SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
EGAMES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[OBJECT OMITTED]
eGames, Inc.
2000 Cabot Boulevard West, Suite 110
Langhorne, Pennsylvania 19047-1811
October 28, 2003
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of eGames,
Inc. (the "Company") which will be held at 3 p.m. Eastern Standard Time on
Thursday, December 4, 2003 at the Company's offices, 2000 Cabot Boulevard West,
Suite 110, Langhorne, Pennsylvania. The official notice of the meeting together
with a proxy statement and form of proxy are enclosed. Please give this
information your careful attention.
To assure your representation at the meeting, whether or not you expect
to attend, please date and sign the enclosed proxy card and return it as soon as
possible in the envelope provided. Also, please indicate on the proxy card
whether you plan to attend the meeting.
Your copy of the Company's 2003 Annual Report on Form 10-KSB is also
enclosed. We appreciate your interest in the Company. Thank you for your
attention to this important matter.
Sincerely,
/s/ Gerald W. Klein
- -------------------
Gerald W. Klein
President and Chief Executive Officer
Whether or not you plan to attend the meeting, please date and sign your proxy
card and promptly return it in the reply envelope provided (which requires no
postage if mailed in the United States). Thank you.
EGAMES, INC.
2000 CABOT BOULEVARD WEST, SUITE 110
LANGHORNE, PA 19047-1811
(215) 750-6606
Notice of Annual Meeting of Shareholders
December 4, 2003
To Our Shareholders:
The Annual Meeting of Shareholders of eGames, Inc. (the "Company") will
be held at 3 p.m. Eastern Standard Time on Thursday, December 4, 2003, at the
Company's offices, 2000 Cabot Boulevard West, Suite 110, Langhorne,
Pennsylvania, for the following purposes:
1. To elect four (4) directors;
2. To vote on ratification of the appointment of Stockton Bates,
LLP as the Company's auditors for the fiscal year ending June
30, 2004; and
3. To act upon such other business as may properly come before
the meeting.
The Board of Directors has fixed October 4, 2003 as the record date for
the determination of shareholders entitled to vote at the meeting. Only
shareholders of record as of that date will be entitled to receive notice of
the meeting and to vote at the meeting.
You are invited to attend the meeting in person. Whether or not you
expect to attend the meeting in person, you are urged to date and sign the
enclosed proxy card and promptly return it in the envelope provided (which
requires no postage if mailed in the United States).
By Order of the Board of Directors,
/s/ Ellen Pulver Flatt
- ----------------------
Ellen Pulver Flatt
Secretary
October 28, 2003
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND SIGN YOUR PROXY
CARD AND PROMPTLY RETURN IT IN THE REPLY ENVELOPE PROVIDED (WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES). THANK YOU.
EGAMES, INC.
2000 CABOT BOULEVARD WEST, SUITE 110
LANGHORNE, PA 19047-1811
PROXY STATEMENT
eGames, Inc. (the "Company") is providing to its shareholders this
proxy statement and the accompanying proxy card in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company for
use in voting at the Annual Meeting of Shareholders (the "Meeting"). The Meeting
will be held at the Company's offices, 2000 Cabot Boulevard West, Suite 110,
Langhorne, Pennsylvania on December 4, 2003 at 3 p.m. Eastern Standard Time, or
at any adjournment or postponement of the meeting. These proxy materials are
first being mailed to shareholders on or about October 28, 2003.
VOTE REQUIRED AND PROXY INFORMATION
Proxies in the form enclosed, if properly submitted and not revoked,
will be voted as directed on the proxies. Any proxy not directing to the
contrary will be voted "for" the Company's nominees as directors and "for"
approval of each of the other proposals. Sending in a signed proxy will not
affect a shareholder's right to attend the meeting and vote in person, since the
proxy is revocable.
A proxy statement given pursuant to the solicitation may be revoked at
any time before it is voted. Proxies may be revoked by: (i) filing with the
Secretary of the Company, at or before the meeting, a written notice of
revocation bearing a date later than the proxy; (ii) duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of the
Company at or before the Meeting; or (iii) attending the Meeting and voting in
person (although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be delivered
to Ellen Pulver Flatt, Secretary, eGames, Inc., 2000 Cabot Boulevard West, Suite
110, Langhorne, Pennsylvania 19047-1811.
All shares of the Company's Common Stock present in person or
represented by proxy and entitled to vote at the meeting, no matter how they are
voted or whether they abstain from voting, will be counted in determining the
presence of a quorum for each of the matters on which shareholders will vote at
the Meeting. If the Meeting is adjourned because of the absence of a quorum,
those shareholders entitled to vote who attend the adjourned meeting, although
constituting less than a quorum as provided herein, shall nevertheless
constitute a quorum for the purpose of electing directors. If the Meeting is
adjourned for one or more periods aggregating at least 15 days because of the of
the absence of a quorum, those shareholders entitled to vote who attend the
reconvened Meeting, if less than a quorum as determined under applicable law,
shall nevertheless constitute a quorum for the purpose of acting upon any matter
set forth in the Notice of Annual Meeting.
