Unassociated Document


    EXHIBIT
      10.3

     

    SECURITIES
      PURCHASE AGREEMENT

    


    THIS SECURITIES
      PURCHASE AGREEMENT
      (this
“Agreement”),
      dated
      as of August 2, 2007, by and among HANDHELD
      ENTERTAINMENT, INC.,
      a
      Delaware corporation (the “Company”),
      and
      the Buyers listed on Schedule I attached hereto (individually, a
“Buyer”
or
      collectively “Buyers”).

     

    WITNESSETH

    


    WHEREAS,
      the
      Company and the Buyer(s) are executing and delivering this Agreement in reliance
      upon an exemption from securities registration pursuant to Section 4(2) and/or
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “Securities
      Act”);

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, at the closing (the “Closing”)
      the
      Company shall issue and sell to the Buyer(s), as provided herein, and the
      Buyer(s) shall purchase (i) Twenty Three Million Dollars ($23,000,000) (the
      “Purchase
      Price”)
      of
      secured convertible debentures in the form attached hereto as “Exhibit
      A”
(the
      “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value
      $0.0001 (the “Common
      Stock”)
      (as
      converted, the “Conversion
      Shares”),
      in
      the respective amounts set forth opposite each Buyer(s) name on Schedule I
      (the
“Subscription
      Amount”);
      and
      (ii) warrants substantially in the form attached hereto as “Exhibit
      B”
(the
      “Warrants”),
      to
      acquire up to that number of additional shares of Common Stock set forth
      opposite such Buyer’s name in column (3) of the Schedule I (as exercised, the
“Warrant
      Shares”),
      and
      Company shall issue to Buyer(s) (iii) shares of Common Stock in the amount
      set
      forth opposite such Buyer’s name in column (4) of the Schedule I (the
“Commitment
      Shares”);
      

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Registration Rights Agreement (the
“Registration
      Rights Agreement”)
      pursuant to which the Company has agreed to provide certain registration rights
      under the Securities Act and the rules and regulations promulgated there under,
      and applicable state securities laws; 

     

    WHEREAS,
      the
      Convertible Debentures are secured by a security interest in all of the assets
      of the Company and of each of the Company's subsidiaries as evidenced by the
      security agreement together with the patent, trademark, and copyright security
      agreement dated as of the Closing Date (the “Security
      Documents”)
      ;


     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering Irrevocable Transfer Agent Instructions
      (the
“Irrevocable
      Transfer Agent Instructions”);
      and

     

    WHEREAS,
      the
      Convertible Debentures, the Conversion Shares, the Warrants, the Warrants
      Shares, and the Commitment Shares collectively are referred to herein as the
      “Securities”).
      

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants and other agreements contained in this
      Agreement the Company and the Buyer(s) hereby agree as follows:

     

    1. PURCHASE
      AND SALE OF CONVERTIBLE DEBENTURES.

     

    (a) Purchase
      of Convertible Debentures.
      Subject
      to the satisfaction (or waiver) of the terms and conditions of this Agreement,
      each Buyer agrees, severally and not jointly, to purchase at the Closing and
      the
      Company agrees to sell and issue to each Buyer, severally and not jointly,
      at
      the Closing, Convertible Debentures in amounts corresponding with the
      Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto
      and the Warrants to acquire up that number of Warrant Shares as set forth
      opposite such Buyer’s name in column (5) on Schedule I . 

     

    (b) Closing
      Dates.
      The
      Closing of the purchase and sale of the Convertible Debentures and Warrants
      shall take place at 10:00 a.m. Eastern Standard Time on the fifth (5th)
      business day following the date of satisfaction of the all the conditions to
      the
      Closing set forth in Sections 6 and 7 below (or such other date as is mutually
      agreed to by the Company and the Buyer(s)) (the “Closing
      Date”).
      The
      Closings shall occur on the Closing Date at the offices of Yorkville Advisors,
      LLC, 3700 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such
      other place as is mutually agreed to by the Company and the Buyer(s)).


     

    (c) Form
      of Payment.
      Subject
      to the satisfaction of the terms and conditions of this Agreement, on each
      Closing Date, (i) the Buyers shall deliver to the Company such aggregate
      proceeds for the Convertible Debentures and Warrants to be issued and sold
      to
      such Buyer at such Closing, minus the fees to be paid directly from the proceeds
      of such Closing as set forth herein, and (ii) the Company shall deliver to
      each Buyer, Convertible Debentures and Warrants which such Buyer is purchasing
      at such Closing in amounts indicated opposite such Buyer’s name on Schedule I,
      duly executed on behalf of the Company.

     

    (d) Stockholders
      Approval.
      The
      Company shall file a preliminary proxy statement for the purpose of seeking
      Stockholder Approval (as defined below) within eight (8) Business Days of the
      date hereof. Prior to the consummation of the Closing, the Company shall use
      its
      reasonable best efforts to call and hold a special meeting of the shareholders,
      for the purpose of (i) approving the transactions contemplated herein, and
      (ii)
      increasing the authorized Common Stock of the Company to obtain any stockholder
      approval required by the Primary Market (as defined herein) and which approval
      will include at least 30 million shares of Common Stock (such
      affirmative
      approval being referred to herein as the “Stockholder
      Approval”).
      The
      Buyer’s obligations to purchase the Convertible Debentures to be issued in
      accordance with this Agreement shall be contingent on the Company obtaining
      Stockholder Approval. 

     

    2. BUYER’S
      REPRESENTATIONS AND WARRANTIES.

     

    Each
      Buyer represents and warrants, severally and not jointly, that:

     

    (a) Investment
      Purpose.
      Each
      Buyer is acquiring the Securities for its own account for investment only and
      not with a view towards, or for resale in connection with, the public sale
      or
      distribution thereof, except pursuant to sales registered or exempted under
      the
      Securities Act; provided, however, that by making the representations herein,
      such Buyer reserves the right to dispose of the Securities at any time in
      accordance with or pursuant to an effective registration statement covering
      such
      Securities or an available exemption under the Securities Act. Such Buyer does
      not presently have any agreement or understanding, directly or indirectly,
      with
      any Person to distribute any of the Securities. 


    
      
        
        

      

      
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    (b) Accredited
      Investor Status.
      Each
      Buyer is an “Accredited
      Investor”
as
      that
      term is defined in Rule 501(a)(3) of Regulation D.

     

    (c) Reliance
      on Exemptions.
      Each
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and such Buyer’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      such Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Buyer to acquire the
      Securities.

     

    (d) Information.
      Each
      Buyer and its advisors (and his or, its counsel), if any, have been furnished
      with all materials relating to the business, finances and operations of the
      Company and information he deemed material to making an informed investment
      decision regarding his purchase of the Securities, which have been requested
      by
      such Buyer. Each Buyer and its advisors, if any, have been afforded the
      opportunity to ask questions of the Company and its management. Neither such
      inquiries nor any other due diligence investigations conducted by such Buyer
      or
      its advisors, if any, or its representatives shall modify, amend or affect
      such
      Buyer’s right to rely on the Company’s representations and warranties contained
      in Section 3 below. Each Buyer understands that its investment in the Securities
      involves a high degree of risk. Each Buyer is in a position regarding the
      Company, which, based upon employment, family relationship or economic
      bargaining power, enabled and enables such Buyer to obtain information from
      the
      Company in order to evaluate the merits and risks of this investment. Each
      Buyer
      has sought such accounting, legal and tax advice, as it has considered necessary
      to make an informed investment decision with respect to its acquisition of
      the
      Securities.

