0001193125-11-300007.txt : 20111107 0001193125-11-300007.hdr.sgml : 20111107 20111107170806 ACCESSION NUMBER: 0001193125-11-300007 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 78 FILED AS OF DATE: 20111107 DATE AS OF CHANGE: 20111107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERTAINMENT GAMES, INC. CENTRAL INDEX KEY: 0000948703 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 232694937 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-27102 FILM NUMBER: 111185394 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 FORMER COMPANY: FORMER CONFORMED NAME: EGAMES INC DATE OF NAME CHANGE: 19990209 10-12G 1 d244335d1012g.htm FORM 10 Form 10
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

 

 

ENTERTAINMENT GAMES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Pennsylvania   23-2694937

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2000 Cabot Boulevard West

Suite 110

Langhorne, PA 19047

(Address of principal executive offices)

215-750-6606

(Registrant’s telephone number,

including area code)

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class to   Name of each exchange on which
Be so registered   Each class is to be registered
NONE  

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock

(title of class)

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer    ¨   Accelerated filer   ¨
  Non-Accelerated filer    ¨ (Do not check if a smaller reporting company)   Smaller reporting company   x

 

 

 


Table of Contents

Table of Contents

   Pages  

Item 1. Business

     3   

Item 1A. Risk Factors

     8   

Item 2. Financial Information

     14   

Item 3. Properties

     26   

Item 4. Security Ownership of Certain Beneficial Owners and Management

     26   

Item 5. Directors and Executive Officers

     27   

Item 6. Executive Compensation

     30   

Item 7. Certain Relationships and Related Transactions, and Director Independence

     34   

Item 8. Legal Proceedings

     34   

Item  9. Market for Common Equity, Related Stockholder Matters and Purchases of Equity Securities

     34   

Item 10. Recent Sales of Unregistered Securities

     36   

Item 11. Description of Registrant’s Securities to Be Registered

     37   

Item 12. Indemnification of Directors and Officers

     37   

Item 13. Financial Statements and Supplementary Data

     39   

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     62   

Item 15. Financial Statements and Exhibits

     62   

 

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ITEM 1. BUSINESS

The Company

Entertainment Games, Inc., a Pennsylvania corporation, was incorporated in 1992. We have never been in bankruptcy, receivership, or similar proceeding. Our name was originally Rom Tech, Inc., and in March 1999, we changed the name to eGames, Inc. In August 2011, we changed our name to Entertainment Games, Inc. to more clearly reflect our commitment to developing innovative games for rapidly emerging social game platforms, including Facebook, Google +, tablets and mobile devices.

Unless the context requires otherwise, the words, “Entertainment Games,” “we,” “us,” “our” and “Company,” refer to Entertainment Games, Inc.

Overview

Entertainment Games has been developing, publishing and selling games across all platforms for almost 20 years. Entertainment Games has published hundreds of titles, which have been focused on the family friendly market. While the overall videogame market shows healthy growth, our revenues continue to decline due to continually shifting consumer behavior away from the traditional retail distribution channels for videogames to the digital distribution of videogames either on the Internet, social platforms or mobile devices. Consequently, in June 2011, we acquired Heyday Games, Inc., or Heyday Games, to allow us to more aggressively participate in the fastest growing segment of the video game market: social games. Through this acquisition, we have acquired talent, technology and our social network game, Retro World. Retro World is an innovative game which targets the 40+ age demographic that we expect to launch in the second quarter of our 2012 fiscal year. With our focus on this new direction, we intend to leverage Heyday Games’ expertise, to seek to deliver relevant content to the 40+ demographic, and enter the exponentially growing social game industry.

Recent Acquisition

Entertainment Games acquired Heyday Games, Inc. in June 2011. Heyday Games, Inc., or Heyday Games, was a Delaware corporation incorporated in 2011 to publish game content tailored specifically for the over 40 demographic. We believe that this demographic’s generational tastes are being ignored on today’s social networks, open web, and burgeoning mobile game markets. The “Heyday Platform” is a proprietary game engine used to develop episodic adventure-game style content. The “Heyday Process” is a proprietary development process that can take any form of nostalgic, linear content—for example a classic retro TV show—and transform it into a 2.5D photo-realistic interactive game experience. We recently filed a patent for the “Heyday Process,” which we believe can produce substantial savings in time and cost in comparison to today’s widespread methods of producing interactive animated videogames.

As a result of the Heyday Games acquisition, we have benefited by:

 

   

Expanding our reach into social games;

 

   

Acquiring an experienced team of social gaming product development experts;

 

   

Owning the Heyday Platform and Heyday Process;

 

   

Acquiring Heyday Games’ marketing and promotion expertise for the Heyday Games’ products under development; and

 

   

Being positioned to introduce new forms of content derived from the Heyday Games acquisition to the large retailers to which we historically sold our packaged casual games.

We expect to launch Retro World, a story-driven, retro-based virtual world initially featuring original IP, during our fiscal 2012 second quarter ending December 31, 2011. We plan to follow this with licensed productions in partnership with media companies. We intend to use well known retro-based linear licensed content and turn these

 

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properties into interactive social game experiences. Eventually original IP will be presented along with licensed IP within Retro World.

Business

Since our founding, we have focused on publishing casual software games for the PC platform, selling our greatest volume of PC games in major mass-merchant retail stores in North America. We now publish primarily third-party PC game titles and some of our own proprietary PC game titles, which are distributed at retail and on the Internet. We have also developed titles for the Nintendo DS™ and Wii® gaming systems and have published games for the Apple iPhone™, which are sold in the iTunes™ store.

Historically, we have published hundreds of videogame titles that have proven to be very popular among adult women, and to a lesser degree men. For the past several years, we have been experiencing the effects of the industry-wide decline in the traditional retail casual gaming industry.

Principal Products

Packaged Goods At Retail

We continue to license casual game content from third party developers for retail sales, packaging our products in boxes and jewel cases for distribution to retailers throughout North America at outlets including Wal-Mart, Target, Best Buy, office superstores and others. Examples of casual game genres we license and/or develop include: hidden object, match three, time management, cards, casino, puzzle and board games. Some of our most successful original titles include Burger Island and Satisfashion, and our top-selling bundled titles include Hidden Gems and Fast Food Frenzy.

Social Games

Retro World

We are currently developing the game Retro World, a story-driven, virtual world featuring original intellectual property. Retro World blends enduring adventure and role-playing game play with addictive mini-games, all set in decade-driven environments. Players will create their own alter-egos (or Avatars) and will choose a decade to explore (the 1950’s, 1960’s, 1970’s or 1980’s) by use of a stylish world map. Within these decades, will be distinct and separate stories or shows that players can select using a decade map motif. Similar to the way television networks have delivered popular television shows, Retro World shows will be delivered episodically. Each episode will be its own self-contained adventure game consisting of compelling stories and characters, interactive puzzles and problem-solving, and addicting casual mini-game play. These mini-games can be played repeatedly via the Gameatorium, an easy-access repository for all games the player has unlocked during gameplay.

All imagery in Retro World will employ a proprietary 2.5D photo-realistic, multi-plane art style. All images in the game will be derived from photographs—authentic photographs from the specific eras—including magazine ads, retail catalogs, stock imagery and licensed celebrity imagery.

Surprise celebrity character images have been licensed for inclusion in Retro World stories. To date, we have secured the rights to feature images of Marilyn Monroe, John Belushi and Elvis Presley in Retro World episodes. However, we intend to have a surprise twist to the casting of the celebrities by recasting them in, new, out-of-character roles. For example, while players may expect Marilyn Monroe to be a glamorous starlet, she will instead be cast in an unexpected role, such as a local school teacher, and Elvis Presley, complete with cape and diamond glasses, may be cast as an undercover policeman working the streets, rather than a rock star. We believe that these celebrity appearances will serve as strong viral hooks.

Retro World players will have many avenues for personalization and self-expression. Players can create and customize for both personal satisfaction and, if they so choose, to share their achievements, creations, memories,

 

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and opinions with their friends, including owning homes to decorate and cars to accessorize. There will be a recognition system for earning achievements in the game, in the form of collectible badges.

Retro World and the other products in the Retro World line will all be free-to-play. Revenues will be generated through the sale of virtual goods, advertising, premium sponsorship and subscriptions that allow easy access to new content.

Retro World is scheduled to launch during our fiscal 2012 second quarter ending December 31, 2011. It will be a living product that will continuously evolve and grow, with new content expected to be delivered episodically every four to six weeks.

Future Products

Applying the Heyday Process to licensed historical content will allow us to take any familiar linear content and turn it into an interactive game. We plan to license popular TV show content from past decades and employ them into the Heyday Process in an entirely new way. Players will not only rediscover their favorite old TV shows, they will be able to become a part of them, controlling the stories, embarking on quests and playing fun and addictive casual mini-games that will be integrated into the episodes of the original shows.

In the future, we also plan to license content from movies, cartoons, soap operas and sports games to use in the Heyday Platform.

Markets

Since the inception of the Internet, the way people use, communicate and socialize on the Internet has continued to evolve. Interactive games have always been a leading activity on the Internet but they are even more so today, even exceeding the time spent on email. During the past decade, social networks, primarily Facebook, have become the dominant social network platform, enabling people to connect online, share information and share experiences with their families and friends. According to a global research study among 2800 internet users from Insites Consulting, there were close to one billion users of social networks in 2010 and over one billion users in 2011. In July 2011, according to Facebook, it had over 750 million active users. We believe that it is likely that the global market for cross-platform social games will continue to expand rapidly as more people use social networks and mobile devices. Millions will discover for the first time the addictive fun and ease of use of online games, games that can not only be played alone, but with friends all over the world.

The 40+ demographic is among the fastest growing user groups of Internet, social networks, social games and mobile devices, and its members spend more money online than many of the younger demographics combined. Our new social game lineup will specifically target this demographic, combining familiar imagery, music and stories with highly interactive adventure and casual game dynamics. Retro World, and the entire Retro World line of products, will be distinguishable from all other games in the social game marketplace because they will target the rapidly expanding, yet underserved, boomer demographic, allowing them to relive the excitement of their “heydays.”

Distribution

Our box and jewel case products are distributed primarily by third party distributors to retailers throughout North America, including Wal-Mart, Target Stores, Best Buy, the office superstores and others.

Retro World and the Retro World line of products will be distributed on social networks, mobile platforms such as iOS and Google Android, and the open web. We expect to use established online marketing and advertising strategies to acquire new users on social networks, namely Facebook.

 

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Competition

We face significant competition in every aspect of our business. The vast majority of our competitors, most notably Zynga, possess far greater resources then we do. Today, the social game sector is intensely competitive and is evolving rapidly. We will compete against other social game developers for the leisure time, attention and discretionary spending of players. Competitive factors include the quality of player experience, brand awareness, reputation, access to distribution channels and the financial resources for marketing. Based on these factors, we believe we have the ability to compete favorably. However, our competitors may develop more compelling or better marketed content, which could adversely affect our ability to retain current players and attract new players. Better funded competitors, including companies of which we may be currently unaware, might take better advantage of social networks then we could with our limited resources.

We face competition from other game developers for social networks such as Facebook, with game developers, such as Rovio, already well-established in the mobile market, from game developers on the open web and videogame developers, and from other forms of non-interactive entertainment and media. We also potentially face competition from large technology and media companies with significant online presences who are just beginning to enter the social gaming market, including companies such as The Walt Disney Company, Amazon.com, Inc., Google, Inc., Microsoft Corporation, Facebook, Inc. and Yahoo!, Inc.

We also compete for the leisure time of our players with providers of other forms of Internet and mobile entertainment, including social networking, online casual entertainment, streaming video outlets, digital books and music.

Intellectual Property Rights

We rely primarily on a combination of patent, trademark, copyright, trade secret and other proprietary rights laws, license agreements, third-party nondisclosure agreements, employee invention and confidentiality agreements and other methods to protect our proprietary rights. United States copyright law, international conventions and international treaties, however, may not provide meaningful protection against unauthorized duplication or infringement of our software. Policing unauthorized use of an easily duplicated and broadly disseminated product such as videogame software is very difficult. Software piracy is expected to be a persistent problem for the software industry for the foreseeable future, but it is not a problem for games distributed on social networks since the software resides on our servers under our control.

Historically, most of our published software titles have been licensed from independent PC software game developers, and in such case we did not acquire the copyrights for the underlying content. These licenses are typically limited to use of the licensed rights in products for specific time periods. While we may have renewal rights for most of our content licenses, the publishing of our externally developed products is dependent on our ability to continue to obtain the intellectual property rights from these third parties on mutually agreeable terms and at satisfactory contractual rates. We have used independent contractors to develop our own titles under agreements that provide us with ownership rights to these titles. We have filed copyright and trademark applications for many of the game titles we have developed that we own and plan to continue to file these applications as needed to protect our intellectual property rights in those titles.

Videogame developers and publishers are subject to infringement claims, and there has been substantial litigation in the industry regarding copyright, trademark and other intellectual property rights. When claims or litigation, with or without merit, are brought against us, such claims can and have been costly and result in a diversion of management’s attention and our financial resources, which could have a material adverse effect on our business, operating results and financial condition. We can and have incurred substantial expenses in evaluating and defending such claims, regardless of the merit of the claims. In the event that there is a determination that we have infringed on a third party’s intellectual property rights, we could incur significant monetary liability and be prevented from using these rights in the future.

 

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We are currently creating, and intend to create in the future, more intellectual property, in addition to the intellectual property rights we have obtained through licenses and service agreements with third parties. These licenses typically limit our use of the intellectual property to specific uses and for specific time periods. We intend to actively seek patent protection covering our inventions and to acquire patents we believe may be useful or relevant to our business. We currently have one patent pending.

Internet companies, and companies engaged in game, social media, technology and other industries may own large numbers of patents, copyrights and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. From time to time, we have faced, and we expect to face in the future, allegations by third parties, including our competitors and non-practicing entities, that we have infringed their trademarks, copyrights, patents and other intellectual property rights. As we face increasing competition and as our business grows, we will likely face more claims of infringement.

Government Regulation

We are subject to many laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and internationally, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. Any court ruling or other governmental action that imposes liability on providers of online services for the activities of their users and other third parties could harm our business.

We are also subject to federal, state and foreign laws regarding privacy and protection of player data. We post our Privacy Policy and Terms of Service online, in which we describe our practices concerning the use, transmission and disclosure of player data. Any failure by us to comply with our posted privacy policy or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the Internet is unclear and can change rapidly. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our players’ privacy and data could result in a loss of player confidence in our services and ultimately in a loss of players, which could adversely affect our business. In addition, because our services are accessible worldwide, certain foreign jurisdictions have claimed and others may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees, or infrastructure.

Product Development

Our product development expenses for the years ended June 30, 2011 and 2010 were $859,000 and $931,000, respectively. Product development expenses consist of: personnel costs related to product development, product management, content acquisition, quality assurance testing, packaging design, and website design and administration, along with outside services for product ratings, language localization, and quality assurance testing.

Retro World Product Development Process

Our new social game is built on the Heyday Platform. The Heyday Platform is an original client/server game engine. The Heyday Platform provides player access in a graphical interface form to specific functionality built into the platform such as avatar selection, player owned inventory management, and player scoreboards and achievements. Presentation content consists of movie files in various file formats that contain presentations, interactive moments or full mini-games. Our social game content is dynamically deployed within and under the

 

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control of the Heyday Platform. It consists of an initial set of movies, animations, game art, and a server-side defined world, which can be designed to be expanded on over time by adding more content.

Packaged Retail Product Development

For our packaged retail game products, our product development and sales teams meet regularly to review new product opportunities, discuss new competitive products and recent market data, develop strategies for new products and review the status and performance of current titles.

The content for our new social game products, as well as our packaged retail products, is either developed by independent contractors under work-for-hire agreements, so that we own the content that is developed, or licensed from independent developers who retain ownership of the content and receive royalty payments from us, based upon net revenues recognized for titles containing their content.

Employees and Independent Contractors

At September 30, 2011, we had sixteen full-time and three part-time employees, of which eight were employed in product development, three in sales, marketing and customer support, and eight in operations, finance and administration. In addition, we regularly utilize independent contractors in connection with our product development activities. No employees are represented by labor unions, and we have never experienced a work stoppage.

ITEM 1A. RISK FACTORS

Our business is subject to many risks and uncertainties that could affect our future financial performance. If any of the events or circumstances identified below occurs, our business and financial performance could be adversely impacted, our actual results could differ materially from our expectations and the market value of our common stock could decline. Also, there may be additional risks and uncertainties that we are not currently aware of or that we currently do not believe are material that may negatively impact our future business and financial performance.

We have incurred net losses for the last seven fiscal years. During the past seven fiscal years, we have funded our business activities from cash generated from operations as well as private offerings of our securities to investors. If we are unable to achieve profitability in the near future or raise additional funds, we will not be able to continue to fund our operations at their current levels. Our accumulated deficit at June 30, 2011 was $13,723,638. Our operations today are subject to all of the risks inherent in the operation of a thinly-capitalized small business in a highly competitive industry dominated by much larger and financially stronger competitors. The risk of business failure for a company such as ours is even greater in the current economic environment, with weak retail sales and decreased consumer spending. The primary risks we face include the failure of our products to achieve commercial success; competition from other products; and unanticipated costs and expenses associated with product development, distribution, sales or marketing. Our future success will depend on our ability to become profitable in the development, marketing, distribution and sales of our current and future game products.

We do not expect to become profitable in the near future, so our ability to continue to operate depends upon attracting additional outside funding. Based upon our current product development spending and the revenues we are generating from our existing retail and Internet PC game sales, we will need additional outside funding to continue operations. Our current financial condition and the net losses we have incurred in the last seven fiscal years, combined with the current economic climate and credit crisis, could adversely affect our ability to obtain additional financing. Additionally, we may only be able to raise needed funds on terms that would result in significant dilution or otherwise be unfavorable to existing shareholders. The amount of this dilution may be substantially increased if the price of our common stock has declined from its current levels at the time of any financing or if we are forced to finance on terms that materially favor new sources of capital at the expense of existing shareholders, an occurrence which we expect will occur to some and possibly a meaningful degree. Our inability to secure additional funding when needed, or generate adequate funds from operations, would adversely impact our company’s ability to continue its operations.

 

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The success of our new social game on Facebook is critical to the success of our business. Our new social game that we are developing is expected to primarily be distributed, marketed and promoted on Facebook, and will utilize Facebook’s payment platform. We expect to generate a substantial portion of our future revenue from our new social game through the Facebook platform. However, Facebook may change its fee structure, add fees associated with access to and use of the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information with friends on their platform, which could affect the success of our game. Our inability to achieve success on this platform would materially harm our business and adversely affect the value of our common stock.

We may not be able to continue to fund the development of game titles. We have been using funds from our operations, as well as funds raised in private offerings of our securities, to pay for the development of our new game titles, including our new social game. During fiscal 2011, we did not achieve the financial return on this investment in product development that we had expected. As of June 30, 2011, less than half of the game titles we have developed in the last two fiscal years have generated a combination of cash received and/or revenues earned in excess of the development costs for these titles. Our inability to fund the development of our new social game would adversely impact our future business and financial performance.

The social game industry is rapidly growing and changing, which makes it difficult for us to predict and evaluate our business prospects. The growth of the social game industry and the level of demand and market acceptance of our new social game are subject to uncertainty, and our future operating results will depend on many factors affecting the social game industry, many of which are beyond our control. These factors include: the continued use and adoption of the Facebook platform by users in our target demographic; changes in consumer preferences, and the popularity and availability of other game and entertainment platforms; continued use and growth of personal computers, high-speed Internet, mobile devices and platforms; and general economic conditions. We also have no way of knowing in advance which features of our new social game may be more compelling to consumers, making it difficult to decide where our product development plans should focus as we create future episodes of our new social game. If the popularity of social games were to decline, this could also significantly harm our business.

Our business strategy has recently changed, to focus on developing and marketing a new social game for Facebook and other social platforms, and we have no operating history with this new business strategy, making it challenging to evaluate our future financial results and prospects. We initiated our new strategy when we acquired Heyday Games in June 2011, and with our new game not yet launched we have no internal experience for projecting our future financial results or the performance of new games. Our new business model is based on offering games that are free to play, and will rely on advertising, sponsorships and players paying for virtual goods to monetize the game. If players of our new social game do not choose to pay for virtual goods, this would significantly affect our future financial prospects and business.

With our limited current funding, we expect to only have the ability to release one version of our game during fiscal 2012, and future expansions of content will depend on either raising additional capital or generating income from our business. Our growth and continued business viability depends on our ability to consistently launch new expanded content for our social game as well as other derivatives that are consistent with our business strategy. Additional content development requires engineering, marketing and other resources to develop, launch and sustain our game and future expansions of our game, and we cannot estimate with certainty what these costs will be. Our ability to successfully launch, sustain and expand games and attract and retain players largely depends on our ability to: respond to game player interests and preferences, respond to competitive changes in the social game market; retain, motivate and hire additional talented employees with the skills to create new game content, minimize delays in the launch of new game content and server downtime. It is difficult to anticipate player demand. If we do not successfully launch games that attract and retain a significant number of players and extend the life of our existing games, our market share, reputation and financial results will be harmed.

The consumer entertainment market is highly competitive and changes rapidly. A constantly increasing number of game titles on multiple gaming platforms are competing for consumers’ entertainment spending dollars. Retailer changes to shelf space allocations, such as the reductions in retail shelf space for PC games, are expected to continue to negatively affect our future revenues and operating results. The competition for product placement on

 

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key social networks continues to intensify. Competition also results in greater leverage for social networks, retailers, distributors and Internet game sites in negotiating terms of sale, including revenue shares, marketing costs, price markdowns, product return policies and purchase prices, and our larger competitors may have more leverage than we do to negotiate better terms than we do. If our competitors develop more successful products than ours, offer competitive products at lower price points than ours, or if we are unable to develop consistently high-quality and well-received products, then our net revenues, operating results, and financial condition will decline.

Our operating results fluctuate from quarter to quarter, which makes our future operating results uncertain and difficult to project. Our quarterly operating results have varied significantly in the past and will likely vary significantly in the future depending on numerous factors, many of which are not under our control. Comparative sequential and year-to-year quarterly operating results may provide little meaningful information or guidance because of our relatively small size and the impact on our net revenues resulting from the timing of purchase orders from software retailers and distributors and other changes in market forces. Fluctuations in quarterly operating results will depend upon many factors including, but not limited to:

 

   

the timing of launch of our new social network game title and future content related to that game;

 

   

the competitive game titles being offered within the core gaming genres in which we compete;

 

   

timing and the amount of product development and marketing expenditures required to bring future products to market; and

 

   

the seasonality of retail PC game markets.

If retailers decide not to sell our retail packaged goods products, or substantially reduce the number of our titles that they sell during the key holiday selling season, our net revenues would decline and our operating results would be adversely affected. If we miss product deliveries during these key selling periods, or if our products are not ready for shipment to meet these critical selling periods, our net revenues and operating results would also be adversely affected. Additionally, if our products do not get adequate distribution into the major North American software retailers’ stores or do not sell-through to consumers during these key selling periods, our financial results for the entire fiscal year would be adversely affected.

Our business is dependent on commercially viable content acquisition and licensing arrangements. Our new social game utilizes content developed from numerous sources, ranging from celebrity images to independently developed music. Our success in introducing new content for our social network game depends on our ability to maintain relationships and enter into new product acquisition and licensing agreements on favorable terms. If we are not able to obtain quality content on commercially viable terms, this would adversely affect our business and financial results.

Our current or future competitors may develop products that are comparable or superior to ours. Our competitors may offer more commercially acceptable products or adapt more quickly than we do to new technologies or evolving customer requirements. Our competitors will typically have much greater financial resources to spend on product development, marketing, promotions, and licensing than we do. Competition has continued to intensify as our industry has consolidated, since we have remained a small company and most of our competitors have either grown larger or have gone out of business. In order to be successful in the future, we must be able to respond to technological changes, customer preferences and competitors’ current products and innovations as well as or better than our competitors. We may not be able to compete effectively in this market, which would adversely affect our operating results and financial condition.

Becoming a public reporting company again requires resources, expertise and a time commitment by us and our management and board of directors, and this could affect our commercial viability and stock price. When we voluntarily deregistered as a public company in 2006, we did so because of the tremendous financial and management resources that were required to maintain the accounting and reporting obligations imposed by the Securities Exchange Act of 1934, as amended, or the Exchange Act, and other applicable securities rules and regulations. As a public company, compliance with these rules and regulations will increase our legal and financial compliance costs, increase the rates for director and officer liability insurance, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and

 

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operating results. Although we believe it is in our and our shareholders’ best interests to become a public company again , the costs to do so, both in terms of financial costs and the management time and effort required, could prove to be too difficult for us to manage with our limited financial and human resources, and could have an adverse impact on our operating results.

If we cannot implement and maintain effective internal control over financial reporting, this could adversely affect the accuracy and timeliness of our future financial reporting. If we cannot implement and maintain adequate internal controls for financial reporting, or if our auditors are unable to express an opinion as to the effectiveness of our internal controls as will be required pursuant to the Sarbanes-Oxley Act, investor confidence in the accuracy of our financial reports may be impacted or the market price of our stock could be negatively impacted.

Our common stock has experienced low trading volumes and unpredictable volatility on the OTC Pink Market, which may continue even if our shares are traded on the OTCBB. Our shares of Common Stock are currently traded on the OTC Pink Market under the symbol EGAM, and we currently do not qualify for listing on any of the major exchanges, such as Nasdaq or the American Stock Exchange. Many stocks traded on the OTC Pink Market – including our stock – have experienced significant price and trading volume fluctuations. These fluctuations are often unrelated or disproportionate to the operating performance of the companies. Our stock price may be adversely affected by such fluctuations, regardless of our operating results. Additionally, many common stocks traded on the OTC Pink Markets are thinly traded, such as our common stock, which can make it difficult to sell shares of our common stock. After this registration statement becomes effective, we will be an SEC reporting company in compliance with the OTCBB’s requirements and will be in a position to seek a market maker. There is no guarantee that we will be successful in achieving or maintaining our compliance or a market maker. Even if our common stock trades on the OTCBB, there is no assurance that the volume of trading in shares of our common stock, or the prices at which our shares trade, will improve. Poor liquidity in our shares will adversely impact our share price and our ability to raise capital and the terms on which we can raise capital.

We may have difficulty protecting our intellectual property rights. We either own or have licensed the rights to copyrights for our product content. We may not have sufficient financial, legal and administrative resources to adequately protect our intellectual property rights, and our existing or future copyrights, trademarks, trade secrets or other intellectual property rights may not be of sufficient scope or strength to provide meaningful protection or commercial advantage to us. If we are not able to sufficiently protect our intellectual property rights, this would have an adverse effect on our business and operating results and on the overall value of our company.

We may incur substantial expenses and be required to use our internal resources to defend infringement claims, and settlements may not be favorable or attainable. We may from time to time be notified that we may be infringing on the intellectual property rights of others. The new social game we are developing uses content from many different sources, as well as content that we develop internally, and any of this content may give rise to claims of infringement. In past years, we have incurred significant defense costs and utilized substantial internal resources in defending trademark and copyright claims and lawsuits. Other third parties may initiate infringement actions against us in the future. Any future claim could result in substantial costs to us, and diversion of our limited resources. As the result of any court judgment or settlement we may be obligated to cancel the launch of a new game, stop offering certain features, pay royalties or significant settlement costs, purchase licenses or modify our games and features while we develop substitutes. Our failure to obtain necessary licenses or other rights, or the initiation of litigation arising from any future claims, could materially and adversely affect our operating results.

Competition is intense in the social game industry and barriers to entry are low. The social game industry is highly competitive, with low barriers to entry, and we expect more companies to enter the sector and a wider range of social games to be introduced. Our competitors that develop social games for social networks are likely to be much larger than we are and have greater financial resources than we do, including large publicly-traded companies such as Electronic Arts Inc. and The Walt Disney Company and privately-held companies such as Crowdstar, Inc. and Vostu, Ltd. In addition, we have limited experience in developing games for social networks and other platforms and our ability to succeed on those platforms is uncertain. As we continue to devote significant resources to developing games for these various platforms, we will face significant competition from established companies that may have far greater experience and financial resources than we have.

 

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We depend on key management and technical personnel. We rely on our management and other key personnel for the operation of our business, especially since we have so few employees. We are dependent upon the expertise and skills of several key technical, strategic, creative, engineering, marketing and product development employees, and there can be no assurance that we will be able to continue to retain, motivate and hire additional personnel. Failure to retain, motivate and hire qualified personnel could materially adversely affect our business and prospects.

If our new social game contains programming errors or flaws, this could harm our reputation or cause our games not to achieve market acceptance, which would adversely affect our operating results. Our new social game may contain errors, bugs, flaws or corrupted data, and these defects may only become apparent after it is launched, especially as we release new features under tight time constraints. If our consumers have a negative experience with our new social game, they may be less inclined to continue or resume playing or recommend our game to other potential players, which would negatively affect the success of new social game and our operating results.

Regulations regarding data privacy are evolving, which could affect our new social game and our ability to quickly scale it for monetization. The regulatory framework for privacy issues worldwide is currently changing rapidly. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet and mobile platforms have recently come under increased public scrutiny, causing federal agencies to review the need for greater regulation for the collection of information of consumer use of the Internet. If we are not able to quickly respond to changes in regulations that affect our new social game, our business could be adversely affected in the future.

When our new social game launches, the consistent and uninterrupted hosting by our third party technology provider will be important to the performance of our game and the satisfaction of our consumers. We will be using a third party vendor which we do not control to host and operate our new social game on Facebook and other open web applications. The failure of this third party vendor to provide consistent and uninterrupted hosting could materially impair the acceptance and success of our new game after launch. Ease of use and uninterrupted service are important factors in a social game’s market acceptance, so the failure of our third party hosting service to provide consistent service could materially harm our operating results. If our third party hosting service were to terminate its relationship with us, we might be unable to replace it in a timely fashion and it could adversely affect our operating results. In addition, there is no assurance as to the continued viability of this third party.

A significant part of our revenues currently are generated from a limited number of customers due to consolidation in the retail marketplace. We continue to have a concentration of customers consisting of a small number of large software distributors, retailers and licensees. During the year ended June 30, 2011, one customer, Navarre, represented 10% or more of our net revenues, accounting for $1,274,000, or 41% of net revenues, compared to the year ended June 30, 2010, when customers representing 10% or more of our net revenues were: Navarre, accounting for $1,370,000, or 38% of net revenues, and Ditan/Synergex, accounting for $409,000, or 11% of net revenues. During fiscal 2010, we terminated our relationship with Ditan/Synergex due to payment issues, and we have since entered into a new distribution relationship with Alliance Sales & Distribution to distribute our products in Canada to replace Ditan/Synergex. During fiscal 2011, Alliance Sales & Distribution represented $289,000 in net revenues, or 9% of net revenues, and zero net accounts receivable as of June 30, 2011. We believe that if we were ever unable to collect, in a timely manner, the net account receivables owed by our major software distributors and licensees, and in particular our net accounts receivables with Navarre, Alliance Sales & Distribution, Visicom and Fry’s, that could significantly impact our ability to meet our financial obligations and to fund our operations for the foreseeable future.

The shelf space retailers are allocating to value priced PC software games continues to shrink, which has had a significantly negative impact on our retail business. The reduced amount of shelf space being allocated to our category of products in retail stores during this fiscal year has continued to contribute to the decline in our net revenues compared to prior fiscal years. We continue to see indications that the amount of retail shelf space being allocated to PC software games is decreasing, and we expect this trend to continue negatively impacting our results for the foreseeable future unless we are able to capitalize on one of our other strategies, including: developing titles for social networks, increasing Internet, licensing, and virtual goods sales revenues. We cannot predict whether any

 

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of these other opportunities or strategies will be effective in increasing net revenues or in improving our financial condition or financial performance.

If our major software distributors or retailers are not able or willing to pay us within the normal course of business, this would materially harm our financial condition. Software distributors and retailers in the consumer entertainment PC software industry and in mass-market retail channels have experienced, and may in the future experience, significant fluctuations in their businesses and some of these companies have ceased operations. If any significant software retailer or distributor of our products experienced financial difficulties, became insolvent, or ceased operations, it would significantly harm our business, operating results and financial condition. Our revenues are typically made on credit, with terms that vary depending upon the customer and the nature of the product. We do not hold collateral to secure payment. We maintain an allowance for bad debts for uncollectible accounts receivable, if any, which we believe to be adequate. The actual allowance for bad debts required for any one customer’s account or on all of the accounts receivable in total, may ultimately be greater than our allowance for bad debts at any point in time. If any of our major software distributors, retailers, or licensees failed to pay an outstanding receivable, particularly Navarre and Alliance Sales & Distribution, our business, operating results and financial condition would be significantly harmed.

Price markdowns and product returns could materially reduce our net revenues and results of operations. Many of our distribution and retail relationships allow for product returns and price markdowns, although most of our net product revenues are related to consignment sales agreements, meaning we do not recognize the revenues from shipments of these products until these inventory units have sold through to consumers. For our non-consignment revenue customers, we establish allowances for future product returns and price markdowns at the time net revenues associated with retail product shipments are recognized. These allowances are based on many factors, including historical product returns and price markdowns, product sell-through results at retail store locations, field inventory at distributors’ warehouses and at retail stores, the length of time that products have been released at retail along with their estimated remaining retail life, outstanding return material and price markdown authorizations, the introduction of new and/or competing software products that could negatively impact the revenues of our products, and the extent to which our newer products with higher retail prices or unproven genres remain in the retail channel. Our revenues to these customers are reported net of product return and price markdown provisions made at time of product shipment. Since the allowances we establish for product returns and price markdowns are estimates, actual product returns and price markdowns could ultimately exceed our established allowances for these anticipated amounts, which would negatively impact our results of operations.

We may experience risks related to our international revenues and distribution efforts. International net revenues, primarily consisting of licensing revenues, represented $91,000, or 3% of net revenues for the fiscal year ended June 30, 2011, compared to $202,000, or 6% of net revenues for the fiscal year ended June 30, 2010. We anticipate that in fiscal 2012 our international business will continue to decline and be transacted primarily through third-party licensees, which is subject to risks not applicable to our domestic business, including: varying regulatory requirements; difficulties in managing foreign distributors; potentially adverse tax consequences; and difficulties in collecting delinquent accounts receivable. Additionally, because our international business is concentrated among a small number of third-party licensees, the business failure of any one of these licensees, and the resulting inability for us to collect the related outstanding licensing receivable, could have a material adverse effect on our financial condition.

 

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ITEM 2. FINANCIAL INFORMATION

Management’s Discussion and Analysis or Plan of Operation

FORWARD-LOOKING STATEMENT SAFE HARBOR

This registration statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). All statements made in this registration statement, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial condition, are forward looking and are intended to be made pursuant to the safe harbor provisions of the 1995 Reform Act. We use the words “believe,” “expect,” “anticipate,” “intend,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. These forward-looking statements are subject to business volatility, economic risk and world events, which are inherently uncertain and difficult to predict. Our actual results could differ materially from management’s expectations due to such risks. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. In particular, these forward-looking statements include, among others, statements about:

 

   

the development of our own proprietary game titles for distribution on social networks and other platforms;

 

   

our plan to debut our new social game in the second quarter of fiscal year 2012, with additional content that will extend the brand into new genres in subsequent releases;

 

   

our expectation that during fiscal 2012, our revenues from consignment and sell-through agreements will continue representing the majority of our net traditional product revenues;

 

   

our expectation that during fiscal 2012, we will continue seeking North American retail placement for both retail boxed game titles and jewel case titles, while we also aggressively pursue the distribution and monetization of our new social game;

 

   

our intention to continue to place our PC games on the most popular Internet game portals and to place top-selling third party titles on our own game portal;

 

   

our anticipation that our provision for product returns and price markdowns, as a percentage of gross product revenues, will continue to remain less that 10% during fiscal 2012;

 

   

our expectation that during fiscal 2012, all of our product development expenses will be incurred in the development of our new social games on the Heyday Platform, and that these costs will significantly increase, depending on our ability to raise additional capital;

 

   

our expectation that selling, general and administrative expenses will significantly increase during fiscal 2012; and

 

   

our evaluation of alternatives to secure outside financing sufficient to support the operating requirements of our current business plan.

The following important factors, as well as those factors discussed under “ Risk Factors” beginning on page 8 in this registration statement, could cause our actual results to differ materially from those indicated by the forward-looking statements contained in this registration statement:

 

   

our ability to raise additional capital to fund the development of our new social game;

 

   

our ability to successfully market and distribute our new social game on Facebook;

 

   

the market acceptance and successful monetization of our new social game and our products at retail stores, and on the Internet;

 

   

the decline in shelf space allocated to our products at retail;

 

   

our ability to continue collecting timely receivable payments from our major customers, especially our primary distributors;

 

   

our ability to maintain acceptable payment terms with our trade vendors;

 

   

the extent of declines in toolbar installations from declining sales of our game titles wrapped with the eGames toolbar;

 

   

increased competition from other social game developers and publishers;

 

   

the amount of price markdowns granted to retailers and distributors;

 

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our ability to accurately estimate the amount of product returns and price markdowns that will occur and the adequacy of the allowances established for such product returns and price markdowns;

 

   

our ability to control the development, promotional, manufacturing and distribution costs of our game titles;

 

   

our ability to retain a sufficient number of knowledgeable employees to operate our business;

 

   

consumers’ continued demand for social network games and spending on virtual goods;

 

   

increased competition in the social game industry; and

 

   

various other factors, many of which are beyond our control.

About Entertainment Games, Inc. (formerly eGames, Inc.)

Entertainment Games is a Pennsylvania corporation incorporated in July 1992 that develops, publishes, markets and sells casual games for social networks, the PC, Nintendo DS and Wii, the Apple iPhone, and the Internet. Historically, we have focused on publishing casual software games for the PC platform, and selling the greatest volume of our PC games in major mass-merchant retail stores in North America. We now publish third-party PC game titles and are now developing our own proprietary game titles for distribution on social networks and other platforms.

In North America, our PC games are distributed to retail stores primarily through third-party software distributors that service the major mass-merchant retailers, while our Nintendo DS and Wii games are published and distributed worldwide by third-party publishers. In territories outside North America, we license our PC games to third-party software distributors that are responsible for the manufacture and distribution of our PC games within specific geographic territories. We market and sell our packaged PC game titles under the eGames™ brand.

Significant Trends and Events in our Business

Current Business Model

Historically we primarily focused on developing and publishing PC game titles for large national North American retailers. Recognizing the rapid growth and popularity of social network games, we acquired Heyday Games, a producer of cross-platform social game content, in June 2011. With the purchase of Heyday Games, we acquired the Heyday Platform and hired Heyday Games’ co-founders Eugene Mauro and F.J. Lennon as our President and COO and Chief Creative Officer, respectively. As a result of the acquisition, we have turned our focus to developing and publishing innovative social games on our proprietary Heyday Platform for social networks such as Facebook and Google+, mobile devices and the open web. Our goal is to become a trusted provider of high-quality, fun, easy-to-use social games. To achieve this goal, we have assembled a team of employees and independent contractors with experience in engineering, game design and development, graphics, animation and music to develop a new social game concept targeted at what, we believe, is an underserved market in social games: the 40+ demographic. Our social game is designed to enable this audience to relive their “heyday” with family and friends. We plan to debut our new social game in the second quarter of fiscal 2012, with additional content that will extend the brand into new genres in subsequent releases.

History and Background

Prior to fiscal 2007, the majority of our published titles were PC games licensed from third-party game developers and we therefore incurred lower product development costs on those titles. During fiscal 2007, we began to significantly expand the development of our own proprietary PC game titles by using independent contractors under work-for-hire agreements. During fiscal 2009, 2010 and 2011, we completed the development of eleven proprietary PC game titles. These titles were released on the Internet for consumers to download, and/or have been distributed internationally via third-party licensing agreements and domestically at retail stores, either directly or through third party licensees.

In December 2009, we began development of a free-to-play game for release on social networking websites offering virtual goods sales and banner advertising, targeting the largest social networks in Brazil. The game, Burger Island

 

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Social, was released during April 2010 on social networks in Latin America but is no longer being distributed due to a termination of our distribution relationship in that market. With the acquisition of Heyday Games, we are no longer focusing on the Latin American market, but are now focused on the North American audience of social network consumers.

Product development expenses consist of personnel costs related to product development of company-owned titles, product management, content acquisition, quality assurance testing, packaging design, website design and administration and outside services for product ratings, language localization and quality assurance testing.

The content for our products, including our new social game products as well as our packaged retail products, is either developed by independent contractors under work-for-hire agreements under which we own the content that is developed (which costs are reflected in the Statements of Operations as “product development expenses”), or licensed from independent developers who retain ownership of the content and receive royalty payments from us (which costs are reflected in the Statements of Operations as “cost of revenues”) based upon net revenues recognized for titles containing their content.

Critical Accounting Policies and Estimates

Our significant accounting policies and methods used in the preparation of the Financial Statements are discussed in Note 1 of the Notes to Financial Statements. We believe our policies for revenue recognition, inventory valuation and recoverability of advanced licensing and royalty payments require us to make significant judgments and estimates that could materially affect the amount of revenue we recognize, the cost of revenues we expense and the reported net values for inventory, accounts receivable and prepaid and other current assets. Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates for product returns, price markdowns, customer bad debts, inventory obsolescence, recoverable values of advanced licensing and royalty payments, income tax expense, contingencies and litigation risks on an ongoing basis. We base our estimates on historical experience and on various other factors and assumptions that we believe are appropriate. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition (Net Revenues, Product Returns and Price Markdowns)

We evaluate revenue recognition based on the criteria set forth in FASB ASC 985-605, Software: Revenue Recognition and Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104, Revenue Recognition. We evaluate and recognize revenue when all four of the following criteria are met:

 

   

Evidence of an arrangement. Evidence of an agreement with the customer that reflects the terms and conditions to deliver products must be present.

 

   

Delivery. Delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have been transferred to the customer. For online game services, delivery is considered to occur as the service is provided. For digital downloads that do not have an online service component, delivery is generally considered to occur when the download is made available.

 

   

Fixed or determinable fee. If a portion of the arrangement fee is not fixed or determinable, we recognize revenue as the amount becomes fixed or determinable.

 

   

Collection is deemed probable. We conduct a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer. Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable, we recognize revenue when collection becomes probable (generally upon cash collection).

 

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We distribute the majority of our products through third-party software distributors to the major North American mass-merchant retailers and directly to certain North American PC software retailers. The distribution of our products is governed by purchase orders, distribution agreements or direct sale agreements, most of which allow for product returns and price markdowns and have shipping terms of FOB destination. For product shipments to software distributors and retailers having non-consignment terms, we record a provision for product returns and price markdowns as a reduction to gross revenues at the time the title of our product transfers to the distributor or retailer.

However, if we determine that the underlying terms of a retailer’s or distributor’s purchase order, distribution or sales agreement do not qualify as a sale, or if we determine that we are not able to estimate an appropriate provision for product returns and price markdowns for any retailer or distributor, we then recognize revenues for product deliveries to these retailers or distributors on a consignment basis (revenue is reported to the extent that the software distributor or retailer has reported to us that our product has sold through to consumers).

During fiscal 2011, we continued to recognize a substantial portion of revenue on a consignment basis. Revenues from product shipments pursuant to these types of agreements are only recognized to the extent that the distributor or retailer has reported to us that our product has sold through to consumers. For the years ended June 30, 2011 and 2010, revenues recognized under these consignment and sell-through agreements were $1,356,000 and $1,492,000, respectively, and represented 72% and 69%, respectively, of net traditional product revenues. We anticipate that during fiscal 2012, our revenues from consignment and sell-through agreements will continue representing the majority of our net traditional product revenues.

Key Assumptions

Our provision for anticipated product returns and price markdowns is based on the assumptions we make after evaluating various factors, including: our analysis of historical product return and price markdown results; current product sell-through activity at retail store locations; current field inventory quantities at distributors’ warehouses and at retail store locations; the length of time that products have been released at retail along with their estimated remaining retail life; the introduction of new and/or competing software products that could negatively impact the revenues of our current products; and outstanding return material and price markdown authorizations.

The adequacy of our allowance for product returns and price markdowns is reviewed throughout each reporting period and any necessary adjustment to this allowance is reflected within the current reporting period’s provision for product returns and price markdowns. Significant management judgments and estimates must be made and used in order to determine how much revenue can be recognized in any reporting period. Material differences may result in the amount and timing of our revenue for any period if management’s judgments or estimates for product returns or price markdowns prove to be insufficient or excessive compared to actual results.

Inventory Valuation

Our inventory valuation policy requires management to make estimates and assumptions about the recoverability of the carrying value of inventory as of the end of each reporting period and cost of revenues expensed during each reporting period. The individual components of our software titles that are usually reflected in our net inventory valuation include some combination of the manufactured costs of: CD’s; DVD’s; jewel cases; box packaging; print materials; shrink-wraps; wafer-seals; assembly and other miscellaneous items particular to specific titles. Our inventory could be valued differently at the close of any reporting period and the amount of expense recorded as cost of revenues during any reporting period could differ, if management’s judgments or estimates for the impairment of inventory value (recorded through the provision for inventory obsolescence within our Statement of Operations) are insufficient or excessive when compared to actual results.

Key Assumptions

Our provision for inventory obsolescence is based on the assumptions we make after evaluating the remaining value of existing inventory units (consisting of unsold warehouse units, consignment units and estimated product return units remaining at retailers’ stores), which involves assessing the remaining product life of existing titles based on how long the titles have been released at retail; analyzing the trend of current product sell-through activity to

 

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consumers for existing titles; identification of competitors’ new products with greater capabilities or more recognizable brands that could replace or shorten the lifecycles of our existing titles; assessing the potential for litigation that may affect our ability to sell existing titles containing certain product content; monitoring expiration dates of licensing agreements with software developers for content within existing titles; and tracking the current market value for remaining units of discontinued titles based on recent revenues of similar products to inventory liquidators and discount retailers.

Although we attempt to accurately match production requirements of our products to forecasted consumer demand, at the end of a product’s lifecycle we usually have some level of excess inventory units that we will attempt to dispose of through the inventory liquidation channel. If we cannot liquidate such inventory, or if we are unable to sell any remaining units due to legal or other reasons, we would then write down the remaining inventory value to zero. The adequacy of our allowance for inventory obsolescence is reviewed throughout each reporting period, and any necessary adjustment to this allowance is reflected in the current reporting period’s provision for inventory obsolescence.

Advance Licensing and Royalty Payments

We make advance licensing and royalty payments to independent software developers and other licensors for the licensing of software content and intellectual properties for use within some of our PC software titles. These advance payments are initially classified on our balance sheet as “Prepaid and other expenses,” and are then usually expensed within the “Cost of revenues” category of our Statements of Operations at the greater of the contractual or effective royalty rate.

Key Assumptions

We continually evaluate the recoverability of our advance licensing and royalty payments by reviewing the information available about each title and the underlying licensed content in existing titles. In particular, we evaluate the potential future revenues of a title or subsequent titles containing the same licensed content based on current and potential revenue programs, along with historical sell-through results of a title and similar titles, if any, to consumers. For titles that have achieved distribution into their intended retail channels, we charge to cost of revenues the remaining costs we determine to be non-recoverable in future periods. In the rare circumstance that a title does not achieve distribution into its intended retail channels, we charge to product development expense the remaining costs we determine to be non-recoverable in future periods. Non-recoverable costs are expensed in the reporting period in which management determines that it is not likely that we will be able to recover these costs in future periods.

Results of Operations

The following discussion should be read together with our Financial Statements and Notes under Item 13 beginning on page 39. Amounts, other than percentages, discussed within the “Management’s Discussion and Analysis or Plan of Operation” have been rounded to the nearest thousand (“000”) dollars.

Year Ended June 30, 2011 Compared to the Year Ended June 30, 2010:

Net Revenues

Net revenues decreased by $518,000, or 14%, to $3,084,000 for the fiscal year ended June 30, 2011, compared to $3,602,000 for fiscal year 2010. This decrease in net revenues resulted from declines in North American product revenues, licensing revenues and Internet related revenues, which were partially offset by an increase in product liquidation revenues.

 

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The following table represents our net revenues by distribution channel for the fiscal years ended June 30, 2011 and 2010:

Net Revenues by Distribution Channel

 

Years Ended

June 30,

 

Distribution Channel

   2011      %     2010      %     Increase
(Decrease)
    %
Change
 

Traditional product revenues

   $ 1,894,000         62   $ 2,171,000         60   ($ 277,000     (13 %) 

Licensing revenues

     321,000         10     497,000         14     (176,000     (35 %) 

Internet revenues

     689,000         22     849,000         24     (160,000     (19 %) 

Product liquidation revenues

     180,000         6     85,000         2     95,000        112
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Totals

   $ 3,084,000         100   $ 3,602,000         100   ($ 518,000     (14 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Traditional Product Revenues

For the year ended June 30, 2011, traditional product revenues amounted to $1,894,000, representing a decrease of $277,000, or 13%, compared to the year ended June 30, 2010. The $277,000 decrease in traditional product revenues resulted from decreased distribution to North American retailers offering value-priced PC software games. During fiscal 2012, we intend to continue seeking North American retail placement for both retail boxed game titles at the $19.99 retail price point and jewel case titles at the $9.99 price point, while we also aggressively pursue the distribution and monetization of our new social game.

Licensing Revenues

We generate licensing revenues from sales made by third-party licensees under a series of licensing agreements covering both North American and international retail markets. For the years ended June 30, 2011 and 2010, we recognized licensing revenues of $321,000 and $497,000, representing 10% and 14%, respectively, of net revenues. This $176,000 decline in licensing revenues was traceable to our decision to discontinue internally developing PC game titles, which in prior years would subsequently be licensed throughout the world to various licensees. As a result, we anticipate our PC game licensing revenues to continue to decline in future reporting periods.

Internet Revenues

For the years ended June 30, 2011 and 2010, Internet revenues were $689,000 and $849,000, representing 22% and 24%, respectively, of net revenues. This $160,000 decrease in Internet revenues was traceable to a decline in revenues generated from: consumer installations of our game toolbar that is available with all of our published game titles; sales of casual PC games on www.egames.com; and sales of proprietary game titles distributed on third party game portals.

During fiscal 2012, we intend to continue to place our PC games on the most popular Internet game portals, and place top-selling third party titles on our own game portal at www.egames.com. We expect toolbar revenues to continue declining in fiscal 2012, as it did during fiscal 2011 compared to fiscal 2010. The primary factor contributing to this negative trend is increased competition from other toolbar providers.

Product Liquidation Revenues

For the years ended June 30, 2011 and 2010, product liquidation revenues were $180,000 and $85,000, representing 6% and 2%, respectively, of net revenues. Product liquidation revenues consist of product shipments of residual inventory titles that have been discontinued (in part or entirely) at traditional software retail stores because these titles had reached the end of their product lifecycles. As retailers continue to routinely change the assortment of software titles displayed on their store shelves, we expect to continue receiving discontinued titles back from retailers that will then need to be liquidated, along with any quantities of those titles remaining in our warehouse, through sales to third-parties at discounted prices and with no right of return.

 

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Product Returns and Price Markdowns

Throughout each reporting period we continue to evaluate our product return and price markdown exposure for software units we have previously sold to software distributors and retailers, until physical units of our PC game titles are returned to us from software distributors or retailers, or until they sell through to consumers. During the years ended June 30, 2011 and 2010, our provision for product returns and price markdowns amounted to $113,000 and $12,000, or 5% and 1%, respectively, of related gross product revenues to software distributors and retailers.

We anticipate that our provision for product returns and price markdowns, as a percentage of product revenues, will continue to remain less that 10% during fiscal 2012 due to the majority of our product revenues being recognized as consignment revenues that do not need any such provision. Revenues for consignment related product shipments are not recognized until our product sells through to the end consumer, and, therefore, no provision for product returns or price markdowns is associated with these consignment revenues.

Revenue Incentives and Promotional Costs

For the years ended June 30, 2011 and 2010, our revenue incentives and promotional costs were $198,000 and $211,000, respectively, or 8% and 9%, respectively, of related product revenues. In order to maintain retail shelf space for our titles, we incur revenue incentives and promotional costs from software distributors and retailers, such as pricing rebates and slotting fees, which are recognized as reductions to gross product revenues. We plan to continue selling our products to software distributors and retailers that charge such fees, and, accordingly, we expect these types of costs to continue reducing our net revenues.

Cost of Revenues

Cost of revenues associated with publishing our PC games consists of product costs, royalty costs incurred with third parties for licensing product content or other intellectual properties, assembly costs, freight and handling costs, inventory obsolescence provision, reclamation fees and other costs.

The following table represents our cost of revenues for the years ended June 30, 2011 and 2010:

 

June 30,
2011
   % of net
Revenues
  June 30,
2010
   % of net
Revenues
  Increase
(Decrease)
   %
Change
$ 1,706,000    55.3%   $1,461,000    40.6%   $245,000    16.8%

During the year ended June 30, 2011, cost of revenues increased by $245,000, compared to the year ended June 30, 2010. This $245,000 cost of revenues increase was caused by increases in product cost (due to a rise in low margin product liquidation shipments), the provision for inventory obsolescence (due to our lower of cost or market analysis of warehouse and field inventory requiring increased write-down of units related to game titles discontinued by major North American retailers), and freight costs due to a change in shipping terms with our Canadian distributor. These cost increases were partially offset by a decline in royalty costs due to lower effective royalty rates for titles sold during the reporting period.

Product Development

Product development expenses consist of personnel costs related to product development of our proprietary game titles, product management, content acquisition, quality assurance testing, packaging design and website design and administration, along with outside services for product ratings, language localization, and quality assurance testing.

The following table represents our product development expenses for the years ended June 30, 2011 and 2010:

 

June 30,
2011
   % of net
revenues
  June 30,
2010
   % of net
revenues
  Increase
(Decrease)
  %
Change
$ 859,000    27.9%   $931,000    25.8%   ($72,000)   (7.7%)

The $72,000 decrease in product development expenses for the year ended June 30, 2011 resulted from the reduction in the number of games under development during fiscal 2011. During fiscal 2010, we transitioned from developing games for the PC to creating games to be played on popular social networks in Latin America. During fiscal 2012,

 

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we expect that most of our product development expenses will be incurred in the development of our new social games on the Heyday Platform, and we currently expect these costs to significantly increase, depending on our ability to raise additional capital to fund product development. During fiscal 2012, we have already hired and expect to hire additional employees to support these new development efforts related to our new social games.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of personnel related costs, insurance costs, stock-based compensation expense, advertising and promotional fees, commission expense, depreciation expense and professional service fees for legal, accounting and public relations costs, as well as occupancy costs including rent, utilities and phones, and other administrative expenses.

The following table represents our selling, general and administrative expenses for the years ended June 30, 2011 and 2010:

 

June 30,
2011
   % of net
revenues
    June 30,
2010
     % of net
revenues
    Increase
(Decrease)
    %
Change
 
$ 1,669,000      54.1   $ 1,751,000         48.6   ($ 82,000     (4.7 %) 

The $82,000 decrease in selling, general and administrative expenses for the year ended June 30, 2011 was due to savings across various expense categories. We expect selling, general and administrative expenses to significantly increase during fiscal 2012, as a result of hiring Eugene Mauro and F.J. Lennon as President/COO and Chief Creative Officer, respectively, in connection with the acquisition of Heyday Games in June 2011.

Intangibles Impairment (Recovery)

During fiscal 2010, we sold the intellectual property rights related to a previously written off game property for $150,000 in cash and recorded the transaction as an intangible recovery.

The following table represents our intangibles impairment (recovery) for the years ended June 30, 2011 and 2010:

 

June 30,
2011
   % of net
revenues
    June 30,
2010
    % of net
revenues
    Increase
(Decrease)
     %
Change
 
$ - 0 -
     0.0   ($ 150,000     (4.2 %)    $ 150,000         n/a   

Interest Income (Expense), net

The following table represents our interest income (expense) net for the years ended June 30, 2011 and 2010:

 

June 30,
2011
   % of net
revenues
    June 30,
2010
     % of net
revenues
    Increase
(Decrease)
    %
Change
 
($ 7,000)      (0.2 %)    $  -0 -         0.0   ($ 7,000     n/a   

Income Tax Expense (Benefit)

The following table represents our income tax expense (benefit) for the years ended June 30, 2011 and 2010:

 

June 30,
2011
   % of net
revenues
    June 30,
2010
    % of net
revenues
    Increase
(Decrease)
     %
Change
 
$ - 0 -      0.0   ($ 47,000     (1.3 %)    $ 47,000         n/a   

During fiscal 2010, we received a $47,000 federal income tax refund related to IRS rule changes regarding net operating loss carry-forwards.

 

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Weighted Average Common Shares

The weighted average common shares outstanding on a diluted basis increased by 1,049,507 for the year ended June 30, 2011 to 13,718,943 from 12,669,436 for the year ended June 30, 2010. This 1,049,507 increase in the diluted basis calculation of weighted average common shares for fiscal 2011 resulted from the combination of: a full year’s weighting of common shares issued in connection with a private placement completed near the last quarter of fiscal 2010, combined with common shares issued in payment of quarterly dividends to holders of our preferred stock and common shares issued at the end of fiscal 2011 in connection with the acquisition of Heyday Games. Both years’ calculations of weighted average common shares outstanding on a diluted basis excluded common share equivalents based on their potential anti-dilutive impact on these years’ losses.

Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue Arrangements that Include Software Elements. This guidance modifies the scope of FASB ASC subtopic 985-605, Software-Revenue Recognition, to exclude from its requirements non-software components of tangible products and software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. ASU 2009-14 is effective for fiscal years beginning on or after June 15, 2010. We adopted this standard effective July 1, 2010. The adoption of this standard did not have a material impact on our financial statements.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” ASU 2011-04 explains how to measure fair value and intends to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. ASU 2011-04 will become effective prospectively for interim and annual reporting periods beginning on or after December 15, 2011; early adoption is not permitted for public entities. The standard will become effective for us in July 2012. We are currently evaluating the impact of ASU 2011-04 on our financial statements.

No other new accounting pronouncements issued or effective during fiscal 2011 have had or are expected to have an impact on our financial statements.

Liquidity and Capital Resources

 

     As of June 30,        
     2011     2010     Change  

Cash

   $  328,000      $  626,000      ($  298,000
  

 

 

   

 

 

   

 

 

 

Percent of total assets

     10.0 %      37.7 %   
  

 

 

   

 

 

   

 

     Years Ended
June  30,
       
     2011     2010     Change  

Net cash used in operating activities

   ($ 677,000   ($ 213,000   ($ 464,000

Net cash used in investing activities

     (12,000     (2,000     (10,000

Net cash provided by financing activities

     391,000        497,000        (106,000
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

   ($ 298,000   $ 282,000      ($ 580,000
  

 

 

   

 

 

   

 

 

 

Changes in Cash Flow, Operating Activities

During the year ended June 30, 2011, we had $677,000 of net cash used in operating activities compared to $213,000 of net cash used in operating activities for the year ended June 30, 2010. The $677,000 of net cash used in operating activities for the year ended June 30, 2011 resulted from our $1,157,000 net loss in addition to cash uses from net inventory of $166,000 and from unearned revenues of $165,000. These cash uses were partially offset by

 

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non-cash expenses of $484,000 and cash sources from an increase in accounts payable of $250,000, and decreases in net accounts receivable of $54,000, and in prepaid and other current assets of $23,000.

Accounts Receivable, net

At June 30, 2011, net accounts receivable totaled $143,000, compared to $311,000 at June 30, 2010. This $168,000 decrease in net accounts receivable resulted from a $120,000 decrease in gross accounts receivable along with a $48,000 increase in the allowance for product returns and price markdowns.

Historically, we have been able to collect net accounts receivable in the ordinary course of business, but periodically we have experienced slowness in accounts receivable collections from software distributors, retailers and licensees, particularly since the world-wide economic downturn that began in fiscal 2008. Since we do not hold any collateral to secure payment from any of our customers and because most of our customers have the right to return products and receive price markdowns that can be used to reduce their receivable payments to us, the realizable value of our net accounts receivable is continually reviewed in order to help anticipate future liquidity issues that could result from our inability to collect a net receivable balance in the normal course of business.

Concentration of Customers

We continue to have a concentration of customers consisting of a few large software distributors, retailers and licensees. During the year ended June 30, 2011, we had one customer, Navarre, representing 10% or more of our net revenues, which accounted for $1,274,000, or 41% of net revenues, compared to the year ended June 30, 2010, when customers representing 10% or more of our net revenues were Navarre, accounting for $1,370,000, or 38% of net revenues, and Ditan/Synergex, accounting for $409,000, or 11% of net revenues.

During fiscal 2010, we terminated our relationship with Ditan/Synergex due to payment issues, and we have since entered into a new distribution relationship with Alliance Sales & Distribution to distribute our products in Canada to replace Ditan/Synergex. As of June 30, 2011, our net accounts receivable with Ditan/Synergex was zero as our allowance for product returns and price markdowns for Ditan/Synergex was equal to the gross accounts receivable from them. During fiscal 2011, Alliance Sales & Distribution represented $289,000 in net revenues, or 9% of net revenues, and zero net accounts receivable as of June 30, 2011.

We believe that our ability to continue collecting, in a timely manner, the net account receivable owed by our major software distributors and licensees, and, in particular, our net accounts receivables with Navarre, Visicom, Alliance Sales & Distribution and Fry’s, would significantly impact our ability to meet our financial obligations and to fund our operations for the foreseeable future.

Inventory, net

During the year ended June 30, 2011, our net inventory decreased by $125,000. This decrease in our net inventory value resulted from an $81,000 increase in our allowance for inventory obsolescence (due to our warehouse units of titles discontinued at North American retail locations being written down to product liquidation values) and a $44,000 decrease in gross inventory due to reduced distribution of our game titles.

Prepaid and other current assets

During the year ended June 30, 2011, our prepaid and other currents assets increased by $37,000, which related to the remaining financing costs associated with a note payable issued during fiscal 2011, which was partially offset by the remaining value assigned to a consulting agreement.

Accounts Payable

During the year ended June 30, 2011, our accounts payable increased by $250,000 due to an increase in royalties owed to third-party PC game developers through licensing agreements related to titles published by us. Our ability to pay our vendors in a timely manner has become significantly more difficult during fiscal 2011. For example, as of

 

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June 30, 2011 our accounts payable invoices over sixty days old grew to $642,000, or 76%, of total accounts payable, compared to June 30, 2010 when our accounts payable invoices older than sixty days amounted to $428,000, or 72% of total accounts payable.

Unearned Revenues

During the year ended June 30, 2011, our unearned revenues decreased by $165,000 due to a reduction in the remaining balances of advance royalty payments we had received from various international licensees largely for our proprietary game titles for the PC and the Nintendo DS and Wii gaming systems.

Accrued Expenses

During the year ended June 30, 2011, our accrued expenses decreased by $32,000 due to a decrease in accrued marketing promotions, which was partially offset by an increase in accrued royalties.

Changes in Cash Flow, Non-Operating Activities

During the year ended June 30, 2011, we had $12,000 in net cash used in investing activities compared to the year ended June 30, 2010 when we had $2,000 in net cash used in investing activities. In fiscal 2011, net cash used in investing activities related to equipment upgrades.

During the year ended June 30, 2011, we had $391,000 in net cash provided by financing activities due to $400,000 in net proceeds from our issuance of a note payable as part of a financing agreement, along with $9,000 in repayments of that note payable.

During the year ended June 30, 2010, we had $497,000 in net cash provided by financing activities due to the net proceeds from our issuance of 1,000,000 common shares in a private placement.

Contractual Obligations and Commitments

We occupy a 5,000 square foot office facility located in Langhorne, Pennsylvania under an operating lease through September 30, 2012. We also occupy a 250 square foot office facility located in Montrose, California under an operating lease through November 30, 2011 and a 570 square foot office facility located in Woburn, Massachusetts under an operating lease through November 30, 2011. Additionally, we currently rent certain office equipment through various operating lease agreements. At June 30, 2011, we had future operating lease commitments of $117,000.

Under various licensing agreements with independent software developers, we are required to pay royalties for the use of licensed content in our products. Most of these licensing agreements require us to make advance licensing and royalty payments to these software developers prior to the time we recognize any net revenues of software titles containing this licensed content. At June 30, 2011, we had future commitments to pay $51,000 in advance licensing and royalty payments to various third-party licensors. We plan to fund our third party royalty payments from cash flows generated through operations.

In connection with our acquisition of Heyday Games, we agreed to pay up to $15,000 of Heyday’s legal fees incurred in connection with the organization of Heyday Games, certain intellectual property matters and the acquisition.

 

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The following table represents a summary of our off-balance sheet contractual obligations and commitments at June 30, 2011.

Contractual Obligations

 

Fiscal Years

Ending June 30,

   Operating
Leases
     Advanced
Licensing  &

Royalties
     Acquisition
related
Commitment
     Totals  
2012    $ 65,000       $ 51,000       $ 15,000       $ 131,000   
2013      23,000         - 0 -         - 0 -         23,000   
2014      11,000         - 0 -         - 0 -         11,000   
2015      9,000         - 0 -         - 0 -         9,000   
2016      9,000         - 0 -         - 0 -         9,000   
  

 

 

    

 

 

    

 

 

    

 

 

 
Totals    $ 117,000       $ 51,000       $ 15,000       $ 183,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liquidity Risk

We have incurred net losses of $1.2 million and $0.3 million, respectively, for fiscal years 2011 and 2010. During fiscal 2011, we continued to experience negative cash flow from operations largely due to our continued investment spending for product development of game titles for the PC, Internet and social networks, combined with the less than expected sell-through of our products at retail and on the Internet. Those facts, along with our lack of access to a bank credit facility, create an uncertainty about our ability to continue as a going concern. Accordingly, we are currently evaluating our alternatives to secure outside financing sufficient to support the operating requirements of our current business plan. As of October 31, 2011, we had approximately $64,000 in cash.

Our ability to achieve positive cash flow remains essential to our survival as a going concern since we do not have access to a credit facility. Achieving positive cash flow depends upon a variety of factors, including the timing of the collection of outstanding accounts receivable, the creditworthiness of our primary software distributors and retailers, consumer demand and monetization of our new social game products, and the costs of developing, producing, marketing and promoting our games titles. We continue to evaluate the appropriateness of all non-operational cash expenditures.

There are significant challenges that we will need to successfully manage in order to fund our operations in the future. Our most significant challenges will be to raise capital in a difficult economic environment, and monetizing our new social games in order to increase net revenues and gross profit margins. If during fiscal 2012 we are unable to raise additional capital as well as increase our net revenues, we will not be able to continue funding the significant development expenditures associated with our current product development efforts. Additional challenges include, but are not limited to, maintaining commercially viable relationships with our principal software distributors and retailers, collecting timely receivable payments from our concentrated group of software distributors and retailers, and maintaining acceptable payment terms with our trade vendors.

During the year ended June 30, 2011, our accounts payable increased by $250,000 due primarily to an increase in royalties owed to third-party PC game developers through licensing agreements related to titles published by us, in addition to outside contractors associated with our development efforts into social gaming expanded by our acquisition of Heyday Games. Our ability to pay our vendors in a timely manner has become significantly more difficult during fiscal 2011. For example, as of June 30, 2011, our accounts payable invoices over sixty days old grew to $642,000, or 76%, of total accounts payable, compared to June 30, 2010 when our accounts payable invoices older than sixty days amounted to $428,000, or 72% of total accounts payable.

There are market factors beyond our control that could also significantly affect our operating cash flow. The most significant market factors are the success and monetization of our new social games (including virtual goods, advertising and sponsorships for our social network games). Outside financing may not be available when we need it. Even if such financing is available, such financing may cause significant shareholder dilution or may have other costs associated with it that would not be commercially acceptable to us.

 

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Between August 22, 2011 and September 19, 2011, in exchange for $350,000 in gross proceeds, we issued a total of 700,000 shares of Entertainment Games Common Stock at a price of $0.50 per share and warrants for the purchase of a total of 700,000 shares of our common stock to accredited investors in a private placement. The warrants have a three year term and an exercise price of $0.75 per share and were immediately vested. Between October 7 and October 24, 2011, in exchange for $175,000 in gross proceeds, we issued a total of 700,000 shares of Entertainment Games Common Stock at a price of $0.25 per share and warrants for the purchase of a total of 700,000 shares of our common stock to accredited investors in a private placement. The warrants have a three year term and an exercise price of $0.50 per share and were immediately vested. The proceeds from the issuances of these shares and warrants were used for working capital.

