-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RtlLuhIKE3SCa010z+ha8TmY0AKiMwLcxjmvZ2vok3sijNM930sfCBGyPzDub96n DDm9QMfikU874P3T/14lVw== /in/edgar/work/20000817/0000948703-00-000008/0000948703-00-000008.txt : 20000922 0000948703-00-000008.hdr.sgml : 20000922 ACCESSION NUMBER: 0000948703-00-000008 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000809 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGAMES INC CENTRAL INDEX KEY: 0000948703 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 232694937 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-27102 FILM NUMBER: 704626 BUSINESS ADDRESS: STREET 1: 2000 CABOT BLVD STREET 2: SUITE 110 CITY: LANGHORNE STATE: PA ZIP: 19047-1833 BUSINESS PHONE: 2157506606 MAIL ADDRESS: STREET 1: 2000 CABOT BLVD SUITE 110 CITY: LANGHORNE STATE: PA ZIP: 19047-1833 8-K 1 0001.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 9, 2000 eGames, Inc. (Exact name of registrant as specified in its charter) Pennsylvania 0-27102 23-2694937 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 2000 Cabot Blvd. West, Suite 110, Langhorne, PA 19047-1833 ----------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 750-6606 ----------------------------------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events. On August 9, 2000, eGames, Inc. (the "Company") entered into an agreement with Summit Bank for a $2 million revolving credit facility that replaces an existing $1.5 million revolving credit facility with another commercial bank. The term of this credit facility extends through October 31, 2001, as described in the Loan Agreement, Security Agreement and Secured Line of Credit Note, attached hereto as Exhibits 99.1, 99.2 and 99.3, and incorporated herein by reference. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. a. None. b. None. c. Exhibits. 99.1 Loan Agreement 99.2 Security Agreement 99.3 Secured Line of Credit Note SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. eGames, Inc. By: /s/ Gerald W. Klein ------------------------------ Gerald W. Klein, President and Chief Executive Officer Dated: August 17, 2000 EX-99.1 2 0002.txt LOAN AGREEMENT EXHIBIT 99.1 LOAN AGREEMENT THIS LOAN AGREEMENT is made this 9th day of August, 2000, by and between SUMMIT BANK (Bank) and eGames, Inc., a Pennsylvania corporation (referred to herein as the Borrower). 1. DEFINITIONS. The terms set forth below shall be defined as follows: 1.1 Bank Address is: 7111 Valley Green Road, Fort Washington, PA 19034-2209. 1.2 Borrower is eGames, Inc., a Pennsylvania corporation. 1.3 Borrower Address is: 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047. 1.4 Collateral means all property (real, personal and mixed, tangible and intangible), assets or rights owned by Borrower, all of which have been pledged to secure the payment of the Obligations, whether now owned or existing or hereafter created or acquired and the cash and noncash proceeds thereof as the same is more fully described in that certain Security Agreement between the parties hereto of even date herewith. 1.5 Date of Agreement is August 9, 2000. 1.6 Event of Default means each and every event specified as such in Section 6 of this Agreement or in any Loan Document. 1.7 Loan Document(s) means any Loan Agreement, Note, Surety Agreement, Security Agreement, Mortgage or any other document heretofore, now or hereafter executed by or on behalf of Borrower to Bank, together with all modifications, extensions and/or renewals thereof. 1.8 Maturity Date shall have the meaning attributed to such term in the Notes (as hereinafter defined). 1.9 Obligations means all indebtedness, obligations and liabilities of Borrower to Bank of every kind and description, direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, including, but not limited to, any overdrafts, whether for payment or performance, now existing or hereafter arising, whether presently contemplated or not, regardless of how the same arise or by what instrument, agreement or book account they may be evidenced, or whether evidenced by any instrument, agreement or book account, including, but not limited to, all loans (including any loan by modification, renewal, extension or derivative transactions), all indebtedness, all undertakings to take or refrain from taking any action, all indebtedness, liabilities or obligations owing from Borrower to others which Bank may have obtained by purchase, negotiation, discount, assignment or otherwise; and all interest, taxes, fees, charges, expenses and reasonable attorney's fees (whether or not such attorney is a regularly salaried employee of Bank) chargeable to Borrower or incurred by Bank under this Agreement, or any other document or instrument delivered in connection herewith, therewith or in connection with any other loan between Bank and Borrower whether now existing or entered into at a later date. 1.10 Security Interest means any transaction which creates or provides for a lien or security interest by agreement in and to any Collateral or property of Borrower. To the extent not defined in Section 1, (or in any other Loan Documents), unless the context otherwise requires, all other terms contained in this Agreement shall have the meanings attributed to them by the Uniform Commercial Code in force in the Commonwealth of Pennsylvania (UCC), as of the Date of Agreement, to the extent that same are used or defined therein. To the extent not defined in Section 1, unless the context otherwise requires, all accounting terms in this Agreement shall be construed in accordance with generally accepted accounting principles (GAAP) as of the Date of Agreement, to the extent that same are used or defined herein. 2. COMMITMENTS 2.1 Subject to the terms and conditions of the Loan Documents, Bank agreed to lend to Borrower and Borrower agrees to borrow from Bank an aggregate amount at any one time outstanding not to exceed Two Million Dollars ($2,000,000.00) from the Date of Agreement to the Maturity Date (Loan-A). Within such limits, Borrower may borrow, repay and reborrow at any time or from time to time. Loan-A shall be evidenced by a Two Million Dollars ($2,000,000.00) Secured Line of Credit Note in favor of Bank (Note-A) and secured by a first priority security interest in all assets of Borrower. Borrower shall use the proceeds of Note-A for working capital and short term borrowing requirements. A commitment fee of Ten Thousand Dollars ($10,000.00) shall be due and payable by Borrower to Lender at the time of Closing. 3. REPRESENTATIONS AND WARRANTIES 3.1 Borrower represents and warrants to Bank, and such representations and warranties shall be continuing so long as any Obligations shall remain outstanding as follows: 3.1.1 Borrower: (i) has all necessary licenses, patents, trademarks, copyrights and permits to carry on and operate all of its properties; and (ii) has the power and authority to own the Collateral, to enter into and perform the Loan Documents and to incur the Obligations. Borrower has been duly incorporated and organized and is validly existing as a corporation, in good standing under the laws of the jurisdiction of incorporation and is duly qualified as a foreign corporation in those jurisdictions where the conduct of its business or the ownership of its properties requires qualification. 3.1.2 Borrower has not changed its name, form, identity or structure, been the surviving entity in a merger or acquired any business; or changed the location of the Equipment (as defined in the Security Agreement); or changed the location of its place of business or chief executive office or the location of its records with respect thereto or the location of any returns of inventory. 3.1.3 This Agreement and any Loan Documents constitute valid and legally binding Obligations of Borrower and are enforceable against Borrower in accordance with their respective terms. 3.1.4 Borrower has filed all Federal, state and local tax returns and other reports Borrower is required to file and has paid or made adequate provision for payment of all such taxes, assessments and other governmental charges. 3.1.5 All property owned or utilized by Borrower in the operation of its business is in compliance and will continue to be in compliance with all require- ments of all applicable environmental laws, including without limitation, the Pennsylvania Hazardous Sites Cleanup Act (Pa.Stat.Ann.tit.35 6070.101 et seq., as amended); the Pennsylvania Solid Waste Management Act (Pa.State.Ann.tit. 35 6018.101 etseq., as amended); the Pennsylvania Clean Streams Law (Pa.Stat.Ann.tit. 35 691.1 et seq., as amended); the Pennsylvania Storage Tank and Spill Prevention Act (Pa.Stat.Ann.tit. 35 6020.1 et seq.); the Hazardous and Solid Waste Amendments of 1984 Pub. L98-616 (42 U.S.C. 699 et seq., as amended); the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq., as amended) and the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq., as amended; (all such Federal, state, county, municipal or other laws, ordinances or regulations are hereinafter collectively referred to as the Environmental Laws). 3.1.6 The execution and performance of this Agreement and any Loan Document will not violate or result in a default or in the creation or imposition of any lien or encumbrance upon any of the assets, properties or property rights of Borrower (immediately, with the passage of time, or with the giving of notice and the passage of time) under any other contract, agreement, or instrument to which Borrower is a party or by which Borrower is bound, nor will it result in the acceleration of any obligation under any mortgage, lien, lease, franchise, license, permit, agreement, instrument, order, arbitration award, judgment or decree, or in the termination of any license, franchise, lease, or permit, to which Borrower is a party or by which it is bound; and it will not violate or conflict with any other restriction of any kind or character to which Borrower is subject. 3.1.7 Borrower incurs the Obligations herein from Bank for business purposes only and shall not incur the Obligations for personal, household or family purposes. 3.1.8 Except as disclosed on Schedule 3.1.8 attached hereto and made a part hereof, there is no claim, loss, infringement, contingency, litigation or proceeding pending, or, to Borrower's knowledge, threatened or imminent against or otherwise affecting Borrower that involves the possibility of any judgment or liability not fully covered by insurance or that may result in a material adverse change in the business, properties, prospects, operation or condition (financial or otherwise) of Borrower. 3.1.9 Borrower has complied in all material respects with all applicable statutes, regulations, ordinances, court decrees, or other directives of the United States of America and all states, counties, municipalities, and agencies with respect to the manufacture and sale of Borrower's goods, the rendition of Borrower's services and/or the conduct of Borrower's business; furthermore, Borrower has received no notice of any violation of applicable statutes, regulations, ordinances, court decrees, or other directives of the United States of America and all states, counties, municipalities, and agencies. 3.1.10 Borrower has heretofore delivered to Bank current financial statements, acceptable to Bank (as evidenced by Banks execution hereof), which were prepared by independent certified public accountants. The financial statements were true, correct and complete and were prepared in accordance with GAAP, consistently applied and present fairly the financial position and results of operations of Borrower as of the date of and for the period involved. The financial statements make full and adequate provision for all obligations, liabilities and commitments (fixed and contingent) of Borrower as of the date of the financial statements. Since the date of the financial statements, there has been no material adverse change in the business, prospects, operation or condition (financial or otherwise) of Borrower. 3.1.11 With respect to each Employee Benefit Plan maintained by Borrower, no Prohibited Transaction or Reportable Event (as defined in Title IV of the Employee Retirement Income Security Act of 1974, as amended) has occurred and is continuing; Borrower is not subject to a thirty (30) day notice to the Pension Benefit Guaranty Corporation, and Borrower will comply with the provisions of the Employee Retirement Income Security Act of 1974, as amended and the Internal Revenue Code of 1986, as amended, nor are there any unfunded obligations or liabilities. 3.1.12 Borrower is the owner of the Collateral free and clear of all Security Interests, encumbrances or liens, except liens which arise by operation of law with respect to Obligations of Borrower which are not yet due and payable; and Borrower will defend the Collateral against all claims and demands of all persons at any time claiming an interest therein. 