     

    (e) No
      Governmental Review.
      Each
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities, or the fairness or suitability of the investment
      in the Securities, nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    (f) Transfer
      or Resale.
      Each
      Buyer understands that except as provided in the Registration Rights Agreement:
      (i) the Securities have not been and are not being registered under the
      Securities Act or any state securities laws, and may not be offered for sale,
      sold, assigned or transferred unless (A) subsequently registered thereunder,
      (B)
      such Buyer shall have delivered to the Company an opinion of counsel, in a
      generally acceptable form, to the effect that such Securities to be sold,
      assigned or transferred may be sold, assigned or transferred pursuant to an
      exemption from such registration requirements, or (C) such Buyer provides the
      Company with reasonable assurances (in the form of seller and broker
      representation letters) that such Securities can be sold, assigned or
      transferred pursuant to Rule 144, Rule 144(k), or Rule 144A promulgated under
      the Securities Act, as amended (or a successor rule thereto) (collectively,
      “Rule
      144”),
      in
      each case following the applicable holding period set forth therein; (ii) any
      sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the
      seller (or the person through whom the sale is made) may be deemed to be an
      underwriter (as that term is defined in the Securities Act) may require
      compliance with some other exemption under the Securities Act or the rules
      and
      regulations of the SEC thereunder; and (iii) neither the Company nor any other
      person is under any obligation to register the Securities under the Securities
      Act or any state securities laws or to comply with the terms and conditions
      of
      any exemption thereunder. 

     

    
      
        
          
          

        

        
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    (g) Legends.
      Each
      Buyer agrees to the imprinting, so long as is required by this Section 2(g),
      of
      a restrictive legend in substantially the following form:

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
      VIEW
      TOWARD RESALE 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 GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. 

     

    Certificates
      evidencing the Conversion Shares or Warrant Shares shall not contain any legend
      (including the legend set forth above), (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, (ii) following any sale of such Conversion
      Shares or Warrant Shares pursuant to Rule 144, (iii) if such Conversion Shares
      or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such
      legend is not required under applicable requirements of the Securities Act
      (including judicial interpretations and pronouncements issued by the staff
      of
      the SEC). The Company shall cause its counsel to issue a legal opinion to the
      Company’s transfer agent promptly after the effective date (the “Effective
      Date”)
      of a
      Registration Statement if required by the Company’s transfer agent to effect the
      removal of the legend hereunder upon satisfaction of the requirements for a
      resale registration statement under applicable securities laws (prospectus
      delivery and a sellers certification requirements).. If all or any portion
      of
      the Convertible Debentures or Warrants are exercised by a Buyer that is not
      an
      Affiliate of the Company (a “Non-Affiliated
      Buyer”)
      at a
      time when there is an effective registration statement to cover the resale
      of
      the Conversion Shares or the Warrant Shares, such Conversion Shares or Warrant
      Shares shall be issued free of all legends. The Company agrees that following
      the Effective Date or at such time as such legend is no longer required under
      this Section 2(g), it will, no later than three (3) Trading Days following
      the
      delivery by a Non-Affiliated Buyer to the Company or the Company’s transfer
      agent of a certificate representing Conversion Shares or Warrant Shares, as
      the
      case may be, issued with a restrictive legend (such third Trading Day, the
      “Legend
      Removal Date”),
      deliver or cause to be delivered to such Non-Affiliated Buyer a certificate
      representing such shares that is free from all restrictive and other legends.
      The Company may not make any notation on its records or give instructions to
      any
      transfer agent of the Company that enlarge the restrictions on transfer set
      forth in this Section. Each Buyer acknowledges that the Company’s agreement
      hereunder to remove all legends from Conversion Shares or Warrant Shares is
      not
      an affirmative statement or representation that such Conversion Shares or
      Warrant Shares are freely tradable. Each Buyer, severally and not jointly with
      the other Buyers, agrees that the removal of the restrictive legend from
      certificates representing Securities as set forth in this Section 3(g) is
      predicated upon the Company’s reliance that the buyer will sell any Securities
      pursuant to either the registration requirements of the Securities Act,
      including any applicable prospectus delivery requirements, or an exemption
      therefrom, and that if Securities are sold pursuant to a Registration Statement,
      they will be sold in compliance with the plan of distribution set forth
      therein.

     

    
      
        
          
          

        

        
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    (h) Authorization,
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of such Buyer and is a valid and binding agreement of such Buyer enforceable
      in
      accordance with its terms, except as such enforceability may be limited by
      general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies.

     

    (i) Receipt
      of Documents.
      Each
      Buyer and his or its counsel has received and read in their entirety: (i) this
      Agreement and each representation, warranty and covenant set forth herein and
      the Transaction Documents (as defined herein); (ii) all due diligence and other
      information necessary to verify the accuracy and completeness of such
      representations, warranties and covenants; (iii) the Company’s Form 10-KSB for
      the fiscal year ended December 31, 2006; (iv) the Company’s Form 10-QSB for the
      fiscal quarter ended June 30, 2007 and (v) answers to all questions each Buyer
      submitted to the Company regarding an investment in the Company; and each Buyer
      has relied on the information contained therein and has not been furnished
      any
      other documents, literature, memorandum or prospectus.

     

    (j) Due
      Formation of Corporate and Other Buyers.
      If the
      Buyer(s) is a corporation, trust, partnership or other entity that is not an
      individual person, it has been formed and validly exists and has not been
      organized for the specific purpose of purchasing the Securities and is not
      prohibited from doing so.

     

    (k) No
      Legal Advice From the Company.
      Each
      Buyer acknowledges, that it had the opportunity to review this Agreement and
      the
      transactions contemplated by this Agreement with his or its own legal counsel
      and investment and tax advisors. Each Buyer is relying solely on such counsel
      and advisors and not on any statements or representations of the Company or
      any
      of its representatives or agents for legal, tax or investment advice with
      respect to this investment, the transactions contemplated by this Agreement
      or
      the securities laws of any jurisdiction.

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.


    
      
        
          
          

        

        
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    Except
      as
      set forth: (i) under the corresponding section of the Disclosure Schedules;
      (ii)
      in the executed Asset Purchase Agreement dated as of July 31, 2007 by and
      between the Company, EBW Acquisition, Inc. and Ebaum’s World, Inc.(the “Asset
      Purchase”)(including the representations and warranties of “Seller” therein set
      forth in Article II and Article III and elsewhere therein and in any and all
      schedules and exhibits thereto and; or (iii) in the reports and other filings
      of
      the Company made with the Securities and Securities and Exchange Commission
      (SEC) which are publicly available prior to the date hereof (“the “Filings”)
      which shall be deemed a part hereof and qualify any representation or warranty
      otherwise made herein (including any schedule or exhibit hereto) and which
      Disclosure Schedules shall control over any inconsistent information provided
      in
      the Asset Purchase documents or the Filings (such Disclosure Schedules, Filings
      and Asset Purchase disclosures shall be subject to additions, corrections,
      and
      deletions prior to the Closing date, provided such revisions shall be reasonably
      acceptable to Buyer), to the extent of such disclosure, the Company hereby
      makes
      the representations and warranties set forth below to each Buyer: 

     

    (a) Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each subsidiary free and clear of any liens, and all the issued
      and
      outstanding shares of capital stock of each subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities.

     

    (b) Organization
      and Qualification.
      The
      Company and its subsidiaries are corporations duly organized and validly
      existing in good standing under the laws of the jurisdiction in which they
      are
      incorporated, and have the requisite corporate power to own their properties
      and
      to carry on their business as now being conducted. Each of the Company and
      its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have or
      reasonably be expected to result in (i) a material adverse effect on the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business or
      condition (financial or otherwise) of the Company and the subsidiaries, taken
      as
      a whole, or (iii) a material adverse effect on the Company’s ability to perform
      in any material respect on a timely basis its obligations under any Transaction
      Document (any of (i), (ii) or (iii), a “Material
      Adverse Effect”)
      and no
      proceeding has been instituted in any such jurisdiction revoking, limiting
      or
      curtailing or seeking to revoke, limit or curtail such power and authority
      or
      qualification..