Election of Directors. On this matter, the quorum for the meeting is
the presence of shareholders, in person or represented by proxy, entitled to
cast a majority of the votes that all shareholders are entitled to cast in the
election. Directors shall be elected by a plurality, and the four nominees who
receive the most votes will be elected. Votes may be cast in favor of or
withheld from any or all nominees. Votes that are withheld will be excluded
entirely from the vote and will have no effect, other than for purposes of
determining the presence of a quorum. Abstentions will be considered present and
entitled to vote at the meeting, but will not be counted as votes cast in the
affirmative. Broker non-votes will not be taken into account in determining the
outcome of the election.
Approval of Auditors. On this matter, the quorum for the meeting is the
presence of shareholders, in person or represented by proxy, entitled to cast a
majority of the votes that all shareholders are entitled to cast on the approval
of auditors. The matter will be approved if a majority of the votes cast are for
approval. Abstentions and broker non-votes will not be taken into account in
determining the outcome.
The cost of this solicitation will be paid by the Company. In addition
to solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or facsimile by directors, officers or employees of the Company and
its subsidiaries without additional compensation. The Company will, on request,
reimburse shareholders of record who are brokers, dealers, banks or voting
trustee, or their nominees, for their reasonable expenses in sending proxy
materials and annual reports to the beneficial owners of the shares they hold of
record.
Householding. Certain shareholders who share the same address may
receive only one copy of this proxy statement and the Company's annual report in
accordance with a notice delivered earlier this year by banks, brokers or other
holders of record, unless the shareholder provided contrary instructions to the
bank, broker or other holder of record. This practice, known as "householding,"
is designed to reduce printing and postage costs. If you own your shares through
a bank, broker or other holder of record and wish either to stop or begin
householding, you may do so, or you may request a separate copy of the proxy
statement or the Annual Report, either by contacting your bank, broker or other
holder of record or by contacting us by telephone at 215-750-6606, extension
100, or in writing to eGames, Inc., 2000 Cabot Boulevard West, Suite 110,
Pennsylvania 19047, Attention: Secretary.
VOTING SECURITIES
As of October 4, 2003, the record date for the determination of
shareholders entitled to receive notice of and to vote at the Company's Annual
Meeting of Shareholders, the Company's outstanding voting securities consisted
of 9,989,337 shares of Common Stock. Holders of Common Stock are entitled to one
vote per share.
SECURITY OWNERSHIP
The following table sets forth information as supplied to the Company
regarding the number and percentage of shares of the Company's Common Stock
beneficially owned on October 1, 2003 (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 nominee for director and director of the
Company; (iii) each of the Company's executive officers named in the Summary
Compensation Table; and (iv) all directors and executive officers of the Company
as a group.
Amount and Nature
Name of Of Beneficial Percent of Class
Beneficial Owner (1) Ownership (2) Beneficially Owned
- -------------------- ------------- ------------------
Robert M. Aiken, Jr. 98,000 (3) *
William C. Acheson (4) 94,300 (4) *
Lawrence F. Fanelle 147,075 (5) 1.5%
Gerald W. Klein 535,000 (6) 5.2%
Odyssey Capital Group, L.P. 769,500 (7) 7.7%
950 West Valley Road, Suite 2902
Wayne, PA 19087
Thomas W. Murphy 133,642 (8) 1.3%
Thomas D. Parente 116,425 (9) 1.2%
Richard H. Siporin 188,967 (10) 1.9%
Lambert C. Thom 141,124 (11) 1.4%
All officers and directors as a group (8 persons) 1,454,533 (12) 13.3%
- -------------
*Less than 1%
(1) Unless otherwise indicated, the address of each named holder is c/o
eGames, 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 Commissions (the "SEC") and generally
includes voting or investment power with respect to securities. In
accordance with SEC rules, shares that may be acquired upon
exercise of stock options which are currently exercisable or which
become exercisable within sixty days of October 1, 2003 are deemed
to be beneficially owned by the optionee. 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 85,000 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2003
or became exercisable within 60 days of that date.
(4) In May 2003, Mr. Acheson resigned from his position as Vice
President of Business Development with the Company. The information
presented with respect to Mr. Acheson's beneficial ownership of
shares is as of June 30, 2003.
