REGISTRATION RIGHTS AGREEMENT
 
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of October 31,
2007, by and among HANDHELD ENTERTAINMENT, INC., a Delaware corporation (the
“Company”), and the undersigned Buyers listed on Schedule I attached
hereto (each, a “Buyer” and collectively, the “Buyers”).
 
WHEREAS:
 
A. In connection with the Securities Purchase Agreement by and among the parties
hereto dated as of August 2, 2007 (the “Securities Purchase Agreement”), the
Company has agreed to issue and sell to the Buyers (i) secured convertible
debentures (the “Convertible Debentures”) which shall be convertible into shares
of the Company’s common stock, par value $0.0001 per share (the “Common Stock,”
as converted, the “Conversion Shares”) in accordance with the terms of the
Convertible Debentures, and (ii) warrants (the “Warrants”), which will be
exercisable to purchase shares of Common Stock (as exercised, collectively, the
“Warrant Shares”). Capitalized terms not defined herein shall have the meaning
ascribed to them in the Securities Purchase Agreement.
 
B. To induce the Buyers 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”), and applicable state securities laws.
 
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 Buyers hereby
agree as follows:
 
1.  DEFINITIONS.
 
As used in this Agreement, the following terms shall have the following
meanings:
 
(a)  “Closing Date” shall have the meaning assigned to it in the Securities
Purchase Agreement.
 
(b)  “Effectiveness Deadline” means, (i) with respect to the initial
Registration Statement the 120th calendar day following the Closing Date, and
(ii) with respect to any subsequent Registration Statement filed hereunder the
date that is 90 calendar days following the filing of such Registration
Statement, provided, however, in the event the Company is notified by the U.S.
Securities and Exchange Commission (“SEC”) that one of the above Registration
Statements will not be reviewed or is no longer subject to further review and
comments, the Effectiveness Date as to such Registration Statement shall be the
fifth Trading Day following the date on which the Company is so notified if such
date precedes the dates required above. In the event of delays in effectiveness
resulting from the form of the Convertible Debenture or the Warrants and
evidenced by written comments from the SEC the Effectiveness Deadline as set
forth shall be extended for such period as effectiveness shall not be declared,
until terms of those documents are waived by Buyer or revised by the parties to
satisfy regulatory requirements.
 

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(c)  “Filing Deadline” means, with respect to the initial Registration Statement
the 30th calendar day following the Closing Date.
 
(d)  “Person” means a corporation, a limited liability company, an association,
a partnership, an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
 
(e)  “Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
 
(f)  “Registrable Securities” means all of (i) the Conversion Shares issuable
upon conversion of the Convertible Debentures, (ii) the Warrant Shares issued or
issuable upon exercise of the Warrants, (iii) the Commitment Shares, (iv) any
additional shares issuable in connection with any anti-dilution provisions in
the Warrants or the Convertible Debentures (without giving effect to any
limitations on exercise set forth in the Warrants or Convertible Debentures) and
(v) any shares of Common Stock issued or issuable with respect to the Conversion
Shares, the Convertible Debentures, the Warrant Shares, or the Warrants as a
result of any stock split, dividend or other distribution, recapitalization or
similar event or otherwise, without regard to any limitations on the conversion
of the Convertible Debentures or exercise of the Warrants.
 
(g)  “Registration Statement” means the initial registration statement required
to be filed hereunder and any additional registration statements contemplated by
Section 3(c), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
 
(h)  “Initial Required Registration Amount” means a number of Registrable
Securities equal, at the time of filing of the applicable Registration
Statement, to the aggregate number of shares of Common Stock constituting the
Warrant Shares, the Commitment Shares and all shares of Common Stock issuable
upon conversion of Convertible Debentures (notwithstanding any conversion
limitations set forth therein), subject to any cutback set forth in Section
3(c).
 
(i)  “Rule 415” means Rule 415 promulgated by the SEC pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC having substantially the same purpose
and effect as such Rule.
 
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2.  REGISTRATION.
 
