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4.9% CONVERTIBLE NOTE
San Francisco, California
$800,000
December 15, 2006
FOR VALUE RECEIVED, HandHeld Entertainment, Inc., a Delaware
corporation,
(the "COMPANY") hereby promises to pay, on or before December 31,
2011 (the
"MATURITY DATE"), to Scott John Paul Worsnop, an individual
("HOLDER"), at the
address set forth in Section 6 herein, the principal amount of
Eight Hundred
Thousand Dollars ($800,000), and to pay simple interest on the
unpaid principal
amount from the date hereof at the rate of four and nine-tenths
percent (4.9%)
per annum, until payment in full of the principal amount hereof.
Interest on the
unpaid principal amount shall be payable annually on the
anniversary date of
this Note.
This Note is issued pursuant to the terms of that certain Asset
Purchase
Agreement entered into by and among the Company, Holder and Scott
Worsnop of
even date herewith (the "PURCHASE AGREEMENT"). This Note shall be
subject to the
following terms and conditions:
1.
CONVERSION OF PRINCIPAL AND INTEREST.
1.1 Conversion by Holder. Holder may elect, at any time prior to
the
Maturity Date to convert the principal on this Note together with
accrued and
unpaid interest thereon, in whole or in part, into shares of the
Company's
Common Stock.
1.2 Number of Shares Issuable on Conversion. The number of shares
issuable upon conversion by Holder ("CONSIDERATION SHARES") shall
be equal to
that number of shares as is calculated by dividing the principal
amount of this
Note, together with any accrued and unpaid interest thereon, by the
Value (as
defined below) of one share of the Company's Common Stock. For
purposes of the
above calculation, the "Value" per share of the Company's Common
Stock shall be
the average of the closing prices of the Company's Common Stock
quoted on the
Nasdaq National Market (or similar system) or on any exchange on
which the
Company's Common Stock is listed, whichever is applicable
("EXCHANGE"), for the
five (5) most recent days upon which trades are reported preceding
the Closing
Date (as defined in the Purchase Agreement).
1.3 Conversion by Company. Company may elect, at any time after the
Company registers the Consideration Shares, to force the conversion
of the
principal of this Note into the Consideration Shares; provided,
however, that
the Company may only force such conversion if at the time the
Company provides
Holder with the Notice (as defined below), the average of the
closing prices of
the Company's Common Stock quoted on an Exchange for the five (5)
most recent
days upon which trades are reported preceding the Notice Date (as
also
1
defined below) is equal to or greater than twice the Value; and
further provided
that the trading volume for the Company's Common Stock during the
thirty
(30)-trading-day period preceding the Notice Date equals or exceeds
fifty
thousand (50,000) shares per such trading day. For purposes of this
Note,
"REGISTERS" or "REGISTRATION" shall mean the Company preparing and
filing with
the United States Securities and Exchange Commission a registration
statement
covering for resale all of the Consideration Shares. For avoidance
of doubt, the
number of shares issuable upon such forced conversion by Company
shall be equal
to that number of Consideration Shares determined pursuant to
Section 1.2 of
this Note.
1.4 Registration Notice to Holder. Company shall provide Holder
with
written notice of Company's intent to Register the Consideration
Shares
("NOTICE"), which
