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 Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12toss.240.14a-11(c) orss.240.14a-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)(4)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 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:
eGames, Inc.
2000 Cabot Boulevard, Suite 110
Langhorne, Pennsylvania 19047-1811
October 19, 2000February 4, 2002
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of eGames, Inc. (the "Company") which will be held at 2:11:00 p.m.a.m. Eastern
Standard Time on Thursday, December 7, 2000Tuesday, March 12, 2002 at the Sheraton Bucks
County, 400 Oxford Valley Road,Company's offices, 2000 Cabot
Boulevard, 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.
Your participation in the Company's affairs is important. 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 20002001 Annual Report is also enclosed. We
appreciate your interest in the Company. Thank you for your attention to this
important matter.
Sincerely,
/s/ Gerrald 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, SUITE 110
LANGHORNE, PA 19047-1811
(215) 750-6606
Notice of Annual Meeting of Shareholders
December 7, 2000March 12, 2002
To Our Shareholders:
The 2000 Annual Meeting of Shareholders of eGames, Inc. (the "Company") will
be held at 2:11:00 p.m.a.m. Eastern Standard Time on Thursday, December 7, 2000,Tuesday, March 12, 2002, at the
Sheraton Bucks County, 400 Oxford Valley Road,Company's offices, 2000 Cabot Boulevard, Suite 110, Langhorne, Pennsylvania, for
the following purposes:
1. To elect four (4) directors; 2. To approve an amendment to the Company's 1995 Amended and
Restated
Stock Option Plan;
3. To vote upon a proposal to approve the 2000 Employee Stock Purchase
Plan;
4. To vote on ratification of the appointment of KPMG LLP as the
Company's auditors for the fiscal year ending June 30, 2001; and
5.2. To act upon such other business as may properly come before the
meeting.
The Board of Directors has fixed September 21, 2000December 26, 2001 as the record date
for the determination of shareholders entitled to vote at the meeting. Only
shareholders of record at the close of business on that date will be entitled to
receive notice of the meeting and to vote at the meeting.
You are cordially 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 19, 2000February 4, 2002
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, 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 2000 Annual Meeting of Shareholders (the "Meeting") to be held
at the Sheraton Bucks County, 400 Oxford Valley Road,Company's offices, 2000 Cabot Boulevard, Suite 110, Langhorne,
Pennsylvania on December 7, 2000March 12, 2002 at 2:11:00 p.m.a.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 19, 2000.February 4, 2002.
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, 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
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.
Amendment to Stock Option Plan. 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 the amendment to the 1995 Amended and Restated Stock
Option Plan. Abstentions will be counted, and broker non-votes will not be
counted, for purposes of determining the presence of a quorum for this matter.
The matter will be approved if the majority of the votes cast are for approval.
Abstentions will have the effect of negative votes on the approval of the
amendment, and broker non-votes will have no effect in determining the outcome
of the vote.
Approval of Employee Stock Purchase Plan. 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 the 2000 Employee Stock Purchase Plan.
Abstentions will be counted, and broker non-votes will not be counted, for
purposes of determining the presence of a quorum for this matter. The matter
will be approved if the majority of the votes cast are for approval. Abstentions
will have the effect of negative votes on the approval of the plan, and broker
non-votes will have no effect in determining the outcome of the vote.
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 borne 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 trustees, 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.
VOTING SECURITIES
At the close of business on September 21, 2000,December 26, 2001, the record date for the
determination of shareholders entitled to receive notice of and to vote at the
Company's 2000 Annual Meeting of Shareholders, the Company's outstanding voting
securities consisted of 9,749,9759,989,337 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 June 30, 2000November 28, 2001 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. 38,80070,500 (3) *
2 Cedar Marsh Retreat
Savannah, GA 31411-2922
William C. Acheson 293,633384,900 (4) 2.95%3.7%
Lawrence Fanelle 95,375168,675 (5) *1.6%
Gerald W. Klein 460,000475,000 (6) 4.62%4.6%
Odyssey Capital Group, L.P. 797,500 (7) 8.16%7.9%
950 West Valley Road, Suite 2902
Wayne, PA 19087
Thomas D. Parente 73,35090,000 (8) *
133 Union Mill Terrace
Mt. Laurel, NJ 08054
Nancy M. Simpson 96,333198,000 (9) 1.9%
2 Belmont Blvd.
Sewell, NJ 08080
Richard Siporin 60,300(10) *
Lambert C. Thom 105,267 (10) 1.07%113,624(11) 1.1%
Bangert Dawes Reade Davis & Thom
220 Montgomery Street
San Francisco,106 Lyford Drive
Tiburon, CA 9410494920
All officers and directors as a group (9 persons) 1,241,966 (11) 12.1%1,663,541(12) 14.8%
- ---------------------
*Less than 1%.
(1) Unless otherwise indicated, the address of each named holder is c/o
eGames, Inc., 2000 Cabot Boulevard, 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, shares which may be acquired upon exercise of stock
options which are currently exercisable or which become exercisable
within sixty days of June 30, 2000November 28, 2001 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 25,80057,500 shares of Common Stock that may be acquired through the
exercise of options that were exercisable as of June 30, 2000November 28, 2001 or
became exercisable within 60 days of that date.
(4) Includes 199,333290,600 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of June 30, 2000November 28, 2001
or became exercisable within 60 days of that date.
(5) Includes 93,300166,600 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of June 30, 2000November 28, 2001
or became exercisable within 60 days of that date. Also includes 2,075
shares held by Mr. Fanelle's immediate family members.
(6) Includes 215,000230,000 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of June 30, 2000November 28, 2001
or became exercisable within 60 days of that date.
(7) The information presented is as of June 30, 20002001 based upon
information supplied to the Company by Odyssey Capital Group, L.P.
("Odyssey"). Includes 28,000 shares of Common Stock issuable upon
exercise of warrants. As reported in a Schedule 13G dated February 17, 1997 jointly
filed by Odyssey, John P. Kirwin, Bruce E. Terker and Kirk B. Griswold
, votingVoting and investment power of the shares of
Common Stock held by Odyssey are shared by Odyssey and Messrs.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 35,80052,500 shares of Common Stock that may be acquired through the
exercise of options that were exercisable as of June 30, 2000November 28, 2001 or
became exercisable within 60 days of that date. Also includes 5,550
shares held by Mr. Parente's immediate family members.
(9) The information presented is as of June 30, 2001 based upon information
supplied to the Company by Ms. Simpson. Includes 83,333185,000 shares of
Common Stock that may be acquired through the exercise of options that
were exercisable as of June 30, 2000November 28, 2001 or became exercisable within
60 days of that date.
(10) Includes 25,80058,000 shares of Common Stock that may be acquired through the
exercise of options that were exercisable as of June 30, 2000November 28, 2001 of
became exercisable within 60 days of that date.
(11) Includes 57,500 of Common Stock that may be acquired through the
exercise of options that were exercisable as of November 28, 2001 or
became exercisable within 60 days of that date.
Also includes 23,343 shares of
Common Stock issuable upon conversion of convertible subordinated debt.
(11)(12) Includes 762,6751,191,600 shares of Common Stock that may be acquired by such
persons through the exercise of options and/or conversion of
convertible subordinated debt that were exercisable or convertible as
of June 30, 2000November 28, 2001 or became exercisable or convertible within 60
days of that date.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Gerald W. Klein 5253 President and Chief Executive Officer
William C. Acheson 50 Executive51 Vice President,
Nancy M. Simpson 43 Vice President - Product Development
Lawrence Fanelle 49 Vice President, - Operations
Thomas W. Murphy 42 Vice President, Finance and Chief Financial Officer
Richard Siporin 41 Vice President, of Sales - North America
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 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. Klein is a certified public accountant.
Mr. Acheson has been the Company's Vice President of Product
Development since July 2001. Prior to that he served as the Company's Executive
Vice President sincefrom December 1999. He joined the Company in May 1997 as the
Company's Vice President
- - Sales and Marketing. Prior to that, Mr. Acheson
provided marketing consulting services to the Company from January 1997 until
April 1997. From 1992 until April 1996, Mr. Acheson served as Senior Vice
President of Revlon, Corp.
Ms. Simpson has been Vice President of Product Development of the
Company since November 1998. Ms. Simpson joined the Company in November 1997 as
Director of Product Development. From January 1996 to November 1997, she was
President and founder of a consulting firm which provided technology-driven
business solutions to mid-sized companies. From June 1994 to December 1995, Ms.
Simpson served as Project Manager of Xapps Corporation, a Microsoft Solutions
Provider. From 1977 until December 1993, Ms. Simpson was employed at Checkpoint
Systems, Inc., a provider of security and access control systems where she
served in various capacities including Information Manager.