(a)  In accordance with the terms of this Agreement, the Company shall register
the resale of all the Registrable Securities on behalf of the Buyer during the
Registration Period (as described below). On or prior to the Filing Deadline,
the Company shall prepare and file with the SEC a Registration Statement on Form
S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) covering the
resale of the Initial Required Registration Amount of the Registrable
Securities. The Registration Statement shall contain the “Selling Stockholders”
and “Plan of Distribution” sections in substantially the form attached hereto as
Exhibit A and contain all the required disclosures set forth on Exhibit B. The
Company shall use its best efforts to have the initial Registration Statement,
and all subsequent Registration Statements declared effective by the SEC as soon
as practicable, but in no event later than the applicable Effectiveness
Deadline. By 9:30 am on the date following the date of effectiveness, the
Company shall file with the SEC in accordance with Rule 424 under the 1933 Act
the final Prospectus to be used in connection with sales pursuant to such
Registration Statement. The Company shall cause a Registration Statement to
remain effective until all of the Registrable Securities covered thereby have
been sold or may be sold without volume restrictions pursuant to Rule 144(k), as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company’s transfer agent and the
affected Holders (“Registration Period”). Prior to the filing of the
Registration Statement with the SEC, the Company shall furnish a draft of the
Registration Statement to the Buyers for their review and comment. The Buyers
shall furnish comments on the Registration Statement to the Company within
twenty-four (24) hours of the receipt thereof from the Company.
 
(b)  Failure to File or Obtain Effectiveness of the Registration Statement. If:
(i) a Registration Statement is not filed on or prior to its Filing Deadline (if
the Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a), the
Company shall not be deemed to have satisfied this clause (i)), or (ii) the
Company fails to file with the SEC a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act, within five Trading Days of the
date that the Company is notified (orally or in writing, whichever is earlier)
by the SEC that a Registration Statement will not be “reviewed,” or not subject
to further review, or (iii) a Registration Statement filed or required to be
filed hereunder is not declared effective by the SEC by its Effectiveness
Deadline, or (iv) after the effectiveness, a Registration Statement ceases for
any reason to remain continuously effective as to all Registrable Securities for
which it is required to be effective, or the Holders are otherwise not permitted
to utilize the Prospectus therein to resell such Registrable Securities for more
than 30 consecutive calendar days or more than an aggregate of 40 calendar days
during any 12-month period (which need not be consecutive calendar days) (any
such failure or breach being referred to as an “Event”), then in addition to any
other rights the holders of the Convertible Debentures may have hereunder or
under applicable law, on each monthly anniversary of each such Event date (if
the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each holder of Convertible
Debentures an amount in cash or, at the option of the Company, in shares of
Common Stock of the Company valued at the 10 day VWAP preceding the due date for
payment as partial liquidated damages (“Liquidated Damages”) and not as a
penalty, equal to the pro-rata portion of 1.0% of the aggregate purchase price
paid by such holder pursuant to the Securities Purchase Agreement for any
Convertible Debentures then held by such holder for which a registration
statement is then required to have been filed or declared effective. The parties
agree that (1) the Company shall not be liable for Liquidated Damages under this
Agreement with respect to any Warrants or Warrant Shares and (2) the maximum
aggregate Liquidated Damages payable under this Agreement for all instances in
which Liquidated Damages shall be payable, regardless of the cause, shall be six
percent (6%) of the aggregate Purchase Price paid by such holder pursuant to the
Securities Purchase Agreement. The partial Liquidated Damages pursuant to the
terms hereof shall apply on a daily pro-rata basis for any portion of a month
prior to the cure of an Event.
 
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(c)  Liquidated Damages. The Company and the Buyer hereto acknowledge and agree
that the sums payable under subsection 2(b) above shall constitute liquidated
damages and not penalties and are in addition to all other rights of the Buyer,
including the right to call a default. The parties further acknowledge that (i)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (ii) the amounts specified in such subsections bear a
reasonable relationship to, and are not plainly or grossly disproportionate to,
the probable loss likely to be incurred in connection with any failure by the
Company to obtain or maintain the effectiveness of a Registration Statement,
(iii) one of the reasons for the Company and the Buyer reaching an agreement as
to such amounts was the uncertainty and cost of litigation regarding the
question of actual damages, and (iv) the Company and the Buyer are sophisticated
business parties and have been represented by sophisticated and able legal
counsel and negotiated this Agreement at arm’s length.
 
