eGAMES, INC. CHANGE OF CONTROL SEVERANCE PLAN
FOR LEVEL ONE EMPLOYEES
EFFECTIVE JUNE 23, 2004
The Board of Directors of eGames, Inc. (the "Company") has approved the
eGames, Inc. Change of Control Severance Plan for Level One Employees, including
any attachments and exhibits to this document, all of which are part of the plan
(the "Plan"). The Plan provides certain severance benefits for each Level One
Employee (referred to in this Plan as "you"), in the event that you lose your
job as a result of a change of control of eGames, Inc. and the Change of Control
occurs at any time while the Plan is in effect. The Plan has been adopted in
recognition of the fact that the Company from time to time may consider the
possibility of an acquisition by another company or other Change of Control.
This possibility, and the uncertainty and questions that it may raise for you
and other Company employees, can result in the departure or distraction of
Company employees to the Company's detriment. The Board of Directors has
determined that adopting this Plan is an appropriate step to take to reinforce
and encourage continued employment, and attention and dedication of Company
employees to their assigned duties without distraction.
All capitalized terms that appear in this memorandum are defined in
Attachment A to this memorandum.
1. Eligibility. This Plan covers all Level One Employees of eGames, Inc.
2. Severance Benefits. If, within 90 days prior to or 365 days on or after
a Change of Control occurring while the Plan is in effect your employment is
terminated by the Company or any Successor for any reason other than for Cause,
or you voluntarily terminate your employment for Good Reason, you will be
entitled to receive the following payments and benefits:
(a) A lump sum severance payment equal to two times your Compensation.
The severance amount to which you are entitled will be paid to you in cash
within 15 calendar days after the date your employment is terminated and your
general release described in Section 15 becomes irrevocable.
(b) The Company will continue your coverage under each Covered Benefit
Plan in which you are a participant on the date of your termination, or
substantially similar coverage if the identical coverage is not available, as
set forth in this Section 2(b). If and to the extent such coverage is permitted
following termination of employment under any insurance contract providing such
coverage during employment, you will continue to participate in such coverage
for 24 months, and the Company will pay the same percentage of the premiums for
you and your eligible dependents that the Company paid immediately prior to your
termination. To the extent that such continued coverage is not provided under a
Company plan for any reason (including because an insurance policy providing
coverage only permits coverage of active employees), the Company will pay you,
as and when premiums are due, the full actual cost of coverage under any
insurance policies purchased by you to provide the same or similar coverage for
you and your eligible dependents for 24 months. Such 24 months of coverage, or
payments in lieu of coverage, under any Covered Benefit Plan that is or is part
of a group health plan will terminate, before the end of the 24-month period, on
the date you become covered under any other group health plan not maintained by
the Company which provides equal or greater benefits than such plan and which
does not exclude any pre-existing condition that you or your dependents may have
at that time. You must notify the Company immediately when you become covered
under another group health plan. To the extent that you incur a tax liability
(including federal, state and local taxes) in connection with a benefit provided
under this Section 2(b) which you would not have incurred had you been an active
employee of the Company participating in a Covered Benefit Plan, the Company
will pay you an amount equal to this tax liability within ten days after you
provide a written request for such reimbursement to the Company that states the
basis for and amount of the liability.
3. Other Benefits. This Plan does not obligate the Company to provide you
or any other employees with any severance benefits if your employment terminates
under circumstances not covered by this Plan. Employment termination
circumstances that are not covered by this Plan include termination of
employment as a result of your death, termination in connection with Disability,
termination for Cause, or any termination that is more than 90 days before or
365 days after a Change of Control. However, this Plan is not intended to reduce
any amounts otherwise payable, or in any way diminish your rights under any
incentive, retirement, pension, profit sharing, stock purchase or benefit plan
or other arrangement not related to severance payments made by the Company as
salary continuation in connection with any Change of Control of the Company, as
provided in such plans or arrangements. The severance benefits under this Plan
will not affect your rights to any stock options, restricted stock or other
equity interests granted by the Company now or in the future.
4. Withholding of Taxes. The Company will withhold from any of the amounts
payable to you all federal, state, city or other taxes required by applicable
law to be withheld by the Company.
5. No Employment. This Plan is not an employment agreement and nothing in
this Plan requires you to stay in the employment of the Company, requires the
Company to retain you in your present position or any other position, or changes
the "at-will" nature of your employment.