(5) Includes 134,000 shares of Common Stock that may be acquired
through the exercise of options that were exercisable as of October
1, 2003 or became exercisable within 60 days of that date. Also
includes 2,075 shares held by Mr. Fanelle's immediate family
members.
(6) Includes 287,500 shares of Common Stock that may be acquired
through the exercise of options that were exercisable as of October
1, 2003 or became exercisable within 60 days of that date. Also
includes 2,500 shares held by Mr. Klein's immediate family members.
(7) The information presented is as of June 30, 2002 based upon
information supplied to the Company by Odyssey Capital Group, L.P.
("Odyssey"). Voting and investment power of the shares of Common
Stock held by Odyssey are shared by Odyssey and John P. Kirwin,
Bruce E. Terker and Kirk B. Griswold, who are each officers of the
corporate general partner of Odyssey. Also includes 250,000 shares
held by a partnership controlled by Mr. Terker.
(8) Includes 125,000 shares of Common Stock that may be acquired
through the exercise of options that were exercisable as of October
1, 2003 or became exercisable within 60 days of that date. Also
includes 788 shares held by Mr. Murphy's immediate family members.
(9) Includes 85,000 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2003
or became exercisable within 60 days of that date. Also includes
4,425 shares held by Mr. Parente's immediate family members.
(10) Includes 186,667 shares of Common Stock that may be acquired
through the exercise of options that were exercisable as of October
1, 2003 or became exercisable within 60 days of that date.
(11) Includes 85,000 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2003
or became exercisable within 60 days of that date.
(12) Includes 1,013,167 shares of Common Stock that may be acquired by
such persons through the exercise of options that were exercisable
as of October 1, 2003 or became exercisable within 60 days of that
date.
Equity Compensation Plan Information
The following table summarizes, as of June 30, 2003, outstanding options to
acquire shares of the Company's Common Stock that may be issued under the
Company's 1995 Amended and Restated Stock Option Plan, as well as options issued
to the Company's outside directors, the issuance of which was not approved by
the Company's shareholders.
- ---------------------- ----------------------- ----------------------- -----------------------
Number of securities
remaining available for
future issuance under
equity compensation
Number of securities to Weighted-average plans (excluding
be issued upon exercise exercise price of securities reflected in
of outstanding options, outstanding options, column (a))
Plan category warrants and rights (a) warrants and rights (b) (c)
- ---------------------- ----------------------- ----------------------- -----------------------
Equity compensation
plans approved by 2,270,500 $0.886 596,668
security holders
- ---------------------- ----------------------- ----------------------- -----------------------
Equity compensation
plans not approved by 75,000(1) $1.656 -0-
security holders
- ---------------------- ----------------------- ----------------------- -----------------------
Total 2,345,500 $0.911 596,668
- ---------------------- ----------------------- ----------------------- -----------------------
(1) Includes the following equity securities: 25,000 options issued to each of
the Company's three outside directors (Lambert C. Thom, Robert M. Aiken Jr., and
Thomas D. Parente) in December 1998. These options have an exercise price of
$1.656, are currently fully vested and expire on December 14, 2003.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Gerald W. Klein 55 President and Chief Executive Officer
Lawrence F. Fanelle 52 Vice President, Operations
Thomas W. Murphy 45 Vice President, Finance and Chief Financial Officer
Ellen Pulver Flatt 40 Vice President, General Counsel and Secretary
Richard H. Siporin 44 Vice President, Sales and Marketing
Mr. Klein has been President and Chief Executive Officer of the Company
since June 1998. He joined the Company as Vice President and Chief Financial
Officer in February 1996 and 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 use 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. Fanelle has been the Company's Vice President of Operations since
November 1998. He joined the Company as General Manager in September 1997. Prior
to joining the Company, Mr. Fanelle was Vice President of Operations of Besam,
Inc., a manufacturer of automatic doors primarily for retail stores and
supermarkets. Mr. Fanelle joined Besam in 1994 as Director of Operations. From
1979 to 1986, Mr. Fanelle was employed by Checkpoint Systems, Inc., a provider
of security and access control systems and was Vice President of Operations of
that company from 1987 to 1994.
Mr. Murphy has been Chief Financial Officer of the Company since July
1999. He joined the Company as Controller in May 1996. Prior to joining the
Company, 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 as Accounting Manager at Checkpoint Systems,
Inc., a provider of security and access control systems.
Ms. Pulver Flatt has been Vice President and General Counsel since
August 2003. She joined the Company in July 1999, and from that time until
August 2003, she served as Senior Associate Counsel. From 1992 until she joined
eGames, she was an associate with the law firm of McCausland, Keen & Buckman.
Mr. Siporin joined the Company in January 2000 as Vice President of
Sales and Marketing. Prior to joining the Company, 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.
