Unassociated Document


     

    WARRANT

     

    THE
      SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
      SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      OR
      APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
      SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
      OR
      APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
      SAID
      ACT. 

     

    HANDHELD
      ENTERTAINMENT, INC.

     

    Warrant
      To Purchase Common Stock

    

      
        	
                Warrant
                  No.: ZVUE 2-A-__

              	
                Number
                  of Shares:

              	
                 

              
	 	
                Warrant
                  Exercise Price:

              	
                $1.90

              
	 	
                Expiration
                  Date:

              	
                October
                  31, 2012

              


      

    

      

    Date
      of
      Issuance: October 31, 2007

    


    Handheld
      Entertainment, Inc., a Delaware corporation (the “Company”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, [      ] (the
“Holder”),
      the
      registered holder hereof or its permitted assigns, is entitled, subject to
      the
      terms set forth below, to purchase from the Company upon surrender of this
      Warrant, at any time or times on or after the date hereof, but not after
      11:59 P.M. Eastern Time on the Expiration Date (as defined herein) up to
      976,974 fully paid and nonassessable shares of Common Stock (as defined herein)
      of the Company (the “Warrant
      Shares”)
      at the
      exercise price per share provided in Section 1(b) below or as subsequently
      adjusted; provided, however, that in no event shall the holder be entitled
      to
      exercise this Warrant for a number of Warrant Shares in excess of that number
      of
      Warrant Shares which, upon giving effect to such exercise, would cause the
      aggregate number of shares of Common Stock beneficially owned by the holder
      and
      its affiliates to exceed 9.99% of the outstanding shares of the Common Stock
      following such exercise, except within sixty (60) days of the Expiration Date
      (however, such restriction may be waived by Holder (but only as to itself and
      not to any other holder) upon not less than 65 days prior notice to the
      Company). For purposes of the foregoing proviso, the aggregate number of shares
      of Common Stock beneficially owned by the holder and its affiliates shall
      include the number of shares of Common Stock issuable upon exercise of this
      Warrant with respect to which the determination of such proviso is being made,
      but shall exclude shares of Common Stock which would be issuable upon
      (i) exercise of the remaining, unexercised Warrants beneficially owned by
      the holder and its affiliates and (ii) exercise or conversion of the
      unexercised or unconverted portion of any other securities of the Company
      beneficially owned by the holder and its affiliates (including, without
      limitation, any convertible notes or preferred stock) subject to a limitation
      on
      conversion or exercise analogous to the limitation contained herein. Except
      as
      set forth in the preceding sentence, for purposes of this paragraph, beneficial
      ownership shall be calculated in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
      the number of outstanding shares of Common Stock a holder may rely on the number
      of outstanding shares of Common Stock as reflected in (1) the Company’s most
      recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
      announcement by the Company or (3) any other notice by the Company or its
      transfer agent setting forth the number of shares of Common Stock outstanding.
      Upon the written request of any holder, the Company shall promptly, but in
      no
      event later than one (1) Business Day following the receipt of such notice,
      confirm in writing to any such holder the number of shares of Common Stock
      then
      outstanding. In any case, the number of outstanding shares of Common Stock
      shall
      be determined after giving effect to the exercise of Warrants (as defined below)
      by such holder and its affiliates since the date as of which such number of
      outstanding shares of Common Stock was reported.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      1.

     

    (a) This
      Warrant is one of the warrants issued pursuant to the Additional Securities
      Purchase Agreement (“Additional
      Securities Purchase Agreement”)
      dated
      as of October 31, 2007, by and among the Company and the purchasers listed
      on
      Schedule I thereto or issued in exchange or substitution thereafter or
      replacement thereof. Each Capitalized term used, and not otherwise defined
      herein, shall have the meaning ascribed thereto in the Additional Securities
      Purchase Agreement.

     

    (b) Definitions.
      The
      following words and terms as used in this Warrant shall have the following
      meanings:

     

    (i) “Approved
      Stock Plan”
means
      a
      stock option plan that has been approved by the Board of Directors of the
      Company prior to the date of the Additional Securities Purchase Agreement,
      pursuant to which the Company’s securities may be issued only to any employee,
      officer or director for services provided to the Company.

     

    (ii) “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      the City of New York are authorized or required by law to remain
      closed.

     

    (iii) “Closing
      Bid Price”
means
      the closing bid price of Common Stock as quoted on the Principal Market (as
      reported by Bloomberg Financial Markets (“Bloomberg”)
      through its “Volume at Price” function).

     

    (iv) “Common
      Stock”
means
      (i) the Company’s common stock, par value $0.0001 per share, and
      (ii) any capital stock into which such Common Stock shall have been changed
      or any capital stock resulting from a reclassification of such Common
      Stock.

     

    
      
        
        

      

      
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    (v) “Event
      of Default”
means
      an event of default under the Additional Securities Purchase Agreement or the
      Junior Secured Convertible Debentures issued in connection
      therewith.