3.  RELATED OBLIGATIONS.
 
(a)  The Company shall, not less than three (3) Trading Days prior to the filing
of each Registration Statement and not less than one (1) Trading Day prior to
the filing of any related amendments and supplements to all Registration
Statements (except for annual reports on Form 10-K or Form 10-KSB), provide an
opportunity to each Buyer to be furnished with copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to delivery to Buyer only upon
the written request by Buyer, which shall in all events upon delivery be deemed
to be receipt by Buyer of confidential non-public information of Company, and
for the sole purpose of the reasonable and prompt review of such Buyers. The
Company shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Buyers shall reasonably object in
good faith; provided that, the Company is notified of such objection in writing
no later than two (2) Trading Days after the Buyers have been so furnished
copies of a Registration Statement, and upon such objection, all periods herein
shall be extended by five (5) Business Days, but the Company may thereupon file
such Registration Statement if the Company deems such action appropriate in its
sole discretion.
 
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(b)  The Company shall (i) prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the Prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and prepare and file with the SEC such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities provided that any further amount of shares shall not be required to
exceed the amount that the Company, upon the advice of counsel, determines shall
not contravene any rules, regulation, interpretation or positions (as stated in
SEC comment letters or otherwise) shall determine may be registered at the time
of filing such further Registration Statement); (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement
(subject to the terms of this Agreement), and as so supplemented or amended to
be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible
to any comments received from the SEC with respect to a Registration Statement
or any amendment thereto and as promptly as reasonably possible provide the
Buyers an opportunity to obtain true and complete copies of all correspondence
from and to the SEC relating to a Registration Statement (provided that the
Company may excise any information contained therein which would constitute
material non-public information as to any Buyer which has not executed a
confidentiality agreement with the Company); and (iv) comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
Securities of the Company covered by such Registration Statement until such time
as all of such Registrable Securities shall have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in such Registration Statement. In the case of amendments and supplements
to a Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the Company’s
filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the
Company shall incorporate such report by reference into the Registration
Statement, if applicable, or shall file such amendments or supplements with the
SEC within one business day of which the Exchange Act report is filed which
created the requirement for the Company to amend or supplement the Registration
Statement.
 
(c)  Reduction of Registrable Securities Included in a Registration Statement.
Notwithstanding anything contained herein, in the event that the SEC requires
the Company to reduce the number of shares of Common Stock registered for resale
by selling stockholders pursuant to registration statements filed by the Company
in order to allow the Company to rely on Rule 415 with respect to such
registration statements, then the Company shall be obligated to include in such
registration statements (which may include the Registration Statement and/or a
subsequent Registration Statement if the Company needs to withdraw or amend the
initial Registration Statement and refile a new Registration Statement in order
to rely on Rule 415), in the aggregate, only such limited portion of the
Registrable Securities as constitutes the Pro Rata Share (as defined below) of
the amount of securities the SEC shall permit or which the Company, in its
reasonable determination, determines should be included therein in order to not
contravene any position stated by the SEC. Any Registrable Securities that are
excluded in accordance with the foregoing terms are hereinafter referred to as
“Cut Back Securities.” To the extent Cut Back Securities exist, on the later of
(a) sixty (60) days after the last of the securities registered on the previous
Registration Statement are sold, or (b) six (6) months following the previous
Registration Statement’s effective date, or such other time as the Company
reasonably determines that registration of the Cut Back Securities may be
permitted by the SEC, the Company shall seek to register by the filing of a
Registration Statement covering the resale of the Cut Back Securities and shall
use best efforts to cause such Registration Statement to be declared effective
as promptly as practicable thereafter, provided, however, no liquidated damages,
penalties, or rights shall inure to the benefit of Buyer under the Convertible
Debenture, this Agreement or the Securities Purchase Agreement if such position
of the SEC results in withdrawal or abandonment of such effort to register such
additional Cut Back Securities. “Pro Rata Share” means, at any time, the portion
that the Registrable Securities held by Buyer constitute of all securities that
the Company is required or permitted to register pursuant to this Agreement.
 