6. No Setoff. The Company's obligation to make severance payments to you
under this Plan and otherwise to perform its obligations will not be affected by
any setoff, counterclaim, recoupment, defense or other right which the Company
may have against you or others.
7. Claims and Disputes. You and the Company agree that any dispute,
controversy or claim arising out of or relating to this Plan may, at your
election, be submitted to nonbinding arbitration, administered by the American
Arbitration Association under its Commercial Arbitration Rules. All such
disputes, controversies or claims will be determined by a panel of three
arbitrators selected in accordance with the rules of the American Arbitration
Association and the arbitration will be conducted in Philadelphia, Pennsylvania,
unless otherwise agreed by the parties. The Company will be responsible for all
expenses of the arbitration proceeding. If you elect or agree to arbitration,
you nonetheless may appeal the result of such arbitration, or choose to file an
action in federal or state court as if such matter had not been subject to
arbitration. This Section will survive the termination of this Plan for any
reason.
8. Legal Fees. If the Company refuses or fails to provide you with any
severance benefits under this Plan or contests the validity of the Plan or your
rights to benefits, the Company shall promptly reimburse you, on a monthly
basis, for the reasonable attorney fees, costs and expenses incurred by you in
connection with any action you bring to enforce your rights under this Plan,
regardless of the outcome of the action, which expenses are incurred in good
faith by you. You shall be conclusively presumed to have acted in good faith
unless a court makes a final determination (not subject to appeal) to the
contrary.
9. Notice of Termination. Following a Change of Control occurring while the
Plan exists, any purported termination of your employment by the Company shall
be communicated by written notice which will indicate, if it is based on Cause,
the specific reasons relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination for Cause.
10. Effective Date. This Plan is effective as of June 23, 2004 and shall
remain in effect until the earlier of (i) such time as the Company has
discharged all of its obligations under the Plan, or (ii) the date of the
termination of the Plan under Section 11.
11. Amendment or Termination. After a Change of Control, the Company cannot
terminate or amend this Plan in any manner that may adversely affect your rights
under it, unless you expressly agree. The Company can amend or terminate this
Plan, in whole or in part, at any time before a Change of Control occurs. If the
Company takes any action to amend or terminate this Plan at any time before a
Change of Control occurs in any manner that may adversely affect your rights
under it, the amendment or termination shall not be effective until at least 90
days following such action to amend or terminate the Plan. Until the 90th day
following such amendment or termination, the Plan shall be applied as if such
amendment or termination had not occurred, except to the extent you agree
otherwise.
12. Successors.
(a) Company's Successors. Any successor to the Company (whether direct
or indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
("Successor") shall assume the obligations under this Plan and agree expressly
to perform the obligations under this Plan in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession.
(b) Your Successors. The terms of this Plan and all your rights under
the Plan shall inure to the benefit of, and be enforceable by, your personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
13. ERISA. This Plan is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). See Attachment B, which is part of the Plan,
for a statement of certain Plan information and the rules applicable under
ERISA.
14. General Release. A condition to your receipt of any severance payments
under this Plan will be your execution and delivery (and the expiration of any
applicable revocability period given by law) of a general release as described
in Attachment C in a form reasonably satisfactory to the Company. The release
will also have appropriate provisions necessary to insure that it is valid and
enforceable under applicable laws, including the Older Workers Benefit
Protection Act. The payments made to you under this plan will be considered
independent consideration made in exchange for your release.
Attachment A
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Definitions
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Whenever used in the Plan, the following capitalized words have the
meanings set forth below:
"Board of Directors" means the Board of Directors of the Company.
"Cause" means 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 the Company (whether or
not you have been charged with any crime); (iii) the willful material
misappropriation of property belonging to the Company; (iv) materially breaching
any proprietary information, nondisclosure or non-solicitation agreement between
you and the Company, or (iv) willfully disregarding your duties following
written warning from the Company.
"Change of Control" of the Company means and includes any of the following:
(a) "Any person" or "group" (as those terms are defined in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the voting power of then
outstanding securities of the Company.