On August 26, 2011, we issued 1,950,000 shares of our common stock and a five-year warrant to acquire 572,393 shares at an exercise price of $0.54 to Ironridge Global Media, a division of Ironridge Global IV, Ltd. (“Ironridge”), pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by us and Ironridge in the Superior Court for the State of California, County of Los Angeles on August 26, 2011 in settlement of claims purchased by Ironridge from certain creditors of ours in the aggregate amount of $257,576.75.

ITEM 3. PROPERTIES

The Company occupies a 5,000 square foot office facility located in Langhorne, Pennsylvania under an operating lease through September 30, 2012. The Company occupies a 250 square foot office facility located in Montrose, California under an operating lease through November 30, 2011 and a 570 square foot office facility located in Woburn, Massachusetts under an operating lease through November 30, 2011.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information as supplied to us regarding the number and percentage of shares of the Company’s Common Stock beneficially owned as of October 31, 2011 (unless otherwise noted) by: (i) those persons or entities known by management to beneficially own more than five percent of the Common Stock; (ii) each of our directors; (iii) each of our executive officers named in the Summary Compensation Table; and (iv) all of our directors and executive officers as a group.

 

Name and address of

Beneficial Owner (1)

   Amount and Nature
Of Beneficial
Ownership (2)
  Percent of Class
Beneficially  Owned

Gerald W. Klein

   913,500 (3)   4.4%

F. J. Lennon

   1,630,834 (4)   7.8%

Eugene H. Mauro

   2,535,453 (5)   12.1%

Thomas W. Murphy

   173,642 (6)   *

Thomas D. Parente

   343,000 (7)   1.6%

Richard H. Siporin

   176,667 (8)   *

Lambert C. Thom

   236,124 (9)   1.1%

Ironridge Global IV, LTD.

   1,950,000 (10)   9.4%

All executive officers and directors as a group (8 persons)

   6,091,620 (11)   28.2%

 

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* Less than 1%
(1) Unless otherwise indicated, the address of each named holder is c/o Entertainment Games, Inc., 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047.
(2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”) and generally includes voting or investment power with respect to securities. In accordance with SEC rules, the shares in this column include shares that may be acquired upon exercise of stock options within sixty days of October 31, 2011. Except as indicated by footnote, and subject to community property laws where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
(3) Includes 118,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date. The shares held consist of 330,000 shares held in a joint account with Mr. Klein’s spouse, and 558,000 shares held directly by Mr. Klein.
(4) All shares beneficially owned were acquired in connection with our acquisition of Heyday Games in June 2011.
(5) Includes 80,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date. Also includes 203,856 shares held by Mr. Mauro’s immediate family member. Mr. Mauro beneficially owns 2,446,253 shares of our common stock acquired in connection with our acquisition of Heyday Games in June 2011.
(6) Includes 90,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date. Also includes 788 shares held by Mr. Murphy’s immediate family members.
(7) Includes 100,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date and 80,000 warrants for the purchase of Common Stock that are currently exercisable. The shares held consist of 62,000 shares of common stock held in a joint account with Mr. Parente’s spouse, and 1,000 shares held by Mr. Parente’s spouse.
(8) Includes 90,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date.
(9) Includes 100,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date.
(10) Ownership as of August 29, 2011.
(11) Includes 656,000 shares of Common Stock that may be acquired by such persons through the exercise of options that were exercisable as of October 31, 2011 or became exercisable within 60 days of that date and 80,000 warrants for the purchase of our common stock that are currently exercisable.

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

Executive Officers:

Our executive officers are:

 

Name

   Age   

Position

Gerald W. Klein

   63    Chief Executive Officer

Eugene H. Mauro

   42    President and Chief Operating Officer

F. J. Lennon

   47    Chief Creative Officer

Thomas W. Murphy

   53    Vice President, Finance and Chief Financial Officer

Ellen Pulver Flatt

   48    Vice President and General Counsel

Richard H. Siporin

   52    Vice President, Sales and Marketing

 

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Mr. Klein has been Chief Executive Officer of Entertainment Games since June 2011. He joined the company as Vice President and Chief Financial Officer in February 1996, and became President and Chief Executive Officer in June 1998. He has been a Director since August 1994. Prior to joining the company, Mr. Klein was President, Chief Executive Officer and a Director of Megamation Incorporated, a publicly traded company that manufactured automation work cells used in various industries. From August 1991 to October 1994, Mr. Klein served as President and Chief Executive Officer of PricePoint, Inc., a start-up company engaged in the development of electronic retail pricing systems developed to replace paper shelf labels in supermarkets and other retail markets.

Mr. Mauro joined Entertainment Games as President and Chief Operating Officer June 2011. He was a co-founder of Heyday Games, Inc. and served as its Chief Executive Officer from November 2010 until it was acquired by Entertainment Games in June 2011. He served on our Board of Directors from December 2005 until June 8, 2011 and since July 25, 2011. From 2009 to 2011, Mr. Mauro managed a consumer Internet and video game consulting business, Mauro Media Inc. Prior to that, he served as Vice President, Marketing and Business Development for gamer DNA, an online game network, from October 2008 to October 2009, and Vice President of Business Development for Bunchball Inc. from December 2006 until June 2008, where Mr. Mauro launched the first social games on Facebook. From March 2004 until September 2005, Mr. Mauro served as Chief Executive Officer and Executive Producer for Myelin Media, LLC, a video game publishing company, and from May 2001 until December 2003, he was the founder, and served as CEO, of Capital Entertainment Group, an independent video game production studio.

Mr. Lennon joined Entertainment Games as Chief Creative Officer in June 2011. He was a co-founder of Heyday Games, Inc. and served as its Chief Creative Officer from November 2010 until it was acquired by Entertainment Games in June 2011. From January 2009 until founding Heyday Games, Mr. Lennon was a self-employed author of published novels. From March 2008 until December 2008, Mr. Lennon was a creator, designer and writer for Realtime Associates, Inc. where he designed and wrote Soul Trapper and L.A. Knight, two iPhone audio adventures. He was executive producer, designer and writer for the Federal Mediation and Conciliation Service from August 2002 until January 2008, when he developed an interactive conflict resolution tool and computer game for this government agency. He was instrumental in the launch of Take 2 Interactive, where he served as Creative Director and Senior Vice President of Product Development from 1993 to 1996.

Mr. Murphy has been our Chief Financial Officer since July 1999. He joined Entertainment Games as Controller in May 1996. Prior to joining Entertainment Games, Mr. Murphy was Controller of Megamation Incorporated, a publicly traded company that manufactured automation work cells used in various industries, from January 1995 until April 1996, and Accounting Manager of Ohmicron, Inc., a biotechnology company, from January 1993 until December 1994. From September 1985 to May 1992, Mr. Murphy served in a number of financial positions at Checkpoint Systems, Inc., a provider of security and access control systems, including serving as Accounting Manager from 1991 to 1992.

Ms. Pulver Flatt has served as Vice President and General Counsel since September, 2011 and prior to that served as our counsel in various positions since 1999, when she joined Entertainment Games. From 1992 until July 1999, she was an associate with McCausland Keen & Buckman, a law firm based in Radnor, Pennsylvania, where her practice focused in the areas of securities law, mergers and acquisitions and general corporate law. Prior to entering Villanova University School of Law in 1989, Ms. Pulver Flatt was a newspaper reporter for the Philadelphia Inquirer.

Mr. Siporin has served as Vice President of Sales and Marketing of Entertainment Games since January 2000. Prior to joining Entertainment Games, he served as Senior Vice President of Sales for Sunbeam, Inc., Health Division. From 1988 to 1998, Mr. Siporin served in a number of positions at Revlon, Inc., including serving as Vice President of Sales from 1992 to 1998. From 1982 to 1988, Mr. Siporin held a number of sales management positions with Playtex Family Products.

 

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Directors:

There is no family relationship between any director and any other director or executive officer of Entertainment Games. The names of the members of our Board of Directors and certain information about them are set forth below. The information about our Board of Directors is based, in part, upon information furnished by the directors.

 

Director Name

   Age     

Title

   Since  

Gerald W. Klein

     63       Director and Chief Executive Officer      1994   

Eugene H. Mauro

     42       Director, President and Chief Operating Officer      2005   

Thomas D. Parente (2)(3)

     64       Director      1995   

Lambert C. Thom (1)(2)(4)

     66       Director      1997   

 

(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Chairman of Board of Directors and Audit Committee
(4) Chairman of Compensation Committee

Gerald W. Klein has served as President and Chief Executive Officer of Entertainment Games since June 1998. He joined Entertainment Games as Vice President and Chief Financial Officer in February 1996 and has been a Director since August 1994. Prior to joining Entertainment Games, Mr. Klein was President, Chief Executive Officer and a Director of Megamation Incorporated, a publicly traded company that manufactured automation work cells used in various industries. From August 1991 to October 1994, Mr. Klein served as President and Chief Executive Officer of PricePoint, Inc., a start-up company engaged in the development of electronic retail pricing systems developed to replace paper shelf labels in supermarkets and other retail markets. From 1979 to 1991, Mr. Klein was employed by Checkpoint Systems, Inc., a provider of security and access control systems to retailers, commercial businesses, and libraries and was President and Chief Operating Officer of that company from April 1986 to July 1991.

Mr. Mauro joined Entertainment Games as President and Chief Operating Officer June 2011. He was a co-founder of Heyday Games, Inc. from November 2010 until it was acquired by Entertainment Games in June 2011. He served on our Board of Directors from December 2005 until June 8, 2011 and since July 25, 2011. From 2009 to 2011, Mr. Mauro managed a consumer Internet and video game consulting business, Mauro Media Inc. Prior to that, he served as Vice President, Marketing and Business Development for gamer DNA, an online game network, from October 2008 to October 2009, and Vice President of Business Development for Bunchball Inc. from December 2006 until June 2008, where Mr. Mauro launched the first social games on Facebook. From March 2004 until September 2005, Mr. Mauro served as Chief Executive Officer and Executive Producer for Myelin Media, LLC, a video game publishing company, and from May 2001 until December 2003, he was the founder, and served as CEO, of Capital Entertainment Group, an independent video game production studio.

Thomas D. Parente has served as a Director of Entertainment Games since June 1995. He served as Chairman of the Board from August 1998 until December 2000 and since December 2005. Mr. Parente is Corporate Secretary and Director of Corporate Development for Ole Hansen & Sons, Inc., a privately owned holding company, a position he has held since December 1996. From May 1995 to November 1996, he was self-employed as a financial consultant to businesses. From April 1988 until April 1996, Mr. Parente was a Vice-President and the Chief Financial Officer of Suvar Corporation, a manufacturer of specialty chemicals for the printing and coatings markets. From June 1970 until April 1988, Mr. Parente was employed by KPMG LLP and was a partner with that firm from April 1979 until April 1988. Mr. Parente is a certified public accountant.

Lambert C. Thom joined Entertainment Games as a Director in December 1997. He has served as Managing Director of Bangert, Dawes, Reade, Davis & Thom, Incorporated, a private investment firm, since 1975. From 1989 to 1995, Mr. Thom served as Vice President of John Hancock Capital Growth Management, Inc., an investment

 

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management firm. Mr. Thom has also been the owner and Chief Executive Officer of Positive Concepts, Inc. since 1998.

Audit Committee:

The Board of Directors of Entertainment Games has an Audit Committee comprised of Lambert C. Thom, and Thomas D. Parente. Mr. Parente is the Chairman of the Audit Committee.

Code of Ethics:

We have adopted a Code of Ethics that applies to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer and senior financial and accounting officers. In addition to other matters, the Code of Ethics establishes policies to deter wrongdoing and to promote honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest, compliance with applicable laws, rules and regulations, full, fair, accurate, timely and understandable disclosure in public communications and prompt internal reporting of violations of the Code of Ethics. A copy of the Entertainment Games Code of Ethics is available on our website at http://www.egames.com/investors/about-us/code-of-ethics/. Shareholders may request a printed copy of the Code of Ethics, free of charge, by contacting our Vice President and Chief Financial Officer at:

Entertainment Games, Inc.

Attention: Vice President and Chief Financial Officer

2000 Cabot Boulevard, Suite 110

Langhorne, PA 19047

ITEM 6. EXECUTIVE COMPENSATION

The following table sets forth the total compensation earned during the fiscal years ended June 30, 2011 and 2010 by our Chief Executive Officer and the two other most highly compensated executive officers whose salary and bonus earned during the 2011 fiscal year exceeded $100,000. The executive officers set forth in the table below are referred to, collectively, as our “named executive officers.”

Summary Compensation Table

 

Name and

Principal Position

   Fiscal
Year
     Salary
($)
     Bonus
($)(1)
     Option
Awards
($)
     Non-Equity
Incentive Plan
Compensation
($)
     Nonqualified
Deferred
Compensation

Earnings
   All Other
Compensation
($)(2)
     Total ($)  

Gerald W. Klein

     2011         200,000         1,500         -0-         -0-       -0-      8,846         210,346   

President and Chief

Executive Officer

     2010         200,000         1,500         -0-         -0-       -0-      9,596         211,096   

Thomas W. Murphy

     2011         145,000         1,500         -0-         -0-       -0-      2,032         148,532   

Vice President - Finance and

Chief Financial Officer

     2010         145,000         1,500         -0-         -0-       -0-      988         147,488   

Richard H. Siporin

     2011         170,000         1,500         -0-         -0-       -0-      8,604         180,104   

Vice President - Sales

and Marketing

     2010         170,000         1,500         -0-         -0-       -0-      8,604         180,104   

 

 

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(1) Represents non-performance-based discretionary compensation paid to the named executive officer as a holiday bonus.
(2) The compensation for our named executive officers during the 2011 fiscal year represented by the amount set forth in the “All Other Compensation” column in the Summary Compensation Table is detailed below. This includes the company’s contribution to the named executive officer’s 401(k) plan at the rate of 50% of the employee’s contribution to the plan; and life insurance premiums for term life insurance for these officers.

 

Name

   401(k) Plan
Contributions ($)
   Life Insurance
Premiums ($)
   Total All Other
Compensation ($)

Gerald W. Klein

   8,250    596    8,846

Thomas W. Murphy

   1,839    193    2,032

Richard H. Siporin

   8,250    354    8,604

Outstanding Equity Awards at 2011 Fiscal Year-End

The following table sets forth information with respect to outstanding equity awards for our named executive officers as of the end of the 2011 fiscal year. There were no outstanding stock or other equity incentive plan awards as of the end of the 2011 fiscal year.

 

Name

  

Number of Securities Underlying

Unexercised Options

     Option
Exercise
Price ($)
     Option
Expiration
Date
 
   Exercisable (#)     Unexercisable (#)        

Gerald W. Klein

     30,000  (1)      70,000         .62         06/05/2019   
     77,000  (2)      33,000         .79         11/04/2013   

Thomas W. Murphy

     30,000  (1)      70,000         .62         06/05/2019   
     52,500  (2)      22,500         .79         11/04/2013   

Richard H. Siporin

     30,000  (1)      70,000         .62         06/05/2019   
     52,500  (2)      22,500         .79         11/04/2013   

 

(1) These stock options were not granted pursuant to any formal stock option plan. These stock options vest in 10% increments per year over 10 years and have 11-year terms, subject to earlier termination or expiration in the event of termination of service.
(2) These stock options were granted pursuant to our 1995 Amended and Restated Stock Option Plan, referred to as our “1995 Plan”. These stock options vested in 10% increments per year over 10 years and have 10-year terms, subject to earlier termination or expiration in the event of termination of service or as otherwise set forth in the 1995 Plan. See Note 16 of the “Notes to Financial Statements” under Item 13 for a more detailed description of the 1995 Plan.

Change of Control Severance Arrangements

In June 2004, we adopted a Change of Control Severance Plan for Level One Employees (the “Severance Plan”). The Chief Executive Officer, the President, any Vice President, and each other person designated by the Board of

 

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Directors in writing are eligible to participate in the Severance Plan. Currently, Mr. Klein, Mr. Murphy and Mr. Siporin, our named executive officers, and Eugene Mauro, F.J. Lennon, and Ellen Pulver Flatt, who are also executive officers, participate in the Severance Plan. The Severance Plan provides for benefits in the event that Entertainment Games or its successor terminates an eligible individual’s employment within 90 days prior to or 365 days after a “change of control” for any reason other than for “cause,” as both terms are defined in the Severance Plan, or any eligible employee terminates his or her employment for “good reason,” as defined in the Severance Plan. Under the Severance Plan, each participating employee may be eligible to receive the following benefits:

 

   

a lump sum payment equal to two times the sum of his or her annual base salary and either (1) the annual cash bonus, if any, actually paid or declared for the year immediately preceding the year in which the employee’s employment terminates or (2) the annual bonus for the year immediately preceding the year the change of control giving rise to the termination of employment, whichever is greater; and

 

   

continuation of the employee’s health benefits for up to 24 months.

Compensation of Directors; Compensation Committee Interlocks and Insider Participation

The non-employee members of the Board of Directors, Thomas D. Parente and Lambert C. Thom, who are also the only members of our Audit Committee and Compensation Committee, receive a cash fee of $500 for each meeting attended. During the 2011 fiscal year, the Board of Directors held seven meetings, all of which were attended by each director, except for Mr. Mauro, who resigned from the Board prior to the last two meetings of fiscal 2011 at which the Board considered the Heyday Games transaction and, therefore, Mr. Mauro attended only five meetings of the Board. All directors are entitled to reimbursement for reasonable expenses incurred in the performance of their duties as members of our Board of Directors.

 

Name

   Fees
Earned
or Paid
in Cash ($)
     Stock
Awards ($)
   Option
Awards ($)
   Non-Equity
Incentive
Plan
Compensation ($)
   Nonqualified
Deferred
Compensation
Earnings ($)
   All Other
Compensation ($)
   Total ($)  

Eugene H. Mauro

   $ 2,500       -0-    -0-    -0-    -0-    -0-    $ 2,500   

Thomas D. Parente

   $ 3,500       -0-    -0-    -0-    -0-    -0-    $ 3,500   

Lambert C. Thom

   $ 3,500       -0-    -0-    -0-    -0-    -0-    $ 3,500   

 

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Equity Compensation Plan Information:

The following table summarizes, as of June 30, 2011, outstanding common stock warrants and common stock options to acquire shares of our Common Stock that have been issued under our 1995 Plan, which expired June 30, 2005, or that were issued outside the 1995 Plan.

 

Plan category

   Number of securities  to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
     Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
     Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)

Equity compensation plans approved by security holders.

     525,000       $ 0.79       - 0 -

Equity compensation plans not approved by security holders. (1)

     850,000       $ 0.57       - 0 -

Warrant issued to First Global Securities. (2)

     62,000       $ 1.10       - 0 -

Warrant issued to Bandera Master Fund L.P. (3)

     1,000,000       $ 0.80       - 0 -

Warrant issued to Fertilemind Capital Fund I (4)

     400,000       $ 0.25       - 0 -
  

 

 

    

 

 

    

 

Total

     2,837,000       $ 0.66       - 0 -
  

 

 

    

 

 

    

 

 

(1) In December 2005, we granted common stock options to our outside Directors to purchase 150,000 shares of our Common Stock at an exercise price of $0.31, the market price on the date of grant. These common stock options have ten year terms, and vested over three years after the date of grant in equal annual installments. These common stock options were not part of any formal stock option plan.

On June 19, 2007, we granted a common stock option to one employee to purchase 50,000 shares of our common stock, with an exercise price of $0.73 (the closing price of our common stock on date of grant) and a life of six years. This common stock option was not part of any formal stock option plan and was subsequently cancelled upon the employee’s termination.

On June 5, 2008, we granted common stock options to our Board of Directors and members of management to purchase 800,000 shares of our common stock, with an exercise price of $0.62 (the closing price of our common stock on date of grant), vesting over ten years and having a life of eleven years. Due to one of these optionees leaving the Company, an option to purchase 100,000 shares from this grant was subsequently cancelled. These common stock options were not part of any formal stock option plan.

(2) On May 8, 2008, in consideration for placement agency services rendered during our private offering of Preferred Stock, we issued to First Global Securities a five year common stock warrant to purchase 62,000 shares of our Common Stock at an exercise price of $1.10 per share.
(3) On March 19, 2010, we issued a common stock warrant to purchase 1,000,000 shares of our common stock to an accredited investor related to a private placement offering of our Common Stock. This warrant has an exercise price of $0.80 per share and a term of three years.

 

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(4) On June 3, 2011, we issued a common stock warrant to purchase 400,000 shares of our common stock to an accredited investor related to a financing agreement secured by a note payable. This warrant has an exercise price of $0.25 per share and a term of two years.

ITEM  7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

On June 24, 2011, we completed the acquisition of substantially all of the assets of Heyday Games, a producer of cross-platform social game content, of which Gene Mauro, a director of Entertainment Games from 2005 until June 8, 2011 and since July 25, 2011, was a co-founder. In order to avoid conflicts of interest in connection with the transaction, Mr. Mauro resigned as a director and did not participate in any board discussions or negotiations between Entertainment Games and Heyday Games on behalf of Entertainment Games. In connection with the transaction, following the consummation of the acquisition, Mr. Mauro was reappointed to the Board and elected as our President and Chief Operating Officer. As part of the transaction, Mr. Mauro entered into a Non-Competition and Confidentiality Agreement with us. Pursuant to the purchase agreement between us, Heyday Games and its shareholders, we issued 3,706,387 shares of our common stock to Heyday Games, with an additional 411,821 shares of common stock subject to a holdback for our indemnification claims under the purchase agreement. In addition to the upfront payment, Heyday Games will be eligible to receive a potential earnout of an additional 2,745,472 shares of our common stock if our cumulative net income equals or exceeds, in the aggregate, $20,592,000 during any of the fiscal years beginning June 30, 2011 and ending June 30, 2015. Entertainment Games and Heyday Games also entered into a Registration Rights Agreement covering the shares issued in the transaction.

Director Independence

Mr. Parente and Mr. Thom are independent directors and committee members based on the definition of independence of the American Stock Exchange’s Listing Standards, Policies and Requirements, which are the independence standards utilized by our board although our common stock is not listed on the American Stock Exchange. The Board of Directors has determined that Mr. Parente, a member of the Audit Committee, is an “audit committee financial expert.” Mr. Klein and Mr. Mauro each serve as our executive officers, and therefore are not independent directors.

ITEM 8. LEGAL PROCEEDINGS

There are not currently any pending legal proceedings to which we are party or as to which any of our property is subject that we consider to be material, and no such proceedings are known to us to be threatened or contemplated against us.

ITEM 9. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES

No established trading market currently exists for our common stock. After the effectiveness of this registration statement, we will be in compliance with the OTCBB’s requirements and will be in a position to seek a market maker, although there is no assurance that we will be successful in obtaining or maintaining such compliance or market maker. Our common stock, which has no par value, has been trading on the Pink Sheets’ electronic quotation service under the symbol “EGAM” since February 2007, when we voluntarily deregistered our shares under the Exchange Act. The deregistration of our shares had the effect of suspending our public reporting obligations under the Exchange Act.

While we were an SEC reporting company, from October 1995 until February 2007, our common stock traded on the OTCBB under the symbol “EGAM” from April 2001 until February 2007, after having traded on the NASDAQ SmallCap Market under the same symbol from the time we became an SEC reporting company following our public offering in October 1995. The sales prices below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

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The following table sets forth the quarterly high and low sales price per share of our common stock for the fiscal years ended June 30, 2011 and 2010, as reported at www.nasdaq.com:

 

     High      Low  

Fiscal Year Ended June 30, 2010

     

First Quarter

   $ 0.24       $ 0.08   

Second Quarter

   $ 0.46       $ 0.07   

Third Quarter

   $ 0.95       $ 0.23   

Fourth Quarter

   $ 0.95       $ 0.35   

Fiscal Year Ended June 30, 2011

     

First Quarter

   $ 0.74       $ 0.34   

Second Quarter

   $ 0.56       $ 0.12   

Third Quarter

   $ 0.54       $ 0.20   

Fourth Quarter

   $ 0.60       $ 0.16   

At June 30, 2011, we had approximately 145 shareholders of record. As of October 31, 2011: 20,832,528 shares of our common stock were outstanding; 525,000 shares of our common stock was reserved for issuance of grants of outstanding options under our 1995 Plan; 2,312,000 shares of common stock were reserved for the issuance of shares under other outstanding options and warrants; and 1,750,000 shares were reserved for issuance upon conversion of our Preferred Stock. Of the outstanding shares, 5,221,000 shares are “restricted securities” as defined in Rule 144 and represented by a certificate that includes a restricted legend, substantially all of which will be eligible for resale under Rule 144 beginning 90 days following the effectiveness of this registration statement, subject to compliance with the requirements of the rule.

Affiliates will be able to sell their shares, including restricted securities and other shares that may have previously been registered or purchased on the open market, under Rule 144 beginning 90 days after the effectiveness of this registration statement, subject to all other requirements of Rule 144. In general, under Rule 144, an affiliate would be entitled to sell within any three-month period a number of shares that does not exceed one percent of the number of shares of our common stock then outstanding. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Persons who may be deemed to be our affiliates generally include individuals or entities that control, or are controlled by, or are under common control with, our company and may include our directors and executive officers, as well as our significant shareholders.

For a shareholder who has not been deemed to have been one of our affiliates at any time during the 90 days preceding a sale, sales of our common stock held longer than six months, but less than one year, will be subject only to the current public information requirement and can be sold under Rule 144 beginning 90 days after the effectiveness of this registration statement. A person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least one year, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144 upon the effectiveness of this registration statement.

Holders of warrants to acquire shares of our common stock, holders of our Common Stock and holders of our Preferred Stock convertible into 1,750,000 shares of our common stock generally may cause us to register a total of 7,522,393 of their shares for resale to the public in the event that we file a registration statement under the Securities Act in the future, subject to conditions contained in the applicable registration rights agreements.

We currently intend to retain earnings, if any, for use in funding our business and do not anticipate paying cash dividends to common stock shareholders in the foreseeable future.

As discussed in Note 14 in the “Notes to Financial Statements” under Item 13, we currently intend to continue making or accumulating quarterly dividend payments to shareholders of our Preferred Stock in accordance with the terms of the Preferred Stock.

 

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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

In the three years prior to the filing of this Form 10, we issued the following unregistered securities. Each such sale was exempt from registration under the Securities Act. Unless indicated otherwise, the transactions involved accredited investors only and were entered into in reliance upon Regulation D and/or Section 4(2) of the Securities Act for an exemption from the registration provisions of the Securities Act.

On September 21, 2009, in consideration for services provided, we issued 225,000 shares of our Common Stock to an investor relations firm.

On March 19, 2010, we issued 1,000,000 shares of our Common Stock and a warrant to purchase 1,000,000 shares of our common stock to an accredited investor in a private placement. This warrant has an exercise price of $0.80 per share and a term of three years.

On April 13, 2010, in consideration for consulting services to be rendered over a twenty-four month period, we issued 75,000 shares of our Common Stock to a consultant.

On June 3, 2011, we completed a debt financing, in which we received gross proceeds of $400,000 in exchange for entering into a three year senior secured promissory note (“Note”) in the principal amount of $400,000 and a two-year warrant with an exercise price of $0.25 per share to purchase 400,000 shares of our Common Stock.

On June 24, 2011, we issued 3,706,387 shares of our Common Stock, which related to our acquisition of Heyday Games.

On August 10, 2011, we issued 28,597 shares of Entertainment Games Common Stock to holders of the Company’s Preferred Stock in payment the preferred stock dividend for the quarter ended June 30, 2011.

On August 22, 2011, we issued 100,000 shares of Entertainment Games Common Stock to an accredited investor pursuant to an investor relations agreement.

Between August 22, 2011 and September 19, 2011, in exchange for $350,000 in gross proceeds, we issued a total of 700,000 shares of Entertainment Games Common Stock at a price of $0.50 per share and warrants for the purchase of a total of 700,000 shares of our common stock to accredited investors in a private placement. The warrants have a three year term and an exercise price of $0.75 per share and were immediately vested.

Between October 7 and October 24, 2011, in exchange for $175,000 in gross proceeds, we issued a total of 700,000 shares of Entertainment Games Common Stock at a price of $0.25 per share and warrants for the purchase of a total of 700,000 shares of our common stock to accredited investors in a private placement. The warrants have a three year term and an exercise price of $0.50 per share and were immediately vested.

On August 26, 2011, we issued 1,950,000 shares of our common stock and a five-year warrant to acquire 572,393 shares at an exercise price of $0.54 to Ironridge Global Media, a division of Ironridge Global IV, Ltd., referred to as Ironridge, in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10). The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims, or Stipulation, filed by us and Ironridge in the Superior Court for the State of California, County of Los Angeles on August 26, 2011 in settlement of claims purchased by Ironridge from certain of our creditors in the aggregate amount equal to $257,576.75, plus interest, attorneys’ fees and costs. Pursuant to the terms of the Stipulation, we may be required to issue additional shares or Ironridge may be required to return a portion of the shares to us.

On September 26, 2011, we issued 40,185 shares of our Common Stock to an investment firm in payment for administrative and legal fees pursuant to a financing term sheet.

 

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ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

Pursuant to our Amended and Restated Articles of Incorporation, we are authorized to issue 40,000,000 shares of common stock, no par value per share and 10,000,000 shares of preferred stock, no par value per share. As of September 22, 2011, there were outstanding 20,152,343 shares of our common stock, and 875,000 shares of our Preferred Stock.

Common Stock

Holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholder, including election of directors. There is [no] cumulative voting in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratable in all assets remaining after payment of liabilities and the liquidation preference of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities.

Preferred Stock

We are authorized to issue 10,000,000 shares no par value preferred stock in one or more series with such designations, voting power, if any, preferences and relative, participating, option or other special rights, and such qualifications, limitations and restrictions, as are determined by resolution of our board of directors. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by shareholders and could adversely affect the rights and powers, including voting rights, of the holders of common stock. In certain circumstances, the issuance of preferred stock could depress the market price of the common stock. As of September 22, 2011, there were 875,000 shares of preferred stock outstanding.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 1741 of the Pennsylvania Business Corporation Law, or the PBCL, empowers a corporation to indemnify any officer or director acting in his or her capacity as a representative of the corporation who was or is a party or is threatened to be made a party to any action or proceeding against expenses, judgments, penalties, fines and amounts paid in settlement in connection with such action or proceeding whether the action was instituted by a third party or arose by or in the right of the corporation. The PBCL limits the ability of a corporation to indemnify its officers and directors for conduct constituting willful misconduct or recklessness, or acts in violation of criminal statute.

Our amended and restated bylaws provide for the indemnification of our directors for monetary damages for any action taken unless the director breached or failed to perform the duties of his or her office, and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. This limitation does not apply to the responsibility or liability of a director pursuant to any criminal statute, or for the payment of taxes. Our bylaws also provide that we will indemnify any director or officer to the fullest extent permitted by Pennsylvania law, by reason of the fact that he or she is or was a director or officer.

The indemnification and advancement of expenses provided by our bylaws are not exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, contract, vote of shareholders or directors. It is our policy that indemnification of, and advancement of expenses to, directors and officers shall be made to the fullest extent permitted by law. To this end, the provisions of our bylaws will be deemed to have been amended for the benefit of directors and officers effective immediately upon any modification of the PBCL or any modification, or adoption of any other law that expands or enlarges the power or obligation of corporations organized under the PBCL to indemnify, or advance expenses to, directors and officers of corporations.

 

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Our bylaws provide that we will pay expenses incurred by an officer or director, in defending a proceeding, in advance of the final disposition of such action or proceeding provided that if required by the PBCL or other applicable law, the payment of such expenses will be made only on receipt of an undertaking by or on behalf of such person to repay that amount if it shall ultimately be determined that such person is not entitled to be indemnified by us.

We have the authority to create a fund of any nature, or otherwise secure or insure in any manner, our indemnification obligations. The indemnification provisions of our bylaws constitute a contract between us and each of our directors and officers, and any repeal or modification of the bylaws’ indemnification provisions will not limit any such person’s rights to indemnification (including the advancement of expenses) then existing or arising out of events, acts or omissions occurring before such repeal or modification.

Our bylaws provide that we can purchase and maintain insurance on behalf of any person who is or was a Director or officer, to insure against any expense, liability or loss asserted against such persons.

Any repeal or amendment of the provisions relating to indemnification which is adverse to any director or officer shall apply to such director or officer only on a prospective basis, and will not reduce any limitation on the personal liability of a director, or limit the rights of any such person to indemnification or to the advancement of expenses with respect to any action or failure to act occurring prior to the time of such repeal or amendment.

Our amended and restated articles of incorporation provide for the indemnification of our directors and officers for any threatened, pending or completed proceeding against all expenses, liability and loss, including but not limited to attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement, actually and reasonably incurred or paid by that person in connection with the proceeding. Our articles of incorporation also provide that we will indemnify any director or officer to the fullest extent permitted by law by reason of the fact that he or she is or was a director or officer of the Company. The right to indemnification provided in the articles of incorporation shall be a contract right and shall include the right to be paid by us the expenses incurred in defending or in enforcing his or her rights under any such proceeding, in advance of the final disposition of such action or proceeding; provided that if required by applicable law, the payment of such expenses will be made only on receipt of an undertaking by or on behalf of such person to repay that amount if it shall ultimately be determined that such person is not entitled to be indemnified by us. The indemnification and advancement of expenses provided by our articles of incorporation are not exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or directors. If a claim for indemnification is not paid in full by us within 30 days after we have received the written claim, the claimant may bring suit against us to recover the unpaid amount of the claim and if successful in whole or in part in establishing his or her right to indemnification or advancement of expenses, the claimant shall be entitled to be paid the expense of prosecuting the claim.

 

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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Entertainment Games, Inc.

Index to Financial Statements

 

     Page  

Independent Auditors’ Report

     40   

Balance Sheets as of June 30, 2011 and 2010

     41   

Statements of Operations for the years ended June 30, 2011 and 2010

     42   

Statements of Stockholders’ Equity (Deficit) for the years ended June 30, 2011 and 2010.

     43   

Statements of Cash Flows for the years ended June 30, 2011 and 2010.

     44   

Notes to Financial Statements

     45   

 

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Entertainment Games, Inc.

We have audited the accompanying balance sheets of Entertainment Games, Inc. (a Pennsylvania corporation) as of June 30, 2011 and 2010, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Entertainment Games, Inc. as of June 30, 2011 and 2010 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 21 to the financial statements, the Company has suffered recurring losses from operations which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Notes 1 and 21. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

/s/ BBD, LLP

Philadelphia, Pennsylvania

November 7, 2011

 

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Entertainment Games, Inc.

Balance Sheets

 

     As of     As of  
      June 30,
2011
    June 30,
2010
 

ASSETS

    

Current assets:

    

Cash

   $ 328,367      $ 626,748   

Accounts receivable, net

     143,397        310,931   

Inventory, net

     469,871        595,000   

Prepaid and other current assets

     136,070        99,233   
  

 

 

   

 

 

 

Total current assets

     1,077,705        1,631,912   

Furniture and equipment, net

     10,766        5,866   

Intangibles

     1,524,089        24,089   

Goodwill

     680,000        - 0 -   
  

 

 

   

 

 

 

Total assets

   $ 3,292,560      $ 1,661,867   
  

 

 

   

 

 

 

LIABILITIES AND

STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Note payable, current portion

   $ 130,170      $ - 0 -   

Accounts payable

     841,638        591,868   

Unearned revenues

     432,581        597,266   

Accrued expenses

     377,479        409,043   
  

 

 

   

 

 

 

Total current liabilities

     1,781,868        1,598,177   

Note payable, long-term portion

     260,341        - 0 -   
  

 

 

   

 

 

 

Total liabilities

     2,042,209        1,598,177   

Stockholders’ equity

    

Preferred stock no par value, (10,000,000 authorized; 875,000 shares of Convertible Preferred issued and outstanding)

     704,568        704,568   

Common stock, no par value (40,000,000 shares authorized; 17,711,646 and 13,841,573 issued respectively and 17,433,746 and 13,563,673 outstanding, respectively)

     12,731,475        10,507,723   

Additional paid-in capital

     2,090,883        1,926,885   

Accumulated deficit

     (13,723,638     (12,522,549

Treasury stock, 277,900 shares, at cost

     (552,937     (552,937
  

 

 

   

 

 

 

Total stockholders’ equity

     1,250,351        63,690   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 3,292,560      $ 1,661,867   
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Entertainment Games, Inc.

Statements of Operations

 

     Years Ended
June 30,
 
     2011     2010  

Net revenues

   $ 3,083,557      $ 3,602,172   

Cost of revenues

     1,705,743        1,460,945   
  

 

 

   

 

 

 

Gross profit

     1,377,814        2,141,227   

Operating expenses:

    

Product development

     859,095        930,882   

Selling, general and administrative

     1,668,720        1,751,103   

Intangibles impairment (recovery)

     - 0 -        (150,000
  

 

 

   

 

 

 

Total operating expenses

     2,527,815        2,531,985   
  

 

 

   

 

 

 

Operating loss

     (1,150,001     (390,758

Interest (expense) income, net

     (7,336     339   
  

 

 

   

 

 

 

Loss before income taxes

     (1,157,337     (390,419

Income tax expense (benefit)

     - 0 -        (46,811
  

 

 

   

 

 

 

Net loss

   ($ 1,157,337   ($ 343,608
  

 

 

   

 

 

 

Net loss per common share:

    

- Basic

   ($ 0.08 )    ($ 0.03 ) 
  

 

 

   

 

 

 

- Diluted

   ($ 0.08 )    ($ 0.03 ) 
  

 

 

   

 

 

 

Weighted average common shares outstanding

     13,718,943        12,669,436   
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Entertainment Games, Inc.

Statements of Stockholders’ Equity (Deficit)

 

      Convertible
Preferred Stock
     Common Stock      Additional
Paid-in

Capital
     Accumulated
Deficit
    Treasury Stock     Stockholders’
Equity (Deficit)
 
      Shares      Amount      Shares      Amount           Shares     Amount    

Balances at June 30, 2009

     875,000       $  704,568         12,331,040       $ 9,897,024       $  1,844,945       ($  12,135,189     (277,900   ($  552,937   ($ 241,589
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

                    (343,608         (343,608

Stock-based compensation for common stock options issued to employees and directors

                 81,940               81,940   

Dividends declared on preferred stock

           210,533         43,752            (43,752         - 0 -   

Common stock shares issued in connection with consulting agreement

           225,000         19,391                  19,391   

Common stock shares and warrant issued in connection with private placement financing

           1,000,000         497,280                  497,280   

Common stock shares issued in connection with consulting agreement

           75,000         50,276                  50,276   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2010

     875,000       $ 704,568         13,841,573       $ 10,507,723       $ 1,926,885       ($ 12,522,549     (277,900   ($ 552,937   $ 63,690   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

                    (1,157,337         (1,157,337

Stock-based compensation for common stock options issued to employees and directors

                 75,252               75,252   

Dividends declared on preferred stock

           128,365         43,752            (43,752         - 0 -   

Common stock shares issued upon warrant exercise

           35,321            - 0 -               - 0 -   

Common stock warrant issued

                 88,746               88,746   

Common stock shares issued to acquired company

           3,706,387         2,180,000                  2,180,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2011

     875,000       $ 704,568         17,711,646       $ 12,731,475       $ 2,090,883       ($ 13,723,638     (277,900   ($ 552,937   $ 1,250,351   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Entertainment Games, Inc.

Statements of Cash Flows

 

     Years Ended June 30,  
     2011     2010  

OPERATING ACTIVITIES:

    

Net loss

   ($ 1,157,337   ($ 343,608

Adjustments to reconcile net loss to net cash used in operating activities:

    

Stock-based compensation

     104,090        107,616   

Bad debt expense (recovery)

     (30,770     42,121   

Provision for product returns and price markdowns

     113,252        11,277   

Provision for inventory obsolescence

     290,679        107,765   

Depreciation and amortization

     7,172        14,669   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     54,282        (84,502

Inventory, net

     (165,550     (151,213

Prepaid and other current assets

     23,071        32,775   

Accounts payable

     249,770        34,419   

Unearned revenues

     (164,685     (33,276

Accrued expenses

     (794     49,050   
  

 

 

   

 

 

 

Net cash used in operating activities

     (676,820     (212,907

INVESTING ACTIVITIES:

    

Purchase of furniture and equipment

     (12,072     (2,057
  

 

 

   

 

 

 

Net cash used in investing activities

     (12,072     (2,057

FINANCING ACTIVITIES:

    

Net proceeds from common stock private placement

     - 0 -        497,280   

Proceeds from issuance of note payable

     400,000        - 0 -   

Repayments of note payable

     (9,489     - 0 -   
  

 

 

   

 

 

 

Net cash provided by financing activities

     390,511        497,280   
  

 

 

   

 

 

 

Net increase (decrease) in cash

     (298,381     282,316   

Cash:

    

Beginning of period

     626,748        344,432   
  

 

 

   

 

 

 

End of period

   $ 328,367      $ 626,748   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 5,638      $ - 0 -   
  

 

 

   

 

 

 
SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES     

Preferred dividends paid through issuance of common stock

   $ 43,752      $ 43,752   
  

 

 

   

 

 

 

Acquisition of Heyday Games, Inc. through issuance of common stock

   $ 2,180,000      $ - 0 -   
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Entertainment Games, Inc.

Notes to Financial Statements

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

About Entertainment Games, Inc. (formerly eGames, Inc.)

Entertainment Games, Inc. (“Entertainment Games”) is a Pennsylvania corporation incorporated in July 1992 that develops, publishes, markets and sells software games primarily for the personal computer (“PC”). Historically, Entertainment Games has focused on publishing casual software games for the PC platform, and selling the greatest volume of its’ PC games in major mass-merchant retail stores in North America. Entertainment Games now publishes third-party PC game titles and also develops its own proprietary PC game titles for distribution at retail and on the Internet. Entertainment Games has developed some titles for the Nintendo DS and Wii gaming systems. Additionally, Entertainment Games has developed and published games for the Apple iPhone which are sold at www.iTunes.com.

In North America, the Company’s PC games are distributed to retail stores primarily through third-party software distributors who service the major mass-merchant retailers, while our Nintendo DS and Wii games are published and distributed worldwide by third-party publishers. In territories outside North America, the Company licenses its PC games to third-party software distributors which are responsible for the manufacture and distribution of our PC games within specific geographic territories. The Company markets and sells its game titles under the eGames™ brand.

A summary of the Company’s significant accounting policies applied in the preparation of Entertainment Games Financial Statements follows:

Basis of Presentation

The financial statements have been prepared assuming that the Company will continue as a going concern which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended June 30, 2011, the Company incurred a net loss of $1,157,337, had an accumulated deficit of $13,723,638 and incurred a net operating cash flow deficit of $676,820. The Company’s recent capital requirements were satisfied through the issuance of long-term debt (see Note 7), the issuance of common stock in connection with a private placement financing, maintaining balances in accounts payable and accrued expenses on terms in excess of those afforded in commercial practice and vendor agreements and through the use of available cash. However, the Company does not have sufficient resources to maintain its existing plan of operations through the year ending June 30, 2012. The Company’s resources are currently only sufficient to fund its operations through November 2011. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management anticipates that additional debt or equity financing will be required to fund ongoing operations and product development during fiscal 2012. The Company is currently negotiating with potential investors to raise additional capital to fund its current operations. However, there is no assurance that the Company will successfully obtain the required capital or, if obtained, the amounts will be sufficient to fund ongoing operations for fiscal 2012 and beyond. The inability to secure additional capital could have a material adverse effect on the Company, including the possibility that the Company could have to cease operations. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Certain dollar amounts discussed in the “Notes to Financial Statements” have been round to the nearest thousand (“000”).

Management’s Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and assumptions are made in: determining allowances for inventory obsolescence, product

 

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returns, price markdowns and customer bad debts; disclosure of contingent assets and liabilities; initial valuation and subsequent measurement of goodwill and other intangible assets; evaluating the recoverable value of advanced licensing and royalty payments at the end of the reporting period; in addition to determining the amounts of revenues and expenses recognized during each reporting period. The Company recognizes the critical nature and potential impact from making these and any other estimates and attempt to make reliable estimates, based upon the information available to management as of any reporting period. However, the Company also recognizes that actual results could differ from any of these estimates and that such differences could have either a negative or positive impact on future financial results.

Fair Value of Financial Instruments

The Company’s financial instruments at June 30, 2011 and 2010 consisted of cash, accounts receivable, accounts payable, accrued expenses and note payable. The Company believes that the carrying values of cash, accounts receivable, accounts payable and accrued expenses approximately fair value due to their short-term maturity. Based on the borrowing rates and terms currently available to the Company for loans of similar terms, the Company has determined that the carrying value of note payable approximates fair value.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. At June 30, 2011 and 2010, cash consisted of funds maintained in the Company’s bank checking accounts. The Company deposits its cash at various financial institutions located in Pennsylvania. These cash deposits may, at times, be in excess of the FDIC insurance limit or not covered by the FDIC. The Company controls credit risk through credit approvals and monitoring procedures. The Company generally does not require collateral to support accounts receivable balances.

Accounts Receivable, net

Accounts receivable is reflected net of allowances for product returns, price markdowns and customer bad debts. The adequacy of these allowances is reviewed throughout each reporting period and any necessary adjustments to these allowances are reflected within the current period’s provisions for product returns and price markdowns (reflected as a reduction to gross revenues); and customer bad debts (if any, reflected as an operating expense). Actual product returns, price markdowns and customer bad debts are recorded as reductions to these allowances as well as reductions to the customers’ individual accounts receivable balances (see Note 2).

Inventory, net

Inventory consists primarily of finished goods and is valued at the lower of cost or market. Cost is determined by the first-in, first-out method (FIFO). The Company’s inventory valuation policy requires management to make estimates and assumptions about the recoverability of the carrying value of inventory as of the end of each reporting period and cost of revenues expensed during each reporting period. The individual components of the Company’s software titles that are usually reflected in the net inventory valuation include some combination of the manufactured costs of: CD’s; DVD’s; jewel cases; box packaging; print materials; shrink-wraps; wafer-seals; assembly and other miscellaneous items particular to specific titles. The Company’s inventory could be valued differently at the close of any reporting period and the amount of expense recorded as cost of revenues during any reporting period could differ, if management’s judgments or estimates for the impairment of inventory value (recorded through the provision for inventory obsolescence within the Statement of Operations) are insufficient or excessive when compared to actual results.

Prepaid and Other Current Assets

Prepaid and other current assets represent advance payments made to third parties for items such as licensing of software and intellectual properties used in the Company’s products, estimated tax payments, consulting services, certain insurance coverage, financing cost, retail slotting fees and game licenses. Prepaid and other current assets are usually expensed as operating expenses on a straight-line basis over the period of time covered by a contract. Advance licensing and royalty payments are usually expensed as cost of revenues at the higher of the contractual or effective rate (see Notes 4 and 9). Tax payments are reflected as income tax expense when appropriate.

 

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The Company continually evaluates the recoverability of their advanced licensing and royalty payments by reviewing the information available about each title and the underlying licensed content. In particular, the Company evaluates the expected future revenues of a title or potential subsequent titles containing the same licensed content based on current and potential revenue programs, along with historical sell-through results of similar titles to consumers. The Company charges to cost of revenues the remaining capitalized costs they determine to be non-recoverable in future periods. Capitalized costs determined to be non-recoverable are expensed in the reporting period management determines recoverability of these costs in future periods is unlikely.

Furniture and Equipment, net

Furniture and equipment, net is stated at cost and net of accumulated depreciation. Repair and maintenance costs are charged to expense as incurred. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets ranging from three to five years (see Note 5).

The Company reviews and evaluates its furniture and equipment for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. If the carrying value exceeds the cash flows then recorded amounts of the assets will be reduced to their fair value.

Intangibles

FASB Accounting Standards Codification 350, “Intangibles – Goodwill and Other” (“ASC 350”) requires that purchased goodwill and intangibles with indefinite lives not be amortized. Rather, goodwill and intangible assets with indefinite lives are subject to at least an annual assessment for impairment by applying a fair-value-based test. ASC 350 requires a two-step approach to testing goodwill for impairment for each reporting unit. The first step tests for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary), measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. See Notes 6 and 20.

Goodwill

The Company is required to perform a two-step approach for testing goodwill for impairment for each reporting unit annually, or whenever events or changes in circumstances indicate that fair value of a reporting unit is below its carrying amount. The Company’s reporting units are determined by the components of operating segments that constitute a business for which (1) discrete financial information is available and (2) segment management regularly reviews the operating results of that component. The first step measures for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to the individual assets and liabilities within each reporting unit. The fair value of each reporting unit is estimated using a combination of the market approach, which utilizes comparable companies’ data, and/or the income approach, which utilizes discounted cash flows.

During the fiscal year ended June 30, 2011, the Company completed the first step of the annual goodwill impairment testing in the fourth quarter of each year and found no indicators of impairment of the recorded goodwill. The Company did not have any goodwill recorded as of June 30, 2010 so no goodwill impairment testing was performed during that fiscal year. The Company did not recognize any impairment charge on goodwill in fiscal years ended June 30, 2011 and 2010. See Notes 6 and 20.

Unearned Revenues

Unearned Revenues consist of advance royalty payments that the Company received from third-parties for licensing rights within certain geographic territories for proprietary game titles Entertainment Games has internally developed. The Company recognizes revenues from these amounts by determining the greater of: actual royalties earned based on sales within their licensed territories as reported by the licensees or the pro-rata amount of the royalty advance spread over the duration of the licensing agreement. At June 30, 2011 and 2010, the Company had $433,000 and $597,000, respectively, in unearned revenues relating to various game titles developed for the PC and Nintendo DS and Wii gaming systems.

 

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Revenue Recognition

The Company evaluates revenue recognition based on the criteria set forth in FASB ASC 985-605, Software: Revenue Recognition and Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104, Revenue Recognition. The Company evaluates and recognizes revenue when all four of the following criteria are met:

 

   

Evidence of an arrangement. Evidence of an agreement with the customer that reflects the terms and conditions to deliver products must be present.

 

   

Delivery. Delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have been transferred to the customer. For online game services, delivery is considered to occur as the service is provided. For digital downloads that do not have an online service component, delivery is generally considered to occur when the download is made available.

 

   

Fixed or determinable fee. If a portion of the arrangement fee is not fixed or determinable, the Company recognize revenue as the amount becomes fixed or determinable.

 

   

Collection is deemed probable. The Company conducts a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer. Collection is deemed probable if the Company expects the customer to be able to pay amounts under the arrangement as those amounts become due. If the Company determines that collection is not probable, the Company recognizes revenue when collection becomes probable (generally upon cash collection).

Product Revenues

The Company distributes the majority of their products through third-party software distributors to the major North American mass-merchant retailers and directly to certain North American PC software retailers. The distribution of the Company’s products is governed by purchase orders, distribution agreements, or direct sales agreements, most of which allow for product returns and price markdowns. The Company recognizes revenues from product shipments to various software distributors and retailers at the time title to inventory transfers to the software distributor or retailer, less a provision for anticipated product returns and price markdowns. However, if the Company determines that they are not able to estimate an appropriate provision for product returns and price markdowns for any retailer or distributor or if they determine that the underlying terms of a purchase order, direct sales agreement or distribution agreement do not qualify as a sale, the Company then recognize revenues for product deliveries to these retailers or distributors on a consignment basis.

Title to the Company’s products for non-consignment shipments usually transfers to software distributors and retailers upon their receipt of Entertainment Games products, because retailer and distributor purchase orders typically reflect shipping terms of FOB destination. In order to recognize revenues associated with customer purchase orders having terms of FOB destination, the Company performs sales cut-off tests, in which they obtain proof of deliveries for product shipments made during the last two weeks of a reporting period from the freight companies that deliver the products to Entertainment Games retail and distribution customers. Revenues and costs associated with product shipments received by the Company’s customers after the end of a reporting period and having FOB destination terms are excluded from the current period’s net revenues and cost of revenues, and are deferred until the subsequent reporting period.

After product deliveries to the Company’s distribution and retail customers are made, the Company does not provide any further services or materials that are essential to the Company’s products’ functionality. However, the Company does provide basic telephone and web-based support as a means of improving consumer satisfaction and brand loyalty.

During fiscal 2011, the Company continued to recognize an increasing proportion of net traditional product revenues on a consignment basis. Accordingly, revenues from product shipments pursuant to these types of agreements are only recognized to the extent that the distributor or retailer has reported to the Company that the product has sold

 

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through to consumers. For the years ended June 30, 2011 and 2010, revenues recognized under these consignment and sell-through agreements were $1,356,000 and $1,492,000, respectively, and represented 72% and 69% of net traditional product revenues.

Provision for Product Returns and Price Markdowns

The Company’s provision for anticipated product returns and price markdowns (reflected as a reduction to gross revenues) is primarily based on management’s analysis of: historical product return and price markdown results; current product sell-through activity at retail store locations; current field inventory quantities at distributors’ warehouses and at retail store locations; the length of time that products have been released at retail along with their estimated remaining retail life; outstanding return material and price markdown authorizations; and the introduction of new and/or competing software products that could negatively impact the revenues of one or more of Entertainment Games current products. For the years ended June 30, 2011 and 2010, the Company’s provisions for product returns and price markdowns were $113,000 and $11,000, respectively, or 5% and 1%, respectively, of related gross product revenues. These amounts are reported in net revenues in the accompanying statements of operations.

The adequacy of the allowance for product returns and price markdowns is reviewed throughout each reporting period and any necessary adjustment to this allowance is reflected within the current reporting period’s provision for product returns and price markdowns. At the end of each reporting period, the allowance for product returns and price markdowns is reflected as a reduction to the Company’s gross accounts receivable.

At June 30, 2011 and 2010, the allowance for product returns and price markdowns amounted to $151,000 and $103,000, respectively, or 51% and 25%, respectively, of the Company’s gross accounts receivable. Historically, the allowance for product returns and price markdowns has represented a large percentage of the gross accounts receivable because the Company continues to have product return and price markdown exposure for the software units related to paid receivables while previously sold units remain in the retailers’ stores or in the retailers’ or distributors’ warehouses. Throughout each reporting period management continues to evaluate the Company’s product return or price markdown exposure for software units the Company had previously sold to software distributors and retailers, until physical units of the Company’s PC game titles are returned to the Company from software distributors or retailers, or until they sell through to consumers. During reporting periods, through retailer and distributor provided reports, the Company has regular and timely visibility of product sell-through activity and remaining quantities of its titles in the retail channel that help management assess their exposure for future product returns and price markdowns.

Shipping and Handling Fees and Costs

The Company includes shipping and handling fees billed to customers in net revenues. Shipping and handling costs associated with inbound freight and shipping and handling costs associated with outbound freight are included in cost of revenues.

Software Development Costs

Software development costs are expensed as incurred. FASB ASC 985, “Costs of Software to be Sold, Leased or Marketed”, (“ASC 985”), provides for the capitalization of certain software development costs incurred after technological feasibility of the software is established or for development costs that have alternative future uses. However, under the Company’s existing process of developing new game titles, the technological feasibility of the underlying game software is not established until substantially all product development is complete. Accordingly, the Company did not capitalize any software development costs during the fiscal years ended June 30, 2011 and 2010.

Stock-Based Compensation

The Company has adopted FASB ASC 718, “Compensation – Stock Compensation”, (“ASC 718”). ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements, measured by the fair value of the equity or liability instruments issued, adjusted for estimated forfeitures.

 

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Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carry-forwards, and temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company utilizes the provisions of FASB ASC 740, “Accounting for Uncertainty in Income Taxes” (“ASC 740”) to account for uncertain tax positions, if any. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. It is the Company’s policy to record interest and penalties related to uncertain income tax positions, if any, as a component of income tax expense. Prior to adopting ASC 740, the Company used the guidance provided in ASC 450.

Computation of Net Loss per Common Share

Net loss per common share is computed in accordance with FASB ASC 260, “Earnings per Share” (“ASC 260”). Basic earnings per share is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing net loss by the weighted average number of common shares and common share equivalents (“CSEs”) outstanding during each period that the Company reports net income. CSEs may include common stock options and common stock warrants using the treasury stock method. Diluted earnings per share information is not presented, as the effects of common stock options and warrants would be anti-dilutive for the periods presented.

2. Accounts Receivable, net

Accounts receivable, net consists of the following:

 

     2011     2010  

Accounts receivable, gross

   $ 294,000      $ 414,000   

Allowance for product returns and price markdowns

     (151,000     (103,000
  

 

 

   

 

 

 

Accounts receivable, net

   $ 143,000      $ 311,000   
  

 

 

   

 

 

 

3. Inventory, net

Inventory, net consists of the following:

 

     2011     2010  

Raw materials – warehouse

   $ 325,000      $ 261,000   

Finished goods – warehouse

     221,000        269,000   

Consignment product – retailer and distributor locations

     147,000        206,000   

Product returns – retailer and distributor locations

     5,000        5,000   
  

 

 

   

 

 

 

Inventory, gross

     698,000        741,000   

Allowance for obsolescence

     (228,000     (146,000
  

 

 

   

 

 

 

Inventory, net

   $ 470,000      $ 595,000   
  

 

 

   

 

 

 

 

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4. Prepaid and Other Current Assets

Prepaid and other current assets consists of the following:

 

     2011      2010  

Financing cost

   $ 85,000       $ - 0 -   

Consulting

     19,000         44,000   

Advance royalties

     12,000         13,000   

Insurances

     7,000         13,000   

Rent

     7,000         - 0 -   

Other

     6,000         8,000   

Game license

     - 0 -         21,000   
  

 

 

    

 

 

 

Prepaid and other current assets

   $ 136,000       $ 99,000   
  

 

 

    

 

 

 

5. Furniture and Equipment, net

Furniture and equipment consists of the following:

 

     2011     2010  

Equipment

   $ 219,000      $ 218,000   

Furniture and fixtures

     223,000        223,000   

Leasehold improvements

     12,000        - 0 -   
  

 

 

   

 

 

 
     454,000        441,000   

Accumulated depreciation

     (443,000     (435,000
  

 

 

   

 

 

 

Furniture and equipment, net

   $ 11,000      $ 6,000   
  

 

 

   

 

 

 

Depreciation expense was approximately $7,000 and $15,000, respectively, for the years ended June 30, 2011 and 2010.

6. Intangibles and Goodwill

At June 30, 2011 and 2010, the Company had reported intangibles of approximately $1,524,000 and $24,000 respectively, and reported goodwill of $680,000 and $ - 0 - respectively, identified as follow:

 

     2011      2010  

Technology acquired and related to Heyday Games acquisition – being amortized over its finite life of ten (10) years (see note 20)

   $ 1,500,000       $ - 0 -   

Trademark registration with the US Patent and Trademark Office – indefinite life

     24,000         24,000   
  

 

 

    

 

 

 

Total Intangibles

   $ 1,524,000       $ 24,000   
  

 

 

    

 

 

 
     2011      2010  

Goodwill related to Heyday Games acquisition (see note 20)

   $ 680,000       $ - 0 -   

Accumulated impairment

     - 0 -         - 0 -   
  

 

 

    

 

 

 

Total Goodwill

   $ 680,000       $ - 0 -   
  

 

 

    

 

 

 

Acquisition-related intangible assets, net of accumulated amortization of zero, as of June 30, 2011 and 2010, were $1,500,000 and $24,000 respectively, and include costs for obtaining (1) developed and core technology and (2) trade names and trademarks. Amortization of intangibles for fiscal years 2011 and 2010 was zero since the finite life intangible related to the Heyday Games acquisition occurred in late June of 2011 and the $24,000 intangible has an indefinite life and so no amortization has been recognized. Acquisition-related intangible assets with finite lives are amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms. The Heyday Games related technology intangible with a finite life will be amortized over ten (10) years on a straight-line basis. As of June 30, 2011, the weighted-average remaining useful life for acquisition-related intangible assets with a finite life was approximately ten (10) years.

 

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The Company is required to perform a two-step approach for testing goodwill for impairment for each reporting unit annually, or whenever events or changes in circumstances indicate that fair value of a reporting unit is below its carrying amount. The Company’s reporting units are determined by the components of its operating segments that constitute a business for which (1) discrete financial information is available and (2) segment management regularly reviews the operating results of that component. The first step measures for impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to the individual assets and liabilities within each reporting unit. The fair value of each reporting unit is estimated using a combination of the market approach, which utilizes comparable companies’ data, and/or the income approach, which utilizes discounted cash flows.

During the fiscal year ended June 30, 2011, the Company completed the first step of the annual goodwill impairment testing and found no indicators of impairment of recorded goodwill. The Company did not have any goodwill recorded as of June 30, 2010 so no goodwill impairment testing was done during that fiscal year. We did not recognize any impairment charge on goodwill in fiscal years ended June 30, 2011 and 2010.

7. Note Payable

On June 3, 2011, the Company completed a debt financing, in which it received gross proceeds of $400,000 in exchange for entering into a three year senior secured promissory note (“Note”) in the principal amount of $400,000 and issuing a two-year warrant to purchase 400,000 shares of the Company’s Common Stock. The Note bears interest of twenty-four percent (24%) per annum and principal and interest payments are due and payable monthly. This Note is secured and payments are specifically funded by net receipts related to the Company’s Internet based tool-bar distribution agreement with a third-party toolbar provider. The Company’s monthly principal and interest payments related to this Note are directly wired from the third-party toolbar provider to the holder of the Company’s Note.

 

     2011     2010  

Note Payable

   $ 390,000      $ - 0 -   

Less: current portion

     (130,000     (- 0 -
  

 

 

   

 

 

 

Long-term portion

   $ 260,000      $ - 0 -   
  

 

 

   

 

 

 

Scheduled principal payments on “long-term” portion of this debt outstanding at June 30, 2011 is as follows:

 

Year ending June 30,

  

2013

   $ 130,000   

2014

     130,000   
  

 

 

 

Long-term portion

   $ 260,000   
  

 

 

 

8. Accrued Expenses

Accrued expenses consist of the following:

 

     2011      2010  

Royalties

   $ 142,000       $ 127,000   

Vacations

     96,000         98,000   

Professional services

     47,000         49,000   

Customers with credit balances

     33,000         9,000   

Director fees

     18,000         - 0 -   

Other

     12,000         13,000   

Annual report

     11,000         10,000   

Dividends declared – preferred stock

     11,000         11,000   

Marketing promotions

     7,000         49,000   

Litigation and claims

     - 0 -         43,000   
  

 

 

    

 

 

 

Accrued expenses

   $ 377,000       $ 409,000   
  

 

 

    

 

 

 

 

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9. Commitments and Contingencies

The Company occupies a 5,000 square foot office facility located in Langhorne, Pennsylvania under an operating lease through September 30, 2012.

Additionally, the Company currently rents certain office equipment through various operating lease agreements. For the years ended June 30, 2011 and 2010, total rent expense (reflected in Entertainment Games statements of operations as “selling, general and administrative expenses”) amounted to $71,000 and $80,000, respectively. At June 30, 2011, the Company had future operating lease commitments of $117,000 scheduled to be paid as follows: $65,000 in fiscal 2012; $23,000 in fiscal 2013; $11,000 in fiscal 2014; $9,000 in fiscal 2015 and $9,000 in fiscal 2016.

Under various licensing agreements with independent software developers, the Company is required to pay royalties (reflected in Entertainment Games statements of operations as “cost of revenues”) for the use of licensed content in the Company’s products. Most of these licensing agreements require the Company to make advance licensing and royalty payments to these developers prior to the time Entertainment Games recognizes any net revenues of software titles containing this licensed software content. At June 30, 2011, the Company had future commitments to pay $51,000 in advance licensing and royalty payments to various independent licensors and software developers, all scheduled to be paid in fiscal 2012.

As part of the Heyday Games acquisition, the Company agreed to pay up to $15,000 of Heyday Games’ legal fees incurred in connection with the organization of Heyday Games and certain intellectual property matters and in connection with the purchase agreement.

10. Credit Facility

At June 30, 2011, the Company did not have access to any credit facility, and the Company did not have an outstanding balance under any credit facility.

11. Advertising Costs

The Company generally expenses advertising costs (such as in-store circulars and point of sale materials) as incurred, except for costs associated with media campaigns (such as print ads, online banner ads and video loops) which would be recognized as prepaid assets (to the extent these items were paid in advance) and expensed during the period in which the ad or video loop is released to consumers. During the years ended June 30, 2011 and 2010, advertising expenses amounted to $3,000 and $7,000, respectively.

12. Concentration of Customers

The Company continues to have a concentration of customers consisting of a few large software distributors, retailers and licensees. During the year ended June 30, 2011, the Company had one customer, Navarre, representing 10% or more of it net revenues, accounting for $1,274,000, or 41% of net revenues, compared to the year ended June 30, 2010, when customers representing 10% or more of our net revenues were: Navarre, accounting for $1,370,000, or 38% of net revenues, and Ditan/Synergex, accounting for $409,000, or 11% of net revenues.

During fiscal 2010 the Company terminated its relationship with Ditan/Synergex due to payment issues, and has since entered into a new distribution relationship with Alliance Sales & Distribution to distribute its products in Canada to replace Ditan/Synergex. As of June 30, 2011, the Company’s net accounts receivable with Ditan/Synergex was zero as its allowance for product returns and price markdowns for Ditan/Synergex was equal to the gross accounts receivable the Company has with them. During fiscal 2011, Alliance Sales & Distribution represented $289,000 in net revenues, or 9% of net revenues, and the Company’s net accounts receivable with them was zero as of June 30, 2011.

 

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13. Income Taxes

The provision (benefit) for income taxes is comprised of the following components for the years ended June 30, 2011 and 2010, respectively:

 

      2011      2010  

Current

     

Federal

   $  - 0 -       ($ 47,000

State

     - 0 -         - 0 -   
  

 

 

    

 

 

 
     - 0 -         (47,000

Deferred

     

Federal

     - 0 -         - 0 -   

State

     - 0 -         - 0 -   
  

 

 

    

 

 

 
     - 0 -         - 0 -   

Valuation allowance

     - 0 -         - 0 -   
  

 

 

    

 

 

 

Provision (Benefit) for income taxes

   $ - 0 -       ($ 47,000
  

 

 

    

 

 

 

The reconciliation between the statutory federal income tax rate and the Company’s effective federal rate for income tax provision for the years ended June 30, 2011 and 2010, respectively, is as follows:

 

     2011     2010  

Statutory federal income tax rate

     34     34

Increase (decrease) in taxes resulting from:

    

Change in valuation allowance and other

     (34 %)      (34 %) 
  

 

 

   

 

 

 

Effective federal rate for income tax provision

     - 0 -     - 0 -
  

 

 

   

 

 

 

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2011 and 2010 is as follows:

 

     2011     2010  

Net deferred tax assets:

    

Accrued expenses and other

   $ 203,000      $ 286,000   

Allowances for accounts receivable and inventory

     162,000        102,000   

Net operating losses

     3,523,000        3,137,000   
  

 

 

   

 

 

 

Gross deferred tax assets

     3,888,000        3,525,000   

Less: Valuation allowance

     (3,888,000     (3,525,000
  

 

 

   

 

 

 

Net deferred tax assets

   $ - 0 -      $ - 0 -   
  

 

 

   

 

 

 

The valuation allowance for deferred tax assets was $3,888,000 and $3,525,000 as of June 30, 2011 and 2010, respectively. The net change in the total valuation allowance for the year ended June 30, 2011 was an increase of $363,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical

 

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taxable losses and the uncertainty of projected future results over the period in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences and therefore, full valuation allowances have been made for the years ended June 30, 2011 and 2010.

As of June 30, 2011, the Company had approximately $9,202,000 of net operating loss carry-forwards for federal income tax purposes, (expiring through fiscal year ending June 30, 2031), which are available to offset future federal taxable income, and $3,988,000 in net operating loss carry-forwards for state purposes, (expiring through the fiscal year ending June 30, 2031), which are available to offset future state taxable income.

As of June 30, 2011, the Company had no uncertain tax positions that would require recognition or disclosure in the financial statements. The Company files U.S., California, Delaware and Pennsylvania income tax returns. U.S. returns for the years ended June 30, 2008 to June 30, 2011 remain open for audit. Generally, the various state returns for the years ended June 30, 2007 to June 30, 2011 remain open for audit.