     

    (c) Authorization,
      Enforcement, Compliance with Other Instruments.
      (i) The Company has the requisite corporate power and authority to enter
      into and perform its obligations under this Agreement, the Convertible
      Debentures, the Warrants, the Security Documents, the Registration Rights
      Agreement, the Irrevocable Transfer Agent Instructions, and each of the other
      agreements entered into by the parties hereto in connection with the
      transactions contemplated by this Agreement (collectively the “Transaction
      Documents”)
      and to
      issue the Securities in accordance with the terms hereof and thereof, (ii)
      the
      execution and delivery of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated hereby and thereby,
      including, without limitation, the issuance of the Securities, the reservation
      for issuance and the issuance of the Conversion Shares, and the reservation
      for
      issuance and the issuance of the Warrant Shares, have been duly authorized
      by
      the Company’s Board of Directors and no further consent or authorization is
      required by the Company, its Board of Directors or its stockholders, other
      than
      the Stockholder Approval and such approvals and authorizations which will be
      sought by the Company and obtained prior to Closing, (iii) the Transaction
      Documents have been duly executed and delivered by the Company, (iv) the
      Transaction Documents constitute the valid and binding obligations of the
      Company enforceable against the Company in accordance with their terms, except
      as such enforceability may be limited by general principles of equity or
      applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      or
      similar laws relating to, or affecting generally, the enforcement of creditors’
rights and remedies. The authorized officer of the Company executing the
      Transaction Documents knows of no reason why the Company cannot file the
      Registration Statement as required under the Registration Rights Agreement
      or
      perform any of the Company’s other obligations under the Transaction Documents.


     

    
      
        
          
          

        

        
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    (d) Capitalization.
      The
      authorized capital stock of the Company consists of 50,000,000 shares of Common
      Stock, par value $0.0001 per share, and 1,000,000 shares of Preferred Stock,
      par
      value $0.0001 per share (“Preferred
      Stock”)
      of
      which 17,596,130 shares of Common Stock and zero shares of Preferred Stock
      are
      issued and outstanding. All of the outstanding shares of capital stock of the
      Company are validly issued, fully paid and nonassessable, have been issued
      in
      compliance with all federal and state securities laws, and none of such
      outstanding shares was issued in violation of any preemptive rights or similar
      rights to subscribe for or purchase securities. Except as disclosed in Schedule
      3(d): (i) none of the Company's capital stock is subject to preemptive rights
      or
      any other similar rights or any liens or encumbrances suffered or permitted
      by
      the Company; (ii) there are no outstanding options, warrants, scrip, rights
      to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its subsidiaries, or contracts,
      commitments, understandings or arrangements by which the Company or any of
      its
      subsidiaries is or may become bound to issue additional capital stock of the
      Company or any of its subsidiaries or options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      capital stock of the Company or any of its subsidiaries (other than pursuant
      to
      existing option plans of the Company); (iii) there are no outstanding debt
      securities, notes, credit agreements, credit facilities or other agreements,
      documents or instruments evidencing indebtedness of the Company or any of its
      subsidiaries or by which the Company or any of its subsidiaries is or may become
      bound; (iv) there are no financing statements securing obligations in any
      material amounts, either singly or in the aggregate, filed in connection with
      the Company or any of its subsidiaries; (v) there are no outstanding securities
      or instruments of the Company or any of its subsidiaries which contain any
      redemption or similar provisions, and there are no contracts, commitments,
      understandings or arrangements by which the Company or any of its subsidiaries
      is or may become bound to redeem a security of the Company or any of its
      subsidiaries; (vi) there are no securities or instruments containing
      anti-dilution or similar provisions that will be triggered by the issuance
      of
      the Securities; (vii) the Company does not have any stock appreciation rights
      or
      "phantom stock" plans or agreements or any similar plan or agreement; and (viii)
      the Company and its subsidiaries have no liabilities or obligations required
      to
      be disclosed in the SEC Documents but not so disclosed in the SEC Documents,
      other than those incurred in the ordinary course of the Company's or its
      subsidiaries' respective businesses and which, individually or in the aggregate,
      do not or would not have a Material Adverse Effect. The Company has furnished
      to
      the Buyers true, correct and complete copies of the Company's Certificate of
      Incorporation, as amended and as in effect on the date hereof (the “Certificate
      of Incorporation”),
      and
      the Company's Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, shares of Common Stock and the material rights of the holders thereof
      in
      respect thereto. No further approval or authorization of any stockholder, the
      Board of Directors of the Company or others is required for the issuance and
      sale of the Securities (other than the Stockholder Approval). There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders. 

     

    
      
        
          
          

        

        
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    (e) Issuance
      of Securities.
      The
      issuance of the Convertible Debentures and the Warrants has been duly authorized
      and upon issuance, the Convertible Debentures will be free from all taxes,
      liens
      and charges relating to their issuance by the Company. Upon conversion in
      accordance with the terms of the Convertible Debentures or exercise in
      accordance with the Warrants, as the case may be, the Conversion Shares and
      Warrant Shares, respectively, when issued will be validly issued, fully paid
      and
      nonassessable, free from all taxes, liens and charges with respect to the issue
      thereof. The Company has reserved from its duly authorized capital stock the
      appropriate number of shares of Common Stock as set forth in this Agreement.
      

     

    (f) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby (including, without limitation, the issuance of the Convertible
      Debentures and the Warrants, and reservation for issuance and issuance of the
      Conversion Shares and the Warrant Shares) will not (i) result in a violation
      of
      any certificate of incorporation, certificate of formation, any certificate
      of
      designations or other constituent documents of the Company or any of its
      subsidiaries, any capital stock of the Company or any of its subsidiaries or
      bylaws of the Company or any of its subsidiaries or (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) in any respect under, or give to others any rights
      of
      termination, amendment, acceleration or cancellation of, any agreement,
      indenture or instrument to which the Company or any of its subsidiaries is
      a
      party which would have a Material Adverse Effect, or (iii) result in a violation
      of any law, rule, regulation, order, judgment or decree (including foreign,
      federal and state securities laws and regulations and the rules and regulations
      of the Primary Market) applicable to the Company or any of its subsidiaries
      or
      by which any property or asset of the Company or any of its subsidiaries is
      bound or affected; except in the case of each of clauses (ii) and (iii), such
      as
could
      not, individually or in the aggregate, have or reasonably be expected to result
      in a Material Adverse Effect.
      To the
      knowledge of the Company, the business of the Company and its subsidiaries
      is
      not being conducted, and shall not be conducted in violation of any material
      law, ordinance, or regulation of any governmental entity. Assuming the accuracy
      of the representations and warranties of Buyer herein, except as specifically
      contemplated by this Agreement and as required under the Securities Act and
      any
      applicable state securities laws, the Company is not required to obtain any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or governmental agency in order for it to execute, deliver or perform
      any
      of its obligations under or contemplated by this Agreement or the Registration
      Rights Agreement in accordance with the terms hereof or thereof. Except for
      the
      Stockholder Approval, all consents, authorizations, orders, filings and
      registrations which the Company is required to obtain pursuant to the preceding
      sentence have been obtained or effected on or prior to the date hereof. The
      Company and its subsidiaries are unaware of any facts or circumstance, which
      might give rise to any of the foregoing.

