Document:

Unassociated Document

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT
      (the
“Agreement”), is
      entered into and made effective as of October 31, 2007, by and between
HANDHELD
      ENTERTAINMENT, INC., a
      Delaware corporation with its principal place of business located at 539 Bryant
      Street, Suite 403, San Francisco, CA 94107 (the “Parent”),
      and
      the each subsidiary of the Parent listed on Schedule I attached hereto (each
      a
“Subsidiary,”
and
      collectively and together with the Parent, the “Company”),
      in
      favor of the buyers (collectively for purposes of this Agreement, the
“Secured
      Party”)
      listed
      on Schedule I (as may be amended from time to time) attached to the Additional
      Securities Purchase Agreement (the “Securities
      Purchase Agreement”)
      dated
      as of October 31, 2007 among the Company and the Secured Party.

     

    WHEREAS,
      the
      Parent shall issue and sell to the Secured Party, as provided in the Securities
      Purchase Agreement, and the Secured Party shall purchase junior secured
      convertible debentures (the “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Parent’s common stock, par value
      $0.0001;

     

    WHEREAS,
      to
      induce
      the Secured Party to enter into the transaction contemplated by the Securities
      Purchase Agreement, the Convertible Debentures, and the related documents and
      agreements (collectively referred to as the “Transaction
      Documents”),
      each
      Company hereby grants to the Secured Party a security interest in and to the
      pledged property of each Company identified on Exhibit
      A
      hereto
      (collectively referred to as the “Pledged
      Property”)
      to
      secure all of the Obligations (as defined below).

     

    NOW,
      THEREFORE, in
      consideration of the promises and the mutual covenants herein contained, and
      for
      other good and valuable consideration, the adequacy and receipt of which are
      hereby acknowledged, the parties hereto hereby agree as follows:

     

    ARTICLE
      1.

    DEFINITIONS
      AND INTERPRETATIONS

     

    Section
      1.1. Recitals.
      

     

    The
      above
      recitals are true and correct and are incorporated herein, in their entirety,
      by
      this reference.

     

    Section
      1.2. Interpretations.
      

     

    Nothing
      herein expressed or implied is intended or shall be construed to confer upon
      any
      person other than the Secured Party any right, remedy or claim under or by
      reason hereof.

     

    
      
        
        

      

      
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    Section
      1.3. Obligations
      Secured.

     

    The
      security interest created hereby in the Pledged Property constitutes continuing
      collateral security for all of the obligations of the Parent now existing or
      hereinafter incurred to the Secured Party, whether oral or written and whether
      arising before, on or after the date hereof including, without limitation the
      following obligations (collectively, the “Obligations”):

    

    (a)
      for
      so long as the Convertible Debentures are outstanding, the payment by the
      Parent, as and when due and payable (by scheduled maturity, acceleration, demand
      or otherwise), of all amounts from time to time owing by it in respect of the
      Securities Purchase Agreement, the Convertible Debentures and the other
      Transaction Documents; and

    

    (b)
      for
      so long as the Convertible Debentures are outstanding, the due performance
      and
      observance by the Parent of all of its other obligations from time to time
      existing in respect of any of the Transaction Documents, including without
      limitation, the Parent’s obligations with respect to any conversion or
      redemption rights of the Secured Party under the Convertible
      Debentures.

    

    ARTICLE
      2.

    PLEDGED
      PROPERTY; EVENT OF DEFAULT

     

    Section
      2.1. Pledged
      Property.

     

    (a) As
      collateral security for all of the Obligations, the Company hereby pledges
      to
      the Secured Party, and creates in the Secured Party for its benefit, a
      continuing security interest in and to all of the Pledged Property whether
      now
      owned or hereafter acquired.

     

    (b) Without
      limiting the generality of the foregoing, as additional security for the payment
      and performance of the Obligations, each Company hereby grants to the Secured
      Party a continuing security interest in, and hereby collaterally assigns to
      the
      Secured Party, all of such Company’s right, title and interest in and to each
      Deposit Account (as defined below) and in and to any deposits or other sums
      at
      any time credited to each such Deposit Account. In connection with the
      foregoing, each Company hereby authorizes and directs each bank or other
      depository institution which maintains any Deposit Account to pay or deliver
      to
      the Secured Party upon the Secured Party’s written demand thereof made at any
      time after the occurrence of an Event of Default has occurred (specifically
      including, without limitation, as a result of the Company’s failure to timely
      make a principal payment or interest payment under the Convertible Debentures)
      to all balances in each Deposit Account with such depository for application
      to
      the Obligations then outstanding.

