SETTLEMENT
AGREEMENT AND MUTUAL RELEASE

THIS SETTLEMENT AGREEMENT
AND MUTUAL RELEASE (the ‘‘Agreement’’) is
effective as of November  6,  2006 (the
‘‘Effective Date’’) by and among HandHeld
Entertainment, Inc. (‘‘HandHeld’’), a
California corporation, and Microsoft Corporation
(‘‘Microsoft’’), a Washington corporation.
HandHeld and Microsoft arc sometimes referred to herein singularly as
‘‘a Party’’ or collectively as
‘‘the
Parties’’

RECITALS


WHEREAS, on
or about October  12,  2006, HandHeld filed an action,
entitled HandHeld Entertainment, Inc. v. Microsoft Corporation, Case
No. C 06 6388 SI, in the United States District Court for
the Northern District of California (‘‘the
Action’’).

Microsoft denies that use of its
Zune trademark to market its portable digital media player infringes
HandHeld's ZVUE trademark and disputes the allegations in the
Action.

The Parties wish to fully resolve, on their own
behalf and on behalf of their predecessors, successors, assigns,
agents, officers, directors and employees, all claims in the Action and
any other causes of actions, claims or disputes, direct or indirect,
relating to or arising out of any activity involving Microsoft's
registration and use of the Zune trademark.


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

AGREEMENT

1.    Payment.    Within
ten (10) business days of the execution of this Agreement, Microsoft
shall pay the sum of $1,850,000 to HandHeld. Payment shall be made to
the trust account of HandHeld's counsel, the law firm of Hosie
McArthur LLP. As a condition to such payment, Hosie McArthur LLP shall
provide in writing on its letterhead, the following wire transfer
information: account name, account number, ABA number, bank address,
and bank contact
information.

2.    Dismissal.    Upon
receipt of the $1,850,000 from Microsoft, HandHeld shall dismiss the
Action with prejudice and without costs to either party, in the form of
dismissal attached hereto as Exhibit
A.

3.    Technical
Support.    Microsoft shall provide HandHeld with one day of
on-site technical support at a mutually agreed upon time at
Microsoft's Redmond campus for the purpose of providing technical
assistance to HandHeld in qualifying the ZVUE portable digital media
player for Microsoft's PlayForSure certification. Microsoft makes
no guarantee that such support will result in certification. In the
event that HandHeld's ZVUE portable digital media player
qualifies for Microsoft's PlayForSure certification, HandHeld
shall be entitled to participate in authorized promotional PlayForSure
activities.

4.    Meeting.    Microsoft and
HandHeld shall agree to participate in one business meeting to be held
in Redmond, Washington prior to December  31,  2006. Agenda
items for that meeting shall include possible collaboration or
agreement between HandHeld and Microsoft relating to MSN, PlayForSure
partners and technical support, and Windows Mobile 5.0 business and
technical support. Microsoft agrees to have appropriate representatives
attend, including those that would ordinarily attend such a meeting,
and at least one person responsible for ZUNE business development. It
further agrees to consider in good faith the business proposals that
HandHeld offers and to judge such proposals on their merits. Neither
party shall be obligated to enter into any binding business arrangement
as a result of this meeting.









5.    Acknowledgement
of Validity of and right to use ZUNE Trademark.    HandHeld
agrees not to hereafter challenge or contest, directly or indirectly,
the validity, ownership, use or registration of any ZUNE trademark
claimed by Microsoft, including any proceeding of any type anywhere in
the
world.

6.    Releases


a.    Release
by HandHeld.    HandHeld specifically releases, waives, and
forever discharges Microsoft, its successors in interest, its past,
present and future assigns, officers, employees, directors, attorneys,
subsidiaries, affiliates, insurers and underwriters (collectively the
‘‘released parties’’), from any and all claims
and causes of action, whether now known or now unknown, arising out of
or relating to the events or incidents referred to in the Action,
including without limitation any activity involving the ZVUE trademark,
the Zune trademark, or Microsoft's marketing of its Zune portable
digital media player which it may have against HandHeld or the released
parties. Microsoft, for itself and on behalf of each Microsoft Released
Party, expressly denies any liability to HandHeld. Neither the payment
by Microsoft of the amount set forth herein nor the acceptance by
Microsoft or any other Released Party of the benefits of this release
shall be deemed an acknowledgement or admission of
liability.

b.    Release by
Microsoft.    Microsoft specifically releases, waives, and
forever discharges HandHeld, its successors in interest, its past,
present and future assigns, officers, employees, directors, attorneys,
subsidiaries, affiliates, insurers and underwriters (collectively the
‘‘released parties’’), from any and all claims
and causes of action, whether now known or now unknown, arising out of
or relating to the events or incidents referred to in the Action,
including without limitation, the filing of the lawsuit and any other
activity involving the ZVUE trademark which it has or may have against
HandHeld or the released parties.