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 robot
manufacturer,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. Mr. Murphy has been a
Certified Public Accountantcertified public accountant since 1987.
Mr. Siporin joined the Company in January 2000 as Vice President of
Sales - North America.Sales. 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 2000 Annual Meeting to serve for
one-year terms until the 2001next 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) 57 Director59 Chairman of the Board of Directors 1998
Gerald W. Klein 5253 Director, President and Chief Executive Officer 1994
Thomas D. Parente(1)(2) 53 Chairman of the Board of Directors55 Director 1995
Lambert C. Thom (1)(2) 5556 Director 1997
- -------
- ---------
(1) Member of Audit Committee
(2) Member of Compensation Committee
The principal occupation of each of the nominees for directordirectors 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 consultingmanagement-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
1997,1996, Mr. Aiken was Senior Vice President and Chief Financial Officer of Sunoco,
Inc. Mr. Aiken has served as
Chairman of the Board and Director of Radnor Corp., a real estate development
company and wholly-owned subsidiary of Sunoco, Inc., since June 1994. Mr. Aiken is a certified public accountant. In addition to serving on the
Company's board, Mr. Aiken serves on the Board of Trustees for Bryn Mawr
College.
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. Mr. Klein is a
certified public accountant.
Thomas D. Parente joined the Company as a Director in June 1995, and
was elected as Chairman of the Board in August 1998.1998, 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 1995, 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 directorDirector 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 4eight times during fiscal 2000.2001. During
fiscal 2000,2001, 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
recommend to the Board of Directors the auditors to be engaged as the Company's
independent public accountants, to evaluate the performance of the Company's
independent public accountants and to review the results and scope of the audit
and other services provided by the Company's independent accountants. 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 June 2000, the Board of Directors
adopted a 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 Exhibit A. The members of the Audit Committee are Messrs.
Parente, Thom and Aiken. This committee met 3three times during fiscal 2000.2001.
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. This Committee met 3two times during fiscal
2000.2001.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended June 30, 2001 with management and
has received the written disclosures and the letter from KPMG LLP, the Company's
independent auditors for the fiscal year ended June 30, 2001, required by
Independent Standards Board Standard No. 1 (Independent Discussions with Audit
Committee). The Audit Committee has also discussed with KPMG LLP the Company's
audited financial statements for the fiscal year ended June 30, 2001, 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 of the
Auditing Standards Board of the American Institute of Certified Public
Accountants.
Based on these discussions with KPMG 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, 2001.
The members of the Audit Committee are Robert M. Aiken, Jr., Lambert C.
Thom and Thomas D. Parente.
COMPENSATION OF DIRECTORS
The non-employee members of the Board of Directors receive $500 per
meeting attended. Additionally, the members of the Audit Committee receive $500
for each committee meeting attended and the members of the Compensation
Committee receive $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 grantgrant. On
January 25, 2001, the Company granted options for 25,000 shares of Common Stock
to each non-employee director in lieu of the automatic annual option grants.
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, 2001, 2000 1999 and 19981999 to
the Company's Chief Executive Officer and the Company's other executive officers
whose salary and bonus exceeded $100,000 during the 20002001 fiscal year.
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities
Fiscal Underlying All Other
Name & Principal Position Year Salary($Salary ($) Bonus($Bonus ($) Options(#) Compensation(2)Options (#) Compensation (1)
- ------------------------- ---- ---------- --------- -------- ---------- -------------------------- ----------------
Gerald W. Klein 2001 176,086 -0- 150,000 $4,964
President and Chief Executive Officer 2000 175,885 -0- 37,500 $5,000
President and Chief Executive Officer 1999 165,757 -0- 30,000 $5,581
1998 133,270 -0- 205,000(1) $3,138
William C. Acheson 2001 165,961 -0- 50,000 $5,250
Vice President - 2000 162,877 -0- 25,000 $5,375
Executive Vice PresidentProduct Development 1999 150,327 -0- 29,000 $6,055
1998 100,000 60,000 220,000(3) $2,695
Nancy M. Simpson (2) 2001 120,677 -0- 50,000 $5,250
Former Vice President - Product 2000 120,477 -0- 10,000 $5,375
Vice President - Product
Development 1999 106,404 -0- 25,000 $5,375
1998 63,462Lawrence Fanelle 2001 123,012 -0- 100,000 $3,750
Lawrence Fanelle50,000 $5,250
Vice President - Operations 2000 122,812 -0- 10,000 $5,375
Vice President - Operations 1999 108,135 -0- 25,000 $5,000
1998 84,615 5,000 110,000 $4,125
Richard Siporin 2001 150,825 -0- 50,000 $7,904
Vice President - Sales 2000 60,577 -0- 100,000 $2,596
1999 -0- -0- -0- $ - 0-
- --------------------------
(1) 205,000 stock options granted to Mr. Klein during the 1997 fiscal year
were subsequently canceled and 205,000 new stock options were regranted
to Mr. Klein during the 1998 fiscal year at a lower exercise price.
(2) Represents amounts contributed by the Company to each named executive
officer's 401(k) Plan.
(3) 100,000 stock options granted(2) On August 2, 2001, Ms. Simpson's employment was terminated as a result
of reductions in the Company's workforce to Mr. Acheson duringreduce payroll expenses.
Pursuant to a separation agreement entered into at the 1997 fiscal
year were subsequently canceledtime Ms.
Simpson's employment was terminated, the Company paid Ms. Simpson the
equivalent of two weeks' base salary, and 100,000 new stock options were
granted to Mr. Acheson duringalso provided her with
medical and dental insurance through October 31, 2001 at the 1998 fiscal yearCompany's
expense. She also received a personal computer and a laptop computer
from the Company, valued at a lower exercise
price.approximately $4,000, as part of her
separation package.
Option Grants During 20002001 Fiscal Year
The following table provides information related to options granted to the named
executive officers during fiscal 2000.2001. The Company does not have any outstanding
stock appreciation rights.
Number of Securities Percent of Total Number of Securities OptionssOptions
Underlying Options Granted to
Underlying Options Employees in Exercise Price
Name Granted Fiscal Year ($/Share) Expiration Date
---- ------- ----------- --------- ---------------
Gerald W. Klein 37,500(1) 8% $3.188 12/07/04150,000(1) 19 % $0.25 1/25/06
William C. Acheson 25,000(2) 5.3% $3.188 12/07/0450,000(2) 6 % $0.25 1/25/06
Nancy M. Simpson 10,000(3) 2.1% $3.188 12/07/0450,000(2) 6 % $0.25 1/25/06
Lawrence Fanelle 10,000(4) 2.1% $3.188 12/07/0450,000(2) 6 % $0.25 1/25/06
Richard Siporin 50,000(2) 6 % $0.25 1/25/06
(1) 12,50075,000 of these options become exercisable on each of December 7, 2000,
December 7, 2001January 25, 2002
and December 7, 2002.January 25, 2003.
(2) 8,30025,000 of these options become exercisable on each of December 7, 2000January 25, 2002
and December 7, 2001,January 25, 2003.
Aggregated Option Exercises in Last Fiscal Year and 8,400 of these options become exercisable on
December 7, 2002.
(3) 3,300 of these options become exercisable on each of December 7, 2000 and
December 7, 2001, and 3,400 of these options become exercisable on
December 7, 2002.
(4) 3,300 of these options become exercisable on each of December 7, 2000 and
December 7, 2001, and 3,400 of these options become exercisable on
December 7, 2002.
Aggregated option exercises in last fiscal year and fiscal year-end option
valuesFiscal Year-end Option
- --------------------------------------------------------------------------
Values
- ------
The following table provides information related to employee options exercised
by the named executive officers during fiscal 20002001 and the value of such options
at year-end.
Shares Number of Securities Value* of Unexercised
Acquired Underlying Unexercised In-The-Money Options at
Shares Acquired on Exercise Options at FY End (#) FY-End ($)
Name Exercise (#) Value Realized ($) Exercisable/UnexercisableUn-exercisable Exercisable/UnexercisableUn-exercisable
---- ------------ ------------------ ------------------------- --------------------------------------------------- --------------------------
Gerald W. Klein -0- -0- 215,000132,000 / 57,500185,000 -0- / -0-
William C. Acheson -0- -0- 189,666247,633 / 84,33476,367 -0- / -0-
Nancy M. Simpson -0- -0- 83,333119,966 / 51, 66765,034 -0- / -0-
Lawrence Fanelle -0- -0- 93,300129,900 / 51,70065,100 -0- / -0-
Richard Siporin -0- -0- 33,000 / 117,000 -0- / -0-
* Value of options based upon a share price of $1.375,$0.14, the closing price of the
Common Stock on June 30, 2000.2001.