3.1.13 To the best of Borrower's knowledge, Borrower is, and if Borrower makes future improvements subject to the following Borrower will be, in compliance with all requirements of the Americans With Disabilities Act of 1990, 42 U.S.C. 12101 et seq., including, but not limited to, those regulations promulgated by the Architectural and Transportation Barrier Compliance Board at 36 CFR 1191 et seq., and by the Department of Justice at 28 CFR 36 et seq. 3.1.14 The advent of the year 2000 has not and shall not adversely affect Borrower's operations or the performance of its information technology. Without limiting the generality of the foregoing, (i) the hardware and software utilized by Borrower are designed to be used prior to, during and after calendar year 2000 A.D. and such hardware and software will operate during each such time period without error relating to date data, specifically including any error relating to, or the conduct of, date data which represents or references different centuries or more than one century, (ii) the hardware and software utilized by Borrower will not abnormally end or provide invalid or incorrect results as a result of date data, and (iii) the hardware and software utilized by Borrower have been designed to ensure year 2000 A.D. compatibility, including date data, century recognition, leap year, calculations which accommodate same century and multi-century formulas and date values, and date data interface values that reflect the century. 4. GENERAL COVENANTS 4.1 Borrower covenants and agrees that so long as any obligations shall remain outstanding: 4.1.1 Borrower shall not permit any further mortgage, pledge, Security Interest in or lien or encumbrance upon any of the property, assets or rights of Borrower without the prior written consent of Bank which consent shall not be unreasonably withheld, conditioned or delayed. 4.1.2 Borrower shall not create any additional class of stock, declare a stock split or issue any stock divisions, warrants, debentures or convertible debentures without the written consent of Bank which shall not be unreasonably withheld, conditioned or delayed. 4.1.3 Borrower shall not merge or consolidate with or sell, assign, lease or otherwise transfer or dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, or ownership interests (whether now owned or hereafter acquired or arising) to, any person or entity, or acquire all or substantially all of the assets or the business of any person or entity without the prior written consent of Bank, which consent shall not be unreasonably withheld, conditioned or delayed. 4.1.4 Borrower shall not make loans, advances or investments, or become a surety or guarantor for any obligation of another without the prior written consent of Bank, which consent shall not be unreasonably withheld, conditioned or delayed. 4.1.5 Borrower shall continue to engage in an efficient and economical manner in a business of the same general type and manner as conducted by it on the Date of Agreement. 4.1.6 Borrower shall furnish to Bank: 4.1.6.1 Within ninety (90) days of the end of each fiscal year of Borrower, annual financial statements prepared at an audit level of opinion in accordance with GAAP, consistently applied, by an independent CPA reasonably acceptable to Bank; 4.1.6.2 Within ninety (90) days of the end of each fiscal year of Borrower, annual 10-KSB Reports; 4.1.6.3 Within forty five (45) days after the end of each fiscal quarter of Borrower, internally prepared 10-QSB Report including a Balance Sheet and Profit and Loss Statement, prepared in accordance with GAAP, consistently applied, and signed by Borrower's Chief Financial Officer. 4.1.6.4 Within forty five (45) days after the end of each fiscal quarter of Borrower, internally prepared financial statements, prepared in accordance with GAAP, consistently applied, and signed by Borrower's Chief Financial Officer. 4.1.6.5 Within thirty (30) days after the end of each fiscal quarter of Borrower, an accounts receivable aging report. 4.1.6.6 Promptly and in form satisfactory to Bank, such other information as Bank may reasonably request from time to time. 4.1.7 Comply with all present and future laws, rules and regulations applicable to either Borrower in the operation of its business and the ownership of Borrower's assets, and all material agreements to which Borrower is subject. 4.2 Borrower further covenants and agrees to: 4.2.1 Promptly notify Bank of any condition or event which constitutes, or would constitute with the passage of time or giving of notice or both, an Event of Default under this Agreement or any Loan Document and promptly inform Bank of any events or change in the financial condition of Borrower occurring since the date of the last financial statement of Borrower delivered to Bank, which individually or cumulatively, when viewed in light of prior financial statements, could result in a material adverse change in the business, properties, prospects, operation or condition (financial or otherwise) of Borrower; 4.2.2 Maintain in good standing Borrower's corporate existence in its jurisdiction of incorporation and its status as a foreign corporation qualified to do business in those jurisdictions where Borrower is currently or hereafter may be required to be qualified; 4.2.3 Pay or deposit promptly when due all sales, use, excise, personal property, licensing fees income, withholding, corporate, franchise and other taxes, assessments and governmental charges and, when requested by Bank, submit to Bank proof satisfactory to Bank that such payments and/or deposits have been made; 4.2.4 Maintain casualty insurance coverage with an insurance company on the Collateral in such amounts and of such types as may be requested by Bank, and in any event, as are ordinarily carried by similar businesses;and, in the case of all policies insuring property in which Bank shall have a Security Interest of any kind whatsoever, all such insurance policies shall provide that the proceeds thereof shall name Bank as loss payee and additional insured and shall be payable to Borrower and Bank, as their respective interests may appear; provided, however, that in the event of a casualty loss less than Fifty Thousand Dollars ($50,000.00), the proceeds shall be payable to Borrower. If the proceeds of a casualty loss exceed Fifty Thousand Dollars ($50,000.00), Bank shall retain the right, in its sole discretion, to apply said proceeds to the satisfaction of the Obligations. Borrower shall produce proof of payment of premiums for said insurance policies as Bank may reasonably request. All said policies or certificates thereof, including all endorsements thereof and those required hereunder, shall be deposited with Bank; and such policies shall contain provisions that no such insurance may be canceled or decreased or amended in such manner and to such extent as prudent business would dictate. If Borrower shall at any time or times hereafter fail to obtain and/or maintain any of the policies of insurance required herein, or fail to pay any premium in whole or in part relating to any such policies, Bank shall be notified within thirty (30) days of any such failure to obtain and/or maintain said policies of insurance or the failure to pay any premium when due, the Bank may, but shall not be obliged to, obtain and/or cause to be maintained insurance coverage with respect to the Collateral, including, at Bank's option, the coverage provided by all or any of the policies of Borrower and pay all or any part of the premium therefor, without waiving any Event of Default by Borrower, and any sums, including reasonable attorney fees, court costs, expenses and other charges related thereto, so disbursed by Bank shall be payable, on demand, by Borrower to Bank and shall be an additional Obligation; 4.2.5 Notify Bank in writing within ten (10) days, of any claim, litigation, action or proceeding filed or commenced by or against Borrower that could result in a material adverse change in the business, properties, prospects, operation or condition (financial or otherwise) of Borrower; 4.2.6 Permit Bank, at Borrower's expense, through Bank's authorized attorneys, accountants or representatives, to inspect the Collateral and inspect, examine and audit the books, accounts, records, ledgers and assets of every kind and description of Borrower with respect thereto at reasonable times and upon reasonable prior notice in a manner that does not unduly interfere with Borrower's business operations; and 4.2.7 At any time and from time to time upon request of Bank, execute and deliver to Bank, in form and substance satisfactory to Bank, such documents as Bank shall deem necessary or desirable to perfect or maintain perfected the Security Interest of Bank in the Collateral or which may be necessary to comply with the provisions of the laws of the Commonwealth of Pennsylvania or the laws of any other jurisdiction in which Borrower may then be conducting business or in which any of the Collateral may be located. 5. FINANCIAL COVENANTS 5.1 Borrower covenants and agrees that so long as any Obligations shall remain outstanding, Borrower shall: 5.1.1 From and after the Date of Agreement, Borrower shall maintain a Minimum Effective Net Worth (defined as GAAP Net Worth plus subordinated loans to shareholders, less intangible assets and any amounts due from shareholders or affiliated entities) of $3,100,000.00 as of June 30, 2000; $3,250,000.00 as of September 30, 2000, $3,400,000.00 as of December 31, 2000; $3,550,000.00 as of March 31, 2001; and $3,700,000.00 as of June 30, 2001 and at all times thereafter. 5.1.2 From and after the Date of Agreement, Borrower shall maintain Maximum Senior Debt to Effective Net Worth (defined as the ratio of total liabilities less subordinated loans to shareholders at a test date, divided by effective net worth as of the same test date) of no more than 1.50:1.00, tested on a quarterly basis. 5.1.3 From and after the Date of Agreement, Borrower shall maintain minimum working capital of $1,500,000.00, tested on a quarterly basis. 5.2 Borrower shall maintain its primary operating and deposit accounts with Bank while any funds are outstanding under the Loan. 6. EVENTS OF DEFAULT AND ACCELERATION 6.1 The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: 6.1.1 Failure to pay any principal, interest or any of the Obligations within five (5) days following the date the same became due; 6.1.2 Failure to perform or observe any covenant, term or agreement herein set forth or set forth in any Loan Document for a period of thirty (30) days following written notice from Bank unless the nature of such failure cannot reasonably be cured within such thirty (30) day period and Borrower diligently prosecutes a cure thereof, in which event Borrower shall have an additional thirty (30) days to cure such failure; 6.1.3 Any representation or warranty made or deemed made by the Borrower herein or in any Loan Document or which is contained in any certificate, document, opinion or other statement furnished now or at any time shall prove to be incorrect in any material respect on or as of the date made or deemed to be made; 6.1.4 Failure to pay or perform any Obligation of Borrower to Bank, whether by maturity or acceleration, set forth herein or in any Loan Document pursuant to the terms hereof or thereof; 6.1.5 A proceeding being filed or commenced against Borrower for dissolution or liquidation; or Borrower voluntarily or involuntarily terminating or dissolving or being terminated or dissolved; insolvency of Borrower, or Borrower fails to pay on their debts as they become due in the ordinary course of business; or a creditor's committee is appointed for the business of the Borrower, or Borrower makes an assignment for the benefit of creditors, or a petition in bankruptcy or for reorganization or to effect a plan of arrangement with creditors is filed by the Borrower; or Borrower applies for or permits the appointment of a receiver or trustee for any or all of its property, assets or rights, or any such receiver or trustee shall have been appointed for any or all of its property, assets or rights; or any of the above actions or proceedings whatsoever are commenced by or against any other party liable for the Obligations and, with respect to any such involuntary proceeding, the same is not dismissed or vacated within sixty (60) days and Borrower diligently pursues such dismissal and vacation during such sixty (60) day period; 6.1.6 Any attachments, liens or additional Security Interests being placed upon any of the Collateral without Bank's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; 6.1.7 Acquisition at any time or from time to time of title to the whole or any part of the Collateral by any person, partnership or corporation other than Borrower without Bank's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; 6.1.8 Any final judgment, order or decree rendered against Borrower exceeding $25,000 and remaining undischarged, unstayed or outstanding against Borrower for a period of thirty (30) days; 6.1.9 Any investigation undertaken by any governmental entity or if any indictment, charge or proceeding is filed or commenced, whether criminal or civil, pursuant to Federal or State law against Borrower for which forfeiture of any of the property or assets of Borrower or Surety is a penalty and remaining undischarged, unstayed or undismissed for a period of twenty (20) days; 6.1.10 Any Reportable Event occurs or if any Employee Benefit Plan is terminated or Bank reasonably believes that such plan may be terminated pursuant to and as defined in the Employee Retirement Income Security Act of 1974, as amended; 6.1.11 The occurrence of a material adverse change or occurrence in the business, properties, prospects, operation or condition (financial or otherwise) of Borrower; or 6.1.13 Any Event of Default shall occur under the terms of the Loan Documents or any loan between Bank and Borrower whether now existing or entered into at a later date. 6.2 If any Event of Default shall occur, then or at any time thereafter, while such Event of Default shall continue, Bank may declare all Obligations to be due and payable, without notice, protest, presentment, dishonor or demand, all of which are hereby expressly waived by Borrower and/or Surety. 