     

    (vi) “Excluded
      Securities”
means,
      (a) shares issued or deemed to have been issued by the Company pursuant to
      an
      Approved Stock Plan, (b) shares of Common Stock issued or deemed to be issued
      by
      the Company upon the conversion, exchange or exercise of any right, option,
      obligation or security outstanding on the date prior to date of the Additional
      Securities Purchase Agreement, provided that the terms of such right, option,
      obligation or security are not amended or otherwise modified on or after the
      date of the Additional Securities Purchase Agreement, and provided that the
      conversion price, exchange price, exercise price or other purchase price is
      not
      reduced, adjusted or otherwise modified and the number of shares of Common
      Stock
      issued or issuable is not increased (other than by operation of, or in
      accordance with, the relevant governing documents) on or after the date of
      the
      Additional Securities Purchase Agreement, (c) shares of Common Stock issued
      or
      deemed to be issued in connection with any acquisition by the Company, whether
      through an acquisition of stock or a merger of any business, assets or
      technologies, leasing arrangement or any other transaction the primary purpose
      of which is not to raise equity capital, including, without limitation, pursuant
      to that certain Asset Purchase Agreement, dated August 1, 2007, by and among
      the
      Company, EBW Acquisition, Inc. and eBaum’s World, Inc. or any related agreement,
      (d) the shares of Common Stock issued or deemed to be issued by the Company
      upon issuance, conversion or exercise of any Securities issued pursuant to,
      or
      in connection with the Additional Securities Purchase Agreement, including
      Junior Convertible Debentures and Warrants, (e) shares of Common Stock issued
      or
      deemed issued upon exercise of warrants issued in connection with the Company’s
      issuance of $1.425 million aggregate principal amount of 8% notes due 2008,
      and
      (f) shares of Common Stock issued or deemed issued by the Company upon the
      conversion, exchange, or exercise of the convertible debentures and warrants
      of
      the Company issued pursuant to a Securities Purchase Agreement dated August
      2,
      2007, by and among the Company and YA Global Investments, L.P., provided that
      the conversion price, exchange price, exercise price or other purchase price
      is
      not reduced, adjusted or otherwise modified and the number of shares of Common
      Stock issued or issuable is not increased (other than by operation of, or in
      accordance with, the relevant governing documents) at any time after the date
      the security is originally issued.

     

    (vii) “Expiration
      Date”
means
      October 31, 2012.

     

    (viii) “Issuance
      Date”
means
      the date hereof.

     

    (ix) “Options”
means
      any rights, warrants or options to subscribe for or purchase Common Stock or
      Convertible Securities. 

     

    (x) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    (xi) “Primary
      Market”
means
      on any of (a) the American Stock Exchange, (b) New York Stock Exchange, (c)
      the
      Nasdaq Global Select Market, (d) the Nasdaq Global Market, (e) the Nasdaq
      Capital Market, or (e) the Over-the-Counter Bulletin Board (“OTCBB”)
      

     

    
      
        
        

      

      
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    (xii) “Securities
      Act”
means
      the Securities Act of 1933, as amended. 

     

    (xiii) “Warrant”
means
      this Warrant and all Warrants issued in exchange, transfer or replacement
      thereof. 

     

    (xiv) “Warrant
      Exercise Price”
shall
      be $1.90 or as subsequently adjusted as provided in Section 8 hereof.


     

    (c) Other
      Definitional Provisions. 

     

    (i) Except
      as
      otherwise specified herein, all references herein (A) to the Company shall
      be deemed to include the Company’s successors and (B) to any applicable law
      defined or referred to herein shall be deemed references to such applicable
      law
      as the same may have been or may be amended or supplemented from time to time.
      

     

    (ii) When
      used
      in this Warrant, the words “herein”,
      “hereof”,
      and
“hereunder”
      and
      words of similar import, shall refer to this Warrant as a whole and not to
      any
      provision of this Warrant, and the words “Section”,
      “Schedule”,
      and
“Exhibit”
shall
      refer to Sections of, and Schedules and Exhibits to, this Warrant unless
      otherwise specified. 

     

    (iii) Whenever
      the context so requires, the neuter gender includes the masculine or feminine,
      and the singular number includes the plural, and vice versa. 

     

    Section
      2. Exercise
      of Warrant.
      

     

    (a) Subject
      to the terms and conditions hereof, this Warrant may be exercised by the holder
      hereof then registered on the books of the Company, pro rata as hereinafter
      provided, at any time on any Business Day on or after the opening of business
      on
      such Business Day, commencing with the first day after the date hereof, and
      prior to 11:59 P.M. Eastern Time on the Expiration Date: (i) by delivery of
      a
      written notice, in the form of the subscription notice attached as Exhibit
      A
      hereto
      (the “Exercise
      Notice”),
      of
      such holder’s election to exercise this Warrant, which notice shall specify the
      number of Warrant Shares to be purchased, payment to the Company of an
      amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares
      being purchased, multiplied by the number of Warrant Shares (at the
      applicable Warrant Exercise Price) as to which this Warrant is being
      exercised (plus any applicable issue or transfer taxes) (the “Aggregate
      Exercise Price”)
      in
      cash or wire transfer of immediately available funds and the surrender of this
      Warrant (or an indemnification undertaking with respect to this Warrant in
      the
      case of its loss, theft or destruction) to a common carrier for overnight
      delivery to the Company as soon as practicable following such date
      (“Cash
      Basis”);
      or
      (ii) if at the time of exercise, the Warrant Shares are not subject to an
      effective registration statement or if an Event of Default has occurred, by
      delivering an Exercise Notice and in lieu of making payment of the Aggregate
      Exercise Price in cash or wire transfer, elect instead to receive upon such
      exercise the “Net Number” of shares of Common Stock determined according to the
      following formula (the “Cashless
      Exercise”):
      

     

    Net
      Number = (A
      x
      B) - (A x C)

    B

    


    For
      purposes of the foregoing formula: 

    


    A
      = the
      total number of Warrant Shares with respect to which this Warrant is then being
      exercised. 