     

    (c) Simultaneously
      with the execution and delivery of this Agreement, the Company shall make,
      execute, acknowledge, file, record and deliver to the Secured Party any
      documents reasonably requested by the Secured Party to perfect its security
      interest in the Pledged Property, except for its security interest in the
      Pledged Property identified in subsection (g) on Exhibit
      A
      attached
      hereto. Simultaneously with the execution and delivery of this Agreement, the
      Company shall make, execute, acknowledge and deliver to the Secured Party such
      documents and instruments, including, without limitation, financing statements,
      certificates, affidavits and forms as may, in the Secured Party’s reasonable
      judgment, be necessary to effectuate, complete or perfect, or to continue and
      preserve, the security interest of the Secured Party in the Pledged Property,
      except for its security interest in the Pledged Property identified in
      subsection (g) on Exhibit
      A
      attached
      hereto, and the Secured Party shall hold such documents and instruments as
      secured party, subject to the terms and conditions contained
      herein.

     

    
      
        
        

      

      
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    Section
      2.2. Event
      of Default

     

    An
      “Event
      of Default”
shall
      be deemed to have occurred under this Agreement upon an Event of Default under
      and as defined in the Convertible Debentures.

     

    ARTICLE
      3.

    ATTORNEY-IN-FACT;
      PERFORMANCE

     

    Section
      3.1. Secured
      Party Appointed Attorney-In-Fact.

     

    Upon
      the
      occurrence and during the continuance of an Event of Default: (a) the Company
      hereby appoints the Secured Party as its attorney-in-fact, with full authority
      in the place and stead of the Company and in the name of the Company or
      otherwise, from time to time in the Secured Party’s discretion to take any
      action and to execute any instrument which the Secured Party may reasonably
      deem
      necessary to accomplish the purposes of this Agreement, including, without
      limitation, to receive and collect all instruments made payable to the Company
      representing any payments in respect of the Pledged Property or any part thereof
      and to give full discharge for the same; (b) the Secured Party may demand,
      collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize
      on the Pledged Property as and when the Secured Party may determine, and (c)
      to
      facilitate collection, the Secured Party may notify account debtors and obligors
      on any Pledged Property to make payments directly to the Secured
      Party.

     

    Section
      3.2. Secured
      Party May Perform.

     

    If
      the
      Company fails to perform any agreement contained herein, the Secured Party,
      at
      its option, may itself perform, or cause performance of, such agreement, and
      the
      expenses of the Secured Party incurred in connection therewith shall be included
      in the Obligations secured hereby and payable by the Company under
      Section 8.3.

     

    Section
      3.3. Action
      by the Secured Party.

     

    For
      the
      purpose of exercising any and all rights granted to the Secured Party hereunder,
      including without limitation the receipt of any and all distributions of Pledged
      Property, each buyer listed on Schedule I attached to the Securities Purchase
      Agreement acknowledges and agrees that it will not take any action without
      the
      consent of buyers holding at least a majority of the outstanding Convertible
      Debentures issued under the Securities Purchase Agreement and that any and
      all
      distributions of Pledged Property or any other property hereunder to the Secured
      Party shall be made pro rata to the buyers in accordance with the percentage
      of
      the Convertible Debentures held by each buyer, and any Pledged Property or
      other
      property received by any buyer in excess of its pro rata portion shall be deemed
      to be received in trust and held for the benefit of all buyers in accordance
      with the terms of this Section 3.3.

     

    
      
        
        

      

      
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    ARTICLE
      4.

    REPRESENTATIONS
      AND WARRANTIES

     

    Section
      4.1. Authorization;
      Enforceability.

     

    Each
      of
      the parties hereto represents and warrants that it has taken all action
      necessary to authorize the execution, delivery and performance of this Agreement
      and the transactions contemplated hereby; and upon execution and delivery,
      this
      Agreement shall constitute a valid and binding obligation of the respective
      party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
      and similar laws affecting creditors’ rights or by the principles governing the
      availability of equitable remedies.

     

    Section
      4.2. Ownership
      of Pledged Property.

     

    The
      Company represents and warrants that it is the legal and beneficial owner of
      the
      Pledged Property free and clear of any lien, security interest, option or other
      charge or encumbrance (each, a “Lien”) except for the security interest created
      by this Agreement and other Permitted Liens. For purposes of this Agreement,
      “Permitted Liens” means: (1) the security interest created by this Agreement,
      (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate
      Liens for taxes, assessments or governmental charges or levies not yet due,
      as
      to which the grace period, if any, related thereto has not yet expired, or
      being
      contested in good faith and by appropriate proceedings for which adequate
      reserves have been established in accordance with GAAP; (4) Liens of carriers,
      materialmen, warehousemen, mechanics and landlords and other similar Liens
      which
      secure amounts which are not yet overdue by more than 60 days or which are
      being
      contested in good faith by appropriate proceedings; (5) licenses, sublicenses,
      leases or subleases granted to other Persons not materially interfering with
      the
      conduct of the business of the Company; (6) Liens securing capitalized lease
      obligations and purchase money indebtedness incurred solely for the purpose
      of
      financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
      encroachments, municipal zoning ordinances and other similar charges or
      encumbrances, and minor title deficiencies, in each case not securing debt
      and
      not materially interfering with the conduct of the business of the Company
      and
      not materially detracting from the value of the property subject thereto; (8)
      Liens arising out of the existence of judgments or awards which judgments or
      awards do not constitute an Event of Default; (9) Liens incurred in the ordinary
      course of business in connection with workers compensation claims, unemployment
      insurance, pension liabilities and social security benefits and Liens securing
      the performance of bids, tenders, leases and contracts in the ordinary course
      of
      business, statutory obligations, surety bonds, performance bonds and other
      obligations of a like nature (other than appeal bonds) incurred in the ordinary
      course of business (exclusive of obligations in respect of the payment for
      borrowed money); (10) Liens in favor of a banking institution arising by
      operation of law encumbering deposits (including the right of set-off) and
      contractual set-off rights held by such banking institution and which are within
      the general parameters customary in the banking industry and only burdening
      deposit accounts or other funds maintained with a creditor depository
      institution; (11) usual and customary set-off rights in leases and other
      contracts; (12) escrows in connection with acquisitions and dispositions; (13)
      any security interest granted to YA Global Investments, L.P., including the
      security interest granted to YA Global Investments, L.P. under that certain
      Security Agreement and that certain Pledge and Escrow Agreement, each dated
      as
      of even date herewith; and (14) the security interest granted in favor of
      LaSalle Bank National Association, as collateral agent, for the benefit of
      YA
      Global Investments, L.P. and eBaum’s World, Inc. under that certain Pledge
      Agreement, dated as of even date herewith.