7. RIGHTS AND REMEDIES Bank shall have the following rights and remedies at any time following an Event of Default: 7.1 Bank, and any officer or agent of Bank, is hereby constituted and appointed as true and lawful attorney-in-fact of Borrower with power upon Borrower's failure to do so within ten (10) days following written request or demand by Bank: 7.1.1 To endorse the name of Borrower upon any instrument of payment (including payments made under any policy of insurance) that may come into possession of Bank in full or in part payment of any Obligation; 7.1.2 To sign and endorse the name of Borrower upon any invoice, freight or express bill, bill of lading, storage or warehouse receipt, drafts against account debtors or other obligors; 7.1.3 To notify the post office authorities to change the address for delivery mail of Borrower to an address designated by Bank and to receive, open and dispose of all mail addressed to Borrower; 7.1.4 To sign the name of Borrower upon any Local, State or Federal agency information release form including, but not limited to, Tax Information Authorization Form 8821 of the Internal Revenue Service. 7.1.5 To sell, assign, sue for, collect or compromise payment of all or any part of the Collateral in the name of Borrower, or in its own name, or make any other disposition of Collateral, or any part thereof, which disposition may be for cash, credit or any combination thereof, and Bank may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may setoff the amount of such price against the Obligations; 7.1.6 Granting to Bank, as the attorney-in-fact of Borrower, full power of substitution and full power to do any and all things reasonably necessary to exercise its rights and remedies as fully and effectually as Borrower might or could do but for this appointment, and hereby ratifying all that said attorney-in-fact shall lawfully do or cause to be done by virtue hereof. Neither Bank nor its agents shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law in its capacity as such attorney-in-fact. This power of attorney is coupled with an interest and shall be irrevocable so long as any Obligations shall remain outstanding; and 7.1.7 To appraise or reappraise any property, assets or rights of Borrower, at Borrower's expense, in any Federally regulated transaction as defined under Title XI of the Financial Institution, Reform, Recovery and Enforcement Act of 1989 and such expense (whether or not such appraiser is a salaried employee of Bank) shall be part of the Obligations payable on demand. 7.2 Bank shall have the right to setoff, without notice to Borrower, any and all deposits or other sums at any time or times credited by or due from Bank to Borrower, whether in a special account or other account or represented by a certificate of deposit (whether or not matured) which deposits and other sums shall at all times constitute additional security for the Obligations and may be setoff against all or any part of the Obligations at any time. 7.3 Bank shall have, in addition to any other rights and remedies contained herein, and any Loan Document, all of the rights and remedies of a secured party under the Uniform Commercial Code in force in the Commonwealth of Pennsylvania, as of the Date of Agreement, and all rights and remedies available at law or in equity, all of which rights and remedies shall be cumulative, and nonexclusive, to the extent permitted by law. 7.4 Any notice required to be given by Bank of a sale or other disposition of the Collateral or other intended action by Bank made in accordance with the terms herein or any Loan Document at least ten (10) days prior to such proposed action, shall constitute fair and reasonable notice to Borrower of any such action. In the event that any of the Collateral is used in conjunction with any real estate, the sale of the Collateral in conjunction with and as one parcel with any such real estate of Borrower, shall be deemed to be a commercially reasonable manner of sale. The net proceeds realized by Bank upon any such sale or other disposition, after deduction of the expenses of retaking, holding, preparing for sale, selling or the like and reasonable attorneys' fees and any other expenses incurred by Bank, shall be applied toward satisfaction of the Obligations hereunder. Bank shall account to Borrower for any surplus realized upon such sale or other disposition and Borrower shall remain liable for any deficiency. The commencement of any action, legal or equitable, shall not affect the Security Interest of Bank in the Collateral until the Obligations hereunder or any judgment therefor are fully paid. 7.5 If at any time Bank determines that any applicable law, regulation, condition or directive, or the interpretation of any thereof, relating to capital adequacy (including, but not limited to, any request, guideline or policy, whether or not having the force of law and including but not limited to any regulation promulgated by the Board of Governors of the Federal Reserve System as now or from time to time hereafter in effect) by any authority charged with the administration or interpretation thereof, or any change in any of the foregoing, has or would have the effect of reducing the rate of return on Bank's capital as a consequence of Bank's obligations under this Agreement to a level below that which Bank would have achieved but for such law, regulation, condition, directive, interpretation or change (taking into consideration Bank's policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time Borrower shall pay to Bank on demand such additional amount(s) as will compensate Bank for such reduction. 7.5.1 Bank will promptly notify Borrower in writing of any event of which it has knowledge occurring after the date hereof, which will entitle Bank to compensation pursuant to Section 7.5. A certificate or notice from Bank claiming right of compensation under Section 7.5 and setting forth the additional amount(s) to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, Bank may use any reasonable averaging and attribution methods. 7.5.2 Borrower's failure to pay such additional amount(s) s following receipt of written notice as provided for in Section 7.5.1 above shall result in Borrower becoming liable for the difference between the actual return achieved and what Bank had expected to achieve and shall become a part of the Obligations herein secured by the Collateral. 8. GENERAL PROVISIONS 8.1 The failure of Bank at any time or times hereafter to require strict performance by Borrower of any of the provisions, warranties, terms and conditions contained herein or in any Loan Document shall not waive, affect or diminish any right of Bank at any time or times thereafter to demand strict performance thereof; and, no rights of Bank hereunder or in any Loan Document shall be deemed to have been waived by any act or knowledge of Bank, its agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an officer of Bank and directed to Borrower specifying such waiver. No waiver by Bank of any of its rights shall operate as a waiver of any other of its rights or any of its rights on a future occasion. 8.2 Any demand or notice required or permitted to be given hereunder or in any Loan Document shall be deemed effective when deposited in the United States mail, and sent by certified mail, return receipt requested, postage prepaid, or by nationally-recognized overnight courier providing proof of delivery, addressed as follows, or to such other address as may be provided by the party to be notified, on ten (10) days prior written notice to the other party: If to Borrower: eGames, Inc. 2000 Cabot Boulevard West Suite 110 Langhorne, PA 19047 Attn: Mr. Gerald W. Klein, President Copy to: McCausland, Keen & Buckman Radnor Court, Suite 160 259 Radnor-Chester Road Radnor, PA 19087 Attn: James G. Logue, Esquire If to Bank: Summit Bank 7111 Valley Green Road Fort Washington, Pa 19034-2209 Attn:David F.Ciccanti,Vice President Copy to: Jaffe, Friedman, Schuman, Sciolla, Nemeroff & Applebaum, P.C. 7848 Old York Road, Suite 200 Elkins Park, PA 19027 Attn: Gary Jaffe, Esquire 8.3 Any notice required to be given by Bank made in accordance with the terms herein or any Loan Document at least ten (10) days prior to such proposed action, shall constitute fair and reasonable notice to Borrower of any such action. 8.4 This Agreement and the Loan Documents contain the entire understanding between the parties hereto with respect to the transactions contemplated herein and such understanding shall not be modified except in writing signed by or on behalf of the parties hereto. 8.5 Borrower shall not hold Bank liable and shall indemnify Bank for any and all losses, damages and claims incurred due to any action or failure to act by Bank herein or under any Loan Document except as a result of Bank's gross negligence or willful misconduct. This provision shall survive the termination or expiration of this Agreement or any Loan Document. 8.6 Wherever possible, each provision herein or in any Loan Document shall be interpreted in such manner as to be effective and valid under applicable law; should any portion of this Agreement or any Loan Document be declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Agreement or any Loan Document, furthermore, the entirety of this Agreement or any Loan Document shall continue in full force and effect in all other jurisdictions and said remaining portions herein or in any Loan Document shall continue in full force and effect in the subject jurisdiction as if this Agreement or any Loan Document had been executed with the invalid portions thereof deleted. 8.7 In the event Bank seeks to take possession of any or all of the Collateral by court process, Borrower hereby irrevocably waives any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession and waives any demand for possession prior to the commencement of any suit or action to recover. 8.8 The provisions of this Agreement or any Loan Document shall be binding upon and shall inure to the benefit of the successors and assigns of Bank and Borrower; provided, however, Borrower may not assign any of its rights or delegate any of its Obligations hereunder or in any Loan Document without the prior written consent of Bank. 8.9 This Agreement or any Loan Document is and shall be deemed to be a contract entered into and made pursuant to the laws of the Commonwealth of Pennsylvania and shall, in all respects, be governed, construed, applied and enforced in accordance with such laws. 8.10 If, prior hereto and/or at any time or times hereafter, Bank shall employ counsel in connection with the execution and consummation of the transactions contemplated herein or in any Loan Document or to commence, defend or intervene, file a petition, complaint, answer, motion or other pleadings, or to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) relating to this Agreement or any Loan Document, or to enforce any rights of Bank hereunder, or in any Loan Document, whether before or after the occurrence of any Event of Default, or to collect any of the Obligations then, in any of such events, Borrower agrees to pay reasonable attorneys' fees (whether or not such attorney is a regularly salaried employee of Bank), and any expenses, costs and charges relating thereto, and such shall be part of the obligations payable on demand and secured by the Collateral. 