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(d)  The Company shall furnish to each Buyer whose Registrable Securities are
included in any Registration Statement, without charge, (i) at least one (1)
copy of such Registration Statement as declared effective by the SEC and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, all exhibits and each preliminary
prospectus, (ii) ten (10) copies of the final prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Buyer may reasonably request) and (iii) such other
documents as such Buyer may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by such Buyer.
The Company may satisfy the requirement of this Section 3(d) be electronic means
available to the Buyer.
 
(e)  The Company shall use its best efforts to (i) register and qualify the
Registrable Securities covered by a Registration Statement under such other
securities or “blue sky” laws of such jurisdictions in the United States as any
Buyer reasonably requests, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (w) make any
change to its articles of incorporation or by-laws, (x) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify each Buyer who holds Registrable
Securities of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any of the Registrable
Securities for sale under the securities or “blue sky” laws of any jurisdiction
in the United States or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
 
(f)  As promptly as practicable after becoming aware of such event or
development, the Company shall notify each Buyer in writing of the happening of
any event as a result of which the Prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission 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 (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to each Buyer and prior
thereto, after receiving notice of such event the Buyer shall not make any sales
pursuant to such unamended or unsupplemented Registration Statement. The Company
shall also promptly notify each Buyer in writing (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Buyer by
facsimile on the same day of such effectiveness), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company’s reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.
 
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(g)  The Company shall use its best efforts to prevent the issuance of any stop
order or other suspension of effectiveness of a Registration Statement, or the
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction within the United States of America and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Buyer who holds Registrable
Securities being sold of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
 
(h)  If, after the execution of this Agreement, a Buyer believes, and receives a
written legal opinion of its legal counsel reasonably acceptable to the Company
that it would be deemed to be an underwriter of Registrable Securities, at the
request of Buyer, the Company shall make available for inspection by (i) any
Buyer and (ii) one (1) firm of accountants or other agents retained by the
Buyers (collectively, the “Inspectors”) all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree, and each Buyer hereby agrees, to hold in strict
confidence and shall not make any disclosure (except to a Buyer) or use any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Buyer has knowledge. Each
Buyer agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.
 
(i)  The Company shall hold in confidence and not make any disclosure of
information concerning a Buyer provided to the Company unless (i) disclosure of
such information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning a Buyer is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt written
notice to such Buyer and allow such Buyer, at the Buyer’s expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
 
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(j)  The Company shall use its best efforts either to cause all the Required
Registration Amount of Registrable Securities covered by a Registration
Statement (i) to be listed on each securities exchange on which securities of
the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (ii) the inclusion for quotation on the National Association of
Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The
Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(j).
 
(k)  The Company shall cooperate with each Buyer who holds Registrable
Securities being registered and, to the extent applicable, to satisfy the
requirement for DTC delivery or to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be sold pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Buyers may reasonably request and registered in such names as the
Buyers may request.
 
(l)  The Company shall use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to consummate the disposition of such Registrable Securities.
 
(m)  The Company shall make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve (12) month period beginning
not later than the first day of the Company’s fiscal quarter next following the
effective date of the Registration Statement.
 
(n)  The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
 
(o)  Within two (2) business days after a Registration Statement which covers
Registrable Securities is declared effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Buyer whose
Registrable Securities are included in such Registration Statement) confirmation
that such Registration Statement has been declared effective by the SEC in the
form attached hereto as Exhibit C.
 
(p)  The Company shall take all other reasonable actions upon the written
request of Buyer reasonably necessary to expedite and facilitate disposition by
each Buyer of Registrable Securities pursuant to a Registration Statement.
 
4.  OBLIGATIONS OF THE BUYERS.
 
(a)  Each Buyer agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) such Buyer will
immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement covering such Registrable Securities until such Buyer’s
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3(f) or receipt of notice that no supplement or amendment is required.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended certificates for shares of Common Stock to a
transferee of a Buyer in accordance with the terms of the Securities Purchase
Agreement in connection with any sale of Registrable Securities with respect to
which a Buyer has entered into a contract for sale prior to the Buyer’s receipt
of a notice from the Company of the happening of any event of the kind described
in Section 3(f) or the first sentence of 3(e) and for which the Buyer has not
yet settled.
 