Long-Term Incentive Plans
The Company does not have any long-term incentive plans.
PROPOSAL TWO
PROPOSAL TO AMEND THE
1995 AMENDED AND RESTATED STOCK OPTION PLAN
At the meeting, there will be presented a proposal to approve an
amendment to the Company's 1995 Amended and Restated Stock Option Plan (the
"1995 Plan"). The full text of the 1995 Plan, as proposed to be amended, is
attached as Exhibit A. This amendment provides for an increase in the aggregate
number of shares of Common Stock reserved for issuance from 1,950,000 shares to
2,950,000 shares.
The Board of Directors believes that the granting of stock options is an
effective method of recruiting and retaining valuable employees of the Company
by providing an incentive to such persons and strengthening the identity of
interests between such key employees and the Company. An increase in the
aggregate number of shares of Common Stock reserved for issuance under the 1995
Plan is necessary to continue the Company's efforts to attract and retain
qualified key executives, directors and other personnel. Accordingly, on July
26, 2000, the Board of Directors adopted, subject to shareholder approval, an
amendment to increase the number of shares of Common Stock available under the
1995 Plan as described above.
Vote Required for Approval
To be adopted, the amendment to the 1995 Plan must be approved by a
majority of the outstanding shares of Common Stock represented and entitled to
vote at the meeting.
The Board unanimously recommends a vote FOR the adoption of the amendment
to the 1995 Plan.
Description of the Plan
Eligibility
Those persons who are employees, officers, directors andINDEPENDENT PUBLIC ACCOUNTANTS
No independent contractors of particular merit of the Company are eligible to bepublic accountants have yet been selected by
the committee (the "Committee") of the Board of Directors that administers the
1995 Plan. With respect to grants to non-employee directors, the Board of
Directors makes the selections. No determination has been made with respect to
future recipients of options under the 1995 Plan and it is not possible to
specify the names or positions of the executive officers to whom options may be
granted, or the number of shares to be covered by such options.
Types of Options
The 1995 Plan authorizes (i) the granting of incentive stock options
("Incentive Options") to purchase shares of the Company's Common Stock and (ii)
the granting of nonqualified stock options ("Nonqualified Options") to purchase
shares of the Company's Common Stock. Unless the context otherwise requires, the
term "Option" includes both Incentive Options and Nonqualified Options.
Administration
Except as described below, the 1995 Plan is administered by the
Compensation Committee (the "Committee") which currently consists of three
non-employee members of the Board of Directors. The Committee in its sole
discretion determines the eligible persons to be awarded Options, the number of
shares subject thereto and the exercise price thereof, subject to certain
limitations. In addition, the determinations and the interpretation and
construction of any provision of the 1995 Plan by the Committee is final and
conclusive. With respect to grants of options to non-employee directors, the
1995 Plan is administered by the Board of Directors.
Common Stock Subject to the 1995 Plan
A total of 1,950,000 shares of Common Stock (subject to adjustment
as discussed below) have been reserved for sale upon exercise of Options
granted under the 1995 Plan. As of the date hereof, 1,899,832 Options are
outstanding under the 1995 Plan. The proposed amendment would increase the
number of shares to 2,950,000.
On October 2, 2000, the last sale price of the Common Stock on the NASDAQ
SmallCap Market was $.96 per share.
Granting of Options
As of the date hereof, there were approximately 50 employees and three
non-employee directors who were eligible to receive Options under the 1995 Plan.
Except as described below, the Committee grants Options from time to time in its
discretion. Except as described below, no determination has been made as to the
number of Options that may be allocated to the individuals named in the Summary
Compensation Table, current executive officers as a group, current directors who
are not executive officers as a group, or all employees (including all current
officers who are not executive officers) as a group, as a result of the
amendment as set forth herein. The options granted under the 1995 Plan in the
2000 fiscal year to the Company's named executive officers are set forth in the
table entitled "Option Grants During 2000 Fiscal Year."
The 1995 Plan also provides for automatic and discretionary grants of
Options to non-employee directors of the Company. Directors receive Options for
10,000 shares of Common Stock upon becoming directors and Options for 5,000
shares of Common Stock on each January 1.
Exercise Price of Options
Options may not be granted with an exercise price per share that is less
than the fair market value of a share of Common Stock at the date of grant. The
Options granted to non-employee directors will have an exercise price equal to
the fair market value of a share of Common Stock at the date of grant.
Payment of Exercise Price
The exercise price of an Option may be paid in cash, certified or
cashier's check, by money order, personal check, the delivery of already owned
Common Stock having a fair market value equal to the exercise price, or by the
use of the cashless exercise features of the 1995 Plan, provided, however, that
if the optionee acquired such stock directly or indirectly from the Company, he
shall have owned such stock to be surrendered for six months prior to tendering
such stock for the exercise of an Option.
Special Provisions for Incentive Options
An employee may receive more than one Incentive Option, but the maximum
aggregate fair market value of the Common Stock (determined when the Incentive
Option is granted) with respect to which Incentive Options are first exercisable
by such employee in any calendar year cannot exceed $100,000. In addition, no
Incentive Option may be granted to an employee owning directly or indirectly
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company unless the exercise price is set at not less than 110%
of the fair market value of the shares subject to such Incentive Option on the
date of grant and such Incentive Option expires not later than five years from
the date of grant.
Transferability of Options
No Incentive Option granted under the 1995 Plan is assignable or
transferable, otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order. The Committee may grant
Nonqualified Options that are transferable without consideration, to immediate
family members.
Exercisability of Options
The Committee, in its sole discretion, may limit the optionee's right to
exercise all or any portion of an Option until one or more dates subsequent to
the date of grant. The Committee also has the right, exercisable in its sole
discretion, to accelerate the date on which all or any portion of an Option may
be exercised. The 1995 Plan provides that upon the occurrence of certain changes
in control, mergers or sales of substantially all of the assets of the Company,
each Option shall immediately become exercisable in full.
Expiration of Options
The expiration date of an Option is determined by the Committee at the
time of the grant, but in no event is an Option exercisable after the expiration
of 10 years from the date of grant of the Option.
If an optionee's employment is terminated for cause, all rights of such
optionee under the 1995 Plan cease and the Options granted to such optionee
become null and void for all purposes. The 1995 Plan further provides that in
most instances an Option must be exercised by the optionee within 90 days after
the termination of an optionee's employment with the Company (for any reason
other than termination for cause, mental or physical disability or death), if
and to the extent such Option was exercisable on the date of such termination.
If the optionee is a director and is not otherwise employed by the Company, his
Option must be exercised within 90 days of the date he ceases to be a director.
The termination provisions of Options granted to optionees who
are independent contractors are determined at the discretion of the
Committee. Generally, if an optionee's termination of employment is due
to mental or physical disability, the optionee will have the right to exercise
the Option (to the extent otherwise exercisable on the date of termination) for
a period of one year from the date on which the optionee suffers the
mental or physical disability. If an optionee dies while actively employed
by the Company, the Option may be exercised (to the extent otherwise
exercisable on the date of death) within one year of the date of the
optionee's death by the optionee's legal representative or legatee.
As described above, an Option becomes exercisable in full upon the
occurrence of certain corporate transactions.
Expiration of the 1995 Plan
The 1995 Plan will expire on June 30, 2005, and any Option outstanding on
such date will remain outstanding until it has either expired or has been
fully exercised.
Adjustments
The 1995 Plan provides for adjustments to the number of shares under
which Options may be granted, to the number of shares subject to outstanding
Options and to the exercise price of such outstanding Options in the event of a
declaration of a stock dividend or any recapitalization resulting in a stock
split-up, combination or exchange of the Company's Common Stock.
Certain Corporate Transactions
All outstanding Options automatically become immediately exercisable upon
a change in control, as defined in the 1995 Plan. In general, a change in
control is deemed to have occurred if existing members of the Board of Directors
nominated by existing members cease to constitute a majority of the Board, any
person becomes a 50% or more stockholder of the Company (unless the acquisition
is approved by a majority of the existing members of the Board), the Company
becomes a party to a merger in which it will not be the surviving company or the
stockholders approve the disposition of all or substantially all of the assets,
or 50% or more of the capital stock, of the Company.
Amendments
The Board may amend, suspend or terminate the 1995 Plan or any
Option at any time subject to stockholder approval in certain instances,
provided that such action may not, without the consent of the optionee,
substantially impair the rights of an optionee under an outstanding Option. The
Committee may not amend the 1995 Plan without further stockholder approval to
increase the number of shares of Common Stock reserved for issuance, to change
the class of employees eligible to participate in the 1995 Plan, to permit the
granting of Options with more than a 10-year term or to extend the termination
date of the 1995 Plan.