8.11 With respect to all or any part of the Obligations, in the event that the Bank seeks to enter into a participation, intercreditor and/or assignment agreement, then Borrower hereby authorizes Bank to release all or part of any financial or credit information provided by Borrower to Bank to any other bank or financial institution with providing Borrower contemporaneous notice thereof. 8.12 Each reference herein or in any Loan Document to Bank shall be deemed to include its successors and assigns, and each reference to Borrower and any pronouns referring thereto as used herein shall be construed in the neuter, singular or plural as the context may require, and shall be deemed to include successors and assigns of Borrower, all of whom shall be bound by the provisions hereof or in any Loan Document. 8.13 The section headings herein are included for convenience only and shall not be deemed to be a part of this Agreement or any Loan Document. 8.14 This Agreement and the Loan Documents are intended to take effect as instruments under seal. 9. ASSIGNMENT BY BANK Bank may, from time to time, without notice to the Borrower, participate, sell, assign, transfer or otherwise dispose of all or any part of the Obligations and/or the Collateral therefor. In such event, each and every immediate and successive purchaser, assignee, transferee or holder of all or any part of the Obligations and/or the Collateral shall have the right to enforce this Agreement, by legal action or otherwise, for its own benefit as fully as if such purchaser, assignee, transferee or holder were herein by name specifically given such rights. Bank shall have an unimpaired right to enforce this Agreement for its benefit to that portion of the Obligations as Bank has not sold, assigned, transferred or otherwise disposed of. 10. WAIVER OF JURY TRIAL BORROWER WAIVES TRIAL BY JURY AND CONSENTS TO AND CONFERS PERSONAL JURISDICTION ON COURTS OF THE COMMONWEALTH OF PENNSYLVANIA OR OF THE FEDERAL GOVERNMENT LOCATED IN THE COMMONWEALTH OF PENNSYLVANIA, AND EXPRESSLY WAIVES ANY OBJECTIONS AS TO VENUE IN ANY OF SUCH COURTS, AND AGREES THAT SERVICE OF PROCESS MAY BE MADE ON BORROWER BY MAILING A COPY OF THE SUMMONS TO BORROWER OR SURETY AT BORROWER'S ADDRESS, BANK LIKEWISE WAIVES TRIAL BY JURY. ___TM____ __DC___ Initial Initial (Borrower) (Bank) 11. WARRANT OF ATTORNEY FOR CONFESSION OF JUDGMENT BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ANY CLERK OF ANY COURT OF RECORD UPON THE OCCURRENCE OF AN EVENT OF DEFAULT TO APPEAR FOR AND CONFESS JUDGMENT AGAINST BORROWER (A) FO SUCH OF THE OBLIGATIONS AS ARE DUE AND OWING AND/OR MAY BECOME DUE AND OWING AND/OR (B) IN ANY ACTION OF REPLEVIN INSTITUTED BY BANK TO OBTAIN POSSESSION OF ANY COLLATERAL SECURING ANY OF THE OBLIGATIONS, IN EITHER CASE WITH OR WITHOUT DECLARATION, WITH COSTS OF SUIT, WITHOUT STAY OF EXECUTION AND WITH REASONABLE ATTORNEYS' FEES ACTUALLY INCURRED, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER: (1) WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMN THE SAME, AUTHORIZE THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTION SAID VOLUNTARY CONDEMNATION AND AGREE THAT SAID REAL ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; (2) WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY, EXEMPTION OR APPEAL LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED; AND (3) RELEASES ALL ERRORS IN SUCH PROCEEDINGS. IF A COPY OF THIS AGREEMENT, VERIFIED BY AFFIDAVIT BY OR ON BEHALF OF BANK, SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL OF THIS AGREEMENT AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY THE INITIAL EXERCISE THEREOF, AND THE SAME MAY BE EXERCISED FROM TIME TO TIME, AS OFTEN AS BANK SHALL DEEM NECESSARY AND DESIRABLE, AND THIS AGREEMENT SHALL BE A SUFFICIENT WARRANT THEREFOR. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BANK MAY ENTER ONE OR MORE JUDGMENTS IN THE SAME OR DIFFERENT COUNTIES FOR ALL OR ANY PART OF THE OBLIGATIONS WITHOUT REGARD TO WHETHER JUDGMENT ENTERED AGAINST BORROWER HEREUNDER IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BORROWER'S BEHALF FOR ANY SUBSEQUENT ENTRY OR ENTRIES OF JUDGMENT BY BANK MAY ONLY BE DONE TO CURE ANY ERRORS IN PRIOR PROCEEDINGS, ONLY AND TO THE EXTENT THAT SUCH ERRORS ARE SUBJECT TO CURE IN LATER PROCEEDINGS. ___TM___ Initial (Borrower) 12. DAMAGES BORROWER AGREES THAT IN ANY ACTION, SUIT OR PROCEEDING, AND IN RESPECT OF OR ARISING OUT OF ANY LOAN DOCUMENT, BORROWER WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES. ___TM___ Initial (Borrower) 13. WAIVER OF AUTOMATIC STAY IN THE EVENT THAT A PROCEEDING UNDER ANY BANKRUPTCY OR INSOLVENCY LAW IS COMMENCED BY OR AGAINST BORROWER AND AN ORDER FOR RELIEF IS ENTERED AS A RESULT OF SUCH PETITION, BORROWER HEREBY CONSENTS TO RELIEF FROM THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. '362 TO ALLOW BANK TO EXERCISE ITS RIGHTS AND REMEDIES HEREUNDER WITH RESPECT TO THE COLLATERAL. __TM__ Initial (Borrower) 14. REPRESENTATION BY COUNSEL BORROWER ACKNOWLEDGES THAT BORROWER HAS BEEN REPRESENTED BY COUNSEL OF BORROWER'S OWN CHOICE AND KNOWINGLY AND VOLUNTARILY GRANTED TO LENDER THE RIGHTS SET FORTH IN PARAGRAPHS 10, 11, 12 AND 13 HEREOF. __TM___ Initial (Borrower) 15. CROSS-COLLATERAL AND CROSS- DEFAULT The Loan shall be cross defaulted and cross collateralized with all other loans from Bank to Borrower whether now existing or entered into at a later date. IN WITNESS WHEREOF, the parties hereto have set their hands and seals to this Loan Agreement the day and year first above written. eGames, Inc. Attest: /s/ Ellen Pulvar Flatt By:/s/ Thomas W. Murphy - ---------------------- --------------------- Thomas W. Murphy VP of Finance and CFO SUMMIT BANK /s/ Ellen Pulvar Flatt By:/s/ David F. Ciccanti - ---------------------- --------------------------------- Witness David F. Ciccanti, Vice President EX-99.2 3 0003.txt SECURITY AGREEMENT EXHIBIT 99.2 SECURITY AGREEMENT THIS SECURITY AGREEMENT dated as of August 9, 2000 by and between eGames, Inc., a Pennsylvania corporation with an address at 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047 (referred to herein as the Borrower), and SUMMIT BANK, a Pennsylvania state banking corporation maintaining offices at 7111 Valley Green Road, Fort Washington, PA 19034-2209 (hereinafter referred to as Lender). RECITALS A. The capitalized terms used in these Recitals and this Security Agreement shall have the meanings stated in Section 1 unless the context shall otherwise require. B. The Borrower has executed and delivered to the Lender: (i) a Loan Agreement; (ii) a note evidencing a line of credit loan to Borrower in the principal amount not to exceed Two Million Dollars ($2,000,000.00) (referred to herein as the Note), of even date herewith, and collateral documents pursuant thereto dated as of even date herewith. C. The Note and all collateral documents pursuant thereto (including but not limited to this Security Agreement) are collectively referred to as the Loan Documents. D. The Loan Documents are secured by, among other items, the accounts, accounts receivable, inventory, work in progress, equipment, furniture, fixtures and machinery owned by the Borrower. E. All of the requirements of law have been fully complied with and all other acts and things necessary to make this Security Agreement a valid, binding and legal instrument for the security of the Note have been done and performed. NOW, THEREFORE, in order to secure the payment of the principal of and interest and other charges on the Note according to its tenor and effect, and to secure the payment of all other indebtedness hereby secured and the performance and observance of all the covenants and conditions in the Note, in this Security Agreement and in the Loan Documents contained, and to declare the terms and conditions on which the Note is secured, the Borrower does hereby grant to the Lender, its successors and assigns, a security interest in and to the following described Properties (hereinafter sometimes referred to as the Collateral): Division I All furniture, fixtures, equipment, work in progress and inventory now owned or hereafter acquired by the Borrower with or without the use of borrowed funds and by way of replacement, renewal, substitution, addition or otherwise (the Equipment), together with all accessories, equipment, parts and appurtenances appertaining or attached to any of such Equipment, whether now owned or hereafter acquired, and all additions, improvements, accessions and accumulations to, any and all of said Equipment, together with all the proceeds, products, offspring, rent, issues, income, profits and avails thereof and there from. Division II All Chattel Paper now owned or hereafter acquired by the Borrower, including, but not limited to, all writings evidencing a monetary obligation and a security interest in all leases of specific goods and all Chattel Paper. When a transaction is evidenced either or both by a security agreement and/or lease of personal property and by instrument or series of instruments, such group of writings individually or taken together constitutes Chattel Paper. Division III All General Intangibles now owned or hereafter acquired by the Borrower, including, but not limited to, chooses in action, contract rights, licensing agreements, royalty payments, corporate or other business records (including without limitation customer lists, tenant lists, correspondence, advertising materials, computer programs, printouts and other computer materials and records), inventions, designs, copyrights, logos, patents and patent applications, and the inventions and improvements described and claimed therein, trademarks, trademark applications, service marks, registered service marks and service mark applications, together with the goodwill connected with and symbolized by any of the foregoing, trade names, secrets, registrations, licenses, sublicenses, permits, franchises, warranties, rights and claims against third parties including carriers and shippers, rights to indemnification (including tax and liability indemnifications), leasehold and subleasehold interest in personal property, plans, specifications, drawings, appraisals, reports, security interests and security held by or granted to the Borrower, tax refunds, tax refund claims, awards resulting from claims arising from adverse condemnation proceedings, royalty and product rights, rights to the retrieval from third parties of electronically processed and recorded data pertaining to any Collateral, partnership and joint venture interests, goodwill, whether or not associated with any of the foregoing. Division IV All instruments, including, without limitation, all drafts, checks, certificates of deposit, notes, bills of exchange, certificated securities, uncertificated securities and all other writings which evidence a right to the payment of money by delivery with any necessary endorsement or assignment and all of the documents of title issued by field warehousemen now owned or hereafter acquired by the Borrower. Division V All Accounts, Accounts Receivable, royalty and licensing payments, Deposits and Deposit Accounts whether now owned or hereafter acquired by the Borrower however arising including, but not limited to, those Accounts and Accounts Receivable by or resulting from the sale, financing or lease of Inventory or Equipment or arising by reason of goods sold, financed or leased or arising by reason of the performance of services. Division VI To the extent related to any Property described in Divisions I through V above, all books, correspondence, credit files, records, invoices, bills of lading and other computer runs and other papers and documents in the possession or control of the Borrower or any computer bureau service agency or other representative from time to time acting for the Borrower and to the extent related to any Property described in Divisions I through V above and payments under any policies of insurance including claims of rights to payments thereunder and proceeds therefrom. Division VII All proceeds, rents or profits, issues, income and avails of the Collateral including but not limited to cash and insurance proceeds. Division VIII All products and offspring of the Collateral. The Loan Agreement between Borrower and Lender contains a negative pledge restricting Borrower's rights to grant junior security interests in the collateral described herein. The security interests granted pursuant hereto are intended to be both first priority security interests as such term is defined in Article 9 of the Uniform Commercial Code as of the date hereof, and, to the extent applicable, a first priority post-petition security interest as such term is defined in 11 USC '552(b) should Borrower file for relief pursuant to the Bankruptcy Code. SECTION 1. DEFINITIONS AND OTHER PROVISIONS. The following terms