     

    
      
        
        

      

      
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    ARTICLE
      5.

    DEFAULT;
      REMEDIES; SUBSTITUTE COLLATERAL

     

    Section
      5.1 Method
      of Realizing Upon the Pledged Property: Other Remedies.

     

    If
      any
      Event of Default shall have occurred and be continuing:

     

    (a) The
      Secured Party may exercise in respect of the Pledged Property, in addition
      to
      any other rights and remedies provided for herein or otherwise available to
      it,
      all of the rights and remedies of a secured party upon default under the Uniform
      Commercial Code (whether or not the Uniform Commercial Code applies to the
      affected Pledged Property), and also may (i) take absolute control of the
      Pledged Property, including, without limitation, transfer into the Secured
      Party's name or into the name of its nominee or nominees (to the extent the
      Secured Party has not theretofore done so) and thereafter receive, for the
      benefit of the Secured Party, all payments made thereon, give all consents,
      waivers and ratifications in respect thereof and otherwise act with respect
      thereto as though it were the outright owner thereof, (ii) require the
      Company to assemble all or part of the Pledged Property as directed by the
      Secured Party and make it available to the Secured Party at a place or places
      to
      be designated by the Secured Party that is reasonably convenient to both
      parties, and the Secured Party may enter into and occupy any premises owned
      or
      leased by the Company where the Pledged Property or any part thereof is located
      or assembled for a reasonable period in order to effectuate the Secured Party's
      rights and remedies hereunder or under law, without obligation to the Company
      in
      respect of such occupation, and (iii) without notice except as specified
      below and without any obligation to prepare or process the Pledged Property
      for
      sale, (A) sell the Pledged Property or any part thereof in one or more
      parcels at public or private sale, at any of the Secured Party's offices or
      elsewhere, for cash, on credit or for future delivery, and at such price or
      prices and upon such other terms as the Secured Party may deem commercially
      reasonable and/or (B) lease, license or dispose of the Pledged Property or
      any part thereof upon such terms as the Secured Party may deem commercially
      reasonable. The Company agrees that, to the extent notice of sale or any other
      disposition of the Pledged Property shall be required by law, at least ten
      (10)
      days' notice to the Company of the time and place of any public sale or the
      time
      after which any private sale or other disposition of the Pledged Property is
      to
      be made shall constitute reasonable notification. The Secured Party shall not
      be
      obligated to make any sale or other disposition of any Pledged Property
      regardless of notice of sale having been given. The Secured Party may adjourn
      any public or private sale from time to time by announcement at the time and
      place fixed therefor, and such sale may, without further notice, be made at
      the
      time and place to which it was so adjourned. The Company hereby waives any
      claims against the Secured Party arising by reason of the fact that the price
      at
      which the Pledged Property may have been sold at a private sale was less than
      the price which might have been obtained at a public sale or was less than
      the
      aggregate amount of the Obligations, even if the Secured Party accepts the
      first
      offer received and does not offer such Pledged Property to more than one
      offeree, and waives all rights that the Company may have to require that all
      or
      any part of such Pledged Property be marshaled upon any sale (public or private)
      thereof. The Company hereby acknowledges that (i) any such sale of the
      Pledged Property by the Secured Party may be made without warranty,
      (ii) the Secured Party may specifically disclaim any warranties of title,
      possession, quiet enjoyment or the like, and (iii) such actions set forth
      in clauses (i) and (ii) above shall not adversely affect the commercial
      reasonableness of any such sale of Pledged Property. 