Federal Income Tax Consequences
Grants of Options
Under current tax laws, the grant of an Option will not be a taxable
event to the recipient optionee and the Company will not be entitled to a
deduction with respect to such grant.
Exercise of Nonqualified Options and Subsequent Sale of Stock
Upon the exercise of a Nonqualified Option, an optionee will recognize
ordinary income at the time of exercise equal to the excess of the then fair
market value of the Company's Common Stock received over the exercise price. The
taxable income recognized upon exercise of a Nonqualified Option will be treated
as compensation income subject to withholding and the Company will be entitled
to deduct as a compensation expense an amount equal to the ordinary income an
optionee recognizes with respect to such exercise. When shares of the Common
Stock received upon the exercise of an Nonqualified Option subsequently are sold
or exchanged in a taxable transaction, the holder thereof generally will
recognize capital gain (or loss) equal to the difference between the total
amount realized and the fair market value of the Common Stock on the date of
exercise; the character of such gain or loss as long-term or short-term capital
gain or loss will depend upon the holding period of the shares following
exercise.
Exercise of Incentive Options and Subsequent Sale of Stock
The exercise of an Incentive Option will not be taxable to the optionee,
and the Company will not be entitled to any deduction with respect to such
exercise. However, to qualify for this favorable tax treatment of incentive
stock options under the Code, the optionee may not dispose of the Common Stock
acquired upon the exercise of an Incentive Option until after the later of two
years following the date of grant or one year following the date of exercise.
The surrender of shares of the Company's Common Stock acquired upon the exercise
of an Incentive Option in payment of the exercise price of an Option within the
required holding period for incentive stock options under the Code will be a
disqualifying disposition of the surrendered shares. Upon any subsequent taxable
disposition of the Company's Common Stock received upon exercise of an Incentive
Option, the optionee generally will recognize long-term or short-term capital
gain (or loss) equal to the difference between the total amount realized and the
exercise price of the Option.
If an Option that was intended to be an incentive stock option under the
Code does not qualify for favorable incentive stock option treatment under the
Code due to the failure to satisfy the holding period requirements, the optionee
may recognize ordinary income in the year of the disqualifying disposition.
Provided the amount realized in the disqualifying disposition exceeds the
exercise price, the ordinary income an optionee shall recognize in the year of a
disqualifying disposition shall be the lower of (i) the excess of the amount
realized over the exercise price or (ii) excess of the fair market value of the
Company's Common Stock at the time of the exercise over the exercise price. In
addition, the optionee shall recognize capital gain on the disqualifying
disposition in the amount, if any, by which the amount realized in the
disqualifying disposition exceeds the fair market value on the Company's Common
Stock at the time of the exercise. Such capital gain shall be taxable as
long-term or short-term capital gain, depending on the optionee's holding period
for such shares.
Notwithstanding the favorable tax treatment of Incentive Options for
regular tax purposes, as described above, for alternative minimum tax purposes,
an Incentive Option is generally treated in the same manner as a Nonqualified
Option. Accordingly, an optionee must generally include in alternative minimum
taxable income for the year in which an Incentive Option is exercised the excess
of the fair market value of the date of exercise of the Company's Common Stock
received over the exercise price. If, however, an optionee disposes of the
Company's Common Stock acquired upon the exercise of an Incentive Option in the
same calendar year as the exercise, only an amount equal to the optionee's
ordinary income for regular tax purposes with respect to such disqualifying
disposition will be recognized for the optionee's calculation of alternative
minimum taxable income in such calendar year.
PROPOSAL THREE
PROPOSAL TO APPROVE THE
2000 EMPLOYEE STOCK PURCHASE PLAN
On August 31, 2000, the Board of Directors approved the 2000 Employee
Stock Purchase Plan ("Stock Purchase Plan") subject to approval by the Company's
stockholders. The text of the Employee Stock Purchase Plan is set forth in
Exhibit B to this Proxy Statement. The following summary of the Employee Stock
Purchase Plan is subject to, and qualified in its entirety by reference to,
Exhibit B.
Vote Required for Approval
To be adopted, the Stock Purchase Plan must be approved by a majority
of the outstanding shares of Common Stock represented and entitled to vote at
the meeting.
The Board unanimously recommends a vote FOR the adoption of the Stock
Purchase Plan.
Summary of the Stock Purchase Plan
The Stock Purchase Plan is designed to encourage and assist employees
of the Company and its subsidiaries to share an equity interest in the Company
through the purchase of Common Stock of the Company at a discount. It is the
intention of the Company to have the Stock Purchase Plan qualify as an "employee
stock purchase plan" under section 423 of the Internal Revenue Code of 1986, as
amended (the "Tax Code"). A discussion of the tax consequences under the Stock
Purchase Plan is set forth below. The Stock Purchase Plan is not intended to be
a plan that meets the requirements of section 401(a) of the Tax Code, and it is
not subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended .
The Stock Purchase Plan will be administered by the Company's
Compensation Committee (the "Committee"), consisting of at least two members.
The members of the Committee will be entitled to indemnification in accordance
with the Company's bylaws.
The Stock Purchase Plan allows eligible employees to become
participants in the Stock Purchase Plan during the first trading day that occurs
in January, April, July or October of each year. Each eligible employee who
enrolls in the Stock Purchase Plan is granted an option to purchase shares of
Common Stock under the plan, which option will expire after 27 months, subject
to change by the Committee. The maximum number of shares of Common Stock that
may be purchased under the Plan is 500,000 shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning on July 1, 2001
equal to the lesser of (i) 400,000 shares, (ii) 4% of the outstanding shares on
such date or (iii) a lesser amount determined by the Board, but in no event will
more than 500,000 shares of Common Stock be sold under the Plan during any
fiscal year.
Participation in the Stock Purchase Plan is limited to employees of the
Company and any subsidiary of the Company (other than subsidiaries specifically
excluded from participation by the Board of Directors) who work at least 20
hours per week and at least five months per calendar year, except that employees
who beneficially own 5% or more of the voting power of the Company's stock are
specifically excluded from participation. It is anticipated that approximately
50 employees of the Company and its subsidiary will be eligible to participate.
The discount will generally be 15 percent of the market price of the Common
Stock at the date of purchase, or, if less, 15 percent of the market price of
the Common Stock at the date of enrollment in the Stock Purchase Plan, or such
lower percentage of the market price of the Common Stock at either of those two
dates as the Committee determines. If the market price of the stock is lower on
a subsequent enrollment date than it was on the employee's enrollment date, the
employee's option is automatically replaced with a new option at that lower
market price.
Payment for shares purchased under the option can be made only through
payroll withholding, up to a maximum of 15%, or such lesser percentage
established by the Committee, of the employee's regular salary payments and
overtime pay as directed by the employee upon enrollment in the Stock Purchase
Plan. The Company shall then apply the funds withdrawn from the employee's pay
to purchase shares of Common Stock on each of four purchase dates per year. The
option granted pursuant to the Stock Purchase Plan can in no event give the
employee the right to purchase shares in a calendar year with a fair market
value in excess of $25,000, determined as of the applicable enrollment date.
The rights of employees participating in the Stock Purchase Plan are
not transferable by operation of law or otherwise, except that amounts accrued
through payroll withholding that have not been applied to purchase stock are to
be paid in cash to the legal representative of the employee's estate upon the
employee's death. The Committee may amend or terminate the Stock Purchase Plan
or outstanding options at any time, without notice, including amendments
necessary to preclude a charge to earnings under applicable accounting rules,
provided that stockholder approval is required for any amendment which would (1)
increase the number of shares reserved for purchase under the Stock Purchase
Plan; or (2) amend the requirements regarding the class of employees eligible to
purchase stock under the Stock Purchase Plan.
Summary of Tax Consequences of the Stock Purchase Plan
The following discussion of certain federal income tax consequences of
the Stock Purchase Plan is based on the Tax Code provisions in effect on the
date of this Proxy Statement, current regulations thereunder and existing
administrative rulings of the Internal Revenue Service . The discussion is
limited to the tax consequences on United States citizens and the tax
consequences may vary depending on the personal circumstances of individual
employees.
If the Stock Purchase Plan is approved by the shareholders at the
meeting, the Stock Purchase Plan will qualify under Section 423 of the Tax Code.