shall have the following meanings for all purposes of this Security Agreement: Accounts and Accounts Receivable, Chattel Paper, Documents, Equipment, General Intangible, Goods, Instruments and Inventory shall have the meanings set forth in the Uniform Commercial Code of Pennsylvania. Borrower shall mean eGames, Inc., a Pennsylvania corporation and any individual, partnership, firm, not-for-profit corporation or corporations which succeeds thereto by merger or consolidation or which acquires all or substantially all of the assets thereof. Collateral shall have the meaning stated in the Granting Clauses of this Security Agreement, or such broader definition as may be provided for under the Uniform Commercial Code as enacted and then in effect in the Commonwealth of Pennsylvania. Default shall mean the occurrence and continuance of an Event of Default or an event which, after notice or lapse of time or both, would become an Event of Default under any of the Loan Documents. Default Rate shall mean the Default Rate as defined in the Note. Equipment shall have the meaning stated in the Granting Clauses of this Security Agreement. Event of Default shall mean any event specified as such herein or in the Loan Documents. Event of Loss with respect to any Collateral shall mean either: (1) the total loss of such Collateral, which shall include damage to an extent that in the sole reasonable judgment of the Lender the repair of such Collateral is rendered impractical or uneconomical, or (2) the theft, disappearance, condemnation, confiscation or seizure of, or requisition of title to or use of, such Collateral. Indebtedness Hereby Secured shall mean the indebtedness evidenced by the Note and/or the Loan Documents and by the other documents executed pursuant thereto, or pursuant to any other loan between Lender and Borrower whether now existing or entered into at a later date, together with all principal thereof and interest and all additional amounts and other sums at any time due and owing from or required to be paid by the Borrower to Lender, under the terms of the Note, this Security Agreement, the other Security Documents, or the Loan Documents, and any extensions, renewals or modifications thereof or other document evidencing a loan from Lender to Borrower whether now existing or entered into at a later date. Lien shall mean a security interest, mortgage, lien, charge, encumbrance on, or pledge of, the Collateral, other than Permitted Encumbrances or the security interest created by this Security Agreement. Loan Document(s) means any Loan Agreement, Note, Surety Agreement, Security Agreement, Mortgage or any other document heretofore, now or hereafter executed by or on behalf of Borrower to Lender, together with all modifications, extensions and/or renewals thereof. Officer's Certificate means a certificate of the Borrower signed by the President or any Vice President of the Borrower. Payment Date means any date on which a payment of principal or interest is due on the Note. Permitted Encumbrance shall mean purchase money security interests and finance leases as such term is defined in the Uniform Commercial Code and consented to by Lender. Property or Properties shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Security Agreement means this Security Agreement (including the Schedules, if any,) as amended or modified from time to time. Any capitalized terms used herein and not defined herein shall have the meaning attributed to such term in the Loan Documents. SECTION 2. COVENANTS AND WARRANTIES OF THE BORROWER. The Borrower represents, covenants, warrants and agrees for the benefit of the Lender as follows: Section 2.1. Borrower's Performance of Loan Documents, Security Documents, Etc. Each and all of the terms, provisions, restrictions, covenants, representations and agreements set forth in the Loan Documents, the Note and all other security documents, and in each and every supplement thereto or amendment thereof which may at any time or from time to time be executed and delivered by the parties thereto or their successors and assigns, including, but not limited to, any document evidencing a loan to Borrower from Lender whether now existing or entered into at a later date, are incorporated herein by reference to the same extent as though each and all of said terms, provisions, restrictions, covenants and agreements were fully set out herein. The Borrower does hereby covenant and agree well and truly to abide by, perform and be governed and restricted by each and all of the matters provided for by the Loan Documents, the Note and each other security document or other documents issued pursuant to the Loan Documents so incorporated herein to the same extent and with the same force and effect as if each and all of said terms, provisions, restrictions, covenants, representations, warranties and agreements so incorporated herein by reference were set out and repeated herein at length. Without limiting the foregoing, the Borrower covenants and agrees to pay all taxes, assessments and governmental charges or levies imposed upon this Security Agreement or the Note or any other Indebtedness Secured Hereby. Section 2.2. Warranty of Title. The Borrower has good and valid title to, and is in possession of, the Collateral, free of Liens (except for Permitted Encumbrances) and has, and covenants that it will continue to have, full power and lawful authority to grant a security interest in the Collateral to the Lender for the uses and purposes herein set forth. The Borrower will warrant and defend the title to the Collateral against all claims and demands of all Persons whomsoever and howsoever arising. There is no financing statement in which the Borrower is named, or which the Borrower has signed, as debtor, on file on the date of this Security Agreement in any public office covering any of the Collateral except as required or contemplated by the Loan Documents and this Security Agreement and financing statement with respect to indebtedness of Borrower that will be satisfied with a portion of the proceeds of the Loan. Section 2.3. Further Assurances. The Borrower will, at its own expense, do, execute, acknowledge and deliver all and every further act, deed, conveyance, transfer and assurance necessary or proper for the perfection of the security interest herein provided for in the Collateral, whether now owned or hereafter acquired. Section 2.4. After-acquired Property. Except as otherwise permitted pursuant to the Loan Documents any and all Property described or referred to in the granting clauses of this Security Agreement which is hereafter acquired shall without any further conveyance, assignment or act on the part of the Borrower or the Lender become and be subject to this Security Agreement as though specifically described herein. Section 2.5. Recordation and Filing. The Borrower will cooperate with Lender and cause this Security Agreement and all financing and continuation statements at all times to be kept recorded, registered and filed at its own expense in such manner and in such places as may be required by law in order to preserve and protect the rights of the Lender hereunder, and the Borrower will record, register and file all financing and continuation statements which are necessary to preserve and protect the rights of the Lender as a first priority secured creditor under this Security Agreement as supplemented to the same extent provided on the date of this Security Agreement and will re-record, register or re-file this Security Agreement, each supplemental security agreement and continuation statements prior to the final maturity date of the Note in order to preserve and protect the rights of the Lender. Section 2.6. Payment of Indebtedness. The Borrower is justly indebted to the Lender for the full amount of the Note, and the Borrower will promptly pay the Note and the other Indebtedness Hereby Secured as and when the same or any part thereof becomes due (subject to applicable grace and notice periods, whether by lapse of time, declaration, acceleration, demand or otherwise). Section 2.7. Payment of Taxes. The Borrower will from time to time duly pay and discharge all taxes, assessments, levies, fees and other governmental charges imposed on the Collateral or any part thereof; provided that the Borrower shall have the right to contest in good faith, by an appropriate proceeding promptly initiated and diligently conducted, the validity, amount or imposition of any such tax, assessment or charge, and upon such good faith contest to delay or refuse payment thereof, if (a) the Borrower establishes adequate reserves to cover such contested taxes, assessments or charges, if and to the extent required under generally accepted accounting principles, and (b) such contest does not have a material adverse effect on the financial condition of the Borrower, the ability of the Borrower to make the payments due on the Note or the priority or value of the Lender's security interest in the Collateral. Section 2.8. Restrictions on Liens. (a) Negative Pledge. Except and limited to the Liens created hereby, Permitted Encumbrances, or otherwise consented to in advance and in writing by Lender, the Borrower shall not create, incur, assume or suffer to exist any liens on the Collateral or the interests of the Borrower therein and will discharge and keep the Collateral free of any mortgage, pledge, lien charge, encumbrance or claim on or with respect to the Collateral or title to any thereof or any interest therein. (b) Lender's Rights to Cure. The Lender may, but shall not be obligated to, upon the occurrence of a Default or an Event of Default with or without the prior written consent of the Borrower at its option, discharge any taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance and preservation of the Collateral including the purchasing of insurance therefore and the Borrower will immediately reimburse the Lender on demand for any payment made or any expenses incurred by the Lender pursuant to the foregoing authority with interest at the Default Rate. All such expenses and payments shall have the benefit of and be secured by the security interest herein granted. Section 2.9. Maintenance. (a) Maintenance. The Borrower will, at its own expense, maintain, service, clean and repair the Collateral in accordance with sound business practices and to the same extent as the Borrower would in the prudent management of its properties, maintain, service, clean and repair similar equipment owned by the Borrower and in any event to the extent required to maintain such Collateral in good operating condition and in compliance with (i) all manufacturers' or other warranty covering the Collateral and (ii) any applicable requirements of law or of any governmental authority having jurisdiction (ordinary wear and tear excepted). The Borrower shall not permit the Collateral to be used or operated in violation of (1) any law or any rule, regulation or order or any governmental authority having jurisdiction; or (2) the terms of any insurance policy in effect with respect to such Collateral; or (3) any applicable manufacturer's or other warranty covering the Collateral. The Borrower shall use the Collateral only for business or commercial purposes. In addition, the Borrower covenants that it will not permit the Collateral to be used for purposes other than their intended purposes or in such capacities which exceed the design capacities of such Collateral, and further covenants to maintain the Collateral in such condition as to keep the manufacturers' warranties with respect to the Collateral in full force and effect. (b) Replacement of Parts. The Borrower will, at its own cost and expense and in accordance with prudent management and sound business practices, promptly replace all parts (including all appurtenances, accessories, furnishings and other equipment of whatever nature) which may from time to time be incorporated or installed in or attached to the Collateral and which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever. All replacement parts shall be free and clear of all Liens, and shall be in as good operating condition as, and shall have a value, utility and useful life at least equal to, the parts replaced, it being assumed for this purpose that such replaced parts were in the condition and repair required to be maintained by the terms hereof. Section 2.10. Insurance. (a) Insurance Against Loss or Damage. Borrower shall maintain casualty insurance coverage with an insurance company on the Collateral in such amounts and of such types as may be requested by Lender, and in any event, as are ordinarily carried by similar businesses; and, in the case of all policies insuring property in which Lender shall have a Security Interest of any kind whatsoever, all such insurance policies shall provide that the proceeds thereof