14. Preferred Stock

Series A 5% Cumulative Convertible Preferred Stock Offering Completed on April 25, 2008:

On April 25, 2008, the Company completed a private offering of 875,000 shares of Series A 5% Cumulative Convertible Preferred Stock (the “Preferred Stock”) in which the Company received a total of $875,000 in gross cash proceeds. The shares of Preferred Stock are convertible into Entertainment Games Common Stock at a current conversion ratio of two shares of Common Stock for each share of Preferred Stock. The Company has the right to require the conversion of these shares at the then current conversion rate if the Common Stock has a market price equal to or greater than $3.00 for 30 (thirty) consecutive days. The Preferred Stock would be converted into Entertainment Games Common Stock at the then current conversion rate or redeemed at management’s discretion, in the event of an underwritten public offering, with gross proceeds of at least $20,000,000 or upon a change of control, which includes certain mergers, acquisitions of a majority of the voting stock of Entertainment Games or the sale of all or substantially all of Entertainment Games’ assets. If the Company elects to redeem the Preferred Stock, the Company will pay cash equal to the original purchase price ($1.00) plus all accrued and unpaid dividends.

The Company retained the services of First Global Securities, Inc. (“First Global”) as a non-exclusive placement agent to secure a portion of this Preferred Stock offering. As a result, the Company compensated First Global by issuing 124,000 shares of Entertainment Games Common Stock (fair valued at $62,000), issuing a five year Common Stock Warrant to purchase 62,000 shares of Entertainment Games Common Stock (fair valued at $18,000), and reimbursing $9,300 in First Global’s marketing expenses.

The Company incurred total cash expenditures of approximately $90,000 in connection with the private offering of Entertainment Games Preferred Stock. The Company used the net cash proceeds from the Preferred Stock offering to fund product development of new game titles for the PC and other gaming platforms and for general working capital requirements.

The dividends on the Preferred Stock, when and if declared by the Board of Directors, are payable quarterly and are cumulative. The Company has paid the following quarterly dividends in shares of its common stock to holders of Preferred Stock:

 

   

On July 30, 2009, 60,100 shares issued to holders of Preferred Stock as of June 30, 2009;

 

   

On October 28, 2009, 87,155 shares issued to holders of Preferred Stock as of September 30, 2009;

 

   

On January 29, 2010, 49,304 shares issued to holders of Preferred Stock as of December 31, 2009;

 

   

On April 27, 2010, 13,974 shares issued to holders of Preferred Stock as of March 31, 2010;

 

   

On July 26, 2010, 15,526 shares issued to holders of Preferred Stock as of June 30, 2010;

 

   

On October 28, 2010, 23,804 shares issued to holders of Preferred Stock as of September 30, 2010;

 

   

On January 31, 2011, 49,831 shares issued to holders of Preferred Stock as of December 31, 2010;

 

   

On May 10, 2011, 39,204 shares issued to holders of Preferred Stock as of March 31, 2011; and

 

   

On August 4, 2011, 28,597 shares issued to holders of Preferred Stock as of June 30, 2011.

 

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15. Common Stock

On June 30, 1995, the Company amended its Articles of Incorporation to authorize the issuance of 40,000,000 shares of common stock, without par value, and 10,000,000 shares of preferred stock, without par value.

On September 21, 2009, in consideration for services provided, the Company issued 225,000 shares of its Common Stock to an investor relations firm.

On March 19, 2010, the Company issued 1,000,000 shares of its common stock to an accredited investor in a private placement. On April 13, 2010, in consideration for consulting services to be rendered over a twenty-four month period, the Company issued 75,000 shares of its Common Stock to a consultant.

On June 24, 2011, the Company issued 3,706,387 shares of its Common Stock, in connection with its acquisition of Heyday Games. See Note 20.

On August 22, 2011, the Company issued 100,000 shares of Entertainment Games Common Stock to an accredited investor providing investor relation services.

Between August 22, 2011 and September 19, 2011, in exchange for $350,000 in gross proceeds, the Company issued a total of 700,000 shares of Entertainment Games Common Stock at a price of $0.50 per share and warrants for the purchase of a total of 700,000 shares of our common stock to accredited investors in a private placement. The warrants have a three year term and an exercise price of $0.75 per share and were immediately vested.

On September 26, 2011, we issued 40,185 shares of our Common Stock to an investment firm in payment for administrative and legal fees pursuant to a financing term sheet.

Between October 7 and October 24, 2011, in exchange for $175,000 in gross proceeds, the Company issued a total of 700,000 shares of Entertainment Games Common Stock at a price of $0.25 per share and warrants for the purchase of a total of 700,000 shares of our common stock to accredited investors in a private placement. The warrants have a three year term and an exercise price of $0.50 per share and were immediately vested.

See Note 14 for common stock issuances related to quarterly dividend payments to holders of the Company’s Preferred Stock and see Note 16 for common stock issuances related to the exercise of Common Stock Warrants.

16. Common Stock Options and Warrants

Common Stock Options

During 1995, the Company adopted, amended and restated the 1995 Amended and Restated Stock Option Plan (the “1995 Plan”), which terminated on June 30, 2005. The 1995 Plan allowed for the granting of options to purchase shares of Entertainment Games common stock through June 30, 2005. At the 1997 Annual Meeting of Shareholders, the shareholders of the company approved an amendment to increase the number of shares available for issuance under the 1995 Plan from 950,000 shares of common stock to 1,950,000 shares. At the 2000 Annual Meeting of Shareholders, the shareholders of the company approved an amendment to increase the number of shares available for issuance under the 1995 Plan from 1,950,000 shares of common stock to 2,950,000 shares. The 1995 Plan was administered by the Board of Directors and provided for the grant of incentive stock options and non-qualified stock options to employees and eligible independent contractors and non-qualified stock options to non-employee directors at prices not less than the fair market value of a share of common stock on the date of grant. The 1995 Plan had also provided for automatic grants of options to non-employee directors of the company. Each non-employee director received common stock options for 10,000 shares of common stock upon appointment or election to the board and, in addition, each director received common stock options for 5,000 shares of common stock on the first trading day in January of each year.

Except with respect to automatic grants of common stock options to non-employee directors, the expiration of a common stock option and its vesting period were determined by the Board of Directors at the time of the grant, but in no event would an option be exercisable after 10 years from the date of grant. Common stock option grants under the 1995 Plan vest over periods ranging from six months to ten years. In most cases, upon termination of

 

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employment, vested common stock options must be exercised by the optionee within three months after the termination of the optionee’s employment with our company.

Information regarding the Company’s common stock options is as follows:

 

     Number of
Options
    Weighted
Average
Exercise Price
 

Balance, June 30, 2009

     1,440,000      $  0.65   
  

 

 

   

 

 

 

Granted

     - 0 -        n/a   

Canceled

     (45,000   $ 0.67   

Exercised

     - 0 -        n/a   
  

 

 

   

 

 

 

Balance, June 30, 2010

     1,395,000      $ 0.65   
  

 

 

   

 

 

 

Granted

     - 0 -        n/a   

Canceled

     (20,000   $ 0.73   

Exercised

     - 0 -        n/a   
  

 

 

   

 

 

 

Balance, June 30, 2011

     1,375,000      $ 0.65   
  

 

 

   

 

 

 

At June 30, 2011, options to acquire 727,500 shares of common stock were outstanding and vested. The following summarizes information about the common stock options outstanding at June 30, 2011:

 

     Options Outstanding      Options Exercisable  

Range of Exercise Prices

   Number
of Shares
     Weighted  Avg.
Remaining
Contractual
Term (in  years)
     Weighted
Avg.
Exercise
Price
     Number
of Shares
     Weighted
Avg.
Exercise
Price
 

$ 0.31 - $ 0.31

     150,000         4.42       $ 0.31         150,000       $ 0.31   

$ 0.62 - $ 0.62

     700,000         7.93       $ 0.62         210,000       $ 0.62   

$ 0.79 - $ 0.79

     525,000         2.35       $ 0.79         367,500       $ 0.79   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

$ 0.31 - $ 0.79

     1,375,000         5.42       $ 0.65         727,500       $ 0.64   
  

 

 

          

 

 

    

No common stock options were granted during the years ended June 30, 2011 and 2010.

On August 2, 2011, the Company’s Board of Directors approved the issuance of common stock options to purchase 1,600,000 shares of the Company’s Common Stock. These common stock options have ten year terms and an exercise price of $0.69 per share and vest in ten, equal one-year increments. The options were granted in reliance on applicable federal and state securities exemptions.

Common Stock Warrants

Information regarding the Company’s common stock warrants is as follows:

 

     Number of
Warrants
    Weighted Average
Exercise Price
 

Balance, June 30, 2009

     362,000      $  0.71   
  

 

 

   

 

 

 

Granted

     1,000,000        0.80   

Canceled

     - 0 -        n/a   

Exercised

     - 0 -        n/a   
  

 

 

   

 

 

 

Balance, June 30, 2010

     1,362,000      $ 0.78   
  

 

 

   

 

 

 

Granted

     400,000        0.25   

Canceled

     (150,000     0.75   

Exercised

     (150,000     0.50   
  

 

 

   

 

 

 

Balance, June 30, 2011

     1,462,000      $ 0.66   
  

 

 

   

 

 

 

 

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On March 19, 2010, the Company issued a common stock warrant to purchase 1,000,000 shares of Entertainment Games common stock to an accredited investor related to a private placement offering of Entertainment Games Common Stock. The warrant has an exercise price of $0.80 per share and a term of three years.

On October 5, 2010, the Company issued 35,321 shares of Entertainment Games Common Stock upon the net issuance exercise of a common stock warrant for 150,000 shares.

On June 3, 2011, the Company issued a common stock warrant to purchase 400,000 shares of Entertainment Games common stock to an accredited investor related to a note payable issued as part of a financing agreement. This warrant has an exercise price of $0.25 per share, a term of two years and vests immediately.

The per share weighted-average fair values of the common stock warrants granted during the years ended June 30, 2011 and 2010 were $0.22 and $0.77, respectively, as determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

     Years Ended
June 30,
     2011   2010

Dividend Yield

   0%   0%

Volatility Factor

   224%   197%

Risk-Free Interest Rate

   0.60%   0.96%

Average Expected Warrant Life

   2 Years   2 Years

See Notes 15 and 23 for Common Stock warrants issued subsequent to June 30, 2011.

17. Accounting for Stock-Based Compensation

Prior to July 1, 2002, the Company accounted for all stock option grants under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. Accordingly, no stock-based employee compensation cost is reflected in net income before fiscal 2003, as all stock option grants had an exercise price equal or greater than the market value of the underlying common stock on the date of grant.

Effective July 1, 2002, the Company adopted within their financial statements the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (as superseded by FASB Codification) by applying the fair value method prospectively for stock options grants made on or after that date. As of January 1, 2003, the Company adopted the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (as superseded by FASB Codification).

During the fiscal years ended June 30, 2011 and 2010, the Company recognized stock-based compensation expense of $104,000 and $108,000, respectively, within the financial statements. As of June 30, 2011, the total unrecognized compensation cost related to common stock options was $330,000 and is expected to be expensed over a weighted average service period of 6.4 years. As of June 30, 2011, the total unrecognized compensation cost related to restricted stock was $19,000 and is scheduled to be expensed over the next 9 months on a straight-line basis. As of June 30, 2011, the total unrecognized amortization expense of a common stock warrant associated with a note payable and financing agreement was $85,000, and will be expensed over the next 23 months on a straight-line basis.

18. Employee Benefit Plan

The Company maintains a savings plan which qualifies under Section 401(k) of the Internal Revenue Code, for the benefit of eligible employees. Employees may elect to defer up to the maximum amount permitted under the Internal Revenue Code to the Plan and these contributions are not subject to federal income tax. The Company may make matching contributions to the Plan, on behalf of each participant and at the discretion of the Board of Directors. Matching contributions for the years ended June 30, 2011 and 2010 amounted to $46,000 and $44,000, respectively. The Company may make additional contributions to the Plan in each year in an amount determined annually by the

 

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Company’s Board of Directors. There were no additional contributions to the Plan for the years ended June 30, 2011 and 2010.

19. Operations by Reportable Segment and Geographic Area

FASB ASC 280, “Segment Reporting” (“ASC 280”), establishes standards for reporting information about an enterprise’s operating segments and related disclosures about products, geographic areas and major customers.

Based on the Company’s organizational structure, Entertainment Games operates in only one geographic area, which is North America, and only one reportable segment, which is publishing games for the PC, Internet and various game consoles.

20. Acquisition of Heyday Games, Inc.

On June 24, 2011, the Company completed the acquisition of substantially all of the assets of Heyday Games, Inc. (Heyday Games), a producer of cross-platform social game content. Accounting standards issued by the Financial Accounting Standards Board (“FASB”) related to business combinations require the acquisition method of accounting to be used for all business combinations and for an acquirer to be identified for each business combination. This accounting standard requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at its fair value as of that date, with limited exceptions. It also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with the standard). The standard also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date.

The Company’s acquisition of Heyday Games was accounted for in accordance with this standard and the Company has allocated the purchase price of Heyday Games based upon the fair value of the net assets acquired and liabilities assumed, if any, at the acquisition date. The results of operations of Heyday Games have been included within the accompanying Company’s financial statements from the acquisition date forward.

The purpose of the acquisition was to allow the Company to more aggressively participate in the fastest growing segment of the video game market: social games. In connection with the acquisition, the Company agreed to pay up to $15,000 of Heyday’s legal fees incurred in connection with the organization, certain intellectual property matters and the acquisition. These expenses will be charged to operations during the year ended June 30, 2012.

Pursuant to the purchase agreement among the Company, Heyday Games and its shareholders, the Company issued 3,706,387 shares of its common stock to Heyday Games, with an additional 411,821 shares of common stock subject to a holdback for the Company’s indemnification claims under the purchase agreement. In addition to the upfront payment, Heyday Games will be eligible to receive a potential earn-out of an additional 2,745,472 shares of the Company’s common stock if the Company’s cumulative net income equals or exceeds, in the aggregate, $20,592,000 during any of the fiscal years beginning June 30, 2011 and ending June 30, 2015. Entertainment Games and Heyday Games also entered into a Registration Rights Agreement covering the shares issued in the transaction.

The Company relied on the exemption from registration provided by Rule 506 of Regulation D under the Securities Act of 1933, as amended (“Regulation D”), for sales to “accredited investors” (as such term is defined in Rule 501 of Regulation D) in issuing the shares to Heyday Games. Also, as part of the transaction, Heyday Games, Mauro (currently the Company’s President and Chief Operating Officer) and Lennon (currently the Company’s Chief Creative Officer) have each entered into Non-Competition and Confidentiality Agreements with the Company.

 

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The following table summarized the fair value of the assets acquired at the date of the acquisition, which represents the purchase price allocation at the date of the acquisition of Heyday based on a valuation report which was prepared by a third party appraisal firm:

 

     2011  

Allocation of Purchase Price Paid for Heyday Games:

  

Technology acquired related to Heyday Games acquisition – Being amortized over its finite life of ten (10) years (See Note 6)

   $ 1,500,000   

Goodwill related to Heyday Games acquisition (See Note 6)

     680,000   
  

 

 

 

Total Purchase Price Paid for Heyday Games

   $ 2,180,000   
  

 

 

 

The purchase price allocation above includes an estimate of the fair value of the earn-out payment. The earn-out payment was calculated using a probability weighted income approach which provides a weighted average of various scenarios for cumulative net income of the Company and the associated probabilities based on management’s assertions. Key assumptions include a contingent payment discount rate of 20% and a range of revenues between $1,000,000 and $31,000,000. As of June 30, 2011, the amount recognized for the contingent consideration arrangement, $340,000, the range of outcomes, and the assumptions used to develop the estimates had not changed.

Fair value was estimated using Level 3 inputs under FASB’s accounting standard relating to fair value measurements based on an independent appraisal and the final asset evaluation by management. Level 3 inputs for the nonfinancial assets identified above included a valuation report (prepared by a third party appraisal firm) that primarily utilized a combination of Income approach, Cost approach and Market approach valuation techniques. Level 3 inputs for other assets included present value techniques applied to after-tax income, expected after-tax cash flows and estimated selling prices. In accordance with FASB’s accounting standard related to goodwill and other intangible assets, indefinite lived intangibles and goodwill are not being amortized for book purposes.

As noted in Note 6, the Company performed a review for impairment as of June 30, 2011. The Company did not record any impairment charge from write-downs of purchased intangible assets since the Company did not identify any trends that caused a reduction in the expected future cash flows.

21. Going Concern

As shown in the accompanying financial statements, the Company has incurred net losses of $1.2 million and $0.3 million, respectively, for fiscal years 2011 and 2010. During fiscal 2011, the Company continued to experience negative cash flow from operations largely due to the continued investment spending for product development of game titles for the PC and other popular gaming platforms that are expected to benefit future periods. Those facts, along with the lack of access to a bank credit facility, create an uncertainty about the Company’s ability to continue as a going concern. Accordingly, management is currently evaluating their alternatives to secure financing sufficient to support the operating requirements of the current business plan, as well as continuing to execute the business strategy of distributing our game titles to traditional retail stores, via online distribution and through international licensing opportunities. The Company’s ability to continue as a going concern is dependent upon its success in securing sufficient financing and to successfully execute its plans to return to positive cash flows during fiscal 2012. The Company’s financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern.

22. Recent Accounting Pronouncements

In October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue Arrangements that Include Software Elements. This guidance modifies the scope of FASB ASC subtopic 985-605, Software-Revenue Recognition, to exclude from its requirements non-software components of tangible products and software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. ASU 2009-

 

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14 is effective for fiscal years beginning on or after June 15, 2010. The Company adopted this standard effective July 1, 2010. The adoption of this standard did not have a material impact on the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” ASU 2011-04 explains how to measure fair value and intends to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. ASU 2011-04 will become effective prospectively for interim and annual reporting periods beginning on or after December 15, 2011; early adoption is not permitted for public entities. The standard will become effective for the Company in July 2012. The Company is currently evaluating the impact of ASU 2011-04 on its financial statements.

No other new accounting pronouncements issued or effective during 2011 have had or are expected to have an impact on the Company’s financial statements.

23. Subsequent Events

FASB ASC 855, “Subsequent Events” (“ASC 855”), establishes standards related to accounting for, and disclosure of, events that occur after the balance sheet date, but before the financial statements are issued or available to be issued. Subsequent events have been evaluated through the date and time the financial statements were issued on November 7, 2011. Except as noted below and in Notes 14, 15 and 16 to the financial statements, no material subsequent events have occurred since June 30, 2011 that required recognition or disclosure in the current period financial statements.

On August 19, 2011, the Company changed its corporate name from eGames, Inc. to Entertainment Games, Inc., reflecting its commitment to developing a broad offering of social games on the Heyday Platform for the rapidly emerging social game market across all platforms.

Issuance of Shares Pursuant to a Stipulation for Settlement of Claims

On August 26, 2011, the Company issued 1,950,000 shares of the Company’s common stock and a five-year warrant to acquire 572,393 shares at an exercise price of $0.54 to Ironridge Global Media, a division of Ironridge Global IV, Ltd. (“Ironridge”) in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof. The shares issued to Ironridge were issued pursuant to a Stipulation for Settlement of Claims (the “Stipulation”) filed by the Company and Ironridge in the Superior Court for the State of California, County of Los Angeles on August 26, 2011 in settlement of claims purchased by Ironridge from certain creditors of the Company in the aggregate amount equal to $257,576.75 (the “Claim Amount”), plus interest, attorneys’ fees and costs. Pursuant to the Stipulation, the Company was required to issue and deliver 1,950,000 shares of Common Stock (the “Initial Issuance”). Ironridge will ultimately be entitled to retain a number of shares of Common Stock (the “Final Amount”) that is equal to (i) the sum of the Claim Amount plus reasonable attorney and agent fees, (ii) divided by sixty-five percent of the volume weighted average price (“VWAP”) as reported by Bloomberg over a period of time beginning on the date on which Ironridge receives the Initial Issuance and ending on earlier of 90 days or the date on which the aggregate trading volume of the Company’s common stock exceeds $832,730.25 (such period being the “Calculation Period”). For every million shares that trade during the Calculation Period, or if at any time during the Calculation Period a daily VWAP is below $0.30, Ironridge has the right to cause the Company to immediately issue to Ironridge additional shares of Common Stock (each, an “Additional Issuance”) (provided, however, that at no time may Ironridge and its affiliates collectively own more than 9.99% of the total number of shares of Common Stock outstanding). At the end of the Calculation Period, (a) if the sum of the Initial Issuance and any Additional Issuance is less than the Final Amount, the Company will immediately issue additional shares to Ironridge so that the total issuance is equal to the Final Amount and (b) if the sum of the Initial Issuance and any Additional Issuance is greater than the Final Amount, Ironridge will return any remaining shares to the Company for cancellation.

See Notes 14, 15 and 16 for issuances of the Company’s Common Stock, Common Stock warrants and Common Stock options that occurred since June 30, 2011.

 

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ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

During June 2010, the Company was notified by their previous auditors, Stockton Bates, LLP that they would not be continuing as the Company’s auditors due to a decision made by Clifton Gunderson, LLP, a firm which had recently acquired Stockton Bates, LLP. The Company never had any disagreements with Stockton Bates, LLP.

On August 17, 2010, the Audit Committee of the Company’s Board of Directors engaged BBD, LLP to audit the Company’s financial statements for the year ended June 30, 2010. On July 21, 2011, the Audit Committee of the Company’s Board of Directors engaged BBD, LLP to audit the Company’s financial statements for the year ended June 30, 2011. BBD, LLP has subsequently completed their audits of the Company’s financial statements for the years ended June 30, 2011 and 2010, and there have been no disagreements between the Company and BBD, LLP.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

 

Ex. 2.1   Asset Purchase Agreement by and among the Company, Heyday Games, Inc. and the shareholders of Heyday Games, Inc. dated June 24, 2011.
Ex. 3.1   Articles of Incorporation, as amended
Ex. 3.2 (1)   Amended and Restated Bylaws
Ex. 4.1   Form of Stock Certificate
Ex. 4.2   (2)   1995 Amended and Restated Stock Option Plan
Ex. 4.3* (3)   Form of Non-Qualified Stock Option Agreement
Ex. 4.4* (3)   Form of Incentive Stock Option Agreement
Ex. 4.5   Warrant to Purchase 200,000 shares of Common Stock of the Company exercisable at $0.75 per share issued to William D. Blake on August 10, 2011. Five other investors are parties to identical agreements, with the only differences being the number of shares subject to the warrant and the dates of issuance and termination.
Ex. 4.6   Warrant to Purchase 200,000 shares of Common Stock of the Company exercisable at $0.50 per share issued to Michael Fearnow on October 7, 2011. Four other investors are parties to identical agreements, with the only differences being the number of shares subject to the warrant and the dates of issuance and termination.
Ex. 4.7   Warrant to Purchase 1,000,000 shares of Common Stock of the Company exercisable at $0.80 per share issued to Bandera Master Fund L.P. on March 18, 2010.
Ex. 4.8   Warrant to Purchase 400,000 shares of Common Stock of the Company exercisable at $0.25 per share issued to Fertilemind Capital Fund I on June 3, 2011.
Ex. 4.9   Warrant to Purchase 572,393 shares of Common Stock of the Company exercisable at $0.54 per share to Ironridge Global IV, Ltd. on August 26, 2011.
Ex. 4.10   Warrant to Purchase 62,000 shares of Common Stock of the Company exercisable at $1.10 per share to First Global Securities, Inc. on May 9, 2008.

 

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Ex. 10.1*   Non-Competition and Confidentiality Agreement dated June 24, 2011 between Eugene Mauro and eGames, Inc.
Ex. 10.2*   Non-Competition and Confidentiality Agreement dated June 24, 2011 between F.J. Lennon and eGames, Inc.
Ex. 10.3   Non-Competition and Confidentiality Agreement dated June 24, 2011 between Heyday Games, Inc. and eGames, Inc.
Ex. 10.4   Registration Rights Agreement dated June 24, 2011 by and between eGames, Inc. and Heyday Games, Inc.
Ex. 10.5   Registration Rights Agreement dated March 18, 2010 by and between eGames, Inc. and Bandera Master Fund L.P.
Ex. 10.6   Senior Secured Promissory Note in the amount of $400,000 payable to Fertilemind Capital Fund I dated June 3, 2011.
Ex. 10.7   Sale-Leaseback Agreement by and between eGames Inc. and Fertilemind Capital Fund I dated June 3, 2011.
Ex. 10.8   Registration Rights Agreement dated August 10, 2011 by and between eGames, Inc. and William D. Blake. Five other investors are parties to identical agreements.
Ex. 10.9   Registration Rights Agreement dated October 7, 2011 by and between eGames, Inc. and Michael Fearnow. Four other investors are parties to identical agreements.
Ex. 10.10* (4)   Change of Control Severance Plan for Level One Employees.
Ex. 10.11* (4)   Change of Control Severance Plan for Level Two Employees.
Ex. 10.12   Distribution Agreement by and between Navarre Distribution Services, Inc. and eGames, Inc. dated September 12, 2005, as amended.
Ex. 10.13   Stipulation dated August 26, 2011 between the Company and Iron Ridge Global IV, Ltd.
Ex. 10.14*   Employment Offer Letter dated June 24, 2011 between the Company and Eugene Mauro.
Ex. 10.15*   Employment Offer Letter dated June 24, 2011 between the Company and F.J. Lennon.

 

* Indicates a management contract or compensatory plan or arrangement.
(1) Incorporated herein by reference from the Company’s Form 10-QSB for the quarter ended September 30, 1998 as filed with the Securities and Exchange Commission on November 16, 1998, Registration No. 000-27102.
(2) Incorporated by reference herein from the Company’s Form 10-KSB for the year ended June 30, 1998 as filed with the Securities and Exchange Commission on September 10, 1998, Registration No. 000-27102.
(3) Incorporated by reference herein from the Company’s Form 10-KSB for the year ended June 30, 2004 as filed with the Securities and Exchange Commission on September 27, 2004, Registration No. 000-27102.

 

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(4) Incorporated herein by reference from the Company’s Form 8-K as filed with the Securities and Exchange Commission on June 28, 2004, Registration No. 000-27102.

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement on Form 10 to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 7, 2011     ENTERTAINMENT GAMES, INC.
    By:   /s/ Gerald W. Klein
     

Gerald W. Klein

Chief Executive Officer

 

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EX-2.1 2 d244335dex21.htm ASSET PURCHASE AGREEMENT Asset Purchase Agreement

Exhibit 2.1

 

 

 

ASSET PURCHASE AGREEMENT

BY AND AMONG

eGAMES, INC.,

HEYDAY GAMES, INC.

AND

THE SHAREHOLDERS OF HEYDAY GAMES, INC.

JUNE 24, 2011

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I DEFINITIONS

     1   

ARTICLE II PURCHASE AND SALE OF ASSETS

     5   

2.1

 

Purchase and Sale of Assets

     5   

2.2

 

Purchase Price

     6   

2.3

 

Payment of Purchase Price

     6   

2.4

 

Closing

     8   

2.5

 

Ad Valorem Tax Adjustment

     9   

2.6

 

Allocation of Purchase Price

     9   

2.7

 

Tax Consequences

     9   

2.8

 

Assumed Liabilities

     10   

2.9

 

Retained Liabilities

     10   

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS

     10   

3.1

 

Organization and Good Standing

     10   

3.2

 

Authorization and Effect of Agreement

     11   

3.3

 

No Restrictions Against Sale of the Assets

     11   

3.4

 

Title to Assets; Licenses

     11   

3.5

 

No Litigation

     12   

3.6

 

Income and Other Taxes

     12   

3.7

 

Assumed Contracts

     13   

3.8

 

Employee Matters

     13   

3.9

 

Compliance with Law

     14   

3.10

 

Intellectual Property

     14   

3.11

 

Operation of the Business

     16   

3.12

 

Brokers’ Fees

     16   

3.13

 

Disclosure

     16   

3.14

 

Capitalization of Seller

     16   

3.15

 

Absence of Undisclosed Liabilities

     17   

3.16

 

No Liquidation or Winding-Up; Fairness of Consideration

     17   

3.17

 

Unregistered Securities

     17   

3.18

 

Risk of Loss

     17   

3.19

 

Investment Experience

     18   

3.20

 

Disclosure

     18   

3.21

 

Seller Status

     18   

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER

     18   

4.1

 

Organization and Good Standing

     18   

4.2

 

Execution and Delivery

     19   

4.3

 

No Conflicts

     19   

4.4

 

Compliance with Law

     19   

4.5

 

No Restrictions Against Issuance of Purchase Price

     19   

4.6

 

No Litigation

     20   

 

i


4.7

 

Issuance of eGames Stock

     20   

4.8

 

Capitalization of Purchaser

     20   

4.9

 

Reports and Financial Statements

     20   

4.10

 

No Liquidation or Winding-Up

     21   

ARTICLE V ADDITIONAL COVENANTS

     21   

5.1

 

Covenants of Seller and Shareholders

     21   

5.2

 

Covenants of Purchaser

     21   

5.3

 

Expenses

     21   

5.4

 

Seller’s Name

     22   

5.5

 

Employee Matters

     22   

5.6

 

Assignments; Consents

     22   

5.7

 

Waiver

     23   

5.8

 

Tax Assessments and Audits

     23   

5.9

 

Restrictions on Transfer

     23   

5.10

 

Legend

     24   

5.11

 

Prohibition on Short Sales

     24   

5.12

 

Purchaser Board of Directors

     24   

ARTICLE VI CONDITIONS PRECEDENT TO CLOSING

     25   

6.1

 

Conditions of Purchaser

     25   

6.2

 

Conditions of Seller

     26   

ARTICLE VII INDEMNIFICATION

     27   

7.1

 

Survival

     27   

7.2

 

Indemnification

     27   

7.3

 

Procedures

     28   

7.4

 

Third Party Claims

     28   

7.5

 

Indemnification Exclusive

     29   

ARTICLE VIII GENERAL PROVISIONS

     29   

8.1

 

Notices

     30   

8.2

 

Severability

     30   

8.3

 

Entire Agreement

     31   

8.4

 

Successors and Assigns

     31   

8.5

 

Counterparts

     31   

8.6

 

Schedules, Exhibits and Annexes

     31   

8.7

 

Construction

     31   

8.8

 

Governing Law; Venue

     32   

8.9

 

Passage of Title and Risk of Loss

     32   

8.10

 

Bulk Sales

     32   

8.11

 

Records

     32   

 

ii


INDEX OF EXHIBITS

 

Exhibit A

  

Registration Rights Agreement

Exhibit B

  

Noncompetition Agreement

Exhibit B-1

  

Noncompetition Agreement (Mauro)

Exhibit B-2

  

Noncompetition Agreement (Lennon)

Exhibit C

  

Mauro and Lennon Employment Terms

INDEX OF SCHEDULES

 

Schedule 2.1(a)

  

Personal Property

Schedule 2.1(b)

  

Contract Rights

Schedule 2.1(c)

  

Intellectual Property

Schedule 2.1(d)

  

Government Licenses, Permits and Approvals

Schedule 3.4(b)

  

Licenses

Schedule 3.7(a)

  

Assumed Contracts

Schedule 3.8

  

Employee Matters

Schedule 3.10(a)

  

Intellectual Property

Schedule 3.10(b)

  

Transfer

Schedule 3.10(d)

  

Licensing Agreements

Schedule 3.14

  

Capitalization of Seller

Schedule 4.9(b)

  

Certain Changes to Purchaser Most Recent Statements

 

iii


ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is entered into as of June 24, 2011 by and among eGAMES, INC., a Pennsylvania corporation (“Purchaser”), HEYDAY GAMES, INC., a Delaware corporation (“Seller”), and EUGENE MAURO, LINDA MAURO AND F.J. LENNON, the shareholders of Seller (collectively, “Shareholders”).

RECITALS

A. Seller is currently engaged in the business of designing and developing an interactive entertainment software game for social networks and the Internet, and mobile platforms (including, but not limited to, iOS and Android) (the “Game”).

B. Seller desires to Transfer (as hereinafter defined) to Purchaser, and Purchaser desires to purchase from Seller, all of the assets owned or held for use by Seller or used by Seller in connection with acquiring, designing, developing, distributing, promoting and/or selling the Game (referred to herein as the “Game” or the “Business”), on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Unless otherwise defined herein or the context otherwise requires, the terms defined in this Article I shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms herein defined. Unless otherwise indicated, any reference herein to a Section, Article, Exhibit or Schedule shall mean the applicable section, article, annex or schedule of or to this Agreement. All accounting terms used in this Agreement not defined in this Article I shall, except as otherwise provided for herein, be construed in accordance with generally accepted accounting principles, consistently applied.

Action” shall mean any claim, action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by or before any Person, Governmental Entity or arbitrator and any appeal from any of the foregoing.

Affiliate” of a Person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

Agreement” shall mean this Asset Purchase Agreement, together with all Schedules and Exhibits hereto.


Approvals” shall have the meaning given to such term in Section 2.1(d) hereof.

Assets” shall have the meaning given to such term in Section 2.1 hereof.

Assumed Contract(s)” shall have the meaning given to such term in Section 2.8(a) hereof.

Assumed Liabilities” shall have the meaning given to such term in Section 2.8 hereof.

Business” shall have the meaning given to such term in the preamble of this Agreement.

Change in Control” shall have the meaning given to such term in Section 2.3(b) hereof.

Claim” shall have the meaning given to such term in Section 7.3 hereof.

Claim Notice” shall have the meaning given to such term in Section 7.3 hereof.

Closing” shall have the meaning given to such term in Section 2.4 hereof.

Closing Date” shall have the meaning given to such term in Section 2.4 hereof.

Closing Payment” shall have the meaning given to such term in Section 2.3(c) hereof.

Code” shall mean the Internal Revenue Code of 1986, as amended.

Contracts” shall have the meaning given to such term in Section 2.1(b) hereof.

Cumulative Net Income shall have the meaning given to such term in Section 2.3(b) hereof.

Damages” shall mean any and all losses, liabilities, obligations, costs, expenses, damages or judgments of any kind or nature whatsoever (including reasonable attorneys’, accountants’ and experts’ fees, disbursements of counsel, and other costs and expenses incurred pursuing indemnification claims under Article IX hereof).

Earnout Payment” shall have the meaning given to such term in Section 2.3(b) hereof.

Earnout Period” shall have the meaning given to such term in Section 2.3(b) hereof.

Earnout Threshold” shall have the meaning given to such term in Section 2.3(b) hereof.

eGames Stock” shall have the meaning given to such term in Section 2.2 hereof.

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

2


ERISA Affiliate” shall mean any Person which is (or at any relevant time was) a member of a controlled group of corporations within the meaning of Code Section 414(b), all trades or businesses under common control within the meaning of Code Section 414(c), and all affiliated service groups within the meaning of Code Section 414(m), of which Seller is (or at any relevant time was) a member.

Fiscal Periods” shall have the meaning given to such term in Section 2.3(b) hereof.

Holdback Period” shall have the meaning given to such term in Section 2.3(a) hereof.

Holdback Shares” shall have the meaning given to such term in Section 2.3(a) hereof.

GAAP” shall have the meaning given to such term in Section 2.3(b) hereof.

Governmental Entity” shall mean any local, state, federal or foreign (i) court, (ii) government or (iii) governmental department, commission, instrumentality, board, agency or authority, including, without limitation, the IRS and other taxing authorities.

Initial Payment shall have the meaning given to such term in Section 2.3(a).

Intellectual Property” shall have the meaning given to such term in Section 2.1(c).

Knowledge” shall mean knowledge of Eugene Mauro and F.J. Lennon.

Legal Requirement” shall mean any statute, law, ordinance, rule, regulation, permit, order, writ, judgment, injunction, decree or award issued, enacted or promulgated by any Governmental Entity or any arbitrator.

Lien” shall mean all liens (including judgment and mechanics’ liens, regardless of whether liquidated), mortgages, assessments, security interests, easements, claims, pledges, trusts (constructive or other), deeds of trust, options or other charges, or encumbrances.

Material Adverse Effect” shall mean any event, change or effect that is materially adverse to the Assets or the Business as operated prior to the Closing.

Net Income” shall have the meaning given to such term in Section 2.3(b)(iii).

Noncompetition Agreements” shall mean the Noncompetition and Confidentiality Agreements in the forms attached hereto as Exhibit B, Exhibit B-1 and Exhibit B-2.

Ordinary Course” shall mean, when used with reference to Seller, the ordinary and normal course of the operation of the Business, consistent with past practices.

Owned Tangible Personal Property” shall have the meaning given to such term in Section 2.1(a) hereof.

Pennsylvania Law” shall mean the Pennsylvania Business Corporation Law.

 

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Person” shall mean all natural persons, corporations, business trusts, associations, companies, partnerships and joint ventures.

Plan” shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA and any other written or oral employee plan (other than arrangements merely involving the payment of wages) which are or at any time have been established, maintained, or contributed to by Seller or any ERISA Affiliate for the benefit of current or former employees, with respect to which Seller or an ERISA Affiliate has or may in the future have any liability or obligation to contribute or make payments of any kind.

Game” shall have the meaning given to such term in the preamble of this Agreement.

Purchase Price” shall have the meaning given to such term in Section 2.3 hereof.

Registration Rights Agreement” shall have the meaning given to such term in Section 3.17 hereof.

Retained Liabilities” shall have the meaning given to such term in Section 2.9 hereof.

Rule 144” shall have the meaning given to such term in Section 3.27 hereof.

Shareholders” shall have the meaning given to such term in the preamble of this Agreement.

Subsidiary of a Person” shall mean any corporation, partnership, limited liability company, association or other business entity at least 50% of the outstanding voting power of which is at the time owned or controlled directly or indirectly by such Person or by one or more of such subsidiary entities, or both.

Tax” shall mean all taxes, including without limitation all Federal, state, local or foreign income, gross receipts, license, payroll, unemployment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including, without limitation, taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), employment, disability, real property, personal property, ad valorem, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated tax or other tax, assessment or charge of any kind whatsoever, and any interest, fine, penalty or addition thereto, whether disputed or not.

Tax Return” shall mean any return, declaration, report, claim for refund or information, or statement relating to Taxes, and any exhibit, schedule, attachment or amendment thereto.

Third Party Claim” shall have the meaning given to such term in Section 7.3 hereof.

Transfer” shall have the meaning given to such term in Section 2.1 hereof.

 

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ARTICLE II

PURCHASE AND SALE OF ASSETS

2.1 Purchase and Sale of Assets. On the terms and subject to the conditions hereof, at the Closing, Seller will sell, transfer, grant, convey, assign and deliver (“Transfer”) to Purchaser, and Purchaser will purchase and accept from Seller, all right, title and interest in and to all of the assets, properties and business of the Seller, including, but not limited to, the rights, properties and assets described in this Section 2.1 (collectively the “Assets”):

(a) Personal Property. All tangible personal property owned by Seller in connection with the operation of the Business as of the date hereof, including but not limited to those listed on Schedule 2.1(a) (collectively, the “Owned Tangible Personal Property”);

(b) Contract Rights. All rights and incidents of interest of Seller existing as of the date hereof, to or under all licenses, leases, agreements, customer orders, contracts, written or verbal (including product warranty claims, rebates and indemnity or other rights of action against any person arising out of acts, omissions or occurrences before, at or after the Closing), and prepaid items, relating to the Business, including but not limited to those listed on Schedule 2.1(b) (collectively, the “Contracts”);

(c) Intellectual Property. The entire right, title and interest of Seller existing as of the date hereof in connection with the operation of the Business or used by Seller in connection with the operation of the Business in, to or under (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof, (ii) all artwork, drawings and renderings, inventions (whether patentable or not), invention disclosures, trade secrets, rights and corresponding rights in confidential information and other non-public information (whether or not patentable), including formulas, compositions, inventor’s notes, improvements, know-how, testing information, research and development information, business and marketing plans, market surveys, market know-how and customer lists and information, and all documentation relating to any of the foregoing, (iii) all copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto throughout the world, (iv) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor, (v) all databases and data collections and all rights therein, (vi) all moral and economic rights of authors, musicians, composers and inventors, however denominated, to the extent transferable, (vii) all computer software and code, including assemblers, applets, compilers, source code, object code, development tools, design tools, user interfaces and data, in any form or format, however fixed, (viii) all Internet electronic addresses, uniform resource locators and alphanumeric designations associated therewith and all registrations for any of the foregoing, and (ix) any similar or equivalent rights to any of the foregoing (as applicable) (collectively, the “Intellectual Property”), which Intellectual Property is listed on Schedule 2.1(c):

 

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(d) Governmental Licenses, Permits and Approvals. To the extent transferable, all rights and incidents of interest of Seller existing as of the date hereof, to or under all licenses, permits and authorizations (collectively, the “Approvals”) issued or requested to be issued by any Governmental Entity or other board or agency in connection with the operation of the Business listed on Schedule 2.1(d); and

(e) Goodwill and Other Intangibles. The goodwill related to the Assets and the Business.

2.2 Purchase Price. Subject to the limitations set forth in Section 2.3(b), the aggregate Purchase Price for the Assets is such number of shares of the Common Stock, no par value, of Purchaser (eGames Stock”) equal to fifty percent (50%) of the number of shares of eGames Stock issued and outstanding on the books of Purchaser’s transfer agent on the day that is two business days immediately preceding the Closing Date, (the “Purchase Price”). The Purchase Price shall be payable in the manner set forth in Section 2.3.

2.3 Payment of Purchase Price.

(a) Payment of the Initial Payment. At the Closing, Purchaser shall pay sixty percent (60%) of the Purchase Price (the “Initial Payment”) as follows:

(i) Purchaser shall pay to Seller ninety percent (90%) of the Initial Payment (the “Closing Payment” and (ii) ten percent (10%) of the Initial Payment (the “Holdback Shares”) shall be held back by Purchaser for up to one year commencing on the Closing Date (the “Holdback Period”) to cover indemnification claims, if any, under Article IX arising during the Holdback Period and issued to Seller, along with any shares of capital stock of the Company issued or issuable with respect to the Holdback Shares by way of a stock split or stock dividend or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

(b) Earnout Payment. Subject to the conditions herein, Purchaser shall pay to Seller additional consideration of forty percent (40%) of the Purchase Price, along with any shares of capital stock of Purchaser issued or issuable with respect to such securities by way of a stock split or stock dividend or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (the “Earnout Payment”) if Purchaser’s Cumulative Net Income (as defined below) equals or exceeds, in the aggregate, $20,592,000 (“Earnout Threshold”) during any of the Fiscal Periods (as defined below) (each, the “Earnout Period”).

(i) “Cumulative Net Income” shall mean, for purposes of this Agreement, the aggregate of Purchaser’s Net Income (as defined below) for the Earnout Period.

(ii) “Fiscal Periods” shall mean each of the following periods: (1) the period commencing on the Closing Date and ending on June 30, 2012; or (2) the period commencing on the Closing Date and ending on June 30, 2013; or (3) the period commencing on

 

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the Closing Date and ending on June 30, 2014; or (3) the period commencing on the Closing Date and ending on June 30, 2015.

(iii) “Net Income” shall mean, for any Fiscal Period, Purchaser’s Net Income as shown on the Statement of Operations of Purchaser’s financial statements for each of the following: (a) the period commencing on the Closing Date and ending on June 30, 2012 and (b) the fiscal years ending June 30, 2013, 2014 and 2015, as set forth on Purchaser’s regularly prepared audited financial statements, including footnotes, for each such period and fiscal year prepared in accordance with generally accepted accounting principles “GAAP” applied consistently with Purchaser’s accounting practices at Closing.

(iv) The Earnout, if any, payable under Section 2.3(b) shall be paid to Seller within 90 days after the end of the applicable Earnout Period in which the Earnout Threshold is achieved. Seller and the Shareholders shall have the right, at the joint expense of Seller and Purchaser, to audit Purchaser’s records related and limited to Purchaser’s performance under Section 2.3(b), as is necessary to verify if the Earnout Threshold has been achieved and the Earnout Payment is due, upon at least three days prior notice, in a manner not disruptive of Purchaser’s business during Purchaser’s normal business hours.

(v) The parties are in agreement that Seller shall be entitled to payment of the Earnout Payment only if the conditions pursuant to Section 2.3 hereto have been satisfied and that the total amount of the Earnout Payment shall equal and not exceed forty percent (40%) of the Purchase Price.

(vi) Purchaser shall promptly provide Seller and the Shareholders with copies of any information requested by the Shareholders which is reasonably necessary to confirm or verify whether the Earnout Payment has been achieved, and the calculation thereof, during any Fiscal Period or any other information or matters addressed in this Section 2.3 which are related to the achievement of the Earnout Payment, which in any event shall be provided on or before 120 days after the end any Fiscal Period.

(vii) In the event that Purchaser and Seller are unable to agree on whether the Earnout Payment has been achieved under this Section 2.3(b), either Purchaser or Seller may deliver to the other notice in writing setting forth the disputed items and a proposed resolution of such disputed items (a “Dispute Notice”). The parties shall endeavor in good faith to resolve any disputed items within thirty (30) days of the receipt of a Dispute Notice. If the parties are unable to resolve all disputed items within such thirty (30) day period, the parties shall mutually select, within ten (10) days following the expiration of such thirty (30) day period, a nationally certified public accounting firm independent of each party (the “Accounting Arbitrator”) to resolve the items remaining in dispute (the “Disputed Items”), and the determination of the Accounting Arbitrator in respect of the correctness of each of the Disputed Items shall be conclusive and binding on the parties absent manifest error. The Accounting Arbitrator shall use all reasonable efforts to resolve all Disputed Items within thirty (30) days following its appointment. The scope of the Accounting Arbitrator’s review shall be limited to only the Disputed Items. Purchaser agrees to provide the Accounting Arbitrator access to all true and correct copies of books and records it requires in order to fulfill its obligations. All fees and

 

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expenses of any Accounting Arbitrator selected in accordance with this Section 2.3 shall be borne equally by Purchaser and Seller.

(viii) Following the Closing and throughout the Earnout Period, Purchaser will provide commercially reasonable levels of sales, technical, administrative and marketing resources and support in light of customer requirements, sales, margins, competitive concerns and other relevant considerations consistent with efforts that the Purchaser devotes to its own products. Nothing in this Agreement shall prohibit Purchaser or any of its affiliates from taking any actions with respect to the Business in good faith and which are commercially reasonable, including adjusting or deferring sales, marketing, new business development efforts, adjusting the number of personnel, deferring the execution or implementation of agreements, or reallocating funds from the Business to other areas of Purchaser’s business. For the avoidance of doubt, Purchaser shall be entitled to take into account the goals and objectives of Purchaser as a whole in determining commercially reasonable levels of support for the Business.

(ix) The unpaid and unearned Earnout Payment will be accelerated and paid concurrently with a Change in Control (as defined below) of the Purchaser at a minimum sale price of $25,000,000 or more during the fiscal year ending June 30, 2012, $50,000,000 or more during the fiscal year ending June 30, 2013 and $75,000,000 or more during the balance of the Earnout Period. A “Change in Control” shall include (i) the sale, transfer, assignment or other disposition (including by merger or consolidation) by stockholders of the entity, in one transaction or a series of related transactions, of more than 50% of the voting power represented by the then outstanding capital stock of the entity to one or more persons, (ii) the sale of all or substantially all of the assets of the entity, or (iii) the liquidation, dissolution or winding up of the entity.

(x) Adjustments for Stock Splits, Stock Dividends, Etc. The Holdback Shares or the Earnout Payment shall be proportionately adjusted for any increase or decrease in the number of issued shares of eGames Stock resulting from a stock split, reverse stock split, stock dividend (except for dividends paid on the currently outstanding preferred stock of Purchaser, if paid in eGames Stock), combination or reclassification of the eGames Stock, or any other increase or decrease in the number of issued shares of eGames Stock effected without receipt of consideration by Purchaser.

2.4 Closing. The purchase and sale of the Assets and the consummation of the other transactions contemplated by this Agreement (the “Closing”) shall occur at 10:00 a.m., local time, on June 24, 2011 at the offices of Purchaser or at such other time or on such other date as shall be agreed by Seller and Purchaser upon fulfillment of all conditions precedent to the Closing, such hour and date being herein generally referred to as the “Closing Date.” At the Closing:

(a) Seller shall deliver or cause to be delivered to Purchaser, against payment by Purchaser to Seller of the Closing Payment:

(i) all of the agreements, documents, certificates and instruments required to be delivered by Seller pursuant to Section 6.1 hereof.

 

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(b) Purchaser shall deliver or cause to be delivered to Seller against delivery of the agreements, documents, certificates and instruments required to be delivered by Seller pursuant to Section 6.1:

(i) An executed instruction letter to Purchaser’s transfer agent instructing it to issue the certificate representing the Closing Payment to Seller no later than three (3) business days after the Closing Date;

(ii) all of the documents, if any, required to be delivered by Purchaser pursuant to Section 6.2 hereof.

2.5 Ad Valorem Tax Adjustment. All ad valorem Taxes imposed by any taxing authority upon the Assets will be prorated between Seller and Purchaser as of the Closing Date based on the most current available tax rates and assessed values (such prorations to be adjusted when final rates and assessed values are established). All such Taxes attributable to the period prior to the Closing Date and which remain unpaid as of the Closing Date shall be deducted from the Purchase Price. All such Taxes, if any, attributable to the period following the Closing Date and which have been paid by Seller prior to the Closing Date shall be added to the Purchase Price. All adjustments to the Purchase Price will be calculated as of 11:59 p.m. on the Closing Date.

2.6 Allocation of Purchase Price. The Purchase Price represents the amount agreed upon by Purchaser and Seller to be the aggregate fair market value of the Assets. Purchaser and Seller have agreed that the Purchase Price will be allocated in accordance with the mutual agreement of the parties.

2.7 Tax Consequences. The parties intend that, for United States federal income tax purposes, the transactions contemplated hereby (the “Transaction”) shall constitute a reorganization within the meaning of Section 368(a)(1)(C) or (1)(D) of the Code. Neither Purchaser nor any of its affiliates has taken or agreed to take any action that would prevent the Transaction from qualifying as a reorganization within the meaning of Section 368(a)(1)(C) or (1)(D) of the Code. Neither Purchaser nor its Affiliates shall take any affirmative action (prior to or following the Closing) which action would prevent the Transaction from qualifying as a reorganization within the meaning of Section 368(a)(1)(C) or (1)(D) of the Code. Purchaser and Seller shall, to the extent required under Section 368 of the Code and the Treasury Regulations thereunder, report the Transaction as a reorganization within the meaning of Section 368(a) of the Code (and under any comparable state and local statute), unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. The provisions of this Section 2.7 shall survive the Closing and are intended to be for the benefit of and shall be enforceable by the Shareholders and Seller. The Purchaser and the Seller acknowledge and agree that the Seller shall liquidate within 12 months of the Closing Date and distribute all of the assets of the Seller including the Purchase Price and any rights to receive any Holdback or Earnout Payment to the Shareholders.

 

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2.8 Assumed Liabilities. On the terms and subject to the conditions hereof, as of the Closing, Purchaser will assume only and thereafter in due course pay, perform and discharge the following, and only the following, liabilities and obligations of Seller (the “Assumed Liabilities”):

(a) all liabilities and obligations of Seller arising under the terms of the Contracts that are included in the Assets and listed or described on Schedule 3.11(a) (the “Assumed Contracts”), under the terms of such Assumed Contracts, provided, however, that Purchaser will not assume or be responsible for any such liabilities or obligations which arise under or in relation to any Plan or from any breach or default by Seller under any Contract, all of which liabilities and obligations will constitute Retained Liabilities (as defined in Section 2.9); and

(b) such liabilities and obligations as are listed on Schedule 2.8(b).

2.9 Retained Liabilities. Except as provided in Section 2.8, Seller will retain, and Purchaser will not assume or be responsible or liable with respect to, any liabilities or obligations of Seller or its Affiliates or their respective predecessors-in-interest, whether or not arising out of or relating to the operation of the Business or associated with or arising from any of the Assets or any other rights, properties or assets used in or associated with the Business at any time, and whether fixed or contingent, direct or indirect, or known or unknown, including, but not limited to, liabilities relating to warranties and service obligations relating to the operation of the Business by the Seller, liabilities for Taxes relating to the sale of the Assets and liabilities with respect to any of Seller’s employees (collectively the “Retained Liabilities”). Except for the Assumed Liabilities, Seller agrees to pay or discharge when due any and all liabilities of Seller.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS

Seller and Shareholders, jointly and severally, hereby represent and warrant to, and covenant and agree with, Purchaser that as of the date hereof and as of the Closing Date:

3.1 Organization and Good Standing.

(a) Seller has been duly organized and is existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own and lease its assets and properties and to conduct its business and the operation of the Business as currently conducted. Seller has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction where such qualification is necessary, such jurisdictions comprising all jurisdictions in which Seller owns or leases any property, or conducts any business, so as to require such

 

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qualification, except where any failure to qualify would not have a Material Adverse Effect, as defined in Article I.

(b) Seller has no Subsidiaries nor owns or controls, or has any other equity investment or other interest in, directly or indirectly, any corporation, joint venture, partnership, association or other entity which engages in any business.

3.2 Authorization and Effect of Agreement. Seller has the requisite corporate power to execute and deliver this Agreement and, subject to obtaining the approval of Seller’s stockholders in accordance with applicable Delaware law, to perform the transactions contemplated hereby to be performed by Seller. The execution and delivery by Seller and the Shareholders of this Agreement and the performance by Seller and the Shareholders of the transactions contemplated hereby to be performed by Seller and the Shareholders have been duly and validly authorized by all necessary action on the part of Seller’s board of directors and Shareholders and no other actions on the part of Seller or the Shareholders are necessary to authorize this Agreement and to consummate the transactions contemplated hereby other than, if applicable, holders of Seller’s indebtedness. This Agreement has been duly executed and delivered by Seller and, assuming the due execution and delivery of this Agreement by Purchaser, constitutes a valid and binding obligation of Seller enforceable in accordance with its terms except (i) as enforcement may be limited by bankruptcy, insolvency or other similar Legal Requirements affecting the enforcement of creditors’ rights generally, (ii) as the availability of indemnification and other remedies may be limited by federal and state securities laws and (iii) for limitations imposed by general principles of equity.

3.3 No Restrictions Against Sale of the Assets. The execution and delivery of this Agreement by Seller does not, and the performance by Seller of the transactions contemplated hereby to be performed by it will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation under, (a) the certificate of incorporation or bylaws of Seller, (b) to the Knowledge of Seller, any Legal Requirement to which Seller or any of the Assets is subject, (c) any Contract or other material agreement, instrument or obligation of Seller, or (d) any licenses of Seller. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any Person is required to be obtained or made by or with respect to Seller under any Legal Requirement in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of the transactions contemplated hereby to be performed by it.

3.4 Title to Assets; Licenses.

(a) Seller has, and at Closing will have, good and transferable title to all of the Assets as owned by Seller as of the Closing Date, free and clear of all Liens, and, to its knowledge, has the valid and enforceable power and right to use all such Assets that are not owned by Seller.

(b) Schedule 3.4(b) contains a list of all licenses relating to the Business under which Seller is the licensee, together with (i) the nature of each of the licensed Assets, (ii) the

 

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termination date of each such license, (iii) the name of the licensor, (iv) all payments made or required to be made pursuant to the licenses, and (v) all prepaid payments made thereunder. To Seller’s knowledge, (i) all licenses pursuant to which Seller licenses property from others are valid, subsisting in full force and effect in accordance with their respective terms except (i) as enforcement may be limited by bankruptcy, insolvency or other similar Legal Requirements affecting the enforcement of creditors’ rights generally, (ii) as the availability of indemnification and other remedies may be limited by federal and state securities laws and (iii) for limitations imposed by general principles of equity, and (ii) there is not, under any license, any existing default or event of default. True and complete copies of all licenses listed on Schedule 3.4(b) have been delivered to Purchaser heretofore. Except as set forth on Schedule 3.4(b), no such license will require the consent of the licensor to, or as a result of, the consummation of the transactions contemplated by this Agreement.

(c) The delivery to Purchaser at Closing of the instruments of Transfer contemplated by this Agreement will vest in Purchaser good, marketable and exclusive title to the Assets owned by Seller, free and clear of all Liens.

(d) No Person, other than Seller, has any rights or interests in the Assets or the Business.

(e) The Assets include all of the assets, property and rights, tangible or intangible, used by Purchaser to operate the Business, as currently operated.

3.5 No Litigation. There is no outstanding judgment, order, decree, award, stipulation or injunction of any Person, Governmental Entity or arbitrator against or, to the Knowledge of Seller, is any action pending or threatened, against Seller relating to or affecting the Business or the Assets or affecting Seller’s ability to perform its obligations under this Agreement or under any agreement or instrument contemplated by this Agreement.

3.6 Income and Other Taxes.

(a) All Tax Returns required to be filed through and including the date hereof in connection with the operations of the Seller’s business are true, complete and correct in all respects and have been properly and timely filed. Seller has not requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. No Liens have been imposed on or asserted against any of the Assets as a result of or in connection with any failure to pay any Taxes;

(b) All Taxes required to be paid or withheld and deposited through and including the date hereof in connection with the Business have been duly and timely paid or deposited by Seller. Seller has properly withheld or collected all amounts required by law for income Taxes and employment Taxes relating to its employees, creditors, independent contractors and other third parties, and for sales Taxes on sales, and has properly and timely remitted such withheld or collected amounts to the appropriate Governmental Entity. Seller has no liabilities for any Taxes for any taxable period ending prior to or coincident with the Closing Date; and

 

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(c) No Tax Return of Seller is currently being audited or is the subject of other Action by any Governmental Entity. Seller has not received any notice from any Governmental Entity of any pending examination or any proposed deficiency, addition, assessment, demand for payment or adjustment relating to or affecting Seller, the Business or the Assets and Seller has no reason to believe that any Governmental Entity may assess (or threaten to assess) any Taxes for any periods ending on or prior to the Closing Date.

3.7 Assumed Contracts.

(a) Schedule 3.7(a) contains a true and complete list and description of all Assumed Contracts. True and complete copies of all such Assumed Contracts have been delivered to Purchaser heretofore.

(b) To Seller’s Knowledge:

(i) each Assumed Contract is legal, valid, binding, enforceable and in full force and effect except (i) as enforcement may be limited by bankruptcy, insolvency or other similar Legal Requirements affecting the enforcement of creditors’ rights generally, (ii) as the availability of indemnification and other remedies may be limited by federal and state securities laws and (iii) for limitations imposed by general principles of equity;

(ii) no event or condition has occurred nor have Seller or Shareholders received any notice of any condition that constitutes a default or a basis of force majeure under any of the Assumed Contracts;

(iii) no person with whom Seller has entered into an Assumed Contract is in default thereunder or has failed to perform fully thereunder by reason of force majeure;

(iv) none of the Assumed Contracts currently is subject to renegotiation, either in whole or in part; and

(v) no consent of any third party is required under any Assumed Contract in connection with the transfer of the Assumed Contracts hereunder.

3.8 Employee Matters.

(a) Except as set forth on Schedule 3.8, Purchaser will not have any responsibility for continuing any person in the employ (or retaining any person as a consultant) from and after the Closing or have any liability for any severance payments to or similar arrangements with any such Person.

(b) to Seller’s Knowledge, Seller has complied with all Legal Requirements relating to employment, and, no claim of wrongful termination by any current or former employee of Seller engaged in the Business has been made or threatened.

(c) Attached hereto as Schedule 3.8(c) is a list of the names and current annual salary rates and other compensation of Seller’s current officers, employees and agents.

 

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3.9 Compliance with Law. Through and including the date hereof, Seller (i) has not violated or operated the Business in violation of, and has not used the Assets in violation of, any Legal Requirement, (ii) has not been alleged to be in violation of any Legal Requirement, and (iii) has not received any notice of any alleged violation of, or any citation for noncompliance with, any Legal Requirement.

3.10 Intellectual Property.

(a) Title. Schedule 3.10(a) contains a complete and correct list of all Intellectual Property that is owned by Seller and primarily related to, used in, held for use in connection with, or necessary for the conduct of the Business (the “Owned Intellectual Property”). Seller owns all Owned Intellectual Property free and clear of any Liens. The Owned Intellectual Property together with the Licensed Intellectual Property comprises all of the intellectual property rights used in the conduct and operation of the Business as now being conducted by Seller. All Owned Intellectual Property is fully transferable, assignable or licensable, as applicable, without condition or restriction and without payment of any kind to any third party, and Seller has not received any notice or claim challenging Seller’s ownership of the Owned Intellectual Property or claiming legal or beneficial ownership with respect thereto.

(b) Transfer. Except as set forth on Schedule 3.10(b), immediately after the Closing, Purchaser will own all of the Owned Intellectual Property, free and clear of any Liens.

(c) No Infringement. To Seller’s Knowledge, the operation of the Business does not infringe or otherwise conflict with any rights of any Person in respect of any Owned Intellectual Property. Seller has not received any notice from any Person claiming that the operation of the Business or any act, product, technology or service of Seller infringes or misappropriates, violates, dilutes or constitutes the unauthorized use of any Owned Intellectual Property of any Person. There have been no assertions against Seller by any Persons relating to the invalidity or unenforceability of any Intellectual Property. To Seller’s Knowledge, none of the Owned Intellectual Property is being infringed by any other Person.

(d) Licensing Agreements. Schedule 3.10(d) sets forth a complete and accurate list of all Contracts (i) pursuant to which Seller has licensed Intellectual Property to, or the use of Intellectual Property is otherwise permitted (through non-assertion, settlement or similar agreements or otherwise) by, any other Person and (ii) pursuant to which Seller has had Intellectual Property licensed to it, or has otherwise been permitted to use Intellectual Property (through non-assertion, settlement or similar agreements or otherwise) (“Licensed Intellectual Property”). To Seller’s Knowledge, all of the Contracts set forth on Schedule 3.10(d): (x) are in full force and effect in accordance with their terms and no default exists thereunder by Seller, or by any other party thereto, (y) are free and clear of all Liens, and (z) do not contain any consent, change in control or other terms or conditions that will become applicable or inapplicable as a result of the consummation of the transactions contemplated by this Agreement. The consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such Contracts. Seller has delivered to Purchaser true and complete copies of all Contracts (including amendments) set forth on Schedule 3.10(d).

 

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(e) No Intellectual Property Litigation or Disputes. No claim or demand of any Person has been made nor to Seller’s Knowledge is there any proceeding that is pending or threatened, that (i) challenges the rights of Seller in respect of any Owned Intellectual Property, or (ii) asserts that Seller is infringing or otherwise in conflict with any Intellectual Property. None of the Owned Intellectual Property or, to Seller’s knowledge, the Licensed Intellectual Property is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any court, arbitrator, or administrative agency, or has been the subject of any litigation within since April 14, 2011, whether or not resolved in favor of Seller. There are no contracts, licenses or agreements between Seller and any other Person with respect to the Intellectual Property under which there is any dispute regarding the scope of such agreement or performances under such agreement, including with respect to any payments to be made or received by Seller thereunder.

(f) No Registrations. Seller has no applications or registrations for any patent, copyright or trademark in any jurisdiction.

(g) Use of Name and Mark. To Seller’s Knowledge, there are no contractual restriction or limitations pursuant to any orders, decisions, injunctions, judgments, awards or decrees of any Governmental Authority on the Purchaser’s right to use the trade names and marks in the conduct of the Business as presently carried on by Seller or as such Business may be extended by Purchaser.

(h) Protection of Information. Seller has taken commercially reasonable steps to protect Seller’s rights in its Intellectual Property, including Seller’s confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to Seller relating to the Business, and, without limiting the foregoing, Seller has and enforces a policy requiring each employee and consultant engaged in the Business to execute a proprietary information, confidentiality and assignment agreement and all current and former employees, consultants and contractors of Seller engaged in the Business have executed such an agreement. Seller has not disclosed, nor is it under any contractual or obligation to disclose, to any Person any of its trade secrets, except pursuant to an enforceable confidentiality agreement and, to Seller’s Knowledge, no Person has breached any such agreement.

(i) Improvements. Schedule 3.10(i) contains a list of all material improvements made by Seller with respect to any Licensed Intellectual Property. No person who has licensed any Intellectual Property to Seller has either ownership or beneficial, license or other rights to any improvements made by Seller with respect to such Intellectual Property.

(j) Source Code. The Game is not, in whole or in part, subject to the provision of any agreement obligating Seller to make source code publicly available to third parties.

(k) Open Source Software. No open source, public source or freeware software or any modification or derivative thereof is used in, incorporated into, integrated or bundled with the Intellectual Property.

(l) No Violations. Seller has not violated, is not in violation of, nor will this Agreement, the observance and performance of the terms hereof or thereof or the consummation

 

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of the transactions contemplated hereby or thereby, cause any violation of, any terms or provisions of any agreement under which Seller has or had an obligation to develop, supply or distribute software, including games, to or for any third party, nor is or would Seller under any circumstances, be under any obligation to deliver source code or any confidential or proprietary information to any third party.

(m) Development. Except for inbound “shrink-wrap” and generally available commercial binary code end-user or enterprise licenses, all Intellectual Property used in and necessary to the conduct of Seller’s Business as presently conducted (including, without limitation, the design, development, use, import, branding, advertising, promotion, marketing, manufacture, distribution and sale of the Game and any other products, technology or services currently under development by Seller) was created solely by: (i) employees of Seller acting within the scope of their employment; (ii) third parties who have validly and irrevocably assigned all of their rights to Seller; or (iii) third parties who have granted to Seller a license in writing (sufficient for the conduct of Seller’s Business as presently conducted by Seller) to all such third party’s rights in such Intellectual Property, and no third party owns or has any rights to any of Owned Intellectual Property.

3.11 Operation of the Business. Seller has operated the Business only through Seller and not through any other divisions or any direct or indirect subsidiary or affiliate of Seller, and no part of the operation of the Business is operated by or through any entity other than Seller.

3.12 Brokers’ Fees. No broker, finder or similar agent has been employed by or on behalf of Seller in connection with this Agreement or the transactions contemplated hereby, and Seller has not entered into any agreement or understanding of any kind with any person or entity for the payment of any brokerage commission, finder’s fee or any similar compensation in connection with this Agreement or the transactions contemplated hereby.

3.13 Disclosure. No representation or warranty of Seller in this Agreement and no information contained in any Schedule or other writing delivered pursuant to this Agreement or at the Closing contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to make the statements herein or therein not misleading.

3.14 Capitalization of Seller. The authorized capital stock of Seller consists solely of 10,000,000 shares of common stock, of which 5,000,000 shares are issued and outstanding. Schedule 3.14 sets forth the names of the holders of the common stock and other rights exercisable for, or convertible into, shares of Seller’s capital stock and the number of shares of Seller’s capital stock so issuable.

 

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3.15 Absence of Undisclosed Liabilities. Except as set forth in Schedule 3.15, Seller does not have any liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise and whether due or to become due, other than non-material liabilities incurred in the Ordinary Course.

3.16 No Liquidation or Winding-Up; Fairness of Consideration. No order has been made or petition presented, or resolution passed for the winding-up or liquidation of Seller and there is not outstanding: (i) any petition or order for the winding-up of Seller; (ii) any appointment of a receiver over the whole or part of the undertaking of assets of Seller; (iii) any petition or order for administration of Seller; (iv) any voluntary arrangement between Seller and any of its creditors; (v) any distress or execution or other process levied in respect of Seller which remains undischarged; or (vi) any unfulfilled or unsatisfied judgment or court order against Seller relating to the Business or the Assets.