PROPOSAL ONE
ELECTION OF DIRECTORS
Four directors are to be elected at the Annual Meeting to serve for
one-year terms until the next Annual Meeting and until their respective
successors are elected and qualified. The Board of Directors has recommended and
approved the nominees identified in the following table. It is intended that the
proxies solicited on behalf of the Board of Directors (other than proxies in
which the vote is withheld as to a nominee) will be voted at the Meeting "for"
the election of the nominees identified below. If a nominee is unable to serve,
the shares represented by all valid proxies will be voted for the election of
such substitute nominee as the Board of Directors may recommend. At this time,
the Board of Directors knows of no reason why any nominee may be unable to
serve, if elected. Except as disclosed herein, there are no arrangements or
understandings between the nominee and any other person pursuant to which the
nominee was selected.
The following information about the Company's nominees for election as
directors is based, in part, upon information furnished by the nominees.
Director Name Age Title Since
- ------------- --- ----- -----
Robert M. Aiken, Jr.(1)(2) 61 Chairman of the Board of Directors 1998
Gerald W. Klein 55 Director, President and Chief Executive Officer 1994
Thomas D. Parente (2)(3) 57 Director 1995
Lambert C. Thom (1)(2) 58 Director 1997
- -------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Chairman of Audit Committee
The principal occupation of each of the directors of the Company is set forth
below.
Robert M. Aiken, Jr., who has been a director since January 1998 and
Chairman of the Board since December 2000, has been President of RMA Consulting,
Inc., a management-consulting firm, since July 1998. From November 1996 to June
1998, Mr. Aiken was Executive Vice President and Chief Financial Officer of
Sunoco, Inc. (formerly Sun Company, Inc.), and from September 1990 to October
1996, Mr. Aiken was senior Vice President and Chief Financial Officer of Sunoco,
Inc. Mr. Aiken is a certified public accountant. In addition to serving on the
Company's board, Mr. Aiken serves on the Board of Directors of NN, Inc.
Gerald W. Klein has served as President and Chief Executive Officer of
the Company since June 1998. He joined the Company as Vice President and Chief
Financial Officer in February 1996 and 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. 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.
Thomas D. Parente joined the Company as a Director in June 1995, and
was elected as Chairman of the Board in August 1998, which position he held
until December 2000. 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, he 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 the Company as a Director in December 1997. He
has served as Vice President and 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 management firm.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met five times during fiscal 2003. During fiscal
2003, no incumbent director of the Company attended fewer than 75% of the
aggregate of the total number of Board of Directors meetings and the total
number of meetings held by the committees of the board of Directors on which he
served.
The Board of Directors of the Company has a standing Audit Committee
and a Compensation Committee. The Audit Committee has the authority and duty to
select the independent auditors to be engaged as the Company's independent
auditors, and to evaluate the performance provided by the Company's independent
auditors. The Audit Committee also assesses the Company's internal accounting
controls, reviews the Company's financial disclosures and takes such other
action as it deems appropriate to ensure the appropriate safeguarding of the
Company's assets and accounting of its assets and liabilities. In October 2003,
the Board of Directors adopted a revised written charter for the Audit
Committee, delineating the Audit Committee's functions, powers and duties, a
copy of which is attached to this Proxy Statement as Appendix A. The members of
the Audit Committee are Messrs. Parente, Thom, and Aiken. This committee met
seven times during fiscal 2003.
The Compensation Committee reviews the Company's compensation practices
and benefit plans, determines the compensation of the Company's executive
officers, approves goals for Company-wide incentive plans and evaluates
performance against these goals. The members of the Compensation Committee are
Messrs. Aiken, Parente, and Thom. The Committee met one time during fiscal 2003.
The Company does not have a nominating committee. Candidates for
membership on the Board of Directors are selected by the full Board.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended June 30, 2003 with management and
has received the written disclosures and the letter from Stockton Bates, LLP,
the Company's independent auditors for the fiscal year ended June 30, 2003,
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee), as currently in effect. The Audit Committee
has also discussed with Stockton Bates, LLP the Company's audited financial
statements for the fiscal year ended June 30, 2003, including, among other
things, the quality of the Company's accounting principles, the methodologies
and accounting principles applied to significant transactions, the underlying
processes and estimates used by management in its financial statements and the
basis for the auditor's conclusions regarding the reasonableness of those
estimates, and the auditor's independence, as well as the other matters required
by Statement on Auditing Standards No. 61, as amended by Statement on Accounting
Standards No. 90 (Communication with Audit Committees), of the Auditing
Standards Board of the American Institute of Certified Public Accountants.
Based on these discussions with Stockton Bates, LLP and the results of
the audit of the Company's financial statements, the Audit Committee members
recommended unanimously to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2003.