As such, if no disposition of the shares of Common Stock purchased by an
employee occurs within one year of the date of purchase or within two years of
the applicable enrollment date, no income tax consequences will arise for the
employee at the time of purchase. Instead, he or she will have taxable ordinary
income at the time of the disposition of the shares to the extent of the lesser
of (i) the difference between the purchase price and the market price of the
Common Stock at the date of enrollment and (ii) the actual gain (the amount that
the market value of the shares on the date of sale exceeds the participant's
purchase price). Any additional gain upon sale of the shares will be capital
gain. There will be no tax consequences to the Company. If the shares are sold
for less than the purchase price, there will be no ordinary income, and the
participant will have a long-term capital loss of the difference between the
sale price and the purchase price.
If a participating employee disposes of the shares of Common Stock
prior to the time periods referenced above (a "disqualifying disposition"), the
employee will have taxable ordinary income at the time of the disqualifying
disposition to the extent that the fair market value of the stock on the date of
purchase exceeds the participant's purchase price. The amount will be taxable in
the year of the disqualifying disposition regardless of whether the sale price
(or fair market value on the date of gift) exceeds the purchase price. If the
disposition is a sale, any change in the value of the shares after the date of
purchase will be a capital gain or loss. The Company will be allowed a tax
deduction equal to the amount of ordinary income realized by the employee upon a
disqualifying disposition.
Other Information Concerning the Stock Purchase Plan.
No determination can be made at this time as to the amount of stock
that will be purchased, the number or identity of employees who will
participate, or the time or times when stock will be purchased, since such
amounts will be determined within the sole discretion of the employees who
choose to participate in the Stock Purchase Plan.
Stock Price Information
The last sale price of the Company's Common Stock on the Nasdaq
SmallCap Market on October 2 was $.96.
PROPOSAL FOUR
RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has renewed the Company's arrangement for KPMG LLP
to be its auditors for the fiscal
year ending June 30, 2001, subject2002. The Company is currently reviewing its options in
order to minimize costs associated with the ratificationaudit of the appointment byCompany's financial
statements for the fiscal year ending June 30, 2002. KPMG LLP was the Company's
shareholders.independent public accounting firm for the fiscal year ended June 30, 2001. A
representative of KPMG LLP is expected to attend the Annual Meeting to respond
to appropriate questions and will have an opportunity to make a statement if he
or she so desires.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OFThe Company incurred the following fees for audit and other services performed
by KPMG LLP.LLP with respect to fiscal 2001:
Audit Fees.......................................................... $ 192,100
Financial Information, Systems Design and Implementation Fees....... $ -0-
All Other Fees...................................................... $ 52,091
The Audit Committee has considered whether the provision of services other than
audit services is compatible with maintaining the independent public
accountant's independence.
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement relating
to the Company's 2001next Annual Meeting of Shareholders, shareholder proposals must
be received by the Company at its corporate office by July 5, 2001.June 21, 2002. In
accordance with the Company's Bylaws, to be considered for presentation at the
2000next Annual Meeting of Shareholders, although not included in the Company's
proxy statement, shareholder proposals must be received no later than August 4,
2001.20,
2002.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires 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, 2000,2001, 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 2000 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 persons
voting the proxies. If any such matters are presented at the meeting, then the
proxy agents named in the enclosed 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, 2000,2001, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT CHARGE, BY SENDING A WRITTEN REQUEST
TO ELLEN PULVER FLATT, SECRETARY, AT 2000 CABOT BOULEVARD, SUITE 110, LANGHORNE,
PA 19047.
By order of the Board of Directors,
Ellen Pulver Flatt
Secretary
Exhibit A
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
PART I - DEFINITIONS AND ADMINISTRATIVE MATTERS
SECTION 1 - PURPOSE; DEFINITIONS
The purposeeGames, Inc.
Charter of the eGames, Inc. Amended and Restated 1995 Stock Option
Plan (the "Plan") is to enable employees, officers, directors and independent
contractorsAudit Committee of eGames, Inc. ("the Company") to: (i) own shares of stock in the
Company, (ii) participate in the stockholder value which has been created, (iii)
have a mutuality of interest with other stockholders and (iv) enable the Company
to attract, retain and motivate employees, officers, directors and independent
contractors of particular merit.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Board" means the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the Board
in fulfilling its oversight responsibilities. The Audit Committee's primary
duties and responsibilities are to:
o Monitor the integrity of the Company.
(b) "Code" meansCompany's financial reporting process and systems
of internal controls regarding finance, accounting, and legal compliance.
o Monitor the Internal Revenue Code of 1986, as amended
from time to time,independence and any successor thereto.
(c) "Company" means eGames, Inc., its Subsidiaries or any
successor organization.
(d) "Disability" means permanent and total disability within the
meaning of Section 22(e)(3)performance of the Code.
(e) "Disinterested Person" shall haveCompany's independent
auditors.
o Provide an avenue of communication among the meaning set forthindependent auditors, management
and the Board of Directors.
The Audit 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 Rules.
(f) "Eligible Independent Contractor" means an independent contractor
hired byorganization. The Audit Committee has the
Company who is neither an Employeeability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Company
nor a Non-Employee Director.
(g) "Employee" means any person, including a director, who is
employed by the Company and is compensated for such employment by a
regular salary.
(h) "Exchange Act" means the Securities Exchange ActNasdaq Stock Market.
The Audit Committee shall be comprised of 1934, as
amended.
(i) "Fair Market Value" means the per share value of the Stock as
of any given date,two or more directors as determined by
reference to the priceBoard, each of whom shall be independent nonexecutive directors, free from
any relationship that would interfere with the exercise of his or her
independent judgment. All members of the last
traded shareCommittee shall have a basic
understanding of Stock on the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System for such date or the next preceding date
that Stock was traded on such market, or, in the event the Stock is
listed on a stock exchange, the closing price per share of Stock as
reported on such exchange for such date.
(j) "Incentive Stock Option" means any Stock Option intendedfinance and accounting and be able to beread and designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
(k) "Insider" means a Participant who is subject to Section 16 of
the Exchange Act.
(l) "Non-Employee Director" means anyunderstand
fundamental financial statements, and at least one member of the Board whoCommittee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board. If an audit committee
Chair is not an Employeedesignated or present, the members of the 2 Company and is not compensated for employmentCommittee may designate a
Chair by a
regular salary.
(m) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(n) "Parent means any corporation which owns stock entitling such
corporation to fifty percent (50%)majority vote of the Committee membership.
The Committee shall meet at least three times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. 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, or at least its
Chair, should communicate with management and the independent auditors quarterly
to review the Company's financial statements and significant findings based upon
the auditors limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually. Submit
the charter to the Board of Directors for approval and have the document
published at least every three years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments.
3. In consultation with the management and the independent auditors, consider
the integrity of the voting powerCompany's financial reporting processes and controls.
Discuss significant financial risk exposures and the steps management has
taken to monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors together with management's
responses.
4. Review with financial management and the independent auditors the company's
quarterly financial results prior to the release of earnings and/or the
company's quarterly financial statements prior to filing or distribution.
Discuss any significant changes to the Company's accounting principles and
any items required to be communicated by the independent auditors in
accordance with SAS 61 (see item 9). The Chair of the Company.
(o) "Participant" means an Employee, officer, Non-Employee
Director or EligibleCommittee may
represent the entire Audit Committee for purposes of this review.
Independent Contractor to whom an award is granted
pursuantAuditors
5. The independent auditors are ultimately accountable to the Plan.
(p) "Plan" meansAudit Committee
and the Rom Tech, Inc. AmendedBoard of Directors. The Audit Committee shall review the
independence and Restated 1995 Stock
Option Plan,performance of the auditors and annually recommend to the
Board of Directors the appointment of the independent auditors or approve
any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors audit plan - discuss scope, staffing,
locations, reliance upon management, and internal audit and general audit
approach.
9. Prior to releasing the year-end earnings, discuss the results of the audit
with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as
hereinafter amendedapplied in its financial reporting.
Legal Compliance
12. On at least an annual basis, 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 timeregulators or governmental
agencies.
Other Audit Committee Responsibilities
--------------------------------------
16. Annually prepare a report to time.
(q) "Rules" means Rule 16(b)(3) and any successor provisions
promulgatedshareholders as required by the Securities
and Exchange Commission under Section 16
ofCommission. The report should be included in the Exchange Act.
(r) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(s) "Securities Broker" means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise
of an Option pursuant to Section 5(d) hereof.
(t) "Stock" means the Common Stock of the Company, without par value.
(u) "Stock Option" or "Option" meansCompany's
annual proxy statement.
17. Perform any option to purchase shares of
Stock (including Restricted Stock, if the Board so determines)
granted pursuant to Section 5 below.
(v) "Subsidiary" means any corporation owned, in whole or in
part, by the Company.
