Contract
EXHIBIT
A
THIS
NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT, A COPY OF WHICH IS
ON
FILE WITH, AND AVAILABLE FROM, THE SECRETARY OF HANDHELD ENTERTAINMENT,
INC.
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS
AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED
IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH
SECURITIES UNDER THE SECURITIES ACT OR AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO
BE
SUBJECT TO COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS.
No.
__
FORM
OF
8%
Note due 2008
$[_________]
______
__, 2007
Handheld
Entertainment, Inc., a Delaware corporation, (the “Company”), for value
received, hereby promises to pay to ______________ (the “Holder” or “Registered
Holder”), or registered assigns, the principal sum set forth above, with accrued
but unpaid interest thereon at a rate equal to eight percent (8%) per annum,
on
the Maturity Date. Payment shall be made at such place as designated by the
Company upon surrender of this Note (as defined below), and shall be in such
coin or currency of the United States of America as at the time of payment
shall
be legal tender for the payment of public and private debts. This Note is one
of
a duly authorized issue of up to $3,050,000 aggregate principal amount of
Handheld Entertainment, Inc. 8% Notes due 2008 (individually a “Note” and
collectively the “Notes”). Certain capitalized terms used herein are defined in
Section 7.
SECTION
1. Interest.
The
Company will pay interest in arrears on the Maturity Date. Interest on this
Note
will accrue daily at a rate of eight percent (8%) per annum from the date of
its
issuance set forth above and shall be compounded annually.
SECTION
2. Prepayment;
Extension.
(a) Upon
prior written notice to the Holder (a “Prepayment Notice”), this Note (including
interest accrued on the principal hereof) may be prepaid by the Company, at
any
time, in whole or in part, which prepayment shall be, except as expressly
provided in this Section 2, without penalty or premium (a “Prepayment”).
Prepayments shall be applied first to accrued and unpaid interest on this Note,
then to the unpaid principal amount of this Note. If the Company Prepays any
Notes, in whole or in part, then it must Prepay all of the Notes on a
pro
rata
basis.
(b) Each
Prepayment Notice shall set forth: (i) the date fixed for prepayment (the
“Redemption Date”), which must be at least five (5) days after the date of the
Prepayment Notice; and (ii) the amount of accrued and unpaid interest, as of
the
Redemption Date, per $1,000 principal amount of Notes to be prepaid pursuant
to
the Prepayment Notice
SECTION
3. Events
of Default Defined.
The
following shall each constitute an “Event of Default” hereunder:
(a) the
failure of the Company to make any payment of principal of or interest on this
Note when due;
(b) the
Company shall, (i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part
of
its property, (ii) be unable to, or admit in writing its inability, pay its
debts generally as they mature, (iii) make a general assignment for the benefit
of its or any of its creditors, (iv) be dissolved or liquidated, (v) commence
a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency
or
other similar law now or hereafter in effect or consent to any such relief
or to
the appointment of or taking possession of its property by any official in
an
involuntary case or other proceeding commenced against it, or (vi) take any
action for the purpose of effecting any of the foregoing;
(c) proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect shall
be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within 90 days of commencement;
(d) any
representation, warranty or certification made herein or pursuant hereto (or
in
any modification or supplement hereto) or under the Subscription Agreement
by
the Company was not true or correct in any material respect when
made;
(e) the
Company shall default in the performance of any of its obligations under, or
shall otherwise breach, any covenant in any agreement or instrument for borrowed
money in an aggregate amount in excess of $500,000, the effect of which causes
or permits any holder or holders of such agreement or instrument to cause such
borrowed money to be declared due and payable prior to its stated maturity
and
such holder or holders in fact declare such money due and payable;
and
(f) one
or
more judgments for the payment of money in any aggregate amount in excess of
$500,000 (to the extent not covered by insurance) shall be rendered against
the
Company and the same shall remain undischarged for a period of 90 days during
which execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to levy upon assets or properties of the Company
to
enforce such judgment.
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SECTION
4. Remedies
upon Event of Default.
(a) If
an
Event of Default occurs and is continuing for a period of 15 or more consecutive
days, the
holder or holders of Notes constituting a majority of the principal amount
of
Notes then outstanding (the
“Majority Noteholders”), by notice to the Company, may declare the unpaid
principal of and accrued interest on all the Notes then outstanding to be due
and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived (an “Acceleration”). Upon any
such declaration, such principal and accrued interest shall be due and payable
immediately. Majority Noteholders may rescind an Acceleration and its
consequences; provided, however, that no such rescission shall affect any
subsequent Default or impair any right consequent thereto.
(b) Majority
Noteholders may waive an existing Default or Event of Default and its
consequences. Upon any such waiver, such Default shall cease to exist and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Note; but no such waiver shall extend to any subsequent or
other
Default or impair any right consequent thereon.
(c) To
the
extent permitted by law, the remedies provided herein shall be exclusive of
any
other remedies now or hereafter existing at law or in equity or by statute
or
otherwise.
(d) In
any
suit for the enforcement of any right or remedy under this Note or the
Subscription Agreement, a court in its discretion may require the filing by
any
party litigant in the suit of an undertaking to pay the costs of the suit,
and
the court in its discretion may assess reasonable costs, including reasonable
attorneys’ fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party
litigant.