The members of the Audit Committee are Robert M. Aiken Jr., Lambert C.
Thom, and Thomas D. Parente. Mr. Parente is the Chairman of the Audit Committee.
All of the members of the Audit Committee are independent, as defined by Section
121(A) of the American Stock Exchange's Listing Standards, Policies and
Requirements.
COMPENSATION OF DIRECTORS
Beginning July 1, 2003, the non-employee members of the Board of
Directors, who are also members of the Company's Audit Committee and
Compensation Committee, receive $15,000 annually for their services as a member
of the Board, Audit Committee and Compensation Committee. This fee is payable in
four quarterly installments. Before July 1, 2003, the non-employee members of
the Board of Directors received $500 per Board meeting attended, the members of
the Audit Committee received $500 for each committee meeting attended and the
members of the Compensation Committee received $500 for each committee meeting
attended. All directors are entitled to reimbursement for reasonable expenses
incurred in the performance of their duties as Board members. Additionally, the
Company's Amended and Restated 1995 Stock Option Plan provides that all
non-employee members of the Board of Directors receive an initial grant of
options to purchase 10,000 shares of Common Stock upon appointment or election
to the Board, and thereafter receive options to purchase 5,000 shares of Common
Stock on January 1 of each year that such person is a non-employee director. The
options have terms of five years and have an exercise price equal to the fair
market value on the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL
NOMINEES.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation paid during the fiscal years ended June 30, 2003, 2002, and 2001 to
the Company's Chief Executive Officer and the Company's other executive officers
whose salary and bonus exceeded $100,000 during the 2003 fiscal year.
Annual Compensation Long-Term Compensation
----------------------- ---------------------------
Securities All Other
Fiscal Underlying Compensation
Name & Principal Position Year Salary ($) Bonus ($) Options (#) (1)
- ------------------------- ---- ---------- --------- ----------- ---
Gerald W. Klein 2003 175,000 5,166 210,000 $6,585
President and Chief Executive 2002 175,000 5,000 -0- $5,942
Officer 2001 175,000 500 150,000 $5,549
William C. Acheson (2) 2003 139,615 5,166 -0- $12,044
Former Vice President - 2002 165,770 5,000 -0- $5,849
Business Development 2001 165,000 500 25,000 $5,710
Lawrence F. Fanelle 2003 128,077 5,166 147,000 $7,817
Vice President- Operations 2002 120,000 5,000 -0- $6,437
2001 120,000 500 50,000 $7,427
Thomas W. Murphy 2003 103,558 5,166 120,000 $5,964
Vice President- Finance and 2002 97,500 5,000 -0- $5,433
Chief Financial Officer 2001 97,500 500 75,000 $5,433
Richard H. Siporin 2003 150,000 5,166 110,000 $6,065
Vice President- Sales and Marketing 2002 150,000 5,000 -0- $5,940
2001 150,000 500 50,000 $8,344
(1) Represents: (a) amounts contributed by the Company to each named
executive officer's 401(k) Plan, and (b) life insurance premiums paid
by the Company.
(2) On May 5, 2003, Mr. Acheson resigned from his position with the
Company, and in connection therewith Mr. Acheson entered into a
Separation Agreement and General Release with the Company. Under the
agreement, Mr. Acheson agreed to release the Company from any claims
relating to his employment, and in return, the Company agreed to pay
Mr. Acheson $5,000, plus $1,824 representing accrued vacation as of
May 5, 2003, and to maintain his health and dental insurance benefits
through the end of May 2003. The amounts paid to Mr. Acheson during
the 2003 fiscal year pursuant to the Separation Agreement are included
under "All Other Compensation."
Option Grants During 2003 Fiscal Year
The following table provides information related to options granted to the named
executive officers during fiscal 2003. The Company does not have any outstanding
stock appreciation rights.
Number of Securities Percentage of Total
Underlying Options Options Granted to Exercise Price
Name Granted Employees in Fiscal Year ($/share)
---- ------- ------------------------ ---------
Gerald W. Klein 210,000 (1) 17.9% (2)
Lawrence F. Fanelle 147,000 (3) 12.5% (2)
Richard H. Siporin 110,000 (4) 9.4% (2)
Thomas W. Murphy 120,000 (5) 10.2% (2)
(1) 70,000 of these options are exercisable on each of July 29, 2003,
July 29, 2004 and July 29, 2005.
(2) One third of these options have an exercise price of $0.25 per shares,
one third have an exercise price of $0.50 per share, and one third
have an exercise price of $0.75 per share.
(3) 49,000 of these options are exercisable on each of July 29, 2003,
July 29, 2004 and July 29, 2005.
(4) 36,667 of these options are exercisable on each of July 29, 2003,
July 29, 2004 and July 29, 2005.