shall name Lender as loss payee and additional insured and shall be payable to Borrower and Lender, as their respective interests may appear; provided, however, that in the event of a casualty loss less than Fifty Thousand Dollars ($50,000.00), the proceeds shall be payable to Borrower. If the proceeds of a casualty loss exceed Fifty Thousand Dollars ($50,000.00), Lender shall retain the right, in its sole discretion, to apply said proceeds to the satisfaction of the Obligations. Borrower shall produce proof of payment of premiums for said insurance policies as Lender may reasonably request. All said policies or certificates thereof, including all endorsements thereof and those required hereunder, shall be deposited with Lender; and such policies shall contain provisions that no such insurance may be canceled or decreased or amended in such manner and to such extent as prudent business would dictate. If Borrower shall at any time or times hereafter fail to obtain and/or maintain any of the policies of insurance required herein, or fail to pay any premium in whole or in part relating to any such policies, Lender shall be notified within thirty (30) days of any such failure to obtain and/or maintain said policies of insurance or the failure to pay any premium when due, the Lender may, but shall not be obliged to, obtain and/or cause to be maintained insurance coverage with respect to the Collateral, including, at Lender's option, the coverage provided by all or any of the policies of Borrower and pay all or any part of the premium therefore, without waiving any Event of Default by Borrower, and any sums, including reasonable attorney fees, court costs, expenses and other charges related thereto, so disbursed by Lender shall be payable, on demand, by Borrower to Lender and shall be an additional Obligation; (b) Insurance Against Public Liability and Property Damage. The Borrower will maintain in effect, with insurers reasonably satisfactory to the Lender, insurance with respect to Public Liability and Property Damage which it would, in the prudent management of its operations, maintain; provided, however, that in no event shall the insurance maintained in accordance with this subsection 2.10 (b) be less than $2,000,000 under a single limit liability for each loss; and provided, further, that such insurance may provide for a deductible amount not to exceed $5,000.00. The Borrower shall cause the insurers with whom it maintains such insurance to advise the Lender in writing promptly of any default in the payment of any premiums or any other act or omission on the part of the Borrower of which they have knowledge and which might invalidate or render unenforceable, in whole or in part, any such insurance. The Borrower shall also cause such insurers to advise the Lender in writing, at least thirty (30) days prior thereto, of the expiration or termination of any such insurance. Section 2.11. Indemnification; Waiver of Offset. (a) If the Lender is made a party defendant to any litigation commenced by a third party concerning this Security Agreement, any other security documents or the Collateral or any part thereof or interest therein, then the Borrower shall indemnify, defend and hold the Lender harmless from any and all liability by reason of said litigation, including reasonable attorneys' fees and expenses incurred by the Lender in any such litigation, whether or not such litigation is prosecuted to judgment. (b) The Borrower waives any and all right to claim or recover against the Lender, its officers, employees, agents and representatives, for loss of or damage to the Borrower, the Collateral, the Borrower's Property or the Property of others under the Borrower's control from any cause insured against pursuant to policies maintained by Borrower. (c) All sums payable by the Borrower hereunder and under the Note shall be paid without notice, demand, counterclaim (other than compulsory counterclaims), set-off, deduction or defense (other than defense of payment) and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of the Borrower hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of: (1) any damage to or destruction of or any condemnation or similar taking of the Collateral or any part thereof; (ii) any restriction or prevention of or interference with any use of the Collateral or any part thereof; (iii) any title defect or encumbrance on the Collateral or any part thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to the Lender, or any action taken with respect to this Security Agreement by any trustee or receiver of the Lender, or by any court, in any such proceeding; (v) any claim which the Borrower has or might have against the Lender; (vi) any default or failure on the part of the Lender to perform or comply with any of the terms hereof or of any other agreement with the Borrower; or (vii) any other occurrence whatsoever, whether similar or dissimilar to the foregoing; whether or not the Borrower shall have notice or knowledge of any of the foregoing. Except as expressly provided herein, the Borrower waives all rights now or hereafter conferred by statute or otherwise to any abatement, suspension, deferment, diminution or reduction of any of the indebtedness hereby secured and payable by the Borrower. Section 2.12. Chief Place of Business/Corporate Name. (a) The Borrower's principal place of business and chief executive office is located at 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047. The Borrower may not change such location without thirty (30) days prior notice to Lender. (b) The Borrower will not do business under any name other than eGames, Inc., a Pennsylvania corporation without prior notice to the Lender. Section 2.13. Location of Collateral. (a) Location. The Borrower will not move any Collateral outside of the Commonwealth of Pennsylvania without thirty (30) days prior notice to Lender other than in connection with the sale of inventory in the ordinary course of Borrower's business. Should any Collateral be located at any location other than Borrower's principal place of business, Borrower shall notify Lender within ten (10) days following such change of location. (b) Collateral Not Part of Realty. The parties hereto intend that the Collateral is and shall at all times be and remain personal property under the law of any state wherein the Collateral may be located from time to time, and each of them agrees that it will not take any action which would cause the Collateral or any part thereof to be, or to be deemed to be, real property or an accession to real property under the laws of the state wherein the Collateral may be located from time to time, or real estate under the Federal bankruptcy laws. SECTION 3. POSSESSION, USE AND RELEASE OF COLLATERAL. Section 3.1. Possession of the Collateral. The Borrower, so long as no Event of Default has occurred and is continuing, shall be suffered and permitted to remain in full possession, enjoyment and control of the Collateral, and to manage, operate and use the same and each part thereof with the rights and franchises appertaining thereto; provided, however, always, that the possession, enjoyment, control and use of the Collateral shall at all times be under and subject to this Security Agreement. SECTION 4. DEFAULTS AND REMEDIES. Section 4.1. Events of Default. The Borrower acknowledges and agrees that each and all of the terms and provisions of the Loan Documents, including, but not limited to, provisions relating to Events of Default and remedies of Lender, have been and are incorporated into this Security Agreement by reference to the same extent as though fully set forth herein. Furthermore, this Agreement shall be cross-defaulted with the Note, each and every Loan Document and with all other Loan Facilities between Borrower and Lender, whether now existing or entered into at a later date. Section 4.2. Lender's Additional Rights. Upon an Event of Default, the Lender shall, without limitation of any other rights and remedies available pursuant to the Loan Documents, at law or in equity, have the rights, options, duties and remedies of a secured party, and the Borrower shall have the rights and duties of a debtor, under the Uniform Commercial Code of Pennsylvania, and, without limiting the generality of the foregoing, may exercise any one or more or all, and in any order, of the remedies hereinafter set forth: (a) The Lender may, by notice to the Borrower, declare the entire unpaid principal of the outstanding Note to be immediately due and payable; and thereupon all such unpaid principal, together with accrued interest thereon and premium, if any, shall be and become immediately due and payable; (b) The Lender shall have the right (subject to compliance with any applicable mandatory legal requirements) to take immediate possession of the Collateral, or any portion thereof, and for that purpose may pursue the same wherever it may be found, and may enter any of the premises of the Borrower with or without notice, demand, process of law or legal procedure, and search for, take possession of, remove, keep and store the same, or use and operate or lease the same until sold and may otherwise exercise any and all of the rights and powers of the Borrower in respect thereof; (c) The Lender may, if at the time such action may be lawful and always subject to compliance with any mandatory legal requirements, either with or without taking possession and either before or after taking possession, and without instituting any legal proceedings whatsoever, and having first given notice of such sale by registered or certified mail to the Borrower once at least 10 days prior to the date of such sale, or such other notice which may be required by law if said 10 days notice is insufficient, sell and dispose of the Collateral, or any part thereof, at public auction or private sale to the highest bidder, in one lot as an entirety or in separate lots, and either for cash or on credit and on such terms as the Lender may determine, and at any place (whether or not it be the location of the Collateral or any part thereof) designated in the notice above referred to; and any such sale or sales may be adjourned from time to time by announcement at the time and place appointed for such sale or sales, or for any such adjourned sale or sales, without further notice, and the Lender may bid and become the purchaser at any such sale; and (d) The Lender may proceed to protect and enforce this Security Agreement, any other security document, the Loan Documents or the Note by confession of judgment, suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement herein contained or in execution or in aid of any power herein granted; confession of judgment; or for foreclosure hereunder, or for the appointment of a receiver or receivers for the Collateral or any part thereof, or for the recovery of judgment for the Indebtedness Hereby Secured or for the enforcement of any other proper, legal or equitable remedy available under applicable law. Section 4.3. Waiver of Benefit of Laws by Borrower. To the extent now or at any time hereafter enforceable under applicable law, the Borrower covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of, any stay or extension law now or at any time hereinafter in force, nor claim, take nor insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisement of the Collateral or any part thereof, prior to any sale or sales thereof to be made pursuant hereto, or to the decree, judgment or order of any court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the Collateral so sold or any part thereof, and hereby expressly waives for itself and on behalf of each and every person, except decree or judgment creditors of the Borrower acquiring any interest in or title to the Collateral or any part thereof subsequent to the date of this Security Agreement, all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to the Lender, but will suffer and permit the execution of every such power as though no such law or laws had been made or enacted. Any sale, whether under any power of sale herein given or by virtue of judicial proceedings (including, but not limited to, sales pursuant to a judgment obtained by confession), shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of the Borrower in and to the Collateral sold, and shall be a perpetual bar, both at law and in equity, against the Borrower, its successors and assigns, and against any and all Persons claiming the Collateral sold or any part thereof, under, by or through the Borrower. BORROWER AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY. ____TM____ ___DC___ Initial Initial (Borrower) (Lender) Section 4.4. Effect of Discontinuance of Proceedings. In case the Lender shall have proceeded to enforce any right under this Security Agreement by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every