SECTION
5. Participation
in Qualified Offering.
If
the
Company enters into any private placement of equity securities or securities
convertible into equity securities while this Note is outstanding (a “Subsequent
Offering”), then the Company shall provide the Holder with notice (a “Subsequent
Offering Notice”) describing in reasonable detail the terms and pricing of such
Subsequent Offering.
(a) The
Holder shall have thirty (30) days from the date of the Subsequent Offering
Notice in which to provide the Company with irrevocable notice (a “Re-Start
Notice”) of Holder’s election to participate in such Subsequent Offering on the
same terms and conditions as the other investors therein, except that, in lieu
of paying a cash purchase price in the Subsequent Offering, the Holder shall
exchange this Note (a “Subsequent Offering Exchange”) for such securities as may
be purchased in the Subsequent Offering for a purchase price equal to the
principal and accrued interest on this Note as of the date of the Re-Start
Notice.
(b) If
any
Subsequent Offering raises gross proceeds in excess of $5,000,000, then the
Company shall promptly provide to each Holder who did not elect to participate
in such Subsequent Offering pursuant to Section 5(a) a notice (a “Pay-Off
Notice”) stating the amount of gross proceeds raised in such Subsequent Offering
and describing the Holder’s rights pursuant to Section 5(c).
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(c) The
Holder shall have up to thirty (30) days from the date of the Pay-Off Notice
in
which to provide the Company with irrevocable notice (a “Redemption Notice”) of
Holder’s election to have the entire principal and accrued interest on such
Holder’s Note prepaid (a “Subsequent Offering Prepayment”) in accordance with
Section 2. The Company shall prepay any Note with respect to which a Redemption
Notice is given on the date that is five (5) business days after the date of
such Redemption Notice (which shall be the “Redemption Date” for purposes of
Section 2).
SECTION
6. Lost,
Mutilated, etc. Note.
Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Note and of indemnity or bond
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of
this Note (in case of mutilation) the Company will make and deliver in lieu
of
this Note a new Note of like tenor and unpaid principal amount and dated as
of
the date to which interest has been paid on the unpaid principal amount of
this
Note in lieu of which such new Note is made and delivered.
SECTION
7. Certain
Definitions.
(a) “Maturity
Date” means June 27, 2008.
(b) “Registered
Holder,” with respect to any Note, shall mean the holder of record
thereof.
(c) “Subscription
Agreement” means the subscription agreement, dated as of June 27, 2007, between
the Company and the Holder.
(d) “Securities
Act” means the United Stated Securities Act of 1933, as amended.
SECTION
8. Miscellaneous.
(a) This
Note
may be amended only by mutual written agreement of the Company and the Holder
or, if such amendment shall apply to all outstanding Notes, with the written
consent of the Company and the Majority Holders. Furthermore, the Company may
take any action herein prohibited or omit to take any action herein required
to
be performed by it, and any breach of any covenant, agreement, warranty or
representation may be waived, if the Company has obtained the written consent
or
waiver of the Holder or, if such consent or waiver shall apply to all
outstanding Notes, the Majority Holders. Any amendments approved in compliance
with this Section 9 shall bind the Holder’s successors and assigns.
(b) Governing
Law.
This
Note shall be governed by, and construed in accordance with, the laws of the
State of New York, excluding the body of law relating to conflict of laws.
Notwithstanding anything to the contrary contained herein, in no event may
the
effective rate of interest collected or received by the Holder exceed that
which
may be charged, collected or received by the Holder under applicable
law.
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(c) Interpretation.
If any
term or provision of this Note shall be held invalid, illegal or unenforceable,
the validity of all other terms and provisions hereof shall in no way be
affected thereby.
(d) Successors
and Assigns.
Subject
to the restrictions on transfer contained herein, this Note shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of the Holder and its successors and registered assigns.
(e) Assignment
by the Holder.
This
Note and any of the rights, interests or obligations hereunder, may be assigned
at any time in whole or in part by the Holder, without the consent of the
Company, if the transferee is an “accredited investor” as defined in Regulation
D under the Securities Act and agrees to be bound by all of the provisions
of
the Note and the Subscription Agreement, including without limitation, making
representations and warranties identical to those of the Holder contained in
such documents but with respect to such transferee and as of the date of such
transfer.
(f) Assignment
by the Company.
Neither
this Note nor any of the rights, interests or obligations hereunder may be
assigned, by operation of law or otherwise, in whole or in part, by the Company
without the prior written consent of the Holder.
(g) Saturdays,
Sundays, Holidays.
If any
date that may at any time be specified in this Note as a date for the making
of
any payment of principal or interest under this Note shall fall on Saturday,
Sunday or on a day which in New York shall be a legal holiday, then the date
for
the making of that payment shall be the next subsequent day which is not a
Saturday, Sunday or legal holiday.
(h) Subscription
Agreement.
This
Note is subject to the terms contained in the Subscription Agreement and the
registered Holder of this Note is entitled to the benefits of such Subscription
Agreement to the extent provided therein. Each Holder, by such Holder’s
acceptance of this Note, agrees to be bound by the terms of the Subscription
Agreement.
[Signature
page follows immediately]
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IN
WITNESS WHEREOF, this 8% Note due 2008 has been executed and delivered on the
date first above written by the duly authorized representative of the
Company.
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By:
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Name:
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Title:
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