     

    
      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

     

    (g) SEC
      Documents; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it with the SEC under the Securities Exchange Act of
      1934, as amended (the “Exchange
      Act”),
      since
      February 11, 2006 (or such shorter period as the Company was required by law
      or
      regulation to file such material) (all of the foregoing filed prior to the
      date
      hereof or amended after the date hereof and all exhibits included therein and
      financial statements and schedules thereto and documents incorporated by
      reference therein, being hereinafter referred to as the “SEC
      Documents”)
      on
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Document prior to the expiration of any such extension.
      The
      Company has delivered to the Buyers or their representatives, or made available
      through the SEC’s website at http://www.sec.gov., true and complete copies of
      the SEC Documents. As of their respective dates, the SEC Documents complied
      in
      all material respects with the requirements of the Exchange Act and the rules
      and regulations of the SEC promulgated thereunder applicable to the SEC
      Documents, and none of the SEC Documents, at the time they were filed with
      the
      SEC, contained any untrue statement of a material fact or omitted to state
      a
      material fact required to be stated therein or necessary in order to make the
      statements therein, in the light of the circumstances under which they were
      made, not misleading. As of their respective dates, the financial statements
      of
      the Company included in the SEC Documents complied as to form in all material
      respects with applicable accounting requirements and the published rules and
      regulations of the SEC with respect thereto. Such financial statements have
      been
      prepared in accordance with generally accepted accounting principles,
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or (ii)
      in the case of unaudited interim statements, to the extent they may exclude
      footnotes or may be condensed or summary statements) and fairly present in
      all
      material respects the financial position of the Company as of the dates thereof
      and the results of its operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). No other information provided by or on behalf of the Company
      to
      the Buyers which is not included in the SEC Documents, including, without
      limitation, information referred to in Section 2(i) of this Agreement, contains
      any untrue statement of a material fact or omits to state any material fact
      necessary in order to make the statements therein, in the light of the
      circumstance under which they are or were made and not misleading. 

     

    (h) Intentionally
      Omitted.

     

    (i) Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body pending
      against or affecting the Company, the Common Stock or any of the Company’s
      subsidiaries, wherein an unfavorable decision, ruling or finding would (i)
      have
      a Material Adverse Effect.

     

    
      
        
          
          

        

        
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    (j) Acknowledgment
      Regarding Buyer’s Purchase of the Convertible Debentures.
      The
      Company acknowledges and agrees that each Buyer is acting solely in the capacity
      of an arm’s length purchaser with respect to this Agreement and the transactions
      contemplated hereby. The Company further acknowledges that each Buyer is not
      acting as a financial advisor or fiduciary of the Company (or in any similar
      capacity) with respect to this Agreement and the transactions contemplated
      hereby and any advice given by each Buyer or any of their respective
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereby is merely incidental to such Buyer’s purchase of the
      Securities. The Company further represents to each Buyer that the Company’s
      decision to enter into this Agreement has been based solely on the independent
      evaluation by the Company and its representatives.

     

    (k) No
      General Solicitation.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D under the Securities Act) in connection
      with
      the offer or sale of the Securities.

     

    (l) No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any security
      or
      solicited any offers to buy any security, under circumstances that would require
      registration of the Securities under the Securities Act or cause this offering
      of the Securities to be integrated with prior offerings by the Company for
      purposes of the Securities Act.

     

    (m) Employee
      Relations.
      Neither
      the Company nor any of its subsidiaries is involved in any labor dispute or,
      to
      the knowledge of the Company or any of its subsidiaries, is any such dispute
      threatened. None of the Company’s or its subsidiaries’ employees is a member of
      a union and the Company and its subsidiaries believe that their relations with
      their employees are good.

     

    (n) Intellectual
      Property Rights.
      To the
      knowledge of Company, the Company and its subsidiaries own or possess adequate
      rights or licenses to use all trademarks, trade names, service marks, service
      mark registrations, service names, patents, patent rights, copyrights,
      inventions, licenses, approvals, governmental authorizations, trade secrets
      and
      rights necessary to conduct their respective businesses as now conducted. The
      Company and its subsidiaries do not have any knowledge of any infringement
      by
      the Company or its subsidiaries of trademark, trade name rights, patents, patent
      rights, copyrights, inventions, licenses, service names, service marks, service
      mark registrations, trade secret or other similar rights of others, and, to
      the
      knowledge of the Company there is no claim, action or proceeding being made
      or
      brought against, or to the Company’s knowledge, being threatened against, the
      Company or its subsidiaries regarding trademark, trade name, patents, patent
      rights, invention, copyright, license, service names, service marks, service
      mark registrations, trade secret or other infringement; and the Company and
      its
      subsidiaries are unaware of any facts or circumstances which might give rise
      to
      any of the foregoing.

     

    (o) Environmental
      Laws.
      To the
      knowledge of Company, the Company and its subsidiaries are (i) in compliance
      with any and all applicable foreign, federal, state and local laws and
      regulations relating to the protection of human health and safety, the
      environment or hazardous or toxic substances or wastes, pollutants or
      contaminants (“Environmental
      Laws”),
      (ii)
      have received all permits, licenses or other approvals required of them under
      applicable Environmental Laws to conduct their respective businesses and (iii)
      are in compliance with all terms and conditions of any such permit, license
      or
      approval.

     

    
      
        
          
          

        

        
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    (p) Title.
      All
      real property and facilities held under lease by the Company and its
      subsidiaries are held by them under valid, subsisting and enforceable leases
      with such exceptions as are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the Company and its
      subsidiaries.

     

    (q) Insurance.
      The
      Company and each of its subsidiaries is insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its subsidiaries are engaged. Neither the Company
      nor
      any such subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and when
      such coverage expires or to obtain similar coverage from similar insurers as
      may
      be necessary to continue its business at a cost that would not materially and
      adversely affect the condition, financial or otherwise, or the earnings,
      business or operations of the Company and its subsidiaries, taken as a
      whole.

     

    (r) Regulatory
      Permits.
      The
      Company and its subsidiaries possess all material certificates, authorizations
      and permits issued by the appropriate federal, state or foreign regulatory
      authorities necessary to conduct their respective businesses, and neither the
      Company nor any such subsidiary has received any notice of proceedings relating
      to the revocation or modification of any such certificate, authorization or
      permit.

     

    (s) Internal
      Accounting Controls.
      The
      Company and each of its subsidiaries maintains a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset accountability, and (iii) the recorded amounts for assets are
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    (t) No
      Material Adverse Breaches, etc.
      Neither
      the Company nor any of its subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company’s officers has or is expected in the future
      to have a Material Adverse Effect on the business, properties, operations,
      financial condition, results of operations or prospects of the Company or its
      subsidiaries. Neither the Company nor any of its subsidiaries is in breach
      of
      any contract or agreement which breach, in the judgment of the Company’s
      officers, has or is expected to have a Material Adverse Effect on the business,
      properties, operations, financial condition, results of operations or prospects
      of the Company or its subsidiaries.

    

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

    

     

    (u) Tax
      Status.
      The
      Company and each of its subsidiaries has made and filed all federal and state
      income and all other tax returns, reports and declarations required by any
      jurisdiction to which it is subject and (unless and only to the extent that
      the
      Company and each of its subsidiaries has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes) has
      paid
      all taxes and other governmental assessments and charges that are material
      in
      amount, shown or determined to be due on such returns, reports and declarations,
      except those being contested in good faith and has set aside on its books
      provision reasonably adequate for the payment of all taxes for periods
      subsequent to the periods to which such returns, reports or declarations apply.
      There are no unpaid taxes in any material amount claimed to be due by the taxing
      authority of any jurisdiction, and the officers of the Company know of no basis
      for any such claim.