(5) 40,000 of these options are exercisable on each of July 29, 2003,
July 29, 2004 and July 29, 2005.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
The following table provides information related to employee options exercised
by the named executive officers during fiscal 2003 and the value of such options
at year-end.
Shares Value* of Unexercised
Acquired Number of Securities In-The-Money Options
on Underlying Unexercised at FY-End ($)
Exercise Options at FY End (#) Exercisable/Un
Name (#) Value Realized ($) Exercisable/Un-exercisable Exercisable
---- --- ------------------ -------------------------- ---------------------
Gerald W. Klein -0- -0- 217,500 / 210,000 10,500 / 4,900
Lawrence F. Fanelle -0- -0- 85,000 / 147,000 3,500 / 3,430
Thomas W. Murphy -0- -0- 110,000 / 120,000 5,250 / 2,800
Richard H. Siporin -0- -0- 150,000 / 110,000 3,500 / 2,567
* Value of options based upon a share price of $0.32, the closing price of the
Common Stock on June 30, 2003.
Long-Term incentive Plans
The Company does not have any long-term incentive plans.
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT OF AUDITORS
On February 19, 2002, the Company received notice from its independent
auditor, KPMG, LLP ("KPMG"), of its resignation as the Company's certifying
accountant. On March 1, 2002, the Company's Audit Committee unanimously approved
the engagement of Stockton Bates, LLP ("Stockton Bates") as the Company's
principal accountant to audit the Company's financial statements for the fiscal
year ending June 30, 2002 and to review the Company's interim financial
statements.
KPMG's audit report on the Company's consolidated financial statements
as of and for the fiscal year ended June 30, 2001 did not contain an adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles, except as follows: KPMG's
audit report on the Company's consolidated financial statements as of June 30,
2001 and for the year ended June 30, 2001, included a separate paragraph as
follows: "The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has working capital and
stockholders' deficits at June 30, 2001, suffered a net loss, incurred negative
cash flows from operations for the year ended June 30, 2001, and no longer has a
credit facility available for future borrowings. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty."
In connection with the audit as of and for the fiscal year ended June
30, 2001, and the subsequent interim period through February 19, 2002, there
were no disagreements between the Company and KPMG on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of KPMG, would have caused
them to make reference in connection with their audit report to the subject
matter of the disagreement.
KPMG advised the Company that, in connection with KPMG's audit of the
Company's consolidated financial statements for the year ended, June 30, 2001,
KPMG had noted a matter involving the Company's internal control procedures and
its operation that KPMG considered to be a reportable condition of a material
weakness under standards established by the American Institute of Certified
Public Accountants. KPMG advised the Audit Committee that the Company did not
have sufficient internal controls in place to ensure that shipments with FOB
destination shipping terms were recognized as revenue only after the customer
had received these shipments. KPMG advised the Audit Committee of the foregoing
in a letter to the Audit Committee dated February 11, 2002, although KPMG had
previously communicated this issue to the Audit Committee prior to the date of
the letter. The Company's management has implemented the procedures recommended
by KPMG in its February 11, 2002 letter, to obtain the requisite proof of
delivery documentation for product shipments made during approximately the last
two weeks of a reporting period, in order to enable the Company to comply with
accounting principles generally accepted in the United States of America. The
Company has authorized KPMG to respond fully to the inquiries of any successor
auditor concerning this matter.
Stockton Bates' audit report on the Company's consolidated financial
statements as of and for the fiscal year ended June 30, 2002 did not contain an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope or accounting principles, except as follows:
Stockton Bates' audit report on the Company's consolidated financial statements
as of June 30, 2002 and for the year ended June 30, 2002 included a separate
paragraph as follows: "The accompanying financial statements have been prepared
assuming that eGames, Inc. will continue as a going concern. As discussed in
Note 1 to the financial statements, eGames, Inc. has minimal stockholders'
equity and working capital and no longer has access to its previous credit
facility and its liquidity needs are entirely dependent on cash flow from
operations. These matters raise substantial doubt about eGames, Inc.'s ability
to continue as a going concern. Management's plans in regards to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty."
The Company's Audit Committee has reappointed Stockton Bates, LLP as
the independent public accounting firm to audit the Company's financial
statements for the fiscal year ending June 30, 2004. The Board of Directors has
proposed that the shareholders ratify the appointment of Stockton Bates LLP.
A representative of Stockton Bates, LLP is expected to attend the
Annual Meeting. He or she will be given the opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions.