    


    B
      = the
      Closing Bid Price of the Common Stock on the date of exercise of the
      Warrant.

    


    C
      = the
      Warrant Exercise Price then in effect for the applicable Warrant Shares at
      the
      time of such exercise. 

     

    
      
        
        

      

      
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    In
      the
      event of any exercise of the rights represented by this Warrant in compliance
      with this Section 2, the Company shall on or before the fifth (5th)
      Business Day following the date of receipt of the Exercise Notice, the Aggregate
      Exercise Price and this Warrant (or an indemnification undertaking with respect
      to this Warrant in the case of its loss, theft or destruction) and the receipt
      of the representations of the holder specified in Section 6 hereof, if requested
      by the Company (the “Exercise
      Delivery Documents”),
      and
      if the Common Stock is DTC eligible and is not required to be issued with a
      legend, credit such aggregate number of shares of Common Stock to which the
      holder shall be entitled to the holder’s or its designee’s balance account with
      The Depository Trust Company; provided, however, if the holder who submitted
      the
      Exercise Notice requested physical delivery of any or all of the Warrant Shares,
      or, if the Common Stock is not DTC eligible then the Company shall, on or before
      the fifth (5th)
      Business Day following receipt of the Exercise Delivery Documents, issue and
      surrender to a common carrier for overnight delivery to the address specified
      in
      the Exercise Notice, a certificate, registered in the name of the holder, for
      the number of shares of Common Stock to which the holder shall be entitled
      pursuant to such request. Upon delivery of the Exercise Notice and Aggregate
      Exercise Price referred to in clause (i) or (ii) above the holder of this
      Warrant shall be deemed for all corporate purposes to have become the holder
      of
      record of the Warrant Shares with respect to which this Warrant has been
      exercised. In the case of a dispute as to the determination of the Warrant
      Exercise Price, the Closing Bid Price or the arithmetic calculation of the
      Warrant Shares, the Company shall promptly issue to the holder the number of
      Warrant Shares that is not disputed and shall submit the disputed determinations
      or arithmetic calculations to the holder via facsimile within one (1) Business
      Day of receipt of the holder’s Exercise Notice. 

     

    (b) If
      the
      holder and the Company are unable to agree upon the determination of the Warrant
      Exercise Price or arithmetic calculation of the Warrant Shares within one (1)
      day of such disputed determination or arithmetic calculation being submitted
      to
      the holder, then the Company shall immediately submit via facsimile (i) the
      disputed determination of the Warrant Exercise Price or the Closing Bid Price
      to
      an independent, reputable investment banking firm or (ii) the disputed
      arithmetic calculation of the Warrant Shares to its independent, outside
      accountant. The Company shall cause the investment banking firm or the
      accountant, as the case may be, to perform the determinations or calculations
      and notify the Company and the holder of the results no later than forty-eight
      (48) hours from the time it receives the disputed determinations or
      calculations. Such investment banking firm’s or accountant’s determination or
      calculation, as the case may be, shall be deemed conclusive absent manifest
      error.

     

    
      
        
        

      

      
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    (c) Unless
      the rights represented by this Warrant shall have expired or shall have been
      fully exercised, the Company shall, as soon as practicable and in no event
      later
      than five (5) Business Days after any exercise and at its own expense, issue
      a
      new Warrant identical in all respects to this Warrant exercised except it shall
      represent rights to purchase the number of Warrant Shares purchasable
      immediately prior to such exercise under this Warrant exercised, less the number
      of Warrant Shares with respect to which such Warrant is exercised.

     

    (d) No
      fractional Warrant Shares are to be issued upon any pro rata exercise of this
      Warrant, but rather the number of Warrant Shares issued upon such exercise
      of
      this Warrant shall be rounded up or down to the nearest whole
      number.

     

    Section
      3. Covenants
      as to Common Stock.
      The
      Company hereby covenants and agrees as follows:

     

    (a) This
      Warrant is, and any Warrants issued in substitution for or replacement of this
      Warrant will upon issuance be, duly authorized and validly issued.

     

    (b) All
      Warrant Shares which may be issued upon the exercise of the rights represented
      by this Warrant will, upon issuance, be validly issued, fully paid and
      nonassessable and free from all taxes, liens and charges with respect to the
      issue thereof.

     

    (c) During
      the period within which the rights represented by this Warrant may be exercised,
      the Company will at all times have authorized and reserved at least one hundred
      percent (100%) of the number of shares of Common Stock needed to provide for
      the
      exercise of the rights then represented by this Warrant and the par value of
      said shares will at all times be less than or equal to the applicable Warrant
      Exercise Price. 