(b) The individuals who are members of the Company's Board of
Directors as of the date hereof (the "Existing Directors"), cease, for any
reason, to constitute more than fifty percent (50%) of the number of authorized
directors of the Company as determined in the manner prescribed in the Company's
Articles of Incorporation and Bylaws; provided, however, that if the
appointment, or the election, or nomination for election, by the Company's
shareholders of any new director, was approved by a vote of at least fifty
percent (50%) of the Existing Directors, such new director shall be considered
an Existing Director; provided further, however, that no individual shall be
considered an Existing Director if such individual initially assumed office as a
result of either an actual or threatened election contest (as described in Rule
14a-12(c) promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies by or on behalf of anyone other than the Board of
Directors (a "Proxy Contest"), including by reason of any agreement intended to
avoid or settle any election contest or Proxy Contest.
(c) The consummation of a merger, consolidation or share exchange to
which the Company is a party in which either (i) the Company will not be the
surviving corporation, or (ii) the Company will be the surviving corporation and
any outstanding shares of Common Stock will be converted into shares of any
other company.
(d) The consummation of a sale, assignment, lease, conveyance or other
disposition of 50% or more of the assets or assets representing 50% or more of
the earning power of the Company, in one or a series of related transactions to
any Person(s).
(e) A complete liquidation of the Company.
"Company" means eGames, Inc., a Pennsylvania corporation, and, except in
determining whether or not a Change of Control of the Company has occurred,
shall include any Successor.
"Compensation" means your annual base salary and bonus (as determined
herein) at the time your employment is terminated (or, if greater, at the time
of the Change of Control giving rise to termination of your employment)
including, but not limited to, any amounts excluded at your election from your
gross income for federal income tax purposes pursuant to Section 125 or Section
401(k) of the Internal Revenue Code of 1986, as amended, or deferred pursuant to
any Company or subsidiary plan or program). For purposes of this definition,
your bonus shall be the annual bonus, if any, already paid or declared for the
year immediately preceding the year in which your employment terminates (or, if
greater, the annual bonus for the year immediately preceding the year the Change
of Control giving rise to termination of your employment occurred).
"Covered Benefit Plan" means any medical, dental, group term life, short
term disability and long term disability plan sponsored by the Company for the
benefit of its employees.
"Disability" means a physical or mental infirmity which substantially
impairs your ability to perform your material duties for a period of at least
one hundred eighty (180) consecutive calendar days and, as a result of such
Disability, you have not returned to your full-time regular employment prior to
termination.
"Good Reason" means, except as further provided herein, any of the
following: (i) any material breach by the Company, or any Successor of the
Company as a result of a Change of Control, of the Company's obligations under
this Plan; (ii) a reduction of your base salary by more than three percent (3%)
below the level in effect immediately prior to a Change of Control; (iii) any
material diminution of your job title, status, authority or responsibilities;
(iv) any material reduction in your bonus opportunity or any material employee
benefits; or (v) a change in the location of your primary office to a location
that is more than 30 miles from your office or job location on the date of the
Change of Control, except for required travel on the Company's business to an
extent substantially consistent with your business travel obligations in effect
immediately prior to the Change of Control. Good Reason shall be deemed not to
have occurred if (i) the Company or Successor has offered you a position that
would not have given rise to Good Reason if you had accepted such position and
(ii) you have not accepted such offer of employment. Any termination following
such rejected offer of employment shall not be for Good Reason.
"Level One Employees" means the Chief Executive Officer, the President, any
Vice President of the Company, and each other person designated by the Board in
writing.
Attachment B
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ERISA Supplement
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PART I: Plan Provisions
1. Plan Administration
(a) Reporting and Disclosure. The Company shall be the Plan
Administrator and shall file all reports and distribute to participants and
beneficiaries reports and other information required under applicable law.
(b) Administrative Committee. The Company, acting through its
appropriate executive officers, may designate a committee ("Committee") which
shall have the authority to control and manage the operation and administration
of the Plan and which shall be the Plan's "named fiduciary" within the meaning
of ERISA. If the Committee consists of more than two members, it shall act by
majority vote.