7.    Waiver of
Rights under California Civil Code Section 1542.    The releases
granted herein will be and will remain effective in all respects
notwithstanding the fact that either Party hereafter discovers facts
different from or in addition to those now known or believed to be true
by any Party with respect to the matters that are the subject of the
foregoing releases.

			
		a. 	In giving such releases,
the Parties expressly waive the provisions of California Civil Code
§ 1542 that provides:


A GENERAL RELEASE
DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.

			
		b. 	Further, in giving such releases, the
Parties each expressly waive any other statutory provisions, decisional
law, or otherwise, if any, that would preclude the respective releases
from extending to matters that the Releasing Parties did not know or
suspect to exist in that Party's favor at the time of executing
the release, and that, if known, would have materially influenced such
Party in entering into the release.


8.    No
Admission of Liability.    Each Party acknowledges and agrees
that this Settlement Agreement is a compromise of disputed claims and
neither this Settlement Agreement, nor any consideration provided
pursuant to this Settlement Agreement, shall he taken or construed to
be an admission or concession by either Microsoft or HandHeld of any
kind with respect to any fact, liability, or
fault.

9.    Dispute Resolution.    Each
Party consents and agrees that exclusive jurisdiction over any suit or
proceeding arising out of or relating to this Settlement Agreement
shall be in the San Francisco office of JAMS. The prevailing party in
any such suit or proceeding shall be entitled to recover its reasonable
attorneys' fees and costs from the non-prevailing
party.

2









10.  Entire
Agreement.    This Settlement Agreement constitutes the entire
agreement between the Parties with respect to the subject matter
hereof, and there are no inducements, representations, warranties, or
understandings that do not appear within the terms and provisions of
this Settlement Agreement. This Settlement Agreement may be modified
only by a writing signed by both Parties.

11.   Authorization.    Each individual signing
this Settlement Agreement warrants and represents that he has the full
authority and is duly authorized and empowered to execute this
Settlement Agreement on behalf of the Party for which he
signs.

l2.    Confidentiality.    HandHeld
and Microsoft each agree, as further consideration and inducement for
this Agreement, that the provisions contained in this Agreement are
confidential, and no Party will reveal those terms, in whole or in
part, to any person, firm, or entity outside of the Parties and their
respective counsel, accountants, insurers, boards of directors,
financial advisors, bankers, officers, and directors except: (i) as
required by law; or (ii) as necessary to enforce this Agreement in a
mediation and/or court of law. Provided, however, in response to any
request for comment the parties may state that the case has been
resolved to the satisfaction of the parties or words to that
effect.

13.   Counterparts.    This
Agreement will be executed by the parties on the Effective Date and
maybe executed in one or more counterparts, each of which when executed
and delivered shall be deemed an original, but all of which taken
together form a single instrument.

14.   Binding
Effect.    This Agreement shall be binding on the Parties, their
successors in interest, subsidiaries, assignees or acquirers, including
any acquirer of substantially all of the assets of a
Party.

15.   Severability.    If any
provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid, or unenforceable, the remaining
provisions shall remain in full force and effect. This Agreement has
been negotiated by the Parties and their respective counsel and shall
be interpreted fairly in accordance with its terms and without any
strict construction in favor of or against either Party.


IN
WITNESS WHEREOF, the Parties execute this Agreement either
personally or by a duly authorized representative and acknowledge that
they understand and agree to be bound by this Agreement's terms
and conditions.

Executed to be effective as of the
Effective Date.

HANDHELD ENTERTAINMENT,
INC.

By:    /s/ Jeffrey D. Oscodar


Print:    Jeffrey D.
Oscodar


Its:    President &
CEO


MICROSOFT
CORPORATION

By:    /s/ Thomas W.
Burt


Print:    Thomas W.
Burt


Its:    Assistant
Secretary


3