SECTION 2 - ADMINISTRATION
2.1 The portion of the Planother activities consistent with respect to the grant of Options
pursuant to Part II shall be administered by the Board, provided, however, that
the Board reserves the right to delegate such administration to a committee of
the Board comprised of such directors as the Board may determine, and who shall
serve at the pleasure of the Board.
The Board shall have the authority to grant pursuant to the terms of
the Plan: Stock Options to Employees (including directors who are Employees) and
officers of the Company, and Eligible Independent Contractors. In particular,
the Board shall, subject to the limitations and terms of the Plan, have the
authority:
(i) to select the officers, directors (who are Employees) and
other Employees of the Company, and the Eligible Independent Contractors to whom
Stock Options may from time to time be granted hereunder;
(ii) to determine whether and to what extent incentive Stock
Options are to be granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, including the option
or exercise price and any restrictions or limitations, based upon such factors
as the Board shall determine, in its sole discretion;
(v) to determine whether and under what circumstances a Stock
Option may be exercised and settled in cash or Stock or without a payment of
cash;
(vi) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
Participant; and
(vii) to amend the terms of any outstanding award (with the
consent of the Participant) to reflect terms not otherwise inconsistent with the
Plan, including amendments concerning exercise price changes, vesting
acceleration or forfeiture waiver regarding any award or the extension of a
Participant's right with respect to awards granted under the Plan, as a result
of termination of employment or service or otherwise, based on such factors as
the Board shall determine, in its sole discretion.
The Board shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan, provided that the
Board may delegate to the Chief Executive Officer of the Company, or such other
officer as may be designated by the Board, the authority, subject to guidelines
prescribed by the Board, to grant Options to Employees and Eligible Independent
Contractors who are not then subject to the provisions of Section 16 of the
Exchange Act, and to determine the number of shares to be covered by any such
Option, and the Board may authorize any one or more of such persons to execute
and deliver documents on behalf of the Board, provided that no such delegation
may be made that would cause grants of Options to persons subject to Section 16
of the Exchange Act to fail to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. Determinations, interpretations
or other actions made or taken by the Board pursuant to the provisions of the
Plan shall be final and binding and conclusive for all purposes and upon all
persons.
No member of the Board or any committee designated by the Board to
administer the Plan shall be liable for any action or determination made in good
faith with respect to the Plan or any Stock Option granted under it. Nothing
herein shall be deemed to expand the personal liability of a member of the Board
or any such committee beyond that which may arise under any applicable standards
set forth inCharter, the Company's
by-laws, and Pennsylvaniagoverning law, nor shall anything
herein limit any rights to indemnificationas the Committee or advancement of expenses to which
any member of the Board deems necessary
or such committee may be entitled under any by-law,
agreement, voteappropriate.
18. Maintain minutes of the stockholders or directors, or otherwise.
2.2 The portion of the Plan with respectmeetings and periodically report to the grant of Options to
Non-Employee Directors pursuant to Part II shall be administered by the Board.
The Board shall have the same authority with respect to the grant of Options to
Non-Employee Directors under Part II as is provided to the Board pursuant to
Section 2.1
2.3 (a) The portion of the Plan with respect to the grant of Options
pursuant to Part III shall be administered by the Board. Grants of Stock Options
under Part III of the Plan and the amount, price and timing of the awards to be
granted will be automatic, as described in Part III hereof. All questions of
interpretation of the Plan with respect to the Grant of Options pursuant to Part
III will be determined by the Board, and such determination shall, unless
otherwise determined by the Board, be final and conclusive on all persons having
any interest hereunder.
(b) The Board reserves the right to amend the terms of any
outstanding award (with the consent of the Participant) to reflect terms not
otherwise inconsistent with the Plan, including amendments concerning exercise
price changes, vesting acceleration or forfeiture waiver regarding any award or
the extension of a Participant's right with respect to awards granted under the
Plan, as a result of termination of service or otherwise, based on such factors
as the Board shall determine, in its sole discretion.
SECTION 3 - STOCK SUBJECT TO THE PLAN
3.1 The aggregate number of shares of Stock that may be issued or
transferred under the Plan is 2,950,000, subject to adjustment pursuant to
Section 3.2 below. Such shares may be authorized but unissued shares or
reacquired shares. If the number of shares of Stock issued under the Plan and
the number of shares of Stock subject to outstanding awards (taking into account
the share counting requirements established under the Rules) equals the maximum
number of shares of Stock authorized under the Plan, no further awards shall be
made unless the Plan is amended in accordance with the Rules or additional
shares of Stock become available for further awards under the Plan. If and to
the extent that Options granted under the Plan terminate, expire or are canceled
without having been exercised, such shares shall again be available for
subsequent awards under the Plan.
3.2 If any change is made to the Stock (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination of shares, or exchange of shares or any other change in capital
structure made without receipt of consideration), then unless such event or
change results in the termination of all outstanding awards under the Plan, the
Board shall preserve the value of the outstanding awards by adjusting the
maximum number and class of shares issuable under the Plan to reflect the effect
of such event or change in the Company's capital structure, and by making
appropriate adjustments to the number and class of shares subject to an
outstanding award and/or the option price of each outstanding Option, except
that any fractional shares resulting from such adjustments shall be eliminated
by rounding any portion of a share equal to .500 or greater up, and any portion
of a share equal to less than .500 down, in each case to the nearest whole
number.
3.3 In any fiscal year of the Company, the maximum number of shares of
Common Stock with respect to which Options may be granted to any optionee shall
not exceed 5% of the Common Stock outstanding, as adjusted for stock splits,
stock dividends or other similar changes affecting the Common Stock.
SECTION 4 - DESIGNATION OF OPTIONEES
4.1 Optionees under Part II of the Plan shall be selected, from time to
time, by the Board from among those Employees and Eligible Independent
Contractors who, in the opinion of the Board, occupy responsible positions and
who have the capacity to contribute materially to the continued growth,
development and long-term success of the Company and its Subsidiaries. Optionees
under Part II may also be selected from among those Non-Employee Directors who,
in the opinion of the Board, have the capacity to devote themselves to the
Company's success.
4.2 All Non-Employee Directors on the date of grant shall be eligible
to receive Options under Part III of the Plan.
PART II - GRANTS TO EMPLOYEES, ELIGIBLE INDEPENDENT CONTRACTORS AND
NON-EMPLOYEE DIRECTORS
SECTION 5 - STOCK OPTIONS
Any Stock Option granted under Part II of the Plan shall be in such
form as the Board may from time to time approve. Stock Options granted under
Part II of the Plan may be of two types: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. The Board shall have the authority to grant
Incentive Stock Options, Non-Qualified Stock Options or both types of Stock
Options. To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a Non-Qualified Stock Option. The Board shall
have the authority to grant Non-Qualified Stock Options to Non-Employee
Directors under Part II. Anything in the Plan to the contrary notwithstanding,
no term of this Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under Section 422. Options granted hereunder shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Board shall deem
appropriate:
5.1 OPTION PRICE. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Board at the time of grant; provided,
however, that the option price per share for any Stock Option shall be not less
than 100% of the Fair Market Value of the Stock on the date of grant. Any
Incentive Stock Option granted to any optionee who, at the time the Option is
granted, owns more than 10% of the voting power of all classes of stock of the
Company or of a Parent or Subsidiary corporation (within the meaning of Section
424 of the Code), shall have an exercise price no less than 110% of Fair Market
Value per share on the date of the grant.
5.2 OPTION TERM. The term of each Stock Option shall be fixed by the
Board, but no Stock Option shall be exercisable more than ten years after the
date the Stock Option is granted. However, any Incentive Stock Option granted to
any optionee who, at the time the Option is granted, owns more than 10% of the
voting power of all classes of stock of the Company or of a Parent or Subsidiary
corporation may not have a term of more than five years. No Option may be
exercised by any person after expiration of the term of the Option.
5.3 EXERCISABILITY. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Board at or after grant. If the Board provides, in its discretion, that any
Stock Option is exercisable only in installments, the Board may waive such
installment exercise provisions at any time at or after grant in whole or in
part, based on such factors as the Board shall determine, in its sole
discretion.
5.4 METHOD OF EXERCISE. Subject to whatever installment exercise
provisions apply under Section 5.3, Stock Options may be exercised in whole or
in part at any time and from time to time during the Option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by cash, check, or such other instrument as the Board may accept.