     

    (d) The
      Company will not, by amendment of its Articles of Incorporation or through
      any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities, or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms to be observed or performed by
      it
      hereunder, but will at all times in good faith assist in the carrying out of
      all
      the provisions of this Warrant and in the taking of all such action as may
      reasonably be requested by the holder of this Warrant in order to protect the
      exercise privilege of the holder of this Warrant against dilution or other
      impairment, consistent with the tenor and purpose of this Warrant. The Company
      will not increase the par value of any shares of Common Stock receivable upon
      the exercise of this Warrant above the Warrant Exercise Price then in effect,
      and (ii) will take all such actions as may be necessary or appropriate in
      order that the Company may validly and legally issue fully paid and
      nonassessable shares of Common Stock upon the exercise of this
      Warrant.

     

    (e) This
      Warrant will be binding upon any entity succeeding to the Company by merger,
      consolidation or acquisition of all or substantially all of the Company’s
      assets.

     

    
      
        
        

      

      
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    Section
      4. Taxes.
      The
      Company shall pay any and all taxes, except any applicable withholding, which
      may be payable with respect to the issuance and delivery of Warrant Shares
      upon
      exercise of this Warrant.

     

    Section
      5. Warrant
      Holder Not Deemed a Stockholder.
      Except
      as otherwise specifically provided herein, no holder, as such, of this Warrant
      shall be entitled to vote or receive dividends or be deemed the holder of shares
      of capital stock of the Company for any purpose, nor shall anything contained
      in
      this Warrant be construed to confer upon the holder hereof, as such, any of
      the
      rights of a stockholder of the Company or any right to vote, give or withhold
      consent to any corporate action (whether any reorganization, issue of stock,
      reclassification of stock, consolidation, merger, conveyance or otherwise),
      receive notice of meetings, receive dividends or subscription rights, or
      otherwise, prior to the issuance to the holder of this Warrant of the Warrant
      Shares which he or she is then entitled to receive upon the due exercise of
      this
      Warrant. In addition, nothing contained in this Warrant shall be construed
      as
      imposing any liabilities on such holder to purchase any securities (upon
      exercise of this Warrant or otherwise) or as a stockholder of the Company,
      whether such liabilities are asserted by the Company or by creditors of the
      Company. Notwithstanding this Section 5, the Company will provide the holder
      of
      this Warrant with copies of the same notices and other information given to
      the
      stockholders of the Company generally, contemporaneously with the giving thereof
      to the stockholders.

     

    Section
      6. Representations
      of Holder.
      The
      holder of this Warrant, by the acceptance hereof, represents that it is
      acquiring this Warrant and the Warrant Shares for its own account for investment
      only and not with a view towards, or for resale in connection with, the public
      sale or distribution of this Warrant or the Warrant Shares, except pursuant
      to
      sales registered or exempted under the Securities Act; provided, however, that
      by making the representations herein, the holder does not agree to hold this
      Warrant or any of the Warrant Shares for any minimum or other specific term
      and
      reserves the right to dispose of this Warrant and the Warrant Shares at any
      time
      in accordance with or pursuant to a registration statement or an exemption
      under
      the Securities Act. The holder of this Warrant further represents, by acceptance
      hereof, that, as of this date, such holder is an “accredited investor” as such
      term is defined in Rule 501(a)(1) of Regulation D promulgated by the
      Securities and Exchange Commission under the Securities Act (an “Accredited
      Investor”).
      Upon
      exercise of this Warrant the holder shall, if requested by the Company, confirm
      in writing, in a form satisfactory to the Company, that the Warrant Shares
      so
      purchased are being acquired solely for the holder’s own account and not as a
      nominee for any other party, for investment, and not with a view toward
      distribution or resale and that such holder is an Accredited Investor. If such
      holder cannot make such representations because they would be factually
      incorrect, it shall be a condition to such holder’s exercise of this Warrant
      that the Company receive such other representations as the Company considers
      reasonably necessary to assure the Company that the issuance of its securities
      upon exercise of this Warrant shall not violate any United States or state
      securities laws.

     

    Section
      7. Ownership
      and Transfer.

     

    (a) The
      Company shall maintain at its principal executive offices (or such other office
      or agency of the Company as it may designate by notice to the holder hereof),
      a
      register for this Warrant, in which the Company shall record the name and
      address of the person in whose name this Warrant has been issued, as well as
      the
      name and address of each transferee. The Company may treat the person in whose
      name any Warrant is registered on the register as the owner and holder thereof
      for all purposes, notwithstanding any notice to the contrary, but in all events
      recognizing any transfers made in accordance with the terms of this
      Warrant.

     

    
      
        
        

      

      
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    (b) This
      Warrant is exchangeable, without expense, at the option of the Holder, upon
      presentation and surrender hereof to the Company for other Warrants of different
      denominations, entitling the Holder or Holders thereof to purchase in the
      aggregate the same number of shares of Common Stock purchasable hereunder.
      Upon
      surrender of this Warrant to the Company with the Form of Warrant Power annexed
      hereto duly executed and funds sufficient to pay any transfer tax, the Company
      shall, without charge, execute and deliver a new Warrant in the name of the
      assignee named in such instrument of assignment and this Warrant shall promptly
      be canceled. This Warrant may be divided or combined with other Warrants that
      carry the same rights upon presentation hereof at the office of the Company
      together with a written notice specifying the names and denominations in which
      new Warrants are to be issued and signed by the Holder hereof.