such case the Borrower and the Lender shall be restored to their respective former positions, and their respective rights hereunder with respect to the property subject to the lien of this Security Agreement. Section 4.5. Application of Sale Proceeds. The purchase money proceeds of any sale of all or any portion of the Collateral and the proceeds of any remedy exercised hereunder, together with any other moneys then held by the Lender hereunder as part of the Collateral, shall be applied as follows: (a) To the payment of costs and expenses of foreclosure or suit, if any, and of all proper expenses, liability and advances, including reasonable legal expenses and attorneys' and paralegal fees, incurred or made hereunder by the Lender and of all taxes, assessments or Liens superior to the security interest hereof, except any taxes, assessments or other superior Liens subject to which said sale may have been made; (b) To the payment of the whole amount then due, owing and unpaid upon the outstanding balance of the Note for principal and interest; and in case such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon the outstanding Note, then ratably according to the aggregate of such principal and the accrued and unpaid interest with application on the outstanding Note to be made, first, to the unpaid interest thereof and second, to unpaid principal thereof and premium thereon; such application to be made upon presentation of the Note, and the notation thereon of the payment, if partially paid, or the surrender and cancellation thereof, if fully paid; and (c) To the payment of the surplus, if any, to the Borrower or to the person, persons or entities lawfully entitled to receive the same. Section 4.6. Cumulative Remedies. No delay or omission of the Lender to exercise any remedy arising from any Event of Default, shall exhaust or impair any such remedy or prevent its exercise during the continuance of such Event of Default. No remedy hereunder is intended to be exclusive of any other remedy but each and every remedy shall be cumulative and in addition to any and every other remedy given hereunder or otherwise existing; nor shall the giving, taking or enforcement of any other or additional security, collateral or guaranty for the payment of the indebtedness hereby secured operate to prejudice, waive or affect the security of this Security Agreement or any rights, powers or remedies hereunder, nor shall the Lender be required to first look to, enforce or exhaust such other or additional security, collateral or guaranty. SECTION 5. MISCELLANEOUS. Section 5.1. Successors and Assigns. Whenever any of the parties hereto is referred to such reference shall be deemed to include the successors and assigns of such party and all the covenants, promises and agreements in this Security Agreement contained by or on behalf of the Borrower or by or on behalf of the Lender shall bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not. Section 5.2. Amendment and Waiver. This Security Agreement may be amended, and the observance of any term of this Security Agreement may be waived only by written instrument signed by the parties hereto. Section 5.3. Partial Invalidity. The unenforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. Section 5.4. Communications. All communications provided for herein shall be given in accordance with the Loan Agreement. Section 5.5. Discharge. The Lender shall release this Security Agreement by proper instrument or instruments upon presentation of satisfactory evidence that all indebtedness hereby secured has been fully paid and discharged. Section 5.6. Counterparts. This Security Agreement may be executed and delivered in any number of counterparts, each counterpart constituting an original, but together being only one Security Agreement. Section 5.7. Governing Law. This Security Agreement and the Note shall be construed in accordance with and governed by the internal laws (without regard to any choice of law provisions) and decisions of the Commonwealth of Pennsylvania. The Borrower consents to the jurisdiction of legal process within the Court of Common Pleas of Bucks County and the Federal District Court for the Eastern District of Pennsylvania. Section 5.8. Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the Borrower and the Lender have caused this Security Agreement to be executed all as of the date first above written. eGames, Inc. Attest: /s/ Ellen Pulvar Flatt By: /s/ Thomas W. Murphy - ---------------------- --------------------- Thomas W. Murphy VP of Finance and CFO SUMMIT BANK /s/ Ellen Pulvar Flatt By: /s/ David F. Ciccanti - ---------------------- --------------------------------- Witness David F. Ciccanti, Vice President EX-99.3 4 0004.txt SECURED LINE OF CREDIT NOTE EXHIBIT 99.3 SECURED LINE OF CREDIT NOTE $2,000,000.00 August 9, 2000 FOR VALUE RECEIVED, eGames, Inc., a Pennsylvania corporation with an address at 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047 (referred to herein as the Borrower), promises to pay to the order of SUMMIT BANK, with an office at 7111 Valley Green Road, Fort Washington, PA 19034-2209 (the Lender), at such office of Lender or at such other place as Lender may designate from time to time in writing, the principal sum of TWO MILLION ($2,000,000.00) DOLLARS lawful money of the United States of America, or, if less, the outstanding principal balance on all loans and advances made by Lender hereunder, together with interest thereon from the date of each advance at the rates hereinafter provided, and both payable as hereinafter provided. 1. Interest. (a) The principal sum outstanding from time to time hereunder shall bear interest at a floating rate equal to the Prime Rate (as hereinafter defined) plus one-half of one percent (.50%). A Prime Rate refers to the commercial lending rate of interest per annum as fixed from time to time by the management of Lender at its main office and designated as its "Prime Rate" whether or not such rate is published or otherwise made known to Borrower. The interest rate shall change automatically as of the effective date of each change in the Prime Rate. When the Prime Rate changes on a day other than the first day of a calendar month, interest for the month in which such change or changes are made shall be calculated on a per diem basis with the various Prime Rates in effect for that month plus one-half of one percent (.50%). (b) Notwithstanding anything to the contrary contained herein, the effective rate of interest hereunder shall not exceed the maximum effective rate of interest permitted by applicable law or regulation. Borrower hereby agrees to give Lender written notice in the event Borrower has actual knowledge that any interest payment made to Lender with respect to this Note will cause the total interest payments collected in any one year to be usurious under applicable law, and Lender hereby agrees not to collect knowingly any interest from Borrower in the form of fees or otherwise which will render the Loan usurious and agrees to give Borrower written notice in the event Lender has actual knowledge that any interest payment made to Lender with respect to this Note will cause the total interest payments collected in any one year to be usurious under applicable law. In the event that such interest would be usurious in Lender's opinion, Lender reserves the right to reduce the interest payable by Borrower. This provision shall survive the repayment of this Note. (c) The annual interest rate shall be calculated on the basis of 365/366 day years over the actual number of days elapsed. 2. Payments of Principal and Interest. (a) Commencing on September 1, 2000, and continuing on the first day of each successive calendar month until October 31, 2001 (the Advance Period), Borrower shall make monthly installments of interest as accrued on the unpaid principal balance due hereunder, calculated in accordance with the provisions of paragraph 1(a), above. (b) Absent an Event of Default, the entire unpaid principal sum then outstanding together with all accrued and unpaid interest and other charges shall become immediately due and payable without further notice or demand on October 31, 2001 (the Maturity Date) and no further advances shall be made subsequent to the Maturity Date, unless extended or renewed by Lender, in its sole discretion. 3. Line of Credit Advances. (a) Subject to the terms and conditions and relying upon the representations and warranties set forth in this Note and the other Loan Documents pertaining thereto, the Lender agrees to make loans (the Line of Credit Loan) to Borrower at any time or from time to time during the Advance Period in an aggregate principal amount not exceeding TWO MILLION ($2,000,000.00) DOLLARS (Line of Credit Loan Limit) at any one time outstanding in order to support working capital and short-term borrowing needs of Borrower. Within the limits of time and amount set forth in this Section 3, and subject to the provisions of this Note, including, without limitation, the Lenders right to demand repayment of the Line of Credit Loan upon the occurrence of an Event of Default, the Borrower may borrow, repay (without premium or penalty) and reborrow in any amount or amounts subject to the maximum amount of availability under this credit facility. Borrower shall submit to Lender a Borrowing Base Certificate, in form and substance reasonably satisfactory to Lender, at the time of each request for an advance under the Line of Credit Loan. 4. Prepayments. (a) Any prepayment shall be applied first to any accrued and unpaid interest hereunder to the date of such prepayment, then to any other sums which may be payable to Lender under the Loan Documents (as hereinafter defined), up to the date of such prepayment and then to the principal sum hereunder. The acceptance of any such prepayment when there is an Event of Default in existence hereunder shall not constitute a waiver, release or accord and satisfaction thereof or of any rights with respect thereto by Lender. 5. Collateral and Loan Documents. This Note, and the due performance by Borrower of all of its obligations hereunder, is evidenced and secured by: (a) a Security Agreement, (b) UCC-1 Financing Statements, (c) a Loan Agreement; and (d) all collateral documents pursuant thereto or hereto, including but not limited to, instruments of pledge, mortgage, assignment, transfer or delivery, as well as any and all related agreements, instruments and public filings which are referred to collectively as the Loan Documents. Any collateral securing any of Borrower's obligations under any of the Loan Documents are hereinafter referred to collectively as the Collateral. 6. Late Charge. In the event that any payment of principal or interest due to Lender hereunder shall not be paid within ten (10) calendar days after the due date, in addition to and not in limitation of any other rights or remedies which Lender may have in respect thereof under any of the Loan Documents or in respect of any Collateral, Borrower shall pay Lender on demand a late charge computed at the rate of five cents ($.05) for each dollar (or part thereof) of the amount not paid, to cover the extra expense and inconvenience to Lender ensuring payment of such delinquent amount. Borrower acknowledges that its failure to pay any amount due hereunder promptly within ten (10) calendar days when due will result in Lender incurring additional expense in servicing the loan evidenced by this Note, the loss of the use of the money due and frustration to Lender in meeting its loan commitments, that the damages to Lender in connection with such late payment are extremely difficult and impractical to ascertain, and that a sum equal to five cents ($.05) for each dollar which is not paid when due is a reasonable estimate of the damages incurred by Lender in connection with any such late payment. The amount of any such late charge not paid promptly following demand therefor shall be deemed outstanding and payable pursuant to this Note. 7. Events of Default. The occurrence of an Event of Default under the Loan Agreement or the Loan Documents shall constitute an Event of Default hereunder. 8. Remedies. Upon the occurrence of any Event of Default, then the entire unpaid principal sum hereunder plus all interest accrued thereon plus all other sums due and payable to Lender under the Loan Documents shall, at the option of Lender, become due and payable immediately without presentment, demand, notice of nonpayment, protest, notice of protest or other notice of dishonor, all of which are hereby expressly waived by Borrower unless and except to the extent any such notice is specifically provided for herein. In addition to the foregoing, upon the occurrence of any Event of Default Lender may forthwith exercise singly, concurrently, successively or otherwise any and all rights and remedies available to Lender under any of the Loan Documents or with respect to any Collateral, or available to Lender by law, equity, statute or otherwise. 9. CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ANY CLERK OF ANY COURT OF RECORD UPON THE OCCURRENCE OF AN EVENT OF DEFAULT TO APPEAR FOR AND CONFESS JUDGMENT AGAINST BORROWER (A) FOR SUCH OF THE OBLIGATIONS AS ARE DUE AND OWING AND/OR MAY BECOME DUE AND OWING AND/OR (B) IN ANY ACTION OF REPLEVIN INSTITUTED BY LENDER TO OBTAIN POSSESSION OF ANY COLLATERAL SECURING ANY OF THE OBLIGATIONS, IN EITHER CASE WITH OR WITHOUT DECLARATION, WITH COSTS OF SUIT, WITHOUT STAY OF EXECUTION AND WITH REASONABLE ATTORNEYS' FEES ACTUALLY INCURRED, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER: (1) WAIVES THE RIGHT OF INQUISITION ON ANY REAL ESTATE LEVIED ON, VOLUNTARILY CONDEMN THE SAME, AUTHORIZE THE PROTHONOTARY OR CLERK TO ENTER UPON THE WRIT OF EXECUTION SAID VOLUNTARY CONDEMNATION AND AGREE THAT SAID REAL ESTATE MAY BE SOLD ON A WRIT OF EXECUTION; (2) WAIVES AND RELEASES ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY, EXEMPTION OR APPEAL LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED; AND (3) RELEASES ALL ERRORS IN SUCH PROCEEDINGS. IF A COPY OF THIS AGREEMENT, VERIFIED BY AFFIDAVIT BY OR ON BEHALF OF LENDER, SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL OF THIS AGREEMENT AS A WARRANT OF ATTORNEY. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY THE INITIAL EXERCISE THEREOF, AND THE SAME MAY BE EXERCISED FROM TIME TO TIME, AS OFTEN AS LENDER SHALL DEEM NECESSARY AND DESIRABLE, AND THIS AGREEMENT SHALL BE A SUFFICIENT WARRANT THEREFOR. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LENDER MAY ENTER ONE OR MORE JUDGMENTS IN THE SAME OR DIFFERENT COUNTIES FOR ALL OR ANY PART OF THE OBLIGATIONS WITHOUT REGARD TO WHETHER JUDGMENT ENTERED AGAINST BORROWER HEREUNDER IS STRICKEN OR OPENED UPON APPLICATION BY OR ON BORROWER'S BEHALF FOR ANY SUBSEQUENT ENTRY OR ENTRIES OF JUDGMENT BY LENDER MAY ONLY BE DONE TO CURE ANY ERRORS IN PRIOR PROCEEDINGS, ONLY AND TO THE EXTENT THAT SUCH ERRORS ARE SUBJECT TO CURE IN LATER PROCEEDINGS. ___TM____ Initial (Borrower) 10. Remedies Cumulative, etc. (a) No right or remedy conferred upon or reserved to Lender under any of the Loan Documents, or with respect to any Collateral, now or hereafter existing at law or in equity or by statute or other legislative enactment, is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and concurrent, and shall be in addition to every other such right or remedy, and may be pursued singly, concurrently, successively or otherwise, at the sole discretion of Lender, and shall not be exhausted by any one exercise thereof but may be exercised as often as occasion therefor shall occur. No act of Lender shall be deemed or construed as an election to proceed under any one such right or remedy to the exclusion of any other such right or remedy; furthermore, each such right or remedy of Lender shall be separate, distinct and cumulative and none shall be given effect to the exclusion of any other. The failure to exercise or delay in exercising any such right or remedy, or the failure to insist upon strict performance of any term of any of the Loan Documents, shall not be construed as a waiver or release of the same, or of any Event of Default thereunder, or of any obligation or liability of Borrower thereunder. (b) The recovery of any judgment by Lender and/or the levy of execution under any judgment upon any Collateral shall not affect in any manner or to any extent the security interest under the Security Agreement in such Collateral, or any rights, remedies or powers of Lender under any of the Loan Documents or with respect to any Collateral, but such lien and such security interest, and such rights, remedies and power of Lender shall continue unimpaired as before. Further, the exercise by Lender of its rights and remedies and the entry of any judgment by Lender shall not affect in any way the interest rate payable hereunder or under any of the other Loan Documents or any amounts due to Lender but interest shall continue to accrue on such amounts at the Default Rate (as hereinafter defined). (c) Unless and except to the extent notice is specifically provided for herein, Borrower hereby waives presentment, demand, notice of nonpayment, protest, notice of protest or other notice of dishonor, and any and all other notices in connection with any Event of Default in the payment of, or any enforcement of the payment of, all amounts due under the Loan Documents. To the extent permitted by law, Borrower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. Borrower further waives and releases all procedural errors, defects and imperfections in any proceedings instituted by Lender under the terms of any Loan Document or with respect to any Collateral. (d) Borrower agrees that Lender may release, compromise, forbear with respect to, waive, suspend, extend or renew any of the terms of the Loan Documents (and Borrower hereby waives any notice of any of the foregoing), and that the Loan Documents may be amended, supplemented or modified by Lender and the other signatory parties and that Lender may resort to any Collateral in such order and manner as it may think fit, or accept the assignment, substitution, exchange, pledge, or release of all or any portion of any Collateral, for such consideration, or none, as it may require, without in any way affecting the validity of any liens over or other security interest in the remainder of any such Collateral (or the priority thereof or the position of any subordinate holder of any lien or other security interest with respect thereto); and any action taken by Lender pursuant to the foregoing shall in no way be construed as a waiver or release of any right or remedy of Lender, or of any Event of Default, or of any liability or obligation of the Borrower, under any of the Loan Documents. (e) Borrower agrees that any action or proceeding against it to enforce this Note may be commenced in state or federal court or in any county in the Commonwealth of Pennsylvania in which Lender or subsequent note holder has an office, and Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served if served by registered or certified mail in accordance with the notice provisions set forth herein and Borrower expressly waives any and all defenses to an exercise of personal jurisdiction by any such court. 11. Default Rate. To the extent permitted by law, whenever there is an Event of Default under this Note, or non-payment upon demand, the rate on the unpaid principal balance shall, at the option of Lender, be three (3%) percent per annum in excess of the interest rate set forth in paragraph 1(a) hereof ("Default Rate"). Borrower acknowledges that: (i) such additional rate is a material inducement to Lender to make the loan evidenced by this Note; (ii) Lender would not have made the loan evidenced by this Note in the absence of the agreement of the Borrower to pay such additional rate upon an Event of Default; (iii) such additional rate represents compensation for increased risk to Lender that this Note will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (a) the cost to Lender in allocating its resources (both personnel and financial) to the on-going review, monitoring, administration (following an Event of Default) and collection of the loan evidenced by this Note and (b) compensation to Lender for losses that are difficult to ascertain. 12. Costs and Expenses. Borrower shall pay upon demand all reasonable costs and expenses (including all reasonable amounts paid to attorneys, accountants, real estate brokers and other advisors employed by Lender) incurred by Lender in the preparation, revision or extension of the Loan Documents and exercise of any of its rights, remedies or powers under any of the Loan Documents or with respect to any Collateral with respect to such Event of Default (including but not limited to such sums incurred by Lender after Borrower has filed a Petition in Bankruptcy), and any amount thereof not paid promptly following demand therefor shall be added to the principal sum hereunder and shall bear interest at the Default Rate from the date of such demand until paid in full, and shall be secured by the Collateral. In connection with, and as part of the foregoing, in the event that any of the Loan Documents is placed in the hands of an attorney for the collection of any sum payable thereunder, Borrower agrees to pay reasonable attorneys' fees for the collection of the amount being claimed under the Loan Document, as well as all costs, disbursements and allowances provided by law, the payment of which sums shall be secured by the Collateral. Nothing in this Paragraph 12 shall limit the obligation of Borrower to pay any and all costs and expenses for which Borrower is otherwise liable under any of the Loan Documents. 13. Severability. In the event that for any reason one or more of the provisions of this Note or their application to any person or circumstance shall be held to be invalid, illegal or unenforceable in any respect or to any extent, such provisions shall nevertheless remain valid, legal and enforceable in all such other respects and to such extent as may be permissible. In addition, any such invalidity, illegality or unenforceability shall not affect any other provisions of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. Successors and Assigns. This Note inures to the benefit of Lender and binds Borrower, and their respective successors and assigns, and the words Lender and Borrower whenever occurring herein shall be deemed and construed to include such respective successors and assigns. 15. Definitions; Number and Gender. In the event Borrower consists of more than one person or entity, the obligations and liabilities hereunder of each such persons and entities shall be joint and several and the word Borrower shall mean all or some or any of them. For purposes of this Note, the singular shall be deemed to include the plural and the neuter shall be deemed to include the masculine and feminine, as the context may require. The references herein to the Loan Documents or any one of them shall include any supplements to or any amendments of or restatements of such Loan Documents or any one of them. 16. Incorporation by Reference. All of the terms and provisions of the Loan Documents, to the extent not inconsistent herewith, are hereby incorporated herein by reference. 17. Captions. The captions or headings of the paragraphs in this Note are for convenience only and shall not control or affect the meaning or construction of any of the terms or provisions of this Note. 18. Governing Law. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 19. Waiver of Right to Jury Trial. BORROWER AND LENDER, KNOWINGLY AND WITH FULL CONSENT, DO HEREBY WAIVE AND RELEASE ALL RIGHTS TO A JURY TRIAL. ____TM____ ___DC___ Initial Initial (Borrower) (Lender) 20. Damages. BORROWER AND LENDER AGREE THAT IN ANY ACTION, SUIT OR PROCEEDING, AND IN RESPECT OF OR ARISING OUT OF THIS NOTE, OR ANY DOCUMENT RELATING TO THIS LOAN TRANSACTION, EACH WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES. ____TM____ ___DC___ Initial Initial (Borrower) (Lender) 21. Waiver of Automatic Stay. IN THE EVENT THAT A PROCEEDING UNDER ANY BANKRUPTCY OR INSOLVENCY LAW IS COMMENCED BY OR AGAINST BORROWER AND AN ORDER FOR RELIEF IS ENTERED AS A RESULT OF SUCH PETITION, BORROWER HEREBY CONSENTS TO RELIEF FROM THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. '362 TO ALLOW LENDER TO EXERCISE ITS RIGHTS AND REMEDIES HEREUNDER WITH RESPECT TO THE BORROWER'S PROPERTY. ____TM____ Initial (Borrower) 22. Representation by Counsel. BORROWER ACKNOWLEDGES THAT BORROWER HAS BEEN REPRESENTED BY COUNSEL OF BORROWER'S OWN CHOICE AND KNOWINGLY AND VOLUNTARILY GRANTED TO LENDER THE RIGHTS SET FORTH HEREIN INCLUDING BUT NOT LIMITED TO THE RIGHTS SET FORTH IN PARAGRAPHS 9, 19, 20 AND 21 HEREOF. ____TM____ Initial (Borrower) 23. Cross-Collateral and Cross-Default.This Note shall be cross defaulted and cross collateralized with all other loans from Bank to Borrower whether now existing or entered into at a later date. Any Event of Default hereunder shall constitute an Event of Default under any and all other credit facilities by and between Borrower and Lender whether now existing or hereafter entered into and any and all Collateral shall be available to satisfy the hereunder or thereunder. IN WITNESS WHEREOF, Borrower has set its hand and seal to this Note the day and year first above written. eGames, Inc. Attest: /s/ Ellen Pulvar Flatt By: /s/Thomas W. Murphy - ---------------------- ------------------------- Thomas W. Murphy VP of Finance and CFO THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION. ____TM____ Initial (Borrower) -----END PRIVACY-ENHANCED MESSAGE-----