(c) Duties. The responsibility to control and manage the operation and
administration of the Plan shall include, but shall not be limited to, the
performance of the following acts:
(1) the filing of all reports required of the Plan other than
those which are the responsibility of the plan administrator under applicable
law;
(2) the distribution to participants and beneficiaries of all
reports and other information required of the Plan other than those which are
the responsibility of the plan administrator under applicable law;
(3) the keeping of complete records of the administration of the
Plan;
(4) the promulgation of rules and regulations for administration
of the Plan consistent with the terms and provisions of the Plan;
(5) the establishment of a procedure for carrying out a funding
policy and method consistent with the Plan's objectives and ERISA's
requirements; and
(6) the interpretation of the Plan, including the determination
of any questions of fact arising under the Plan and the making of all decisions
required by the Plan.
The Committee's interpretation of the Plan and any actions and decisions
taken in reliance thereon in good faith by the Committee shall be final and
conclusive. The Committee may correct any defect, or supply any omission, or
reconcile any inconsistency in the Plan in such manner and to such extent as
shall be expedient to carry the Plan into effect and shall be the sole judge of
such expediency.
(d) Allocation of Fiduciary Responsibility. The Board of Directors,
the Company and the Committee possess certain specified powers, duties,
responsibilities and obligations under the Plan. It is intended under this Plan
that each be responsible solely for the proper exercise of its own functions and
that each not be responsible for any act or failure to act of another. In
general:
(1) the Board of Directors, subject to Plan Section 11, has the
power to amend or terminate the Plan at any time; provided, however, the Board
of Directors may delegate the power to amend or terminate the Plan to a
committee of the Board of Directors;
(2) the Committee is responsible for discharging its duties under
subsection (c); and
(3) the Company has the responsibility to discharge any reporting
or disclosure obligation of, or in connection with, the Plan under applicable
law.
(e) Claims. If, pursuant to the rules, regulations or other
interpretations of the Plan, the Committee denies the claim of any person for
benefits under the Plan, the Committee shall provide written notice, within 90
days after receipt of the claim, setting forth in a manner calculated to be
understood by the claimant:
(1) the specific reasons for such denial;
(2) the specific reference to the Plan provisions on which the
denial is based;
(3) a description of any additional material or information
necessary to perfect the claim and an explanation of why such material or
information is needed; and
(4) an explanation of the Plan's claim review procedure and the
time limitations of this subsection applicable thereto.
A person whose claim for benefits has been denied may request review by the
Committee of the denied claim by notifying the Committee in writing within 60
days after receipt of the notification of claim denial. As part of said review
procedure, the claimant or his authorized representative may review pertinent
documents and submit issues and comments to the Committee in writing. The
Committee shall render its decision to the claimant in writing in a manner
calculated to be understood by the claimant not later than 60 days after receipt
of the request for review, unless special circumstances require an extension of
time, in which case decision shall be rendered as soon after the sixty-day
period as possible, but not later than 120 days after receipt of the request for
review. The decision on review shall state the specific reasons therefor and the
specific Plan references on which it is based.
(f) Indemnification. The Company shall indemnify and hold harmless to
the maximum extent permitted by its bylaws each person involved in the
administration of the Plan who is an employee or who is an officer or director
of the Company from any claim, damage, loss or expense, including litigation
expenses and attorneys fees, resulting from such person's service in connection
with the Plan provided the claim, damage, loss or expense does not result from
the person's gross negligence or intentional misconduct.
2. Funding. The Plan is unfunded. The Company shall pay all benefits due
under the Plan from the Company's general assets. Any person entitled to
benefits shall be an unsecured creditor of the Company with respect to such
benefits.
3. Miscellaneous
(a) Non-Alienation. None of the payments, benefits or rights of any
participant shall be subject to any claim of any creditor of such participant
and, in particular, to the fullest extent permitted by law, shall be free from
attachment, garnishment, trustee's process, or any other legal or equitable
process available to any creditor of such participant. No participant shall have
the right to alienate, anticipate, commute, pledge, encumber or assign any of
the benefits or payments which he or she may expect to receive, contingently or
otherwise.
(b) Incapacity. If the Committee determines that a person entitled to
receive any benefit payment is under a legal disability or is incapacitated in
any way so as to be unable to manage his financial affairs, the Committee may
make payments to such person for his benefit, or apply the payments for the
benefit of such person in such manner as the Committee considers advisable. Any
payment of a benefit in accordance with the provisions of this subsection shall
be a complete discharge of any liability to make such payment.
(c) Acquiescence. Each person who participates in the Plan shall be
deemed to have approved of and to have acquiesced in each and every provision of
the Plan for himself, his personal representatives, distributees, legatees,
assigns, and beneficiaries.