     

    (v) Certain
      Transactions.
      Except
      for arm’s length transactions pursuant to which the Company makes payments in
      the ordinary course of business upon terms no less favorable than the Company
      could obtain from third parties and other than the grant of stock options
      disclosed in the SEC Documents, none of the officers, directors, or employees
      of
      the Company is presently a party to any transaction with the Company (other
      than
      for services as employees, officers and directors), including any contract,
      agreement or other arrangement providing for the furnishing of services to
      or
      by, providing for rental of real or personal property to or from, or otherwise
      requiring payments to or from any officer, director or such employee or, to
      the
      knowledge of the Company, any corporation, partnership, trust or other entity
      in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner.

     

    (w) Fees
      and Rights of First Refusal.
      The
      Company is not obligated to offer the securities offered hereunder on a right
      of
      first refusal basis or otherwise to any third parties including, but not limited
      to, current or former shareholders of the Company, underwriters, brokers, agents
      or other third parties.

     

    (x) Investment
      Company.
      The
      Company is not, and is not an affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act.

     

    (y) Registration
      Rights.
      Other
      than each of the Buyers, no Person has any right to cause the Company to effect
      the registration under the Securities Act of any securities of the Company.
      There are no outstanding registration statements not yet declared effective
      and
      there are no outstanding comment letters requiring response by the Company
      from
      the SEC or any other regulatory agency.

     

    (z) Private
      Placement.
      Assuming the accuracy of the Buyers’ representations and warranties set forth in
      Section 2, no registration under the Securities Act is required for the offer
      and sale of the Securities by the Company to the Buyers as contemplated hereby.
      Upon the receipt of Stockholder Approval and any waiting period required for
      the
effectiveness of such approval under Section 14 of the Exchange Act the issuance
      and sale of the Securities hereunder does not contravene the rules and
      regulations of the Primary Market.

     

    
      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

     

    (aa) Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to terminate, or
      which to its knowledge is likely to have the effect of, terminating the
      registration of the Common Stock under the Exchange Act nor has the Company
      received any notification that the SEC is contemplating terminating such
      registration. The Company has not, in the twelve (12) months preceding the
      date
      hereof, received notice from the Primary Market on which the Common Stock is
      or
      has been listed or quoted to the effect that the Company is not in compliance
      with the listing or maintenance requirements of such Primary Market. The Company
      is, and has no reason to believe that it will not in the foreseeable future
      continue to be, in compliance with all such listing and maintenance
      requirements. The Company intends to voluntarily delist its securities from
      the
      Boston Stock Exchange.

     

    (bb) Manipulation
      of Price. 
      The Company has not, and to its knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or, paid any compensation for soliciting purchases of, any of the
      Securities, or (iii) paid or agreed to pay to any Person any compensation for
      soliciting another to purchase any other securities of the Company, other than,
      in the case of clauses (ii) and (iii), compensation paid to the Company’s
      placement agents in connection with the placement of the
      Securities.

     

    (cc) Dilutive
      Effect.
      The
      Company understands and acknowledges that the number of Conversion Shares
      issuable upon conversion of the Convertible Debentures and the Warrant Shares
      issuable upon exercise of the Warrants will increase in certain circumstances.
      The Company further acknowledges that its obligation to issue Conversion Shares
      upon conversion of the Convertible Debentures in accordance with this Agreement
      and the Convertible Debentures and its obligation to issue the Warrant Shares
      upon exercise of the Warrants in accordance with this Agreement and the
      Warrants, in each case, is absolute and unconditional regardless of the dilutive
      effect that such issuance may have on the ownership interests of other
      stockholders of the Company. 

     

    4. COVENANTS.

     

    (a) Best
      Efforts.
      Each
      party shall use its best efforts to timely satisfy each of the conditions to
      be
      satisfied by it as provided in Sections 6 and 7 of this Agreement.

     

    (b) Form
      D.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary to qualify the Securities,
      or obtain an exemption for the Securities for sale to the Buyers at the Closing
      pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
      states of the United States, and shall provide evidence of any such action
      so
      taken to the Buyers on or prior to the Closing Date.

     

    (c) Reporting
      Status.
      Until
      the earlier of (i) the date as of which the Buyer(s) may sell all of the
      Securities without restriction pursuant to Rule 144(k) promulgated under the
      Securities Act (or successor thereto), or (ii) the date on which (A) the Buyers
      shall have sold all the Securities and (B) none of the Convertible Debentures
      or
      Warrants are outstanding (the “Registration
      Period”),
      the
      Company shall file in a timely manner all reports required to be filed with
      the
      SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
      and
      the Company shall not terminate its status as an issuer required to file reports
      under the Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would otherwise permit such termination.


    
      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

     

    (d) Use
      of
      Proceeds.
      The
      Company will use the proceeds from the sale of the Convertible Debentures for
      acquisitions, fees, costs and expenses of the transactions contemplated and
      general corporate and working capital purposes.

     

    (e) Reservation
      of Shares.
      Prior
      to Closing, the Company shall reserve for issuance to a maximum of 30,000,000
      shares of Common Stock for issuance upon conversions of the Convertible Dentures
      and exercise of the Warrants and exercise of the Commitment Warrants (the
“Share
      Reserve”).
      The
      Company represents that it will have as of the Closing Date sufficient
      authorized and unissued shares of Common Stock available to create the Share
      Reserve after considering all other commitments that may require the issuance
      of
      Common Stock. The Company shall take all action reasonably necessary to at
      all
      times have authorized, and reserved for the purpose of issuance the Share
      Reserve (as adjusted for stock splits, recapitalizations, and similar events)
      and in the event that the number of shares of Common Stock remaining in the
      Share Reserve shall at any time be less than 5,000,000 (as may be
      proportionately adjusted for stock splits, stock dividends, recapitalizations
      and similar events affecting the rights of shareholders generally) the Company
      shall immediately take all action reasonably necessary to at all times have
      authorized, and reserve for the purpose of issuance, not less than the initial
      amount required to be set aside as the Share Reserve as of the date of this
      Agreement, including, without limitation, promptly (within 45 days) seeking
      stockholder approval for such increase in the number of authorized shares so
      that the appropriate number of shares may be set aside in the Share Reserve,
      if
      required.

     

    (f) Listings
      or Quotation.
      The
      Company’s Common Stock shall be listed or quoted for trading on any of (a) the
      American Stock Exchange, (b) New York Stock Exchange, (c) the NASDAQ Global
      Market, (d) the NASDAQ Capital Market, or (e) the NASDAQ OTC Bulletin Board
      (“OTCBB”)
      (each,
      a “Primary
      Market”).
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the Common Stock
      is
      then listed (subject to official notice of issuance) and shall maintain such
      listing of all Registrable Securities from time to time issuable under the
      terms
      of the Transaction Documents. 

     

    (g) Fees
      and Expenses.
      

     

    (i) Each
      of
      the Company and the Buyer(s) shall pay all costs and expenses incurred by such
      party in connection with the negotiation, investigation, preparation, execution
      and delivery of the Transaction Documents. 

     

    
      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

    

     

    (ii) The
      Company shall set aside $1,150,000 from the proceeds of the Closing which shall
      be used to compensate Yorkville Advisors, LLC (“Yorkville”)
      for
      monitoring and managing the investment. 