The following table sets forth the fees that the Company paid to
independent auditors for services provided to the Company during the last two
fiscal years:
2003 2002
---- ----
Audit Fees (1) $53,500 $49,500
Audit-Related Fees (2) $ -0- $ -0-
Tax Fees (3) $12,775 $9,445
All Other Fees (4) $ -0- $28,088
(1) Audit Fees consist of fees billed for professional services rendered
for the audit of the Company's annual financial statements and reviews
of the financial statements included in the Company's quarterly report
on Forms 10-QSB.
(2) Audit-Related Fees consist of services that are reasonably related to
the performance of the audit or review of the Company's financial
statements and are not reported under "Audit Fees."
(3) Tax Fees consist of professional services rendered by the independent
auditors for tax compliance, tax advice, and tax planning. The services
for the fees disclosed under this category include tax return
preparation and tax advice.
(4) All Other Fees consist of $12,400 in fees billed by KPMG LLP, the
Company's former independent accountants, in connection with services
related to the inclusion of KPMG's consent in the Company's fiscal 2002
Form 10-KSB, and $15,688 in fees billed by KPMG LLP in connection with
a tax matter relating to the Company's former United Kingdom
subsidiary.
The Audit Committee has considered whether the provision of services other than
audit services is compatible with maintaining the independent public
accountant's independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF STOCKTON BATES, LLP.
SHAREHOLDERS PROPOSALS
To be considered for inclusion in the Company's proxy statement
relating to the Company's 2004 Annual Meeting of Shareholders, shareholder
proposals must be received by the Company at its corporate office by June 26,
2004. In accordance with the Company's Bylaws, to be considered for presentation
at the next Annual Meeting of Shareholders, although not included in the
Company's proxy statement, shareholder proposals must be received no later than
July 26, 2004.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES AND EXCHANGE ACT 0F 1934
Section 16(a) of the Securities and Exchange Act of 1934 required the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission reports about their beneficial ownership of the Company's Common
Stock. All such persons are required by the Commission to furnish the Company
with copies of all reports that they file.
Based solely upon a review of the copies of such reports furnished to
the Company, or written representations from certain reporting persons that no
other reports were required, the Company believes that during the fiscal year
ended June 30, 2003, all of its officers and directors complied with all filing
requirements applicable to them.
OTHER MATTERS
The Company currently knows of no other business that will be presented
for consideration at the Annual Meeting. If any other business is properly
brought before the meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgment of the person
voting the proxies. If any such matters are presented at the meeting, then the
proxy agents named in the enclose proxy card will vote in accordance with their
judgment.
EVERY PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 2003, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT CHARGE, BY SENDING A WRITTEN REQUEST
TO ELLEN PULVER FLATT, SECRETARY, AT 2000 CABOT BOULEVARD WEST, SUITE 110,
LANGHORNE, PA 19047.
By order of the Board of Directors,
Ellen Pulver Flatt
Secretary
APPENDIX A
eGames, Inc.
Charter of the Audit Committee of the Board of Directors
I. Purpose
The Audit Committee (the "Committee") is appointed by the Board of Directors
(the "Board") to assist the Board in fulfilling its oversight responsibilities.
The Audit Committee's primary duties and responsibilities are to:
- Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, and legal
compliance;
- Monitor the independence and performance of the Company's independent
auditors;
- Provide an avenue of communication among the independent auditors,
management and the Board.
The Committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the organization. The Committee has the ability to
retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
The Committee will also prepare a report to shareholders as required by the
Securities and Exchange Commission ("SEC") to be included in the Company's
annual proxy statement.
II. Composition
The Committee shall be comprised of at least two directors. Each committee
member will be independent and have a basic understanding of finance and
accounting in order to be able to read and understand fundamental financial
statements. At least one member of the Committee shall have accounting or
related financial management expertise.
Committee members shall be appointed by the Board. The Board shall designate one
member of the Committee as its Chairman. If an audit committee Chairman is not
designated or present, the members of the Committee may designate a Chairman by
majority vote of the Committee membership.
III. Meetings
The Committee shall meet at least four times annually, or more frequently as
circumstances require. The Committee should meet privately in executive session
at least annually with management, the independent auditors, and as a committee
to discuss any matters that the Committee or each of these groups believe should
be discussed. In addition, the Committee should communicate with management and
the independent auditors quarterly to review the Company's financial statements
and significant findings based upon the auditors review and auditing procedures.
The Committee shall also maintain minutes of their meetings and periodically
report to the Board on significant matters relating to the Committee.
IV. Audit Committee Responsibilities and Duties
Review of Financial Statements and Earnings Releases
- ----------------------------------------------------
The Committee shall review and reassess the adequacy of this Charter at least
annually and recommend any proposed changes to the Board for approval.
Prior to releasing the year-end earnings, the Committee will discuss the results
of the audit with the independent auditors, and will discuss certain matters as
required to be communicated to audit committees in accordance with applicable
accounting standards.