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(b)  Each Buyer covenants and agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it or an exemption
therefrom in connection with sales of Registrable Securities pursuant to the
Registration Statement.
 
5.  EXPENSES OF REGISTRATION.
 
All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company, other than counsel for the Buyer or the cost
of accountants acting on behalf of the Buyer.
 
6.  INDEMNIFICATION.
 
With respect to Registrable Securities which are included in a Registration
Statement under this Agreement:
 
(a)  To the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Buyer, the directors, officers,
partners, employees, agents, representatives of, and each Person, if any, who
controls any Buyer within the meaning of the Securities Act or the Exchange Act
(each, an “Indemnified Person”), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’
fees, amounts paid in settlement or expenses, joint or several (collectively,
“Claims”) incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto (“Indemnified Damages”), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other “blue sky” laws of any jurisdiction in which Registrable Securities are
offered (“Blue Sky Filing”), or the omission or alleged omission to state 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 any 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
other law, including, without limitation, any state securities law, or any rule
or regulation there under relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, “Violations”). The Company shall
reimburse the Buyers and each such controlling person promptly as such expenses
are incurred and are due and payable, for reasonable legal fees or disbursements
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): (x) shall
not apply to a Claim by an Indemnified Person 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 such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (y) shall not be available to the
extent such Claim is based on a failure of the Buyer to deliver or to cause to
be delivered the prospectus made available by the Company or other breach by
Buyer of the terms of this Agreement, and if such prospectus was timely made
available by the Company pursuant to Section 3(c); and (z) shall not 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. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Buyers
pursuant to Section 9 hereof.
 
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(b)  In connection with a Registration Statement, each Buyer agrees to severally
and not jointly indemnify, hold harmless and defend, to the same extent and in
the same manner as is set forth in Section 6(a), the Company, each of its
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any the Company within the meaning of the
Securities Act or the Exchange Act, (each an “Indemnified Party”), against any
Claim or Indemnified Damages to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Buyer expressly for use in connection with such Registration Statement or
omitted to be communicated to Buyer expressly for use in connection with such
Registration Statement; and, subject to Section 6(d), such Buyer will reimburse
any reasonable legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Buyer, which consent shall not be unreasonably withheld;
provided, further, however, that the Buyer shall be liable under this Section
6(b) for only that amount of a Claim or Indemnified Damages as does not exceed
the net proceeds to such Buyer as a result of the sale of Registrable
Securities. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Buyers pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the prospectus was corrected
and such new prospectus was delivered to each Buyer prior to such Buyer’s use of
the prospectus to which the Claim relates.
 
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(c)  Promptly after receipt by an Indemnified Person or Indemnified Party under
this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or 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 Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable written opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent;
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
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 Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
 
(d)  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 and when bills are received or Indemnified Damages are incurred.
 
(e)  The indemnity agreements contained herein shall be in addition to (i) any
cause of action or similar right of the Indemnified Party or Indemnified Person
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
 
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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: (i) 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
fraudulent misrepresentation; and (ii) 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 THE EXCHANGE ACT.
 
With a view to making available to the Buyers the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Buyers 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 so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company’s obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and
 
(c)  furnish to each Buyer so long as such Buyer 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) 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 Buyers to
sell such securities pursuant to Rule 144 without registration.
 
9.  AMENDMENT OF REGISTRATION RIGHTS.
 
Provisions 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 Buyers who then
hold at least fifty-one (51%) percent of the outstanding aggregate principal
amount of Convertible Debentures then outstanding. Any amendment or waiver
effected in accordance with this Section 9 shall be binding upon each Buyer and
the Company. No such amendment shall be effective to the extent that it applies
to fewer than all of the holders of the Registrable Securities. 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 this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
 
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10.  MISCELLANEOUS.
 