As determined by the Board, in its sole discretion, at or after grant, payment
in full or in part may also be made in the form of unrestricted Stock already
owned by the optionee (based upon the Fair Market Value of a share of Stock on
the business date preceding tender if received prior to the close of the stock
market and at the Fair Market Value on the date of tender if received after the
stock market closes); provided, however, that, (i) in the case of an Incentive
Stock Option, the right to make a payment in the form of unrestricted Stock
already owned by the optionee may be authorized only at the time the Option is
granted and (ii) the Company may require that the Stock has been owned by the
Participant for a minimum period of time specified by the Board. In addition, if
such unrestricted Stock was acquired through exercise of an Incentive Stock
Option, such Stock shall have been held by the optionee for a period of not less
than the holding period described in Section 422(a)(1) of the Code on the date
of exercise, or if such Stock was acquired through exercise of a Non-Qualified
Stock Option or of an option under a similar plan of the Company, such Stock
shall have been held by the optionee for a period of more than one year on the
date of exercise, and further provided that the optionee shall not have tendered
Stock in payment of the exercise price of any other Option under the Plan or any
other stock option plan of the Company within six calendar months of the date of
exercise. To the extent permitted under the applicable laws and regulations, at
the request of the Participant, and with the consent of the Board, the Company
shall permit payment to be made by means of a "cashless exercise" of an Option.
Payment by means of a cashless exercise shall be effected by the Participant
delivering to the Securities Broker irrevocable instructions to sell a
sufficient number of shares of Stock to cover the cost and expenses associated
therewith and to deliver such amount to the Company. No shares of Stock shall be
issued until full payment therefor has been made. An optionee shall not have any
right to dividends or other rights of a stockholder with respect to shares
subject to the Option until such time as Stock is issued in the name of the
optionee following exercise of the Option in accordance with the Plan.
5.5 STOCK OPTION AGREEMENT. Each Option granted under this Plan shall
be evidenced by an appropriate Stock Option agreement, which agreement shall
expressly specify whether such Option is an Incentive Stock Option or a
Non-Qualified Stock Option and shall be executed by the Company and the
optionee. The agreement shall contain such terms and provisions, not
inconsistent with the Plan, as shall be determined by the Board. Such terms and
provisions may vary between optionees or as to the same optionee to whom more
than one Option may be granted.
5.6 REPLACEMENT OPTIONS. If an Option granted pursuant to the Plan may
be exercised by an optionee by means of a stock-for-stock swap method of
exercise as provided in 5.4 above, then the Board may, in its sole discretion
and at the time of the original Option grant, authorize the Participant to
automatically receive a replacement Option pursuant to this part of the Plan.
This replacement Option shall cover a number of shares determined by the Board,
but in no event more than the number of shares equal to the difference between
the number of shares of the original Option exercised and the net shares
received by the Participant from such exercise. The per share exercise price of
the replacement Option shall equal the then current Fair Market Value of a share
of Stock, and shall have a term extending to the expiration date of the original
Option. The Board shall have the right, in its sole discretion and at any time,
to discontinue the automatic grant of replacement Options if it determines the
continuance of such grants to no longer be in the best interests of the Company.
5.7 NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee other than by will, by the laws of descent and
distribution, pursuant to a qualified domestic relations order, or as permitted
under the Rules, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Board may grant non-qualified Options that are transferable, without payment of
consideration, to immediate family members (i.e., spouses, children and
grandchildren) of the Optionee or to trusts for, or partnerships whose only
partners are, such family members. The Board may also amend outstanding
non-qualified Options to provide for such transferability.
5.8 TERMINATION OF EMPLOYMENT BY REASON OF DEATH. Unless otherwise
determined by the Board at or after grant, if any optionee dies during the
optionee's period of employment by the Company, or during the periods referred
to in Sections 5.9, 5.10 or 5.11, any Stock Option held by such optionee may
thereafter be exercised, to the extent then exercisable or on such accelerated
basis as the Board may determine at or after grant, by the legal representative
of the estate or by the legatee of the optionee under the will of the optionee,
for a period of one year (or such shorter period as the Board may specify at
grant) from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is shorter.
5.9 TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY. Unless otherwise
determined by the Board at or after grant, if an optionee's employment by the
Company terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination, or on such accelerated basis as the
Board may determine at or after grant, for a period of one year (or such shorter
period as the Board may specify at grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
5.10 TERMINATION OF EMPLOYMENT UPON RETIREMENT. Unless otherwise
determined by the Board at or after grant, if an optionee's employment
terminates due to retirement (as hereinafter defined), any Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the date of retirement, or on such accelerated basis as the Board
may specify at grant, for a period of one-year (or such shorter period as the
Board may specify at grant) from the date of such retirement or until the
expiration of the stated term of such Stock Option, whichever period is shorter.
For purposes of this Section 5.10, "Retirement" shall mean any Employee
retirement under the Company's retirement policy.
5.11 OTHER TERMINATION OF EMPLOYMENT. Unless otherwise determined by
the Board at or after grant, in the event of termination of employment
(voluntary or involuntary) for any reason other than death, Disability or
retirement, or if an Employee is terminated for cause, any Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of such termination or on such accelerated basis as the
Board may determine at or after grant, for a period of three months (or such
shorter period as the Board may specify at grant) from the date of such
termination of employment or the expiration of the stated term of such Stock
Option, whichever period is shorter. If an Employee is terminated for cause, any
Stock Option held by such Optionee shall terminate immediately.
5.12 INCENTIVE STOCK OPTION LIMITATION. The aggregate Fair Market Value
(determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the optionee
during any calendar year under the Plan and/or any other stock option plan of
the Company shall not exceed $100,000.
5.13 TERMINATION OF ELIGIBLE INDEPENDENT CONTRACTORS OPTIONS. The
termination provisions of Options granted to Eligible Independent Contractors
shall be determined by the Board in its sole discretion.
5.14 WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS. The
obligation of the Company to deliver Stock upon the exercise of any Option shall
be subject to applicable federal, state and local tax withholding requirements.
If the exercise of any Option is subject to the withholding requirements of
applicable federal tax laws, the Board, in its discretion (and subject to such
withholding rules ("Withholding Rules") as shall be adopted by the Board), may
permit the optionee to satisfy the federal withholding tax, in whole or in part,
by electing to have the Company withhold (or by delivering to the Company)
shares of Stock, which Stock shall be valued, for this purpose, at their Fair
Market Value on the date the amount of tax required to be withheld is determined
(the "Determination Date"). Such election must be made in compliance with and
subject to the Withholding Rules, and the Board may not withhold shares of Stock
in excess of the number necessary to satisfy the minimum federal income tax
withholding requirements. If Stock acquired upon the exercise of an Incentive
Stock Option is used to satisfy such withholding requirement, such Stock must
have been held by the optionee for a period of not less than the holding period
described in Section 422(a)(1) of the Code on the Determination Date. If Stock
acquired through the exercise of a Non-Qualified Stock Option or of an option
under a similar plan is delivered by the optionee to the Company to satisfy such
withholding requirement, such Stock must have been held by the optionee for a
period of more than one year on the Determination Date. For Optionees subject to
Section 16 of the Exchange Act, to the extent required by Section 16, the
election to have Stock withheld by the Company hereunder must be either (a) an
irrevocable election made six months before the Determination Date; or (b) an
irrevocable election where both the election and the Determination Date occur
during one of the ten-day periods beginning on the third business day following
the date of release of the Company's quarterly or annual summary financial data
and ending on the twelfth business day following such release.
5.15 ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACTS. Within a
reasonable time after exercise of an Option, the Company shall cause to be
delivered to the optionee a certificate for the Stock purchased pursuant to the
exercise of the Option. At the time of any exercise of any Option, the Company
may, if it shall deem it necessary and desirable for any reason connected with
any law or regulation of any governmental authority relative to the regulation
of securities, require the optionee to represent in writing to the Company that
it is his or her then intention to acquire the Stock for investment and not with
a view to distribution thereof and that such optionee will not dispose of such
Stock in any manner that would involve a violation of applicable securities
laws. In such event, no Stock shall be issued to such holder unless and until
the Company is satisfied with such representation. Certificates for shares of
Stock issued pursuant to the exercise of Options may bear an appropriate
securities law legend.
5.16 TERMINATION OF NON-EMPLOYEE DIRECTORS OPTIONS. Section 11 of the
Plan shall apply to the termination of Options granted to Non-Employee Directors
under Part II.
PART III - GRANTS TO NON-EMPLOYEE DIRECTORS
SECTION 6 - GRANT OF OPTIONS
Options to purchase 10,000 shares of Common Stock, subject to
adjustment as provided in Section 3.2 (the "Initial Options") and options to
purchase 5,000 shares, subject to adjustments as provided in Section 3.2 (the
"Annual Options"), shall be granted to Non-Employee Directors as follows:
(a) Each Non-Employee Director on the 30th day after the stockholders
of the Company have approved the Plan shall be granted an Initial Option.