3.17 Unregistered Securities. Seller understands that all of the shares of eGames Stock to be issued as the Initial Payment and the Earnout Payment, if any, are “restricted securities” and have not been registered under the Securities Act of 1933 (the “Securities Act”) or any state securities laws in reliance on exemptions for private offerings; Seller is acquiring the eGames Stock as principal for its own account and not with a view to or for distributing or reselling such eGames Stock or any part thereof in violation of the Securities Act or any applicable state or other securities law, has no present intention of distributing any of such shares of eGames Stock in violation of the Securities Act or any applicable state or other securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of any shares of the eGames Stock in violation of the Securities Act or any applicable state or other securities law. The shares of eGames Stock issued as the Initial Payment or Earnout Payment, if any, cannot be resold or otherwise disposed of unless they are subsequently registered under the Securities Act and applicable state securities laws or an exemption from registration is available; the shares of eGames Stock issued as the Closing Payment or the Earnout Payment, if any, will not be, and, except as provided in the Registration Rights Agreement, attached hereto as Exhibit A, Seller will have no rights to require that such shares of eGames Stock be, registered under the Securities Act or any state securities laws; there is no assurance that a public market for such shares of eGames Stock will develop or exist in the future; Seller may have to hold such shares of eGames Stock indefinitely and it may not be possible for Seller to liquidate its investment in Purchaser. None of Purchaser, its agents or employees, or any other person, has represented, guaranteed or warranted to Seller, expressly or by implication, the approximate or exact length of time that Seller will be required to remain as owner of the shares of eGames Stock, which may be indefinitely.

3.18 Risk of Loss. Seller understands that its acquisition of the shares of eGames Stock is a speculative investment which involves a high degree of risk of loss, including the potential loss of its entire investment in Purchaser.

 

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3.19 Investment Experience. Seller is able to fend for itself, can bear the economic risk of the investment and has such knowledge and experience in financial or business matters, including investments in securities that are restricted as to their transferability, that it is capable of evaluating the merits and risks of the investment in the eGames Stock and of making an informed investment decision. Seller has had prior business or personal relationships with Purchaser or its officers or directors, by reason of which it has the capacity to protect its interest in connection with the investment.

3.20 Disclosure. All documents, records and other materials pertaining to an investment in Purchaser, including the Purchaser’s Annual Report and quarterly press releases disclosing Purchaser’s quarterly financial results reported to the OTC Pink Market or disclosed on the Purchaser’s website, www.egames.com, and the Purchaser’s current Business Plan with the most recent version dated May 17, 2011, which were requested by Seller, have been made available or delivered to Seller (collectively, the “Reports”). Seller has reviewed and understands this Agreement and any Exhibits hereto and other information regarding Purchaser, which was requested by, and provided to, Seller, including, but not limited to, the risk factors set forth in Purchaser’s Annual Report for the fiscal year ended June 30, 2010 and in the forward-looking statement section of quarterly earnings releases since June 30, 2010, and Seller has had an opportunity to ask questions of and receive answers from representatives of Purchaser concerning the terms and conditions of the issuance of the shares of eGames Stock and the financial condition and prospects of Purchaser, and to obtain any additional information necessary to verify the accuracy of the information herein.

3.21 Seller Status. At the time that Seller was offered the eGames Stock, it was, and at the Closing Date, it will be, an “accredited investor” as defined in Rule 501(a)(8) under the Securities Act.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to, and covenants and agrees with, Seller and Shareholders that:

4.1 Organization and Good Standing. Purchaser has been duly organized and is validly existing as a corporation in good standing under the laws of the Commonwealth of Pennsylvania with full corporate power and authority with full power and authority (corporate and other) to own and lease its assets and properties and to conduct its business and the operation of the business as currently conducted and to enter into this Agreement and to consummate the transactions contemplated hereby. Purchaser is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities make such qualification necessary, except where any failure to qualify would not have a Material Adverse Effect, as defined in Article I. Purchaser has no Subsidiaries nor owns or controls, or

 

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has any other equity investment or other interest in, directly or indirectly, any corporation, joint venture, partnership, association or other entity which engages in any business.

4.2 Execution and Delivery. Purchaser has the requisite corporate power to execute and deliver this Agreement and to perform the transactions contemplated hereby to be performed by Purchaser. This Agreement has been duly authorized by all necessary corporate action on the part of Purchaser, has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding agreement of Purchaser enforceable against Purchaser in accordance with its terms, except (i) as enforcement may be limited by bankruptcy, insolvency or other similar Legal Requirements affecting the enforcement of creditors’ rights generally, (ii) as the availability of indemnification and other remedies may be limited by federal and state securities laws and (iii) for limitations imposed by general principles of equity.

4.3 No Conflicts. The execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby will not conflict with or result in the violation of, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, (a) the Articles of Incorporation or Bylaws of Purchaser, (b) any Legal Requirement to which Purchaser is subject or (c) any instrument to which Purchaser is a party. No consent, approval, order or authorization is required in connection with the execution and delivery of this Agreement by Purchaser or the performance of Purchaser of the transactions contemplated hereby to be performed by it, except for applicable requirements, if any, of the Securities Act and state securities laws; provided that, all representations made to Purchaser by Seller in this Agreement are assumed for purposes of this representation and warranty to be accurate and complete.

4.4 Compliance with Law. Through and including the date hereof, Purchaser (i) to Purchaser’s knowledge, is not nor has been alleged to be in violation of any Legal Requirement, and (ii) has not received any notice of any alleged violation of, or any citation for noncompliance with, any Legal Requirement.

4.5 No Restrictions Against Issuance of Purchase Price. The execution and delivery of this Agreement by Purchaser does not and the performance by Seller of the transactions contemplated hereby to be performed by it will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, (a) the articles of incorporation or bylaws of Purchaser, (b) any Legal Requirement to which Purchaser is subject, (c) any material agreement of Purchaser, or (d) any material licenses of Purchaser. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or

 

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made by or with respect to Purchaser under any Legal Requirement in connection with the execution and delivery of this Agreement by Purchaser or the performance by Purchaser of the transactions contemplated hereby to be performed by it.

4.6 No Litigation. There is no outstanding judgment, order, decree, award, stipulation or injunction of any Governmental Entity or arbitrator against or any Action pending against Purchaser relating to the business of Purchaser or affecting Purchaser’s ability to perform its obligations under this Agreement or under any agreement or instrument contemplated by this Agreement. Schedule 4.6 sets forth certain material royalty liabilities or obligations of Purchaser existing as of the date hereof.

4.7 Issuance of eGames Stock. The eGames Stock is duly authorized and, when issued and paid for in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in this Agreement.

4.8 Capitalization of Purchaser. The authorized capital stock of Purchaser consists of 40,000,000 shares of Purchaser’s capital stock, of which 13,727,359 shares of eGames Stock are issued and outstanding, and 10,000,000 shares of Preferred Stock are authorized, of which 875,000 are issued and outstanding. An additional 2,837,000 shares of eGames Stock are issuable upon the exercise of outstanding options and warrants. Except as set forth herein, there are no options, warrants, convertible preferred stock, convertible notes, calls, subscriptions or other rights, agreements or commitments of any kind (including preemptive rights), to which Purchaser or any of its Subsidiaries is a party, relating to the issued or unissued capital stock or other securities of Purchaser.

4.9 Reports and Financial Statements.

(a) Financial Statements. The Most Recent Statements (as hereinafter defined) of Purchaser , comply in all material respects with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and present fairly, in all material respects, Purchaser’s financial condition and the results of its operations as of the relevant dates thereof and for the periods covered thereby, except as noted therein. The unaudited interim financial statements issued after the Most Recent Statements comply in all material respects with GAAP and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation, in all material respects, of Purchaser’s financial condition and results of operations for such periods, except as noted therein.

(b) Absence of Certain Changes. Except as disclosed in the audited financial statements of Purchaser for the fiscal year ended June 30, 2010, including footnotes (the “Most Recent Statements”), or in Schedule 4.9(b), since the date of the Most Recent Statements, Purchaser does not have any liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise and whether due or to become due, other than non-material liabilities

 

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incurred in the Ordinary Course or pursuant to Purchaser’s contracts and liabilities incurred in the Ordinary Course set forth in any subsequent unaudited interim financial statements, provided that, the representation and warranty made herein with respect to contingent or similar liabilities not required to be reflected, reserved against or disclosed on the financial statements of Purchaser, prepared pursuant to and in accordance with GAAP consistently applied, is being made to the Knowledge of Purchaser and accordingly qualified.

(c) Absence of Undisclosed Liabilities. Except as disclosed in the Most Recent Statements, Purchaser does not have any indebtedness, liability or obligation required by GAAP to be reflected on a balance sheet that is not reflected or reserved against in the Most Recent Statements other than liabilities, obligations and contingencies that (i) were incurred after the date of the Most Recent Statements in the ordinary course of business or (ii) would not, in the aggregate, have a Material Adverse Effect on Purchaser.

4.10 No Liquidation or Winding-Up. No order has been made or petition presented, or resolution passed for the winding-up or liquidation of Purchaser and there is not outstanding: (i) any petition or order for the winding-up of Purchaser; (ii) any appointment of a receiver over the whole or part of the undertaking of assets of Purchaser; (iii) any petition or order for administration of Purchaser; (iv) any distress or execution or other process levied in respect of Purchaser which remains undischarged; or (v) any unfulfilled or unsatisfied judgment or court order against Purchaser.

ARTICLE V

ADDITIONAL COVENANTS

5.1 Covenants of Seller and Shareholders. Seller and Shareholders jointly and severally agree to:

(a) use their commercially reasonable efforts to obtain (and to cooperate with Purchaser in obtaining) any consent, authorization or approval of, or exemption by, any Person required to be obtained or made by Seller in connection with the transactions contemplated by this Agreement; and

(b) use their commercially reasonable efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Article VI of this Agreement;

5.2 Covenants of Purchaser. Purchaser agrees to use its commercially reasonable efforts to bring about the satisfaction of the conditions precedent to Closing set forth in Section 6.2 of this Agreement.

5.3 Expenses. All costs and expenses (including, without limitation, all legal fees and expenses and fees and expenses of any brokers, finders or similar agents) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring the same.

 

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Notwithstanding the foregoing, Purchaser will pay up to $15,000 of Seller’s legal fees incurred in connection with the organization of Seller and certain intellectual property matters and in connection with this Agreement and the transactions contemplated hereby.

5.4 Seller’s Name. At Closing, Seller shall convey and assign to Purchaser all of Seller’s right, title and interest in and to the name “Heyday Games, Inc.” and, within five (5) days following Closing, Seller shall amend its Certificate of Incorporation to change its name to a dissimilar name.

(a) Further Assurances. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Legal Requirements, to consummate and make effective the transactions contemplated by this Agreement.

(b) If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, Seller, Shareholders and Purchaser, and the proper officers or directors of Seller and Purchaser, as the case may be, shall take or cause to be taken all such necessary or convenient action and execute, and deliver and file, or cause to be executed, delivered and filed, all necessary or convenient documentation.

5.5 Employee Matters.

(a) Seller acknowledges and agrees that after the Closing (a) except as set forth on Schedule 5.6(a), neither Purchaser nor Seller shall be required to employ or retain any employee of Seller or any other Person, and (b) Purchaser, in its sole and absolute discretion, may hire all, some, or none of the Employees.

(b) Except to the extent expressly included in Assumed Liabilities or in another paragraph of this Section 5.5, Purchaser does not, and shall not, assume or be responsible for any obligation or liability arising out of any employment relationship of Seller, and without limiting the foregoing, Purchaser shall have no liability or obligation in connection with current or former employees or agents of Seller or any dependent or beneficiary of any of them by reason of their relationship to Seller.

5.6 Assignments; Consents. To the extent that the assignment of any Contract, license or other agreement or arrangement or any claim, right or benefit arising thereunder or resulting therefrom is not permitted without the consent of a third party, this Agreement shall not constitute an agreement to assign such Contract, license or other agreement or arrangement, but shall be subject to such consent; and no transfer or assignment to Purchaser by Seller of any interest under any such Contract, license or other agreement or arrangement that requires the consent of a third party shall be made subject until such consent or approval is obtained. In the event any such consent or approval is not obtained on or prior to the Closing Date, Seller shall continue to use its commercially efforts to obtain any such approval or consent after the Closing Date, and Seller will cooperate with Purchaser in any lawful and economically feasible arrangement to provide that Purchaser shall

 

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receive the interest of Seller in the benefits under any such Contract, license or other agreement or arrangement, including performance by Seller, as agent, if economically feasible, provided that Purchaser shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent Purchaser would have been responsible therefor hereunder if such consent or approval had been obtained. Nothing in this Section 5.6 shall be deemed a waiver by Purchaser of its right to have received on or before the Closing an effective assignment of all of the Assets nor shall this Section 5.6 be deemed to constitute an agreement to exclude from Purchaser any of the Assets described under Section 2.1.

5.7 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the party or parties entitled to the benefits thereof. Any waiver effected pursuant to this Section 5.8 shall be binding upon all parties hereto. No failure to exercise and no delay in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude the exercise of any other right, power or privilege. No waiver of any breach of any covenant or agreement hereunder shall be deemed a waiver of any preceding or subsequent breach of the same or any other covenant or agreement. The rights and remedies of each party under this Agreement are in addition to all other rights and remedies, at law or in equity, that such party may have against the other parties.

5.8 Tax Assessments and Audits. Seller shall furnish promptly to Purchaser a copy of all notices of proposed assessment or similar notices or reports that are received from any taxing authority and which relate to the Business or the Assets for periods ending on or prior to the Closing Date.

5.9 Restrictions on Transfer. Seller agrees that it will not sell or otherwise transfer any of the shares of eGames Stock issued as the Purchase Price to any Person who is not an “accredited investor” as defined under Rule 501 promulgated under the Securities Act, without registration under the Securities Act or an exemption from registration under the Securities Act, and that Seller fully understands and agrees that Seller must bear the economic risk of the purchase because, among other reasons, none of the shares of eGames Stock issued as the Purchase Price have been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless subsequently registered under the Securities Act and under the applicable securities laws of such states or an exemption from such registration is available. In particular, Seller is aware that the shares are “restricted securities,” as such term is defined in Rule 144 promulgated under the Securities Act (“Rule 144”), and may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. Seller also understands that Purchaser is under no obligation to register any of the shares of eGames Stock on Seller’s behalf or to assist Seller in complying with any exemption from registration under the Securities Act or applicable state securities laws except as set forth in the Registration Rights agreement. Seller further understands that sales or transfers of the shares of eGames Stock are further restricted by state securities laws and the provisions of this Agreement.

 

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5.10 Legend. eGames Stock issued as the Purchase Price shall bear the following legend, or similar legend to the same effect, until (i) the shares shall have been registered under the Securities Act and effectively been disposed of in accordance with a registration statement that has been declared effective; or (ii) in the opinion of counsel for Purchaser such shares may be sold without registration under the Securities Act and any applicable “Blue Sky” or state securities laws:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND ALL SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON THE TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT.”

5.11 Prohibition on Short Sales. Seller, its Affiliates and Seller’s and its Affiliates’ respective officers, directors, shareholders, employees and agents agree that they will not, during the period following the execution of this Agreement and prior to the Closing, directly or indirectly sell any equity security, including derivatives of Purchaser if he, she or it (i) does not own the security sold or (ii) if he, she or it owns the security, does not deliver it against such sale (a “short sale against the box”) within twenty days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation. Seller, its Affiliates and Seller’s and its Affiliates’ respective officers, directors, shareholders, employees and agents also agree, during such period, not to engage in short sales or any transaction involving a collar with respect to Purchaser’s shares. A short sale, as defined in this Agreement, means any transaction whereby one may benefit from a decline in the Purchaser’s stock price.

5.12 Purchaser Board of Directors. Immediately following the Closing, a designee of Seller (“Seller Designee”) shall be entitled to serve as a director on Purchaser’s Board of Directors (the “Purchaser Board”) until the annual election of directors at Purchaser’s annual meeting of shareholders to be held in 2012 (“2012 Annual Meeting”), or until the earlier of the resignation, removal, incapacity or death, subject to the provisions set forth in this Section 5.12. Until the 2012 Annual Meeting, unless the Sale of Purchaser has occurred earlier, any vacancy on the Purchaser Board created by the resignation, removal, incapacity or death of the Seller Designee shall be filled by an individual designated by the remaining Shareholders. The provisions set forth in this Section 5.12 shall terminate and no longer have any force or effect upon the election of directors at the 2012 Annual Meeting, or earlier upon the sale of Purchaser, at which time the Seller Designee shall resign from the Purchaser Board. The parties hereto acknowledge and agree that each of the directors appointed in accordance with this Agreement shall exercise his or her business judgment and otherwise

 

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serve as directors of Purchaser for the benefit of all shareholders of Purchaser and shall have no obligation or entitlement to treat the person designating such person to the position of director more favorably or differently than any other shareholder of, or person having an interest in, Purchaser.

ARTICLE VI

CONDITIONS PRECEDENT TO CLOSING

6.1 Conditions of Purchaser. Notwithstanding any other provision of this Agreement, the obligations of Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction, at or prior to the date hereof, of the following conditions:

(a) There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby or (ii) seeking to prohibit the direct or indirect ownership or operation by Purchaser of all or a material portion of the Business or Assets, or to compel Purchaser or Seller to dispose of or hold separate all or a material portion of the Business or Assets of Seller or Purchaser;

(b) The representations and warranties of Seller in this Agreement shall be true and correct as of the date of this Agreement and shall be true and correct in all material respects (or in all respects in the case of any representation or warranty subject to a materiality qualification) on and as of the date hereof, except for those representations and warranties which address matters only as of a particular date (which shall be true and correct as of such date) and Seller shall have complied with all covenants and agreements and satisfied all conditions on Seller’s part in this Agreement or any Ancillary Agreement to be performed or satisfied on or prior to the date hereof, and Seller shall have provided Purchaser with a certificate with respect to the foregoing signed by an authorized officer of Seller;

(c) Purchaser shall have received from the President of Seller a certificate dated the date hereof to the effect that the conditions set forth in Section 6.1(b) have been satisfied and that Seller’s Board of Directors and the stockholders of Seller have approved the Agreement and the transactions contemplated hereby;

(d) Purchaser will have received such bills of sale, assignments, certificates of title and other instruments of transfer (the “Transfer Documents”) duly executed by Seller, in such forms and covering such matters as Purchaser may reasonably request, Transferring the Assets to Purchaser;

(e) Seller and Shareholders shall each have entered into and delivered to Purchaser the Noncompetition Agreements.

(f) Eugene Mauro and F.J. Lennon shall have provided their written agreement to become employees of Purchaser on the terms contained in Exhibit C.

 

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(g) All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance reasonably satisfactory to Purchaser and its counsel;

(h) All consents and assignments from third parties, including from any Governmental Entity or other Person, relating to the Contracts or the conduct and operation of the Business as currently conducted and operated, shall have been obtained;

(i) No act, event or condition shall have occurred after the date hereof which Purchaser determines has had or could have a Material Adverse Effect on the Business or the Assets;

(j) The Board of Directors and stockholders of Seller shall have authorized and approved this Agreement and the transactions contemplated hereby;

6.2 Conditions of Seller. Notwithstanding any other provision of this Agreement, and except as set forth below, the obligations of Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction, at or prior to the date hereof, of:

(a) There shall not be instituted and pending or threatened any Action before any Governmental Entity (i) challenging or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated hereby or (ii) seeking to prohibit the direct or indirect ownership or operation by Purchaser of all or a material portion of the Business or Assets, or to compel Purchaser or Seller to dispose of or hold separate all or a material portion of the Business or Assets of Seller or Purchaser;

(b) The representations and warranties of Purchaser in this Agreement shall be true and correct as of the date of this Agreement and shall be true and correct in all material respects (or in all respects in the case of any representation or warranty subject to a materiality qualification) on and as of the date hereof, except for those representations and warranties which address matters only as of a particular date (which shall be true and correct as of such date) and Purchaser shall have complied with all covenants and agreements and satisfied all conditions on Purchaser’s part in this Agreement or any Ancillary Agreement to be performed or satisfied on or prior to the date hereof, and Purchaser shall have provided Purchaser with a certificate with respect to the foregoing signed by an authorized officer of Purchaser;

(c) Seller and the Shareholders shall have received from the President of Purchaser a certificate dated the date hereof to the effect that the conditions set forth in Section 6.2(b) have been satisfied and that Purchaser’s Board of Directors has approved the Agreement and the transactions contemplated hereby;

(d) Purchaser will have received the Closing Payment which is deliverable on the Closing Date;

 

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(e) Purchaser and Seller shall each have entered into the Registration Rights Agreement.

(f) Purchaser shall have offered Mauro and Lennon the terms of employment as set forth on Exhibit C.

(g) All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby and all certificates, opinions, agreements, instruments, releases and documents referenced herein or incident to the transactions contemplated hereby shall be in form and substance reasonably satisfactory to Seller and its counsel;

(h) All consents and assignments from third parties, including from any Governmental Entity or other Person, relating to the Contracts or the conduct and operation of the Business as currently conducted and operated, shall have been obtained;

ARTICLE VII

INDEMNIFICATION

7.1 Survival. Notwithstanding any investigation conducted at any time with regard thereto by or on behalf of Purchaser, the representations and warranties of Seller and Shareholders hereto contained in this Agreement or in any Exhibit or Schedule hereto shall survive the Closing and the consummation of the transactions contemplated hereby (and any examination or investigation by or on behalf of any party hereto); provided, however, that (i) the representations and warranties contained in Sections 3.3, 3.4, 3.8 and 3.10, and the related claims for indemnification, shall survive until the second anniversary of the Closing Date; (ii) the representations and warranties contained in Section 3.6, and the related claims for indemnification, shall survive until sixty (60) days after the expiration of the applicable statute of limitations, and (iii) all other representations and warranties, and related claims for indemnification, shall survive until the first anniversary of the Closing Date. The termination of the representations and warranties provided herein shall not affect the rights of a party in respect of any claim made by Purchaser prior to the expiration of the applicable survival period. Notwithstanding any investigation conducted at any time with regard thereto by or on behalf of Seller and Shareholders, the representations and warranties of Purchaser hereto contained in this Agreement or in any Exhibit or Schedule hereto shall survive the Closing and the consummation of the transactions contemplated hereby (and any examination or investigation by or on behalf of any party hereto); provided, however, that all representations and warranties, and related claims for indemnification, shall survive until the first anniversary of the Closing Date. The agreements and covenants contained in this Agreement with respect to Seller, the Shareholders and Purchaser shall survive the Closing Date indefinitely or in accordance with their terms, if any.

7.2 Indemnification

(a) Seller and Shareholders jointly and severally covenant and agree to defend, indemnify and hold harmless Purchaser, its officers, directors, shareholders, accountants, attorneys and agents from and against any Damages arising out of or resulting from: (i) any

 

27


inaccuracy in or breach of any representation or warranty made by Seller or Shareholders in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; (ii) the failure of Seller or the Shareholders to perform or observe fully any covenant, agreement or provision to be performed or observed by Seller or Shareholders pursuant to this Agreement. Notwithstanding anything contained in this Section 7.2(a), Purchaser hereby agrees that Shareholders’ indemnity obligations under this Agreement shall be limited to an aggregate of $300,000 in Damages and any claim shall only be paid from the Holdback Shares and if that is not sufficient, then any Earnout Payment, if any, and claims for all such Damages shall be limited to such eGames Stock.

(b) Purchaser covenants and agrees to defend, indemnify and hold harmless Seller and Shareholders, its officers, directors, shareholders, accountants, attorneys and agents from and against any Damages arising out of or resulting from: (i) any inaccuracy in or breach of any representation or warranty made by Purchaser in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; (ii) the failure of Purchaser to perform or observe fully any covenant, agreement or provision to be performed or observed by Purchaser pursuant to this Agreement; and (iii) any Assumed Liabilities. Notwithstanding anything contained in this Section 7.2(b), Seller and Shareholders hereby agree that Purchaser’s indemnity obligations under this Agreement shall be limited to an aggregate of $300,000 in Damages.

7.3 Procedures. If either Party seeks indemnification under this Article VII (the “Indemnified Party”), it shall give notice (“Claim Notice”) to other Party (the “Indemnifying Party”) of the basis of the claim (the “Claim”) (i) within a reasonable time after discovery of the facts and (ii) in any event, within the time periods set forth in Section 7.1, provided that the failure to give such notice shall not relieve the Indemnifying Party of any liability hereunder except to the extent that the Indemnifying Party is materially adversely prejudiced by such failure. The Indemnifying Party shall give notice to the Indemnified Party within thirty (60) days after receipt of the notice requested by this Section 7.3 advising whether it (i) acknowledges its obligation to indemnify or (ii) disputes its obligation to indemnify. If the Indemnifying Party acknowledges its indemnification obligation with respect to the Claim, and (i) such Claim is based upon an asserted liability or obligation to a person or entity that is not a party to this Agreement (a “Third Party Claim”), the Indemnifying Party shall have the right to defend or settle such Third Party Claim or (ii) if such Claim is not a Third Party Claim, the Indemnified Party shall be entitled to immediate satisfaction of such Claim. If the Indemnifying Party does not notify the Indemnified Party within fifteen (15) business days following receipt of notice of a Claim that is not a Third Party Claim that it disputes such Claim, such Claim shall be deemed a liability of the Indemnifying Party and Indemnifying Party shall pay the amount of the Claim on demand by the Indemnified Party, or in the case of any notice in which the amount of the Claim is estimated, on such later date when the amount of the Claim is finally determined. If the Indemnifying Party disputes the Claim in a timely manner as set forth herein, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of the dispute, or, if necessary, to resolution of the dispute in a manner determined by the parties or by any other means elected by the Indemnified Party.

7.4 Third Party Claims.

 

28


(a) Indemnifying Party shall have sixty (60) days after receipt of the Claim Notice to undertake, conduct and control, through counsel which the indemnified Party has no reasonable objection to, and at Indemnifying Party’s expense, the settlement or defense of a Third Party Claim, and Purchaser shall cooperate with Seller and Shareholders in connection therewith, provided that (i) Seller shall permit Purchaser to participate in such settlement or defense through counsel chosen by Purchaser, provided that the fees and expenses of such counsel shall not be borne by Seller, and (ii) neither Seller nor Shareholders shall settle any Third Party Claim without Purchaser’s consent. So long as Seller and Shareholders are vigorously contesting any such Third Party Claim in good faith, Purchaser shall not pay or settle such claim without Seller’s and Shareholders’ consent, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, if Seller assumes control of such defense, and there exists a conflict of interest between the interests of Seller and those of Purchaser with respect to such Third Party Claim as determined by Purchaser in the exercise of its reasonable business judgment, Purchaser may retain counsel satisfactory to it and the reasonable fees and expenses of such counsel to Purchaser shall be paid by Seller.

(b) If Seller does not notify Purchaser within thirty days after receipt of the Claim Notice that it elects to undertake the defense of the Third Party Claim described therein, Purchaser shall have the right to contest, settle or compromise the Third Party Claim in the exercise of its reasonable discretion, on behalf of and for the account and risk of Seller; provided that Purchaser shall notify Seller of any compromise or settlement of any such Third Party Claim.

(c) Seller shall not be entitled to assume the defense for any Third Party Claim (and shall be liable for the reasonable fees and expenses incurred by Purchaser in defending such claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against Purchaser which Purchaser determines, after conferring with its counsel, cannot be separated from any related claim for money damages and which, if successful, would adversely affect the Assets or the Business, properties or prospects of the Business.

7.5 Indemnification Exclusive. Except as provided herein, the foregoing indemnification provisions shall be the sole and exclusive remedy after the Closing Date for money damages available to Purchaser, Seller or Shareholders for breach of any representations, warranties or covenants contained herein, but shall not limit any other remedy to which Purchaser, Seller or Shareholders may be entitled. Nothing in this Agreement shall be construed as limiting in any way the remedies that may be available to Purchaser, Seller or Shareholders in the event of fraud relating to the representations, warranties or covenants made by Purchaser, Seller or Shareholders in this Agreement.

ARTICLE VIII

GENERAL PROVISIONS

 

29


8.1 Notices. All notices and other communications under or in connection with this Agreement shall be in writing and shall be deemed given (a) if delivered personally (including by overnight express or messenger), upon delivery, (b) if delivered by registered or certified mail (return receipt requested), upon the earlier of actual delivery or three days after being mailed, or (c) if given by telecopy, upon confirmation of transmission by telecopy, in each case to the parties at the following addresses:

 

  (a)

If to the Purchaser, addressed to:

eGames, Inc.

2000 Cabot Boulevard West, Suite 100

Langhorne, Pennsylvania 19047-1811

Attention: President and Chief Executive Officer

Facsimile: (215) 750-3722

With a copy to:

McCausland Keen & Buckman

Radnor Court, Suite 160

259 N. Radnor-Chester Road

Radnor, Pennsylvania 19087

Attention: Nancy D. Weisberg, Esquire

Facsimile: (610) 341-1099

 

  (b)

If to Seller, addressed to:

Heyday Games, Inc.

XX XXXXXX XXXXXX

XXXXXXX, XX XXXXX

Attn: Eugene Mauro

email: gene.mauro@gmail.com

 

  (c)

If to Shareholders, addressed to:

Eugene Mauro

XX XXXXXX XXXXXX

XXXXXXX, XX XXXXX

email: gene.mauro@gmail.com

F.J. Lennon

XXXX XXX XXXXXX

XXXXXXX, XX XXXXX

fj@fjlennon.com

8.2 Severability. If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be

 

30


ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable such term or provision in any other jurisdiction, the remaining terms and provisions of this Agreement or the application of such terms and provisions to circumstances other than those as to which it is held invalid or enforceable.

8.3 Entire Agreement. This Agreement, including the annexes and schedules attached hereto and other documents referred to herein, contains the entire understanding of the parties hereto in respect of its subject matter and supersedes all prior and contemporaneous agreements and understandings, oral and written, between the parties with respect to such subject matter.

8.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Purchaser, Seller and Shareholders and their respective successors, heirs and assigns; provided, however, that neither party shall directly or indirectly transfer or assign (whether by sale, stock sale or merger) any of its rights or obligations hereunder in whole or in part without the prior written consent of the other party, other than in connection with a Change in Control of such party. Subject to the foregoing, this Agreement is not intended to benefit, and shall not run to the benefit of or be enforceable by, any other person or entity other than the parties hereto and their permitted successors and assigns.

8.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same Agreement.

8.6 Schedules, Exhibits and Annexes. The schedules, exhibits and annexes to this Agreement are incorporated herein and, by this reference, made a part hereof as if fully set forth at length herein.

8.7 Construction.

(a) The article, section and subsection headings used herein are inserted for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

(b) As used in this Agreement, the masculine, feminine or neuter gender, and the singular or plural, shall be deemed to include the others whenever and wherever the context so requires.

(c) For the purposes of this Agreement, unless the context clearly requires, “or” is not exclusive.

 

31


8.8 Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the Commonwealth of Pennsylvania, and no action involving this Agreement may be brought except in either the Court of Common Pleas of Bucks County or the United States District Court for the Eastern District of Pennsylvania.

8.9 Passage of Title and Risk of Loss. Legal title, equitable title and risk of loss with respect to the Assets will not pass to Purchaser until such Assets are Transferred at the Closing, which transfer, once it has occurred, will be deemed effective for tax, accounting and other computational purposes as of 11:59 P.M. (Eastern Time) on the Closing Date.

8.10 Bulk Sales. Purchaser hereby waives compliance by Seller with the provisions of the bulk sales laws of any jurisdiction, if applicable, provided that Seller agrees to indemnify Purchaser for claims of creditors of Seller with respect to liabilities not expressly assumed by Purchaser pursuant to this Agreement.

8.11 Records. Seller shall deliver to Purchaser copies of any financial, tax and personnel records pertaining to the Assets and Business and retain all originals, and Seller shall give Purchaser reasonable access to any original records for inspection and copying upon reasonable prior notice during regular business hours. Seller shall maintain all such original records at its expense for a period of at least six years after the Closing Date, and prior to any destruction thereafter, shall give at least 90 days prior written notice to Purchaser, which may take possession of the original records designated for destruction, and any failure to do so before the expiration of such 90-day notice shall be deemed Purchaser’s authorization to carry out such destruction. Purchaser shall permit Seller to have reasonable access to the records of Seller delivered to Purchaser pursuant to section 2.1(e) for inspection or copying upon reasonable prior notice during regular business hours for use in the defense of any litigation, tax audit or if it is necessary for Seller to consult such records of which Seller does not have copies.

Remainder of Page Left Blank Intentionally

 

32


IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or has caused this Agreement to be executed on its behalf by a representative duly authorized, all as of the date first above set forth.

 

PURCHASER:
eGAMES, INC.

By:

 

/s/ Gerald W. Klein

Name:

 

Gerald W. Klein

Title:

 

President and CEO

SELLER:
HEYDAY GAMES, INC.

By:

 

/s/ Eugene H. Mauro

Name:

 

Eugene H. Mauro

Title:

 

CEO

SHAREHOLDERS:

/s/ Eugene Mauro

Eugene Mauro

/s/ F.J. Lennon

F.J. Lennon

/s/ Linda Mauro

Linda Mauro

Signature Page of Asset Purchase Agreement

EX-3.1 3 d244335dex31.htm ARTICLES OF INCORPORATION, AS AMENDED Articles of Incorporation, as amended

Exhibit 3.1

9254- 680

 

Microfilm Number

 

 

   

Filed with the Department of State on

  

JUL 09 1992

Entity Number

 

2097934

   

LOGO

      Secretary of the Commonwealth

ARTICLES OF INCORPORATION-FOR PROFIT

DSCB:15-1304/2102/2303/2702/2903/7102A (Rev 90)

 

Indicate type of domestic corporation (check one) :

      

x

    

Business-stock (15 Pa.C.S. § 1506)

 

¨

    

Management (15 Pa.C.S. § 2702)

¨

    

Business-nonstock (15 Pa.C.S. § 2102)

 

¨

    

Professional (15 Pa.C.S. § 2903)

¨

    

Business-statutory close (15 Pa.C.S. § 2303)

 

¨

    

Cooperative (15 Pa.C.S. § 7102)

In compliance with the requirements of the applicable provisions of 15 Pa.C.S. (relating to corporations and unincorporated associations) the undersigned, desiring to incorporate a corporation for profit, hereby state(s) that:

 

1.

  

The name of the corporation is:

 

Rom Tech, Inc.

  

 

2.

   The (a) address of the corporation’s initial registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is:

 

 

(a)

 

2192 (ILLEGIBLE) Court

  

Warrington

  

 PA

  

15976

  

Bucks

   

 

   

Number and Street

  

            City

  

State

  

    Zip

  

  County

 

 

(b)

 

c/o:

 

 

     

Name of Commercial Registered Office Provider

   County  

 

 

For a corporation represented by a commercial registered office provider, the county in (b) shall be (Illegible) the county in which the corporation is located for (illegible) and official publication purposes.

3.

 

The corporation is incorporated under the provisions of the Business Corporation Law of 1988.

4.

 

The aggregate number of shares authorised is 1,000 (ILLEGIBLE)

 

Certification#: 9769114-1 Page 1 of 77


9254- 681

 

5.

 

The name and address, including number and street, if any, of each incorporator is:

 

 

Name

    

Address

 

Flaster, [ILLEGIBLE]

    

Five Greentree Centre, North Tower - Suite 200 [ILLEGIBLE]

 

 

    

 

 

6.

 

The specified effective date, if any, is:

 

Upon filing

   

month    day    year        hour, if any

 

7.

 

Any additional provisions of the articles, if any, attach an 8 1/2 x 11 sheet.

 

8.

  Statutory close corporation only: Neither the corporation nor any shareholder shall make an offering of any of its shares of any class that would constitute a “public offering” within the meaning of the Securities Act of 1933 (15 U.S.C. § 77a et seq.).

 

9.

  Cooperative corporations only: (Complete and strike out inapplicable term) The common bond of membership among its
 

members/shareholders is:

 

 

 

    

IN TESTIMONY WHEREOF, the incorporator [ILLEGIBLE] has [ILLEGIBLE] signed these Articles of Incorporation this 2nd day of July, 19     .

   

Flaster, (ILLEGIBLE)

   

LOGO

 

(Signature)

   

(Signature)

   

[ILLEGIBLE], Vice President

 

Certification#: 9769114-1 Page 2 of 77


9254- 682

 

RIDER A TO ARTICLES OF INCORPORATION OF

Rom Tech, Inc.

9. Any action which may be taken at a meeting of shareholders or of a class of shareholders maybe taken without a meeting if a consent or consents in writing to such action, setting forth the action so taken, shall be signed by shareholders entitled to cast a majority (or such larger percentage as may at the time of such action be required by statute for the taking of action by shareholders without a meeting) of the votes which all such shareholders are authorized to cast thereon.

10. (a) Directors and Officers as Fiduciaries. A director or officer of the corporation shall stand in a fiduciary relation to the corporation and shall perform his or her duties as a director or officer, including his or her duties as a member of any committee of the board upon which he or she may serve, in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his or her duties, a director or officer shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by one or more officers or employees of the corporation whom the director or officer reasonably believes to be reliable and competent with respect to the matters presented, counsel, public accounts or other persons as to matters that the director or officer reasonably believes to be within the professional or expert competence of such person, or a committee of the board of directors upon which the director or officer does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director or officer reasonably believes to merit confidence. A director or officer shall not be considered to be acting in good faith if he or she has knowledge concerning the matter in question that would cause his or her reliance to be unwarranted. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or officer of the corporation or any failure to take any action shall be presumed to be in the best interests of the corporation.

(b) Personal Liability of Directors. A director of the corporation shall not be personally liable, as such, for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys’ fees and disbursements)) for any action taken, or any failure to take any action, unless the director has breached or failed to perform the duties of his or her office under these articles of incorporation, the bylaws of the corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

 

Certification#: 9769114-1 Page 3 of 77


9254- 683

(c) Personal Liability of Officers. An officer of the corporation shall not be personally liable, as such, to the corporation or its shareholders for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys’ fees and disbursements)) for any action taken, or any failure to take any action, unless the officer has breached or failed to perform the duties of his or her office under these articles of incorporation, the bylaws of the corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

(d) Interpretation of Article. The provisions of Sections (b) and (c) of this Article shall not apply to the responsibility or liability of a director or officer, as such, pursuant to any criminal statute or for the payment of taxes pursuant to local, state or federal law. The provisions of this Article have been adopted pursuant to the authority of Sections 1721 (e) and 1732(c) of the Pennsylvania Business Corporation Law of 1988, shall be deemed to be a contract with each director or officer of the corporation who serves as such at any time while this Article is in effect, and such provisions are cumulative of and shall be in addition to and independent of any and all other limitations on the liabilities of directors or officers of the corporation, as such, or rights of indemnification by the corporation to which a director or officer of the corporation may be entitled, whether such limitations or rights arise under or are created by any statute, rule of law, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Each person who serves as a director or officer of the corporation while this Article is in affect shall be deemed to be doing so in reliance on the provisions of this Article. No amendment to or repeal of this Article, nor the adoption of any provisions of these Articles of Incorporation inconsistent with this article, shall apply to or have any effect on the liability or alleged liability of any director or officer of the corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment, repeal or adoption of an inconsistent provision. In any action, suit or proceeding involving the application of the provisions of this Article, the party or parties challenging the right of a director or officer to the benefits of this Article shall have the burden of proof.

11. These Articles of Incorporation may be amended in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are granted subject to this reservation.

 

Certification#: 9769114-1 Page 4 of 77

-2-


9254- 684

12. The purposes for which the Corporation is organized are:

To engage in the sales and distribution of personal computer software; provided, however, that the corporation may invest its funds in real estate, mortgages, stock, bonds or any other type of investments and may own real or personal property necessary for, or appropriate or desirable in, the fulfillment or rendering of its specific professional services; and may engage in any other activity permitted to be conducted by a professional corporation incorporated under chapter 29 of the Pennsylvania Business Corporation Law of 1988 (Pa. C.S.A. $2901, et seq.) as amended from time to time.

 

Certification#: 9769114-1 Page 5 of 77

-3-


9550- 894

 

Microfilm Number

 

 

   

Filed with the Department of State on

 

JUL 28 1995

Entity Number

 

2097934

   

LOGO

      Secretary of the Commonwealth

ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION

DSCB:15-1915 (Rev 91)

In compliance with the requirements of 15 Pa.C.S. § 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that:

 

1.

 

The name of the corporation is:

 

    Rom Tech, Inc.

 

 

2.

  The (a) address of this corporation’s current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):

 

 

(a)

 

  2260 Cabot Blvd., Suite 6

 

Langhorne

 

  PA

 

19047

 

Bucks

   

Number and Street

 

    City

 

State

 

Zip

 

    County

 

(b)

 

c/o:

 

    N/A

   
     

Name of Commercial Registered Office Provider

  County  
  For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes.

3.

 

The Statute by or under which it was incorporated is :

 

    Pennsylvania Business Corporation Law of 1988

4.

 

The date of its incorporation is :

 

    July 9, 1992

5.

 

(Check and If appropriate complete, one of the following):

 

x  The amendment shall be effective upon filling these Articles of Amendment in the Department of State.

 

¨  The amendment shall be effective on :

 

 

 

at

 

 

    Date     Hour

6.

 

(Check one of the following):

 

x  The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. § 1914(a) and (b).

 

¨  The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. § 1914(c).

7.

 

(Check, and if appropriate complete, one of the following):

 

¨  The Amendment adopted by the corporation, set forth in full, is as follows:

 

x  The Amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof.

 

(ILLEGIBLE)

 

LOGO

 

Certification#: 9769114-1 Page 8 of 77


9550- 895

DSCB:15-1915 (Rev 91)-2

 

8.

(Check if the amendment restates the Articles):

x  The restated Articles of Incorporation supersede the original Articles and all amendments thereto.

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 12th day of July, 1995.

 

Rom Tech, Inc.

(Name of Corporation)

BY:

 

LOGO

 

 

Joseph A. Falsetti        (Signature)

TITLE:

 

Chief Executive Officer

 

Certification#: 9769114-1 Page 9 of 77


9550- 896          

EXHIBIT A

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

ROM TECH, INC.

ROM TECH, INC., a corporation organized and existing under and by virtue of the Pennsylvania Business Corporation Law;

DOES HEREBY CERTIFY:

That the Articles of Incorporation of Rom Tech, Inc. be and they hereby are amended and restated in their entirety to read as follows:

1. The name of the corporation is Rom Tech, Inc.

2. The location of its registered office in this Commonwealth is: 2260 Cabot Boulevard, Suite 6, Langhorne, Pennsylvania, Bucks County.

3. The corporation was incorporated on July 9, 1992 under the provisions of the Business Corporation Law of 1988.

4. The aggregate number of shares of common stock which the Corporation shall have the authority to issue is forty million (40,000,000) shares, without par value.

The aggregate number of shares of preferred stock which the Corporation shall have the authority to issue is ten million (10,000,000) shares, without par value.

The Board of Directors shall have the authority to establish series of Preferred Stock and to fix by resolution the preferences, qualifications, limitations, restrictions and special or relative rights of each such series as follows:

 

  (a)

The Preferred Stock shall be issued in one or more series, and each series shall be so designated as to distinguish the shares thereof from the shares of all other series. Authority is hereby expressly granted to the Board of Directors, subject to the provisions of this Article 4, to divide the shares of Preferred Stock into one or more series and, with respect to each such series, to fix and determine by resolutions providing for the issue of such series the following designations, privileges, relative or special rights, preferences and limitations,

 

Certification#: 9769114-1 Page 10 of 77


9550- 897

 

 

restrictions or qualifications, as to which there may be variations between the series so established:

 

  (i)

the distinctive designations of such series and the number of shares which shall constitute such series, which number may be increased (except as otherwise provided by the Board of Directors in creating such series) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors;

 

  (ii)

the rate of dividends payable on shares of such series, the conditions upon which such dividends shall be payable, the dates when such dividends shall be payable, whether such dividends shall be cumulative or noncumulative or whether such dividends shall be payable in preference to the dividends payable on the Common Stock or any other series of Preferred Stock;

 

  (iii)

whether or not shares of such series shall be redeemable and, if redeemable, the date or dates on which shares of such series shall be redeemable and the price or prices per share at which shares of such series shall be redeemable, which price or prices may vary at redemption dates or otherwise as permitted by law;

 

  (iv)

whether or not the shares of such series shall be subject to mandatory redemption and/or the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares for retirement, and if such retirement or sinking fund shall be established, the annual amount thereof and the terms and provisions relative to the operation thereof;

 

  (v)

the rights of the holders of the shares of such series in the event of any liquidation, dissolution or winding up of the Corporation, including the amount payable on the shares of such series in the event of any liquidation, dissolution or winding up of the Corporation, and whether such

 

Certification#: 9769114-1 Page 11 of 77

2


9550- 898

 

 

amount shall be payable in preference to the amounts payable in the event of any liquidation, dissolution or winding up of the Corporation to the holders of Common Stock or any other series of Preferred Stock;

 

  (vi)

voting rights, if any, (which may be limited, multiple, fractional or non-existent and may vary depending on specified events); and

 

  (vii)

generally to fix and determine the other special or relative rights, preferences and privileges, and any qualifications, limitations or restrictions of such rights, preferences and privileges, of such series; provided, however, that no such rights, preferences, privileges, qualifications, limitations or restrictions shall be in conflict with the Articles of Incorporation of the Corporation or with any resolutions adopted by the Board of Directors providing for the issue of any series of Preferred Stock of which there are shares then outstanding.

 

  (b)

All shares of Preferred Stock of all series shall be of equal rank and identical in all respects except to the extent that variations in the designations, relative rights, preferences and limitations of series of Preferred Stock are specified by the Board of Directors in resolutions providing for the issuance of such series. Each share of a series shall be identical in all respects with the other shares of such series, except that shares of any one series issued at different times may differ as to dates, if any, from which dividends thereon shall be cumulative. Shares of any series of Preferred Stock which have been retired in any manner, including shares redeemed or treasury shares retired, shall not be reissued.

5. Any action which may be taken at a meeting of shareholders or of a class of shareholders may be taken without a meeting if a consent or consents in writing to such action, setting forth the action so taken, shall be signed by shareholders entitled to cast a majority (or such larger percentage as may at the time of such action be required by statute for the taking of action by shareholders without a meeting) of the votes which all such shareholders are authorized to cast thereon.

 

Certification#: 9769114-1 Page 12 of 77

3


9550- 899

 

6. Personal Liability of Directors. A director of the corporation shall not be personally liable, as such, for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys’ fees and disbursements)) for any action taken, or any failure to take any action, unless the director has breached or failed to perform the duties of his or her office under these articles of incorporation, the bylaws of the corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness; provided, however, that the foregoing provision shall not eliminate or limit (i) the responsibility or liability of a director under any criminal statute, or (ii) the liability of a director for the payment of taxes under local, state or federal law. Any repeal, modification or adoption of any provision inconsistent with this Article 6, shall be prospective only, and neither the repeal or modification of this Article nor the adoption of any provision inconsistent with this Article shall adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification or the adoption of such inconsistent provision.

7. Personal Liability of Officers. An officer of the corporation shall not be personally liable, as such, to the corporation or its shareholders for monetary damages (including, without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys’ fees and disbursements)) for any action taken, or any failure to take any action, unless the officer has breached or failed to perform the duties of his or her office under these articles of incorporation, the bylaws of the corporation or applicable provisions of law and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness; provided, however, that the foregoing provision shall not eliminate or limit (i) the responsibility or liability of an officer under any criminal statute, or (ii) the liability of an officer for the payment of taxes under local, state or federal law. Any repeal, modification or adoption of any provision inconsistent with this Article 7, shall be prospective only, and neither the repeal or modification of this Article nor the adoption of any provision inconsistent with this Article shall adversely affect any limitation on the personal liability of an officer of the Corporation existing at the time of such repeal or modification or the adoption of such inconsistent provision.

8. Indemnification.

(a) (i) The Corporation shall indemnify and hold harmless, to the full extent not prohibited by law, as it now exists or may be amended, interpreted or implemented (but, in the case of any amendment, only to the extent that the amendment permits the Corporation to provide broader indemnification rights than were permitted prior to the amendment), each person who was or is made a party or is threatened to be made a party to or is otherwise involved in (as a witness or otherwise) any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether or not by or in the right of the Corporation or otherwise (hereinafter, a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the

 

Certification#: 9769114-1 Page 13 of 77

4


9550- 900

 

heir, executor, or administrator, is or was a director or officer of the Corporation, or where the basis of the proceeding is any alleged action or failure to take any action by that person while acting in an official capacity as a director or officer of the Corporation, against all expenses, liability and loss, including but not limited to attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement (whether with or without court approval), actually and reasonably incurred or paid by that person in connection with the proceeding.

(ii) The right to indemnification conferred in this Article 8 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding (or part of it) or in enforcing his or her rights under this Article 8 in advance of the final disposition of the proceeding. Such payment shall be made promptly after receipt by the Corporation of a request for payment stating in reasonable detail the expenses incurred. However, to the extent required by law, the payment of such expenses incurred by a director or officer of the Corporation in advance of the final disposition of a proceeding shall be made only upon receipt of an undertaking, by or on behalf of that person, to repay all amounts advanced if and to the extent it shall ultimately be determined by a court that he or she is not entitled to be indemnified by the Corporation under this Article 8 or otherwise.

(iii) The right to indemnification and advancement of expenses provided herein shall continue for a person who has ceased to be a director or officer of the Corporation or to serve in any of the other capacities described herein, and shall inure to the benefit of the heirs, executors and administrators of such person.

(b) If a claim for indemnification under this Article 8(b) hereof is not paid in full by the Corporation within thirty (30) days after a written claim for indemnification has been received by the Corporation, the claimant may, at any time afterwards, bring snit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part on the merits or otherwise in establishing his or her right to indemnification or to the advancement of expenses, the claimant shall be entitled to also be paid the expense of prosecuting the claim.

(c) The right to indemnification and the payment of expenses incurred a defending a proceeding in advance of a final disposition conferred in Article 8(a) and the right to payment of expenses conferred in Article 8(b) shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses hereunder may be entitled under any bylaw, agreement, vote of shareholders, vote of directors or otherwise, both as to actions in his or her official capacity and as to actions in any other capacity while holding that office. The Corporation shall have the express authority to enter into such agreements or arrangements as the board of directors deems appropriate for the indemnification of and advancement of expenses to present or future directors and officers as well as employees, representatives or agents of the Corporation in connection with their status with or services to or on behalf of the Corporation or any other corporation,

 

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5


9550- 901

 

partnership, joint venture, trust or other enterprise, including any employee benefit plan, for which such person is serving at the request of the Corporation.

(d) Neither the modification, amendment, alteration or repeal of this Article 8 or any of its provisions nor the adoption of any provision inconsistent with this Article 8 or any of this provisions shall adversely affect the rights of any person to indemnification and advancement of expenses existing at the time of such modification, amendment, alteration or repeal or the adoption of such inconsistent provision.

9. These Articles of Incorporation may be amended in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are granted subject to this reservation.

10. There shall be no cumulative voting in the election of directors.

11. Control Transactions. Subchapter E - “Control Transactions” of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as existing on the date of adoption of this Article 11 or as may be thereafter amended, shall not be applicable to the Corporation.

12. Control-Share Acquisitions. Subchapter G - “Control-Share Acquisitions” of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as existing on the date of adoption of this Article 12 or as may be thereafter amended, shall not be applicable to the Corporation.”

13. Disgorgement By Certain Controlling Shareholders. Subchapter H - “Disgorgement by Certain Controlling Shareholders Following Attempts to Acquire Control” of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as existing on the date of adoption of this Article 13 or as may be thereafter amended, shall not be applicable to the Corporation.”

 

Certification#: 9769114-1 Page 15 of 77

6


9566-1646

 

Microfilm Number

 

 

   

Filed with the Department of State on

 

OCT 17 1995

Entity Number

 

2097934

   

LOGO

     
      Secretary of the Commonwealth

STATEMENT OF CHANGE OF REGISTERED OFFICE

DSCB: 15-1507 (Rev 89)

Indicate type of entity (check one):

 

x

 

Domestic Business Corporation

 

¨

 

Limited Partnership

¨

 

Foreign Business Corporation

 

¨

 

Foreign Nonprofit Corporation

¨

 

Domestic Nonprofit Corporation

   

 

1.

 

The name of the corporation or limited partnership is:

 

Rom Tech, Inc.

 

2.

 

The (a) address of this corporation’s or limited partnership’s current registered office in this Commonwealth or (b) commercial registered office provider and the county of venue is: (the Department is hereby authorized to correct the following address to conform to the records of the Department):

 

 

(a)

 

2260 Cabot Boulevard, Suite #6

 

Langhorne

 

PA

 

19047

 

Bucks

   

Number and Street

 

City

 

State

 

Zip

 

County

 

(b)

 

N/A

   
   

Name of Commercial Registered Office Provider

 

County

 

For a corporation or a limited partnership represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation or limited partnership is located for venue and official publication purposes.

3.

 

The address to which the registered office of the corporation or limited partnership in this Commonwealth is to be changed is (complete part (a) or (b)):

 

(a)

 

2000 Cabot Boulevard West, Suite #110

 

Langhorne

 

PA

 

19047

 

Bucks

   

Number and Street

 

City

 

State

 

Zip

 

County

 

(b)

 

N/A

   
   

Name of Commercial Registered Office Provider

 

County

 

For a corporation or a limited partnership represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation or limited partnership is located for venue and official publication purposes.

4.

 

Such change was authorized by the Board of Directors of the corporation. (not applicable to limited partnerships)

IN TESTIMONY WHEREOF, the undersigned corporation or limited partnership has caused this statement to be signed by a duty authorized officer this 16th day of October 1995.

 

Rom Tech, Inc.

Name of Corporation/Limited Partnership

BY:

 

LOGO

  Signature

TITLE:

 

Chief Executive Officer

LOGO

M. BURR KEIM COMPANY PHILADELPHIA

    1-800-533-8113

 

Certification#: 9769114-1 Page 16 of 77


Microfilm Number

 

 

   

Filed with the Department of State on

 

OCT 17 1995

Entity Number

 

2097934

   

LOGO

      Secretary of the Commonwealth

ARTICLES OF MERGER-DOMESTIC BUSINESS CORPORATION

DSCB:15-1926 (Rev 91)

In compliance with the requirements of 15 Pa.C.S. § 1926 (relating to articles of merger or consolidation), the undersigned business corporations, desiring to effect a merger, hereby state that:

 

1.

  

The name of the corporation surviving the merger is:

  

Rom Tech, Inc.

 

 

2.

  

(Check and complete one of the following):

  

x

   The surviving corporation is a domestic business corporation and the (a) address of its current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):

 

 

(a)

   2000 Cabot Boulevard West, Suite #110    Langhorne    PA    19047    Bucks
    

 

 

Number and Street

   City    State    Zip    County

 

 

(b)

  

c/o:

  

N/A

  
       

 

       

Name of Commercial Registered Office Provider

  

County

For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes.

 

 

N/A

  

The surviving corporation is a qualified foreign business corporation incorporated under the laws of                                                   and the (a) address of its current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):

 

 

(a)

              
    

 

 

Number and Street

   City    State    Zip    County

 

 

(b)

  

c/o:

     
       

 

       

Name of Commercial Registered Office Provider

  

County

For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes.

 

 

N/A

   The surviving corporation is a nonqualified foreign business corporation incorporated under the laws of                                                   and the address of its principal office under the laws of such domiciliary jurisdiction is:

 

             
 

 

 

Number and Street

   City    State    Zip    County

 

3.

  The name and the address of the registered office in this Commonwealth or name of its commercial registered office provider and the county of venue of each other domestic business corporation and qualified foreign business corporation which is a party to the plan of merger are as follows:

 

Name of Corporation    Address of Registered Office or Name of Commercial Registered Office Provider    County  

Applied Optical Media Corporation 96 West Third Avenue, Collegeville, PA 19426

     Montgomery   

 

 
  

 

 
  

 

 

 

M. BURR KEIM, COMPANY [ILLEGIBLE]

  

LOGO

 

Certification#: 9769114-1 Page 17 of 77


DSCB:15-1926 (Rev 91)-2

 

4.

 

(Check, and if appropriate complete, one of the following):

 

 

¨

  

The plan of merger shall be effective upon filing these Articles of Merger in the Department of State.

 

x

  

The plan of merger shall be effective on

  

October 18, 1995

  

at

  

9:00 A.M.

       

 

     

 

        Date       Hour

 

5.

 

The manner in which the plan of merger was adopted by each domestic corporation is as follows:

 

Name of corporation    Manner of adoption

Rom Tech, Inc.

  

Adopted by action of the Board of Directors of the Corporation pursuant to 15 Pa. C.S. Section 1924 (b)(2).

 

Applied Optical Media Corporation

  

Adopted by the directors and shareholders pursuant to 15 Pa. C.S.

 

  

Section 1924(a).

 

 

6.

 

(Strike out this paragraph if no foreign corporation is a party to the merger).

 

7.

 

(Check, and if appropriate complete, one of the following):

 

 

x

  

The plan of merger is set forth in full in Exhibit A attached hereto and made a part hereof.

 

¨

   Pursuant to 15 Pa.C.S. § 1901 (relating to omission of certain provisions from filed plans) the provisions, if any, of the plan of merger that amend or constitute the operative Articles of Incorporation of the surviving corporation as in effect subsequent to the effective date of the plan are set forth in full in Exhibit A attached hereto and made a part hereof. The full text of the plan of merger is on file at the principal place of business of the surviving corporation, the address of which is:

 

             
 

 

 

Number and Street

   City    State    Zip   

IN TESTIMONY WHEREOF, the undersigned corporation or each undersigned corporation has caused these Articles of Merger to be signed by a duly authorized officer thereof this 16th day of October 1995.

 

APPLIED OPTICAL MEDIA CORPORATION

   

ROM TECH, INC.

(Name of Corporation)     (Name of Corporation)

BY:

 

LOGO

   

BY:

 

LOGO

  (Signature)       (Signature)

TITLE:

 

President

   

TITLE:

 

Chief Executive Officer

 

Certification#: 9769114-1 Page 18 of 77


AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of October     , 1995 (“Merger Agreement”), between and among APPLIED OPTICAL MEDIA CORPORATION, a Pennsylvania corporation (“AOMC”), ROM TECH, INC., a Pennsylvania corporation (“Company”) and the shareholders of AOMC, shall amend and restate in its entirety the Agreement and Plan of Merger dated as of July 26, 1995 between and among AOMC, the Company and the shareholders of AOMC.

INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and material covenants and agreements contained herein, the parties to this Merger Agreement hereby agree as follows:

ARTICLE

1

THE MERGER

1.1 Merger of AOMC With and Into Company.

(a) Agreement to Acquire AOMC. Subject to the terms of this Merger Agreement between and among AOMC. Company, and the shareholders of AOMC, AOMC shall be acquired by Company through a merger (“the Merger”) of AOMC into the Company. As used herein, the term “AOMC Common Stock” shall mean the common shares of AOMC and the term “Closing” shall mean the closing of the Merger pursuant to this Merger Agreement.

(b) Effective Time. The Merger shall become effective at such time (the “Effective Time”) as Articles of Merger are filed with the Secretary of State of the Commonwealth of Pennsylvania pursuant to the Pennsylvania Business Corporation Law.

(c) Surviving Corporation. At the Effective Time, AOMC shall be merged into Company and the separate corporate existence of AOMC shall cease. The Company shall be the surviving corporation (the “Surviving Corporation”) in the Merger, and the separate corporate existence of Company, with all its purposes, objects, rights, privileges, powers, immunities and franchises, shall continue unaffected and unimpaired by the Merger.

1.2 Effect of the Merger; Additional Actions

(a) Effects. The Merger shall have the effects set forth in Section 1929 of the Pennsylvania Business Corporation Law.

(b) Additional Actions. If at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable (i) to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or

 

EXHIBIT A

Certification#: 9769114-1 Page 19 of 77

1


assets of AOMC or (ii) otherwise to carry out the purposes of this Merger Agreement, AOMC and its officers and directors shall be deemed to have granted to the Surviving Corporation irrevocable powers of attorney to execute and deliver all such deeds, bills of sale, assignments and assurances and to take and do all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation and otherwise to carry out the purposes of this Merger Agreement; and each of the officers and directors of the Surviving Corporation are fully authorized in the name of AOMC to take any and all such actions.

ARTICLE 2

THE CONSTITUENT CORPORATIONS

2.1 Organization of Company.

(a) Incorporation. The Company was incorporated under the laws of the Commonwealth of Pennsylvania on July 9, 1992.

(b) Authorized Stock. The Company is authorized to issue an aggregate of 40,000,000 shares of Common Stock, without par value (“Company Common Stock”), and 10,000,000 shares of Preferred Stock, without par value (the “Preferred Stock”).

(c) Outstanding Stock. On the date hereof, 1,602,741 shares of Common Stock, warrants to acquire 235,662 shares of Common Stock, and options to acquire 177,000 shares of Common Stock are outstanding.

2.2 Organization of AOMC.

(a) Incorporation. AOMC was incorporated under the laws of the Commonwealth of Pennsylvania on February 16, 1988.

(b) Authorized Stock. AOMC is authorized to issue an aggregate of 10,000 common shares, without par value (“AOMC Common Stock”).

(c) Outstanding Stock. On the date hereof, an aggregate of 3,900 shares of AOMC Common Stock are outstanding.

ARTICLE 3

ARTICLES OF INCORPORATION, BYLAWS AND

DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION

3.1 Articles of Incorporation of Surviving Corporation. The Articles of incorporation of the Company in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation unless and until amended as provided by law and by such Articles of Incorporation.

 

Certification#: 9769114-1 Page 20 of 77

2


3.2 Bylaws of Surviving Corporation. The Bylaws of the Company in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation unless and until amended or repealed as provided by applicable law, the Articles of Incorporation of the Surviving Corporation and such Bylaws.

3.3 Officers and Directors of Surviving Corporation. The directors of the Company immediately prior to the Effective Time shall be the directors of the Surviving Corporation until their successors shall have been elected and qualified or until otherwise provided by law. The officers of the Company immediately prior to the Effective Time shall be the officers of Surviving Corporation and shall serve at the discretion of the Board of Directors of the Surviving Corporation.

ARTICLE 4

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE

CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

4.1 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of any shares of Company Common Stock:

(a) Capital Stock of Company. All issued and outstanding shares of capital stock of Company shall continue to be issued and shall be converted into 1,602,741 shares of Common Stock of the Surviving Corporation. Each stock certificate of the Company evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation.

(b) Cancellation of AOMC Common Stock. All shares of AOMC Common Stock that are owned directly or indirectly by AOMC shall be cancelled, and no stock or other consideration shall be delivered in exchange therefore.

(c) Conversion of AOMC Common Stock. Each issued and outstanding share of AOMC Common Stock (other than shares to be cancelled pursuant to Section 4.1(b) hereof) and shares, if any, held by persons exercising and perfecting their appraisal rights in accordance with Subchapter D of Chapter 15 of the Pennsylvania Corporation Law (“Dissenting Shares”), shall be converted, without any action on the part of the holders thereof, into 1,094.50 shares of Company Common Stock and 295.34 warrants to purchase Company Common Stock, each such warrant (a “Warrant”) to be substantially in the form attached hereto as Exhibit “A”.

(d) Appraisal Rights. If holders of AOMC Common Stock are entitled to appraisal rights in connection with the Merger under Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law, any Dissenting Shares shall not be converted into Company Common Stock but shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the law of the Commonwealth of Pennsylvania. Company Common Stock otherwise issuable to persons exercising and perfecting said appraisal rights shall be retained by Surviving Corporation

 

Certification#: 9769114-1 Page 21 of 77

3


(e) Fractional Shares. No fractional shares of Company Common Stock shall be issued. In lieu of the issuance of fractional shares, the aggregate number of shares of Company Common Stock to be issued to each AOMC shareholder shall be rounded to the nearest whole number of shares of Company Common Stock, with any half shares rounded up to the next integer.

4.2 Exchange of Certificates.

(a) Exchange Procedures. At or promptly after the Closing, certificates that immediately prior to the Effective Time represented outstanding shares of AOMC Common Stock whose shares are being converted into Company Common Stock and Warrants pursuant to Section 4. l(c) of this Merger Agreement, shall be surrendered for cancellation and termination in the Merger pursuant to instructions to be provided by Company. Upon surrender of a certificate for cancellation, each such certificate shall be cancelled and, simultaneously with such cancellation, a new certificate for shares of Company Common Stock and a new certificate for Warrants, representing the number of shares of Company Common Stock and number of Warrants, respectively, into which the shares of AOMC Common Stock formerly represented by such certificate shall have been converted in the Merger, shall be issued to the holder thereof. From and after the Effective Time, each certificate which prior to the Effective Time represented shares of AOMC Common Stock shall be deemed to represent only the right to receive the certificates of Company Common Stock and Warrants contemplated by the preceding sentence, and the holder of each such certificate shall cease to have any rights with respect to the shares of AOMC Common Stock formerly represented thereby, except as otherwise provided herein or by law.

(b) Payments of Dividends With Respect to Unexchanged Shares. No dividends on Company Common Stock shall be paid to the holder of any unsurrendered AOMC Common Stock Certificate until the holder of record of such certificate shall surrender such certificate. Subject to the effect, if any, of applicable escheat and other laws, following surrender of any certificate, there shall be delivered to the person entitled thereto without interest, the amount of dividends paid with respect to the Company Common Stock so withheld as of any date subsequent to the Effective Time and prior to such date of delivery.

(c) No Further Ownership Rights in AOMC Common Stock. All Company Common Stock delivered upon the surrender for exchange of shares of AOMC Common Stock in accordance with the terms hereof shall be deemed to have been delivered in full satisfaction of all rights pertaining to such shares of AOMC Common Stock. There shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of AOMC Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, AOMC Common Stock Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article IV.

 

Certification#: 9769114-1 Page 22 of 77

4


ARTICLE 5

TERMINATION

5.1 Termination by Mutual Agreement. Notwithstanding the approval of this Merger Agreement by the shareholders of AOMC and the Company, this Merger Agreement may be terminated at any time prior to the Effective Time by mutual agreement of the Boards of Directors of Company and AOMC.

5.2 Effects of Termination. In the event of the termination of this Merger Agreement, this Merger Agreement shall become void and there shall be no liability on the part of either Company or AOMC or their respective officers or directors.

ARTICLE 6

CONDITIONS PRECEDENT TO MERGER

6.1 Conditions Precedent to Merger In Favor of AOMC. The following conditions precedent to the Merger in favor of AOMC shall have been satisfied by the Company at the time of the Merger:

 

  (i)

no material adverse change in the financial condition or business of the Company as described in the Registration Statement on Form SB-2 filed by the Company in connection with its initial public offering (the “Registration Statement”) shall have occurred; and

 

  (ii)

the Registration Statement shall have been declared effective by the Securities and Exchange Commission (“SEC”) and the closing with the underwriter of the initial public offering shall have occurred; and

 

  (iii)

the business of the Company shall have been operated in the ordinary course of business from and after the date of this Merger Agreement and no Common Stock or rights to acquire Common Stock shall have been issued other than those sold pursuant to the Registration Statement.

6.2 Conditions Precedent to Merger In Favor of the Company. The following conditions precedent to the Merger in favor of the Company shall have been satisfied by AOMC at the time of the Merger:

 

  (i)

no material adverse change in the financial condition or business of AOMC as described in the Registration Statement shall have occurred; and

 

  (ii)

the Registration Statement shall have been declared effective by the SEC and the closing with the underwriter of the initial public offering shall have occurred; and

 

Certification#: 9769114-1 Page 23 of 77

5


  (iii)

Odyssey Capital Group, L.P., a Pennsylvania limited partnership (“Odyssey”), shall have exchanged all of the debt owing by AOMC to Odyssey (the “AOMC-Odyssey Debt”) for One Million (1,000,000) shares of the Preferred Stock, said Preferred Stock to have the rights, powers and privileges set forth on Exhibit “B” hereto; and

 

  (iv)

John J. Brown (“Brown”) shall have exchanged all of the debt owing by AOMC to Brown (the “AOMC-Brown Debt”) for a $300,000 note in the form attached hereto as Exhibit “C” (the “Brown Note”); and

 

  (v)

AOMC shall not have any indebtedness for borrowed money at the Effective Time other than the loans from Odyssey and Brown exchanged for the Odyssey Preferred Stock and Brown Note, respectively; and

 

  (vi)

the business of AOMC shall have been operated in the ordinary course of business from and after the date of this Merger Agreement; provided, however, that AOMC shall have the right to repay indebtedness owed to Brown so that no less than $300,000 of indebtedness from AOMC to Brown will be outstanding at the Effective Time of the Merger.