     

    (h) Corporate
      Existence.
      So long
      as any of the Convertible Debentures remain outstanding, the Company shall
      not
      directly or indirectly consummate any merger, reorganization, restructuring,
      reverse stock split consolidation, sale of all or substantially all of the
      Company’s assets or any similar transaction or related transactions (each such
      transaction, an “Organizational
      Change”)
      unless, prior to the consummation an Organizational Change, the Company obtains
      the written consent of each Buyer. In any such case, the Company will make
      appropriate provision with respect to such holders’ rights and interests to
      insure that the provisions of this Section 4(h) will thereafter be applicable
      to
      the Convertible Debentures.

     

    (i) Transactions
      With Affiliates.
      So long
      as any Convertible Debentures are outstanding, the Company shall not, and shall
      cause each of its subsidiaries not to, enter into, amend, modify or supplement,
      or permit any subsidiary to enter into, amend, modify or supplement any
      agreement, transaction, commitment, or arrangement with any of its or any
      subsidiary’s officers, directors, person who were officers or directors at any
      time during the previous two (2) years, stockholders who beneficially own five
      percent (5%) or more of the Common Stock, or Affiliates (as defined below)
      or
      with any individual related by blood, marriage, or adoption to any such
      individual or with any entity in which any such entity or individual owns a
      five
      percent (5%) or more beneficial interest (each a “Related
      Party”),
      except for (a) customary employment arrangements and benefit programs on
      reasonable terms, (b) any investment in the Company or an Affiliate of the
      Company, (c) any agreement, transaction, commitment, or arrangement on an
      arms-length basis on terms no less favorable than terms which would have been
      obtainable from a person other than such Related Party, (d) any agreement,
      transaction, commitment, or arrangement which is approved by a majority of
      the
      disinterested directors of the Company; for purposes hereof, any director who
      is
      also an officer of the Company or any subsidiary of the Company shall not be
      a
      disinterested director with respect to any such agreement, transaction,
      commitment, or arrangement or approved by the shareholders of the Company or
      otherwise satisfies the rules and regulations of the Primary Market.
“Affiliate”
for
      purposes hereof means, with respect to any person or entity, another person
      or
      entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
      interest in that person or entity, (ii) has ten percent (10%) or more common
      ownership with that person or entity, (iii) controls that person or entity,
      or
      (iv) shares common control with that person or entity. “Control”
or
      “controls”
for
      purposes hereof means that a person or entity has the power, direct or indirect,
      to conduct or govern the policies of another person or entity.

     

    (j) Transfer
      Agent.
      The
      Company covenants and agrees that, in the event that the Company’s agency
      relationship with the transfer agent should be terminated for any reason prior
      to a date which is two (2) years after the Closing Date, the Company shall
      immediately appoint a new transfer agent and shall require that the new transfer
      agent execute and agree to be bound by the terms of the Irrevocable Transfer
      Agent Instructions (as defined herein).

     

    (k) Neither
      the Buyer(s) nor any of its affiliates have an open short position in the Common
      Stock of the Company, and the Buyer(s) agrees that it shall not, and that it
      will cause its affiliates not to, engage in any short sales of or hedging
      transactions with respect to the Common Stock as long as any Convertible
      Debentures or Warrants shall remain outstanding. 

     

    
      
        
          
          

        

        
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    (l) Rights
      of First Refusal.
      So
      long
      as at least $2,500,000 of original principal amount of Convertible Debentures
      remains outstanding, if the Company intends to raise additional capital by
      the
      issuance or sale of capital stock of the Company, including without limitation
      shares of any class of common stock, any class of preferred stock, options,
      warrants or any other securities convertible or exercisable into shares of
      common stock (whether the offering is conducted by the Company, underwriter,
      placement agent or any third party) the Company shall b offer to the Buyer
      the
      opportunity to purchase at least 25% of such issuance, by providing in writing
      the principal amount of capital it intends to raise and outline of the material
      terms of such capital raise, upon offering such issuance or sale of capital
      stock  to any third parties including. Notwithstanding anything herein to
      the contrary, the right of first refusal shall not be applicable to any
      transaction primarily involving the acquisition of any business or assets which
      involves the issuance of any securities, issuances to any current or former
      officers or directors, current or former shareholders and/or investors of the
      Company..  The Buyer shall have ten (10) business days from receipt of such
      notice of the sale or issuance of capital stock to accept or reject all or
      a
      portion of such capital raising offer. 

     

    (m) Lock
      Up Agreements.
      On the
      date hereof, the Company shall obtain from each person required to file reports
      under Section 16(a) of the Exchange Act a lock up agreement in the form attached
      hereto as Exhibit
      C
      providing for a twelve (12) month restriction on sales by such persons of shares
      of Common Stock in an amount that would exceed the volume that could be sold
      by
      such person individually pursuant to Rule 144 applicable to “control”
persons.

     

    (n) Additional
      Registration Statements.
      Until
      the effective date of the initial Registration Statement, the Company will
      not
      file a registration statement under the Securities Act relating to securities
      that are not the Securities, without the consent of the Holders (other than
      any
      post-effective amendments of existing registration statements, and any
      registration on Form S-8, S-4 or other form nor involving the primary offering
      of securities or resale of securities by existing holders).

     

    (o) Review
      of Public Disclosures.
      All SEC
      filings (including, without limitation, all filings required under the Exchange
      Act, which include Forms 10-Q and 10-QSB, 10-K and 10K-SB, 8-K, etc) and other
      public disclosures made by the Company, including, without limitation, all
      press
      releases, investor relations materials, and scripts of analysts meetings and
      calls, shall be reviewed and approved for release by the Company’s attorneys
      and, if containing financial information, the Company’s independent certified
      public accountants.

     

    (p) Disclosure
      of Transaction.
      Within
      four Business Days following the date of this Agreement, the Company shall
      publicly announce and file a Current Report on Form 8-K describing the terms
      of
      the transactions contemplated by the Transaction Documents in the form required
      by the Exchange Act.


    
      
        
          
          

        

        
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    (q) Deposit
      Accounts.
      In
      connection with the Closing, until the earlier of the time at which either:
      (i)
      the Company, on a consolidated basis for the prior two consecutive quarters
      has
      earned positive EBITDA (earnings before interest, taxes, depreciation and
      amortization but excluding any equity compensation related charges); or (ii)
      the
      outstanding principal amount of the Convertible Debentures shall be less than
      $11,500,000, the Company shall segregate $1,500,000 of the net proceeds received
      at the Closing and deposit such amount in a segregated Deposit Account (as
      defined in the Security Documents) chosen by the Company to be identified by
      the
      Company to the Buyer. The Company, the Buyer, and the bank or other financial
      institution at which such Deposit Account is maintained shall enter into a
      Deposit Account control agreement (the “Segregated
      Deposit Account Agreement”)
      substantially in the form attached as an exhibit to the Security Documents
      or on
      the form utilized by the deposit institution providing the Buyer the right
      to
      withdraw funds from the account to make any payments of principal or interest
      due by the Company under the Convertible Debentures, if such payment is not
      timely made. 