(d) Law Governing. This Plan shall be construed, administered and
applied in a manner consistent with the laws of the Commonwealth of Pennsylvania
where those laws are not superseded by ERISA or other applicable federal law.
PART II. Summary Plan Description
The Plan document, including Attachment A and this Attachment B, constitutes the
summary plan description for the eGames, Inc. Change of Control Severance Plan
for Level One Employees (the "Plan").
1. ERISA Rights. As a participant in the Plan, you are entitled to certain
rights and protections under the Employee Retirement Income Security Act
("ERISA"). ERISA provides that all plan participants shall be entitled to:
o Examine, without charge, at the Plan Administrator's office and at other
specified locations, such as work-sites, all documents governing the plan,
including insurance contracts and a copy of the latest annual report (Form
5500 series) filed by the plan with the U.S. Department of Labor.
o Obtain, upon written request to the Plan Administrator, copies of all
documents governing the operation of the plan, including insurance
contracts, copies of the latest annual report (Form 5500 series) and
updated summary plan description. The Plan Administrator may make a
reasonable charge for the copies.
o Receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish each Participant with a copy of
this summary annual report.
In addition to creating rights for plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your plan, called "fiduciaries" of the plan, have a duty
to do so prudently and in the interest of the plan participants and
beneficiaries.
No one, including your employer, or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a benefit from
the plan, or from exercising your rights under ERISA.
If your claim for a benefit is denied in whole or in part, you must receive a
written explanation of the reason for the denial. You have the right to have a
Plan fiduciary review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the plan and do not receive them within
30 days, you may file suit in a federal court. In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $200 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the Plan Administrator.
If you have a claim for benefits which is denied or ignored in whole or in part,
you may file suit in a state or federal court. If it should happen that plan
fiduciaries misuse the Plan's money, or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court. The court will decide who should
pay court costs and legal fees. If you are successful, the court may order the
person you have sued to pay these costs and fees. If you lose, the court may
order you to pay these costs and fees, for example, if it finds your claim is
frivolous.
If you have any questions about the plan, you should contact the Plan
Administrator. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest office of the Pension and
Welfare Benefits Administration, U.S. Department of Labor listed in your
telephone directory or the Division of Technical Assistance and Inquiries,
Employee Benefit Security Administration, U.S. Department of Labor, 200
Constitution Avenue, N.W., Washington, D.C. 20210.
2. Additional Information.
(a) Name of Plan and Plan Number:
eGames, Inc. Change of Control Severance Plan: Level One
Plan Number 500
(b) Name, address and telephone number of the
Plan Sponsor and Plan Administrator:
eGames, Inc.
2000 Cabot Boulevard, Suite 110
Langhorne, PA 19047
215-750-6606
(c) Plan Sponsor's Employer Identification
Number: 23-2694937
(d) Name of person designated as Agent for
Service of Legal Process and the address at
which such Process may be served:
eGames, Inc.
2000 Cabot Boulevard, Suite 110
Langhorne, PA 19047
Service of Legal Process may also be made upon eGames, Inc. in
its capacity as Plan Administrator.
(e) Plan Year: January 1 to December 31
(f) Effective Date: June 23, 2004
Type of Plan: Severance Pay Plan administered by the Plan Sponsor.
Attachment C
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Provisions of General Release
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The release required as a condition of benefits under the Plan ("Release")
will provide that your acceptance of severance benefits under the Plan will
constitute a full and complete release by you of any and all claims you may have
against the Company, any of its past, present or future shareholders or any of
their respective officers, directors, employees, and affiliates (past, present
or future), including, but not limited to, claims you might have relating to
your employment and/or cessation of employment with the Company, including
without limitation, tort, contract and common law claims and claims under Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of
1967, the Americans with Disabilities Act of 1990, or any other similar federal,
state or local statute, rule or regulation; provided that, there shall be
excluded from the scope of such general release the following:
(i) claims that you may have against the
Company for reimbursement of reasonable and necessary
business expenses incurred by you during the course
of your employment;
(ii) claims that may be made by you for payment
of accrued salary, stock options, pension benefits or
other continuing benefits as specifically provided for
in the Plan.
The Release will take such form, and include such further terms
and conditions, as the Board may provide.