with written notice of (a) the name and address of such  transferee or
assignee and (b) the securities with respect to which such  registration  rights
are being transferred or assigned.

            10.   NO  INCONSISTENT  AGREEMENTS.  Except  as and  to  the  extent
specifically set forth in Schedule 10 attached  hereto,  neither the Company nor
any of its  subsidiaries  has, as of the date hereof,  nor shall the Company nor
any of its subsidiaries, on or after the date of this Agreement, enter into, any
agreement with respect to its securities  that is  inconsistent  with the rights
granted  to the  Holders  in this  Agreement  or  otherwise  conflicts  with the
provisions  hereof.  Except  as and to the  extent  specifically  set  forth  in
Schedule 10 attached hereto, neither the Company nor any of its subsidiaries has
previously  entered into any  agreement  granting any  registration  rights with
respect to any of its securities to any Person.  Without limiting the generality
of the  foregoing,  without the written  consent of the Holders of a majority of
the then outstanding Registrable Securities,  the Company shall not grant to any
person the right to  request  the  Company to  register  any  securities  of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior  rights in full of the Holders set forth  herein,  and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.

                                       16
<PAGE>

            11.   AMENDMENT  OF  REGISTRATION  RIGHTS.  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  an  eighty  (80%)  percent  interest  of the  Registrable  Securities  (as
calculated  by the  principal  of the  Unconverted  Debentures  then held by the
Investors).  Any amendment or waiver effected in accordance with this Section 11
shall be binding upon each Investor and the Company.

            12.   MISCELLANEOUS.

            (a)   A person or  entity  is  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)   Notices  required or permitted to be given  hereunder shall be
given in the manner contemplated by the Securities Purchase Agreement, (i) if to
the Company or to the Initial Investor, to their respective address contemplated
by the Securities Purchase Agreement, and (ii) if to any other Investor, at such
address as such Investor  shall have  provided in writing to the Company,  or at
such other  address as each such party  furnishes by notice given in  accordance
with this Section 12(b).

            (c)   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.

            (d)   (i) This  Agreement  shall be  governed  by and  construed  in
accordance  with the laws of the  State of New York for  contracts  to be wholly
performed  in such state and without  giving  effect to the  principles  thereof
regarding  the conflict of laws.  Each of the parties  consents to the exclusive
jurisdiction  of the federal  courts whose  districts  encompass any part of the
County of New York or the state  courts of the State of New York  sitting in the
County of New York 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  coveniens,  to the bringing of any
such  proceeding  in such  jurisdictions  or to any claim that such venue of the
suit, action or proceeding is improper.  To the extent determined by such court,
the Company  shall  reimburse  the  Investor for any  reasonable  legal fees and

                                       17
<PAGE>

disbursements incurred by the Investor in enforcement of or protection of any of
its rights under this  Agreement.  Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.

            (ii)  The  Company  and the  Investor  acknowledge  and  agree  that
irreparable  damage would occur in the event that any of the  provisions of this
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise breached.  It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in  addition  to any other  remedy to which any of them may be entitled by
law or equity.

            (e)   The Company and the  Investor  hereby waive a trial by jury in
any action,  proceeding or counterclaim  brought by either of the parties hereto
against the other in respect of any matter arising out of or in connection  with
this Agreement or any of the other Transaction Agreements.

            (f)   If any  provision  of  this  Agreement  shall  be  invalid  or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or  enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

            (g)   Subject  to  the  requirements  of  Section  9  hereof,   this
Agreement  shall inure to the benefit of and be binding upon the  successors and
assigns of each of the parties hereto.

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

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

            (j)   This  Agreement  may be executed in one or more  counterparts,
each of which shall be deemed an original but all of which shall  constitute one
and the same  agreement.  This  Agreement,  once  executed  by a  party,  may be
delivered to the other party hereto by telephone line facsimile  transmission of
a copy of this Agreement  bearing the signature of the party so delivering  this
Agreement.

            (k)   The  Company  acknowledges  that any failure by the Company to
perform  its  obligations  under  Section  3(a)  hereof,  or any  delay  in such
performance could result in loss to the Investors,  and the Company agrees that,

                                       18
<PAGE>

in  addition  to any  other  liability  the  Company  may have by reason of such
failure or delay,  the Company shall be liable for all direct  damages caused by
any such  failure  or delay,  unless  the same is the  result of force  majeure.
Neither party shall be liable for consequential damages.

            (l)   This  Agreement   (including  to   the   extent  relevant  the
provisions of other  Transaction  Agreements)  constitutes the entire  agreement
among  the  parties  hereto  with  respect  to the  subject  matter  hereof  and
supersedes all prior agreements and understandings 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.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19
<PAGE>

      IN WITNESS  WHEREOF,  the parties  have caused this  Agreement  to be duly
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.

                                                COMPANY:
                                                INFINIUM LABS, INC.

                                                By:_____________________________
                                                Name:___________________________
                                                Title:__________________________

                                                INITIAL INVESTOR:

                                                ________________________________
                                                [Print Name of Initial Investor]

                                                By:_____________________________
                                                Name:___________________________
                                                Title:__________________________

<PAGE>

                                   SCHEDULE 1

1.    All Registrable Shares contemplated by the  Registration Rights Agreement,
      dated  as  of  December  13,  2004  (the  "Existing   Registration  Rights
      Agreement"),  between the Company and the Initial  Investors named therein
      (the "Original Investors")

2.    The shares  referred to in clause (2) of Section  2(a)(i) of the  Existing
      Registration Rights Agreement.

3.    The shares  listed in item A of  Schedule 1 to the  Existing  Registration
      Rights Agreement

4.    Any shares derived from a Permitted Transaction  contemplated by item B of
      Schedule 1 to the Existing Registration Rights Agreement

5.    Any shares permitted to be included in the Registration Statement pursuant
      to the specific prior written consent of the Original Investors

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