     

    5. TRANSFER
      AGENT INSTRUCTIONS.

     

    (a) The
      Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
      agent, and any subsequent transfer agent, irrevocably appointing David Gonzalez,
      Esq. as the Company’s agent for purpose instructing its transfer agent to issue
      certificates or credit shares to the applicable balance accounts at The Deposity
      Trust Company (“DTC”),
      registered in the name of each Buyer or its respective nominee(s), for the
      Conversion Shares and the Warrant Shares issued upon conversion of the
      Convertible Debentures or exercise of the Warrants as specified from time to
      time by each Buyer to the Company upon conversion of the Convertible Debentures
      or exercise of the Warrants. The Company shall not change its transfer agent
      without the consent of the Buyers, which consent shall not be unreasonably
      withheld. The Company warrants that no instruction other than the Irrevocable
      Transfer Agent Instructions referred to in this Section 5, and stop transfer
      instructions to give effect to Section 2(g) hereof (in the case of the
      Conversion Shares or Warrant Shares prior to registration of such shares under
      the Securities Act) will be given by the Company to its transfer agent, and
      that
      the Securities shall otherwise be freely transferable on the books and records
      of the Company as and to the extent provided in this Agreement and the other
      Transaction Documents. If a Buyer effects a sale, assignment or transfer of
      the
      Securities in accordance with Section 2(f), the Company shall promptly instruct
      its transfer agent to issue one or more certificates or credit shares to the
      applicable balance accounts at DTC in such name and in such denominations as
      specified by such Buyer to effect such sale, transfer or assignment and, with
      respect to any transfer, shall permit the transfer. In the event that such
      sale,
      assignment or transfer involves Conversion Shares or Warrant Shares sold,
      assigned or transferred pursuant to an effective registration statement or
      pursuant to Rule 144, the transfer agent shall issue such Securities to the
      Buyer, assignee or transferee, as the case may be, without any restrictive
      legend. Nothing in this Section 5 shall affect in any way the Buyer’s
      obligations and agreement to comply with all applicable securities laws upon
      resale of Conversion Shares. The Company acknowledges that a breach by it of
      its
      obligations hereunder will cause irreparable harm to the Buyer by vitiating
      the
      intent and purpose of the transaction contemplated hereby. Accordingly, the
      Company acknowledges that the remedy at law for a breach of its obligations
      under this Section 5 will be inadequate and agrees, in the event of a breach
      or
      threatened breach by the Company of the provisions of this Section 5, that
      the Buyer(s) shall be entitled, in addition to all other available remedies,
      to
      an injunction restraining any breach and requiring immediate issuance and
      transfer, without the necessity of showing economic loss and without any bond
      or
      other security being required.

     

    
      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

    

     

    6. CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL.

     

    The
      obligation of the Company hereunder to issue and sell the Convertible Debentures
      to the Buyer(s) at the Closing is subject to the satisfaction, at or before
      the
      Closing Dates, of each of the following conditions, provided that these
      conditions are for the Company’s sole benefit and may be waived by the Company
      at any time in its sole discretion:

     

    (a) Each
      Buyer shall have executed the Transaction Documents and delivered them to the
      Company.

     

    (b) The
      Buyer(s) shall have delivered to the Company the Purchase Price for the
      Convertible Debentures in the respective amounts as set forth next to each
      Buyer
      as set forth on Schedule I attached hereto, minus any fees to be paid directly
      from the proceeds the Closings as set forth herein, by wire transfer of
      immediately available U.S. funds pursuant to the wire instructions provided
      by
      the Company.

     

    (c) The
      representations and warranties of the Buyer(s) shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Dates as though
      made at that time (except for representations and warranties that speak as
      of a
      specific date), and the Buyer(s) shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Buyer(s)
      at or
      prior to the Closing Dates. 

     

    (d) The
      Company shall have obtained Stockholder Approval and all conditions for the
      closing of the Asset Purchase shall have been met and the closing of the Asset
      Purchase shall occur simultaneously with the Closing.

     

    7. CONDITIONS
      TO THE BUYER’S OBLIGATION TO PURCHASE.

     

    (a) The
      obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
      at
      the Closing is subject to the satisfaction, at or before the Closing Date,
      of
      each of the following conditions:

     

    (i) The
      Company shall have executed the Transaction Documents and delivered the same
      to
      the Buyers.

     

    (ii) The
      Common Stock shall be authorized for quotation or trading on the Primary Market,
      trading in the Common Stock shall not have been suspended for any reason, and
      all the Conversion Shares issuable upon the conversion of the Convertible
      Debentures shall be approved for listing or trading on the Primary Market.
      

     

    (iii) The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except to the extent that any of such representations and
      warranties is already qualified as to materiality in Section 3 above, in which
      case, such representations and warranties shall be true and correct without
      further qualification) as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date) and the Company shall have performed, satisfied and
      complied in all material respects with the covenants, agreements and conditions
      required by this Agreement to be performed, satisfied or complied with by the
      Company at or prior to the Closing Date


    
      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

    

     

    (iv) The
      Company shall have executed and delivered to the Buyer the Convertible
      Debentures, Warrants, and Commitment Shares in the respective amounts set forth
      opposite each Buyer’s name on Schedule I attached hereto.

     

    (v) The
      Buyers shall have received an opinion of counsel from counsel to the Company
      in
      a form satisfactory to the Buyers.

     

    (vi) The
      Company shall have provided to the Buyers a true copy of a certificate of good
      standing evidencing the formation and good standing of the Company from the
      secretary of state (or comparable office) from the jurisdiction in which the
      Company is incorporated, as of a date within 10 days of the Closing
      Date.

     

    (vii) The
      Company shall have delivered to the Buyers a certificate, executed by the
      Secretary of the Company and dated as of the Closing Date, as to (i) the
      resolutions consistent with Section 3(c) as adopted by the Company's Board
      of
      Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the
      Closing.

     

    (viii) The
      Buyer, the Company, and all of the Company’s subsidiaries shall have executed
      and delivered the Security Documents in a form reasonably satisfactory to the
      Buyer providing the Buyer with a first position security interest in all the
      assets of the Company and its subsidiaries (including all assets purchased
      pursuant to the Asset Purchase), including, without limitation, all registered
      domain names, intellectual property, patents, and trademarks and all filings
      required to perfect the Buyer’s security interest shall have been properly
      filed. The Company shall have provided the Buyer with proof of termination
      of
      the lien held by Eastech Electronics Inc. 

     

    (ix) The
      Company shall have obtained Stockholder Approval. 

     

    (x) The
      Company shall have provided to the Buyer an acknowledgement, to the satisfaction
      of the Buyer, from the Company’s independent certified public accountants as to
      its ability to provide all consents required in order to file a registration
      statement in connection with this transaction.

     

    (xi) The
      Company shall have created the Share Reserve. 

     

    (xii) The
      Irrevocable Transfer Agent Instructions, in form and substance satisfactory
      to
      the Buyer, shall have been delivered to and acknowledged in writing by the
      Company’s transfer agent.

     

    
      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

    

     

    (xiii) The
      Company shall have established a segregated Deposit Account and the Segregated
      Deposit Account Agreement shall have been fully executed by the Company and
      the
      bank. 

     

    (xiv) The
      Company shall have granted the Buyer a security interest in all intellectual
      property (subject to the terms of the Asset Purchase) satisfactory in form
      and
      substance to Buyer.

     

    (xv) The
      Company and the owners of Ebaum’s World, Inc. shall have entered into the Asset
      Purchase and related agreements substantially in the form previously distributed
      to Buyer.

     

    (xvi) There
      shall not have been a Material Adverse Change to the Company, to any of its
      subsidiaries, or to Ebaum’s World, Inc.

     

    (xvii) The
      Buyer
      shall have completed its ongoing and continuing due diligence investigation
      of
      the Company (including all of its subsidiaries) and of Ebaum’s World, Inc., to
      its satisfaction.

     

    (xviii) The
      Company, the Buyer, and Eric Bauman shall have entered into the “Third Party
      Reliance Agreement” substantially in the form annexed as Exhibit
      B
      hereto
      (the “Subordination
      Agreement”).