     

    
      
        
        

      

      
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    (b) Any
      cash
      held by the Secured Party as Pledged Property and all cash proceeds received
      by
      the Secured Party in respect of any sale of or collection from, or other
      realization upon, all or any part of the Pledged Property shall be applied
      (after payment of any amounts payable to the Secured Party pursuant to Section
      8.3 hereof) by the Secured Party against, all or any part of the Obligations
      in
      such order as the Secured Party shall elect, consistent with the provisions
      of
      the Securities Purchase Agreement. Any surplus of such cash or cash proceeds
      held by the Secured Party and remaining after the indefeasible payment in full
      in cash of all of the Obligations shall be paid over to whomsoever shall be
      lawfully entitled to receive the same or as a court of competent jurisdiction
      shall direct.

     

    (c) In
      the
      event that the proceeds of any such sale, collection or realization are
      insufficient to pay all amounts to which the Secured Party is legally entitled,
      the Company shall be liable for the deficiency, together with interest thereon
      at the rate specified in the Convertible Debentures for interest on overdue
      principal thereof or such other rate as shall be fixed by applicable law,
      together with the costs of collection and the reasonable fees, costs, expenses
      and other client charges of any attorneys employed by the Secured Party to
      collect such deficiency.

     

    (d) The
      Company hereby acknowledges that if the Secured Party complies with any
      applicable state, provincial, or federal law requirements in connection with
      a
      disposition of the Pledged Property, such compliance will not adversely affect
      the commercial reasonableness of any sale or other disposition of the Pledged
      Property.

     

    (e) The
      Secured Party shall not be required to marshal any present or future collateral
      security (including, but not limited to, this Agreement and the Pledged
      Property) for, or other assurances of payment of, the Obligations or any of
      them
      or to resort to such collateral security or other assurances of payment in
      any
      particular order, and all of the Secured Party's rights hereunder and in respect
      of such collateral security and other assurances of payment shall be cumulative
      and in addition to all other rights, however existing or arising. To the extent
      that the Company lawfully may, the Company hereby agrees that it will not invoke
      any law relating to the marshaling of collateral which might cause delay in
      or
      impede the enforcement of the Secured Party's rights under this Agreement or
      under any other instrument creating or evidencing any of the Obligations or
      under which any of the Obligations is outstanding or by which any of the
      Obligations is secured or payment thereof is otherwise assured, and, to the
      extent that it lawfully may, the Company hereby irrevocably waives the benefits
      of all such laws.

     

    
      
        
        

      

      
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    Section
      5.2 Duties
      Regarding Pledged Property.

     

    The
      Secured Party shall have no duty as to the collection or protection of the
      Pledged Property or any income thereon or as to the preservation of any rights
      pertaining thereto, beyond the safe custody and reasonable care of any of the
      Pledged Property actually in the Secured Party’s possession.

     

    ARTICLE
      6.

    AFFIRMATIVE
      COVENANTS

     

    The
      Company covenants and agrees that, from the date hereof and until the
      Obligations have been fully paid and satisfied or the Convertible Debentures
      have been fully converted, unless the Secured Party shall consent otherwise
      in
      writing (as provided in Section 8.4 hereof):

     

    Section
      6.1. Existence,
      Properties, Etc.

     

    (a) The
      Company shall do, or cause to be done, all things, or proceed with due diligence
      with any actions or courses of action, that may be reasonably necessary
      (i) to maintain Company’s due organization, valid existence and good
      standing under the laws of its state of incorporation, and (ii) to preserve
      and keep in full force and effect all qualifications, licenses and registrations
      in those jurisdictions in which the failure to do so could have a Material
      Adverse Effect (as defined below); and (b) the Company shall not do, or
      cause to be done, any act impairing the Company’s corporate power or authority
      (i) to carry on the Company’s business as now conducted, and (ii) to
      execute or deliver this Agreement or any other document delivered in connection
      herewith, including, without limitation, any UCC-1 Financing Statements required
      by the Secured Party (which other loan instruments collectively shall be
      referred to as the “Loan
      Instruments”) to
      which it is or will be a party, or perform any of its obligations hereunder
      or
      thereunder. For purpose of this Agreement, the term “Material
      Adverse Effect”
shall
      mean any material and adverse affect as determined by Secured Party in its
      reasonable discretion, whether individually or in the aggregate, upon
      (a) the Company’s assets, business, operations, properties or condition,
      financial or otherwise; (b) the Company’s ability to make payment as and
      when due of all or any part of the Obligations; or (c) the Pledged
      Property.

     

    
      
        
        

      

      
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    Section
      6.2. Financial
      Statements and Reports.

     

    The
      Company shall furnish to the Secured Party within a reasonable time such
      financial data as the Secured Party may reasonably request.

     

    Section
      6.3. Accounts
      and Reports.