     

    Section
      8. Adjustment
      of Warrant Exercise Price and Number of Shares.
      The
      Warrant Exercise Price and the number of shares of Common Stock issuable upon
      exercise of this Warrant shall be adjusted from time to time as
      follows:

     

    (a) Adjustment
      of Warrant Exercise Price and Number of Shares upon Issuance of Common
      Stock.
      If and
      whenever on or after the Issuance Date of this Warrant, the Company issues
      or
      sells, or is deemed to have issued or sold, any shares of Common
      Stock (other than Excluded Securities) for a consideration per share less
      than a price (the “Applicable
      Price”)
      equal
      to the Warrant Exercise Price in effect immediately prior to such issuance
      or
      sale, then immediately after such issue or sale the Warrant Exercise Price
      then
      in effect shall be reduced to an amount equal to such consideration per share.
      Upon each such adjustment of the Warrant Exercise Price hereunder, the number
      of
      Warrant Shares issuable upon exercise of this Warrant shall be adjusted to
      the
      number of shares determined by multiplying the Warrant Exercise Price in effect
      immediately prior to such adjustment by the number of Warrant Shares issuable
      upon exercise of this Warrant immediately prior to such adjustment and dividing
      the product thereof by the Warrant Exercise Price resulting from such
      adjustment.

     

    (b) Effect
      on Warrant Exercise Price of Certain Events.
      For
      purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
      above, the following shall be applicable:

     

    (i) Issuance
      of Options.
      If
      after the date hereof, the Company in any manner grants any Options and the
      lowest price per share for which one share of Common Stock is issuable upon
      the
      exercise of any such Option or upon conversion or exchange of any convertible
      securities issuable upon exercise of any such Option is less than the Applicable
      Price other than Excluded Securities, then such share of Common Stock shall
      be
      deemed to be outstanding and to have been issued and sold by the Company at
      the
      time of the granting or sale of such Option for such price per share. For
      purposes of this Section 8(b)(i), the lowest price per share for which one
      share
      of Common Stock is issuable upon exercise of such Options or upon conversion
      or
      exchange of such Convertible Securities shall be equal to the sum of the lowest
      amounts of consideration (if any) received or receivable by the Company with
      respect to any one share of Common Stock upon the granting or sale of the
      Option, upon exercise of the Option or upon conversion or exchange of any
      convertible security issuable upon exercise of such Option. No further
      adjustment of the Warrant Exercise Price shall be made upon the actual issuance
      of such Common Stock or of such convertible securities upon the exercise of
      such
      Options or upon the actual issuance of such Common Stock upon conversion or
      exchange of such convertible securities.

     

    
      
        
        

      

      
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    (ii) Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any convertible securities and the lowest
      price per share for which one share of Common Stock is issuable upon the
      conversion or exchange thereof is less than the Applicable Price, other than
      Excluded Securities, then such share of Common Stock shall be deemed to be
      outstanding and to have been issued and sold by the Company at the time of
      the
      issuance or sale of such convertible securities for such price per share. For
      the purposes of this Section 8(b)(ii), the lowest price per share for which
      one share of Common Stock is issuable upon such conversion or exchange shall
      be
      equal to the sum of the lowest amounts of consideration (if any) received or
      receivable by the Company with respect to one share of Common Stock upon the
      issuance or sale of the convertible security and upon conversion or exchange
      of
      such convertible security. No further adjustment of the Warrant Exercise Price
      shall be made upon the actual issuance of such Common Stock upon conversion
      or
      exchange of such convertible securities, and if any such issue or sale of such
      convertible securities is made upon exercise of any Options for which adjustment
      of the Warrant Exercise Price had been or are to be made pursuant to other
      provisions of this Section 8(b), no further adjustment of the Warrant Exercise
      Price shall be made by reason of such issue or sale. 

     

    (iii) Change
      in Option Price or Rate of Conversion.
      If the
      purchase price provided for in any Options, the additional consideration, if
      any, payable upon the issue, conversion or exchange of any convertible
      securities, or the rate at which any convertible securities are convertible
      into
      or exchangeable for Common Stock changes at any time, the Warrant Exercise
      Price
      in effect at the time of such change shall be adjusted to the Warrant Exercise
      Price which would have been in effect at such time had such Options or
      convertible securities provided for such changed purchase price, additional
      consideration or changed conversion rate, as the case may be, at the time
      initially granted, issued or sold and the number of Warrant Shares issuable
      upon
      exercise of this Warrant shall be correspondingly readjusted. For purposes
      of
      this Section 8(b)(iii), if the terms of any Option or convertible security
      that
      was outstanding as of the Issuance Date of this Warrant are changed in the
      manner described in the immediately preceding sentence, then such Option or
      convertible security and the Common Stock deemed issuable upon exercise,
      conversion or exchange thereof shall be deemed to have been issued as of the
      date of such change. No adjustment pursuant to this Section 8(b) shall be
      made if such adjustment would result in an increase of the Warrant Exercise
      Price then in effect.