(a)  A Person is deemed to be a holder of Registrable Securities whenever such
Person owns or is deemed to own of record such Registrable Securities or owns
the right to receive the Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two (2) or more Persons 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)  No Piggyback on Registrations. Except as set forth on Schedule 10(b.i)
attached hereto, neither the Company nor any of its security holders (other than
the Buyers in such capacity pursuant hereto) may include securities of the
Company in the initial Registration Statement other than the Initial Required
Registration Amount of Registrable Securities. The Company shall not file any
other registration statements until the initial Registration Statement required
hereunder is declared effective by the SEC, provided that this Section 10(b)
shall not prohibit the Company from: (i) filing amendments to registration
statements already filed, or filing any registration statement on Form S-8 or
S-4, or successor forms thereto; (ii) filing registration statements which are
required under that certain Registration Rights Agreement entered by and between
the Company and eBaums’s World Inc. (“EBW”) entered pursuant to the Asset
Purchase Agreement dated as of August 1, 2007 by and between the Company, EBW
and EBW Acquisition, Inc; (iii) filing registration statements which are
required under any registration rights agreement entered into in connection with
the Company’s issuance of up to $2,224,290.41 aggregate principal amount of
Junior Secured Convertible Debentures and related warrants issued in exchange
for $1,400,000 cash and $824,290.41 aggregate principal and interest outstanding
on 8% notes due 2008 (“2008 Notes”) of the Company to the various purchasers
identified on Schedule 10(b.ii); (iv) filing registration statements for the
resale of shares of Common Stock issuable pursuant to Junior Secured Convertible
Debentures and related warrants issued in exchange for up to $1.425 million
aggregate principal amount of 2008 Notes pursuant to an Additional Securities
Purchase Agreement dated as of October 31, 2007, among the Company and the
Buyers identified therein (the “Additional Securities Purchase Agreement”); and
(v) filing registration statements for the resale of shares of Common Stock
solely by Carl Page, Eric Bauman and/or Neil Bauman with respect to shares
issuable pursuant to up to $3.5 million aggregate principal amount of Junior
Secured Convertible Debentures and related warrants issued pursuant to an
Additional Securities Purchase Agreement.
 
(c)  Piggy-Back Registrations. If at any time there has not been filed when
required an initial Registration Statement or other registration statement for
Registrable Securities or following the Effectiveness Deadline for such
Registrable Securities there is not an effective Registration Statement covering
the Registrable Securities required to be filed (taking into account and Cut
Back Securities not required to be registered) and the Company shall determine
to prepare and file with the SEC a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with the stock
option or other employee benefit plans, then the Company shall send to each
Buyer a written notice of such determination and, if within fifteen (15) days
after the date of such notice, any such Buyer shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Buyer requests to be registered; provided, however,
that, the Company shall not be required to register any Registrable Securities
pursuant to this Section 10(c) that are eligible for resale pursuant to Rule
144(k) promulgated under the Securities Act or that are the subject of a then
effective Registration Statement.
 
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(d)  Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
 
If to the Company, to:
Handheld Entertainment, Inc.
 
539 Bryant Street, Suite 403
 
San Francisco, CA 94107
 
Attention: Jeffery Oscodar
 
Telephone: (415) 495-6470
 
Facsimile: (415) 495-7708
   
With Copy to:
Haynes and Boone, LLP
 
153 East 53rd Street
 
New York, NY 10022
 
Attention: Harvey J. Kesner, Esq.
 
Telephone: (212) 659-7300
 
Facsimile: (212) 918-8989
   

If to an Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
 
(e)  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.
 
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(f)  This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
 
(g)  This Agreement shall inure to the benefit of and be binding upon the
permitted successors and assigns of each of the parties hereto.
 
(h)  The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
 
(i)  This Agreement may be executed in identical 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 facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
 
(j)  Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
 
(k)  The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
 
(l)  This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person.
 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their signature page
to this Registration Rights Agreement to be duly executed as of the date first
above written.

       
COMPANY:
HANDHELD ENTERTAINMENT, INC.
 
   
   
    By:   /s/ William J. Bush  

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Name: William J. Bush
 
Title: Chief Financial Officer

 
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IN WITNESS WHEREOF, each Buyer and the Company have caused their signature page
to this Registration Rights Agreement to be duly executed as of the date first
above written.

       
BUYER:
YA GLOBAL INVESTMENTS, L.P.
 
   
   
    By:   Yorkville Advisors, LLC   Its:
Investment Manager

       
   
   
    By:   /s/ Mark Angelo  

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Name: Mark Angelo
 
Title: Portfolio Manager

 
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