     

    The
      Company shall maintain a standard system of accounting in accordance with
      generally accepted accounting principles consistently applied (“GAAP”) and
      provide, at its sole expense, to the Secured Party the following:

     

    (a) as
      soon
      as available, a copy of any notice or other communication alleging any
      nonpayment or other material breach or default, or any foreclosure or other
      action respecting any material portion of its assets and properties, received
      respecting any of the indebtedness of the Company in excess of $500,000 (other
      than the Obligations), or any demand or other request for payment under any
      guaranty, assumption, purchase agreement or similar agreement or arrangement
      respecting the indebtedness or obligations of others in excess of $500,000;
      and

     

    (b) within
      fifteen (15) days after the making of each submission or filing, a copy of
      any report, financial statement, notice or other document, whether periodic
      or
      otherwise, submitted to the shareholders of the Company, or submitted to or
      filed by the Company with any governmental authority involving or affecting
      (i)
      the Company that could reasonably be expected to have a Material Adverse Effect;
      (ii) the Obligations; (iii) any part of the Pledged Property; or
      (iv) any of the transactions contemplated in this Agreement or the Loan
      Instruments (except, in each case, to the extent any such submission, filing,
      report, financial statement, notice or other document is posted on EDGAR
      Online).

     

    Section
      6.4. Maintenance
      of Books and Records; Inspection.

     

    The
      Company shall maintain its books, accounts and records in accordance with GAAP,
      and permit the Secured Party, its officers and employees and any professionals
      designated by the Secured Party in writing, at any time during normal business
      hours and upon reasonable notice to visit and inspect any of its properties
      (including but not limited to the collateral security described in the
      Transaction Documents and/or the Loan Instruments), corporate books and
      financial records, and to discuss its accounts, affairs and finances with any
      employee, officer or director thereof (it being agreed that, unless an Event
      of
      Default shall have occurred and be continuing, there shall be no more than
      two
      (2) such visits and inspections in any Fiscal Year).

     

    Section
      6.5. Maintenance
      and Insurance.

     

    (a) The
      Company shall maintain or cause to be maintained, at its own expense, all of
      its
      material assets and properties in good working order and condition, ordinary
      wear and tear excepted, making all necessary repairs thereto and renewals and
      replacements thereof.

    
       

      
        
          
          

        

        
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    (b) The
      Company shall maintain or cause to be maintained, at its own expense, insurance
      in form, substance and amounts (including deductibles), which the Company deems
      reasonably necessary to the Company’s business, (i) adequate to insure all
      assets and properties of the Company of a character usually insured by persons
      engaged in the same or similar business against loss or damage resulting from
      fire or other risks included in an extended coverage policy; (ii) against
      public liability and other tort claims that may be incurred by the Company;
      (iii) as may be required by the Transaction Documents and/or applicable law
      and (iv) as may be reasonably requested by Secured Party, all with financially
      sound and reputable insurers.

     

    Section
      6.6. Contracts
      and Other Collateral.

     

    The
      Company shall perform all of its obligations under or with respect to each
      instrument, receivable, contract and other intangible included in the Pledged
      Property to which the Company is now or hereafter will be party on a timely
      basis and in the manner therein required, including, without limitation, this
      Agreement, except to the extent the failure to so perform such obligations
      would
      not reasonably be expected to have a Material Adverse Effect.

     

    Section
      6.7. Defense
      of Collateral, Etc.

     

    The
      Company shall defend and enforce its right, title and interest in and to any
      part of: (a) the Pledged Property; and (b) if not included within the
      Pledged Property, those assets and properties whose loss would reasonably be
      expected to have a Material Adverse Effect, each against all manner of claims
      and demands on a timely basis to the full extent permitted by applicable law
      (other than any such claims and demands by holders of Permitted
      Liens).

     

    Section
      6.8. Taxes
      and Assessments.

     

    The
      Company shall (a) file all material tax returns and appropriate schedules
      thereto that are required to be filed under applicable law, prior to the date
      of
      delinquency (taking into account any extensions of the original due date),
      (b) pay and discharge all material taxes, assessments and governmental
      charges or levies imposed upon the Company, upon its income and profits or
      upon
      any properties belonging to it, prior to the date on which penalties attach
      thereto, and (c) pay all material taxes, assessments and governmental
      charges or levies that, if unpaid, might become a lien or charge upon any of
      its
      properties; provided,
      however,
      that
      the Company in good faith may contest any such tax, assessment, governmental
      charge or levy described in the foregoing clauses (b) and (c) so long as
      appropriate reserves are maintained with respect thereto if and to the extent
      required by GAAP. 

     

    Section
      6.9. Compliance
      with Law and Other Agreements.
      

     

    The
      Company shall maintain its business operations and property owned or used in
      connection therewith in compliance with (a) all applicable federal, state
      and local laws, regulations and ordinances governing such business operations
      and the use and ownership of such property, and (b) all agreements,
      licenses, franchises, indentures and mortgages to which the Company is a party
      or by which the Company or any of its properties is bound, except where the
      failure to so comply would not reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

      
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    Section
      6.10. Notice
      of Default.
      

     

    The
      Company shall give written notice to the Secured Party of the occurrence of
      any
      Event of Default.

     

    Section
      6.11. Notice
      of Litigation.