The Committee shall review the Company's annual audited financial statements
prior to filing with the SEC as part of the Form 10-KSB. This review should
include discussion with management and independent auditors of significant
issues regarding accounting principles, practices, and judgments.
In consultation with the management and the independent auditors, the Committee
shall consider the integrity of the Company's financial reporting processes and
controls, and discuss significant financial risk exposures and the steps
management has taken to monitor, control, and report such exposures. The
Committee shall also review significant findings prepared by the independent
auditors together with management's responses.
The Committee shall review with financial management and the independent
auditors the Company's quarterly financial results prior to the release of
earnings and the Company's quarterly financial statements prior to filing with
the SEC as part of the Form 10-QSB. This review and discussion will include any
significant changes to the Company's accounting principles and any items
required to be communicated by the independent auditors in accordance with
applicable accounting standards and principles.
Independent Auditors
- --------------------
The Committee is directly responsible for the appointment, compensation and
oversight of the work of the independent auditors. The independent auditors will
report directly to the Committee.
The Audit Committee shall annually recommend to the Board the appointment of the
independent auditors and approve any discharge of auditors when circumstances
warrant.
The Committee will annually review the qualifications, performance and
independence of the independent auditors. The Committee's evaluation shall also
include the review and evaluation of the lead partner of the independent
auditors. At least annually, the Committee shall obtain and review a report from
the independent auditors regarding: the firm's internal quality-control
procedures; any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within the preceding
five years respecting one or more independent audits carried out by the firm,
and any steps taken to deal with any such issues; and, to assess the auditor's
independence, all relationships between the independent auditor and the Company.
The Committee will also confer with management in reviewing the qualifications,
performance and independence of the independent auditors.
The Committee shall approve all audit engagement fees and terms and all
non-audit engagements with the independent auditors. The Chairman of the
Committee may approve any proposed non-audit engagements that arise between
Committee meetings, provided that any such decision is presented to the full
Committee at its next scheduled meeting.
The Committee will also review the independent auditors' audit plan, including
the scope, staffing and locations of their examination, reliance upon
management, and general audit approach, and consider the independent auditors'
judgments about the quality and appropriateness of the Company's accounting
principles as applied in its financial reporting.
Legal Compliance
- ----------------
On at least an annual basis, the Committee should review with the Company's
counsel any legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with applicable
laws and regulations, and inquiries received from regulators or governmental
agencies.
Other Audit Committee Responsibilities
- --------------------------------------
The Committee shall perform any other activities consistent with this Charter,
the Company's by-laws, and governing law, as the Committee or the Board deems
necessary or appropriate.
The Committee shall annually review a summary of director and officers' related
party transactions and potential conflicts of interest.
REVOCABLE PROXY
EGAMES, INC.
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 4, 2003
The undersigned hereby appoints Gerald W. Klein and Thomas W. Murphy,
with full powers of substitution, to act as attorneys and proxies for the
undersigned to vote all shares of capital stock of eGames, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
(the "Meeting") to be held at the offices of the Company, 2000 Cabot Boulevard
West, Suite 110, Langhorne, Pennsylvania on December 4, 2003 at 3 p.m. and at
any and all adjournments and postponements thereof.
1. The election as directors of all nominees listed below (except as marked to
the contrary).
[ ] FOR [ ] VOTE WITHHELD
INSTRUCTION: To withhold your vote for any individual nominee, strike a line in
that nominee's name below.
ROBERT M. AIKEN, JR. GERALD W. KLEIN THOMAS D. PARENTE
LAMBERT C. THOM
2. The ratification of the appointment of Stockton Bates, LLP as the Company's
auditors for the fiscal year ending June 30, 2004.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment or postponement
thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS AND THE NOMINEES
LISTED ABOVE. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL
BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOW OF NO OTHER BUSINESS TO BE PRESENTED AT THE
MEETING.
The Board of Directors recommends a vote "FOR" each of the proposals and
the election of the nominees listed above.
(Continued and to be SIGNED on Reverse Side)
THIS PROXY IS SOLICITED ON BEHALF OF THE EGAMES BOARD OF DIRECTORS
Should the undersigned be present and choose to vote at the Meeting or
at any adjournments or postponements thereof, and after notification to the
Secretary of the Company at the Meeting of the shareholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary of the
Company or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt from the Company, prior to the
execution of this proxy, of notice of the Meeting, a Proxy Statement and an
Annual Report to Shareholders.
Date: , 2003
---------------------------------------
(Please date this Proxy)
Signature of Shareholder
Signature of Shareholder
Please sign exactly as your name(s)
appear(s) to the left. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title. If shares are held jointly,
each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE