AMENDMENT TO SECURED DEBENTURE
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.
AMENDMENT
TO SECURED DEBENTURE
This
Amendment to Secured Debenture (the “Amendment), effective September 22, 2006
(“Effective Date”), is
made
by and between Phantom Entertainment, Inc. (f/k/a Infinium Labs, Inc.,) a
Delaware corporation (“Company”), and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (“▇▇▇▇▇▇▇” or
“Holder”).
WHEREAS,
the Company and Holder executed a 15% Secured Debenture on March 29, 2004 (the
“Note”); and
WHEREAS,
the Company and Holder wish to amend the Note with this Amendment in order
to
provide Holder with the ability to convert the Note, in whole or in part, into
common stock, par value $0.0001 per
share
(“Common
Stock”),
of the
Company.
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which the parties hereby acknowledge, the parties agree to amend the Note to
add
the following provisions:
1. Balance
of Note.
The
Company and Holder hereby agree that, as of the Effective Date, the outstanding
principal balance of the Note is $1,010,478 and the outstanding accrued and
unpaid interest on the Note is $2,303.07, all of which has become due. Holder
acknowledges that aside from the Note, and the rights provided therein, the
Company has no other obligations to Holder. The Company and Holder acknowledge
that the Holder is providing no consideration to the Company for this Amendment.
2. Conversion
Rights.
The
Holder shall have the right to convert the principal and any interest due under
this Note into shares of the Company’s Common Stock, $.0001 par value per share
(“Common Stock”) as set forth below.
2.1. Conversion
into the Company's Common Stock.
(a) The
Holder shall have the right from and after the date of the issuance of this
Note
and then at any time until this Note is fully paid, to convert any outstanding
and unpaid principal portion of this Note, and accrued interest, at the election
of the Holder (the date of giving of such notice of conversion being a
"Conversion Date") into fully paid and nonassessable shares of Common Stock
as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Company into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 2.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the Company
of a completed Notice of Conversion, a form of which is annexed hereto at
Exhibit A (and shall include all applicable sales confirmations in a form such
as attached at Exhibit A-1), Company shall issue and deliver to the Holder’s
Broker, (“Broker”) within three (3) business days after the Conversion Date
(such third day being the “Delivery Date”) that number of shares of Common Stock
for the portion of the Note converted in accordance with the foregoing. The
number of shares of Common Stock to be issued upon each conversion of this
Note
shall be determined by dividing that portion of the principal of the Note and
interest, if any, to be converted, by the Conversion Price.
(b)
The
Conversion Price shall be equal to the Sale Proceeds per share sold, less a
discount of 22.5%, until such time as an aggregate of $310,000 in Sale Proceeds
shall have been generated for the account of the Holder, at which time the
discount shall be automatically reduced to 15%. “Sale Proceeds” shall be the
actual gross price at which the shares issuable upon conversion are sold for
the
account of the Holder by the Holder’s Broker in accordance with Section 2.2
below.
(c) Company
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable.
2.2 Method
of Conversion.
(a) This
Note
may be converted by the Holder in whole or in part as described in Section
2.1(a) hereof and as further provided in this Section 2.2.
(b) No
Conversion Notice shall be effective except with respect to underlying shares
of
Common Stock that have actually been sold by the Holder’s Broker and that are
then issuable in respect of unpaid principal or interest owing under this Note.
The Company shall have no liability in respect of shares sold for the account
of
the Holder in excess of the number of shares then issuable under this
Note.
(c) Upon
each
partial conversion of this Note, the Company shall note the same on a separate
Schedule of Conversions (see Exhibit B), showing the amount allocated to payment
of interest and principal, which shall be binding except for manifest error.
The
Company shall transmit a copy of such Schedule to the Holder at the end of
each
week during which conversions take place, and at such other times as the Holder
shall request.
2.3 Sales
Restrictions. ▇▇▇▇▇▇▇
agrees: (a) he will enter into a sales plan with Broker and shall not sell
below
the bid on any given trade or greater than twenty percent (20%) of the average
daily trading volume on any given trading day, using the average trading volume
over the previous two trading days as an indicator, except that ▇▇▇▇▇▇▇ may
sell
up to an additional five percent (5%) of the average trading volume on any
given
day so long as each of these sales are at or above the first bid following
the
first sale exceeding the 20% threshold (b) all sales shall be into the open
market or otherwise effected on a national exchange, (d) he shall not engage,
directly or indirectly, in any hedging activities (including, but without
limitation, short sales) with respect to the Shares, (e) he will not, through
his own sales, negatively affect the per share price of the common stock, (f)
he
will sell all Shares through Broker, and (g) provide instructions to Broker
to
disclose all sales records to Company upon Company’s request (collectively, the
“Sales Restrictions”). The Holder shall not be entitled to convert any portion
of this Note if and to the extent such conversion results from or is made in
connection with a transaction that violates or would violate this Section 2.3,
and the Company shall have the right to reject any conversion so made.
2.4 Maximum
Conversion.
The Holder shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates on a Conversion Date, (ii) any Common
Stock issuable in connection with the unconverted portion of the Note, and
(iii)
the number of shares of Common Stock issuable upon the conversion of the Note
with respect to which the determination of this provision is being made on
a
Conversion Date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock
of
the Borrower on such Conversion Date. For the purposes of the provision to
the immediately preceding sentence, beneficial ownership shall be determined
in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to aggregate conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%.
3
Company
represents that it will secure a legal opinion for Holder covering the resale
of
the Common Stock pursuant to the terms of this Amendment.
4.
At
Full Payment.
The
Company and Holder agree that upon full repayment of the Note through conversion
or payment in cash, the Company shall be forever released from all its
obligations and liabilities under the Note. In addition, at such time, Holder
shall deliver the Note to the Company.