     

    The
      Company shall give notice, in writing, to the Secured Party of (a) any
      actions, suits or proceedings wherein the amount at issue is in excess of
      $250,000, instituted by any persons against the Company, or affecting any of
      the
      assets of the Company, and (b) any dispute, not resolved within fifteen
      (15) days of the commencement thereof, between the Company on the one hand
      and
      any governmental or regulatory body on the other hand, which might reasonably
      be
      expected to have a Material Adverse Effect on the business operations or
      financial condition of the Company.

     

    Section
      6.13. Future
      Subsidiaries.

     

    If
      the
      Company shall hereafter create or acquire any subsidiary, simultaneously with
      the creation or acquisition of such subsidiary, the Company shall cause such
      subsidiary to grant to the Secured Party a security interest of the same tenor
      as created under this Agreement. 

     

    ARTICLE
      7.

    NEGATIVE
      COVENANTS

     

    The
      Company covenants and agrees that, from the date hereof until the Obligations
      have been fully paid and satisfied, the Company shall not, unless the Secured
      Party shall consent otherwise in writing:

     

    Section
      7.1. Liens
      and Encumbrances.

     

    Directly
      or indirectly make, create, incur, assume or permit to exist any Lien in, to
      or
      against any part of the Pledged Property other than Permitted
      Liens.

     

    Section
      7.2. Restriction
      on Redemption and Cash Dividends

     

    Directly
      or indirectly, redeem, repurchase or declare or pay any cash dividend or
      distribution on its capital stock without the prior express written consent
      of
      the Secured Party.

     

    Section
      7.3. Incurrence
      of Indebtedness.

     

    Directly
      or indirectly, incur or guarantee, assume or suffer to exist any indebtedness,
      other than the indebtedness evidenced by the Convertible Debentures and other
      Permitted Indebtedness. “Permitted
      Indebtedness”
means:
      (i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
      described on the Disclosure Schedule to the Securities Purchase Agreement;
      (iii)
      indebtedness incurred solely for the purpose of financing the acquisition or
      lease of any equipment by the Company, including capital lease obligations
      with
      no recourse other than to such equipment; (iv) indebtedness (A) the repayment
      of
      which has been subordinated to the payment of the Convertible Debentures on
      terms and conditions acceptable to the Secured Party, including with regard
      to
      interest payments and repayment of principal, (B) which does not mature or
      otherwise require or permit redemption or repayment prior to or on the
      91st
      day
      after the maturity date of any Convertible Debentures then outstanding; and
      (C)
      which is not secured by any assets of the Company; (v) indebtedness solely
      between the Company and/or one of its subsidiaries, on the one hand, and the
      Company and/or one of its subsidiaries, on the other which indebtedness is
      not
      secured by any assets of the Company or any of its subsidiaries, provided that
      (x) in each case a majority of the equity of any such subsidiary is directly
      or
      indirectly owned by the Company, such subsidiary is controlled by the Company
      and such subsidiary has executed a security agreement in the form of this
      Agreement and (y) any such loan shall be evidenced by an intercompany note
      that
      is pledged by the Company or its subsidiary, as applicable, as collateral
      pursuant to this Agreement; (vi) reimbursement obligations in respect of letters
      of credit issued for the account of the Company or any of its subsidiaries
      for
      the purpose of securing performance obligations of the Company or its
      subsidiaries incurred in the ordinary course of business so long as the
      aggregate face amount of all such letters of credit does not exceed $500,000
      at
      any one time; (vii) renewals, extensions and refinancing of any indebtedness
      described in clauses (i) or (iii) of this subsection; and (viii) any other
      indebtedness incurred to YA Global Investments, L.P.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Section
      7.4. Places
      of Business.

     

    Change
      the location of its chief place of business, chief executive office or any
      place
      of business disclosed to the Secured Party, unless such change in location
      is to
      a different location within the United States and the Company provides notice
      to
      the Secured Party of new location within 10 days’ of such change in
      location.

     

    ARTICLE
      8.

    MISCELLANEOUS

     

    Section
      8.1. Notices.

     

    All
      notices or other communications required or permitted to be given pursuant
      to
      this Agreement shall be in writing and shall be considered as duly given on:
      (a) the date of delivery, if delivered in person or by nationally
      recognized overnight delivery service or (b) five (5) days after
      mailing if mailed from within the continental United States by certified mail,
      return receipt requested to the party entitled to receive the same:

     

    
      	
              If
                to the Secured Party:

            	
              In
                accordance with the directions on Exhibit B hereto

            
	 	 
	
              And
                if to the Company:

            	
              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

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Any
      party
      may change its address by giving notice to the other party stating its new
      address. Commencing on the tenth (10th) day
      after the giving of such notice, such newly designated address shall be such
      party’s address for the purpose of all notices or other communications required
      or permitted to be given pursuant to this Agreement.

     

    Section
      8.2. Severability.

     

    If
      any
      provision of this Agreement shall be held invalid or unenforceable, such
      invalidity or unenforceability shall attach only to such provision and shall
      not
      in any manner affect or render invalid or unenforceable any other severable
      provision of this Agreement, and this Agreement shall be carried out as if
      any
      such invalid or unenforceable provision were not contained herein.