     

    (iv) Calculation
      of Consideration Received.
      If any
      Common Stock, Options or convertible securities are issued or sold or deemed
      to
      have been issued or sold for cash other than Excluded Securities, the
      consideration received therefore will be deemed to be the net amount received
      by
      the Company therefore. If any Common Stock, Options or convertible securities
      are issued or sold for a consideration other than cash other than Excluded
      Securities, the amount of such consideration received by the Company will be
      the
      fair value of such consideration, except where such consideration consists
      of
      marketable securities, in which case the amount of consideration received by
      the
      Company will be the market price of such securities on the date of receipt
      of
      such securities. If any Common Stock, Options or convertible securities are
      issued to the owners of the non-surviving entity in connection with any merger
      in which the Company is the surviving entity, the amount of consideration
      therefore will be deemed to be the fair value of such portion of the net assets
      and business of the non-surviving entity as is attributable to such Common
      Stock, Options or convertible securities, as the case may be. The fair value
      of
      any consideration other than cash or securities will be determined jointly
      by
      the Company and the holders of Warrants representing at least two-thirds (b)
      of
      the Warrant Shares issuable upon exercise of the Warrants then outstanding.
      If
      such parties are unable to reach agreement within ten (10) days after the
      occurrence of an event requiring valuation (the “Valuation
      Event”),
      the
      fair value of such consideration will be determined within five (5) Business
      Days after the tenth (10th)
      day
      following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the holders of Warrants representing at least
      two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants
      then
      outstanding. The determination of such appraiser shall be final and binding
      upon
      all parties and the fees and expenses of such appraiser shall be borne jointly
      by the Company and the holders of Warrants.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (v) Integrated
      Transactions.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, the Options
      will be deemed to have been issued for a consideration of the amount of the
      total consideration for such securities, less the value attributable to the
      then
      current market price of the Company.

     

    (vi) Treasury
      Shares.
      The
      number of shares of Common Stock outstanding at any given time does not include
      shares owned or held by or for the account of the Company, and the disposition
      of any shares so owned or held will be considered an issue or sale of Common
      Stock.

     

    (vii) Record
      Date.
      If the
      Company takes a record of the holders of Common Stock for the purpose of
      entitling them (1) to receive a dividend or other distribution payable in
      Common Stock, Options or in convertible securities or (2) to subscribe for
      or purchase Common Stock, Options or convertible securities, then such record
      date will be deemed to be the date of the issue or sale of the shares of Common
      Stock deemed to have been issued or sold upon the declaration of such dividend
      or the making of such other distribution or the date of the granting of such
      right of subscription or purchase, as the case may be.

     

    (c) Adjustment
      of Warrant Exercise Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time after the date of issuance of this Warrant subdivides (by
      any stock split, stock dividend, recapitalization or otherwise) one or more
      classes of its outstanding shares of Common Stock into a greater number of
      shares, any Warrant Exercise Price in effect immediately prior to such
      subdivision will be proportionately reduced and the number of shares of Common
      Stock obtainable upon exercise of this Warrant will be proportionately
      increased. If the Company at any time after the date of issuance of this Warrant
      combines (by combination, reverse stock split or otherwise) one or more classes
      of its outstanding shares of Common Stock into a smaller number of shares,
      any
      Warrant Exercise Price in effect immediately prior to such combination will
      be
      proportionately increased and the number of Warrant Shares issuable upon
      exercise of this Warrant will be proportionately decreased. Any adjustment
      under
      this Section 8(c) shall become effective at the close of business on the
      date the subdivision or combination becomes effective.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (d) Distribution
      of Assets.
      If the
      Company shall declare or make any dividend or other distribution of its assets
      (or rights to acquire its assets) to holders of Common Stock, by way of return
      of capital or otherwise (including, without limitation, any distribution of
      cash, stock or other securities, property or options by way of a dividend,
      spin
      off, reclassification, corporate rearrangement or other similar transaction)
      (a
“Distribution”),
      at
      any time after the issuance of this Warrant, then, in each such
      case:

     

    (i) any
      Warrant Exercise Price in effect immediately prior to the close of business
      on
      the record date fixed for the determination of holders of Common Stock
      entitled to
      receive the Distribution shall be reduced, effective as of the close of business
      on such record date, to a price determined by multiplying such Warrant Exercise
      Price by a fraction of which (A) the numerator shall be the Closing Sale Price
      of the Common Stock on the trading day immediately preceding such record date
      minus the value of the Distribution (as determined in good faith by the
      Company’s Board of Directors) applicable to one share of Common Stock, and (B)
      the denominator shall be the Closing Sale Price of the Common Stock on the
      trading day immediately preceding such record date; and

     

    (ii) either
      (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall
      be increased to a number of shares equal to the number of shares of Common
      Stock
      obtainable immediately prior to the close of business on the record date fixed
      for the determination of holders of Common Stock entitled to receive the
      Distribution multiplied by the reciprocal of the fraction set forth in the
      immediately preceding clause (i), or (B) in the event that the Distribution
      is
      of common stock of a company whose common stock is traded on a national
      securities exchange or a national automated quotation system, then the holder
      of
      this Warrant shall receive an additional warrant to purchase Common Stock,
      the
      terms of which shall be identical to those of this Warrant, except that such
      warrant shall be exercisable into the amount of the assets that would have
      been
      payable to the holder of this Warrant pursuant to the Distribution had the
      holder exercised this Warrant immediately prior to such record date and with
      an
      exercise price equal to the amount by which the exercise price of this Warrant
      was decreased with respect to the Distribution pursuant to the terms of the
      immediately preceding clause (i).

     

    (e) Certain
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 8
      but not expressly provided for by such provisions (including, without
      limitation, the granting of stock appreciation rights, phantom stock rights
      or
      other rights with equity features) other than Excluded Securities, then the
      Company’s Board of Directors will make an appropriate adjustment in the Warrant
      Exercise Price and the number of shares of Common Stock obtainable upon exercise
      of this Warrant so as to protect the rights of the holders of the Warrants;
      provided, except as set forth in section 8(c),that no such adjustment pursuant
      to this Section 8(e) will increase the Warrant Exercise Price or decrease the
      number of shares of Common Stock obtainable as otherwise determined pursuant
      to
      this Section 8.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (f) Notices.

     

    (i) Immediately
      upon any adjustment of the Warrant Exercise Price, the Company will give written
      notice thereof to the holder of this Warrant, setting forth in reasonable
      detail, and certifying, the calculation of such adjustment.

     

    (ii) The
      Company will give written notice to the holder of this Warrant at least ten
      (10)
      days prior to the date on which the Company closes its books or takes a record
      (A) with respect to any dividend or distribution upon the Common Stock,
      (B) with respect to any pro rata subscription offer to holders of Common
      Stock or (C) for determining rights to vote with respect to any Organic
      Change (as defined below), dissolution or liquidation, provided that such
      information shall be made known to the public prior to or in conjunction with
      such notice being provided to such holder.

     

    (iii) The
      Company will also give written notice to the holder of this Warrant at least
      ten
      (10) days prior to the date on which any Organic Change, dissolution or
      liquidation will take place, provided that such information shall be made known
      to the public prior to or in conjunction with such notice being provided to
      such
      holder.

     

    Section
      9. Purchase
      Rights; Reorganization, Reclassification, Consolidation, Merger or
      Sale.

     

    (a) In
      addition to any adjustments pursuant to Section 8 above, if at any time the
      Company grants, issues or sells any Options, Convertible Securities or rights
      to
      purchase stock, warrants, securities or other property pro rata to the record
      holders of any class of Common Stock (the “Purchase
      Rights”),
      then
      the holder of this Warrant will be entitled to acquire, upon the terms
      applicable to such Purchase Rights, the aggregate Purchase Rights which such
      holder could have acquired if such holder had held the number of shares of
      Common Stock acquirable upon complete exercise of this Warrant immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.

     

    (b) Any
      recapitalization, reorganization, reclassification, consolidation, merger,
      sale
      of all or substantially all of the Company’s assets to another Person or other
      transaction in each case which is effected in such a way that holders of Common
      Stock are entitled to receive (either directly or upon subsequent liquidation)
      stock, securities or assets with respect to or in exchange for Common Stock
      is
      referred to herein as an “Organic
      Change.”
Prior
      to the consummation of any (i) sale of all or substantially all of the Company’s
      assets to an acquiring Person or (ii) other Organic Change following which
      the
      Company is not a surviving entity, the Company will secure from the Person
      purchasing such assets or the successor resulting from such Organic Change
      (in
      each case, the “Acquiring
      Entity”)
      a
      written agreement (in form and substance satisfactory to the holders of Warrants
      representing at least fifty-one (51%) percent (iii) of the Warrant Shares
      issuable upon exercise of the Warrants then outstanding) to deliver to each
      holder of Warrants in exchange for such Warrants, a security of the Acquiring
      Entity evidenced by a written instrument substantially similar in form and
      substance to this Warrant and satisfactory to the holders of the Warrants
      (including an adjusted warrant exercise price equal to the value for the Common
      Stock reflected by the terms of such consolidation, merger or sale, and
      exercisable for a corresponding number of shares of Common Stock acquirable
      and
      receivable upon exercise of the Warrants without regard to any limitations
      on
      exercise, if the value so reflected is less than any Applicable Warrant Exercise
      Price immediately prior to such consolidation, merger or sale). Prior to the
      consummation of any other Organic Change, the Company shall make appropriate
      provision (in form and substance satisfactory to the holders of Warrants
      representing a majority of
      the
      Warrant Shares issuable upon exercise of the Warrants then outstanding) to
      insure that each of the holders of the Warrants will thereafter have the right
      to acquire and receive in lieu of or in addition to (as the case may be) the
      Warrant Shares immediately theretofore issuable and receivable upon the exercise
      of such holder’s Warrants (without regard to any limitations on exercise),
      such shares of stock, securities or assets that would have been issued or
      payable in such Organic Change with respect to or in exchange for the number
      of
      Warrant Shares which would have been issuable and receivable upon the exercise
      of such holder’s Warrant as of the date of such Organic Change (without taking
      into account any limitations or restrictions on the exercisability of this
      Warrant).

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
      10. Lost,
      Stolen, Mutilated or Destroyed Warrant.
      If this
      Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
      on
      receipt of an indemnification undertaking (or, in the case of a mutilated
      Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
      this Warrant so lost, stolen, mutilated or destroyed.

     

    Section
      11. Notice.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Warrant 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 receipt
      is received by the sending party transmission is mechanically or electronically
      generated and kept on file by the sending party); or (iii) one 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
                a 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
      Holder, at the address and facsimile number set forth for such Holder in the
      records of the Company, or at such other address and facsimile as shall be
      delivered to the Company upon the issuance or transfer of this Warrant. Each
      party shall provide five days’ prior written notice to the other party of any
      change in address or facsimile number. Written confirmation of receipt
      (A) given by the recipient of such notice, consent, facsimile, waiver or
      other communication, (or (B) provided by a nationally recognized overnight
      delivery 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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Section
      12. Date.
      The
      date of this Warrant is set forth on page 1 hereof. This Warrant, in all
      events, shall be wholly void and of no effect after the close of business on
      the
      Expiration Date.

     

    Section
      13. Amendment
      and Waiver.
      Except
      as otherwise provided herein, the provisions of the Warrants may be amended
      and
      the Company may take any action herein prohibited, or omit to perform any act
      herein required to be performed by it, only if the Company has obtained the
      written consent of the holders of Warrants representing at least fifty-one
      (51%)
      percent of the Warrant Shares issuable upon exercise of the Warrants then
      outstanding; provided that, except for Section 8(c), no such action may increase
      the Warrant Exercise Price or decrease the number of shares or class of stock
      obtainable upon exercise of any Warrant without the written consent of the
      holder of such Warrant.

     

    Section
      14. Descriptive
      Headings; Governing Law.
      The
      descriptive headings of the several sections and paragraphs of this Warrant
      are
      inserted for convenience only and do not constitute a part of this Warrant.
      The
      corporate laws of the State of Delaware shall govern all issues concerning
      the
      relative rights of the Company and its stockholders. All other questions
      concerning the construction, validity, enforcement and interpretation of this
      Agreement shall be governed by the internal laws of the State of New York,
      without giving effect to any choice of law or conflict of law provision or
      rule
      (whether of the State of New York or any other jurisdictions) that would cause
      the application of the laws of any jurisdictions other than the State of New
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in Hudson County, New Jersey and the United
      States District Court for the District of New Jersey, for the adjudication
      of
      any dispute hereunder or in connection herewith or therewith, or with any
      transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. 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. 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    Section
      15. Waiver
      of Jury Trial.
      AS
      A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
      PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
      RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
      ASSOCIATED WITH THIS TRANSACTION.

     

    REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      the
      Company has caused this Warrant to be signed as of the date first set forth
      above.

    
      	 	 	 
	 	
              HANDHELD
                ENTERTAINMENT, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name: 

              
                Title: 

              

            


    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A TO WARRANT

     

    EXERCISE
      NOTICE

     

    TO
      BE EXECUTED 

    BY
      THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

     

    HANDHELD
      ENTERTAINMENT, INC.

     

    The
      undersigned holder hereby exercises the right to purchase ______________ of
      the
      shares of Common Stock (“Warrant
      Shares”)
      of
      Handheld Entertainment, Inc. (the “Company”),
      evidenced by the attached Warrant (the “Warrant”).
      Capitalized terms used herein and not otherwise defined shall have the
      respective meanings set forth in the Warrant.

     

    Specify
      Method of exercise by check mark:

     

    1.
      ___ Cash
      Exercise

     

    (a)
      Payment
      of Warrant Exercise Price.
      The
      holder shall pay the Aggregate Exercise Price of $______________ to the Company
      in accordance with the terms of the Warrant. 

     

    (b)
      Delivery
      of Warrant Shares.
      The
      Company shall deliver to the holder ___________
      Warrant
      Shares in accordance with the terms of the Warrant. 

     

    2.
      ___ Cashless
      Exercise

     

    (a)
      Payment
      of Warrant Exercise Price.
      In lieu
      of making payment of the Aggregate Exercise Price, the holder elects to receive
      upon such exercise the Net Number of shares of Common Stock determined in
      accordance with the terms of the Warrant. 

     

    (b)
      Delivery
      of Warrant Shares.
      The
      Company shall deliver to the holder ___________
      Warrant
      Shares in accordance with the terms of the Warrant. 

     

    Date:
      _______________ __, ______

    


    Name
      of
      Registered Holder

    


    By:  

    
      

    

    Name:

    
      

    

    Title:  

    
      
  

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B TO WARRANT

     

    FORM
      OF WARRANT POWER

     

    FOR
      VALUE RECEIVED,
      the
      undersigned does hereby assign and transfer to ________________, Federal
      Identification No. __________, a warrant to purchase ____________ shares of
      the capital stock of Handheld Entertainment, Inc. represented by warrant
      certificate no. _____, standing in the name of the undersigned on the books
      of said corporation. The undersigned does hereby irrevocably constitute and
      appoint ______________, attorney to transfer the warrants of said corporation,
      with full power of substitution in the premises.

     

    
      	
              Dated:
                ____________________

            	 
	 	
              

            
	 	
              By:      

            
	 	
              
                

              

              Name:

            
	 	
              
                

              
Title:
	 	
              
                

              

            


    

    


    
      
        
        

      

      
        B-1