ARTICLE 7

GENERAL PROVISIONS

7.1 Amendment. This Merger Agreement may be amended by the parties hereto any time before or after approval hereof by the shareholders of AOMC, but after such approval, no amendment shall be made that by law requires the further approval of shareholders without obtaining such approval. This Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

7.2 Counterparts. This Merger Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement.

7.3 Governing Law. This Merger Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the Commonwealth of Pennsylvania.

 

Certification#: 9769114-1 Page 24 of 77

6


IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as of the date first set forth above.

 

ROM TECH, INC.     APPLIED OPTICAL MEDIA CORPORATION

By:

 

 

   

By:

 

 

 

   

 

(Print Name)

   

(Print Name)

Title:

 

 

   

Title:

 

 

      SHAREHOLDERS OF AOMC:
     

Agreeing to exchange the AOMC-Odyssey Debt for the Preferred Stock described in Exhibit “B”, as required by Section 6.2(iii) of the Merger Agreement, and agreeing to exercise a warrant to purchase 220,662 common shares of the Company on the Effective Date:

     

Odyssey Capital Group, L.P.

     

By:

 

Odyssey Capital Group, Inc.
its general partner

     

By:

 

 

       

John P. Kirwin, III, President

     

Agreeing to exchange the AOMC-Brown Debt for the Brown Note, as required by Section 6.2(iv) of the Merger Agreement:

     

 

     

John J. Brown

     

Ballyshannon Partners, L.P.

     

By:

 

Ballyshannon Partners, Inc.
its general partner

     

By:

 

 

       

Bruce E. Terker, President

 

Certification#: 9769114-1 Page 25 of 77

7


[ILLEGIBLE]

 

Microfilm Number

 

 

   

Filed with the Department of State on

 

NOV 12 1998

Entity Number

 

2097934

   

LOGO

      Secretary of the Commonwealth

ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION

DSCB:15-1915 (Rev 91)

In compliance with the requirements of 15 Pa.C.S. § 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that:

 

1.

 

    The name of the corporation is:

  

Rom Tech,  Inc.

 

 

 

2.

  The (a) address of this corporation’s current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):

 

 

(a)

     2000 Cabot Boulevard West, Suite 110    Langhorne    PA    19047            Bucks    
    

 

 

Number and Street

   City    State    Zip    County

 

 

(b)

  

c/o:

  

      N/A

        Name of Commercial Registered Office Provider   

County

 

For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes.

 

3.

      The statute by or under which it was incorporated is:   

  Pennsylvania Business Corporation Law of 1988

 

4.

      The date of its incorporation is:   

    July 9, 1992

 

5.

 

(Check, and If appropriate complete, one of the following):

 

 

  x

  

The amendment shall be effective upon filing these Articles of Amendment in the Department of State.

 

  ¨

   The amendment shall be effective on:      

at

  
       

 

     

 

        Date       Hour

 

6.

 

(Check one of the following):

 

¨

 

The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. § 1914(a) and (b).

 

x

 

The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. § 1914(c).

 

7.

 

(Check, and If appropriate complete, one of the following):

 

 

x

 

The amendment adopted by the corporation, set forth in full, is as follows:

 

  1.

“The name of the corporation is RomTech, Inc.”

 

 

¨

 

The amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof.

[ILLEGIBLE]

 

Certification#: 9769114-1 Page 56 of 77


[ILLEGIBLE]

DSCB:15-1915 (Rev 91)-2

 

8.

 

(Check If the amendment restates the Articles):

 

 

¨

  

The restated Articles of Incorporation supersede the original Articles and all amendments thereto.

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this      day of November, 1998.

 

Rom Tech, Inc.

(Name of Corporation)

BY:

 

LOGO

 

Gerald W. Klein        (Signature)

TITLE:

 

Chief Executive Officer

 

Certification#: 9769114-1 Page 57 of 77


[ILLEGIBLE]

 

Microfilm Number

 

 

   

Filed with the Department of State on

 

    FEB 09 1999

Entity Number

 

2097934

   

LOGO

      Secretary of the Commonwealth

ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION

DSCB:15-1915 (Rev 91)

In compliance with the requirements of 15 Pa.C.S. § 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that:

 

1.

  

The name of the corporation is:

 

    Rom Tech, Inc.

 

2.

  The (a) address of this corporation’s current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):
 

(a)

  

    2000 Cabot Boulevard West, Suite 110

  

    Langhorne

  

PA

  

19047

  

    Bucks

    

Number and Street

  

City

  

    State

  

Zip

  

County

 

(b)

  

c/o:

  

N/A

        Name of Commercial Registered Office Provider   

County

  For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes.

3.

   The statute by or under which it was incorporated is:   

Pennsylvania Business Corporation Law of 1988

4.

   The date of its incorporation is:   

July 9, 1992

5.

 

(Check, and If appropriate complete, one of the following):

 

¨

  

The amendment shall be effective upon filing these Articles of Amendment in the Department of State.

 

x

   The amendment shall be effective on:    March 1, 1999   

at

  

9:00 a.m.

       

 

     

 

        Date               Hour

6.

 

(Check one of the following):

 

¨

  

The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. § 1914(a) and (b).

 

x

  

The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. § 1914(c).

7.

 

(Check, and If appropriate complete, one of the following):

 

x

  

The amendment adopted by the corporation, set forth in full, is as follows:

    

1.      “The name of the corporation is eGames, Inc.”

 

¨

  

The amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof.

M. BURR KEIM COMPANY

(215)563-8113 (800) 533-8113

LOGO

 

Certification#: 9769114-1 Page 58 of 77


[ILLEGIBLE]

DSCB:15-1915 (Rev 91)-2

 

8

 

(Check If the amendment restates the Articles):

 

 

¨

  

The restated Articles of Incorporation supersede the original Articles and all amendments thereto.

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 27th day of January, 1999.

 

Rom Tech, Inc.

(Name of Corporation)

BY:

 

LOGO

 

Gerald W. Klein        (Signature)

TITLE:

 

Chief Executive Officer

 

Certification#: 9769114-1 Page 59 of 77


     

Entity #: 2097934

Date Filed: 02/14/2008

Pedro A. Cortes

Secretary of the Commonwealth

PENNSYLVANIA DEPARTMENT OF STATE

CORPORATION BUREAU

 

Statement with Respect to Shares

Domestic Business Corporation

(15 Pa.C.S. § 1522)

LOGO

Fee: $70

In compliance with the requirements of 15 Pa.C.S. § 1522(b) (relating to statement with respect to shares), the undersigned corporation, desiring to state the designation and voting rights, preferences, limitations, and special rights, if any, of a class or series of its shares, hereby states that:

 

1 .

 

The name of the corporation is:

eGames, Inc.

2.

 

Check and complete one of the following:

¨

 

  The resolution amending the Articles under 15 Pa.C.S. § 1522(b) (relating to divisions and determinations by the board), set forth   in full, is as follows:

     
     

x

 

  The resolution amending the Articles under 15 Pa.C.S. § 1522(b) is set forth in full in Exhibit A attached hereto and made a part   hereof.

3.

 

The aggregate number of shares of such class or series established and designated by (a) such resolution, (b) all prior statements, if any, filed under 15 Pa.C.S. § 1522 or corresponding provisions of prior law with respect thereto, and (c) any other provision of the Articles is 1,000,000 shares.

[ILLEGIBLE]

 

Certification#: 9769114-1 Page 68 of 77


DSCB:15-1522-2

 

4.

 

The resolution was adopted by the Board of Directors or an authorized committee thereon on:

  February 2, 2008

5.

 

Check, and if appropriate complete, one of the following:

x

 

  The resolution shall be effective upon the filing of this statement with respect to shares in the Department of State.

¨

 

  The resolution shall be effective on:                          at             .

 

                                                                      Date                 Hour

 

IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement to be signed by a duly authorized officer thereof this

12th day of February, 2008.

eGames, Inc.

 

Name of Corporation

LOGO

Signature

Gerald W. Klein, Chief Executive Officer

 

Title

 

Certification#: 9769114-1 Page 69 of 77


STATEMENT OF POWERS, RIGHTS AND DESIGNATIONS, PREFERENCES

OF THE 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK

OF

eGAMES, INC.

Pursuant to Section 1522 of the

Business Corporation Law of the Commonwealth of Pennsylvania

eGames, Inc. (the “Corporation”), a corporation organized and subsisting under the Business Corporation Law of the Commonwealth of Pennsylvania (the “Act”), does hereby certify that pursuant to the provisions of Section 1522(b) of the Business Corporation Law of the Commonwealth of Pennsylvania (the “BCL”), the Board of Directors of the Corporation, by action taken on February 2, 2008, adopted the following resolutions, which resolutions remain in full force and effect as of the date hereof;

RESOLVED, that pursuant to the authority expressly granted to and vested in the board of directors of the Corporation (the “Board”) pursuant to Section 1522(b) of the Pennsylvania Business Corporation Law of 1988, as amended, and by the provisions of Article 4 of the Corporation’s Articles of Incorporation, as amended to date (the “Articles of Incorporation”), the Board hereby creates a series of preferred stock of the Corporation, without par value, consisting of 1,000,000 shares, which shall be designated as the “Series A 5% Cumulative Convertible Preferred Stock” (hereinafter, the “Convertible Preferred Stock” or the “Preferred Stock”), which series shall have the following powers, designations, preferences and relative participating, optional, voting or other rights, and the following qualifications, limitations or restrictions:

1. Dividends.

1.1. The holder of each issued and outstanding share of the Convertible Preferred Stock shall be entitled to receive, out of the funds of the Corporation legally available for such purpose, when, as and if declared by the Board of Directors of the Corporation, before any dividend shall be declared, paid or set aside, or any other distribution shall be declared or made, upon the Corporation’s common stock, without par value, (the “Common Stock”) or any other class or series of stock of the Corporation, cumulative dividends payable either in cash or in kind in shares of the Corporation’s Common Stock, at the Corporation’s option, quarterly, in arrears, in accordance with this Section 1, on or before thirty days after each of March 31, June 30, September 30 and December 31 of each year (“Dividend Payment Date”) commencing on March 31, 2008, except that if such Dividend Payment Date is not a business day, then the Dividend Payment Date will be the immediately preceding business day. Dividends shall accrue and shall be cumulative from the date of issuance of the shares of the Convertible Preferred Stock, whether or not declared by the Board of Directors of the Corporation. If the Corporation elects to pay the dividend in shares of Common Stock, the Corporation shall set aside a sufficient number of shares of Common Stock for the payment of such declared dividends and shall deliver certificates representing such shares of Common Stock to the holders of shares of Convertible Preferred Stock as of the record date for such

 

Certification#: 9769114-1 Page 70 of 77


dividend in payment of such declared dividends within two business days after such Dividend Payment Date.

1.2. The amount of dividends payable per share of Convertible Preferred Stock (the “Dividend Rate”) shall be based on the greater of: (a) 5% per annum of the Stated Value (as hereinafter defined) and (b) $1.00 per unit based on the net quarterly unit sales (as hereinafter defined) of the Corporation’s “Puzzle City” and “Pet Shop” products on the Nintendo DS platform plus $0.50 per unit based on the net quarterly unit sales of all Rubik’s products, except for end-of-life product sales of Rubik’s products to inventory liquidators and discount retailers. The amount of dividends payable for the initial dividend period and any period shorter than a full quarterly period shall be computed on a pro-rata basis, based on the number of days elapsed. Any such dividend declared shall be payable in either cash or in kind in shares of Common Stock, at the option of the Corporation. If a dividend is to be paid in kind in Common Stock, the Common Stock shall be valued at the Current Market Price (as hereinafter defined) as of the record date for such Dividend Payment Date. In furtherance thereof, the Corporation shall reserve out of the authorized but unissued shares of Common Stock, solely for issuance in respect of the payment of dividends as herein described, a sufficient number of shares of Common Stock to pay such dividends, when, if and as declared by the Board of Directors of the Corporation.

1.3. Dividends shall be payable on each Dividend Payment Date to the holders of record of the Convertible Preferred Stock at the close of business on the date specified by the Board of Directors of the Corporation; provided, however, that no such record date shall be more than thirty (30) days nor less than ten (10) days prior to the respective Dividend Payment Date.

1.4. The term “Stated Value” means the original purchase price paid by a holder of the Convertible Preferred Stock plus all accrued and unpaid dividends, if any, added thereto.

1.5. The term “net quarterly unit sales” means the gross units sold during each respective calendar quarter, less products returned during such quarter of the titles by platform referred to in Section 1.2.

2. Rights on Liquidation, Dissolution or Winding-Up. In the event of any liquidation, dissolution or winding-up of the Corporation (including, without limitation, a liquidation or reorganization under Chapter 7 or 11 of Title 11 of the United States Code, as amended), the holders of shares of the Convertible Preferred Stock then issued and outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, before any payment shall be made to the holders of Common Stock of the Corporation, an amount equal to the Stated Value per share. If the assets of the Corporation available for distribution to the holders of Convertible Preferred Stock shall not be sufficient to make in full the payment herein required, such assets shall be distributed pro-rata among the holders of Convertible Preferred Stock. A merger or consolidation involving the Corporation or a sale or transfer of all or substantially all of the assets of the Corporation shall not be deemed a liquidation, dissolution or winding-up of the Corporation.

3. Voting Rights. Except as herein provided or otherwise provided by law, the entire voting power for the election of directors and for all other purposes shall be vested exclusively in the holders of the outstanding Common Stock, and the holders of the Convertible Preferred Stock shall

 

Certification#: 9769114-1 Page 71 of 77

2


not be entitled to vote. Upon any corporate action which would alter or change the rights and preferences so as to adversely affect the holders of the Convertible Preferred Stock, the vote of a majority of the holders of the Convertible Preferred Stock, voting as a series, shall be required to approve such action. The holders of the Convertible Preferred Stock shall be entitled to notice of and to attend all meetings of shareholders.

4. Voluntary Conversion. Each share of the Convertible Preferred Stock shall be convertible into Common Stock at the holder’s option, without the payment of any additional consideration, into the number of fully paid and non-assessable shares of the Corporation’s Common Stock as is determined by dividing (i) 1.00 by (ii) the Conversion Factor (as hereinafter defined). The number of shares of Common Stock into which the Convertible Preferred Stock may be converted shall be hereinafter referred to as the “Conversion Rate.” The initial Conversion Factor for the Convertible Preferred Stock shall be 0.50, subject to adjustment as described in Section 7.

4.1. The right of conversion shall be exercised by the holder of shares of Convertible Preferred Stock by delivering to the Corporation a conversion notice (the “Conversion Notice”), appropriately completed and duly signed and specifying the number of shares of Convertible Preferred Stock that the holder elects to convert (the “Converting Shares”) into shares of Common Stock on the date specified in the Conversion Notice (which date shall not be earlier than the date on which the Conversion Notice is delivered to the Corporation), and by surrender of the certificate or certificates representing such Converting Shares. The Conversion Notice shall also contain a statement of the name or names (with addresses and tax identification or social security numbers) in which the certificate or certificates for Common Stock shall be issued, if other than the name in which the Converting Shares are registered. Promptly after the receipt of the Conversion Notice and surrender of the Converting Shares, the Corporation shall issue and deliver, or cause to be delivered, to the holder of the Converting Shares or such holder’s nominee, a certificate or certificates for the number of shares of Common Stock issuable upon the conversion of such Converting Shares. Such conversion shall be deemed to have been effected as of the close of business on the date specified in the Conversion Notice in accordance with the terms hereof (the “Conversion Date”), and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the holder or holders of record of such shares of Common Stock as of the close of business on the Conversion Date.

5. Mandatory Conversion and Redemption.

5.1. At any time after February 19, 2009, the Corporation shall have the right to cause the conversion of the Convertible Preferred Stock into Common Stock if the Current Market Price of the Common Stock is equal to or greater than $3.00 for thirty (30) consecutive days at the then current Conversion Rate for each share of the Convertible Preferred Stock, upon thirty (30) days notice from the Corporation to the holders.

5.2. Each share of the Convertible Preferred Stock shall be converted into Common Stock or redeemed, at the Corporation’s discretion, upon any of the following events: (a) the closing of a firm commitment underwriting for a public offering of the Common Stock pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission with aggregate gross proceeds of at least $20,000,000 million (“QPO”), or (b) a

 

Certification#: 9769114-1 Page 72 of 77

3


“Change of Control” of the Corporation. For purposes hereof, a “Change of Control” shall be defined as: a consolidation, merger or share exchange of the Corporation (i) in which the shareholders of the Corporation immediately prior to such transaction do not own at least a majority of the voting power of the surviving entity in any such transaction, or (ii) in which a shareholder of the Corporation who does not own a majority of the voting stock of the Corporation immediately prior to such transaction, owns a majority of the Corporation’s voting capital stock immediately after such transaction; (iii) a sale of all or substantially all of the assets of the Corporation; or (iv) the acquisition by any person or related group of more than 50% of the combined voting power of the Corporation’s outstanding securities. If the Corporation elects to cause the conversion of the Convertible Preferred Stock, all of the shares of the Convertible Preferred Stock shall be converted at the then current Conversion Rate. If the Corporation elects to redeem the Convertible Preferred Stock, it shall pay to the holder(s) thereof cash equal to the Stated Value per share.

5.3

(a) Notice of any conversion or redemption by the Corporation under Section 5.1 or Section 5.2 of shares of the Convertible Preferred Stock shall be given in writing by the Corporation to all holders of record by mail at such holder’s address as it appears on the transfer books of the Corporation, and the time of mailing such notice shall be deemed the time of delivery. The notice shall set forth the date of conversion or redemption, as applicable. Such notice shall be given to the holders not less than ten (10) days prior to the date of conversion or redemption, as applicable. The Corporation shall redeem or cause the conversion, no sooner than ten (10) days nor later than sixty (60) days after the date of the notice, all of the outstanding shares of the Convertible Preferred Stock.

(b) Upon notice given pursuant to paragraph (a) of this Section 5.3, from and after the date of redemption or conversion, as specified in the notice, unless, in the event of a redemption, default shall be made by the Corporation in providing for the payment of the applicable redemption price, all dividends on the Convertible Preferred Stock shall cease to accrue.

6. No Fractional Shares. No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of the Convertible Preferred Stock. If more than one share of Convertible Preferred Stock shall be surrendered at any time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Convertible Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Convertible Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to the then Current Market Price (as defined in Section 10) of a share of Common Stock multiplied by such fractional interest. Fractional interests shall not be entitled to dividends, and the holders thereof shall not be entitled to any rights as shareholders of the Corporation in respect of such fractional interests, except as set forth herein.

7. Anti-Dilution. If there shall be issued additional shares of the Common Stock solely by reason of stock dividends, stock splits, reclassification, combinations or exchanges of shares (or a similar issuance of shares without receipt of consideration by the Corporation), or if the Corporation shall reduce the number of outstanding shares of its Common Stock by any capital reorganization or reclassification of the capital stock of the Corporation, or otherwise, the Board of Directors of the

 

Certification#: 9769114-1 Page 73 of 77

4


Corporation shall adjust the Conversion Factor to reflect such transaction such that immediately after any of the foregoing events, the Convertible Preferred Stock shall be convertible into the same proportion of issued and outstanding shares of the Common Stock to which the Convertible Preferred Stock would have been convertible prior to such event.

8. Notices.

Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (Philadelphia time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a business day or later than 5:00 p.m. (Philadelphia time) on any business day, or (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service such as Federal Express.

9. Retirement of Redeemed Shares.

No share or shares of the Convertible Preferred Stock acquired by the Corporation by reason of redemption, or otherwise, shall be re-issued and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue. The Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Convertible Preferred Stock accordingly.

10. Current Market Price.

“Current Market Price” means, in respect of any share of Common Stock on any date herein specified, the average of the daily closing prices for the 10 consecutive business days ending on the last business day before the day in question (as adjusted for any stock dividend, split, combination or reclassification that took effect during such 10 business day period), or, in case no sales took place on any day in question, the mean of the last bid and asked prices on such day, in either case on the principal national securities exchange on which the Common Stock then be listed or admitted to trading or on the NASDAQ Stock Market (or, if the Common Stock is not listed or admitted for trading on any such exchange or on the NASDAQ Stock Market on any day in question, then such price as shall be deemed to be the mean of the last reported bid and asked prices on such day as reported by the OTC Bulletin Board or the “Pink Sheets”; provided, however, that if the Common Stock is not traded in such manner that the quotations referred to in this Section 10 are available for the period required hereunder, the Current Market Price shall be determined in good faith by at least a majority of the members of the Board of Directors of the Corporation, or, if such determination cannot be made, by a nationally recognized independent investment banking firm selected by the Board of Directors of the Corporation (or if such selection cannot be made, by a nationally recognized independent investment banking firm selected by the American Arbitration Association in accordance with its rules); provided, further, that if the Common Stock is listed on any national securities exchange, the term “business days,” as used in this Section 10, shall mean business days on which such exchange is open for trading.

 

Certification#: 9769114-1 Page 74 of 77

5


FURTHER RESOLVED, that, before the Corporation shall issue any shares of the Convertible Preferred Stock, a certificate pursuant to Section 1522(c) of the BCL shall be made, executed, acknowledged, filed, and recorded in accordance with the provisions of Sections 1522(c) of the BCL, and the proper officers of the Corporation be, and they hereby are, authorized and directed to do all acts and things which may be necessary or proper in their opinion to carry into effect the purposes and intent of this and the foregoing resolutions.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed in its name and on its behalf and attested on this 12th day of Feb., 2008 by a duly authorized officer of this Corporation.

 

eGAMES, INC.

By:

 

LOGO

 

Gerald W. Klein, Chief Executive Officer

 

Certification#: 9769114-1 Page 75 of 77

6


   

Entity #: 2097934

Date Filed: 08/19/2011

Carol Aichele

Secretary of the Commonwealth

PENNSYLVANIA DEPARTMENT OF STATE

CORPORATION BUREAU

 

Articles of Amendment-Domestic Corporation

(15 Pa.C.S.)

 

 

x   Business Corporation (§ 1915)

 
 

¨   Nonprofit Corporation (§ 5915)

 

LOGO

Fee: $70

In compliance with the requirements of the applicable provisions (relating to articles of amendment), the undersigned, desiring to amend its articles, hereby states that:

 

 

1.

 

The name of the corporation is:

 

eGames, Inc.

 

2.

  The (a) address of this corporation’s current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department):
   

(a) Number and Street

 

      City

 

State

 

  Zip

 

County

   

2000 Cabot Blvd., Suite 110

 

Langhome

 

  PA

 

19047

 

Bucks

 

 

   

(b) Name of Commercial Registered Office Provider

 

County

 

c/o

 

3.

 

The statute by or under which it was incorporated: Business Corporation Law of 1988

 

4.

 

The date of its incorporation: 07/09/1992

 

5.

 

Check, and if appropriate complete, one of the following:

 

x

 

The amendment shall be effective upon filing these Articles of Amendment in the Department of State.

 

¨

 

 The amendment shall be effective on:

 

                         

 

at

 

                    

 
     

Date

   

      Hour

 

LOGO

 

 

Certification#: 9769114-1 Page 76 of 77


DSCB: l5-19l5/59l5-2

 

6.

 

Check one of the following:

¨

 

The amendment was adopted by the shareholders or members pursuant to 15 Pa.C.S. § 1914(a) and (b) or § 5914(a).

x

 

The amendment was adopted by the board of directors pursuant to 15 Pa. C.S. § 1914 (c) or § 5914(b).

7.

 

Check, and if appropriate, complete one of the following:

x

 

The amendment adopted by the corporation, set forth in full, is as follows

“1.

 

The name of the corporation is Entertainment Games, Inc.”

    

   

¨

 

The amendment adopted by the corporation is set forth in Full in Exhibit A attached hereto and made a part hereof.

8.

 

Check If the amendment restates the Articles:

¨

 

The restated Articles of Incorporation supersede the original articles and all amendments thereto.

 

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 18TH day of August, 2011.

eGames, Inc.

Name of Corporation

LOGO

Signature

Thomas W. Murphy, Vice-President

Title

 

Certification#: 9769114-1 Page 77 of 77

EX-4.1 4 d244335dex41.htm FORM OF STOCK CERTIFICATE Form of Stock Certificate

Exhibit 4.1

LOGO

 

NUMBER

EG

SHARES

eGamesTM, Inc.

INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA

SEE REVERSE FOR CERTAIN DEFINITIONS

NASDAQ: EGAM COMMON STOCK CUSIP 282253 10 3

THIS CERTIFIES THAT:

is owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF NO PAR VALUE EACH OF

eGames, Inc.

transferable on the books of the Corporation in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of the Commonwealth of Pennsylvania, and to the Articles of Incorporation and Bylaws of the Corporation, as now or hereafter amended. This certificate is not valid until countersigned by the Transfer Agent.

WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

DATED:

COUNTERSIGNED:

STOCKTRANS, INC.

7 EAST LANCASTER AVE., ARDMORE, PA 19003

TRANSFER AGENT

BY:

AUTHORIZED SIGNATURE

EGAMES, INC.

CORPORATE

SEAL

1992

PENNSYLVANIA

CONTROLLER

PRESIDENT

© 1990 COLUMBIA FINANCIAL PRINTING CO., HICKSVILLE, NY 11801


LOGO

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common

TEN ENT - as tenants by the entireties

JT TEN - as joint tenants with right of survivorship and not as tenants in common

UNIF GIFT MIN ACT - Custodian

(Cust) (Minor)

under Uniform Gifts to Minors

Act

(State)

Additional abbreviations may also be used though not in the above list.

For Value Received,

hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

Shares of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney

to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.

THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.

STOCK MARKET INFORMATION EXCHANGE

www.stockinformation.com

COLUMBIA FINANCIAL PRINTING CO., P.O. BOX 219, BETHPAGE, NY 11714

EX-4.5 5 d244335dex45.htm WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK OF THE COMPANY Warrant to Purchase 200,000 shares of Common Stock of the Company

Exhibit 4.5

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. 1

  Date: August 10, 2011

WARRANT TO PURCHASE COMMON STOCK

OF

eGAMES, INC.

Void after 5:00 P.M. (United States Eastern Time)

on August 10, 2014, as provided herein.

This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, William D. Blake, or his registered assigns (the “Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from eGAMES, INC., a Pennsylvania corporation (the “Company”), two hundred thousand (200,000) (the “Warrant Number”) validly issued, fully paid and nonassessable shares (the “Warrant Shares”) of Common Stock of the Company, no par value per share (the “Common Stock”), subject to adjustment as provided herein, at a purchase price equal to $.75 per share (the “Exercise Price”), subject to adjustment as provided herein.

The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on August 10, 2011 and ending at 5:00 P.M. (United States Eastern Time) on August 10, 2014 (the “Exercise Period”).

2. Exercise of Warrant.

(a) This Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and (ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in any manner specified in subsection (c) of this Section 2.

(b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which


this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten (10) Business Days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. For purposes of this Warrant, the term “Business Day” shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of Philadelphia, Pennsylvania.

(c) The Exercise Price shall be payable (i) in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by certified or bank cashiers’ check in lawful money of the United States of America; (ii) by surrendering to the Company the right to purchase a number of Warrant Shares equal to the product obtained by multiplying the number of Warrant Shares to be purchased (including any Warrant Shares to be surrendered) by a fraction, the numerator of which is the Exercise Price and the denominator of which is the Current Market Price (as defined in Section 3 below) of the Common Stock on the date of exercise of the Warrant; or (iii) in any combination of (i) or (i).

3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction. For the purpose of any computation under subsection (c) of Section 2 or this Section 3, the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the closing price per share reported for the five (5) Business Days immediately preceding the day in question, where the closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the board of directors of the Company for that purpose. In the absence of any established market for the Common Stock, the Current Market Price thereof shall be the fair market value thereof as determined by the Company’s board of directors in good faith and in a manner consistent with applicable laws.

4. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of identical tenor and amount.

5. Rights of Shareholders. Subject to the provisions of Sections 6 and 8 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether

 

2


upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised, and the Exercise Price shall have been paid, as provided herein.

6. Antidilution Provisions. The Exercise Price and the Warrant Number shall be subject to adjustment from time to time as provided in this Section 6.

(a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock (other than any distributions specifically provided for in subsection (c) of this Section 6), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased.

(c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock any securities (including any security convertible into or exchangeable for shares of Common Stock and any right, option or warrant to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock, but not including any dividend referred to in subsection (a) of this Section 6), evidences of its indebtedness or other assets, then, in each such event and as a condition precedent to the taking of any such action, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive, upon exercise of this Warrant, in addition to the number of shares of Common Stock receivable thereupon, the amount of such securities, evidences of indebtedness or other assets as the Holder would have received had the Holder been the record owner, at the time the Company made or issued such dividend or other distribution or on the record date fixed therefor, as the case may be, of that number of shares of Common Stock receivable upon exercise of this Warrant in full, and had the Holder thereafter, during the period from the date of such event to and including the date(s) on which the Holder exercises this Warrant, retained such securities, evidences of indebtedness or other assets, giving application to all other adjustments called for during such period under this Section 6. The above provisions of this subsection (c) shall similarly apply to successive dividends and other distributions to the holders of Common Stock of securities, evidences of indebtedness and other assets.

(d) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification,

 

3


recapitalization or other change upon a merger or consolidation in which the Company is the surviving corporation, but not including any transactions for which an adjustment is provided in subsection (a), (b), (c) or (e) of this Section 6), the Company shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (d) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant.

(e) In case of any merger or consolidation of the Company with or into, or sale or transfer of all or substantially all of the assets of the Company to, any other person or entity, the person or entity surviving such merger or consolidation or acquiring such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such merger, consolidation, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer, then for the purpose of this Section 6 the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) the lesser of (A) the number of days given to holders of Common Stock to make their specification known to the Company after such holders are provided with a final version of all information that was furnished to such holders concerning such choice or (B) ten Business Days after the Holder is provided with a final version of all information that was furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder’s choice shall be deemed to be whatever choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger, consolidation, sale or transfer. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (e) shall similarly apply to successive mergers, consolidations, sales or transfers.

(f) Whenever there shall be any change in the Exercise Price under this Section 6, then there shall be an adjustment (to the nearest thousandth of a share) in the Warrant Number, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the Warrant Number in effect immediately before such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change.

(g) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (g)) would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (g) shall be made to the nearest cent or to

 

4


the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (g) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof.

(h) Whenever the Exercise Price is adjusted as herein provided:

(i) the Company shall compute the adjusted Exercise Price in accordance with Section 6 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and

(ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 6(h)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 7(a)).

(i) In case the Company shall declare a dividend (other than a cash dividend) or other distribution on its Common Stock, or shall take a record of the holders of Common Stock for the purpose of determining the holders thereof who are entitled to receive any such dividend or other distribution, the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten (10) days prior to the effective date hereinafter specified, a notice stating the date on which a record has been taken for the purpose of such dividend or other distribution or, if record is not to be taken, the date as of which the identity of the holders of Common Stock of record entitled to such dividend or other distribution is to be determined. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in this subsection (i).

7. Transfer of Warrant.

(a) Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his, her or its address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes.

(b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in subsection (a) of this Section 7, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.

(c) Transferability. Subject to the restrictions on transfer set forth in subsection (d) of this Section 7, title to this Warrant may be transferred to any corporation, partnership, limited liability company, other entity, individual or other transferee, in whole or in part, by endorsement by the Holder and the transferee executing the Assignment Form annexed hereto and delivered to the Company. Upon

 

5


surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of identical tenor, in such name or names as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(d) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer.

(ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act.

(iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares when such securities are transferred pursuant to Rule 144 promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 7(d)(ii) shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as practicable, new stock certificates not bearing such legend.

(e) Investment Representations. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant is being issued by the Company in reliance upon the following representations:

(i) the Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act as presently in effect;

 

6


(ii) this Warrant is being acquired, and upon exercise hereof the Warrant Shares will be acquired, for investment, for the Holder’s own account and not with a view to the sale or distribution thereof other than in accordance with the Securities Act and all applicable state securities laws, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration under the Securities Act or an exemption therefrom; and

(iii) the Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

8. Covenants of the Company. The Company hereby covenants and agrees that:

(a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock upon the exercise of this Warrant and the payment of the Exercise Price, which shares shall be duly authorized, fully paid and non-assessable, and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant;

(b) the Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; and

(c) all Warrant Shares shall, upon exercise of this Warrant and payment of the Exercise Price as set forth herein, be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

9. Amendments. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

10. Governing Law. This Warrant shall be governed in all respects by the internal laws of the Commonwealth of Pennsylvania as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws.

11. Successors and Assigns. This Warrant shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Holder’s successors, legal representatives and permitted assigns.

 

7


IN WITNESS WHEREOF, eGAMES, INC. has caused this Warrant to be executed by its authorized officer.

Dated: August 10, 2011

 

eGAMES, INC.

By:

 

/s/ Gerald W. Klein

Name:

 

Gerald W. Klein

Title:

 

Chief Executive Officer

 

8


NOTICE OF EXERCISE

To: eGAMES, INC.

(1) The undersigned hereby elects to purchase                          shares of Common Stock of eGames, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned, and not as a nominee for any other party, and for investment purposes, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

  
(Name)
 
  
(Name)

(a) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

   
        
    (Name)
         
(Date)     (Signature)


ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below, who satisfies the requirements under Section 7(c) of the within Warrant, all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address

  

No of Shares

            
            
            
            

and does hereby irrevocably constitute and appoint as Attorney                              to make such transfer on the books of eGAMES, INC., maintained for the purpose, with full power of substitution in the premises.

The undersigned Assignee represents that, by acceptance hereof, the Assignee acknowledges and agrees that (i) the Assignee is a corporation, partnership, limited liability company, other entity or individual, ii) this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment, (iii) the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws, and (iv) the Assignee agrees to be bound by all of the provisions of this Warrant.

Dated:                             

 

  
Signature of Holder
 
  
Signature of Assignee
EX-4.6 6 d244335dex46.htm WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK OF THE COMPANY Warrant to Purchase 200,000 shares of Common Stock of the Company

Exhibit 4.6

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. 1

  Date: 10/7/2011

WARRANT TO PURCHASE COMMON STOCK

OF

Entertainment Games, Inc.

Void after 5:00 P.M. (United States Eastern Time)

on October 7, 2014, as provided herein.

This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, Michael Fearnow, or his registered assigns (the “Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from Entertainment Games, Inc., a Pennsylvania corporation (the “Company”), two hundred thousand (200,000) (the “Warrant Number”) validly issued, fully paid and nonassessable shares (the “Warrant Shares”) of Common Stock of the Company, no par value per share (the “Common Stock”), subject to adjustment as provided herein, at a purchase price equal to $.50 per share (the “Exercise Price”), subject to adjustment as provided herein.

The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on October 7, 2011 and ending at 5:00 P.M. (United States Eastern Time) on October 7, 2014 (the “Exercise Period”).

2. Exercise of Warrant.

(a) This Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and (ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in any manner specified in subsection (c) of this Section 2.

(b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which


this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten (10) Business Days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. For purposes of this Warrant, the term “Business Day” shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of Philadelphia, Pennsylvania.

(c) The Exercise Price shall be payable (i) in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by certified or bank cashiers’ check in lawful money of the United States of America; (ii) by surrendering to the Company the right to purchase a number of Warrant Shares equal to the product obtained by multiplying the number of Warrant Shares to be purchased (including any Warrant Shares to be surrendered) by a fraction, the numerator of which is the Exercise Price and the denominator of which is the Current Market Price (as defined in Section 3 below) of the Common Stock on the date of exercise of the Warrant; or (iii) in any combination of (i) or (ii).

3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction. For the purpose of any computation under subsection (c) of Section 2 or this Section 3, the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the closing price per share reported for the five (5) Business Days immediately preceding the day in question, where the closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the board of directors of the Company for that purpose. In the absence of any established market for the Common Stock, the Current Market Price thereof shall be the fair market value thereof as determined by the Company’s board of directors in good faith and in a manner consistent with applicable laws.

4. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of identical tenor and amount.

5. Rights of Shareholders. Subject to the provisions of Sections 6 and 8 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether

 

2


upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised, and the Exercise Price shall have been paid, as provided herein.

6. Antidilution Provisions. The Exercise Price and the Warrant Number shall be subject to adjustment from time to time as provided in this Section 6.

(a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock (other than any distributions specifically provided for in subsection (c) of this Section 6), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased.

(c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock any securities (including any security convertible into or exchangeable for shares of Common Stock and any right, option or warrant to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock, but not including any dividend referred to in subsection (a) of this Section 6), evidences of its indebtedness or other assets, then, in each such event and as a condition precedent to the taking of any such action, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive, upon exercise of this Warrant, in addition to the number of shares of Common Stock receivable thereupon, the amount of such securities, evidences of indebtedness or other assets as the Holder would have received had the Holder been the record owner, at the time the Company made or issued such dividend or other distribution or on the record date fixed therefor, as the case may be, of that number of shares of Common Stock receivable upon exercise of this Warrant in full, and had the Holder thereafter, during the period from the date of such event to and including the date(s) on which the Holder exercises this Warrant, retained such securities, evidences of indebtedness or other assets, giving application to all other adjustments called for during such period under this Section 6. The above provisions of this subsection (c) shall similarly apply to successive dividends and other distributions to the holders of Common Stock of securities, evidences of indebtedness and other assets.

(d) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification,

 

3


recapitalization or other change upon a merger or consolidation in which the Company is the surviving corporation, but not including any transactions for which an adjustment is provided in subsection (a), (b), (c) or (e) of this Section 6), the Company shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (d) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant.

(e) In case of any merger or consolidation of the Company with or into, or sale or transfer of all or substantially all of the assets of the Company to, any other person or entity, the person or entity surviving such merger or consolidation or acquiring such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such merger, consolidation, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer, then for the purpose of this Section 6 the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) the lesser of (A) the number of days given to holders of Common Stock to make their specification known to the Company after such holders are provided with a final version of all information that was furnished to such holders concerning such choice or (B) ten Business Days after the Holder is provided with a final version of all information that was furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder’s choice shall be deemed to be whatever choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger, consolidation, sale or transfer. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (e) shall similarly apply to successive mergers, consolidations, sales or transfers.

(f) Whenever there shall be any change in the Exercise Price under this Section 6, then there shall be an adjustment (to the nearest thousandth of a share) in the Warrant Number, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the Warrant Number in effect immediately before such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change.

(g) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (g)) would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (g) shall be made to the nearest cent or to

 

4


the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (g) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof.

(h) Whenever the Exercise Price is adjusted as herein provided:

(i) the Company shall compute the adjusted Exercise Price in accordance with Section 6 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and

(ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 6(h)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 7(a)).

(i) In case the Company shall declare a dividend (other than a cash dividend) or other distribution on its Common Stock, or shall take a record of the holders of Common Stock for the purpose of determining the holders thereof who are entitled to receive any such dividend or other distribution, the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten (10) days prior to the effective date hereinafter specified, a notice stating the date on which a record has been taken for the purpose of such dividend or other distribution or, if record is not to be taken, the date as of which the identity of the holders of Common Stock of record entitled to such dividend or other distribution is to be determined. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in this subsection (i).

7. Transfer of Warrant.

(a) Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his, her or its address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes.

(b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in subsection (a) of this Section 7, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.

(c) Transferability. Subject to the restrictions on transfer set forth in subsection (d) of this Section 7, title to this Warrant may be transferred to any corporation, partnership, limited liability company, other entity, individual or other transferee, in whole or in part, by endorsement by the Holder and the transferee executing the Assignment Form annexed hereto and delivered to the Company. Upon

 

5


surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of identical tenor, in such name or names as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(d) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer.

(ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act.

(iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares when such securities are transferred pursuant to Rule 144 promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 7(d)(ii) shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as practicable, new stock certificates not bearing such legend.

(e) Investment Representations. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant is being issued by the Company in reliance upon the following representations:

(i) the Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act as presently in effect;

 

6


(ii) this Warrant is being acquired, and upon exercise hereof the Warrant Shares will be acquired, for investment, for the Holder’s own account and not with a view to the sale or distribution thereof other than in accordance with the Securities Act and all applicable state securities laws, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration under the Securities Act or an exemption therefrom; and

(iii) the Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

8. Covenants of the Company. The Company hereby covenants and agrees that:

(a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock upon the exercise of this Warrant and the payment of the Exercise Price, which shares shall be duly authorized, fully paid and non-assessable, and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant;

(b) the Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; and

(c) all Warrant Shares shall, upon exercise of this Warrant and payment of the Exercise Price as set forth herein, be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

9. Amendments. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

10. Governing Law. This Warrant shall be governed in all respects by the internal laws of the Commonwealth of Pennsylvania as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws.

11. Successors and Assigns. This Warrant shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Holder’s successors, legal representatives and permitted assigns.

 

7


IN WITNESS WHEREOF, Entertainment Games, INC. has caused this Warrant to be executed by its authorized officer.

Dated: 10/7/11

 

Entertainment Games, Inc.

By:

 

/s/ Gerald W. Klein

Name:

 

Gerald W. Klein

Title:

 

Chief Executive Officer

 

8


NOTICE OF EXERCISE

To: Entertainment Games, Inc.

(1) The undersigned hereby elects to purchase                          shares of Common Stock of Entertainment Games, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned, and not as a nominee for any other party, and for investment purposes, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

  
(Name)
 
  
(Name)

(a) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

   
        
    (Name)
         
(Date)     (Signature)


ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below, who satisfies the requirements under Section 7(c) of the within Warrant, all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

   Address    No of Shares
            
            
            
            

and does hereby irrevocably constitute and appoint as Attorney                                  to make such transfer on the books of Entertainment Games, Inc., maintained for the purpose, with full power of substitution in the premises.

The undersigned Assignee represents that, by acceptance hereof, the Assignee acknowledges and agrees that (i) the Assignee is a corporation, partnership, limited liability company, other entity or individual, ii) this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment, (iii) the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws, and (iv) the Assignee agrees to be bound by all of the provisions of this Warrant.

Dated:                                 

 

  
Signature of Holder
 
  
Signature of Assignee
EX-4.7 7 d244335dex47.htm WARRANT TO PURCHASE 1,000,000 SHARES OF COMMON STOCK OF THE COMPANY Warrant to Purchase 1,000,000 shares of Common Stock of the Company

Exhibit 4.7

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. 1

  Date: March 18, 2010

WARRANT TO PURCHASE COMMON STOCK

OF

eGAMES, INC.

Void after 5:00 P.M. (United States Eastern Time)

on March 18, 2013, as provided herein.

This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, BANDERA MASTER FUND L.P., or its registered assigns (the “Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from eGAMES, INC., a Pennsylvania corporation (the “Company”), one million (1,000,000) (the “Warrant Number”) validly issued, fully paid and nonassessable shares (the “Warrant Shares”) of Common Stock of the Company, no par value per share (the “Common Stock”), subject to adjustment as provided herein, at a purchase price equal to $.80 per share (the “Exercise Price”), subject to adjustment as provided herein.

The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on March 18, 2010 and ending at 5:00 P.M. (United States Eastern Time) on March 18, 2013 (the “Exercise Period”).

2. Exercise of Warrant.

(a) This Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and (ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in any manner specified in subsection (c) of this Section 2.

(b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which


this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten (10) Business Days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. For purposes of this Warrant, the term “Business Day” shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of Philadelphia, Pennsylvania.

(c) The Exercise Price shall be payable (i) in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by certified or bank cashiers’ check in lawful money of the United States of America; (ii) by surrendering to the Company the right to purchase a number of Warrant Shares equal to the product obtained by multiplying the number of Warrant Shares to be purchased (including any Warrant Shares to be surrendered) by a fraction, the numerator of which is the Exercise Price and the denominator of which is the Current Market Price (as defined in Section 3 below) of the Common Stock on the date of exercise of the Warrant; or (iii) in any combination of (i) or (i).

3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction. For the purpose of any computation under subsection (c) of Section 2 or this Section 3, the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the closing price per share reported for the five (5) Business Days immediately preceding the day in question, where the closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the board of directors of the Company for that purpose. In the absence of any established market for the Common Stock, the Current Market Price thereof shall be the fair market value thereof as determined by the board of directors in good faith and in a manner consistent with applicable laws.

4. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of identical tenor and amount.

5. Rights of Shareholders. Subject to the provisions of Sections 6 and 8 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether

 

2


upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised, and the Exercise Price shall have been paid, as provided herein.

6. Antidilution Provisions. The Exercise Price and the Warrant Number shall be subject to adjustment from time to time as provided in this Section 6.

(a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock (other than any distributions specifically provided for in subsection (c) of this Section 6), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased.

(c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock any securities (including any security convertible into or exchangeable for shares of Common Stock and any right, option or warrant to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock, but not including any dividend referred to in subsection (a) of this Section 6), evidences of its indebtedness or other assets, then, in each such event and as a condition precedent to the taking of any such action, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive, upon exercise of this Warrant, in addition to the number of shares of Common Stock receivable thereupon, the amount of such securities, evidences of indebtedness or other assets as the Holder would have received had the Holder been the record owner, at the time the Company made or issued such dividend or other distribution or on the record date fixed therefor, as the case may be, of that number of shares of Common Stock receivable upon exercise of this Warrant in full, and had the Holder thereafter, during the period from the date of such event to and including the date(s) on which the Holder exercises this Warrant, retained such securities, evidences of indebtedness or other assets, giving application to all other adjustments called for during such period under this Section 6. The above provisions of this subsection (c) shall similarly apply to successive dividends and other distributions to the holders of Common Stock of securities, evidences of indebtedness and other assets.

(d) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification,

 

3


recapitalization or other change upon a merger or consolidation in which the Company is the surviving corporation, but not including any transactions for which an adjustment is provided in subsection (a), (b), (c) or (e) of this Section 6), the Company shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (d) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant.

(e) In case of any merger or consolidation of the Company with or into, or sale or transfer of all or substantially all of the assets of the Company to, any other person or entity, the person or entity surviving such merger or consolidation or acquiring such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such merger, consolidation, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer, then for the purpose of this Section 6 the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) the lesser of (A) the number of days given to holders of Common Stock to make their specification known to the Company after such holders are provided with a final version of all information that was furnished to such holders concerning such choice or (B) ten Business Days after the Holder is provided with a final version of all information that was furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder’s choice shall be deemed to be whatever choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger, consolidation, sale or transfer. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (e) shall similarly apply to successive mergers, consolidations, sales or transfers.

(f) Whenever there shall be any change in the Exercise Price under this Section 6, then there shall be an adjustment (to the nearest thousandth of a share) in the Warrant Number, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the Warrant Number in effect immediately before such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change.

(g) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (g)) would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (g) shall be made to the nearest cent or to

 

4


the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (g) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof.

(h) Whenever the Exercise Price is adjusted as herein provided:

(i) the Company shall compute the adjusted Exercise Price in accordance with Section 6 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and

(ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 6(h)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 7(a)).

(i) In case the Company shall declare a dividend (other than a cash dividend) or other distribution on its Common Stock, or shall take a record of the holders of Common Stock for the purpose of determining the holders thereof who are entitled to receive any such dividend or other distribution, the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten (10) days prior to the effective date hereinafter specified, a notice stating the date on which a record has been taken for the purpose of such dividend or other distribution or, if record is not to be taken, the date as of which the identity of the holders of Common Stock of record entitled to such dividend or other distribution is to be determined. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in this subsection (i).

7. Transfer of Warrant.

(a) Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his, her or its address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes.

(b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in subsection (a) of this Section 7, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.

(c) Transferability. Subject to the restrictions on transfer set forth in subsection (d) of this Section 7, title to this Warrant may be transferred to any corporation, partnership, limited liability company, other entity, individual or other transferee, in whole or in part, by endorsement by the Holder and the transferee executing the Assignment Form annexed hereto and delivered to the Company. Upon

 

5


surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of identical tenor, in such name or names as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(d) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer.

(ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act.

(iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares when such securities are transferred pursuant to Rule 144 promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 7(d)(ii) shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as practicable, new stock certificates not bearing such legend.

(e) Investment Representations. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant is being issued by the Company in reliance upon the following representations:

(i) the Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act as presently in effect;

 

6


(ii) this Warrant is being acquired, and upon exercise hereof the Warrant Shares will be acquired, for investment, for the Holder’s own account and not with a view to the sale or distribution thereof other than in accordance with the Securities Act and all applicable state securities laws, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration under the Securities Act or an exemption therefrom; and

(iii) the Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

8. Covenants of the Company. The Company hereby covenants and agrees that:

(a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock upon the exercise of this Warrant and the payment of the Exercise Price, which shares shall be duly authorized, fully paid and non-assessable, and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant;

(b) the Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; and

(c) all Warrant Shares shall, upon exercise of this Warrant and payment of the Exercise Price as set forth herein, be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

9. Amendments. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

10. Governing Law. This Warrant shall be governed in all respects by the internal laws of the State of New York as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws.

11. Successors and Assigns. This Warrant shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Holder’s successors, legal representatives and permitted assigns.

12. Attorney’s Fees. In the event of a dispute with regard to the interpretation of this Warrant, the prevailing party may collect the cost of reasonable attorney’s fees, litigation expenses or such other expenses as may be incurred in the enforcement of the prevailing party’s rights hereunder.

 

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IN WITNESS WHEREOF, eGAMES, INC. has caused this Warrant to be executed by its authorized officer.

Dated: March 18, 2010

 

eGAMES, INC.

By:

 

/s/ Gerald W. Klein

Name:

 

Gerald W. Klein

Title:

 

Chief Executive Officer

 

8


NOTICE OF EXERCISE

To: eGAMES, INC.

(1) The undersigned hereby elects to purchase                                  shares of Common Stock of eGames, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned, and not as a nominee for any other party, and for investment purposes, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

  
(Name)
 
  
(Name)

(a) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

   
        
    (Name)
         
(Date)     (Signature)


ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below, who satisfies the requirements under Section 7(c) of the within Warrant, all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

   Address    No of Shares
            
            
            
            

and does hereby irrevocably constitute and appoint as Attorney                                  to make such transfer on the books of eGAMES, INC., maintained for the purpose, with full power of substitution in the premises.

The undersigned Assignee represents that, by acceptance hereof, the Assignee acknowledges and agrees that (i) the Assignee is a corporation, partnership, limited liability company, other entity or individual, ii) this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment, (iii) the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws, and (iv) the Assignee agrees to be bound by all of the provisions of this Warrant.

Dated:                                 

 

  
Signature of Holder
 
  
Signature of Assignee
EX-4.8 8 d244335dex48.htm WARRANT TO PURCHASE 400,000 SHARES OF COMMON STOCK OF THE COMPANY Warrant to Purchase 400,000 shares of Common Stock of the Company

Exhibit 4.8

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

Date: June 3, 2011

WARRANT TO PURCHASE COMMON STOCK

OF

eGAMES, INC.

Void after 5:00 P.M. (United States Eastern Time)

on June 3, 2013, as provided herein.

This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, FERTILEMIND CAPITAL FUND I, or its registered assigns (the “Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from eGAMES, INC., a Pennsylvania corporation (the “Company”), four hundred thousand (400,000) validly issued, fully paid and non-assessable shares (the “Warrant Shares”) of common stock of the Company, no par value per share (the “Common Stock”), subject to adjustment as provided herein, at a purchase price equal to $0.25 per share (the “Exercise Price”), subject to adjustment as provided herein.

The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on June 3, 2011 and ending at 5:00 P.M. (United States Eastern Time) on June 3, 2013 (the “Exercise Period”).

2. Exercise of Warrant.

(a) This Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and (ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant


Shares specified in the Notice of Exercise in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by certified or bank cashiers’ check in lawful money of the United States of America.

(b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten Business Days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. For purposes of this Warrant, the term “Business Day” shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of New York, New York.

3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction. For the purpose of this Section 3, the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the closing price per share reported for the five (5) Business Days immediately preceding the day in question, where the closing price for each day shall be the reported last sale price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on the NASDAQ Stock Market then the average of the closing bid and asked prices as quoted on the Over the-Counter Bulletin Board (the “OTC BB”) or, if the Common Stock is not then quoted on the OTC BB, then the average of the closing bid and asked prices as reported on the OTC Pink Sheets operated by the OTC Markets Group Inc.

4. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

5. Rights of Shareholders. Subject to the provisions of Section 6 and Section 8 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon

 

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the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised, and the Exercise Price shall have been paid, as provided herein.

6. Anti-dilution Provisions. The Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 6.

(a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock (other than any distributions specifically provided for in subsection (c) of this Section 6), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased.

(c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock any securities (including any security convertible into or exchangeable for shares of Common Stock and any right, option or warrant to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock, but not including any dividend referred to in subsection (a) of this Section 6), evidences of its indebtedness or other assets, then, in each such event and as a condition precedent to the taking of any such action, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive, upon exercise of this Warrant, in addition to the number of shares of Common Stock receivable thereupon, the amount

 

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of such securities, evidences of indebtedness or other assets as the Holder would have received had the Holder been the record owner, at the time the Company made or issued such dividend or other distribution or on the record date fixed therefor, as the case may be, of that number of shares of Common Stock receivable upon exercise of this Warrant in full, and had the Holder thereafter, during the period from the date of such event to and including the date(s) on which the Holder exercises this Warrant, retained such securities, evidences of indebtedness or other assets, giving application to all other adjustments called for during such period under this Section 6. The above provisions of this subsection (c) shall similarly apply to successive dividends and other distributions to the holders of Common Stock of securities, evidences of indebtedness and other assets.

(d) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification, recapitalization or other change upon a merger or consolidation in which the Company is the surviving corporation, but not including any transactions for which an adjustment is provided in subsection (a), (b), (c) or (e) of this Section 6), the Company shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (d) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant.

(e) In case of any merger or consolidation of the Company with or into, or sale or transfer of all or substantially all of the assets of the Company to, any other person or entity, the person or entity surviving such merger or consolidation or acquiring such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such merger, consolidation, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer, then for the purpose of this Section 6 the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) the lesser of (A) the number of days given to holders of Common Stock to make their specification known to the Company after such holders are provided with a

 

- 4 -


final version of all information that was furnished to such holders concerning such choice or (B) ten (10) Business Days after the Holder is provided with a final version of all information that was furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder’s choice shall be deemed to be whatever choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger, consolidation, sale or transfer. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be equivalent to the adjustments provided for in this Section 6. The above provisions of this subsection (e) shall similarly apply to successive mergers, consolidations, sales, transfers or similar transactions.

(f) Whenever there shall be any change in the Exercise Price under this Section 6, then there shall be an adjustment (to the nearest thousandth of a share) in the number of Warrant Shares, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the number of Warrant Shares in effect immediately before such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change.

(g) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (g)) would require an increase or decrease of at least 0.01% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (g) shall be made to the nearest cent or to the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (g) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof.

(h) Whenever the Exercise Price is adjusted as herein provided:

(i) the Company shall compute the adjusted Exercise Price in accordance with Section 6 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and

(ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 6(h)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 7(a)).

 

- 5 -


(i) In case the Company shall declare a dividend (other than a cash dividend) or other distribution on its Common Stock, or shall take a record of the holders of Common Stock for the purpose of determining the holders thereof who are entitled to receive any such dividend or other distribution, the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten days prior to the effective date hereinafter specified, a notice stating the date on which a record has been taken for the purpose of such dividend or other distribution or, if record is not to be taken, the date as of which the identity of the holders of Common Stock of record entitled to such dividend or other distribution is to be determined. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in this subsection (i).

7. Transfer of Warrant.

(a) Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his, her or its address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes.

(b) Transferability. Subject to the restrictions on transfer set forth in subsection (c) of this Section 7, title to this Warrant may be transferred to any corporation, partnership or other affiliated entity of the Holder controlling, controlled by, or under common control with, such Holder, or any partner or former partner of such partnership, if such Holder is a partnership, in whole or in part, by endorsement by the Holder and the transferee executing the Assignment Form annexed hereto and delivered to the Company. Upon surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of like tenor, in such name or names as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(c) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer.

 

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(ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

THE TRANSACTION IN WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act.

(iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares when such securities are transferred pursuant to Rule 144 or promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 7(c)(ii) shall be entitled to receive from the Company, without expense to the Holder and as expeditiously as practicable (but in no event later than three (3) Business Days), new stock certificates not bearing such legend.

(d) Investment Representations. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant is being issued by the Company in reliance upon the following representations:

(i) the Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act as presently in effect;

(ii) this Warrant is being acquired, and upon exercise hereof the Warrant Shares will be acquired, for investment, for the Holder’s own account and not with a

 

- 7 -


view to the sale or distribution thereof other than in accordance with the Securities Act and all applicable state securities laws, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration under the Securities Act or an exemption therefrom; and

(iii) the Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

8. Covenants of the Company. The Company hereby covenants and agrees that:

(a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock upon the exercise of this Warrant and the payment of the Exercise Price, which shares shall be duly authorized, fully paid and non-assessable, and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant;

(b) the Company will not, directly or indirectly, by amendment of its Articles of Incorporation and or its Bylaws, or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; and

(c) all Warrant Shares shall be free from all taxes, liens, charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein) and, when issued be fully paid, non-assessable and free from all liens and/or other charges on title.

9. Registration Rights. The undersigned shall have the registration rights set forth in this Section 9.

(a) At any time after the date hereof, in the event that the Company shall determine to proceed with the preparation and filing of a registration statement under the 1933 Act in connection with the proposed offer and sale of any of its shares of Common Stock by it or by any of its security holders (other than a registration statement on Form S-4, S-8 or other successor or comparable forms), the Company will cause all Warrant Shares owned by the Holder (hereinafter, the “Registrable Securities”) to be included for resale in such registration statement, all to the extent required to permit the sale or other disposition by the prospective seller or sellers of the Registrable Securities to be so registered. There shall not be any limit to the number of piggyback registrations that the Company must include Registrable Securities in.

 

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(b) If and whenever the Company is required by the provisions of this Section 9 hereof to effect the registration of the Registrable Securities under the 1933 Act, the Company shall:

(i) prepare and file with the SEC a registration statement with respect to the Registrable Securities, and use its best efforts to cause such registration statement to become effective as promptly as practicable and shall also cause such registration statement to remain effective for no less than two hundred and seventy (270) consecutive days, unless the registration statement on which such Registrable Securities are included is a Form S-3 registration statement (or any successor Form), in which event the Company shall cause such registration statement to remain effective for such period as is necessary to effect the sale of all such Registrable Securities included thereon;

(ii) prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for the applicable period in accordance with the provisions of Section 9(b)(i) above;

(iii) furnish to any holder participating in such registration (a “Participating Holder”) such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such holder may reasonably request in order to facilitate the public offering of the Participating Holder’s securities;

(iv) register or qualify the Registrable Securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as such Participating Holders may reasonably request in writing within ten (10) days following the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified;

(v) notify the Participating Holders, promptly after it shall receive notice thereof, of the time when such registration statement or a supplement to any prospectus forming a part of such registration statement has become effective;

(vi) notify the Participating Holders promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information;

(vii) prepare and file with the SEC any amendments or supplements to such registration statement or prospectus which is required under the 1933 Act or the rules and regulations promulgated thereunder in connection with the distribution of the Registrable Securities by the Participating Holders;

 

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(viii) prepare and promptly file with the SEC and promptly notify the Participating Holders of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such Registrable Securities is required to be delivered under the 1933 Act, any event shall have occurred as the result of which any such prospectus or any other prospectuses then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading;

(ix) advise the Participating Holders promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Division of Enforcement of the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; and

(x) indemnify and hold harmless each Participating Holder against any and all losses, claims, damages or liabilities to which such Participating Holder shall become subject, under the 1933 Act or otherwise, that, directly or indirectly, arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the effective registration statement or any prospectus that forms a part thereof or any amendment or supplement thereto, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements there in not misleading; provided, however, that no such indemnification shall be available to any Participating Holder with respect to, and to the extent there is liability attributable to, written information provided by a Participating Holder to the Company expressly for use in such registration statement or prospectus thereunder or any amendment or supplement thereto, or any related preliminary prospectus and is actually used by the Company in a final prospectus. In no event shall the Holder have an obligation to indemnify, hold harmless, reimburse and/or pay any legal and/or other fees to the Company.

(c)

(i) All fees, costs and expenses of and incidental to the registration of Registrable Securities, shall be borne by the Company; provided, however, that Participating Holders shall bear their pro rata share of the underwriting discount, if any.

(ii) The fees, costs and expense of registration to be borne by the Company as provided in Section 9(c)(i) above shall include, without limitation, all registration, filing fees, exchange or market listing fees, printing expenses, fees and disbursements of counsel and accountants for the Company, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be

 

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offered are to be registered and qualified and all fees and disbursements of one legal counsel retained by the Holder, which shall be Gusrae, Kaplan, Bruno & Nusbaum, PLLC.

10. Amendments. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

11. Governing Law. This Warrant, and all issues arising directly and/or indirectly hereunder, including, but not limited to, any issues relating to the Warrant Shares and the registration rights (collectively, the “Issues”) shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Warrant shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereby covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York City. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other party hereto of all of its reasonable counsel fees and disbursements.

12. Successors and Assigns. This Warrant and the Company’s obligations hereunder shall be binding upon the Company’s successors and shall inure to the benefit of the Holder’s successors, legal representatives and assigns. In no event shall the Company transfer or assign any of its obligations under this Warrant.

13. Attorney’s Fees. In the event of any Issues, the prevailing party shall be entitled collect the cost of its attorney’s fees, litigation expenses or such other expenses as may be incurred in the enforcement of the prevailing party’s rights hereunder as and when requested.

[Remainder of Page Left Intentionally Blank]

 

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IN WITNESS WHEREOF, eGAMES, INC. has caused this Warrant to be executed by its authorized officer.

Dated: June 3, 2011

 

eGAMES, INC.
By:   /s/ Gerald W. Klein
Name:  

Gerald W. Klein

Title:  

Chief Executive Officer


NOTICE OF EXERCISE

To: eGAMES, INC.

(1) The undersigned hereby elects to purchase                      shares of Common Stock of eGames, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned, and not as a nominee for any other party, and for investment purposes, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

  
(Name)
  
(Name)

(a) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

                
      (Name)  
                 
(Date)       (Signature)  


ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below, who satisfies the requirements under Section 7(c) of the within Warrant, all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address

  

No of Shares

     
     
     
     

and does hereby irrevocably constitute and appoint as Attorney                              to make such transfer on the books of eGAMES, INC., maintained for the purpose, with full power of substitution in the premises.

The undersigned Assignee represents that, by acceptance hereof, the Assignee acknowledges and agrees that (i) the Assignee is a corporation, partnership or other affiliated entity of the Holder controlling, controlled by, or under common control with, such Holder, or any partner or former partner of such partnership, if such Holder is a partnership, (ii) this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment, (iii) the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws, and (iv) the Assignee agrees to be bound by all of the provisions of this Warrant.

Dated:                                                      

 

  
Signature of Holder
  
Signature of Assignee
EX-4.9 9 d244335dex49.htm WARRANT TO PURCHASE 572,393 SHARES OF COMMON STOCK OF THE COMPANY Warrant to Purchase 572,393 shares of Common Stock of the Company

Exhibit 4.9

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

Date: August 26, 2011

WARRANT TO PURCHASE COMMON STOCK

OF

Entertainment Games, Inc.

Void after 5:00 P.M. (United States Eastern Time)

on August 26, 2016, as provided herein.

This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, Ironridge Global IV, Ltd., a British Virgin Islands business company, or its registered assigns (the “Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from Entertainment Games, Inc., a Pennsylvania corporation (the “Company”), five hundred seventy-two thousand three hundred ninety three (572,393) (the “Warrant Number”) validly issued, fully paid and nonassessable shares (the “Warrant Shares”) of Common Stock of the Company, no par value per share (the “Common Stock”), subject to adjustment as provided herein, at a purchase price equal to $ .54 per share (the “Exercise Price”), subject to adjustment as provided herein.

The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on February 26, 2011 and ending at 5:00 P.M. (United States Eastern Time) on August 26, 2016 (the “Exercise Period”).

2. Exercise of Warrant.

(a) Subject to the limitations set forth in Section 2(d) below, this Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and (ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in any manner specified in subsection (c) of this Section 2.


(b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten (10) Business Days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. For purposes of this Warrant, the term “Business Day” shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of Philadelphia, Pennsylvania.

(c) The Exercise Price shall be payable as follows: (i) if a resale registration statement under the Securities Act of 1933 (the “Resale Registration”) covering the Warrant Shares is effective on the date the Holder exercises the Warrant, then the Exercise Price may only be paid in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by certified or bank cashiers’ check in lawful money of the United States of America (“Cash Exercise”); or (ii) if a Resale Registration statement covering the Warrant Shares is not effective on the date that Holder exercises the Warrant, then, at the Holder’s option, Holder may pay the exercise by a Cash Exercise as set forth in (c)(i) above, or surrender to the Company the right to purchase a number of Warrant Shares equal to the product obtained by multiplying the number of Warrant Shares to be purchased (including any Warrant Shares to be surrendered) by a fraction, the numerator of which is the Exercise Price and the denominator of which is the Current Market Price (as defined in Section 3 below) of the Common Stock on the date of exercise of the Warrant (“Cashless Exercise”), or any combination of a Cash Exercise and a Cashless Exercise.

(d) At no time shall Holder be permitted to exercise the Warrant to the extent that such exercise will cause the Holder to own greater than 9.99% of the total issued and outstanding Common Stock of Company.

3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction. For the purpose of any computation under subsection (c) of Section 2 or this Section 3, the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the closing price per share reported for the five (5) Business Days immediately preceding the day in question, where the closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the board of directors of the Company for that purpose. In the absence of any established market for the Common Stock, the Current Market Price thereof shall be the fair market value thereof as determined by the Company’s board of directors in good faith and in a manner consistent with applicable

 

2


laws. In the absence of any established market for the Common Stock, the Current Market Price thereof shall be the fair market value thereof as determined by the Company’s board of directors in good faith and in a manner consistent with applicable laws.

4. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of identical tenor and amount.

5. Rights of Shareholders. Subject to the provisions of Sections 6 and 8 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised, and the Exercise Price shall have been paid, as provided herein.

6. Antidilution Provisions. The Exercise Price and the Warrant Number shall be subject to adjustment from time to time as provided in this Section 6.

(a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock (other than any distributions specifically provided for in subsection (c) of this Section 6), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased.

(c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock any securities (including any security convertible into or exchangeable for shares of Common Stock and any right, option or warrant to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock, but not including any

 

3


dividend referred to in subsection (a) of this Section 6), evidences of its indebtedness or other assets, then, in each such event and as a condition precedent to the taking of any such action, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive, upon exercise of this Warrant, in addition to the number of shares of Common Stock receivable thereupon, the amount of such securities, evidences of indebtedness or other assets as the Holder would have received had the Holder been the record owner, at the time the Company made or issued such dividend or other distribution or on the record date fixed therefor, as the case may be, of that number of shares of Common Stock receivable upon exercise of this Warrant in full, and had the Holder thereafter, during the period from the date of such event to and including the date(s) on which the Holder exercises this Warrant, retained such securities, evidences of indebtedness or other assets, giving application to all other adjustments called for during such period under this Section 6. The above provisions of this subsection (c) shall similarly apply to successive dividends and other distributions to the holders of Common Stock of securities, evidences of indebtedness and other assets.

(d) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification, recapitalization or other change upon a merger or consolidation in which the Company is the surviving corporation, but not including any transactions for which an adjustment is provided in subsection (a), (b), (c) or (e) of this Section 6), the Company shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (d) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant.

(e) In case of any merger or consolidation of the Company with or into, or sale or transfer of all or substantially all of the assets of the Company to, any other person or entity, the person or entity surviving such merger or consolidation or acquiring such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such merger, consolidation, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer, then for the purpose of this Section 6 the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) the lesser of (A) the number of days given to holders of Common Stock to make their specification known to the Company after such holders are provided with a final version of all information that was furnished to such holders concerning such choice or (B) ten Business Days after the Holder is provided with a final version of all information that was furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder’s choice shall be deemed to be whatever choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger, consolidation, sale or transfer. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such

 

4


new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (e) shall similarly apply to successive mergers, consolidations, sales or transfers.

(f) Whenever there shall be any change in the Exercise Price under this Section 6, then there shall be an adjustment (to the nearest thousandth of a share) in the Warrant Number, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the Warrant Number in effect immediately before such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change.

(g) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (g)) would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (g) shall be made to the nearest cent or to the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (g) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof.

(h) Whenever the Exercise Price is adjusted as herein provided:

(i) the Company shall compute the adjusted Exercise Price in accordance with Section 6 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and

(ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 6(h)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 7(a)).

(i) In case the Company shall declare a dividend (other than a cash dividend) or other distribution on its Common Stock, or shall take a record of the holders of Common Stock for the purpose of determining the holders thereof who are entitled to receive any such dividend or other distribution, the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten (10) days prior to the effective date hereinafter specified, a notice stating the date on which a record has been taken for the purpose of such dividend or other distribution or, if record is not to be taken, the date as of which the identity of the holders of Common Stock of record entitled to such dividend or other distribution is to be determined. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in this subsection (i).

 

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7. Transfer of Warrant.

(a) Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his, her or its address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes.

(b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in subsection (a) of this Section 7, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.

(c) Transferability. Subject to the restrictions on transfer set forth in subsection (d) of this Section 7, title to this Warrant may be transferred to any corporation, partnership, limited liability company, other entity, individual or other transferee, in whole or in part, by endorsement by the Holder and the transferee executing the Assignment Form annexed hereto and delivered to the Company. Upon surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of identical tenor, in such name or names as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(d) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer.

(ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS

 

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COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act.

(iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares when such securities are transferred pursuant to Rule 144 promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 7(d)(ii) shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as practicable, new stock certificates not bearing such legend.

(e) Investment Representations. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant is being issued by the Company in reliance upon the following representations:

(i) the Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act as presently in effect;

(ii) this Warrant is being acquired, and upon exercise hereof the Warrant Shares will be acquired, for investment, for the Holder’s own account and not with a view to the sale or distribution thereof other than in accordance with the Securities Act and all applicable state securities laws, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration under the Securities Act or an exemption therefrom; and

(iii) the Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

8. Covenants of the Company. The Company hereby covenants and agrees that:

(a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock upon the exercise of this Warrant and the payment of the Exercise Price, which shares shall be duly authorized, fully paid and non-assessable, and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant;

(b) the Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; and

 

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(c) all Warrant Shares shall, upon exercise of this Warrant and payment of the Exercise Price as set forth herein, be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

9. Amendments. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

10. Governing Law. This Warrant shall be governed in all respects by the internal laws of the Commonwealth of Pennsylvania as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws.

11. Successors and Assigns. This Warrant shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Holder’s successors, legal representatives and permitted assigns.

IN WITNESS WHEREOF, Entertainment GAMES, INC. has caused this Warrant to be executed by its authorized officer.

Dated: August 26, 2011

 

Entertainment Games, Inc.
By:   /s/ Gerald W. Klein
Name:   Gerald W. Klein
Title:   Chief Executive Officer

 

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NOTICE OF EXERCISE

To: Entertainment Games, Inc.

(1) The undersigned hereby elects to purchase                      shares of Common Stock of Entertainment Games, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned, and not as a nominee for any other party, and for investment purposes, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

 

  
(Name)
  
(Name)

(a) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

                
      (Name)  
                 
(Date)       (Signature)  


ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below, who satisfies the requirements under Section 7(c) of the within Warrant, all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address

  

No of Shares

     
     
     
     
     

and does hereby irrevocably constitute and appoint as Attorney                                           to make such transfer on the books of Entertainment Games, Inc., maintained for the purpose, with full power of substitution in the premises.

The undersigned Assignee represents that, by acceptance hereof, the Assignee acknowledges and agrees that (i) the Assignee is a corporation, partnership, limited liability company, other entity or individual, ii) this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment, (iii) the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws, and (iv) the Assignee agrees to be bound by all of the provisions of this Warrant.

Dated:                                                  

 

  
Signature of Holder
  
Signature of Assignee
EX-4.10 10 d244335dex410.htm WARRANT TO PURCHASE 62,000 SHARES OF COMMON STOCK OF THE COMPANY Warrant to Purchase 62,000 shares of Common Stock of the Company

Exhibit 4.10

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. 1

  Date: May 8, 2008

WARRANT TO PURCHASE COMMON STOCK

OF

eGAMES, INC.

Void after 5:00 P.M. (United States Eastern Time)

on May 8, 2013, as provided herein.

This certifies that, for value received, receipt and sufficiency of which are hereby acknowledged, FIRST GLOBAL SECURITIES, INC., or its registered assigns (the “Holder”), is entitled, subject to the terms and conditions set forth below, to purchase from eGAMES, INC., a Pennsylvania corporation (the “Company”), sixty-two thousand (62,000) (the “Warrant Number”) validly issued, fully paid and nonassessable shares (the “Warrant Shares”) of Common Stock of the Company, no par value per share (the “Common Stock”), subject to adjustment as provided herein, at a purchase price equal to $1.10 (the “Exercise Price”), subject to adjustment as provided herein.

The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on May 8, 2008 and ending at 5:00 P.M. (United States Eastern Time) on May 8, 2013 (the “Exercise Period”).

2. Exercise of Warrant.

(a) This Warrant may be exercised by the Holder, in whole or in part, by (i) the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) during the Exercise Period and

 


(ii) the delivery of payment to the Company of the Exercise Price for the number of Warrant Shares specified in the Notice of Exercise in cash or its equivalent, payable by wire transfer of immediately available funds to a bank account specified by the Company or by certified or bank cashiers’ check in lawful money of the United States of America.

(b) The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within ten Business Days thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. For purposes of this Warrant, the term “Business Day” shall mean any day except a Saturday, Sunday or any day on which banking institutions are authorized or required to close in the city of Philadelphia, Pennsylvania.

3. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Current Market Price multiplied by such fraction. For the purpose of this Section 3, the “Current Market Price” per share of Common Stock on any day shall be deemed to be the average of the closing price per share reported for the five Business Days immediately preceding the day in question, where the closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on the NASDAQ Stock Market or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the board of directors of the Company for that purpose.

4. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

5. Rights of Shareholders. Subject to the provisions of Sections 6 and 8 hereof, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the

 

2


Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised, and the Exercise Price shall have been paid, as provided herein.

6. Antidilution Provisions. The Exercise Price and the Warrant Number shall be subject to adjustment from time to time as provided in this Section 6.

(a) In case the Company shall pay or make a dividend or other distribution on the Common Stock of the Company in Common Stock (other than any distributions specifically provided for in subsection (c) of this Section 6), the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the date fixed for determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (ii) the denominator shall be the sum of (A) such number of shares referred to in clause (i) and (B) the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the next Business Day following the date fixed for such determination. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Exercise Price in effect immediately prior to the opening of business on the next Business Day following the day upon which such combination becomes effective shall be proportionately increased.

(c) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock any securities (including any security convertible into or exchangeable for shares of Common Stock and any right, option or warrant to subscribe for or purchase shares of Common Stock or any other security convertible into or exchangeable for shares of Common Stock, but not including any dividend referred to in subsection (a) of this Section 6), evidences of its indebtedness or other assets, then, in each such event and as a condition precedent to the taking of any such action, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive, upon exercise of this Warrant, in addition to the number of shares of Common Stock receivable thereupon, the amount of such securities, evidences of indebtedness or other assets as the Holder would have received had the Holder been the record owner, at the time the Company made or issued such dividend or

 

3


other distribution or on the record date fixed therefor, as the case may be, of that number of shares of Common Stock receivable upon exercise of this Warrant in full, and had the Holder thereafter, during the period from the date of such event to and including the date(s) on which the Holder exercises this Warrant, retained such securities, evidences of indebtedness or other assets, giving application to all other adjustments called for during such period under this Section 6. The above provisions of this subsection (c) shall similarly apply to successive dividends and other distributions to the holders of Common Stock of securities, evidences of indebtedness and other assets.

(d) In case of any reclassification, recapitalization or other change in the outstanding securities of the class issuable upon exercise of this Warrant (including any such reclassification, recapitalization or other change upon a merger or consolidation in which the Company is the surviving corporation, but not including any transactions for which an adjustment is provided in subsection (a), (b), (c) or (e) of this Section 6), the Company shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such reclassification, recapitalization or other change by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such reclassification, recapitalization or other change. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (d) shall similarly apply to successive reclassifications, recapitalizations and other changes in the outstanding securities of the class issuable upon exercise of this Warrant.

(e) In case of any merger or consolidation of the Company with or into, or sale or transfer of all or substantially all of the assets of the Company to, any other person or entity, the person or entity surviving such merger or consolidation or acquiring such assets, as the case may be, shall execute and deliver to the Holder a new warrant certificate providing that the Holder shall have the right thereafter, during the period such Warrant shall be outstanding, to exercise such Warrant into the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer by a holder of the number of shares of Common Stock issuable upon exercise of this Warrant had it been exercised immediately prior to such merger, consolidation, sale or transfer. If the holders of the Common Stock may elect from choices the kind or amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer, then for the purpose of this Section 6 the kind and amount of securities, cash and other property receivable upon such merger, consolidation, sale or transfer shall be deemed to be the choice specified by the Holder, which specification shall be made by the Holder by the later of (i) the lesser of (A) the number of days given to holders of Common Stock to make their specification known to the Company after such holders are provided with a final version of all information that was furnished to such holders concerning such choice or (B) ten Business Days after the Holder is provided with a final version of all information that was furnished to the holders of Common Stock concerning such choice, and (ii) the last time at which holders of Common Stock are permitted to make their specification known to the Company. If the Holder fails to make any specification, the Holder’s choice shall be deemed to be whatever

 

4


choice is made by a plurality of holders of Common Stock not affiliated with the Company or the other person to the merger, consolidation, sale or transfer. Such new Warrant shall provide for adjustments that, for events subsequent to the effective date of such new Warrant, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. The above provisions of this subsection (e) shall similarly apply to successive mergers, consolidations, sales or transfers.

(f) Whenever there shall be any change in the Exercise Price under this Section 6, then there shall be an adjustment (to the nearest thousandth of a share) in the Warrant Number, which adjustment shall become effective at the time such change in the Exercise Price becomes effective and shall be made by multiplying the Warrant Number in effect immediately before such change in the Exercise Price by a fraction the numerator of which is the Exercise Price immediately before such change and the denominator of which is the Exercise Price immediately after such change.

(g) No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (g)) would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (g) shall be made to the nearest cent or to the nearest 1/100 of a share of Common Stock, as the case may be. Notwithstanding the foregoing, any adjustment required by this subsection (g) shall be made no later than the expiration of the right to exercise the Warrant or a portion thereof.

(h) Whenever the Exercise Price is adjusted as herein provided:

(i) the Company shall compute the adjusted Exercise Price in accordance with Section 6 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Exercise Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with any transfer agent; and

(ii) a notice stating that the Exercise Price has been adjusted and setting forth the adjusted Exercise Price shall forthwith be required, and as soon as practicable after it is required, such notice (together with a copy of the certificate prepared under Section 6(h)(i) hereof) shall be mailed by the Company to the Holder of the Warrant at its last address as shall appear in the Warrant Register (as defined in Section 7(a)).

(i) In case the Company shall declare a dividend (other than a cash dividend) or other distribution on its Common Stock, or shall take a record of the holders of Common Stock for the purpose of determining the holders thereof who are entitled to receive any such dividend or other distribution, the Company shall cause to be filed with any warrant agent, and shall cause to be mailed to the Holder of this Warrant at its last address as shall appear in the Warrant Register, at least ten days prior to the effective date hereinafter specified, a notice stating the date on which a record has been taken for the purpose of such dividend or other distribution or, if record is not to be taken, the date as of which the identity of the holders of

 

5


Common Stock of record entitled to such dividend or other distribution is to be determined. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in this subsection (i).

7. Transfer of Warrant.

(a) Warrant Register. The Company will maintain a register (the “Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his, her or its address as shown on the Warrant Register or transfer this Warrant in accordance with the terms of this Warrant by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until receipt by the Company of written notice from the Holder requesting a change of address or the transfer of this Warrant, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes.

(b) Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in subsection (a) of this Section 7, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.

(c) Transferability. Subject to the restrictions on transfer set forth in subsection (d) of this Section 7, title to this Warrant may be transferred to any corporation, partnership or other affiliated entity of the Holder controlling, controlled by, or under common control with, such Holder, or any partner or former partner of such partnership, if such Holder is a partnership, in whole or in part, by endorsement by the Holder and the transferee executing the Assignment Form annexed hereto and delivered to the Company. Upon surrender of this Warrant for transfer, properly endorsed on the Assignment Form, the Company at its expense shall issue, on the order of the Holder, a new warrant or warrants of like tenor, in such name or names as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(d) Compliance with Securities Laws.

(i) The Holder of this Warrant, by acceptance hereof, acknowledges that the transfer of this Warrant and the Warrant Shares is subject to the Holder’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer.

(ii) The certificate or certificates representing any Warrant Shares acquired upon exercise of this Warrant, and any Common Stock or other securities issued in respect of such Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

 

6


THE TRANSACTION IN WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iii) The Company shall not be required to register the transfer of this Warrant or the Warrant Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that this Warrant or the Warrant Shares, as applicable, are eligible for transfer without registration under the Securities Act.

(iv) The conditions precedent imposed by this subsection (d) upon the transferability of this Warrant and the Warrant Shares shall cease and terminate as to this Warrant and any of the Warrant Shares when such securities are transferred pursuant to Rule 144 or in accordance with the provisions of Rule 144(k) promulgated under the Securities Act. Whenever the conditions imposed by this subsection (d) shall terminate as hereinabove provided with respect to any of the Warrant Shares, the holder of any such securities bearing the legend set forth in Section 7(d)(ii) shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer taxes) and as expeditiously as practicable, new stock certificates not bearing such legend.

(e) Investment Representations. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant is being issued by the Company in reliance upon the following representations:

(i) the Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act as presently in effect;

(ii) this Warrant is being acquired, and upon exercise hereof the Warrant Shares will be acquired, for investment, for the Holder’s own account and not with a view to the sale or distribution thereof other than in accordance with the Securities Act and all applicable state securities laws, and the Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration under the Securities Act or an exemption therefrom; and

(iii) the Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment.

 

7


8. Covenants of the Company. The Company hereby covenants and agrees that:

(a) during the term of this Warrant, the Company will reserve a sufficient number of shares of authorized and unissued Common Stock to provide for the issuance of Common Stock upon the exercise of this Warrant and the payment of the Exercise Price, which shares shall be duly authorized, fully paid and non-assessable, and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of the Warrant;

(b) the Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution or sale of assets, or by any other voluntary act, avoid or seek to avoid the observance or performance of any of the covenants, stipulations or conditions to be observed or performed hereunder by the Company; and

(c) all Warrant Shares shall, upon exercise of this Warrant and payment of the Exercise Price as set forth herein, be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

9. Amendments. Neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.

10. Governing Law. This Warrant shall be governed in all respects by the internal laws of the Commonwealth of Pennsylvania as applied to contracts entered into solely between residents of, and to be performed entirely within, such state, and without reference to principles of conflicts of laws or choice of laws.

11. Successors and Assigns. This Warrant shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Holder’s successors, legal representatives and permitted assigns.

12. Attorney’s Fees. In the event of a dispute with regard to the interpretation of this Warrant, the prevailing party may collect the cost of reasonable attorney’s fees, litigation expenses or such other expenses as may be incurred in the enforcement of the prevailing party’s rights hereunder.

[Remainder of Page Left Intentionally Blank]

 

8


IN WITNESS WHEREOF, eGAMES, INC. has caused this Warrant to be executed by its authorized officer.

Dated: May 8, 2008

 

eGAMES, INC.
By:  

/s/ Gerald W. Klein

Name:  

Gerald W. Klein

Title:  

Chief Executive Officer

 


NOTICE OF EXERCISE

To: eGAMES, INC.

(1) The undersigned hereby elects to purchase                                  shares of Common Stock of eGames, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise are being acquired solely for the account of the undersigned, and not as a nominee for any other party, and for investment purposes, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

  
(Name)
  
(Name)

(a) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

 

              
    (Name)  
               
(Date)     (Signature)  

 


ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below, who satisfies the requirements under Section 7(c) of the within Warrant, all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

   Address    No of Shares
     
     
     
     
     
     

and does hereby irrevocably constitute and appoint as Attorney                                      to make such transfer on the books of eGAMES, INC., maintained for the purpose, with full power of substitution in the premises.

The undersigned Assignee represents that, by acceptance hereof, the Assignee acknowledges and agrees that (i) the Assignee is a corporation, partnership or other affiliated entity of the Holder controlling, controlled by, or under common control with, such Holder, or any partner or former partner of such partnership, if such Holder is a partnership, (ii) this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment, (iii) the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws, and (iv) the Assignee agrees to be bound by all of the provisions of this Warrant.

Dated:                             

  
Signature of Holder
  
Signature of Assignee

 

EX-10.1 11 d244335dex101.htm NON-COMPETITION AND CONFIDENTIALITY AGREEMENT DATED JUNE 24, 2011 (MAURO) Non-Competition and Confidentiality Agreement dated June 24, 2011 (Mauro)

Exhibit 10.1

NONCOMPETITION AND CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made as of June 24, 2011, between EUGENE MAURO (“Mauro”), a principal shareholder of Heyday Games, Inc., a Delaware corporation (“Heyday”), and eGAMES, INC., a Pennsylvania corporation (“eGames”).

W I T N E S S E T H :

WHEREAS, contemporaneously with the execution and delivery hereof, eGames is acquiring the goodwill and substantially all of the assets used or useful by Heyday in designing, developing, distributing, promoting and/or selling an interactive entertainment social networking software game for personal computer and mobile platforms (i.e. phone and tablet) (but not console or handheld gaming devices) targeted exclusively at the adult 40+ market (including, but not limited to, iOS and Android) (the “Business”), pursuant to an Asset Purchase Agreement, dated as of June 24, 2011, to which eGames, Mauro and Heyday are parties (the “Purchase Agreement”); and

WHEREAS, by virtue of the purchase of the Business, eGames is and will be engaged throughout the Area in the Business which was formerly conducted by Heyday; and

WHEREAS, Mauro is a principal record and beneficial owner of the outstanding securities of Heyday: and

WHEREAS, in consideration of the execution of the Purchase Agreement by eGames, Mauro (in his capacity as a principal shareholder) has agreed not to compete with the Business and to certain other obligations, as set forth herein; and

WHEREAS, competition by Mauro with eGames, or disclosure by Mauro of the confidential and proprietary information or trade secrets of Heyday, will result directly in damage to eGames and its business, properties, assets, and goodwill and will cause the loss by eGames of the benefit of its bargain with Heyday.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1. Definitions. The following terms shall have the definitions set forth below:

(a) “Affiliate” of a person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

(b) “Area” shall mean anywhere within any state of the United States of America or Canada.

(c) “Cause” shall mean a termination for any of the following reasons: (i) conviction of a felony; (ii) willfully engaging in illegal conduct or gross misconduct that causes material and demonstrable harm to eGames (whether or not Mauro has been charged with any


crime); (iii) the willful material misappropriation of property belonging to eGames; (iv) materially breaching any proprietary information, nondisclosure or non-solicitation agreement between you and eGames and failure to cure such breach within thirty (30) days following notice thereof, or (iv) willfully disregarding your lawful duties following written warning from eGames Board of Directors, which refusal is committed in bad faith and is not in the best interest of the Company.

(d) A “Change in Control” shall include (i) the sale, transfer, assignment or other disposition (including by merger or consolidation) by stockholders of the entity, in one transaction or a series of related transactions, of more than 50% of the voting power represented by the then outstanding capital stock of the entity to one or more persons, (ii) the sale of all or substantially all of the assets of the entity, or (iii) the liquidation, dissolution or winding up of the entity.

(e) “Closing Date” shall mean the date of this Agreement.

(f) “Confidential Information” shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) pertaining to the Business:

(1) All items of information relating to the Business that could be classified as a trade secret pursuant to law;

(2) The names and addresses of the customers of the Business and the nature and amount of business done with such customers;

(3) The design concepts, processes and techniques related to and the development, designs, drawings and specifications of Heyday relating to the Business;

(4) Source and object codes, flow charts, algorithms, coding sheets, design concept and related documentation and manuals of Heyday which relate to the Business;

(7) Production processes, marketing techniques, purchasing information, price lists, pricing policies, quoting procedures, financial information, customer names and requirements, customer data and other materials or information relating to the Business;

(8) Any other materials or information related to the Business which are not generally known to others engaged in similar business activities.

(g) “Good Reason” shall mean the occurrence of any of the following events:

 

  (A)

a reduction by eGames in Mauro’s then-current annual base salary or a bonus percentage which is agreed in writing; or

 

2


  (B)

any failure by eGames to offer Mauro the same level of benefits offered to similarly situated employees; or

 

  (C)

a significant diminution in the Mauro’s managerial authority, duties or responsibilities at eGames; or

 

  (D)

the relocation of Mauro’s primary business location to a location that is outside of Connecticut or Massachusetts; or

 

  (E)

the failure to pay Mauro any portion of his current base salary, bonus or benefits within twenty (20) days of the date such compensation is due, based upon the payment terms currently in effect, unless such payment is prohibited by law, regulation or rule.

Capitalized terms used but not otherwise defined herein shall have the respective meanings given to them in the Purchase Agreement.

2. As an inducement and in consideration for eGames to enter into the Purchase Agreement, Mauro covenants that he shall, for a period equal to the lesser of three (3) years from and after the Closing Date or one year after the date on which Mauro is terminated by eGames without Cause (as defined in Section 1) or eGames undergoes a Change in Control (as defined in Section 1), observe the following separate and independent covenants:

(a) Agreement Not to Compete. Except as set forth in this Agreement, Mauro shall not, anywhere in the Area, on his own behalf or in the service or on behalf of others, except on behalf of eGames or its Affiliates (i) engage in the Business or become financially interested in (other than as a holder of less than five percent of the outstanding securities of any entity whose voting securities are registered under the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as amended), in any business, person or entity that is engaged in the Business, or (ii) participate in, as a consultant, partner, agent, independent contractor, joint venture or in any other relationship whatsoever, to any business, person or entity that engages in the Business.

(b) Agreement Not to Solicit Customers. Mauro shall not, either directly or through one or more agents, on his own behalf or in the service or on behalf of others, except on behalf of eGames, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Business, any person or entity whose account was sold or serviced by or under the direction or supervision of Heyday at any time prior to the Closing Date.

(c) Agreement Not to Solicit Employees. Mauro shall not, either directly or through one or more agents, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert, or hire away, to any Business, any person employed by eGames, whether or not such employee is a full-time employee or a temporary employee of eGames and whether or not such employment is pursuant to written agreement and whether or not such

 

3


employment is for a determined period or is at will; provided however a response to a general solicitation for employment or consulting shall not be deemed a violation of this clause.

(d) Non-Interference with Third-Party Relationships. Mauro shall not, in addition to the covenants contained in Sections 2(a), (b) and (c), intentionally interfere with, or intentionally disrupt the relationship between eGames and any third party, including without limitation, any independent contractor, customer, supplier, distributor or employee of eGames in the Business.

(e) Notwithstanding the provisions of this Section 2, eGames agrees to permit Mauro to accept an engagement or employment with an organization which may compete with the Business provided that: (i) Mauro’s duties with such organization do not relate to the Business; (ii) Mauro shall have delivered to eGames a written statement, confirmed in writing by Mauro’s prospective employer or contractor, describing Mauro’s duties and stating that all such duties will be wholly unrelated to the Business and Mauro will not be required or asked to disclose any Confidential Information of eGames in the course of the performance of his duties; and (iii) eGames shall have provided its written consent for Mauro to accept such engagement or employment, which consent shall not be unreasonably withheld, conditioned or delayed. The term “wholly unrelated” shall mean among other things that Mauro will not work in, consult with, cooperate with or provide information to any person, department or business segment of the organization which is researching, acquiring, producing, distributing, providing, investigating, developing, manufacturing, marketing, supervising, licensing or commercializing the Business.

Notwithstanding anything to the contrary above, if Mauro resigns from service or employment with eGames for Good Reason either before or after a Change of Control or if Mauro is not offered a position with the successor in interest to eGames in connection with a Change of Control which is substantially equivalent in pay, title and responsibilities as prior to the Change of Control, then Mauro’s obligations with respect to Sections 2(a) and (d) shall immediately cease and with respect to Sections 2(b) and 2(c) they shall continue but for not more than the shorter of one year from the date of termination or three years from the Closing Date.

3. Ownership and Non-Disclosure and Non-Use of Confidential Information. Mauro acknowledges and agrees that all Confidential Information, are confidential to and shall be and remain the sole and exclusive property of eGames. Except to the extent provided in this Section 3, for a period of five years from the Closing Date, Mauro agrees that he will not (i) disclose or make available any Confidential Information to any person or entity; or (ii) make or cause to be made, or permit, either on his own behalf or in the service or on behalf of others, except on behalf of eGames, any use of such Confidential Information. Mauro’s obligations under Paragraph 3 will not extend to any of the Confidential Information that may become publicly available from sources other than Mauro. Mauro has significant and substantial experience in the games industry. At all times he shall continue to be free to use such skill, knowledge, know-how, methodologies, algorithms and experience in his other businesses so long as (a) he does not use Confidential Information and he adheres to Sections 2 and 3 of this Agreement.

4. Acknowledgment. Mauro acknowledges that he has been for many years, and that eGames is now, engaged in the Business throughout the Area, that the within and foregoing covenants are made by him in consequence of and as an inducement to eGames to acquire the

 

4


Business and to protect and preserve to eGames the benefit of its bargain in the acquisition of the Business, including, particularly, the goodwill associated therewith; that each of the above and foregoing covenants is reasonable and necessary to protect and preserve the benefits of such purchase; and that irreparable loss and injury would result should Mauro breach any of the foregoing covenants.

5. Severability. Each of the covenants hereinabove contained shall be deemed separate, severable, and independent covenants, and in the event any covenant shall be declared invalid by any court of competent jurisdiction, such invalidity shall not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein.

6. Partial Enforcement. If any of the covenants contained in Section 2, or any part thereof, is held to be unenforceable because of the duration of such provision or the scope of the subject matter thereof or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, said provision shall then be enforceable.

7. Enforcement. In addition to all other remedies provided at law or in equity, eGames shall be entitled to both preliminary and permanent injunctions against Mauro to prevent a breach or contemplated or threatened breach by Mauro of any of the foregoing covenants, without the necessity of proving actual damages; and the existence of any claim, demand, cause of action, or action of Mauro against eGames, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by eGames of any such covenants. In the event of an actual breach of any of the foregoing covenants, eGames shall have the right to recover damages for all losses, actual and contingent, and the right to require Mauro to account for and pay over to eGames all profits or other benefits (collectively “Benefits”) derived or received by Mauro as a result of any transactions constituting such breach, and Mauro hereby agrees to account for and pay over such Benefits to eGames. Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to eGames at law or equity.

8. Governing Law; Jurisdiction; Consent to Service of Process. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW RULES AND PRINCIPLES. EACH OF THE PARTIES HERETO IRREVOCABLY: (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN PENNSYLVANIA, FOR THE PURPOSE OF ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, (B) WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, (C) AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS

 

5


AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE COMMONWEALTH OF PENNSYLVANIA OR A PENNSYLVANIA COMMONWEALTH COURT, (D) AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW AND (E) CONSENTS TO SERVICE OF PROCESS UPON IT BY MAILING A COPY THEREOF BY CERTIFIED MAIL ADDRESSED TO IT AND ITS COUNSEL AT THE ADDRESSES PROVIDED FOR IN THE PURCHASE AGREEMENT.

9. Counterparts. This Agreement may be executed and delivered in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall together constitute one and the same agreement.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

 

/s/ Eugene Mauro

Eugene Mauro

 
 
eGAMES, INC.
By:   /s/ Gerald W. Klein
Name:   Gerald W. Klein
Title:   CEO

 

6

EX-10.2 12 d244335dex102.htm NON-COMPETITION AND CONFIDENTIALITY AGREEMENT DATED JUNE 24, 2011 (LENNON) Non-Competition and Confidentiality Agreement dated June 24, 2011 (Lennon)

Exhibit 10.2

NONCOMPETITION AND CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made as of June 24, 2011, between FJ LENNON (“Lennon”), a principal shareholder of Heyday Games, Inc., a Delaware corporation (“Heyday”), and eGAMES, INC., a Pennsylvania corporation (“eGames”).

W I T N E S S E T H :

WHEREAS, contemporaneously with the execution and delivery hereof, eGames is acquiring the goodwill and substantially all of the assets used or useful by Heyday in designing, developing, distributing, promoting and/or selling an interactive entertainment social networking software game for personal computer and mobile platforms (i.e. phone and tablet) (but not console or handheld gaming devices) targeted exclusively at the adult 40+ market (including, but not limited to, iOS and Android) (the “Business”), pursuant to an Asset Purchase Agreement, dated as of June 24, 2011, to which eGames, Lennon and Heyday are parties (the “Purchase Agreement”); and

WHEREAS, by virtue of the purchase of the Business, eGames is and will be engaged throughout the Area in the Business which was formerly conducted by Heyday; and

WHEREAS, Lennon is a principal record and beneficial owner of the outstanding securities of Heyday: and

WHEREAS, in consideration of the execution of the Purchase Agreement by eGames, Lennon (in his capacity as a principal shareholder) has agreed not to compete with the Business and to certain other obligations, as set forth herein; and

WHEREAS, competition by Lennon with eGames, or disclosure by Lennon of the confidential and proprietary information or trade secrets of Heyday, will result directly in damage to eGames and its business, properties, assets, and goodwill and will cause the loss by eGames of the benefit of its bargain with Heyday.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1. Definitions. The following terms shall have the definitions set forth below:

(a) “Affiliate” of a person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

(b) “Area” shall mean anywhere within any state of the United States of America or Canada.

(c) “Cause” shall mean a termination for any of the following reasons: (i) conviction of a felony; (ii) willfully engaging in illegal conduct or gross misconduct that causes material and demonstrable harm to eGames (whether or not Lennon has been charged with any


crime); (iii) the willful material misappropriation of property belonging to eGames; (iv) materially breaching any proprietary information, nondisclosure or non-solicitation agreement between you and eGames and failure to cure such breach within thirty (30) days following notice thereof, or (iv) willfully disregarding your lawful duties following written warning from eGames Board of Directors, which refusal is committed in bad faith and is not in the best interest of the Company.

(d) A “Change in Control” shall include (i) the sale, transfer, assignment or other disposition (including by merger or consolidation) by stockholders of the entity, in one transaction or a series of related transactions, of more than 50% of the voting power represented by the then outstanding capital stock of the entity to one or more persons, (ii) the sale of all or substantially all of the assets of the entity, or (iii) the liquidation, dissolution or winding up of the entity.

(e) “Closing Date” shall mean the date of this Agreement.

(f) “Confidential Information” shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) pertaining to the Business:

(1) All items of information relating to the Business that could be classified as a trade secret pursuant to law;

(2) The names and addresses of the customers of the Business and the nature and amount of business done with such customers;

(3) The design concepts, processes and techniques related to and the development, designs, drawings and specifications of Heyday relating to the Business;

(4) Source and object codes, flow charts, algorithms, coding sheets, design concept and related documentation and manuals of Heyday which relate to the Business;

(7) Production processes, marketing techniques, purchasing information, price lists, pricing policies, quoting procedures, financial information, customer names and requirements, customer data and other materials or information relating to the Business;

(8) Any other materials or information related to the Business which are not generally known to others engaged in similar business activities.

(g) “Good Reason” shall mean the occurrence of any of the following events:

 

  (A)

a reduction by eGames in Lennon’s then-current annual base salary or a bonus percentage which is agreed in writing; or

 

2


  (B)

any failure by eGames to offer Lennon the same level of benefits offered to similarly situated employees; or

 

  (C)

a significant diminution in the Lennon’s managerial authority, duties or responsibilities at eGames; or

 

  (D)

the relocation of Lennon’s primary business location to a location that is outside of Connecticut or Massachusetts; or

 

  (E)

the failure to pay Lennon any portion of his current base salary, bonus or benefits within twenty (20) days of the date such compensation is due, based upon the payment terms currently in effect, unless such payment is prohibited by law, regulation or rule.

Capitalized terms used but not otherwise defined herein shall have the respective meanings given to them in the Purchase Agreement.

2. As an inducement and in consideration for eGames to enter into the Purchase Agreement, Lennon covenants that he shall, for a period equal to the lesser of three (3) years from and after the Closing Date or one year after the date on which Lennon is terminated by eGames without Cause (as defined in Section 1) or eGames undergoes a Change in Control (as defined in Section 1), observe the following separate and independent covenants:

(a) Agreement Not to Compete. Except as set forth in this Agreement, Lennon shall not, anywhere in the Area, on his own behalf or in the service or on behalf of others, except on behalf of eGames or its Affiliates (i) engage in the Business or become financially interested in (other than as a holder of less than five percent of the outstanding securities of any entity whose voting securities are registered under the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as amended), in any business, person or entity that is engaged in the Business, or (ii) participate in, as a consultant, partner, agent, independent contractor, joint venture or in any other relationship whatsoever, to any business, person or entity that engages in the Business.

(b) Agreement Not to Solicit Customers. Lennon shall not, either directly or through one or more agents, on his own behalf or in the service or on behalf of others, except on behalf of eGames, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Business, any person or entity whose account was sold or serviced by or under the direction or supervision of Heyday at any time prior to the Closing Date.

(c) Agreement Not to Solicit Employees. Lennon shall not, either directly or through one or more agents, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert, or hire away, to any Business, any person employed by eGames, whether or not such employee is a full-time employee or a temporary employee of eGames and whether or not such employment is pursuant to written agreement and whether or not such

 

3


employment is for a determined period or is at will; provided however a response to a general solicitation for employment or consulting shall not be deemed a violation of this clause.

(d) Non-Interference with Third-Party Relationships. Lennon shall not, in addition to the covenants contained in Sections 2(a), (b) and (c), intentionally interfere with, or intentionally disrupt the relationship between eGames and any third party, including without limitation, any independent contractor, customer, supplier, distributor or employee of eGames in the Business.

(e) Notwithstanding the provisions of this Section 2, eGames agrees to permit Lennon to accept an engagement or employment with an organization which may compete with the Business provided that: (i) Lennon’s duties with such organization do not relate to the Business; (ii) Lennon shall have delivered to eGames a written statement, confirmed in writing by Lennon’s prospective employer or contractor, describing Lennon’s duties and stating that all such duties will be wholly unrelated to the Business and Lennon will not be required or asked to disclose any Confidential Information of eGames in the course of the performance of his duties; and (iii) eGames shall have provided its written consent for Lennon to accept such engagement or employment, which consent shall not be unreasonably withheld, conditioned or delayed. The term “wholly unrelated” shall mean among other things that Lennon will not work in, consult with, cooperate with or provide information to any person, department or business segment of the organization which is researching, acquiring, producing, distributing, providing, investigating, developing, manufacturing, marketing, supervising, licensing or commercializing the Business.

Notwithstanding anything to the contrary above, if Lennon resigns from service or employment with eGames for Good Reason either before or after a Change of Control or if Lennon is not offered a position with the successor in interest to eGames in connection with a Change of Control which is substantially equivalent in pay, title and responsibilities as prior to the Change of Control, then Lennon’s obligations with respect to Sections 2(a) and (d) shall immediately cease and with respect to Sections 2(b) and 2(c) they shall continue but for not more than the shorter of one year from the date of termination or three years from the Closing Date.

3. Ownership and Non-Disclosure and Non-Use of Confidential Information. Lennon acknowledges and agrees that all Confidential Information, are confidential to and shall be and remain the sole and exclusive property of eGames. Except to the extent provided in this Section 3, for a period of five years from the Closing Date, Lennon agrees that he will not (i) disclose or make available any Confidential Information to any person or entity; or (ii) make or cause to be made, or permit, either on his own behalf or in the service or on behalf of others, except on behalf of eGames, any use of such Confidential Information. Lennon’s obligations under Paragraph 3 will not extend to any of the Confidential Information that may become publicly available from sources other than Lennon. Lennon has significant and substantial experience in the games industry. At all times he shall continue to be free to use such skill, knowledge, know-how, methodologies, algorithms and experience in his other businesses so long as (a) he does not use Confidential Information and he adheres to Sections 2 and 3 of this Agreement.

4. Acknowledgment. Lennon acknowledges that he has been for many years, and that eGames is now, engaged in the Business throughout the Area, that the within and foregoing

 

4


covenants are made by him in consequence of and as an inducement to eGames to acquire the Business and to protect and preserve to eGames the benefit of its bargain in the acquisition of the Business, including, particularly, the goodwill associated therewith; that each of the above and foregoing covenants is reasonable and necessary to protect and preserve the benefits of such purchase; and that irreparable loss and injury would result should Lennon breach any of the foregoing covenants.

5. Severability. Each of the covenants hereinabove contained shall be deemed separate, severable, and independent covenants, and in the event any covenant shall be declared invalid by any court of competent jurisdiction, such invalidity shall not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein.

6. Partial Enforcement. If any of the covenants contained in Section 2, or any part thereof, is held to be unenforceable because of the duration of such provision or the scope of the subject matter thereof or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, said provision shall then be enforceable.

7. Enforcement. In addition to all other remedies provided at law or in equity, eGames shall be entitled to both preliminary and permanent injunctions against Lennon to prevent a breach or contemplated or threatened breach by Lennon of any of the foregoing covenants, without the necessity of proving actual damages; and the existence of any claim, demand, cause of action, or action of Lennon against eGames, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by eGames of any such covenants. In the event of an actual breach of any of the foregoing covenants, eGames shall have the right to recover damages for all losses, actual and contingent, and the right to require Lennon to account for and pay over to eGames all profits or other benefits (collectively “Benefits”) derived or received by Lennon as a result of any transactions constituting such breach, and Lennon hereby agrees to account for and pay over such Benefits to eGames. Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to eGames at law or equity.

8. Governing Law; Jurisdiction; Consent to Service of Process. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW RULES AND PRINCIPLES. EACH OF THE PARTIES HERETO IRREVOCABLY: (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN PENNSYLVANIA, FOR THE PURPOSE OF ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, (B) WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, (C) AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS

 

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AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE COMMONWEALTH OF PENNSYLVANIA OR A PENNSYLVANIA COMMONWEALTH COURT, (D) AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW AND (E) CONSENTS TO SERVICE OF PROCESS UPON IT BY MAILING A COPY THEREOF BY CERTIFIED MAIL ADDRESSED TO IT AND ITS COUNSEL AT THE ADDRESSES PROVIDED FOR IN THE PURCHASE AGREEMENT.

9. Counterparts. This Agreement may be executed and delivered in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall together constitute one and the same agreement.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

 

/s/ F.J. Lennon

FJ Lennon
 
 
eGAMES, INC.
By:   /s/ Gerald W. Klein
Name:   Gerald W. Klein
Title:   President and CEO

 

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EX-10.3 13 d244335dex103.htm NON-COMPETITION AND CONFIDENTIALITY AGREEMENT DATED JUNE 24, 2011 (HEYDAY GAMES) Non-Competition and Confidentiality Agreement dated June 24, 2011 (Heyday Games)

Exhibit 10.3

NONCOMPETITION AND CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made as of June 24, 2011, between Heyday Games, Inc., a Delaware corporation (“Heyday”), and eGAMES, INC., a Pennsylvania corporation (“eGames”).

W I T N E S S E T H :

WHEREAS, contemporaneously with the execution and delivery hereof, eGames is acquiring the goodwill and substantially all of the assets used or useful by Heyday in designing, developing, distributing, promoting and/or selling an interactive entertainment social networking software game for personal computer and mobile platforms (i.e. phone and tablet) (but not console or handheld gaming devices) targeted exclusively at the adult 40+ market (including, but not limited to, iOS and Android) (the “Business”), pursuant to an Asset Purchase Agreement, dated as of June 24, 2011, to which eGames and Heyday are parties (the “Purchase Agreement”); and

WHEREAS, by virtue of the purchase of the Business, eGames is and will be engaged throughout the Area in the Business which was formerly conducted by Heyday; and

WHEREAS, in consideration of the execution of the Purchase Agreement by eGames, Heyday has agreed not to compete with the Business and to certain other obligations, as set forth herein; and

WHEREAS, competition by Heyday with eGames, or disclosure by Heyday of the confidential and proprietary information or trade secrets of Heyday, will result directly in damage to eGames and its business, properties, assets, and goodwill and will cause the loss by eGames of the benefit of its bargain with Heyday.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, agree as follows:

1. Definitions. The following terms shall have the definitions set forth below:

(a) “Affiliate” of a person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, the indicated Person.

(b) “Area” shall mean anywhere within any state of the United States of America or Canada.

(c) A “Change in Control” shall include (i) the sale, transfer, assignment or other disposition (including by merger or consolidation) by stockholders of the entity, in one transaction or a series of related transactions, of more than 50% of the voting power represented by the then outstanding capital stock of the entity to one or more persons, (ii) the sale of all or substantially all of the assets of the entity, or (iii) the liquidation, dissolution or winding up of the entity.


(d) “Closing Date” shall mean the date of this Agreement.

(e) “Confidential Information” shall mean all of the following materials and information (whether or not reduced to writing and whether or not patentable) pertaining to the Business:

(1) All items of information relating to the Business that could be classified as a trade secret pursuant to law;

(2) The names and addresses of the customers of the Business and the nature and amount of business done with such customers;

(3) The design concepts, processes and techniques related to and the development, designs, drawings and specifications of Heyday relating to the Business;

(4) Source and object codes, flow charts, algorithms, coding sheets, design concept and related documentation and manuals of Heyday which relate to the Business;

(7) Production processes, marketing techniques, purchasing information, price lists, pricing policies, quoting procedures, financial information, customer names and requirements, customer data and other materials or information relating to the Business;

(8) Any other materials or information related to the Business which are not generally known to others engaged in similar business activities.

Capitalized terms used but not otherwise defined herein shall have the respective meanings given to them in the Purchase Agreement.

2. As an inducement and in consideration for eGames to enter into the Purchase Agreement, Heyday covenants that it shall, for a period equal to the lesser of three (3) years from and after the Closing Date or eGames undergoes a Change in Control (as defined in Section 1), observe the following separate and independent covenants:

(a) Agreement Not to Compete. Except as set forth in this Agreement, Heyday shall not, anywhere in the Area, on it’s own behalf or in the service or on behalf of others, except on behalf of eGames or its Affiliates (i) engage in the Business or become financially interested in (other than as a holder of less than five percent of the outstanding securities of any entity whose voting securities are registered under the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as amended), in any business, person or entity that is engaged in the Business, or (ii) participate in, as a consultant, partner, agent, independent contractor, joint venture or in any other relationship whatsoever, to any business, person or entity that engages in the Business.

 

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(b) Agreement Not to Solicit Customers. Heyday shall not, either directly or through one or more agents, on it’s own behalf or in the service or on behalf of others, except on behalf of eGames, solicit, divert, or appropriate, or attempt to solicit, divert, or appropriate, to any Business, any person or entity whose account was sold or serviced by or under the direction or supervision of Heyday at any time prior to the Closing Date.

(c) Agreement Not to Solicit Employees. Heyday shall not, either directly or through one or more agents, on it’s own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert, or hire away, to any Business, any person employed by eGames, whether or not such employee is a full-time employee or a temporary employee of eGames and whether or not such employment is pursuant to written agreement and whether or not such employment is for a determined period or is at will; provided however a response to a general solicitation for employment or consulting shall not be deemed a violation of this clause.

(d) Non-Interference with Third-Party Relationships. Heyday shall not, in addition to the covenants contained in Sections 2(a), (b) and (c), intentionally interfere with, or intentionally disrupt the relationship between eGames and any third party, including without limitation, any independent contractor, customer, supplier, distributor or employee of eGames in the Business.

3. Ownership and Non-Disclosure and Non-Use of Confidential Information. Heyday acknowledges and agrees that all Confidential Information, are confidential to and shall be and remain the sole and exclusive property of eGames. Except to the extent provided in this Section 3, for a period of five years from the Closing Date, Heyday agrees that it will not (i) disclose or make available any Confidential Information to any person or entity; or (ii) make or cause to be made, or permit, either on it’s own behalf or in the service or on behalf of others, except on behalf of eGames, any use of such Confidential Information. Heyday’s obligations under Paragraph 3 will not extend to any of the Confidential Information that may become publicly available from sources other than Heyday.

4. Acknowledgment. Heyday acknowledges that it has been for many years, and that eGames is now, engaged in the Business throughout the Area, that the within and foregoing covenants are made by him in consequence of and as an inducement to eGames to acquire the Business and to protect and preserve to eGames the benefit of its bargain in the acquisition of the Business, including, particularly, the goodwill associated therewith; that each of the above and foregoing covenants is reasonable and necessary to protect and preserve the benefits of such purchase; and that irreparable loss and injury would result should Heyday breach any of the foregoing covenants.

5. Severability. Each of the covenants hereinabove contained shall be deemed separate, severable, and independent covenants, and in the event any covenant shall be declared invalid by any court of competent jurisdiction, such invalidity shall not in any manner affect or impair the validity or enforceability of any other part or provision of such covenant or of any other covenant contained herein.

 

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6. Partial Enforcement. If any of the covenants contained in Section 2, or any part thereof, is held to be unenforceable because of the duration of such provision or the scope of the subject matter thereof or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, said provision shall then be enforceable.

7. Enforcement. In addition to all other remedies provided at law or in equity, eGames shall be entitled to both preliminary and permanent injunctions against Heyday to prevent a breach or contemplated or threatened breach by Heyday of any of the foregoing covenants, without the necessity of proving actual damages; and the existence of any claim, demand, cause of action, or action of Heyday against eGames, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by eGames of any such covenants. In the event of an actual breach of any of the foregoing covenants, eGames shall have the right to recover damages for all losses, actual and contingent, and the right to require Heyday to account for and pay over to eGames all profits or other benefits (collectively “Benefits”) derived or received by Heyday as a result of any transactions constituting such breach, and Heyday hereby agrees to account for and pay over such Benefits to eGames. Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to eGames at law or equity.

8. Governing Law; Jurisdiction; Consent to Service of Process. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW RULES AND PRINCIPLES. EACH OF THE PARTIES HERETO IRREVOCABLY: (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN PENNSYLVANIA, FOR THE PURPOSE OF ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, (B) WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, (C) AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE COMMONWEALTH OF PENNSYLVANIA OR A PENNSYLVANIA COMMONWEALTH COURT, (D) AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW AND (E) CONSENTS TO SERVICE OF PROCESS UPON IT BY MAILING A COPY THEREOF BY CERTIFIED MAIL ADDRESSED TO IT AND ITS COUNSEL AT THE ADDRESSES PROVIDED FOR IN THE PURCHASE AGREEMENT.

9. Counterparts. This Agreement may be executed and delivered in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall together constitute one and the same agreement.

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

 

/s/ Eugene H. Mauro
Eugene H. Mauro, CEO
HEYDAY GAMES, INC.
eGAMES, INC.
By:   /s/ Gerald W. Klein
Name:   Gerald W. Klein
Title:   CEO

 

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EX-10.4 14 d244335dex104.htm REGISTRATION RIGHTS AGREEMENT DATED JUNE 24, 2011 Registration Rights Agreement dated June 24, 2011

Exhibit 10.4

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made as of June 24, 2011 by and between eGames, Inc., a Pennsylvania corporation (the “Company”) and Heyday Games, Inc., a Delaware corporation (“Heyday”).

WHEREAS, this Agreement is made in connection with the Asset Purchase Agreement dated June 24, 2011 (the “APA”) by and among the Company, Heyday and the Shareholders of Heyday (the “Shareholders”), pursuant to which the Company is acquiring substantially all of the assets of Heyday in exchange for shares of Common Stock of the Company.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

“Board” shall mean the board of directors of the Company.

“Common Stock” shall mean the Company’s common stock, without par value.

“Holder” or “Holders” shall mean, collectively, Heyday and the Qualifying Holders; provided, however, that the term “Holders” shall not include any of the foregoing that ceases to own or hold any Registrable Securities.

“Purchase Date” shall mean the Closing Date under the APA.

“Qualifying Holder” shall have the meaning ascribed thereto in Section 3 hereof.

“Registrable Securities” shall mean the Shares of Common Stock, and shall include any shares of the Company’s Common Stock issued with respect to the Registrable Securities as a result of any stock split, stock dividend, recapitalization, exchange or similar event; provided, however, that all Registrable Securities shall cease to be Registrable Securities once they have been sold pursuant to a registration statement or in a transaction exempt from registration under the Securities Act.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“SEC” shall mean the Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated there under.

 

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“Shares” shall mean the Company’s Common Stock issued to the Holder pursuant to the APA.

2. Registration Rights.

2.1. Piggyback Registration. If the Company at any time after the Purchase Date proposes for any reason to register any of its equity securities under the Securities Act (other than pursuant to a registration statement on Forms S-8 or S-4 or similar or successor form which is not available for registering the Common Stock for sale to the public (collectively, the “Excluded Forms”)), it shall each such time promptly give written notice to all Holders of its intention to do so but in no event less than 20 days before the anticipated filing date (which notice shall be treated by each recipient as confidential information of the Company and not disclosed by such recipient except (a) pursuant to law or legal process, (b) to such recipient’s advisors who are bound by corresponding obligations of confidentiality, or (c) after such information has already become public without any breach of this provision). Upon the written request, given within 10 days after receipt of any such notice of the Holders of any such Shares to register any shares of Registrable Securities, the Company shall use its commercially reasonable efforts to cause such registration statement to become effective and keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed) in the case of any registration of Registrable Securities on Form S-3 or any similar short-form registration statement that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.1 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration.

(a) In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request pursuant to this Section 2.1 to register shares of Registrable Securities may so specify, and such shares shall be included in the underwriting on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters under such registration; provided, however, that the Company and all Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting (including, without limitation, a market stand-off agreement of up to 180 days after the effective date of such registration if required by such underwriters). Notwithstanding any other provision of this Agreement, if the underwriters in their sole discretion determine that the inclusion of the Registrable Securities will jeopardize the ability of the underwriters to distribute such shares of the Company’s capital stock in an orderly manner at a price acceptable to the Company, then the underwriters may exclude shares (including up to 100% of the Registrable Securities) from the registration and the underwriting, with the number of Registrable Securities, if any, included in the registration and the underwriting being

 

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allocated to each of the Holders requesting inclusion of their Registrable Securities in such Registration Statement on a pro rata basis (as nearly as practicable) based on the total number of Registrable Securities then held by each such Holder, provided that the number of Registrable Securities to be offered by the Holders may not be reduced below an amount equal to 15% of the total Registrable Securities offered. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least 10 business days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. In each case, those shares of Registrable Securities which are excluded from the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to exceed 90 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

2.2. Preparation and Filing. If and whenever the Company is under an obligation pursuant to the provisions of this Section 2 to use its commercially reasonable efforts to effect the registration of any shares of Registrable Securities, the Company shall, as promptly as reasonably practicable:

(a) Prepare and file with the SEC such amendments and supplements to any Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the contemplated distribution of all securities covered by such Registration Statement for up to 90 days.

(b) Furnish to each Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, as the Holder may reasonably request in order to facilitate the public sale or other disposition of such shares of Registrable Securities then held by such Holder.

(c) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; and, provided, further, that (notwithstanding anything in this Agreement to the contrary with respect to the bearing of expenses) if any jurisdiction in which any of such Registrable Securities then held by a selling Holder shall be qualified shall require that expenses incurred in connection with the qualification therein of any such Registrable Securities be borne by the selling Holders without reimbursement by the Company, then each selling Holder shall, to the extent required by such jurisdiction, pay its respective pro rata share of such qualification expenses.

 

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(d) Notify each Holder of shares of Registrable Securities covered by such registration statement, at any time when a related prospectus is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in light of the circumstances in which they are made; and, thereafter, the Company shall promptly prepare and furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus, as so supplemented or amended, shall not include an untrue statement of a material fact or omit to state a fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that upon such notification by the Company, the selling Holders agree that they shall not offer or sell Registrable Securities unless and until (i) the Company has notified such selling Holders that it has prepared a supplement or amendment to such prospectus and delivered copies of such supplement or amendment to such selling Holders or (ii) the Company has advised such selling Holders in writing that the use of the applicable prospectus may be resumed (it being understood and agreed by the Company that the foregoing proviso shall in no way diminish or otherwise impair the Company’s obligation to prepare a prospectus amendment or supplement as above provided in this Section 2.2(d) and deliver copies of same as above provided in Section 2.2(b).

(e) In connection with a sale of Registrable Securities pursuant to such Registration Statement (assuming that no stop order is in effect with respect to such Registration Statement at the time of such sale), cooperate with the selling Holder and provide the transfer agent for the Registrable Securities with such instructions and legal opinions as may be required in order to facilitate the issuance to the purchaser (or the selling Holder’s broker) of new unlegended certificates for such Registrable Securities.

(f) use its commercially reasonable efforts to cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed.

2.3. Expenses. All expenses incurred by the Company in effecting all registrations for Holders of Registrable Securities pursuant to this Section 2, including, without limitation, all registration and filing fees, fees and expenses of complying with securities and blue sky laws, printing expenses and fees and disbursements of not more than one counsel for all the Holders of Registrable Securities requesting registration thereunder, and of the independent certified public accountants (including the expenses of any special audits in connection with any such registration) (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), shall be paid by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the shares of Registrable Securities covered by such registration shall be borne by the Holder or Holders thereof; provided, further, that anything in this Agreement to the contrary notwithstanding, if any

 

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jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling shareholders, then such expenses shall be payable by such selling Holders pro rata based on the number of securities being registered, to the extent required by such jurisdiction.

2.4. Indemnification.

(a) Indemnification by the Company. To the extent permitted by law, the Company will indemnify each Holder of Registrable Securities with respect to which registration has been effected pursuant to this Agreement, each of such Holder’s partners, officers, directors, employees, advisors and agents and each person controlling such Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement or prospectus incident to any such registration, qualification or compliance, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and will reimburse each such Holder, each of its partners, officers, directors, employees, advisors and agents and each person controlling such Holder for any legal and other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, cost, expense, liability or action, provided, however, that the indemnity agreement contained in this Section 2.4(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld or delayed, nor will the Company be liable in any such case to the extent that any such claim, loss, damage, cost, expense, liability or action arises out of or is based on any untrue statement or omission based upon information furnished to the Company by a Holder and stated to be specifically for use therein, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the Registration Statement becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) (the “Final Prospectus”), such indemnity agreement shall not inure to the benefit of any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act.

(b) Indemnification by the Holders. To the extent permitted by law, each Holder will, if Registrable Securities held by or issuable to such Holder are included in the securities to which a registration is being effected, indemnify the Company, each of its directors and officers and each person who controls the Company within the meaning of the Securities Act, and each other Holder, each of such other

 

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Holder’s officers and directors and each person controlling such other Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement or that prospectus incident to any such registration, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to such Holder and relating to action or inaction required of such Holder in connection with any such registration, and will reimburse the Company, such other Holders, and such directors, officers and other persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, cost, expense, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement or prospectus in reliance upon and in conformity with information furnished to the Company by such indemnifying Holder and stated to be specifically for use therein, except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the Final Prospectus, such indemnity agreement shall not inure to the benefit of the Company or any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act, provided, however, that the indemnity agreement contained in this Section 2.4(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld or delayed; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Section 2.4(b) or 2.4(d) exceed the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement.

(c) Indemnification Procedures. Each party entitled to indemnification under this Section 2.4 (the “Indemnified Party”), shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense. Failure of the Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 2.4 only to the extent that the failure or delay in giving notice has a material adverse impact on the ability of the Indemnifying Party to defend against such claim. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof, the

 

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giving of a release from all liability in respect to such claim or litigation. If any such Indemnified Party shall have been advised by counsel chosen by it that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party and will reimburse such Indemnified Party and any person controlling such Indemnified Party for the reasonable fees and expenses of any counsel retained by the Indemnified Party, it being understood that the Indemnifying Party shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for such Indemnified Party or controlling person, which firm shall be designated in writing by the Indemnified Party to the Indemnifying Party.

(d) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any party entitled to indemnification under this Section 2.4, makes a claim for indemnification pursuant to this Section 2.4 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.4 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any such party in circumstances for which indemnification is provided under this Section 2.4; then, and in each such case, the Company and each Holder whose securities were included in the registration in question will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject in such proportion as is appropriate to reflect the relative fault of each such party in connection with the events giving rise to such claims, losses, damages, costs, expenses and liabilities, as well as any other relevant equitable considerations, provided, that each participating Holder shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement, provided further, however, that, in any such case, no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

(e) Alternative Indemnification. Notwithstanding the foregoing provisions of this Section 2.4, if the Company, the selling shareholders and the underwriters, pursuant to an underwritten public offering of the Common Stock, enter into an underwriting or purchase agreement relating to such offering which contains provisions covering indemnification or contribution among the parties thereto in connection with such offering, then the indemnification or contribution provisions of this Section 2.4 shall be deemed inoperative for purposes of such offering.

2.5. Information from Holders. In connection with any registration effected pursuant to this Section 2, each holder of the shares of Registrable Securities then held by such Holder included in any registration effected pursuant to this Section 2

 

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shall furnish to the Company such information with respect to it and its proposed distribution as the Company shall reasonably request in writing on a timely basis and as shall be required by federal or state securities or blue sky laws applicable to such registration. The Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.

3. Transfer of Registration Rights. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person unless (i) such person is a Qualifying Holder (as defined below), (ii) such person agrees to become a party to, and bound by all of the terms and conditions of, this Agreement by duly executing and delivering to the Company an Instrument of Adherence in the form attached as Exhibit A hereto, (iii) the transfer or assignment is made in accordance with the applicable requirements of the Securities Act and any applicable state securities laws (v) such person agrees to the terms of ,and has completed, executed and returned to the Company, his or her Stockholder Questionnaire; (iv) following the transfer or assignment, the further disposition of the Registrable Securities by such person is restricted under the Securities Act and applicable state securities laws. For purposes of this Section 3, the term “Qualifying Holder” shall mean, with respect to any Holder, any corporation, partnership or other affiliated entity controlling, controlled by, or under common control with, such Holder, or any shareholder of Heyday. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person that acquires Registrable Securities in the event that and to the extent that such Person is eligible to resell all of such Registrable Securities pursuant to Rule 144 of the Securities Act within a three-month period.

4. Entire Agreement. This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and it also supersedes any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter hereof.

5. Deferral. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the selling Holders a certificate signed by the President and Chief Executive Officer of the Company stating that the Board has made the good faith determination (i) that continued use by the selling Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, disclosure in the Registration Statement (or the prospectus relating thereto) of material, nonpublic information concerning the Company, its business or prospects or any proposed transaction involving the Company, (ii) that such disclosure would be premature and would be adverse to the Company, its business or prospects or any such proposed transaction or would make the successful consummation by the Company of any such transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the selling Holders to use the Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto shall be

 

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suspended for a period (the “Suspension Period”) of not more than 90 days after delivery by the Company of the certificate referred to above in this Section 5. During the Suspension Period, the Holders agree that they shall not offer or sell any Registrable Securities pursuant to or in reliance upon the Registration Statement (or the prospectus relating thereto). The Company may not exercise this right more than two times in each year after the Purchase Date.

6. Miscellaneous.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors or assigns, provided that the terms and conditions of Section 3 hereof are satisfied. This Agreement shall also be binding upon and inure to the benefit of any transferee of any of the Registrable Securities provided that the terms and conditions of Section 3 hereof are satisfied. Notwithstanding anything in this Agreement to the contrary, if at any time any Holder shall cease to own all of its Registrable Securities or the Warrant, all of such Holder’s rights under this Agreement shall immediately terminate.

(b)

(i) Any notices, reports or other correspondence (hereinafter collectively referred to as “correspondence”) required or permitted to be given hereunder shall be sent by courier (overnight or same day) or telecopy or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder. The date of giving any notice shall be the date of its actual receipt.

(ii) All correspondence to the Company shall be addressed as follows:

eGames, Inc.

2000 Cabot Boulevard, Suite 110

Langhorne, PA 19047-1833

Attention: Gerald Klein, Chief Executive Officer

Facsimile: 215-750-3722

jklein@egames.com

with a copy to:

McCausland Keen & Buckman

Radnor Court, Suite 160

259 North Radnor-Chester Road

Radnor, PA 19087-5251

Attention: Nancy D. Weisberg, Esquire

Facsimile: (610) 341-1099

nweisberg@mkbattorneys.com

 

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(iii) All correspondence to any Holder shall be sent to the address set forth on such Holder’s signature page hereto (or, in the case of a Qualifying Holder, such Qualifying Holder’s Instrument of Adherence hereto).

(iv) Any party may change the address to which correspondence to it is to be addressed by notification as provided for herein.

(c) The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law may be inadequate, and each of the parties hereto shall be entitled to seek specific performance of the obligations of the other parties hereto and such appropriate injunctive relief as may be granted by a court of competent jurisdiction.

(d) This Agreement may be executed in a number of counterparts, each of which together shall for all purposes constitute one Agreement, binding on all the parties hereto notwithstanding that all such parties have not signed the same counterpart.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first above written.

 

eGAMES, INC.
By:   /s/ Gerald W. Klein
  Gerald W. Klein, President and CEO
HOLDER:
Heyday Games, Inc.
By:   /s/ Eugene H. Mauro
Eugene H. Mauro, President

 

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EXHIBIT A

INSTRUMENT OF ADHERENCE

Reference is hereby made to that certain Registration Rights Agreement, dated as of June 24, 2011, by and between eGames, Inc., a Pennsylvania corporation (the “Company”) and Heyday Games, Inc., a Delaware corporation, as amended and in effect from time to time (the “Registration Rights Agreement’). Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Registration Rights Agreement.

The undersigned, in order to become the owner or holder of, or have the right to acquire,                      shares of Registrable Securities, hereby agrees that, from and after the date hereof, the undersigned has become a party to the Registration Rights Agreement in the capacity of a Qualifying Holder, and is entitled to all of the benefits under, and is subject to all of the obligations, restrictions and limitations set forth in, the Registration Rights Agreement that are applicable to Qualifying Holder. This Instrument of Adherence shall take effect and shall become a part of the Registration Rights Agreement immediately upon execution.

Print Name of Qualifying Holder:

 

 
By:    
Name:  
Title:  

Qualifying Holder’s Address and Fax Number for Notice:

 

 
 
 
Accepted:
eGames, Inc.
By:    
Name:  
Title:  
EX-10.5 15 d244335dex105.htm REGISTRATION RIGHTS AGREEMENT DATED MARCH 18, 2010 Registration Rights Agreement dated March 18, 2010

Exhibit 10.5

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made as of March 18, 2010 by and between eGames, Inc., a Pennsylvania corporation (the “Company”), and Bandera Master Fund L.P., a Cayman Islands limited partnership (the “Investor”), and each person or entity that subsequently becomes a party to this Agreement pursuant to, and in accordance with, the provisions of Section 4 hereof (collectively, the “Permitted Transferees” and each individually a “Permitted Transferee”).

WHEREAS, pursuant to a securities purchase agreement (the “Purchase Agreement”), dated as of the date hereof, the Company has agreed to issue and sell to the Investor, and the Investor has agreed to purchase from the Company, 1,000,000 shares (the “Shares”) of the Company’s common stock, without par value (the “Common Stock”), and the Company has agreed to issue to the Investor, and the Investor has agreed to accept from the Company, Warrant No. 1, dated March 18, 2010 (in whole or in part, the “Warrant”), to purchase 1,000,000 shares (the “Warrant Shares”) of the Common Stock.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

“Board” shall mean the board of directors of the Company.

“Purchase” shall mean the Closing Date under the Purchase Agreement.

“Holder” shall mean, collectively, the Investor and the Permitted Transferees; provided, however, that the term “Holder” shall not include any of the foregoing that ceases to own or hold any Registrable Securities.

“Qualifying Holder” shall have the meaning ascribed thereto in Section 4 hereof.

“Registrable Securities” shall mean the Shares and Warrant Shares of Common Stock, and shall include any shares of the Company’s Common Stock issued with respect to the Registrable Securities as a result of any stock split, stock dividend, recapitalization, exchange or similar event; provided, however, that all Registrable Securities shall cease to be Registrable Securities once they have been sold pursuant to a registration statement or in a transaction exempt from registration under the Securities Act.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“SEC” shall mean the Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated there under.


“Purchase Date” shall mean the date of this Agreement.

2. Effectiveness. This Agreement shall become effective and legally binding with respect to an investor upon the investor’s Purchase of the Common Stock.

3. Registration Rights.

3.1. Piggyback Registration. If the Company at any time after the Purchase Date proposes for any reason to register any of its equity securities under the Securities Act (other than pursuant to a registration statement on Forms S-8 or S-4 or similar or successor form which is not available for registering the Common Stock for sale to the public (collectively, the “Excluded Forms”)), it shall each such time promptly give written notice to all Holders of outstanding Shares, the Warrant and Warrant Shares of its intention so to do but in no event less than 30 days before the anticipated filing date, and, upon the written request, given within 10 days after receipt of any such notice, of the Holders of any such Shares, Warrant and Warrant Shares to register any shares of Registrable Securities, shall use its best efforts to cause all such shares of Registrable Securities then held by each such Holder to be registered under the Securities Act promptly upon receipt of the written request of such Holders for such registration, all to the extent requisite to permit the sale or other disposition (in accordance with the intended methods thereof, as set forth in the holder’s written request) by the then Holders of the shares of Registrable Securities so registered. In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request pursuant to this Section 3.1 to register shares of Registrable Securities may so specify, and such shares shall be included in the underwriting on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters under such registration; provided, however, that the Company and all Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting (including, without limitation, a market stand-off agreement of up to 180 days after the effective date of such registration if required by such underwriters). Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including up to 100% of the Registrable Securities from the registration and the underwriting, with the number of Registrable Securities, if any, included in the registration and the underwriting being allocated to each of the Holders requesting inclusion of their Registrable Securities in such Registration Statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder, provided that the number of Registrable Securities to be offered by the Holders may not be reduced below an amount equal to 15% of the total Registrable Securities offered. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least 10 business days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. In each case, those shares of Registrable Securities which are excluded from the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to exceed 90 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

 

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3.2. Preparation and Filing. If and whenever the Company is under an obligation pursuant to the provisions of this Section 3 to use its best efforts to effect the registration of any shares of Registrable Securities, the Company shall, as promptly as reasonably practicable:

(a) Prepare and file with the SEC such amendments and supplements to any Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the contemplated distribution of all securities covered by such Registration Statement for up to 90 days.

(b) Furnish to each Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, as the Holder may reasonably request in order to facilitate the public sale or other disposition of such shares of Registrable Securities then held by such Holder.

(c) Use its best efforts to register or qualify the shares of Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as shall be appropriate, as reasonably requested by any of the selling Holders; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process or to become subject to any material tax in any such states or jurisdictions and, provided, further, that (notwithstanding anything in this Agreement to the contrary with respect to the bearing of expenses) if any jurisdiction in which any of such Registrable Securities then held by a selling Holder shall be qualified shall require that expenses incurred in connection with the qualification therein of any such Registrable Securities be borne by the selling Holders without reimbursement by the Company, then each selling Holder shall, to the extent required by such jurisdiction, pay its respective pro rata share of such qualification expenses.

(d) Notify each Holder of shares of Registrable Securities covered by such registration statement, at any time when a related prospectus is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in light of the circumstances in which they are made; and, thereafter, the Company shall prepare and furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus, as so supplemented or amended, shall not include an untrue statement of a material fact or omit to state a fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that upon such notification by the Company, the selling Holders agree that they shall not offer or sell Registrable Securities unless and until (i) the Company has notified such selling Holders that it has prepared a supplement or amendment to such prospectus and delivered copies of such supplement or amendment to such selling Holders or (ii) the Company has advised such selling Holders in writing that the use of the applicable prospectus may be resumed (it being understood and agreed by the Company that the foregoing proviso shall in no way diminish or otherwise impair the Company’s obligation to prepare a prospectus amendment or supplement as

 

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above provided in this Section 3.2(d) and deliver copies of same as above provided in Section 3.2(b).

(e) In connection with a sale of Registrable Securities pursuant to such Registration Statement (assuming that no stop order is in effect with respect to such Registration Statement at the time of such sale), cooperate with the selling Holder and provide the transfer agent for the Registrable Securities with such instructions and legal opinions as may be required in order to facilitate the issuance to the purchaser (or the selling Holder’s broker) of new unlegended certificates for such Registrable Securities.

(f) Use its best efforts to cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed.

3.3. Expenses. All expenses incurred by the Company in effecting all registrations for Holders of Registrable Securities pursuant to this Section 3, including, without limitation, all registration and filing fees, fees and expenses of complying with securities and blue sky laws, printing expenses and fees and disbursements of not more than one counsel for all the Holders of Registrable Securities requesting registration thereunder, and of the independent certified public accountants (including the expenses of any special audits in connection with any such registration) (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), shall be paid by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the shares of Registrable Securities covered by such registration shall be borne by the Holder or Holders thereof; provided, further, that anything in this Agreement to the contrary notwithstanding, if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling shareholders, then such expenses shall be payable by such selling shareholders pro rata based on the number of securities being registered, to the extent required by such jurisdiction.

3.4. Indemnification.

(a) Indemnification by the Company. The Company will indemnify each Holder of Registrable Securities with respect to which registration has been effected pursuant to this Agreement, each of such Holder’s partners, officers, directors, employees, advisors and agents and each person controlling such Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement or prospectus incident to any such registration, qualification or compliance, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and will reimburse each such Holder, each of its partners, officers, directors, employees, advisors and agents and each person controlling such Holder for any legal and other expenses reasonably incurred in connection with investigating or defending

 

4


any such claim, loss, damage, cost, expense, liability or action, except that the Company will not be liable in any such case to the extent that any such claim, loss, damage, cost, expense, liability or action arises out of or is based on any untrue statement or omission based upon information furnished to the Company by a Holder and stated to be specifically for use therein, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the Registration Statement becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) (the “Final Prospectus”), such indemnity agreement shall not inure to the benefit of any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act.

(b) Indemnification by the Holders. Each Holder will, if Registrable Securities held by or issuable to such Holder are included in the securities to which a registration is being effected, indemnify the Company, each of its directors and officers and each person who controls the Company within the meaning of the Securities Act, and each other Holder, each of such other Holder’s officers and directors and each person controlling such other Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement or that prospectus incident to any such registration, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to such Holder and relating to action or inaction required of such Holder in connection with any such registration, and will reimburse the Company, such other Holders, and such directors, officers and other persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, cost, expense, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement or prospectus in reliance upon and in conformity with information furnished to the Company by such indemnifying Holder and stated to be specifically for use therein, except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the Final Prospectus, such indemnity agreement shall not inure to the benefit of the Company or any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act. The liability of any indemnifying Holder under this Section 3.4(b) shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement.

(c) Indemnification Procedures. Each party entitled to indemnification under this Section 3 (the “Indemnified Party”), shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying

 

5


Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense. Failure of the Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 3 only to the extent that the failure or delay in giving notice has a material adverse impact on the ability of the Indemnifying Party to defend against such claim. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof, the giving of a release from all liability in respect to such claim or litigation. If any such Indemnified Party shall have been advised by counsel chosen by it that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party and will reimburse such Indemnified Party and any person controlling such Indemnified Party for the reasonable fees and expenses of any counsel retained by the Indemnified Party, it being understood that the Indemnifying Party shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for such Indemnified Party or controlling person, which firm shall be designated in writing by the Indemnified Party to the Indemnifying Party.

(d) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any party entitled to indemnification under this Section 3, makes a claim for indemnification pursuant to this Section 3 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 3 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any such party in circumstances for which indemnification is provided under this Section 3; then, and in each such case, the Company and each Holder whose securities were included in the registration in question will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject in such proportion as is appropriate to reflect the relative fault of each such party in connection with the events giving rise to such claims, losses, damages, costs, expenses and liabilities, as well as any other relevant equitable considerations, provided, that each participating Holder shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement, provided further, however, that, in any such case, no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

(e) Alternative Indemnification. Notwithstanding the foregoing provisions of this Section 3.4, if the Company, the selling shareholders and the underwriters, pursuant to an underwritten public offering of the Common Stock, enter into an underwriting or purchase agreement relating to such offering which contains provisions covering indemnification or contribution among the parties thereto in connection with such offering, then the

 

6


indemnification or contribution provisions of this Section 3.4 shall be deemed inoperative for purposes of such offering.

3.5. Information from Holders. In connection with any registration effected pursuant to this Section 3, each holder of the shares of Registrable Securities then held by such Holder included in any registration effected pursuant to this Section 3 shall furnish to the Company such information with respect to it and its proposed distribution as the Company shall reasonably request in writing on a timely basis and as shall be required by federal or state securities or blue sky laws applicable to such registration. The Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.

4. Transfer of Registration Rights. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person unless (i) such person is a Qualifying Holder (as defined below), (ii) such person agrees to become a party to, and bound by all of the terms and conditions of, this Agreement by duly executing and delivering to the Company an Instrument of Adherence in the form attached as Exhibit A hereto, (iii) the transfer or assignment is made in accordance with the applicable requirements of the Purchase Agreement and (iv) following the transfer or assignment, the further disposition of the Registrable Securities by such person is restricted under the Securities Act and applicable state securities laws. For purposes of this Section 4, the term “Qualifying Holder” shall mean, with respect to any Holder, any corporation, partnership or other affiliated entity controlling, controlled by, or under common control with, such Holder, or any partner, if such Holder is a partnership, or any member, if such Holder is a limited liability company. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person that acquires Registrable Securities in the event that and to the extent that such Person is eligible to resell all of such Registrable Securities pursuant to Rule 144 of the Securities Act within a three-month period.

5. Entire Agreement. This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and it also supersedes any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter hereof.

6. Deferral. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the selling Holders a certificate signed by the President and Chief Executive Officer of the Company stating that the Board has made the good faith determination (i) that continued use by the selling Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, disclosure in the Registration Statement (or the prospectus relating thereto) of material, nonpublic information concerning the Company, its business or prospects or any proposed transaction involving the Company, (ii) that such disclosure would be premature and would be adverse to the Company, its business or prospects or any such proposed transaction or would make the successful consummation by the Company of any such transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the selling Holders to use the Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or

 

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sales of Registrable Securities pursuant thereto shall be suspended for a period (the “Suspension Period”) of not more than 90 days after delivery by the Company of the certificate referred to above in this Section 6. During the Suspension Period, the Holders agree that they shall not offer or sell any Registrable Securities pursuant to or in reliance upon the Registration Statement (or the prospectus relating thereto). The Company may not exercise this right more than two times in each year after the Purchase Date.

7. Miscellaneous.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors or assigns, provided that the terms and conditions of Section 4 hereof are satisfied. This Agreement shall also be binding upon and inure to the benefit of any transferee of any of the Registrable Securities provided that the terms and conditions of Section 4 hereof are satisfied. Notwithstanding anything in this Agreement to the contrary, if at any time any Holder shall cease to own all of its Registrable Securities or the Warrant, all of such Holder’s rights under this Agreement shall immediately terminate.

(b)

(i) Any notices, reports or other correspondence (hereinafter collectively referred to as “correspondence”) required or permitted to be given hereunder shall be sent by courier (overnight or same day) or telecopy or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder. The date of giving any notice shall be the date of its actual receipt.

(ii) All correspondence to the Company shall be addressed as follows:

eGames, Inc.

2000 Cabot Boulevard, Suite 110

Langhorne, PA 19047-1833

Attention: Gerald Klein, Chief Executive Officer

Facsimile: 215-750-3722

jklein@egames.com

with a copy to:

McCausland Keen & Buckman

Radnor Court, Suite 160

259 North Radnor-Chester Road

Radnor, PA 19087-5251

Attention: Nancy D. Weisberg, Esq.

Facsimile: (610) 341-1099

nweisberg@mkbattorneys.com

(iii) All correspondence to any Holder shall be sent to the address set forth on

 

8


such Holder’s signature page hereto (or, in the case of a Permitted Transferee, such Permitted Transferee’s Instrument of Adherence hereto).

(iv) Any party may change the address to which correspondence to it is to be addressed by notification as provided for herein.

(c) The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law may be inadequate, and each of the parties hereto shall be entitled to seek specific performance of the obligations of the other parties hereto and such appropriate injunctive relief as may be granted by a court of competent jurisdiction.

(d) This Agreement may be executed in a number of counterparts, each of which together shall for all purposes constitute one Agreement, binding on all the parties hereto notwithstanding that all such parties have not signed the same counterpart.

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first above written.

 

eGAMES, INC.
By:   /s/ Gerald W. Klein
Name:   Gerald W. Klein
Title:   President and CEO
BANDERA MASTER FUND L.P.

By: Bandera Partners Management LLC, a Delaware

limited liability company, its General Partner

By:   /s/ Jefferson Gramm
Name:   Jefferson Gramm
Title:   Managing Director

Investor’s Address and Fax Number for Notice:

Bandera Master Fund L.P.

c/o Bandera Partners Management LLC

50 Broad Street, Suite 1820

New York, NY 10004

 

9


EXHIBIT A

INSTRUMENT OF ADHERENCE

Reference is hereby made to that certain Registration Rights Agreement, dated as of March 18, 2010, among eGames, Inc., a Pennsylvania corporation (the “Company”) and the Investor and the Permitted Transferees, as amended and in effect from time to time (the “Registration Rights Agreement’). Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Registration Rights Agreement.

The undersigned, in order to become the owner or holder of, or have the right to acquire,                      shares of Registrable Securities, hereby agrees that, from and after the date hereof, the undersigned has become a party to the Registration Rights Agreement in the capacity of a Permitted Transferee, and is entitled to all of the benefits under, and is subject to all of the obligations, restrictions and limitations set forth in, the Registration Rights Agreement that are applicable to Permitted Transferees. This Instrument of Adherence shall take effect and shall become a part of the Registration Rights Agreement immediately upon execution.

Print Name of Permitted Transferee:

 

 
By:    
Name:
Title:

Permitted Transferee’s Address and Fax Number for Notice:

 

 
 
 

Accepted:

eGames, Inc.

EX-10.6 16 d244335dex106.htm SENIOR SECURED PROMISSORY NOTE IN THE AMOUNT OF $400,000 Senior Secured Promissory Note in the amount of $400,000

Exhibit 10.6

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS IN WHICH THE HOLDER HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE.

SENIOR SECURED PROMISSORY NOTE

$400,000

Issue Date: As of June 3, 2011

FOR VALUE RECEIVED, EGAMES, INC., a Pennsylvania corporation with an address of 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047 (the “Company”) hereby promises to pay to the order of Fertilemind Capital Fund I or its successors, assigns and legal representatives (the “Holder”), at 405 Lexington Avenue, Suite 2600, New York, NY 10174, or at such other location as the Holder may designate from time to time, the aggregate principal sum of Four Hundred Thousand Dollars ($400,000), in lawful money of the United States of America, together with interest thereon at a rate of twenty-four percent (24%) per annum (the “Interest Rate”).

1. Maturity. Unless prepaid by the Company pursuant to and in accordance with Section 2 hereof, this Note shall mature on June 3, 2014 (the “Maturity Date”). On the Maturity Date, unless otherwise prepaid in accordance with the provisions hereof, one hundred (100%) of the then outstanding principal balance and any accrued but unpaid interest due and owing on the Note shall be immediately paid by the Company to the Holder.

2. Method of Payment. The Company shall by entering into an amendment (the “First Amendment”) to the Visicom Agreement (as defined below) on the Issue Date instruct Visicom Media Inc. (“Visicom”) to pay directly to Holder all revenues generated pursuant to that certain Yahoo-Enabled Partner Toolbar Agreement dated April 4, 2007 by and between Visicom and the Company (as amended on the date hereof pursuant to the First Amendment to, among other things, add the Holder as a party thereto, collectively with the First Amendment, the “Visicom Agreement”), which payments shall be made by wire to the Holder pursuant to the wiring instructions attached as Schedule A to the Visicom Agreement. Such payments from Visicom to Holder shall be applied first to accrued but unpaid interest and then to principal due to Holder under this Note. A copy of the fully executed Visicom Agreement (including the First Amendment) is annexed hereto as Exhibit A. To the extent that any payment due hereunder is not paid or is less than the amount required to be paid hereunder on the date that any such payment is due hereunder, the Company shall pay the amount of any such shortfall within one (1) business day of receipt of notice of such shortfall by the Holder.

3. Calculation and Payment of Interest.

(a) This Note shall bear interest (“Interest”) at a rate equal to twenty-four percent (24%) (the “Interest Rate”) per annum on a 360-day year basis. Interest shall be payable monthly in arrears, compounding daily through and including the last day of each calendar month, with the first interest payment being due on July 3, 2011, and continuing on the third day of each and every succeeding month until all amounts owed under the Note shall have been fully repaid. The Note shall be payable in full on the earlier of (i) the Maturity Date, and (ii) the Prepayment Date (as defined in Section 4 hereof, as the case may be.

(b) The Company agrees that upon the occurrence and during the continuation of an Event of Default, whether or not the Holder has accelerated payment of this Note, and after judgment has been rendered on this Note and after the Maturity Date, the unpaid principal on this Note shall bear interest to the Holder at an annual rate of thirty (30%) percent and the Holder shall be entitled to any and all attorneys’ fees, costs and expenses incurred in the collection of the amount of non-payment on the Note and any accrued but unpaid interest thereon.


(c) All payments to be made by the Company hereunder or pursuant to the Note shall be made, without setoff or counterclaim, in lawful money of the United States and in immediately available funds.

(d) In the event that it is determined that, under the laws relating to usury applicable to the Company or the indebtedness evidenced by this Note (“Applicable Usury Laws”), the interest charges and fees payable by the Company in connection herewith or in connection with any other document or instrument executed and delivered in connection herewith cause the effective interest rate applicable to the indebtedness evidenced by this Note to exceed the maximum rate allowed by law (the “Maximum Rate”), then such interest shall be recalculated for the period in question and any excess over the Maximum Rate paid with respect to such period shall be credited, without further agreement or notice, to the Principal Amount outstanding hereunder to reduce said balance by such amount with the same force and effect as though the Company had specifically designated such extra sums to be so applied to principal and the Payee had agreed to accept such extra payment(s) as a premium-free prepayment. All such deemed prepayments shall be applied to the principal balance payable at maturity. In no event shall any agreed-to or actual exaction as consideration for this Note exceed the limits imposed or provided by Applicable Usury Laws in the jurisdiction in which the Company is resident applicable to the use or detention of money or to forbearance in seeking its collection in the jurisdiction in which the Company is resident.

4. Prepayment. Except for payments of principal made under Section 2 of this Note, all or any portion of the principal amount of the Note may be prepaid by the Company, commencing at any time after July __, 2012, on or after the third (3rd) business day (the “Prepayment Date”) following receipt by Holder of written notification from the Company of the Company’s intent to prepay the Note. Upon notice of prepayment being given by the Company, the Company covenants and agrees that it will pay the prepayment amount set forth in such notice, on the date fixed for prepayment in such notice, together with interest accrued and unpaid thereon to the date fixed for such prepayment and together with any applicable costs and expenses of which Company has notice, all as a condition to such prepayment. Interest, however, shall not stop accruing until the day following the day all such interest is actually received by the Holder.

5. Affirmative Covenants. The Company agrees that so long as any amounts payable under the Note remain unpaid, the Company shall:

(a) Promptly pay and discharge all taxes, assessments and governmental charges or levies imposed upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith, by appropriate proceedings and the Company shall set aside on its books adequate reserves in accordance with United States generally accepted accounting principles (“GAAP”) with respect to any such tax, assessment, charge, levy or claim so contested.

(b) Do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company.

(c) At all times maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business.

(d) At all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP. Such books and records shall be open at reasonable times and upon reasonable notice to the inspection of the Holder or its agents.

(e) Pay all taxes imposed upon them or any of their properties or assets or with respect to any of their franchises, businesses, income or property before any penalty accrues thereon.

 

2


(f) Comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority as now in effect and which may be imposed in the future in all jurisdictions in which the Company is not doing business of may hereafter be doing business, except where the failure to comply would not have a material adverse effect on the Company.

(g) Do everything in its power as requested by the Holder to preserve and protect the property covered by the Agreement (as such term is defined below).

(h) The Company shall use the net proceeds from the sale of this Note to pay reasonable and necessary expenses related to its acquisition and development of the proposed Heyday property and the operation of its business. Notwithstanding anything to the contrary provided herein or elsewhere, no net proceeds from the sale of this Note shall be used to pay back salaries and/or make any other payments to affiliates of the Company.

6. Sale-Leaseback Agreement. The Indebtedness (as such term is defined in Section 7 below) evidenced by this Note and the obligations created hereby and thereby are secured pursuant to a Sale-Leaseback Agreement entered into by and between the Holder and the Company and dated of even date herewith (the “Agreement”). The Company represents and covenants that the grant of the security interest pursuant to the Agreement is and shall remain while any Indebtedness under the Note is outstanding (including, but not limited to principal and accrued but unpaid interest thereon), senior in all respects to all other security interests of the Company and/or its Subsidiaries with regard to all Company and/or its Subsidiaries’ assets and is not and shall not be subordinated to any other security interest or guaranty of any other party.

7. Seniority and Liquidation Preference.

(a) The Note will be senior in all respects to all Indebtedness of the Company and their Subsidiaries including, but not limited to any subordinated debt. For purposes of this Note, the term “Indebtedness” shall mean all of the following, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing or arising, or due or to become due: all liabilities for borrowed money, obligations, advances, debts, guaranties, endorsements, covenants, duties of the Company and its successors and assigns to the Holder and its successors and assigns.

(b) Any issuance of commercial debt, bank debt, or any other form of financing that would rank senior and/or pari passu to the Note is prohibited. The Company, however, may issue senior financing to the Indebtedness if the proceeds of such financing are used to pay off the outstanding principal balance of the Note at 115% of the principal amount outstanding at that time.

(c) In the event of any liquidation or winding up of the Company, the Note will be accelerated and entitled to receive in preference to all other claim holders of the Company an amount equal to 115% of the principal amount outstanding plus all accrued but unpaid interest.

(d) In the event of a merger, sale of substantially all of the assets of the Company, or other change of control, the Note will be accelerated and entitled to receive in preference to all other claim holders of the Company an amount equal to 115% of the principal amount outstanding plus all accrued but unpaid interest thereon through the date of payment.

8. Events of Default. Each of the following shall constitute an “Event of Default” hereunder:

(a) The Company shall fail to pay any payments due under the Note including, but not limited to, any principal amount of this Note and any accrued interest thereon, on the date that any such payment is due;

(b) The Company shall fail to pay any other amount under this Note when due and payable (whether at the maturity date therefor, upon acceleration or otherwise);

 

3


(c) Other than payment defaults set forth in Section 8(a) and/or Section 8(b) of this Note, if (i) there shall have occurred and be continuing for a period of three (3) business days a breach (including, but not limited to any representation, warranty, agreement and/or covenant) by the Company of any provision of this Note, the Agreement, the Warrant issued by the Company to the Holder in connection herewith and/or any ancillary document (collectively, the “Transaction Documents”), and (ii) the Company has not been given a notice of a breach of the same provision of any Transaction Document within the preceding twelve (12) months, then such default may be cured (and no Event of Default will have occurred) if the Company, after receiving written notice from Holder demanding cure of such default or an Event of Default caused by any such breach: (1) cures the default within five (5) business days; or (2) if the cure requires more than five (5) business days, immediately initiates steps which Holder deems, in Holder’s sole discretion, to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical and Holder provides Company an express written consent to cure the default and the number of days the Company has to cure the default.(d) Any representation or warranty made by the Company in any Transaction Documents shall have been untrue or misleading when made and/or any covenant made by the Company herein is false or misleading at any time;

(d) The Company is in default under, or in breach of, the provisions of the Visicom Agreement or any agreement with any party other than the Holder.

(e) Judgment in an amount of $50,000 or more is entered against the Company;

(f) Unless expressly consented to in writing by Holder, the Company shall sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets in one transaction or a series of related transactions, participate in any share exchange, consummate any recapitalization, reclassification, reorganization or the Company shall adopt a plan of liquidation or dissolution or agree to do any of the foregoing;

(g) The Company shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with or without the consent of the Company; , or the Company has made a general assignment for the benefit of creditors; or the Company files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within ninety (90) days after the commencement of any proceeding against the Company seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of the Company or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or otherwise or if, within ninety (90) days after the expiration of any such stay, such order or appointment shall not have been vacated (collectively, “Insolvency Events”).

Upon the occurrence of any Event of Default and during its continuation as provided hereunder, the Holder may, at its option, declare all amounts due hereunder to be due and payable immediately and, upon any such declaration, the same shall become and be immediately due and payable. If an Insolvency Event occurs with respect to the Company, then all amounts due hereunder, shall become immediately due and payable without any declaration or other act on the part of the Holder. Upon the occurrence of any Event of Default and during its continuation as provided hereunder, the Holder may, in addition to declaring all amounts due hereunder to be immediately due and payable, pursue any available remedy, whether at law or in equity, including but not limited to those remedies set forth in the Agreement. If an Event of Default occurs the Company shall pay to the Holder all of its reasonable attorneys’ fees and disbursements and all other reasonable out-of-pocket costs incurred by the Holder in order to collect amounts due and owing under this Note or otherwise to enforce the Holder’s rights and remedies hereunder.

9. Waiver of Presentment, Demand and Dishonor. The Company hereby waives presentment for payment, protest, demand, notice of protest, notice of non-payment and diligence with respect to this Note, and waives and renounces all rights to the benefit of any statute of limitations or any moratorium, appraisement,

 

4


exemption or homestead now provided or that hereafter may be provided by any federal or applicable state statute, including but not limited to exemptions provided by or allowed under the Federal Bankruptcy Code, both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof.

No failure on the part of the Holder hereof to exercise any right or remedy hereunder with respect to the Company, whether before or after the happening of an Event of Default, shall constitute a waiver of any future Event of Default or of any other Event of Default. No failure to accelerate the debt of the Company evidenced hereby by reason of an Event of Default or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter; nor shall be deemed to be a novation of this Note or a reinstatement of such debt evidenced hereby or a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right the Holder may have, whether by law, by agreement or otherwise; and the Company hereby expressly waives the benefit of any statute or rule of law or equity that would produce a result contrary to or in conflict with the foregoing.

10. Enforcement Costs. In the case of any Event of Default, the Company shall pay to the Holder all amounts incurred by the Holder due to such Event of Default, including all reasonable attorneys fees and expenses and all costs of collection and enforcement.

11. Amendment; Waiver. Any term of this Note may be amended or waived only upon the written consent of the Company and the Holder. No such waiver or consent on any one instance shall be construed to be a continuing waiver or a waiver in any other instance unless it expressly so provides.

12. Transfers. The Holder shall have the right to transfer this Note or any interest herein in any transaction meeting the requirements of applicable securities laws. The Company shall not have the right to transfer any of its obligations hereunder without the Holder’s express prior written consent.

13. Binding Effect, Governing Law; Consent to Jurisdiction. This Note shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Note shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereby covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York City. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other party hereto of all of its reasonable counsel fees and disbursements.

14. Fees and Expenses. The Company shall pay all fees and expenses incurred in connection with the negotiation, preparation, execution, delivery and performance of this Note and the other Transaction Documents including, but not limited to, the reasonable legal fees of the Holder’s legal counsel, as well as its own fees and expenses, including but not limited to the fees and expenses of each such parties’ advisors, counsel, accountants and other experts, if any, and all other expenses incurred in connection therewith.

15. Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (c) the next business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the parties hereto at their addresses set forth above.

[SIGNATURE PAGE TO FOLLOW]

 

5


IN WITNESS WHEREOF, this Note has been duly executed by the parties hereto as of the date set first above written.

 

COMPANY:
eGames, Inc.
By:   /s/ Gerald W. Klein
  Name:   Gerald W. Klein
  Title:   Chief Executive Officer

 

HOLDER:

Fertilemind Capital Fund I

  By:   Fertilemind Management, LLC
  By:   /s/ Aram Fuchs
  Name:   Aram Fuchs
  Title:   Managing Member
EX-10.7 17 d244335dex107.htm SALE-LEASEBACK AGREEMENT BY AND BETWEEN EGAMES INC. Sale-Leaseback Agreement by and between eGames Inc.

Exhibit 10.7

SALE-LEASEBACK AGREEMENT

THIS SALE-LEASEBACK AGREEMENT (the “Agreement”) dated June 3, 2011, is made and executed by and between EGAMES, INC., with an address at 2000 Cabot Blvd. West, Suite 110, Langhorne, Pennsylvania 19047 (“Grantor”) and FERTILEMIND CAPITAL FUND I, with an address at 405 Lexington Avenue, Suite 2600, New York, New York 10174 (“Lender”).

WHEREAS, the Grantor has executed and delivered to Lender a senior secured promissory note (the “Note” and together with the Agreement, the Warrant issued in connection herewith and/or any ancillary document, the “Transaction Documents”) in the aggregate principal amount of Four Hundred Thousand dollars ($400,000) dated of even date herewith (such aggregate principal amount, together with all interest and other payments thereon, collectively, the “Indebtedness”).

NOW THEREFORE, in order to secure the payment of the principal, interest and any other payments required to be paid to the Lender under the Note, and for valuable consideration, the parties to this agreement agree as follows:

1. Sale. Grantor sells and Lender purchases from Grantor the domain name www.egames.com (the “Domain”) subject to the terms and conditions specified herein.

2. Purchase Price Paid for Domain by Lender. Lender shall purchase the Domain from Grantor for one dollar ($1.00).

3. Leaseback of Domain to Grantor. Lender shall lease back the Domain to Grantor for one dollar ($1.00) during the term of the Note. Unless and until there has been an Event of Default (as hereinafter defined), Grantor shall continue to be retained on the administrative user account for the Domain as a technical user, which status will permit Grantor to maintain the necessary technical data and current connection to Grantor’s website to operate and use the Domain without disruption. Lender may sell the Domain upon the occurrence of an Event of Default.

4. Grantor’s Purchase Option to Repurchase Domain. Upon payment in full to Lender of: (i) the principal, (ii) all accrued but unpaid interest on, and (iii) all other direct or indirect payments due under and/or relating to the Note owed by the Grantor to the Lender, the Grantor shall have the right and option to purchase the Domain from Lender for one dollar ($1.00) (the “Domain Purchase Option”), whether such Note is prepaid or paid upon maturity. Upon payment in full of all the obligations of the Grantor to the Lender under the Note and the other Transaction Documents, all of Lender’s rights and title to the Domain under this Agreement shall terminate. Upon Grantor’s exercise of the Domain Purchase Option, Lender will, no later than the third (3rd) business day following the date of exercise of the Domain Purchase Option, create an administrative user account for Grantor in Network Solutions, which administrative user account will allow Grantor to have full control over the Domain, including changing the administrator login and password.

5. Representations and Warranties. Grantor represents and warrants to Lender that:

(a) Notices to Lender. Grantor will promptly notify Lender in writing at Lender’s address shown above (or such other addresses as Lender may designate in writing from time to time) prior to any (1) change in Grantor’s name; (2) change in Grantor’s assumed business name(s); (3) change in Grantor’s principal office address; (4) change in Grantor’s state of organization; and (5) conversion of Grantor to a new or different type of business entity.

(b) No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor, the Domain and/or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

(c) Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Domain, free and clear of all liens and encumbrances. No financing statement covering the Domain is on file in any public office other than those to which Lender has specifically consented. Grantor shall defend Lender’s rights


in and title to the Domain against the claims and demands of all other persons or, at Lender’s option, Lender will defend title to the Domain or other claims thereon, and Grantor will pay all of Lender’s legal fees and other expenses incurred in connection therewith.

(d) Authorization. This Agreement and the other Transaction Documents have been duly authorized, executed and delivered by Grantor and are valid and binding agreements enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally and to general principles of equity. The Grantor has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

(e) No subsidiaries. The Grantor has no subsidiaries.

(f) Patents and Trademarks. The Grantor has all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights as necessary or material for use in connection with its business and which the failure to so have could have a material adverse effect (collectively, the “Intellectual Property Rights”). The Grantor has not received a notice (written or otherwise) and has no reason to believe that any of the Intellectual Property Rights used by the Grantor violates or infringes upon the rights of any person. To the knowledge of the Grantor, all such Intellectual Property Rights are enforceable and there is no existing infringement by another person or entity of any of the Intellectual Property Rights. The Grantor has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its intellectual properties.

6. Covenants. Until the Note is paid and performed in full, the Grantor agrees that, unless at any time Lender shall otherwise expressly consent in writing, it shall:

(a) Delivery of Transfer Documentation. Grantor will, no later than the third (3rd) business day following the date of this Agreement, create an administrative user account for Lender in Network Solutions, which administrative user account will allow Lender to have full control over the Domain, including changing the administrator login and password. Grantor will be retained on the account as a technical user during the term of the Note, which status will permit Grantor to maintain the necessary technical data and current connection to Grantor’s website to operate and use the Domain without disruption in accordance with Section 3 of this Agreement.

If there is an Event of Default, Grantor shall take any such other actions and execute such other agreements and instruments as are deemed necessary and/or advisable by Lender in its sole discretion or other transfer authorities to record Grantor’s assignment and transfer of the Domain to Lender. Grantor will in all respects comply with all requisite rules, regulations and/or similar provisions designated by such authorities to give effect to the transfer of title of the Domain to the Lender.

(b) Maintenance of Property. At all times maintain, preserve, protect and keep its property, including but not limited to the Domain, used or useful in the conduct of its business in good state and condition, and from time to time make all needful and proper payments, filings, updates, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business.

(c) Compliance with Laws. Comply with the requirements of all applicable laws, rules, regulations and orders of any governmental or other authority as now in effect and which may be imposed in the future in all jurisdictions in which the Grantor is doing business of may hereafter be doing business, except where the failure to comply will not have a material adverse effect on the Company.

(d) Disposal of Property. Not sell, lease, assign, transfer or otherwise dispose of its Domain or any property rights related thereto to any person.

(e) Other Agreements. The Grantor shall not enter into any agreement in which the terms of such agreement would restrict or impair in any material respect the right or ability to perform of the Grantor under any Transaction Document.


(f) No subsidiaries. The Grantor will not form any subsidiaries.

7. Event of Default. For purposes of this Agreement, an “Event of Default” shall have the meaning ascribed thereto in the Note.

8. Rights and Remedies on Default. If an Event of Default has occurred under this Agreement, and at any time thereafter, Lender may exercise any one or more of the following rights and remedies:

(a) Accelerate Indebtedness. Lender may declare the entire Indebtedness immediately due and payable, without notice of any kind to Grantor.

(b) Assemble Domain. Grantor shall deliver to Lender any and all documents relating to the Domain.

(c) Sell the Domain. Lender shall have full power to keep for itself, sell, lease, transfer, or otherwise deal with the Domain or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the Domain at public auction or private sale.

(d) Other Rights and Remedies. Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

(e) Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.

9. Limitation on Lender’s Rights to Domain. Grantor’s sale of the Domain to Lender is subject to the following restrictions: Lender shall not be permitted to sell, transfer, assign or otherwise encumber the Domain prior to any Event of Default. Lender’s beneficial ownership of the Domain shall be subject to (i) the Lender’s leaseback to the Grantor and the Grantor’s use of the Domain as set forth in Section 3 of this Agreement, and (ii) Grantor’s Domain Purchase Option as set forth in Section 4 of this Agreement. Upon payment in full of the principal, any accrued but unpaid interest and all other payments due under and/or pursuant to the Note, Grantor shall have up to one (1) year to exercise the Domain Purchase Option set forth in Section 4 of this Agreement.

10. Cross Default. The Grantor’s obligations under the terms of this Agreement, the Note, the other Transaction Documents and all documents executed in connection herewith and/or therewith shall be cross-defaulted with all other financing and other obligations of the Grantor, as well as any future financing accommodations extended or to be extended by the Lender to the Grantor, so that a default under any financing accommodations extended by any lender, including the Lender to the Grantor shall be an Event of Default (as defined in the Note) hereunder.

11. Miscellaneous Provisions.

(a) Amendments. This Agreement, together with the other Transaction Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

(b) Attorneys’ Fees Expenses. Upon an Event of Default, Grantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement and/or the other Transaction Documents. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit,


including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

(c) Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

(d) Governing Law.

(i) This Agreement shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, each of the parties hereto hereby covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York City. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other party hereto of all of its reasonable counsel fees and disbursements.

(ii) The parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or any other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and any other Transaction Document and to enforce specifically the terms and provisions hereof and thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

(e) Waiver of Jury Trial. Each of the parties hereto hereby waives a trial by jury in any action, proceeding or counterclaim brought by the other party hereto against the other in respect of any matter arising out or in connection with the Transaction Documents.

(f) No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

(g) Notices. Unless otherwise provided by applicable law, any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by facsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided by applicable law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.


(h) Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

(i) Successor Interests. The terms of this Agreement shall be binding upon Grantor, and upon Grantor’s heirs, personal representatives, successors, and assigns, and shall be enforceable by Lender and its successors and assigns.

(j) Survival of Representations and Warranties. All representations, warranties, covenants and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor’s Indebtedness shall be paid in full.

(k) Assignment. The Lender shall have the right to assign this Agreement or any interest herein in any transaction meeting the requirements of applicable securities laws. The Company shall not have the right to assign any of its obligations hereunder without the Lender’s express prior written consent.

(l) Time is of the Essence. Time is of the essence in the performance of this Agreement.

[signatures on next following page]


IN WITNESS WHEREOF, the Grantor and Lender have caused this Agreement to be executed as of the date first written above.

 

GRANTOR:
eGames, Inc.
By:   /s/    Gerald W. Klein
  Gerald W. Klein
  President and CEO

 

LENDER:
Fertilemind Capital Fund I
  By:   Fertilemind Management, LLC
  By:   /s/    Aram Fuchs
  Name:   Aram Fuchs
  Title:   Managing Member
EX-10.8 18 d244335dex108.htm REGISTRATION RIGHTS AGREEMENT DATED AUGUST 10, 2011 Registration Rights Agreement dated August 10, 2011

Exhibit 10.8

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made as of August 10, 2011 by and between eGames, Inc., a Pennsylvania corporation (the “Company”), and William D. Blake, an individual with an address at XXX XXXXX XXXXXX, XXXX XXXXXXX, XXXXXXXXX (the “Investor”), and each person or entity that subsequently becomes a party to this Agreement pursuant to, and in accordance with, the provisions of Section 4 hereof (collectively, the “Permitted Transferees” and each individually a “Permitted Transferee”).

WHEREAS, pursuant to a securities purchase agreement (the “Purchase Agreement”), dated as of the date hereof, the Company has agreed to issue and sell to the Investor, and the Investor has agreed to purchase from the Company, 200,000 shares (the “Shares”) of the Company’s common stock, without par value (the “Common Stock”), and the Company has agreed to issue to the Investor, and the Investor has agreed to accept from the Company, Warrant No. 1, dated August 10, 2011 (in whole or in part, the “Warrant”), to purchase 200,000 shares (the “Warrant Shares”) of the Common Stock.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

“Board” shall mean the board of directors of the Company.

“Purchase” shall mean the Closing Date under the Purchase Agreement.

“Holder” shall mean, collectively, the Investor and the Permitted Transferees; provided, however, that the term “Holder” shall not include any of the foregoing that ceases to own or hold any Registrable Securities.

“Qualifying Holder” shall have the meaning ascribed thereto in Section 4 hereof.

“Registrable Securities” shall mean the Shares and Warrant Shares of Common Stock, and shall include any shares of the Company’s Common Stock issued with respect to the Registrable Securities as a result of any stock split, stock dividend, recapitalization, exchange or similar event; provided, however, that all Registrable Securities shall cease to be Registrable Securities once they have been sold pursuant to a registration statement or in a transaction exempt from registration under the Securities Act.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“SEC” shall mean the Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated there under.


“Purchase Date” shall mean the date of this Agreement.

2. Effectiveness. This Agreement shall become effective and legally binding with respect to an investor upon the investor’s Purchase of the Common Stock.

3. Registration Rights.

3.1. Piggyback Registration. If the Company at any time after the Purchase Date proposes for any reason to register any of its equity securities under the Securities Act (other than pursuant to a registration statement on Forms S-8 or S-4 or similar or successor form which is not available for registering the Common Stock for sale to the public (collectively, the “Excluded Forms”)), it shall each such time promptly give written notice to all Holders of outstanding Shares, the Warrant and Warrant Shares of its intention so to do but in no event less than 30 days before the anticipated filing date, and, upon the written request, given within 10 days after receipt of any such notice, of the Holders of any such Shares, Warrant and Warrant Shares to register any shares of Registrable Securities, shall use its best efforts to cause all such shares of Registrable Securities then held by each such Holder to be registered under the Securities Act promptly upon receipt of the written request of such Holders for such registration, all to the extent requisite to permit the sale or other disposition (in accordance with the intended methods thereof, as set forth in the holder’s written request) by the then Holders of the shares of Registrable Securities so registered. In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request pursuant to this Section 3.1 to register shares of Registrable Securities may so specify, and such shares shall be included in the underwriting on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters under such registration; provided, however, that the Company and all Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting (including, without limitation, a market stand-off agreement of up to 180 days after the effective date of such registration if required by such underwriters). Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including up to 100% of the Registrable Securities from the registration and the underwriting, with the number of Registrable Securities, if any, included in the registration and the underwriting being allocated to each of the Holders requesting inclusion of their Registrable Securities in such Registration Statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder, provided that the number of Registrable Securities to be offered by the Holders may not be reduced below an amount equal to 15% of the total Registrable Securities offered. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least 10 business days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. In each case, those shares of Registrable Securities which are excluded from the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to exceed 90 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

 

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3.2. Preparation and Filing. If and whenever the Company is under an obligation pursuant to the provisions of this Section 3 to use its best efforts to effect the registration of any shares of Registrable Securities, the Company shall, as promptly as reasonably practicable:

(a) Prepare and file with the SEC such amendments and supplements to any Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the contemplated distribution of all securities covered by such Registration Statement for up to 90 days.

(b) Furnish to each Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, as the Holder may reasonably request in order to facilitate the public sale or other disposition of such shares of Registrable Securities then held by such Holder.

(c) Use its best efforts to register or qualify the shares of Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as shall be appropriate, as reasonably requested by any of the selling Holders; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process or to become subject to any material tax in any such states or jurisdictions and, provided, further, that (notwithstanding anything in this Agreement to the contrary with respect to the bearing of expenses) if any jurisdiction in which any of such Registrable Securities then held by a selling Holder shall be qualified shall require that expenses incurred in connection with the qualification therein of any such Registrable Securities be borne by the selling Holders without reimbursement by the Company, then each selling Holder shall, to the extent required by such jurisdiction, pay its respective pro rata share of such qualification expenses.

(d) Notify each Holder of shares of Registrable Securities covered by such registration statement, at any time when a related prospectus is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in light of the circumstances in which they are made; and, thereafter, the Company shall prepare and furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus, as so supplemented or amended, shall not include an untrue statement of a material fact or omit to state a fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that upon such notification by the Company, the selling Holders agree that they shall not offer or sell Registrable Securities unless and until (i) the Company has notified such selling Holders that it has prepared a supplement or amendment to such prospectus and delivered copies of such supplement or amendment to such selling Holders or (ii) the Company has advised such selling Holders in writing that the use of the applicable prospectus may be resumed (it being understood and agreed by the Company that the foregoing proviso shall in no way diminish or otherwise impair the Company’s obligation to prepare a prospectus amendment or supplement as

 

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above provided in this Section 3.2(d) and deliver copies of same as above provided in Section 3.2(b).

(e) In connection with a sale of Registrable Securities pursuant to such Registration Statement (assuming that no stop order is in effect with respect to such Registration Statement at the time of such sale), cooperate with the selling Holder and provide the transfer agent for the Registrable Securities with such instructions and legal opinions as may be required in order to facilitate the issuance to the purchaser (or the selling Holder’s broker) of new unlegended certificates for such Registrable Securities.

(f) Use its best efforts to cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed

3.3. Expenses. All expenses incurred by the Company in effecting all registrations for Holders of Registrable Securities pursuant to this Section 3, including, without limitation, all registration and filing fees, fees and expenses of complying with securities and blue sky laws, printing expenses and fees and disbursements of not more than one counsel for all the Holders of Registrable Securities requesting registration thereunder, and of the independent certified public accountants (including the expenses of any special audits in connection with any such registration) (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), shall be paid by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the shares of Registrable Securities covered by such registration shall be borne by the Holder or Holders thereof; provided, further, that anything in this Agreement to the contrary notwithstanding, if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling shareholders, then such expenses shall be payable by such selling shareholders pro rata based on the number of securities being registered, to the extent required by such jurisdiction.

3.4. Indemnification.

(a) Indemnification by the Company. The Company will indemnify each Holder of Registrable Securities with respect to which registration has been effected pursuant to this Agreement, each of such Holder’s partners, officers, directors, employees, advisors and agents and each person controlling such Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement or prospectus incident to any such registration, qualification or compliance, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and will reimburse each such Holder, each of its partners, officers, directors, employees, advisors and agents and each person controlling such Holder for any legal and other expenses reasonably incurred in connection with investigating or defending

 

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any such claim, loss, damage, cost, expense, liability or action, except that the Company will not be liable in any such case to the extent that any such claim, loss, damage, cost, expense, liability or action arises out of or is based on any untrue statement or omission based upon information furnished to the Company by a Holder and stated to be specifically for use therein, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the Registration Statement becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) (the “Final Prospectus”), such indemnity agreement shall not inure to the benefit of any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act.

(b) Indemnification by the Holders. Each Holder will, if Registrable Securities held by or issuable to such Holder are included in the securities to which a registration is being effected, indemnify the Company, each of its directors and officers and each person who controls the Company within the meaning of the Securities Act, and each other Holder, each of such other Holder’s officers and directors and each person controlling such other Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement or that prospectus incident to any such registration, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to such Holder and relating to action or inaction required of such Holder in connection with any such registration, and will reimburse the Company, such other Holders, and such directors, officers and other persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, cost, expense, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement or prospectus in reliance upon and in conformity with information furnished to the Company by such indemnifying Holder and stated to be specifically for use therein, except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the Final Prospectus, such indemnity agreement shall not inure to the benefit of the Company or any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act. The liability of any indemnifying Holder under this Section 3.4(b) shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement.

(c) Indemnification Procedures. Each party entitled to indemnification under this Section 3 (the “Indemnified Party”), shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying

 

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Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense. Failure of the Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 3 only to the extent that the failure or delay in giving notice has a material adverse impact on the ability of the Indemnifying Party to defend against such claim. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof, the giving of a release from all liability in respect to such claim or litigation. If any such Indemnified Party shall have been advised by counsel chosen by it that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party and will reimburse such Indemnified Party and any person controlling such Indemnified Party for the reasonable fees and expenses of any counsel retained by the Indemnified Party, it being understood that the Indemnifying Party shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for such Indemnified Party or controlling person, which firm shall be designated in writing by the Indemnified Party to the Indemnifying Party.

(d) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any party entitled to indemnification under this Section 3, makes a claim for indemnification pursuant to this Section 3 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 3 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any such party in circumstances for which indemnification is provided under this Section 3; then, and in each such case, the Company and each Holder whose securities were included in the registration in question will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject in such proportion as is appropriate to reflect the relative fault of each such party in connection with the events giving rise to such claims, losses, damages, costs, expenses and liabilities, as well as any other relevant equitable considerations, provided, that each participating Holder shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement, provided further, however, that, in any such case, no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation

(e) Alternative Indemnification. Notwithstanding the foregoing provisions of this Section 3.4, if the Company, the selling shareholders and the underwriters, pursuant to an underwritten public offering of the Common Stock, enter into an underwriting or purchase agreement relating to such offering which contains provisions covering indemnification or contribution among the parties thereto in connection with such offering, then the

 

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indemnification or contribution provisions of this Section 3.4 shall be deemed inoperative for purposes of such offering.

3.5. Information from Holders. In connection with any registration effected pursuant to this Section 3, each holder of the shares of Registrable Securities then held by such Holder included in any registration effected pursuant to this Section 3 shall furnish to the Company such information with respect to it and its proposed distribution as the Company shall reasonably request in writing on a timely basis and as shall be required by federal or state securities or blue sky laws applicable to such registration. The Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.

4. Transfer of Registration Rights. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person unless (i) such person is a Qualifying Holder (as defined below), (ii) such person agrees to become a party to, and bound by all of the terms and conditions of, this Agreement by duly executing and delivering to the Company an Instrument of Adherence in the form attached as Exhibit A hereto, (iii) the transfer or assignment is made in accordance with the applicable requirements of the Purchase Agreement and (iv) following the transfer or assignment, the further disposition of the Registrable Securities by such person is restricted under the Securities Act and applicable state securities laws. For purposes of this Section 4, the term “Qualifying Holder” shall mean, with respect to any Holder, any corporation, partnership or other affiliated entity controlling, controlled by, or under common control with, such Holder, or any partner, if such Holder is a partnership, or any member, if such Holder is a limited liability company. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person that acquires Registrable Securities in the event that and to the extent that such Person is eligible to resell all of such Registrable Securities pursuant to Rule 144 of the Securities Act within a three-month period.

5. Entire Agreement. This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and it also supersedes any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter hereof.

6. Deferral. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the selling Holders a certificate signed by the President and Chief Executive Officer of the Company stating that the Board has made the good faith determination (i) that continued use by the selling Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, disclosure in the Registration Statement (or the prospectus relating thereto) of material, nonpublic information concerning the Company, its business or prospects or any proposed transaction involving the Company, (ii) that such disclosure would be premature and would be adverse to the Company, its business or prospects or any such proposed transaction or would make the successful consummation by the Company of any such transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the selling Holders to use the Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or

 

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sales of Registrable Securities pursuant thereto shall be suspended for a period (the “Suspension Period”) of not more than 90 days after delivery by the Company of the certificate referred to above in this Section 6. During the Suspension Period, the Holders agree that they shall not offer or sell any Registrable Securities pursuant to or in reliance upon the Registration Statement (or the prospectus relating thereto). The Company may not exercise this right more than two times in each year after the Purchase Date.

7. Miscellaneous.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors or assigns, provided that the terms and conditions of Section 4 hereof are satisfied. This Agreement shall also be binding upon and inure to the benefit of any transferee of any of the Registrable Securities provided that the terms and conditions of Section 4 hereof are satisfied. Notwithstanding anything in this Agreement to the contrary, if at any time any Holder shall cease to own all of its Registrable Securities or the Warrant, all of such Holder’s rights under this Agreement shall immediately terminate.

(i) Any notices, reports or other correspondence (hereinafter collectively referred to as “correspondence”) required or permitted to be given hereunder shall be sent by courier (overnight or same day) or telecopy or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder. The date of giving any notice shall be the date of its actual receipt.

(ii) All correspondence to the Company shall be addressed as follows:

eGames, Inc.

2000 Cabot Boulevard, Suite 110

Langhorne, PA 19047-1833

Attention: Gerald Klein, Chief Executive Officer

Facsimile: 215-750-3722

jklein@egames.com

with a copy to:

McCausland Keen & Buckman

Radnor Court, Suite 160

259 North Radnor-Chester Road

Radnor, PA 19087-5251

Attention: Nancy D. Weisberg, Esq.

Facsimile: (610) 341-1099

nweisberg@mkbattorneys.com

(iii) All correspondence to any Holder shall be sent to the address set forth on such Holder’s signature page hereto (or, in the case of a Permitted Transferee, such Permitted Transferee’s Instrument of Adherence hereto).

 

8


(iv) Any party may change the address to which correspondence to it is to be addressed by notification as provided for herein.

(c) The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law may be inadequate, and each of the parties hereto shall be entitled to seek specific performance of the obligations of the other parties hereto and such appropriate injunctive relief as may be granted by a court of competent jurisdiction.

(d) This Agreement may be executed in a number of counterparts, each of which together shall for all purposes constitute one Agreement, binding on all the parties hereto notwithstanding that all such parties have not signed the same counterpart.

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first above written.

 

eGAMES, INC.

By:

 

/s/ Gerald W. Klein

Name:

 

Gerald W. Klein

Title:

 

CEO

 
By:  

/s/ William D. Blake

Investor’s Address and Fax Number for Notice:

 

9


EXHIBIT A

INSTRUMENT OF ADHERENCE

Reference is hereby made to that certain Registration Rights Agreement, dated as of March 18, 2010, among eGames, Inc., a Pennsylvania corporation (the “Company”) and the Investor and the Permitted Transferees, as amended and in effect from time to time (the “Registration Rights Agreement’). Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Registration Rights Agreement.

The undersigned, in order to become the owner or holder of, or have the right to acquire,                      shares of Registrable Securities, hereby agrees that, from and after the date hereof, the undersigned has become a party to the Registration Rights Agreement in the capacity of a Permitted Transferee, and is entitled to all of the benefits under, and is subject to all of the obligations, restrictions and limitations set forth in, the Registration Rights Agreement that are applicable to Permitted Transferees. This Instrument of Adherence shall take effect and shall become a part of the Registration Rights Agreement immediately upon execution.

Print Name of Permitted Transferee:

 

 
By:    
Name:  
Title:  

Permitted Transferee’s Address and Fax Number for Notice:

 

 
 
 
Accepted:
eGames, Inc.

 

EX-10.9 19 d244335dex109.htm REGISTRATION RIGHTS AGREEMENT DATED OCTOBER 7, 2011 Registration Rights Agreement dated October 7, 2011

Exhibit 10.9

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made as of October 7, 2011 by and between Entertainment Games, Inc., a Pennsylvania corporation (the “Company”), and Michael Fearnow, an individual with an address at XX XXXXXX XXXX XXXXX, XXXXXXXXX, XX XXXXX (the “Investor”), and each person or entity that subsequently becomes a party to this Agreement pursuant to, and in accordance with, the provisions of Section 4 hereof (collectively, the “Permitted Transferees” and each individually a “Permitted Transferee”).

WHEREAS, pursuant to a securities purchase agreement (the “Purchase Agreement”), dated as of the date hereof, the Company has agreed to issue and sell to the Investor, and the Investor has agreed to purchase from the Company, 200,000 shares (the “Shares”) of the Company’s common stock, without par value (the “Common Stock”), and the Company has agreed to issue to the Investor, and the Investor has agreed to accept from the Company, Warrant No. 8, dated October 7, 2011 (in whole or in part, the “Warrant”), to purchase 200,000 shares (the “Warrant Shares”) of the Common Stock.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

“Board” shall mean the board of directors of the Company.

“Purchase” shall mean the Closing Date under the Purchase Agreement.

“Holder” shall mean, collectively, the Investor and the Permitted Transferees; provided, however, that the term “Holder” shall not include any of the foregoing that ceases to own or hold any Registrable Securities.

“Qualifying Holder” shall have the meaning ascribed thereto in Section 4 hereof.

“Registrable Securities” shall mean the Shares and Warrant Shares of Common Stock, and shall include any shares of the Company’s Common Stock issued with respect to the Registrable Securities as a result of any stock split, stock dividend, recapitalization, exchange or similar event; provided, however, that all Registrable Securities shall cease to be Registrable Securities once they have been sold pursuant to a registration statement or in a transaction exempt from registration under the Securities Act.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

“SEC” shall mean the Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated there under.


“Purchase Date” shall mean the date of this Agreement.

2. Effectiveness. This Agreement shall become effective and legally binding with respect to an investor upon the investor’s Purchase of the Common Stock.

3. Registration Rights.

3.1. Piggyback Registration. If the Company at any time after the Purchase Date proposes for any reason to register any of its equity securities under the Securities Act (other than pursuant to a registration statement on Forms S-8 or S-4 or similar or successor form which is not available for registering the Common Stock for sale to the public (collectively, the “Excluded Forms”)), it shall each such time promptly give written notice to all Holders of outstanding Shares, the Warrant and Warrant Shares of its intention so to do but in no event less than 30 days before the anticipated filing date, and, upon the written request, given within 10 days after receipt of any such notice, of the Holders of any such Shares, Warrant and Warrant Shares to register any shares of Registrable Securities, shall use its best efforts to cause all such shares of Registrable Securities then held by each such Holder to be registered under the Securities Act promptly upon receipt of the written request of such Holders for such registration, all to the extent requisite to permit the sale or other disposition (in accordance with the intended methods thereof, as set forth in the holder’s written request) by the then Holders of the shares of Registrable Securities so registered. In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request pursuant to this Section 3.1 to register shares of Registrable Securities may so specify, and such shares shall be included in the underwriting on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters under such registration; provided, however, that the Company and all Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting (including, without limitation, a market stand-off agreement of up to 180 days after the effective date of such registration if required by such underwriters). Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including up to 100% of the Registrable Securities from the registration and the underwriting, with the number of Registrable Securities, if any, included in the registration and the underwriting being allocated to each of the Holders requesting inclusion of their Registrable Securities in such Registration Statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder, provided that the number of Registrable Securities to be offered by the Holders may not be reduced below an amount equal to 15% of the total Registrable Securities offered. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter(s), delivered at least 10 business days prior to the effective date of the Registration Statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. In each case, those shares of Registrable Securities which are excluded from the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to exceed 90 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

 

2


3.2. Preparation and Filing. If and whenever the Company is under an obligation pursuant to the provisions of this Section 3 to use its best efforts to effect the registration of any shares of Registrable Securities, the Company shall, as promptly as reasonably practicable:

(a) Prepare and file with the SEC such amendments and supplements to any Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the contemplated distribution of all securities covered by such Registration Statement for up to 90 days.

(b) Furnish to each Holder such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, as the Holder may reasonably request in order to facilitate the public sale or other disposition of such shares of Registrable Securities then held by such Holder.

(c) Use its best efforts to register or qualify the shares of Registrable Securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as shall be appropriate, as reasonably requested by any of the selling Holders; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process or to become subject to any material tax in any such states or jurisdictions and, provided, further, that (notwithstanding anything in this Agreement to the contrary with respect to the bearing of expenses) if any jurisdiction in which any of such Registrable Securities then held by a selling Holder shall be qualified shall require that expenses incurred in connection with the qualification therein of any such Registrable Securities be borne by the selling Holders without reimbursement by the Company, then each selling Holder shall, to the extent required by such jurisdiction, pay its respective pro rata share of such qualification expenses.

(d) Notify each Holder of shares of Registrable Securities covered by such registration statement, at any time when a related prospectus is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in light of the circumstances in which they are made; and, thereafter, the Company shall prepare and furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus, as so supplemented or amended, shall not include an untrue statement of a material fact or omit to state a fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that upon such notification by the Company, the selling Holders agree that they shall not offer or sell Registrable Securities unless and until (i) the Company has notified such selling Holders that it has prepared a supplement or amendment to such prospectus and delivered copies of such supplement or amendment to such selling Holders or (ii) the Company has advised such selling Holders in writing that the use of the applicable prospectus may be resumed (it being understood and agreed by the Company that the foregoing proviso shall in no way diminish or otherwise impair the Company’s obligation to prepare a prospectus amendment or supplement as

 

3


above provided in this Section 3.2(d) and deliver copies of same as above provided in Section 3.2(b).

(e) In connection with a sale of Registrable Securities pursuant to such Registration Statement (assuming that no stop order is in effect with respect to such Registration Statement at the time of such sale), cooperate with the selling Holder and provide the transfer agent for the Registrable Securities with such instructions and legal opinions as may be required in order to facilitate the issuance to the purchaser (or the selling Holder’s broker) of new unlegended certificates for such Registrable Securities.

(f) Use its best efforts to cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed

3.3. Expenses. All expenses incurred by the Company in effecting all registrations for Holders of Registrable Securities pursuant to this Section 3, including, without limitation, all registration and filing fees, fees and expenses of complying with securities and blue sky laws, printing expenses and fees and disbursements of not more than one counsel for all the Holders of Registrable Securities requesting registration thereunder, and of the independent certified public accountants (including the expenses of any special audits in connection with any such registration) (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), shall be paid by the Company; provided, however, that all underwriting discounts and selling commissions applicable to the shares of Registrable Securities covered by such registration shall be borne by the Holder or Holders thereof; provided, further, that anything in this Agreement to the contrary notwithstanding, if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling shareholders, then such expenses shall be payable by such selling shareholders pro rata based on the number of securities being registered, to the extent required by such jurisdiction.

3.4. Indemnification.

(a) Indemnification by the Company. The Company will indemnify each Holder of Registrable Securities with respect to which registration has been effected pursuant to this Agreement, each of such Holder’s partners, officers, directors, employees, advisors and agents and each person controlling such Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement or prospectus incident to any such registration, qualification or compliance, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and will reimburse each such Holder, each of its partners, officers, directors, employees, advisors and agents and each person controlling such Holder for any legal and other expenses reasonably incurred in connection with investigating or defending

 

4


any such claim, loss, damage, cost, expense, liability or action, except that the Company will not be liable in any such case to the extent that any such claim, loss, damage, cost, expense, liability or action arises out of or is based on any untrue statement or omission based upon information furnished to the Company by a Holder and stated to be specifically for use therein, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the Registration Statement becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) (the “Final Prospectus”), such indemnity agreement shall not inure to the benefit of any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act.

(b) Indemnification by the Holders. Each Holder will, if Registrable Securities held by or issuable to such Holder are included in the securities to which a registration is being effected, indemnify the Company, each of its directors and officers and each person who controls the Company within the meaning of the Securities Act, and each other Holder, each of such other Holder’s officers and directors and each person controlling such other Holder, against all claims, losses, damages, costs, expenses and liabilities of any nature whatsoever (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement or that prospectus incident to any such registration, or arising out of or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of the Securities Act or any state securities law or of any rule or regulation promulgated under the Securities Act or any state securities law applicable to such Holder and relating to action or inaction required of such Holder in connection with any such registration, and will reimburse the Company, such other Holders, and such directors, officers and other persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, cost, expense, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement or prospectus in reliance upon and in conformity with information furnished to the Company by such indemnifying Holder and stated to be specifically for use therein, except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the Final Prospectus, such indemnity agreement shall not inure to the benefit of the Company or any Holder if a copy of the Final Prospectus was furnished to the person or entity asserting the claim, loss, damage, cost, expense, liability or action at or prior to the time such action was required by the Securities Act. The liability of any indemnifying Holder under this Section 3.4(b) shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement.

(c) Indemnification Procedures. Each party entitled to indemnification under this Section 3 (the “Indemnified Party”), shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying

 

5


Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense. Failure of the Indemnified Party to give notice as provided herein shall relieve the Indemnifying Party of its obligations under this Section 3 only to the extent that the failure or delay in giving notice has a material adverse impact on the ability of the Indemnifying Party to defend against such claim. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof, the giving of a release from all liability in respect to such claim or litigation. If any such Indemnified Party shall have been advised by counsel chosen by it that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party and will reimburse such Indemnified Party and any person controlling such Indemnified Party for the reasonable fees and expenses of any counsel retained by the Indemnified Party, it being understood that the Indemnifying Party shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for such Indemnified Party or controlling person, which firm shall be designated in writing by the Indemnified Party to the Indemnifying Party.

(d) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any party entitled to indemnification under this Section 3, makes a claim for indemnification pursuant to this Section 3 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 3 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any such party in circumstances for which indemnification is provided under this Section 3; then, and in each such case, the Company and each Holder whose securities were included in the registration in question will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject in such proportion as is appropriate to reflect the relative fault of each such party in connection with the events giving rise to such claims, losses, damages, costs, expenses and liabilities, as well as any other relevant equitable considerations, provided, that each participating Holder shall be limited in respect of any Registration Statement to an amount equal to the aggregate proceeds received in respect of the Registrable Securities sold by such Holder under such Registration Statement, provided further, however, that, in any such case, no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation

(e) Alternative Indemnification. Notwithstanding the foregoing provisions of this Section 3.4, if the Company, the selling shareholders and the underwriters, pursuant to an underwritten public offering of the Common Stock, enter into an underwriting or purchase agreement relating to such offering which contains provisions covering indemnification or contribution among the parties thereto in connection with such offering, then the

 

6


indemnification or contribution provisions of this Section 3.4 shall be deemed inoperative for purposes of such offering.

3.5. Information from Holders. In connection with any registration effected pursuant to this Section 3, each holder of the shares of Registrable Securities then held by such Holder included in any registration effected pursuant to this Section 3 shall furnish to the Company such information with respect to it and its proposed distribution as the Company shall reasonably request in writing on a timely basis and as shall be required by federal or state securities or blue sky laws applicable to such registration. The Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.

4. Transfer of Registration Rights. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person unless (i) such person is a Qualifying Holder (as defined below), (ii) such person agrees to become a party to, and bound by all of the terms and conditions of, this Agreement by duly executing and delivering to the Company an Instrument of Adherence in the form attached as Exhibit A hereto, (iii) the transfer or assignment is made in accordance with the applicable requirements of the Purchase Agreement and (iv) following the transfer or assignment, the further disposition of the Registrable Securities by such person is restricted under the Securities Act and applicable state securities laws. For purposes of this Section 4, the term “Qualifying Holder” shall mean, with respect to any Holder, any corporation, partnership or other affiliated entity controlling, controlled by, or under common control with, such Holder, or any partner, if such Holder is a partnership, or any member, if such Holder is a limited liability company. None of the rights of any Holder under this Agreement shall be transferred or assigned to any person that acquires Registrable Securities in the event that and to the extent that such Person is eligible to resell all of such Registrable Securities pursuant to Rule 144 of the Securities Act within a three-month period.

5. Entire Agreement. This Agreement constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and it also supersedes any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter hereof.

6. Deferral. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the selling Holders a certificate signed by the President and Chief Executive Officer of the Company stating that the Board has made the good faith determination (i) that continued use by the selling Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, disclosure in the Registration Statement (or the prospectus relating thereto) of material, nonpublic information concerning the Company, its business or prospects or any proposed transaction involving the Company, (ii) that such disclosure would be premature and would be adverse to the Company, its business or prospects or any such proposed transaction or would make the successful consummation by the Company of any such transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the selling Holders to use the Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or

 

7


sales of Registrable Securities pursuant thereto shall be suspended for a period (the “Suspension Period”) of not more than 90 days after delivery by the Company of the certificate referred to above in this Section 6. During the Suspension Period, the Holders agree that they shall not offer or sell any Registrable Securities pursuant to or in reliance upon the Registration Statement (or the prospectus relating thereto). The Company may not exercise this right more than two times in each year after the Purchase Date.

7. Miscellaneous.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors or assigns, provided that the terms and conditions of Section 4 hereof are satisfied. This Agreement shall also be binding upon and inure to the benefit of any transferee of any of the Registrable Securities provided that the terms and conditions of Section 4 hereof are satisfied. Notwithstanding anything in this Agreement to the contrary, if at any time any Holder shall cease to own all of its Registrable Securities or the Warrant, all of such Holder’s rights under this Agreement shall immediately terminate.

(i) Any notices, reports or other correspondence (hereinafter collectively referred to as “correspondence”) required or permitted to be given hereunder shall be sent by courier (overnight or same day) or telecopy or delivered by hand to the party to whom such correspondence is required or permitted to be given hereunder. The date of giving any notice shall be the date of its actual receipt.

(ii) All correspondence to the Company shall be addressed as follows:

Entertainment Games, Inc.

2000 Cabot Boulevard, Suite 110

Langhorne, PA 19047-1833

Attention: Gerald Klein, Chief Executive Officer

Facsimile: 215-750-3722

jklein@egames.com

with a copy to:

McCausland Keen & Buckman

Radnor Court, Suite 160

259 North Radnor-Chester Road

Radnor, PA 19087-5251

Attention: Nancy D. Weisberg, Esq.

Facsimile: (610) 341-1099

nweisberg@mkbattorneys.com

(iii) All correspondence to any Holder shall be sent to the address set forth on such Holder’s signature page hereto (or, in the case of a Permitted Transferee, such Permitted Transferee’s Instrument of Adherence hereto).

 

8


(iv) Any party may change the address to which correspondence to it is to be addressed by notification as provided for herein.

(c) The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law may be inadequate, and each of the parties hereto shall be entitled to seek specific performance of the obligations of the other parties hereto and such appropriate injunctive relief as may be granted by a court of competent jurisdiction.

(d) This Agreement may be executed in a number of counterparts, each of which together shall for all purposes constitute one Agreement, binding on all the parties hereto notwithstanding that all such parties have not signed the same counterpart.

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first above written.

 

Entertainment Games, INC.

By:

 

/s/ Gerald W. Klein

Name:

 

Gerald W. Klein

Title:

 

CEO

 

/s/ Michael Fearnow

 

Investor’s Address and Fax Number for Notice:

 

9

EX-10.12 20 d244335dex1012.htm DISTRIBUTION AGREEMENT Distribution Agreement

Exhibit 10.12

DISTRIBUTION AGREEMENT

COMPUTER SOFTWARE (SELL-THRU)

This Distribution Agreement (the “Agreement”) is made and entered into as of the 12th day of September, 2005 (the “Effective Date”) by and between Navarre Corporation, a Minnesota corporation having principal offices at 7400 49th Avenue North, New Hope, Minnesota, 55428 (“Navarre”) and eGames, Inc. a Pennsylvania corporation having principal offices at 2000 Cabot Blvd. West, Langhorne, Pennsylvania 19047 (“Vendor”).

The purpose of this Agreement is to set forth the agreement of the parties with respect to the terms and conditions under which Navarre may distribute certain software products manufactured or marketed by Vendor.

 

1.

DEFINITIONS. The terms defined below are used in this Agreement with the ascribed meanings unless the context in which the term is used expressly provides otherwise.

 

  1.1

Customer(s)” means any retailer or other entity identified in a Rider or Addendum to this Agreement.

 

  1.2

EDI” means Electronic Data Interchange which is the electronic and automated exchange of business documents, including purchase orders, invoices and ship notices, between the parties in an EDI standard format (e.g. X.12, UCS and VICS) mutually acceptable to the parties.

 

  1.3

End Users” means the ultimate consumers of the Products.

 

  1.4

Product(s)” means the entire line of computer software and related products that are manufactured or marketed by Vendor during the term of this Agreement.

 

  1.5

Territory” means distribution to Customers located in the United States (including territories and possessions) and Canada and distribution through the United States military exchange world-wide retail system.

 

  1.6

Unsold Inventory” means the aggregate of the inventory of Products: (i) at Navarre’s facilities; (ii) in transit between Navarre and its Customers; and (iii) at each of the Customers’ locations. For Customers that are unable to report their inventory positions to Navarre on a periodic basis, Navarre will estimate the same.

 

  1.7

VMI” means Vendor Managed Inventory which is a system agreed upon by the parties to use EDI documents for the purpose of monitoring inventory and fill rates.

 

2.

NON-EXCLUSIVE APPOINTMENT.

 

  2.1

Vendor appoints Navarre as an authorized distributor of Vendor’s Products to the Customers. Subject to the terms and conditions of this Agreement, Vendor grants to Navarre and Navarre accepts from Vendor the non-exclusive, non-transferable right to acquire and market Products to the Customers in the Territory.

 

  2.2

Navarre agrees not to alter Products or Product packaging or make copies of software media or documentation. Navarre will distribute Products to Customers in unopened packages.

 

  2.3

Navarre is not required by this Agreement to acquire and market any minimum quantity or amount of Products.

 

1


3.

TERM.

 

  3.1

The initial term of this Agreement is for a period of (18) full months and any beginning partial month commencing on the Effective Date. The initial term and any renewal term, as provided for below, are individually and collectively referred to as the “Term.

 

  3.2

After the initial or then current Term, this Agreement shall be automatically renewed for successive one (1) year periods, unless either party gives the other written notice, at least ninety (90) days prior to the expiration of the then current Term that it does not desire that the Agreement continue. If such notice is given, the Agreement shall terminate at the end of the then current Term.

 

  3.3

This Agreement is subject to early termination as provided in Section 9. below.

 

4.

ORDERS, SHIPMENT AND DELIVERY.

 

  4.1

Orders. Navarre will order Products from Vendor in writing (which includes facsimile or electronic mail transmission), or via EDI, signed or transmitted by an authorized representative of Navarre (the “Purchase Order” or “P.O.”). All orders are subject to acceptance by Vendor, and Navarre may cancel all or part of any order prior to the date of shipment. The parties will use EDI and VMI procedures if mutually agreed to.