5.
Further
Assurances.
In
connection with the conversion of the Note, the Holder, by entering into this
Amendment, agrees to execute all agreements and other documents as reasonably
requested by the Company.
6.
Investor
Representations and Warranties and Covenants~.
The
Holder represents, warrants and covenants to the Company as
follows:
a.
No
Registration.
Such
Holder understands that the Note, and any shares of Common Stock have not been,
and will not be, registered under the Securities Act of 1933, as amended (the
“Securities
Act”)
by
reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things,
the
bona fide nature of the investment intent and the accuracy of such Holder’s
representations as expressed herein or otherwise made pursuant
hereto.
b. Investment
Experience.
Such
Holder has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company and
acknowledges that such Holder can protect its own interests. Such Holder has
such knowledge and experience in financial and business matters so that such
Holder is capable of evaluating the merits and risks of its investment in the
Company.
c. Residency.
The
residency of the Holder (or, in the case of a partnership or corporation, such
entity’s principal place of business) is correctly set forth on the signature
page hereto.
d. Speculative
Nature of Investment.
Such
Holder understands and acknowledges that the Company has a limited financial
and
operating history and that an investment in the Company is highly speculative
and involves substantial risks. Such Holder can bear the economic risk of such
Holder’s investment and is able, without impairing such Holder’s financial
condition, to suffer a complete loss of such Holder’s investment.
e. Access
to Data.
The
Holder 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 any reasonably requested materials requested by the Holder, The
Holder 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 Holder has had the opportunity to obtain and to review the
Company’s filings available on the ▇▇▇▇▇ web site of the Securities and Exchange
Commission (▇▇▇.▇▇▇.▇▇▇).
f. Accredited
Investor.
The
Holder is an “accredited investor’ within the meaning of Regulation D, Rule 50
1(a), promulgated by the Securities and Exchange Commission under the Securities
Act and shall submit to the Company such further assurances of such status
as
may be reasonably requested by the Company.
g.
Rule
144.
Holder
acknowledges that he is aware of the provisions of Rule 144 promulgated under
the Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including among
other things, the existence of a public market for the shares, the availability
of certain current public information about the Company, the resale occurring
not less than one year after a party has purchased and paid for the security
to
be sold, the sale being effected through a “broker’s transaction” or in
transactions directly with a “market maker” and the number of shares being sold
during any three-month period not exceeding specified limitations. Such Holder
acknowledges that, in the event all of the requirements of Rule 144 are not
met,
registration under the Securities Act or an exemption from registration will
be
required for any disposition of the Common Stock Such Holder understands that,
although Rule 144 is not exclusive, the Securities and Exchange Commission
has
expressed its opinion that persons proposing to sell restricted securities
received in a private offering other than in a registered offering or pursuant
to Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that
such
persons and the brokers who participate in the transactions do so at their
own
risk.
h. Affiliate
Status.
Holder
represents that his is not and has not been an affiliate of the Company in
the
three (3) months prior to the Effective Date and currently owns no shares of
common stock of the Company outside of the convertible debenture.
i.
Authorization.
(i).
Such
Holder has all requisite power and authority to execute and deliver this
Conversion Agreement, and to carry out and perform its obligations under the
terms hereof. All action on the part of the Holder necessary for the
authorization, execution, delivery and performance of this Conversion Agreement,
and the performance of all of the Holder’s obligations herein, has been
taken.
(ii). This
Conversion Agreement, when executed and delivered by the Holder, will constitute
valid and legally binding obligations of the Holder, enforceable in accordance
with its terms except: (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies or by general principles of equity.
(iii). No
consent, approval, authorization, order, filing, registration or qualification
of or with any court, governmental authority or third person is required to
be
obtained by the Holder in connection with the execution and delivery of this
Conversion Agreement by the Holder or the performance of the Holder’s
obligations hereunder.
j. Brokers
or Finders.
Such
Holder has not engaged any brokers, finders or agents, and the Company has
not,
and will not, incur, directly or indirectly, as a result of any action taken
by
the Holder, any liability for brokerage or finders’ fees or agents’ commissions
or any similar charges in connection with this Conversion Agreement and the
transactions related hereto.
k. Tax
Advisors.
Such
Holder has reviewed with its own tax advisors the U.S. federal, state, local
and
foreign tax consequences of this investment and the transactions contemplated
by
this Conversion Agreement. With respect to such matters, such Holder relies
solely on such advisors and not on any statements or representations of the
Company or any of its agents, written or oral. The Holder understands that
it
(and not the Company) shall be responsible for its own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Conversion Agreement.
1. Legends.
Such
Holder understands and agrees that without the Opinion, the certificates
evidencing the conversion into shares of Common Stock shall bear a legend in
substantially the form as follows (in addition to any legend required by any
other applicable agreement or under applicable state securities
laws):
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT
BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY
STATE, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT AND/OR APPLICABLE
STATE SECURITIES LAWS, OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.”
7.
Inconsistency.
In the
event of any inconsistency between the terms of this Amendment and any other
document executed in connection herewith, the terms of this Amendment shall
control to the extent necessary to resolve such inconsistency. All other terms
and conditions of the Note not modified in this Amendment shall remain in full
force and effect.
8.
Entire
Agreement.
This
Amendment together with the Note represents the entire agreement between the
parties relating to the Note and supersedes any prior agreement(s) concerning
the Note.
IN WITNESS
WHEREOF, the parties have caused this Agreement to be duly executed by parties
duly authorized to act as of the day and year first above written.
By
/s/
▇▇▇▇
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇
Its:
CEO
/s/
▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