     

    Section
      8.3. Expenses.

     

    In
      the
      event of an Event of Default, the Company will pay to the Secured Party the
      amount of any and all reasonable out-of-pocket expenses, including the
      reasonable fees and expenses of its counsel, which the Secured Party may incur
      in connection with: (i) the custody or preservation of, or the sale,
      collection from, or other realization upon, any of the Pledged Property;
      (ii) the exercise or enforcement of any of the rights of the Secured Party
      hereunder or (iii) the failure by the Company to perform or observe any of
      the provisions hereof.

     

    Section
      8.4. Waivers,
      Amendments, Etc.

     

    The
      Secured Party’s delay or failure at any time or times hereafter to require
      strict performance by Company of any undertakings, agreements or covenants
      shall
      not waive, affect, or diminish any right of the Secured Party under this
      Agreement to demand strict compliance and performance herewith. Any waiver
      by
      the Secured Party of any Event of Default shall not waive or affect any other
      Event of Default, whether such Event of Default is prior or subsequent thereto
      and whether of the same or a different type. None of the undertakings,
      agreements and covenants of the Company contained in this Agreement, and no
      Event of Default, shall be deemed to have been waived by the Secured Party,
      nor
      may this Agreement be amended, changed or modified, unless such waiver,
      amendment, change or modification is evidenced by an instrument in writing
      specifying such waiver, amendment, change or modification and signed by the
      Secured Party in the case of any such waiver, and signed by the Secured Party
      and the Company in the case of any such amendment, change or
      modification.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
      8.5. Continuing
      Security Interest; Partial Release.

     

    (a)
      This
      Agreement shall create a continuing security interest in the Pledged Property
      and shall: (i) remain in full force and effect until payment or conversion
      in full of the Convertible Debentures; (ii) be binding upon the Company and
      its successors and assigns; and (iii) inure to the benefit of the Secured
      Party and its successors and assigns. Upon the payment or satisfaction in full
      or conversion in full of the Convertible Debentures, this Agreement and the
      security interest created hereby shall terminate, and, in connection therewith,
      the Company shall be entitled to the return, at its expense, of such of the
      Pledged Property as shall not have been sold in accordance with Section 5.2
      hereof or otherwise applied pursuant to the terms hereof and the Secured Party
      shall deliver to the Company such documents as the Company shall reasonably
      request to evidence such termination.

     

    (b) Effective
      upon the closing of a disposition of any Pledged Property, provided the Secured
      Party consents in writing prior to such disposition or such disposition is
      made
      in the ordinary course of business, the security interest granted hereunder
      in
      the Pledged Property so disposed of shall terminate and the Secured Party shall
      deliver such documents as the Company shall reasonably request to evidence
      such
      termination; provided, however, the security interest granted hereunder in
      all
      remaining Pledged Property shall remain in full force and effect.

     

    Section
      8.6. Independent
      Representation.

     

    Each
      party hereto acknowledges and agrees that it has received or has had the
      opportunity to receive independent legal counsel of its own choice and that
      it
      has been sufficiently apprised of its rights and responsibilities with regard
      to
      the substance of this Agreement.

     

    Section
      8.7. Applicable
      Law: Jurisdiction.

     

    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New York without regard to the principles of conflict of laws.
      The
      parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County and the United States
      District Court for the District of New Jersey sitting in Newark, New Jersey
      for
      the adjudication of any civil action asserted pursuant to this
      Paragraph.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Section
      8.8. Waiver
      of Jury Trial.

     

    AS
      A
      FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
      MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
      AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

     

    Section
      8.9. Entire
      Agreement.

     

    This
      Agreement constitutes the entire agreement among the parties and supersedes
      any
      prior agreement or understanding among them with respect to the subject matter
      hereof.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	
              COMPANY:

            
	 	
              HANDHELD
                ENTERTAINMENT, INC.

            
	 	 
	 	 
	 	
              By:
                /s/ William J. Bush

              
                

              

              Name:
                William J. Bush

            
	 	
              Title:
                Chief Financial Officer

            

    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	
              COMPANY:

            
	 	
              DORKS,
                LLC

            
	 	 
	 	 
	 	
              By:
                /s/ William J. Bush

              
                

              

              Name:
                William J. Bush      

            
	 	
              Title:
                Chief Financial Officer

            

    

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	
              COMPANY:

            
	 	
              PUTFILE
                LTD.

            
	 	 
	 	 
	 	
              By:
                /s/ William J. Bush

              
                

              

              Name:
                William J. Bush       

            
	 	
              Title:
                Chief Financial Officer

            

    

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	
              COMPANY:

            
	 	
              EBW
                ACQUISITION, INC.