 

  4.2

Shipment. Vendor will specify the shipping schedule in its acknowledgment of the P.O. Vendor will use commercially reasonable efforts to meet the acknowledged delivery schedule but will not be liable for delays resulting from causes beyond its reasonable control. If a shortage of any Product in Vendor’s inventory exists in spite of Vendor’s good faith efforts, Vendor agrees to allocate its available inventory of such Product to Navarre in proportion to Navarre’s percentage of all Vendor’s customer orders for such Product during the previous sixty-day period. Navarre may accept or reject any partial shipments.

 

  4.3

Delivery. Vendor will ship all Products freight paid by Vendor, F.O.B. destination. Vendor bears the risk of loss or damage to Products in transit, Except as may be set forth in a rider or addendum to this agreement relating to consignment sales, risk of loss and title to Products will pass to Navarre only upon receipt by Navarre at its warehouse, or such other destination designated on the applicable P.O.

 

  4.4

Packing List and Slip. A packing list showing Navarre’s P.O. number, quantity ordered, quantity shipped and a detailed identification of the Products must accompany all shipments. Each carton will contain a packing slip which will include P.O. number, Product description, a Uniform Product Code (“UPC”) and carton quantities.

 

  4.5

UPC Codes. All Products will bear a UPC part code, and all shipping cartons will contain the identical UPC part code on the outside of the carton. The UPC numbers and codes must conform to the Uniform Code Council, National Office Products Association and Retail Industry Standards. Each unit of Product received by Navarre with missing, defective or inaccurate UPC codes is subject to a fifty-cent ($.50) chargeback to Vendor to compensate Navarre for its increased handling costs of such Product.

 

  4.6

Nonconforming Shipments. Vendor agrees that master carton quantities will match those originally provided by Vendor, unless notice of any change is given five (5) days before shipment. If timely notice is not received by Navarre, any Customer penalties and/or Navarre costs of rework incurred as a result of the change will be charged back to Vendor.

 

5.

PAYMENT AND PRICING.

 

  5.1

Sell-Thru Payment Terms. [For the consignment program this section 5.1 is superseded by the Consignment Rider attached hereto and incorporated herein by reference] Vendor acknowledges and agrees that Navarre’s purchase of Products hereunder is on a sell-thru basis, Payments to Vendor will be made on a twice monthly basis for all Products reported

 

2


 

by Navarre’s Customers as sold to End Users during the payment period. The payment amount will be calculated as follows: total payables (less any discounts and chargebacks) minus total purchase price of Unsold Inventory.

 

  5.2

Price Protection. Vendor represents and warrants that the price, discounts, payment terms and return provisions with respect to any Product shall never be less favorable to Navarre than those made available by Vendor to any other purchasers of such Product within the same class of trade. In the event that Vendor reduces the price of any of its Products, or offers the Products at a lower price to any other party within the same class of trade, including raising any discount offered, Vendor will immediately adjust its pricing charged to Navarre for the difference between the invoice price charged to Navarre and the reduced price.

 

  5.3

Price Increases. The price charged to Navarre by Vendor for any Product (current or future releases) may only be increased by sixty (60) days advance written notice given by Vendor to Navarre. In the event that Vendor raises the list price of a Product, all orders for such Product placed prior to the effective date of the price increase will be invoiced at the lower price.

 

  5.4

Resale Prices. The selling prices, discounts, payment terms and return privileges offered by Navarre to its Customers will be determined by Navarre in its sole and exclusive discretion. Vendor will make no pricing commitments to any Customers or other third parties which would otherwise obligate Navarre.

 

  5.5

Credits. Any credits due Navarre, including, but not limited to, return credits, advertising allowances and channel program rebates will be handled by the issuance of chargebacks by Navarre, and the issuance of a matching credit memo by Vendor. Vendor will provide a matching credit memo for such chargebacks within thirty (30) days of receipt of documentation from Navarre. In case there is a balance due Navarre, then Navarre will be entitled, at its option, to withhold future payments due Vendor until such debit balance is extinguished or require Vendor to issue a check to Navarre within fifteen (15) days for the credit balance. In case of a disputed account balance, both parties will make a good faith effort to reconcile the account within twenty-one (21) days.

 

6.

RETURNS.

 

  6.1

Defective Products. Products which are returned after sale to End Users and are determined to be defective will be reported to Vendor. Vendor will advise Navarre regarding the disposition of such defective Products within ten (10) business days of receipt of a return authorization request from Navarre. Otherwise, the defective Products will be destroyed. Vendor will be responsible for all expenses regarding the destruction or other disposition of defective Products and will issue an immediate credit to Navarre for the purchase price plus all return freight charges.

 

  6.2

All Other Products. Navarre and its Customers will have 100% return rights on all Products which are unsold to End Users for any reason, including obsolete, delisted or slow-moving goods, termination of this Agreement, or otherwise. Upon receipt of a return authorization request, Vendor will provide a return authorization number within seven (7) days. Such Products will be returned at Navarre’s expense, and upon receipt of such Products, Vendor will credit Navarre’s account with the amount originally charged for the Products, less any previous price protection credit. For purposes of the payment amount described in Section 5.1 above, Navarre’s total payables will be reduced to reflect such returns and such returns will not be included in Unsold Inventory.

 

  6.3

Delisted Products. If Vendor notifies Navarre of delisted Products, i.e. Products that are discontinued by the Vendor or are subject to a version change, Navarre will have a period of at least two hundred and seventy (270) days from the date of receipt of such notification in which to return such delisted Products. Vendor is not obligated to credit returns of a delisted Product after such period.

 

3


  6.4

Returns Upon Termination. Upon expiration or earlier termination of this Agreement, Vendor is not obligated to accept returns for a period longer than two-hundred seventy (270) days following the effective date of termination. Any Products for which a return authorization has not been requested within such period will be considered sold.

 

7.

ADVERTISING FUNDS.

 

  7.1

Trademarks. Vendor acknowledges and agrees that Navarre and its Customers have the right to utilize Vendor’s trade name and any trademarks, service marks and other artwork associated with the Products to identify the origin of the Products in advertising and promotional materials. With respect to Products made by a third party, Vendor will ensure that Navarre and its Customers have the right to use the third party’s trademarks, service marks and other artwork associated with the Products in advertising and promotional materials.

 

  7.2

Advertising and Marketing Funds. Vendor agrees that it will provide support by way of cooperative advertising funds (“Co-op”) and market development funds (“MDF”) to Navarre and its Customers for their advertising, marketing and promotional activities with respect to the Products. This support can be in the form of ad production assistance, catalog direct mail programs, shows, advertising in regional or national trade and/or consumer publications, and sales training days. Navarre requires minimum support on an annual basis equal to two percent (2%) of the total dollar amount of Products sold through to end users. All Co-op and MDF expenditures must be authorized by the Vendor prior to placement and comply with Vendor’s requirements with respect to layout, size, artwork, trademark usage, minimum advertised price, street date, etc, Vendor will inform Navarre of such requirements. Vendor will issue a credit memo for Co-op and MDF expenses within fifteen (15) days after receipt of the applicable “proof of performance” documentation from Navarre. In the event that such Co-op and MDF expenditures would cause Navarre’s account to move to a debit balance, Navarre reserves the right to require Vendor to pay for these expenditures in advance.

 

  7.3

Set Up Fee. Navarre requires payment by Vendor of an initial title set up fee of $200 per stock keeping unit. This fee includes positioning of the Product in Navarre’s catalogs and on its business-to-business website. This is a nonrecurring fee, applying only to the initial set up of the Product line, and future Products as there are released. Navarre will charge back the Vendor for such fees in the month following the set up activity, and the Vendor will issue a credit memo for such fees.

 

8.

ADDITIONAL SERVICE COMMITMENTS.

Navarre may from time to time provide to its Customers value added services (“VAS”) such as: (i) maintain and administer co-op fund accrual amounts; (ii) maintain active EDI functions with retailers; (III) manage full product mix selection and make all mix decisions for retail accounts; (iv) provide and affix retailers’ price tags; (v) develop and design store planograms; (vi) offer weekly inventory status reports; (vii) offer monthly retail sell-in reporting on a quantity per SKU basis; and (viii) perform EDI functions with Vendor. Vendor and Navarre will mutually agree upon which, if any, such services are to be performed, or any additional services requested by Vendor, and negotiate the charges or rebates therefore.

 

9.

TERMINATION.

 

  9.1

Termination for Insolvency/Bankruptcy. This Agreement will terminate immediately without notice upon the occurrence of any of the following events, unless the party not subject of insolvency/bankruptcy promptly after discovery of the relevant facts notifies the affected party to the contrary in writing:

 

  (i)

An insolvency, bankruptcy, or similar proceeding for reorganization or protection is instituted by or against either party pursuant to any present or future state or federal bankruptcy act or under any similar federal or state law (and with respect to any involuntary petition is not discharged within sixty (60) days;

 

4


  (ii)

Either party makes or attempts to make an assignment for the benefit of its creditors;

 

  (iii)

A receiver, trustee, liquidator, custodian or similar official is appointed for the business or property of either party and is not removed within sixty (60) days of the appointment; or

 

  (iv)

Either party is unable to pay its debts generally as they become due.

 

  9.2

Termination for Cause. In addition to any other rights or remedies which may be available at law or in equity, either party may terminate this Agreement for cause upon the material breach by the other party of the terms of this Agreement, and the failure of such other party to cure such breach within thirty (30) days of such notification.

 

  9.3

Return Reserve. Upon termination of this Agreement by Navarre pursuant to Sections 9.1 and 9.2 above, Navarre has the right to withhold payment of all or any portion of any invoice or invoices as a reasonable reserve against future returns, debit balances or chargebacks. Such reserve to be determined based upon rate of sale and unsold inventory exposure. In the event Navarre’s account is in a debit balance, amounts owed Navarre by Vendor will be deducted first from payables and then from the return reserve. Any sum remaining in the return reserve will be paid to Vendor after: (i) clearance of all chargebacks and credits and (ii) upon the earlier of the return of all unsold Products to Vendor or the expiration of the return period specified in Section 6.4 above.

 

  9.4

Survival. The obligations of the parties in Sections 5., 6., 9.3, 10., 11., 12. and 13.1 of this Agreement survive the expiration or earlier termination of this Agreement.

 

10.

WARRANTIES and LIMITATIONS.

 

  10.1

Product Warranties. Vendor represents and warrants that: (i) it has good and transferable title to the Products or a valid and enforceable license to distribute the Products; (ii) the Products will perform in conformity with specifications and documentation supplied by Vendor; (iii) the Products or their use do not infringe any patents, copyrights, trademarks, trade secrets or any other intellectual property rights of any third parties; (iv) that there are no suite or proceedings pending or threatened which allege an infringement of such proprietary rights; and (v) the Product sales to Navarre do not in any way constitute violations or any law, ordinance, rule or regulation applicable to such Products or sales. Vendor will provide a Warranty Statement with its Products for the benefit of End Users. Navarre will not extend any additional warranties to any Customers and End Users. NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE MADE BY VENDOR WITH RESPECT TO THE PRODUCTS.

 

  10.2

Authority. Vendor represents and warrants that it has the full power and authority to execute and deliver this Agreement. This Agreement constitutes the legal, valid and binding obligation of Vendor enforceable in accordance with its terms. No other consent, approval or authorization of any governmental authority or any third party is required in connection with the execution and delivery of this Agreement, or the carrying out, or performance of any of the transactions required or contemplated by this Agreement or, if required, such consent, approval, order or authorization has been obtained by Vendor prior to the date hereof.

 

  10.3

Reliance. Navarre shall have no obligation whatsoever to make any investigation of the facts relevant to any warranty or representation made by Vendor herein. Neither the furnishing by Vendor nor the receipt by Navarre of any document shall impair Navarre’s absolute rights to rely, to have relied, and to continue to rely on any warranties or representations made by Vendor in this Agreement.

 

  10.4

Limitation of Liability. Neither party, nor any of its directors, officers, or employees, shall be liable to the other for any special, indirect, consequential or incidental damages, including, but not limited to, lost profits, however caused. This limitation shall apply even if such party

 

5


 

has been advised of the possibility of such damages or the damages were otherwise foreseeable.

 

11.

INDEMNIFICATION.

 

  11.1

Vendor’s Indemnification. Vendor shall be solely responsible for the design, development, supply, production and performance of the Products. Vendor agrees to defend, indemnify and hold harmless Navarre and its Customers from and against any and all claims, suits, demands, liabilities, losses, damages, reasonable attorneys’ fee and other costs and expenses (“Claim”) that may result, in whole or in part, from: (i) any infringement, or any claim of infringement, of any patent, trademark, copyright, trade secret or other proprietary right with respect to the Products; (ii) any warranty claim with respect to the Products or any breach by Vendor of this Agreement; and (iii) any injury or damage, including but not limited to, any personal or bodily injury or property damage, arising out of or resulting in any way from any defective Products.

 

  11.2

Indemnification Procedure. The party seeking indemnification will notify Vendor of any Claim and will cooperate with and provide reasonable assistance to Vendor (at Vendor’s expense) in the defense or settlement of such Claim, provided that the party seeking indemnification may, at its own expense, retain separate representation. Vendor has the right to control the defense or settlement of any Claim, provided, however, that Vendor will not enter into any compromise or settlement which does not include a complete release of all claims against Navarre and its Customers regarding the matter which is the subject of the Claim.

 

  11.3

Insurance. Vendor represents and warrants that it has, and will maintain during the Term of this Agreement, sufficient insurance coverage to enable it to meet its obligations under this Section. Vendor’s obligation to indemnify Navarre and its Customers shall not be limited by any limitation of the amount its insurance or failure of Vendor to insure as required by this Section.

 

12.

CONFIDENTIALITY. Vendor and Navarre recognize that the terms of this Agreement and the information provided to the other party pursuant to this Agreement is confidential and each party will take reasonable steps to protect such confidential information.

 

13.

GENERAL.

 

  13.1

Governing Law. This Agreement and the rights and obligations of the parties hereunder will be governed by the laws of the State of Minnesota, without regard to its choice of law provisions. The parties agree that the state or federal courts located in Hennepin County, Minnesota have sole and exclusive jurisdiction and venue over any action relating to this Agreement and the parties hereby consent to the jurisdiction of such courts. For this purpose, Vendor appoints the Secretary of State of Minnesota as its agent for services of process in the event that Navarre is unable to serve process on Vendor at its last known business address. In the event of a dispute related to this Agreement, the prevailing party is entitled to recover its costs and reasonable attorneys’ fees.

 

  13.2

Relationship of the Parties. Vendor and Navarre agree that their relationship is that of seller and buyer. Each are independent contractors acting for their own accounts and neither is authorized to make any commitment or representation, express or Implied, on the other’s behalf unless authorized in writing. In all matters relating to this Agreement, neither patty nor such party’s employees or agents are, or will act as, employees of the other party within the meaning or application of any federal or state law.

 

  13.3

Assignment. This Agreement may not be assigned by either party, without prior mutual agreement. Notwithstanding the foregoing either party, by giving written notice to the other, may make any such assignment to a subsidiary, other affiliated company or any company purchasing substantially all of its assets. The provisions, rights and obligations of this Agreement are binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

 

6


  13.4

Severability. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the invalid or unenforceable part or provision will be deemed replaced with a provision which accomplishes to the extent possible and lawful the original purpose and intent of such provision, and the remainder of the Agreement continues unaffected and in full force and effect.

 

  13.5

Waiver. No waiver of any provision or default under this Agreement will affect the right of either party to enforce such provision or to exercise any right or remedy in the event of any other default, whether or not similar, at a later time. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which a party would otherwise have.

 

  13.6

Headings. The headings and subheadings preceding the various Sections of this Agreement are for convenience only, have no legal significance and in no way change the construction or meaning of the terms hereof. Every word or phrase defined herein has, unless specified to the contrary, the same meaning throughout this Agreement. As used herein, whenever applicable, the singular includes the plural and the plural includes the singular, the masculine includes the feminine and the feminine includes the masculine.

 

  13.7

Entire Agreement. This Agreement and the Rider attached hereto constitute the entire agreement and understanding between the parties concerning the subject matter hereof and supersede all prior and contemporaneous representations, agreements, understandings, proposals and communications between the parties, whether written or oral. Both parties agree that to the extent there are any terms contained in any invoices or purchase orders issued pursuant to the terms of this Agreement that vary and conflict with the terms of this Agreement, then the terms set forth in this Agreement will govern unless such purchase order or invoice containing the contrary terms is signed by a duly authorized corporate officer of the party against whom enforcement is sought.

 

  13.8

Modification and Amendment. This Agreement may not be modified, amended, rescinded, waived or otherwise changed except pursuant to the written consent signed by a duly authorized corporate officer of each party.

 

  13.9

Execution In Counterparts. This Agreement may be executed in any number of counterparts which, when taken together, constitute one and the same instrument.

The parties, by the actions of their authorized representatives, have executed this Agreement, including the attached Exhibits A and B, as of the Effective Date.

 

VENDOR

   

NAVARRE CORPORATION

By:

 

LOGO

   

By:

 

LOGO

VP Sales & Marketing

   

VP Merchandise

Title

     

Title

 

7


RIDER

to

COMPUTER SOFTWARE DISTRIBUTION AGREEMENT

Dated: September 1, 2005 (the “Agreement”)

Between NAVARRE CORPORATION and eGames, Inc.

(Vendor)

GENERAL TERMS AND CONDITIONS FOR CONSIGNMENT PROGRAMS

Navarre has developed consignment programs with certain major retailers (the “Retailer(s)”). Vendor may elect to participate in the consignment programs with respect to all or a portion of the Products and with respect to any or all such Retailers by executing the applicable Retailer Addendum attached hereto. The purpose of this Rider is to set forth the general terms and conditions applicable to all consignment programs and the terms specific to each Retailer are contained in the applicable Retailer Addendum.

 

1.

Modification of the Agreement. This Rider supersedes the payment and other terms of the Agreement as necessary to effectuate the consignment programs. All other provisions and definitions in the Agreement remain applicable but should be read and interpreted to be consistent with the delivery of Products on a consignment basis rather than as a sale (the “Consigned Products”).

 

2.

Title of Consigned Products. Vendor remains vested with all right, title and interest in each item of Consigned Product until sale by Retailer to an End User. Upon sale by Retailer to an End User, title passes from Vendor to Navarre, then from Navarre to the Retailer. Until such time, Navarre will not in any way acquire any right, title or interest in any Consigned Product and will not represent itself to third parties as being the owner of any such item, claim any rights of ownership therein, nor encumber any such item. Navarre will comply with Vendor’s requests for UCC financing statements evidencing such ownership. Retailer has agreed to the same with respect to Consigned Products in its possession.

 

3.

Risk of Loss. Navarre has responsibility for the care and condition of the Consigned Products following delivery by Vendor, and Navarre assumes liability for any loss or damage to the Consigned Products, including but not limited to breakage, theft, and damage by water, fire or extraordinary conditions of a similar nature, Navarre will maintain all-risk property insurance covering the Consigned Products in its possession in an amount at least equal to the aggregate retail value. Retailer has agreed to the same with respect to Consigned Products in its possession.

 

4.

Identification. Vendor must provide a unique Retailer specific UPC code for each title of Consigned Product. Navarre will set up in its system a unique SKU for each title which is specific for the Vendor and Retailer. Such unique SKU’s are required to keep consignment inventory separate from Vendor’s non-consignment Products for proper payment and accounting.

 

5.

Invoicing and Payment.

 

  a.

Tracking Invoice. Upon shipment of Consigned Products, Vendor will issue an invoice, for tracking purposes and not to indicate a sale, including a description of the Consigned Products by SKU, quantities, delivery location, the Vendor’s published price and a cost of either $.01 or $.00 (to be determined by Navarre) per item shipped. These tracking invoices are necessary in order for Vendor to maintain an accounting for Consigned Product and for reconciliation of shipping shortages and discrepancies.

 

  b.

Sales Reports. Navarre will obtain from each Retailer electronic reports of weekly point of sales data showing sales of Consigned Products to End Users by SKU net of any returns from End Users. Consigned Product sold but returned by an End User pursuant to the Retailer’s return policy will not be counted as a sale. Navarre will also be able to account for inventory on hand on a weekly basis

 

8


 

including inventory at Navarre’s distribution center, inventory at Retailer’s distribution and retail locations, and returns in route to Vendor.

 

  c.

Payment. At the end of each month (which may be a calendar month or fiscal month, depending on the Retailer), Navarre will issue Vendor a purchase order for billing purposes for each Retailer aggregating the Consigned Products sold to End Users during that month. Vendor will issue an invoice for such sales at its published purchase prices. Payment dates vary by Retailer as indicated in the Retailer Addendum, and, in each case, Navarre will pay Vendor within fifteen (15) days after the Retailer’s payment date(s) corresponding to the invoiced month. Navarre will charge back to Vendor an administrative fee equal to two percent (2%) of each invoice to compensate Navarre for administering the consignment program. This administrative fee and any other credits or chargebacks authorized by the Agreement, this Rider and each Retailer Addendum, including, but not limited to, the VAS and new channel rebates, may be deducted prior to payment.

 

6.

Shrinkage Reconciliation. Each Retailer will audit the shrink or loss of Consigned Products periodically and report such losses to Navarre. Audit periods vary by Retailer as indicated in the Retailer Addendum. The Retailer will report and pay for shrink losses within sixty (60) days after the end of the audit period. Navarre will then promptly report to Vendor and pay for such losses.

 

7.

Returns. Navarre and the Retailer(s) will have one hundred percent (100%) return rights on all Consigned Products which are unsold to End Users for any reason, including obsolete, delisted, defective or slow-moving goods, termination of this Agreement, or otherwise. Returns will be handled pursuant to the provisions of the Agreement, Procedures for handling obsolete product and returns that vary by Retailer are indicated in the Retailer Addendum.

 

8.

Destruction of Defectives. To eliminate return freight expense, Navarre and the Retailers prefer to destroy defective and damaged items on site. Navarre will request approval from Vendor in each case, and if received, will provide Vendor with proof of destruction in order to delete the destroyed items from the Consigned Product inventory.

 

9.

Property Tax Reports. Navarre and the Retailers will report Consigned Products in their possession to the appropriate taxing authorities if required by the particular authority. They will be reported as consigned property owned by the Vendor. Navarre will provide Vendor with the inventory amounts and locations of the property so reported along with applicable supporting documentation. Vendor will be responsible for any property tax payable on the Consigned Products, and Navarre will chargeback all such property tax amounts paid to a taxing authority. The foregoing applies only to valid property tax assessments and does not apply to sales and income taxes which are the responsibility of Navarre and the Retailers.

 

10.

Termination. This Rider will terminate upon expiration or earlier termination of the Agreement. In addition, this Rider will terminate with respect to any Retailer if, and at the time that, such Retailer terminates its participation in the consignment program. Upon termination, Navarre may, at its option, return all or some of the inventory of Consigned Products, or purchase all or some of the inventory of Consigned Products. If Navarre desires to purchase any of the inventory, Vendor agrees to negotiate in good faith for appropriate price protection for such inventory.

 

9


STAPLES ADDENDUM

to

NAVARRE’S CONSIGNMENT PROGRAMS RIDER

Vendor, by its signature below, agrees to participate in the Staples Consignment Program and, in addition to the General Terms and Conditions for Consignment Programs, agrees to the Staples specific terms set forth below.

Retailer’s Payment Date. Staples’ payment date to Navarre for net sales of Consigned Products is thirty (30) days after the end of each calendar month.

Shrinkage Audit Reports. Staples will audit shrink and loss of Consigned Products on a quarterly basis and report and pay for shrink losses forty-five (45) days after the close of each fiscal quarter.

Returns. Staples has a no physical returns policy. All returns will be destroyed in the field with Staples providing proof of performance. Destroyed items will be deleted from the Consigned Products inventory. If Vendor does not approve any request for destruction and demands return, Staples will comply and charge Vendor a returns handling fee of ten dollars (10.00$) per store per return.

Mark Downs. Staples prefers to mark down slow-moving and obsolete items, with Vendor’s participation and approval, prior to implementing return or destruction. Eight (8) weeks prior to removal, the item cost is lowered to 50% of its invoice cost and retail price to expedite sell-down. On the removal date, a second cost adjustment is taken down to a $3, $6 or $9 Staples cost and the item is placed in the software clearance bin priced at $14.90 or less and will not be subject to return, After ninety (90) selling days, any residual product will be destroyed in the field and removed from the Consigned Product inventory. Staples will provide proof of performance and back up information.

[Illegible] (initial here if agree) Vendor accepts the foregoing markdown program.

Other Programs. Vendor agrees to participate in Staples’ twenty percent (20%) MDF/stocking fee/detailing program accrual based on Staples’ net cost of Consigned Products sold. Navarre will issue chargebacks for this accrual and provide Vendor with proof of performance and other back up documentation. Staples retains the right to request additional marketing funds from Vendor to aid in the promotion of the Consigned Products.

 

VENDOR     NAVARRE CORPORATION

By:

 

LOGO

   

By:

 

LOGO [

VP Sales & Marketing

   

VP Merchandise

Title

   

Title

 

10


LOGO

February 27, 2009

Dear Vendor Partner,

Effective April 1, 2009, Navarre will be implementing a mandatory returns handling charge of 50 cents for each unit returned to Navarre by a customer. This charge will be assessed for both terms and consignment products regardless if the product is destroyed in our warehouse or returned to your facility. There will not be a charge associated with processing Destroy in Field at the customer’s retail locations or warehouses.

Your acknowledgement is required by signing this letter and sending a copy to the attention of Andy Burton Andy.Burton@Navarre.com or fax to 763-971-2869.

Should you have any questions, please contact Rick Vick at 763-971-2819 or me at 763-971-2801.

 

Best Regards

  

* eGames will go with option 2 - auto destroy for 25 cents.

Joyce Fleck

President

Navarre Distribution Services

Joyce.Fleck@Navarre.com

 

Signed:

 

 

   

Signed:

 

LOGO

Name:

 

 

   

Name:

 

Rich Siporin

 

Navarre Corporation

     
     

Vendor:

 

eGames

Although the initial letter stated only a 50 cent fee option for returns processing and return to vendor we are also going to offer a 2nd option. If the vendor is not comfortable with the ability of customers to destroy in field we will process back a return and do an immediate destroy (auto destroy) for 25 cents. This means scanning it in and tossing with no return to vendor. You will receive a monthly chargeback detailing the products that were destroyed (for the value of the product and the additional fee)

Please indicate when you respond back to Andy Burton which option you prefer. Thank you.


LOGO

December 14, 2006

eGames, Inc.

Attn: Legal Department

2000 Cabot Blvd. West

Langhorne, PA 19047

 

Re:

Navarre Restructuring and Notice of Assignment of:

Computer Software Distribution Agreement dated September 13, 2005 (the “Agreement(s)”)

You currently have a business relationship with Navarre Distribution Services (“NDS”), a division of Navarre Corporation (“Navarre”). This letter is to inform you that, effective January 1, 2007, the activities carried out by NDS arc being transferred to Navarre Distribution Services, Inc., a Minnesota corporation and wholly-owned subsidiary of Navarre.

This transfer is being done within the context of a corporate restructuring of Navarre that is intended to result in each of its significant operating units being housed in its own legal entity. Navarre’s significant growth over (the past few years has necessitated this realignment of its operations. It is anticipated that Navarre and its new wholly-owned subsidiary companies will continue to operate in substantially the same manner as Navarre does today.

In connection with this transfer, Navarre is assigning all of the assets and contracts that relate to the business activities of NDS to Navarre Distribution Services, Inc. This assignment includes the Agreement(s) between your company and Navarre. Navarre Distribution Services, Inc. is at (the same address as Navarre.

 

Sincerely,

NAVARRE CORPORATION

LOGO

Linda Alsid Ruehle

Assistant General Counsel

[Illegible]

7400 49th Avenue North, New Hope, Minnesota 55428 • p: 763-535-8333 f: 763-533-2156


LOGO

Fiscal Year 2010 Entertainment Program

The Fiscal Year 2010 Entertainment Program consists of all units sold in PC Entertainment, PC Education, PC Edutainment and Console. This program is based on Best Buy’s FY 2010 requests and requirements. This program will be in effect for Best Buy’s Fiscal Year 2010 which runs March 1, 2009 through February 27, 2010. A new program will be sent out for Fiscal Year 2011.

 

  1)

Vendor agrees to a 1% defective allowance on gross shipments of Console product. The 1% will be charged back on a monthly basis based on Best Buy’s cost of goods. (Best Buy runs at a 2% defective overall in the entertainment, but have agreed to the 1% for this year.)

 

  2)

Vendor agrees to a .5% Item maintenance fee on gross shipments of all entertainment categories. This fee replaces the current $.27/unit 3rd party merchandising fee, which was PC only. The item maintenance fee replaces all functions of the 3rd Party fee including, but not limited to, price protections, farming, returns, etc…

 

  3)

Vendor agrees to Net 75 day terms for all console and Entertainment/Education PC terms based purchase orders (PO’s) placed specifically for Best Buy. Navarre will place specific PO’s for Best Buy and will change the terms for these PO’s. Navarre will use reasonable business practices to not ship these units to other customers. Best Buy has changed the terms of sale this year based on new selling metrics.

 

  4)

Vendor agrees to junk out (Destroy in the field) all PC products for both terms and consignment. Navarre will work with the vendor at the time BBY requests a junk out, to ensure proper credit is given. Vendor will have the ability to price protect prior to junk out, this will be based on sales velocity and Best Buy’s willingness to allow a price protection.

 

  5)

There will be no seasonal dating this year as we have changed the terms to offset any charges. In previous years, a .75% per unit shipped was charged back for shipments between September 15th and December 15th.

The vendor is responsible for sales from March 1st, 2009 through February 27th, 2010. All charges are based on unit sales during BBY’s Fiscal month. Navarre will charge back each vendor on a monthly basis based on BBY reporting. BBY’s


fiscal calendar is attached for your records. This program remains in effect for 1 year and a new program will be sent prior to the start of BBY’s fiscal 2011.

 

Vendor Signature:

 

LOGO

Vendor Name:

 

Richard Siporin eGames, Inc.

Date:

 

3 - 30 - 09


[illegible]

Addendum A

to

DISTRIBUTION AGREEMENT

COMPUTER SOFTWARE (SELL-THRU)

Dated: As of 23 January, 2007

Between NAVARRE DISTRIBUTION SERVICES, INC. and eGAMES, INC.

NON-CONSIGNMENT, SELL-THRU CUSTOMER LIST IN REFERENCE TO

SECTION 1.1 OF THE COMPUTER SOFTWARE (SELL-THRU) AGREEMENT

DATED SEPTEMBER 12, 2005

 

   

Best Buy

 

eGAMES INC. (“Vendor”)     NAVARRE DISTRIBUTION SERVICES, INC.

By:

 

LOGO

   

By:

 

LOGO

 

Signature

     

Signature

Richard Siporin

   

Richard Vick

Written Name

   

Written Name

VP Sales & Marketing

   

VP Merchandise

Title

 

Date 1/23/07

   

Title

2 - 13 - 2007


eGames

OFFICE DEPOT ADDENDUM

to

NAVARRE’S CONSIGNMENT PROGRAMS RIDER

Vendor, by its signature below, agrees to participate in the Office Depot Consignment Program and, in addition to the General Terms and Conditions for Consignment Programs, agrees to the Office Depot specific terms set forth below.

Sales Reporting Period. Navarre will report to Vendor net sales of Consigned Products by Office Depot to End Users for each fiscal month in the Navarre AP calendar (either four or five weeks based on a modified 4-5-4 calendar.

Payment Date. Navarre’s Payment Date to Vendor is the last day of the calendar month following the Sales Reporting Period.

Shrinkage Audit Reports. Office Depot will audit, report and pay for shrink and loss of Consigned Products on an annual basis.

Returns. Office Depot has a no physical returns policy. All returns will be destroyed in the field with Office Depot providing proof of performance. Destroyed items will be deleted from the Consigned Products Inventory. If Vendor does not approve any request for destruction and demands return, Office Depot will comply and charge Vendor a returns handling fee in its discretion.

Chargebacks. Each month, Navarre will issue a chargeback to Vendor equal to one percent (1%) of the invoice price of gross shipments of Products to Office Depot during the month for required Office Depot program and compliance fees, but not necessarily limited to, training and product knowledge development, plan-o-gram reset support and in-stock. If Vendor agrees to participate in Office Depot’s MDF, stocking fee, and/or software detailing programs Navarre will issue chargebacks for the costs of such programs to Vendor and provide Vendor with proof of performance and other back up documentation and program authorization. Office Depot retains the right to request additional marketing funds from Vendor to aid in the promotion of the Consigned Products.

Change in Retailer Terms. Vendor acknowledges that the foregoing terms are based on Office Depot’s current consignment program. If Office Depot modifies its consignment program, Navarre will notify Vendor of any changes in the above terms. Vendor may opt out of the office Depot consignment program if it is not in agreement with the changes.

 

[Illegible]                                                             , VENDOR     NAVARRE DISTRIBUTION SERVICES, INC.

By:

 

LOGO

   

By:

 

LOGO

 

Signature

     

Signature

Rich Siporin

   

[Illegible]

Written Name

   

Written Name

VP Sales & Mktg

   

VP Sales & Marketing

Title

   

Title

    5/25/07

Date

 

5/15/07

     

 

1


Office DEPOT

 

March 23, 2009

eGames

Attn: Rich Siporin

Re: Office Depot Program

Dear Rich:

The purpose of this letter agreement (“Letter Agreement”) is to outline the financial program (“Program”) between Office Depot, Inc (“Office Depot” “us” or “we”) and eGames (“Publisher” “you” or “your”). The terms of (the Program are as follows:

 

1. Starting with sales commencing 12/28/2008 eGames agrees to provide funding to Office Depot equal to 20% of Office Depot’s cost of goods sold from distribute on all Publisher’s products that Office Depot has sold to its end customers

 

2. Program calculation will be completed on a quarterly basis, based in Office Depot’s fiscal year, and funds will be deducted from Navarre Distribution

 

3. Office Depot requests your partnership in continuing the growth of your business as well as investing in the development of Office Depot’s software business Office Depot will utilize these funds to drive sales and grow your volume

 

4. Starting with sales commencing on 12/28/2008, all Program funds are retroactive back to dollar one

 

5. All publishers that do business with Office Depot either directly or through distribution are expected to pay 100% store allowance based on the actual on-hand inventory of each new, relocated, or remodeled store at the time of grand opening

 

6. All damaged, defective, and end of life inventory coming off of plan-o-grams will be destroyed in field (DIF) at the store level Any inventory that is requested to be RTV (returned to vendor) instead of DIF will be subject to $3 00 per unit charge.

 

7. All publishers that do business with Office Depot either directly or through distribution are expected to maintain 100% on-time shipping to our facilities A 5% late penally on purchase orders will be assessed if product is past due. This penally will be charged through to you or your distribution partner

 

8. This Letter Agreement shall remain in full force and effect until terminated by either party upon providing sixty (60) days written notice to the other party

 

[Illegible] North Military Trail    |    Boca Raton FL 33496    |    T + 561 438 4800


Please indicate your acceptance to these terms by signing below and returning to Rafi Wellmann

Thank you for your partnership We appreciate your business

Sincerely yours,

 

 

   

 

[NAME OF VICE PRESIDENT]

   

[NAME OF EVP]

Vice President, Merchandising

   

Executive Vice President, Merchandising

Office Depot, Inc.

   

Office Depot, Inc

ACKNOWLEDGED AND AGREED:

 

eGames

By:

 

LOGO

Name:

 

Rich Siporin

Title:

 

VP Sales & Marketing

Date:

 

3/23/09


[illegible]

OFFICEMAX ADDENDUM

to

NAVARRE’S CONSIGNMENT PROGRAM RIDER

Vendor, by its signature below, agrees to participate in the OfficeMax Consignment Program and, in addition to the General Terms and Conditions for Consignment Programs, agrees to the OfficeMax specific terms set forth below.

Sales Reporting Period. Navarre will report to Vendor net sales of Consigned Products by OfficeMax to End Users for each fiscal month in the Navarre AP calendar (either four or five weeks based on a modified 4-5-4 calendar.

Payment Date. Navarre’s Payment Date to Vendor is the last day of the calendar month following the Sales Reporting Period, provided that Navarre has received payment from OfficeMax for such sales.

Shrinkage Audit Reports. OfficeMax will audit shrink and toss of Consigned Products on a quarterly basis and has agreed to reconcile shrink within 120 days of quarter-end. OfficeMax will pay for shrink units within 15 days of completion of shrink invoicing.

Returns. It is OfficeMax’s policy to have no physical returns, thereby having all damaged/defective and overstock/obsolete products destroyed in the field. If Vendor does not approve any request for destruction and demands return, OfficeMax will return such Consigned Product, and Vendor will be charged for all return freight costs as well as any return processing fees.

Mark Down Funding. OfficeMax requires that any item being dropped from its active assortment must be either returned to Vendor or receive a markdown allowance to facilitate sell-through of remaining inventory. If Vendor does not approve a request for a markdown allowance, Vendor will be charged for all return freight costs as well as any return processing fees.

Compliance Charges. If OfficeMax determines that an item is on chronic backorder, OfficeMax will debit the cost difference between the direct cost and wholesaler cost. In addition, OfficeMax will charge a penalty of 10% of the value of ell products that have not been received by the due date of a purchase order. These compliance charges will only be charged-back to Vendor if the backorder was caused by Vendor.

Change in Retailer Terms. Vendor acknowledges that the foregoing terms are based on OfficeMax’s current consignment program. If OfficeMax modifies its consignment program, Navarre will notify Vendor of any changes in the above terms. Vendor may opt out of the OfficeMax consignment program if it is not in agreement with the changes.

 

VENDOR

   

NAVARRE CORPORATION

By:

 

LOGO

   

By:

 

LOGO

VP Sales & Marketing

   

VP Merchandise

Title

   

Title

                                      2-13-2007


STAPLES REVISED ADDENDUM

to

NAVARRE’S CONSIGNMENT PROGRAMS RIDER

Vendor, by its signature below, agrees to participate in the Staples Consignment Program and, in addition to the General Terms and Conditions for Consignment Programs, agrees to the Staples specific terms set forth below.

Sales Reporting Period. Navarre will report to Vendor net sales of Consigned Products by Staples to End Users for each calendar month.

Payment Date. Navarre’s Payment Date to Vendor Is the forty-fifth (45th) day following the last day of the Sales Reporting Period.

Shrinkage Audit Reports. Staples will audit shrink and loss of Consigned Products on a quarterly basis and report and pay for shrink losses forty-five (45) days after the close of each fiscal quarter.

Returns. Staples has a no physical returns policy. All returns will be destroyed in the field with Staples providing proof of performance. Destroyed Items will be deleted from the consigned Products Inventory. If Vendor does not approve any request for destruction and demands return, Staples will comply and charge Vendor a returns handling fee of ten dollars (10.00$) per store per return.

Mark Downs. Staples prefers to mark down slow-moving and obsolete Items, with Vendor’s participation and approval, prior to implementing return or destruction. Eight (8) weeks prior to removal, the Item cost is towered to 50% of its invoice cost and retail price to expedite sell-down. On the removal date, a second cost adjustment is taken down to a $3, $6 or $9 Staples cost and the Item is placed in the software clearance bin priced at $14.90 or less and will not be subject to return. After ninety (90) selling days, any residual product will be destroyed in the field and removed from the Consigned Product Inventory. Staples will provide proof of performance and back up information.

[illegible] (Initial here if agree) Vendor accepts the foregoing markdown program.

Other Programs. Vendor agrees to participate in Staples’ twenty-four percent (24%) MDF/stocking fee/detailing program accrual based on Staples’ net cost of Consigned Products sold. Effective date February 1st, 2009. Navarre will Issue chargebacks for this accrual and provide Vendor with proof of performance and other back up documentation. Staples retains the right to request additional marketing funds from Vendor to aid in the promotion of the Consigned Products.

 

1


Change in Retailer Terms. Vendor acknowledges that the foregoing terms are based on Staple’s current consignment program. If Staples modifies its consignment program, Navarre will notify Vendor of any changes in the above terms. Vendor may opt out of the Staples consignment program if it is not in agreement with the changes

 

E Games                                                  , VENDOR

   

            NAVARRE CORPORATION

By:

 

LOGO

   

By:

 

LOGO

 

Signature

     

Signature

Cindy Yeagle

   

Richard Vick

Written Name

   

Written Name

 

   

3/2/09

 

2


LOGO

VENDOR PRODUCT LIFE CYCLE AGREEMENT

Staples requests that all titles be purchased under a “no returns” program. Therefore, the purpose of this Agreement is to eliminate the return of obsolete SKU’S or SKU’S not meeting the sales expectations of Staples (“Reseller”) and to manage the disposal of all Damaged & Defective Software titles; NAVARRE will work diligently with the Vendor and Reseller to enforce this policy, Return authorizations will not be issued on overstock or under performing SKU’S unless written prior approval is received by NAVARRE from a member of the Resellers buying staff

Inventory control and markdown practices

Staples strives to maintain a highly productive assortment of software titles. Given the limited planogram positions available, Staples will not maintain under performing titles. Staples encourages proactive price moves to improve performances of under performing titles to keep them in the assortment, Additional mail in rebates are not a viable option for under performing titles, To minimize the financial impact of under performing titles on Staples, one of the following 2 options will be executed on all skus that prove to be poor performers. The decision of which option is to be executed will be made in cooperation with the vendor per this agreement.

Vendor agrees to implement one of two programs for obsolete SKU’S or under performing SKU’S:

 

 

             A – (Preferred) 8 Weeks prior removal, the item is price protected to 50% of its original cost & retail to expedite sell-down.

 

On the Planogram removal date, a second price protection is taken down to a $3, $6 or $9 Staples cost and the item is placed in this software clearance bin priced at $ 14,90 or less and will not be subject to return. After 90 selling days, all residual product will be marked down to $,01 and destroyed in field.

 

             B – Upon removal date, an on-site destruction is performed and the full Staples cost of all on-hand inventory in the stores and warehouses will be charged back. (This product will not be put in the clearance bins)

Vendor has 5 days after Roseller and/or Navarre submits the Markdown Authorization Agreement to implement a sell down and/or destruction program on obsolete or under performing SKU’S, Vendor will notify in writing both NAVARRE and Resell of the program to be implemented.

Vendor agrees to implement the following program for Damaged & Defective SKU’s:

Staples believes that Damaged & Defective goods are deemed as non-returnable, therefore Staples requests a Destroy to Field option against each Publisher’s sku(s), Staples will deduct for all Damaged/Defective merchandise destroyed in field and charge back NAVARRE based on current cost of goods. NAVARRE will retain the right to charge back the appropriate Publisher Staples full cost of goods. The sku & quantity detail will be provided by Staples to NAVARRE only.

This Agreement is the entire agreement between the parties pertaining to the destruction or sell down program of obsolete or under performing SKU’S and Damaged/Defective SKU’S. This Agreement is not intended to invalidate or modify any existing agreement between the Vendor and NAVARRE pertaining to the purchase or sale of products. In the event that the terms and conditions of this Agreement conflict with any other terms and conditions within any other agreement, presently existing or subsequently entered into, the terms and conditions of this Agreement will govern, unless the parties specifically state their intention to amend to this Agreement in such other agreement.

This Agreement is and contains confidential information and as such will not be disclosed to any third party, except for the Reseller identified above, without the express written consent of both parties. The parties agree to disclose the terms and conditions of this Agreement only to their respective personnel with a need to know.

All notices and other communications related to this Agreement or its forms will be in writing and mailed via first class United States Postal Service, certified or registered, with return receipt requested. All notices so mailed will be deemed received two (2) days after postmark date.

This Agreement will begin in 3/20/06 and will continue until such time as this Agreement is terminated.

 

(“VENDOR”)   [illegible]     (“Distributor”)   NAVARRE

 

    7400 49th Avenue North

 

    New Hope, Minnesota 55428
(Company Name & Address)      
By:  

LOGO

    By:  

LOGO

 

    (Officer of the Company)

     

    (Officer of the Company)

Name:   Rich Siporin     Name:   Richard Vick
 

    (Please print or type)

     

    (Please print or type)

Title:   VP Sales & Marketing     Title:   VP Merchandise


Target Addendum to Computer Software Distribution Agreement

This Addendum to that certain Computer Software Distribution Agreement (the “Agreement”) is made as of this 27th day of February, 2008 (the “Effective Date”), by and between Navarre Corporation, a Minnesota corporation (“Navarre”), and eGames, a Pennsylvania corporation (“Vendor”). In consideration of the mutual promises and covenants hereinafter contained, the receipt and sufficiency of which is hereby acknowledged, the parties to this Amendment agree that the Agreement is hereby amended as follows:

1. In addition to those rebates and discounts set forth in the Agreement, Vendor will provide Navarre with each of the following in connection with its sales of Vendor’s products to Target:

 

  a.

Navarre shall receive a [Fifteen (15%)] percent discount from Vendor on all sales made to Target. All other rebates, including the VAS, are included in the aforementioned (Fifteen (15%)] percent discount. This sales rebate will underwrite the incremental costs of fulfillment of Vendor’s Products to Target (including EDI development, content management, direct to store fulfillment, individual shipping cartons, MDF processing, etc.);

 

  b.

Navarre shall be entitled to receive a returns handling charge in the form of a credit in an amount equal to [Ten (10%)] percent of the amount credited by it to Target in connection with the return of Vendor’s products from Target.

 

  c.

Returned product will be handled in accordance with Navarre’s pre-established returns process.

 

  d.

Navarre shall be entitled to receive a [Five (5%)] percent new store discount in connection with its initial shipment of Vendor’s products to any Target store that has not previously received shipments of Vendor’s products from Navarre or its sub-distributors.

 

  e.

Navarre shall be entitled to receive the rates outlined below for Target placement fees:

 

Jan – Sept

   $ 9 per title per store   

Oct – Dec

   $ 18 per title per store   

These funds are passed through to Target and do not guarantee placement for any specific period of time.

 

  f.

If Target removes a title from their assortment, Navarre will give Vendor a 48 hour window to respond with approval to either RA the remaining product, or place the product into the Target Markdown Program. If Vendor fails to respond within 48 hours, the product will automatically go into the Markdown Program and Vendor loses their ability to RA the product. The Target Markdown Program is a one time markdown of 65% off Target’s current purchase cost. Navarre will administer and pass through the appropriate funds and corresponding paperwork to Vendor.

Navarre will charge back these discounts on a monthly basis for sales to Target made during the prior month. A report of sales by account will be provided as supporting documentation.


2. This Amendment, in conjunction with the Agreement, constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties with respect to the subject matter hereof.

3. The term of this Addendum shall commence as of the Effective Date hereof and shall be co-extensive and co-terminus with the term of the Agreement.

 

[Vendor]

   

Navarre Corporation

By:

 

LOGO

   

By:

 

LOGO

Name:

 

Rich Siporin

   

Name:

 

Richard Vick

Title:

 

VP Sales & Marketing

   

Title:

 

VP Merchandise


ADDENDUM to DISTRIBUTION AGREEMENT

COMPUTER SOFTWARE

Dated: 2/11/11

Between NAVARRE DISTRIBUTION SERVICES, INC. (“Navarre)

and [illegible] (“Vendor”)

WAL-MART PROGRAMS

VENDOR, by its signature below, desires to have its products distributed to and sold at Wal-Mart retail outlets (“Wal-Mart”) and therefore agrees to provide the following in addition to any other discounts and credits provided in the Agreement:

 

  1. VENDOR must set up a unique UPC and SKU for each Product distributed to Wal-Mart.

 

  2. Navarre shall receive a fifteen (15) percent discount from VENDOR on all gross shipments to Wal-Mart. This sales rebate will underwrite the incremental costs of fulfillment of products to Wal-Mart (including EDI development, content management, direct to store fulfillment, individual shipping cartons, MDF processing, etc.) This discount will be handled as a price adjustment or deal buy.

 

  3. Navarre shall be entitled to receive a one-time ten (10) percent new store discount. Navarre will charge back the discount on initial gross shipments of VENDOR Products to new Wal-Mart stores.

 

  4. VENDOR will also be charged back monthly to cover charges for Wal-Mart’s mandatory merchandising firm listed below, or any replacement firm, in exchange for in-store merchandising services, which will include a monthly fee and miscellaneous charges. The current monthly fee is as follows and is charged based on Wal-Mart’s sale price of units of Vendor’s product’s sold by Wal-Mart during the month. An invoice from the merchandising firm will be provided. Changes to the monthly fee may be announced from time to time and VENDOR will be notified in advance of such changes.

Firm Mosaic; Current monthly fee: 1.55%

 

  5. Returns Processing: Wal-Mart will process returns in one of two ways. (1) Product will be consolidated at the Wal-Mart return center and then be returned to Navarre. To cover charges by Wal-Mart, in this instance, Navarre shall be entitled to receive a returns handling charge in the form of a credit in the amount equal to ten (10) percent of the amount credited by it to Wal-Mart for such returns. Navarre shall be entitled to receive a separate returns handling charge in the form of a credit in the amount equal to twenty five (25) cents per unit returned. (2) Product will be set up for destroy in field (“DIF”). DIF product will be sent to Wal-Mart’s recycle center for destruction. To cover charges by Wal-Mart for DIF product, Navarre shall be entitled to receive a credit in the amount of one-half (.5) percent of the amount credited by it to Wal-Mart for such DIF product. VENDOR will indicate the time of each return authorization if Product is to be returned (10% fee and $.25 per unit) or destroyed (.5% fee).

Navarre will charge back the appropriate handling fee’s based on the amount of product processed for return or sent for destruction during the prior month. Navarre will provide supporting documentation.


  6. “Must Arrive by Date” Compliance: 3% of the cost of goods sold applied to each case not delivered and recorded in the Wal-Mart system within the MABD delivery window. This window allows receipt of product within 3 days prior to the MABD and up to the MABD date itself. This fee will be applied if less than 90% of the cases order by Wal-Mart are not received within the MABD window for the month. This charge applies only to goods shipped through Wal-Mart distribution center.

 

  7. VENDOR acknowledges and agrees that Navarre may, in its own discretion, utilize various sub- distributors in order to facilitate the process of making sales to Wal-Mart. Navarre is responsible for passing on the foregoing discounts/credits to such sub-distributors and assumes all responsibility for such sub-distributors compliance with Wal-Mart programs.

 

  8. VENDOR further acknowledges that the foregoing terms are based on the current policies of Wal-Mart. If Wal-Mart modifies any such policies, Navarre will notify VENDOR of any changes in the above terms. VENDOR may opt out of this Wal-Mart Addendum if it is not in agreement with the changes. VENDOR understands that its Products will no longer be eligible for distribution to Wal-Mart if this Addendum is terminated.

VENDOR by signing below agrees to participate in the Wal-Mart Programs as detailed above.

 

VENDOR

    

NAVARRE DISTRIBUTION SERVICES, INC.

By:

 

LOGO

    

By:

 

 

 

Signature

      

Signature

Rich Siporin

    

 

Written Name

    

Written Name

VP Sales & Marketing

    

 

Title

    

Title

 
EX-10.13 21 d244335dex1013.htm STIPULATION DATED AUGUST 26, 2011 Stipulation dated August 26, 2011

Exhibit 10.13

Mark A. Vega, State Bar No. 162621

LIBERTAS LAW GROUP

280 S. Beverly Drive, Suite 204

Beverly Hills, California 90212

P (310) 402-2148; F (310) 421-9214

mvega@libertaslaw.com

Attorneys for Plaintiff

IRONRIDGE GLOBAL IV, LTD.

Ellen Pulver Flatt, Esq.

ENTERTAINMENT GAMES, INC.

2000 Cabot Blvd. West, Suite 110

Langhorne, Pennsylvania 19047

P (215) 750-6606 x183; F (215) 750-3722

epulverflatt@egames.com

Counsel for Defendant

ENTERTAINMENT GAMES, INC.

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

CENTRAL DISTRICT

 

IRONRIDGE GLOBAL IV, LTD.,

  

Case No. BC467574

Plaintiff,

  

Assigned for All Purposes to:

Hon. Susan Bryant-Deason

v.

  
  

STIPULATION FOR

SETTLEMENT OF CLAIMS

EGAMES, INC.,

  

Defendant.

  

Date: August 26, 2011

Time: 8:30 am

Dept: 52

  

Trial Date: None Set

Plaintiff Ironridge Global IV, Ltd. (“Plaintiff’’) and Defendant Entertainment Games, Inc., formerly known as eGames, Inc. (herein “Defendant”)1 stipulate to the facts, terms, and conditions

 

1 

On August 19, 2011, Defendant changed its name from eGames, Inc. to Entertainment Games, Inc.

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

1


contained in the [Proposed] Order Approving Settlement (“Order”) submitted herewith and incorporated herein by this reference, and further stipulate and agree as follows:

Plaintiff and Defendant request that the Court enter an order substantially in the form of the concurrently filed proposed Order.

1. Defendant develops, publishes, markets, and sells software games primarily for the personal computer (PC) internationally and in North America including Los Angeles, California. Defendant’s stock is traded on the over-the-counter market in the pink sheets under the trading symbol “EGAM,” but Defendant’s securities are not registered, and Defendant is not subject to the reporting requirements, under the Securities Exchange Act of 1934, as amended.

2. Plaintiff owns bona fide claims (the “Claims”) against Defendant in the aggregate amount in excess of $257,576.75 (the “Claim Amount”), plus allowable interest, attorney fees and costs. Defendant has not paid the amount due on the Claims. Plaintiff filed the above-captioned collection action, which the parties now seek to settle by this Stipulation and the proposed Order.

3. Defendant desires to settle the Claims in exchange for the issuance to Plaintiff of shares of Defendant’s common stock (“Common Stock”). Plaintiff desires to accept such shares in accordance with the terms of this Stipulation, subject to court approval following a hearing as envisioned by Section 25017(f)(3) of the California Corporations Code, and Section 3(a)(10) of the federal Securities Act of 1933.

4. Plaintiff has agreed to the proposed settlement terms and conditions, and believes that they are sufficiently fair such that Plaintiff is willing to enter into this Stipulation. In addition, Defendant’s board of directors has considered the proposed transaction and has resolved that its terms and conditions are fair to, and in the best interests of, Defendant and its stockholders. Accordingly, both parties request Court approval of the settlement provided for herein as fair, reasonable and adequate. The parties submit this Stipulation to the Court on ex parte application, and request that the Court enter an Order approving this Stipulation at the hearing thereon.

5. It is the intent and effect of this Stipulation that the Order, when signed, shall end, finally and forever any claim to payment or compensation of any kind or nature that Plaintiff had,

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

2


now has, or may assert in the future against Defendant arising out of the Claims. In this regard, and subject to compliance with the Order, effective upon the execution of the Order, each party hereby releases and forever discharges the other party, including all of the other party’s officers, directors, members, managers, representatives, agents and attorneys, from any and all claims, demands, debts, liabilities, obligations, and causes of action, whether known or unknown, at law or in equity, suspected or unsuspected, fixed or contingent, arising out of, connected with, or incidental to the Claims. Each party further agrees that with respect to the matters released herein, such party expressly waives any and all rights and benefits conferred upon it by the provisions of California Civil Code Section 1542 and any similar law of any state or territory of the United States. California Civil Code Section 1542 provides, in full, as follows: “§ 1542 General Release—Claim Extinguished. A general release does not extend to Claim which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

6. In full and final settlement of the Claim, Defendant will issue and deliver to Plaintiff (a) 1,950,000 shares of Common Stock (the “Initial Issuance”), subject to adjustment as set forth below, and (b) a 5-year warrant to purchase 572,393 additional shares of Common Stock, at an exercise price of $0.54, be first exercisable six months after the Issuance Date (defined below), and providing for cashless exercise anytime a resale registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the underlying shares is not effective.

7. No later than the first business day following the date that the Court enters the Order, time being of the essence, Defendant shall: (a) cause its legal counsel to issue an opinion to Defendant’s transfer agent, in form and substance reasonably acceptable to Plaintiff and such transfer agent, that the shares of Common Stock to be issued as the Initial Issuance are legally issued, fully paid and non-assessable, are exempt from registration under the Securities Act and may be issued without restrictive legend; (b) transmit via email, facsimile and overnight delivery an irrevocable and unconditional instruction to Defendant’s stock transfer agent; and (c) issue the

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

3


Initial Issuance, as Direct Registration System (DRS) shares to Plaintiff’s balance account with The Depository Trust Company (DTC) or through the Fast Automated Securities Transfer (FAST) Program of DTC’s Deposit/Withdrawal Agent Commission (DWAC) system, without any restriction on transfer. The date upon which the Initial Issuance is complete, and the shares have been received into Plaintiff’s account, shall be referred to as the “Issuance Date.”

8. Following the lesser of (a) 90 days, or (b) that number of consecutive trading days following the Issuance Date required for the aggregate trading volume of the Common Stock, as reported by Bloomberg, to equal $832,730.25 (the “Calculation Period”), Plaintiff will retain that number of shares with an aggregate value equal to (i) the sum of the Claim Amount, plus reasonable attorney and agent fees through the end of the Calculation Period, (ii) divided by 65% of the average of the daily volume weighted average prices (“VWAP”), as reported by Bloomberg, over the Calculation Period. (the “Final Amount”).

9. For every one (1) million shares that trade during the Calculation Period, or if at any time during the Calculation Period a daily VWAP is below $0.30, Plaintiff has the right to cause Defendant to immediately issue additional shares (each, an “Additional Issuance”), subject to the limitation in the paragraph below. At the end of the Calculation Period, (a) if the sum of the Initial Issuance and any Additional Issuance is less than the Final Amount, Plaintiff shall immediately issue additional shares to Defendant, up to the Final Amount, and (b) if the sum of the Initial Issuance and any Additional Issuance is greater than the Final Amount, Plaintiff shall promptly return any remaining shares to Defendant or its transfer agent for cancellation.

10. Under no circumstances whatsoever shall Defendant issue to Plaintiff a number of Shares in connection with the settlement of the Claim which, when aggregated with all shares of Common Stock then owned or beneficially owned or controlled by Plaintiff and its affiliates, at any time exceed 9.99% of the total number of shares of Common Stock then outstanding.

11. Defendant hereby represents and warrants to Plaintiff as follows: there are 17,762,343 shares of Common Stock of Defendant issued and outstanding; the shares of Common Stock to be issued in the Initial Issuance are duly authorized and, when issued pursuant to the

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

4


Order, will be duly and validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances and preemptive and similar rights to subscribe for or purchase securities; the shares will be exempt from registration under the Securities Act and issuable without any restrictive legend; Defendant has reserved from its duly authorized capital stock a number of shares of Common Stock at least equal to the number of shares that could be issued pursuant to the terms of this Stipulation; execution of this Stipulation and performance of the Order by Defendant and Plaintiff will not (a) conflict with, violate, or cause a breach or default under any agreements between Defendant and any creditor (or any affiliate thereof) related to the account receivables comprising the Claims, or (b) require any waiver, consent, or other action of Defendant or any creditor, or their respective affiliates, that has not already been obtained; without limitation, Defendant hereby waives any provision in any agreement related to the account receivables comprising the Claims requiring payments to be applied in a certain order, manner, or fashion, or providing for exclusive jurisdiction in any court other than this Court; Defendant has all necessary power and authority to execute, deliver and perform all of its obligations under this Stipulation; the execution, delivery and performance of this Stipulation by Defendant has been duly authorized by all requisite action on the part of Defendant and this Stipulation has been duly executed and delivered by Defendant; as of the date of this Stipulation and during the 90 calendar days prior to the date of this Stipulation, neither Plaintiff nor any of the creditors from whom Plaintiff acquired the Claims, nor any of their affiliates, is or was an affiliate of Defendant.

12. Until after the end of the Calculation Period, neither Plaintiff nor any of its affiliates shall (a) hold any net short position in the Common Stock, or (b) engage in or affect, directly or indirectly, any short sale of the Common Stock that results in a net short position.

13. For so long as Plaintiff or any of its affiliates holds any shares of Common Stock, neither Plaintiff nor any of its affiliates shall: (a) vote any shares of Common Stock owned or controlled by it (unless voting in favor of a proposal approved by a majority of Defendant’s Board of Directors), or solicit any proxies or seek to advise or influence any person with respect to any voting securities of Defendant; or (b) engage or participate in any actions, plans or proposals that

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

5


relate to or would result in (i) Plaintiff or any of its affiliates acquiring additional securities of Defendant, alone or together with any other person, which would result in Plaintiff and its affiliates collectively beneficially owning or controlling, or being deemed to beneficially own or control, more than 9.99% of the total outstanding Common Stock or other voting securities of Defendant, (ii) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving Defendant or any of its subsidiaries, (iii) a sale or transfer of a material amount of assets of Defendant or any of its subsidiaries, (iv) any change in the present board of directors or management of Defendant, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board, (v) any material change in the present capitalization or dividend policy of Defendant, (vi) any other material change in Defendant’s business or corporate structure, (vii) changes in Defendant’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of Defendant by any person, (viii) causing a class of securities of Defendant to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (ix) causing a class of equity securities of Defendant to become eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended, or (x) taking any action, intention, plan or arrangement similar to any of those enumerated above. The provisions of this paragraph may not be modified or waived without further order of the Court.

14. Defendant shall indemnify, defend and hold Plaintiff and its affiliates harmless with respect to all obligations of Defendant arising from or incident or related to this Stipulation, including, without limitation, any claim or action brought derivatively or by shareholders of Defendant.

15. The parties to this Stipulation represent that each of them has been advised as to the terms and legal effect of this Stipulation and the Order provided for herein, and that the settlement and compromise stated herein is final and conclusive forthwith, subject to the conditions stated

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

6


herein, and each attorney represents that his or her client has freely consented to and authorized this Stipulation after having been so advised.

16. This Stipulation constitutes Defendant’s answer to the Complaint in this Action. Each party hereto waives a statement of decision, and the right to appeal from the Order after its entry. Defendant further waives any defense based on the rule against splitting causes of action. Except as expressly set forth herein, each party shall bear its own attorneys’ fees, expenses and costs.

17. This Stipulation may be executed in counterparts and by facsimile, portable document format (“pdf”) or other electronic format, each of which shall constitute an original and all of which together shall be deemed together as a single instrument

18. Upon entry of the Order approving this Stipulation, the Action shall be dismissed in its entirety. The dismissal shall be with prejudice, except that the Court shall retain jurisdiction to

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

7


enforce the terms of this Stipulation by a motion brought by any party under Section 664.6 of the California Code of Civil Procedure.

 

DATED: August 25, 2011

 

IRONRIDGE GLOBAL IV, LTD.

 
 

By:

 

LOGO

 
   

Peter Cooper

 
   

Vice President

 

DATED: August 25, 2011

 

LIBERTAS LAW GROUP

 
 

By:

 

LOGO

 
   

Mark A. Vega

 
   

Attorneys for Plaintiff

 
   

IRONRIDGE GLOBAL IV, LTD.

 

DATED: August 25, 2011

 

ENTERTAINMENT GAMES, INC.

formerly EGAMES, INC.

 
 

By:

 

LOGO

 
   

Gerald W. Klein

 
   

Chief Executive Officer

 

DATED: August 25, 2011

 

ENTERTAINMENT GAMES, INC.

formerly EGAMES, INC.

 
 

By:

 

LOGO

 
   

Ellen Pulver Flatt

Counsel for Defendant,

 
   

ENTERTAINMENT GAMES, INC.

 

 

STIPULATION FOR SETTLEMENT OF CLAIMS

 

8

EX-10.14 22 d244335dex1014.htm EMPLOYMENT OFFER LETTER DATED JUNE 24, 2011 (MAURO) Employment Offer Letter dated June 24, 2011 (Mauro)

Exhibit 10.14

LOGO

June 24, 2011

Mr. Eugene H. Mauro

XX XXXXXX XXXXXX

XXXXXXX, XX XXXXX

Dear Gene:

I am pleased to offer you the position of President and Chief Operating Officer (COO) at eGames, Inc. in accordance with the following terms:

Position Title: President and Chief Operating Officer (COO)

Supervisor: Gerald W. Klein, Chief Executive Officer

Duties and responsibilities: Oversee the entire development, production and operations of the Heyday product and others as they arise. Manage internal and external teams/vendors and work with eGames management on the day to day execution and ultimate launch and maintenance of the product(s). Develop key marketing and distribution partnerships and identify opportunities to grow the intellectual properties across multiple platforms, around the world.

Work Location: Los Angeles, Boston, and Langhorne offices

Starting Date: June 24, 2011

Annual Compensation: $200,000

Bonus Opportunity: If, after the Closing Date of the acquisition of all of the assets of Heyday Games, Inc. (“Heyday”) by eGames, Inc.(the “Asset Transaction”), eGames completes an equity financing in the aggregate equal to or greater than $5 million, and you are still an employee of eGames at such time, eGames will pay to you a cash bonus of $75,000 out of the proceeds of such equity financing, less any legal costs incurred by Heyday in the Asset Transaction in excess of the amount agreed to be paid by eGames, Inc. (“eGames”) in the Asset Purchase Agreement between eGames and Heyday dated June 24, 2011, such amount to be mutually agreed upon by both parties.

Vacation: One year of service earns three weeks of paid vacation.

Benefits: Group health, dental, short and long term disability, life, and AD&D insurance coverage in accordance with the Company’s group insurance plans. You will also be eligible for enrollment in the eGames 401(K) savings plan during the first quarterly open enrollment period after one month of employment.


June 24, 2011

Page 2

 

Severance: Your employment will be at-will, meaning that you can leave at any time for any reason, and eGames can terminate your employment at any time with or without cause.

If you agree with the above terms please sign and return the original copy. I look forward to working with you at eGames in this new opportunity. Please call if you have any questions.

Sincerely,

eGames, Inc.

 

By:   /s/ Gerald W. Klein
Gerald W. Klein
President and CEO

Accepted:

 

/s/ Eugene H. Mauro     Date: June 24, 2011
Eugene H. Mauro    

 

EX-10.15 23 d244335dex1015.htm EMPLOYMENT OFFER LETTER DATED JUNE 24, 2011 (LENNON) Employment Offer Letter dated June 24, 2011 (Lennon)

Exhibit 10.15

LOGO

June 24, 2011

Mr. F.J. Lennon

XXXX XXX XXXXXX

XXXXXXX, XX XXXXX

Dear F.J.:

I am pleased to offer you the position of Chief Creative Officer at eGames, Inc. in accordance with the following terms:

Position Title: Chief Creative Officer (CCO)

Supervisor: Eugene Mauro, President and Chief Operating Officer

Duties and responsibilities: Oversee the entire development and production of the Heyday product including all art, engineering and project management. Manage the product development and engineering teams, both internal and external and work closely with eGames management on the day to day execution and ultimate launch and maintenance of the product.

Work Location: Los Angeles office

Starting Date: June 24, 2011

Annual Compensation: $200,000

Bonus Opportunity: If, after the Closing Date of the acquisition of all of the assets of Heyday Games, Inc. (“Heyday”) by eGames, Inc.(the “Asset Transaction”), eGames completes an equity financing in the aggregate equal to or greater than $5 million, and you are still an employee of eGames at such time, eGames will pay to you a cash bonus of $75,000 out of the proceeds of such equity financing, less any legal costs incurred by Heyday in the Asset Transaction in excess of the amount agreed to be paid by eGames, Inc. (“eGames”) in the Asset Purchase Agreement between eGames and Heyday dated June 24, 2011, such amount to be mutually agreed upon by both parties.

Vacation: One year of service earns three weeks of paid vacation.

Benefits: Group health, dental, short and long term disability, life, and AD&D insurance coverage in accordance with the Company’s group insurance plans. You will also be eligible for enrollment in the eGames 401(K) savings plan during the first quarterly open enrollment period after one month of employment.


LOGO

June 24, 2011

Page 2

Severance: Your employment will be at-will, meaning that you can leave at any time for any reason, and eGames can terminate your employment at any time with or without cause.

If you agree with the above terms please sign and return the original copy. I look forward to working with you at eGames in this new opportunity. Please call if you have any questions.

Sincerely,

eGames, Inc.

 

By:   /s/ Gerald W. Klein
Gerald W. Klein
President and CEO

Accepted:

 

By:   /s/ F.J. Lennon       Date: 6/24/2011
F.J. Lennon      
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