     

    8. INDEMNIFICATION.

     

    (a) In
      consideration of the Buyer’s execution and delivery of this Agreement and
      acquiring the Convertible Debentures and the Conversion Shares hereunder, and
      in
      addition to all of the Company’s other obligations under this Agreement, the
      Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
      each
      other holder of the Convertible Debentures and the Conversion Shares, and all
      of
      their officers, directors, employees and agents (including, without
      limitation, those retained in connection with the transactions contemplated
      by
      this Agreement) (collectively, the “Buyer
      Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Buyer Indemnitee is a party to the action
      for
      which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
      Liabilities”),
      incurred by the Buyer Indemnitees or any of them solely as a result of (a)
      any
      misrepresentation or breach of any representation or warranty made by the
      Company in this Agreement, the Convertible Debentures or the other Transaction
      Documents or any other certificate, instrument or document contemplated hereby
      or thereby, or (b) any breach of any covenant, agreement or obligation of the
      Company contained in this Agreement, or the other Transaction Documents or
      any
      other certificate, instrument or document contemplated hereby or thereby. To
      the
      extent that the foregoing undertaking by the Company may be unenforceable for
      any reason, the Company shall make the maximum contribution to the payment
      and
      satisfaction of each of the Indemnified Liabilities, which is permissible under
      applicable law.

     

    
      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

    

     

    (b) In
      consideration of the Company’s execution and delivery of this Agreement, and in
      addition to all of the Buyer’s other obligations under this Agreement, the Buyer
      shall defend, protect, indemnify and hold harmless the Company and all of its
      officers, directors, employees and agents (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the “Company
      Indemnitees”)
      from
      and against any and all Indemnified Liabilities incurred by the Indemnitees
      or
      any of them as a result of (a) any misrepresentation or breach of any
      representation or warranty made by the Buyer(s) in this Agreement, instrument
      or
      document contemplated hereby or thereby executed by the Buyer or (b) any breach
      of any covenant, agreement or obligation of the Buyer(s) contained in this
      Agreement, the Transaction Documents or any other certificate, instrument or
      document contemplated hereby or thereby executed by the Buyer. To the extent
      that the foregoing undertaking by each Buyer may be unenforceable for any
      reason, each Buyer shall make the maximum contribution to the payment and
      satisfaction of each of the Indemnified Liabilities, which is permissible under
      applicable law.

     

    9. GOVERNING
      LAW: MISCELLANEOUS.

     

    (a) Governing
      Law.
      This
      Agreement shall be governed by and interpreted in accordance with the internal
      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.

     

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      In
      the event any signature page is delivered by facsimile transmission, the party
      using such means of delivery shall cause four (4) additional original executed
      signature pages to be physically delivered to the other party within five (5)
      days of the execution and delivery hereof.

     

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

     

    (d) Severability.
      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.

     

    (e) Entire
      Agreement, Amendments.
      This
      Agreement supersedes all other prior oral or written agreements between the
      Buyer(s), the Company, their affiliates and persons acting on their behalf
      with
      respect to the matters discussed herein, and this Agreement and the instruments
      referenced herein contain the entire understanding of the parties with respect
      to the matters covered herein and therein and, except as specifically set forth
      herein or therein, neither the Company nor any Buyer makes any representation,
      warranty, covenant or undertaking with respect to such matters. No provision
      of
      this Agreement or any of the other Transaction Documents may be waived or
      amended other than by an instrument in writing signed by the Company and the
      Required Percentage, which waiver or amendment shall upon approval by the
      Required Percentage be binding upon all Debenture holders regardless of whether
      they have consented. For the purposes hereof, the Required Percentage shall
      mean
      at the time of such amendment or waiver not less than fifty-one (51%) percent
      of
      the outstanding principal amount of Debentures including for any amendment
      or
      waiver under any of the Transaction Documents.

     

    
      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

    

     

    (f) Notices.
      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
      confirmation of receipt, when sent by facsimile; (iii) three (3) days after
      being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
      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

            
	 	 
	
              With
                a copy to:

            	
              David
                Clar, Esq.

              Harris
                Beach PLLC

              99
                Garnsey Road

              Pittsford,
                NY  14534

              Tel.
                No. (585) 419-8712

              Fax
                No. (585) 419-8818

              dclar@harrisbeach.com

            
	 	 
	 	 
	
              With
                a copy to:

            	
              Culley,
                Marks, Tanenbaum & Pezzulo, LLP

            
	 	 


    

    

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

    

     

    If
      to the
      Buyer(s), to its address and facsimile number on Schedule I, with copies to
      the
      Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
      days’ prior written notice to the other party of any change in address or
      facsimile number.

     


    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns. Neither the Company nor any Buyer
      shall
      assign this Agreement or any rights or obligations hereunder without the prior
      written consent of the other party hereto.

     

    (h) No
      Third Party Beneficiaries.
      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.

     

    (i) Survival.
      Unless
      this Agreement is terminated under Section 9(l), the representations and
      warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
      agreements and covenants set forth in Sections 4, 5 and 9, and the
      indemnification provisions set forth in Section 8, shall survive the Closing
      for
      a period of two (2) years following the date hereof. The Buyer(s) shall be
      responsible only for its own representations, warranties, agreements and
      covenants hereunder.

     

    (j) Publicity.
      The
      Company and the Buyer(s) shall have the right to approve, before issuance any
      press release or any other public statement with respect to the transactions
      contemplated hereby made by any party; provided, however, that the Company
      shall
      be entitled, without the prior approval of the Buyer(s), to issue any press
      release or other public disclosure with respect to such transactions required
      under applicable securities or other laws or regulations (the Company shall
      use
      its best efforts to consult the Buyer(s) in connection with any such press
      release or other public disclosure prior to its release and Buyer(s) shall
      be
      provided with a copy thereof upon release thereof).

     

    (k) Further
      Assurances.
      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.


     

    (l) Termination.
      In the
      event that the Closing shall not have occurred with respect to the Buyers on
      or
      before October 19, 2007, unless extended by the parties, due to the Company’s or
      the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
      above (and the non-breaching party’s failure to waive such unsatisfied
      condition(s)), the non-breaching party shall have the option to terminate this
      Agreement with respect to such breaching party at the close of business on
      such
      date without liability of any party to any other party, provided that if the
      transaction has not closed by December 7, 2007 through no fault of Buyer, the
      Company shall issue to Buyer five-year warrants to purchase substantially in
      the
      form of the Warrants 100,000 shares of Common Stock at the closing price on
      such
      date.

     

    (m) Brokerage.
      The
      Company represents that no broker, agent, finder or other party has been
      retained by it in connection with the transactions contemplated hereby and
      that
      no other fee or commission has been agreed by the Company to be paid by Buyer
      for or on account of the transactions contemplated hereby. 

     


    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (n) No
      Strict Construction.
      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.

     

    


    [REMAINDER
      PAGE INTENTIONALLY LEFT BLANK]


    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

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

     

    


    
      	 	
              COMPANY:

            
	 	
              HANDHELD
                ENTERTAINMENT, INC. 

            
	 	 	 
	 	
              By:

            	/s/
              William J. Bush
	 	
              Name:

            	William
              J. Bush
	 	
              Title:

            	CFO
	 	 	 


    

    


    


    


    


    



    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    


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

     

    


    
      	 	
              BUYERS:

            
	 	
              YA
                Global Investments, L. P.

            
	 	 	 
	 	
              By:
                

            	
              Yorkville
                Advisors, LLC 

            
	 	
              Its:

            	
              Investment
                Manager

            
	 	 	 
	 	 	 
	 	
              By:

            	
              /s/
                Troy Rillo

            
	 	
              Name:

            	
              
                Troy
                  Rillo

              

            
	 	
              Its:

            	
              Senior
                Managing Director

            


    


    
      
        
        

      

      
        27