            
	 	 
	 	 
	 	
              By:
                /s/ William J. Bush

              
                

                Name:
                  William J. Bush

              

            
	 	
              Title:
                Chief Financial Officer

            

    

    

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    
      	 	 
	 	
              SECURED
                PARTY:

            
	 	 
	 	
              ____________________________________

            
	 	
               

            
	 	 
	 	
              ____________________________________

            
	 	 
	 	
              ____________________________________

            

    

    

    
      
        
        

      

      
        19Unassociated Document

     

    WARRANT

     

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

     

    HANDHELD
      ENTERTAINMENT, INC.

     

    Warrant
      To Purchase Common Stock

    

      
        	
                Warrant
                  No.: ZVUE 2-A-__

              	
                Number
                  of Shares:

              	
                 

              
	 	
                Warrant
                  Exercise Price:

              	
                $1.90

              
	 	
                Expiration
                  Date:

              	
                October
                  31, 2012

              

      

    

      

    Date
      of
      Issuance: October 31, 2007

    

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      1.

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (c) Other
      Definitional Provisions. 

     

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

     

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

     

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

     

    Section
      2. Exercise
      of Warrant.
      

     

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

     

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

    B

    

    For
      purposes of the foregoing formula: 

    

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

    

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

    

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    Section
      7. Ownership
      and Transfer.

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    
      
        
        

      

      
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    (f) Notices.

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

    Section
      11. Notice.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Warrant must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally;
      (ii) upon receipt, when sent by facsimile (provided confirmation of receipt
      is received by the sending party transmission is mechanically or electronically
      generated and kept on file by the sending party); or (iii) one Business Day
      after deposit with a nationally recognized overnight delivery service, in each
      case properly addressed to the party to receive the same. The addresses and
      facsimile numbers for such communications shall be:

     

    
      	
              If
                to the Company, to:

            	 	
              Handheld
                Entertainment, Inc.

            
	 	 	
              539
                Bryant Street, Suite 403

            
	 	 	
              San
                Francisco, CA 94107

            
	 	 	
              Attention:
                Jeffery Oscodar

            
	 	 	
              Telephone: (415)
                495-6470

            
	 	 	
              Facsimile:  
                 (415)
                495-7708

            
	 	 	 
	
              With
                a copy to:

            	 	
              Haynes
                and Boone, LLP

            
	 	 	
              153
                East 53rd
                Street

            
	 	 	
              New
                York, NY 10022

            
	 	 	
              Attention:
                Harvey J. Kesner, Esq.

            
	 	 	
              Telephone: (212)
                659-7300

            
	 	 	
              Facsimile:  
                 (212)
                918-8989

            

    

    

    If
      to
      Holder, at the address and facsimile number set forth for such Holder in the
      records of the Company, or at such other address and facsimile as shall be
      delivered to the Company upon the issuance or transfer of this Warrant. Each
      party shall provide five days’ prior written notice to the other party of any
      change in address or facsimile number. Written confirmation of receipt
      (A) given by the recipient of such notice, consent, facsimile, waiver or
      other communication, (or (B) provided by a nationally recognized overnight
      delivery service shall be rebuttable evidence of personal service, receipt
      by
      facsimile or receipt from a nationally recognized overnight delivery service
      in
      accordance with clause (i), (ii) or (iii) above, respectively.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    Section
      14. Descriptive
      Headings; Governing Law.
      The
      descriptive headings of the several sections and paragraphs of this Warrant
      are
      inserted for convenience only and do not constitute a part of this Warrant.
      The
      corporate laws of the State of Delaware shall govern all issues concerning
      the
      relative rights of the Company and its stockholders. All other questions
      concerning the construction, validity, enforcement and interpretation of this
      Agreement shall be governed by the internal laws of the State of New York,
      without giving effect to any choice of law or conflict of law provision or
      rule
      (whether of the State of New York or any other jurisdictions) that would cause
      the application of the laws of any jurisdictions other than the State of New
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in Hudson County, New Jersey and the United
      States District Court for the District of New Jersey, for the adjudication
      of
      any dispute hereunder or in connection herewith or therewith, or with any
      transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. Each party hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address for such notices to it under this Agreement and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

    REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

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

    
      	 	 	 
	 	
              HANDHELD
                ENTERTAINMENT, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name: 

              
                Title: 

              

            

    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A TO WARRANT

     

    EXERCISE
      NOTICE

     

    TO
      BE EXECUTED 

    BY
      THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

     

    HANDHELD
      ENTERTAINMENT, INC.

     

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

     

    Specify
      Method of exercise by check mark:

     

    1.
      ___ Cash
      Exercise

     

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

     

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

     

    2.
      ___ Cashless
      Exercise

     

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

     

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

     

    Date:
      _______________ __, ______

    

    Name
      of
      Registered Holder

    

    By:  

    
      

    

    Name:

    
      

    

    Title:  

    
      
  

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B TO WARRANT

     

    FORM
      OF WARRANT POWER

     

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

     

    
      	
              Dated:
                ____________________

            	 
	 	
              

            
	 	
              By:      

            
	 	
              
                

              

              Name:

            
	 	
              
                

              
Title:
	 	
              
                

              

            

    

    

    
      
        
        

      

      
        B-1

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