(b) Each Non-Employee Director who is not granted an Initial Option
pursuant to Section 6(a), shall be granted an Initial Option on the first
business day immediately following the date that such person is first elected or
appointed to serve as a Non-Employee Director.
(c) Each year on January 1, each Non-Employee Director on such date
shall be granted an Annual Option.
SECTION 7 - TYPES OF OPTIONS
All options granted under Part III of the Plan shall be non-qualified
Stock Options for purposes of the Code.
SECTION 8 - OPTION PRICE
The purchase price of each share of Stock issuable upon exercise of an
Option will be equal to the Fair Market Value of the Stock on the date of grant.
SECTION 9 - OPTION TERM AND RIGHTS TO EXERCISE
9.1 PERIOD OF OPTION AND RIGHTS TO EXERCISE. Except as set forth
herein, each Non-Employee Director who receives options under this Plan must
continue to hold office as a Non-Employee Director of the Company for six months
from the date that the Initial Option is granted and six months from the date
each Annual Option is granted before he can exercise any part thereof.
Thereafter, subject to the provisions of the Plan, options will vest and be
exercisable as follows:
(a) Initial Options.
(i) Each Initial Option will vest and be exercisable in full six
months from the date of grant.
(ii The right to exercise an Initial Option will expire
on the fifth anniversary of the date on which the option was granted.
(iii) Once an Initial Option has become exercisable, such
option may be exercised in whole at any time or in part from time to time until
the expiration of the option, whether or not any option granted previously
to the optionee remains outstanding at the time of such exercise.
(b) Annual Options.
(i) Each Annual Option will vest and be exercisable on a
cumulative basis as to 2,500 shares beginning six months from the date of
grant and 2,500 additional shares beginning on the first anniversary of the
date of grant.
(ii) The right to exercise an Annual Option will expire on the
fifth anniversary of the date on which the option was granted.
(iii) Once each installment of an Annual Option has become
exercisable, it may be exercised in whole at any time or in part from
time to time until the expiration of the option, whether or not an option
granted previously to the optionee remains outstanding at the time of such
exercise.
SECTION 10 - PAYMENT OF OPTION PRICE
Payment or provision for payment of the purchase price shall be made as
follows: (i) in cash or check; (ii) by exchange of Stock valued at its Fair
Market Value on the date of exercise; (iii) by means of a cashless exercise
procedure by the delivery to the Company of an exercise notice and irrevocable
instructions to the Securities Broker to sell a sufficient number of shares of
Stock to pay the purchase price of the shares of Common Stock as to which such
exercise relates and to deliver promptly such amount to the Company; or (iv) by
any combination of the foregoing. Where payment of the purchase price is to be
made with shares of Stock acquired through exercise of a non-qualified Stock
Option or of an option under a similar plan of the Company, such Stock shall
have been held by the optionee for a period of more than one year on the date of
exercise, and further provided that the optionee shall not have tendered Stock
in payment of the exercise price of any other Option under the Plan or any other
stock option plan of the Company within six calendar months of the date of
exercise.
SECTION 11 - TERMINATION OF SERVICE
Upon cessation of service as a Non-Employee Director (for reasons other
than retirement or death), including cessation of service due to physical or
mental disability that prevents such person from rendering further services as a
Non-Employee Director, only those options exercisable at the date of cessation
of service shall be exercisable by the Non-Employee Director, or on such
accelerated basis as the Board may determine at or after grant, for a period of
three months, or such other period as the Board may specify from time to time.
Upon the retirement or death of a Non-Employee Director, options shall be
exercisable as follows:
(a) Retirement. Upon retirement as a Non-Employee Director after the
Non-Employee Director has served for at least six consecutive years as a
director, all Options shall continue to be exercisable during their terms as if
such person had remained a Non-Employee Director.
(b) Death. In the event of the death of a Non-Employee Director while a
member of the Board, or within the period after termination of service referred
to in the first paragraph of Section 11, the Options granted to him shall be
exercisable, to the extent then exercisable, for a period of one year from the
date of the Non-Employee Director's death, or until the expiration of the
Option, whichever period is shorter.
SECTION 12 - NO GUARANTEED TERM OF OFFICE
Nothing in this Plan or any modification thereof, and no grant of an
option, or any term thereof, shall be deemed an agreement or condition
guaranteeing to any Non-Employee Director any particular term of office or
limiting the right of the Company, the Board or the stockholders to terminate
the term of office of any Non-Employee Director under the circumstances set
forth in the Company's Certificate of Incorporation or Bylaws, or as otherwise
provided by law.
SECTION 13 - OTHER RESTRICTIONS
Sections 5.5, 5.7 and 5.15 of the Plan shall apply to options granted
pursuant to Part III of the Plan.
PART IV - MISCELLANEOUS
SECTION 14 - CHANGE IN CONTROL
A "Change in Control" for purposes of this Plan shall mean any one of
the events described below:
14.1 at any time during a period of two (2) consecutive years, at least
a majority of the Board shall not consist of Continuing Directors. "Continuing
Directors" shall mean directors of the Company at the beginning of such two-year
period and directors who subsequently became such and whose selection or
nomination for election by the Company's shareholders was approved by a majority
of the then Continuing Directors; or
14.2 any person or "group" (as determined for purposes of Regulation
13D-G promulgated by the Commission under the Exchange Act or under any
successor regulation), but excluding any majority-owned subsidiary or any
employee benefit plan sponsored by the Company or any subsidiary or any trust or
investment manager for the account of such a plan, shall have acquired
"beneficial ownership" (as determined for purposes of such regulation) of the
Company's securities representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities unless such
acquisition is approved in advance by a majority of the directors of the Company
who were in office immediately preceding such acquisition and any individual
selected to fill any vacancy created by reason of the death or disability of any
such director; or
14.3 the Company becomes a party to a merger, consolidation or share
exchange 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 (other than a
reincorporation or the establishment of a holding company involving no change in
ownership of the Company or other securities or cash or other property
(excluding payments made solely for fractional shares); or
14.4 the Company's shareholders (i) approve any plan or proposal for
the disposition or other transfer of all, or substantially all, of the assets of
the Company, whether by means of a merger, reorganization, liquidation or
dissolution or otherwise or (ii) dispose of, or become obligated to dispose of,
50% or more of the outstanding capital stock of the Company by tender offer or
otherwise. If a Change in Control has occurred, all outstanding options granted
under the Plan shall be immediately exercisable by the holders of the options
for the total remaining number of Shares covered by the options and shall
survive any such event.
SECTION 15 - AMENDMENTS AND TERMINATION
The Board may amend, alter or discontinue the Plan at any time and from
time to time, but no amendment, alteration or discontinuation shall be made
which would impair the rights of an optionee or Participant under a Stock Option
award theretofore granted, without the optionee's or Participant's consent, or
which, without the approval of the Company's stockholders, would require
stockholder approval under the Rules. The Board may amend the terms of any stock
option theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any holder without the holder's consent.
The Board may also substitute new stock options for previously granted stock
options, including previously granted stock options having higher option prices.
Subject to the above provisions, the Board shall have broad authority to amend
the Plan, to take into account changes and applicable tax laws, securities laws,
and accounting rules, as well as other developments.
SECTION 16 - UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan of incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing contained herein shall give any
such Participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Board may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder; provided, however, that, unless the Board otherwise determines with
the consent of the affected Participant, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 17 - GENERAL PROVISIONS
17.1 All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Board may deem advisable under the rules, regulations and
other requirements of the Securities Act, the Exchange Act, any stock exchange
or over-the-counter market upon which the Stock is then listed, and any
applicable federal or state securities law, and the Board may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
17.2 Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
17.3 The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company nor shall it interfere in any way
with the right of the Company to terminate its relationship with any of its
Employees, directors or Independent Contractors at any time.
17.4 No later than the date as of which an amount first becomes
includable in the gross income of the Participant for federal income tax
purposes with respect to any award under the Plan, the Participant who is an
Employee of the Company shall pay to the Company, or make arrangements
satisfactory to the Board regarding the payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to such amount. To
the extent permitted by the Board, in its sole
discretion, the minimum required withholding obligations may be settled with
Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Participant.
17.5 The Board shall establish such procedures as it deems appropriate
for a Participant to designate a beneficiary to whom any amounts payable in the
event of the Participant's death are to be paid. The Plan shall be governed by
and subject to all applicable laws and to such approvals by any governmental or
regulatory agency as may be required.
SECTION 18 - EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective as of the effective date the Plan is
adopted by the Board of
Directors and Shareholders of the Company, (the
"Effective Date"), subject to the consent or approval of the Company's
stockholders as provided below. No Stock Option award shall be granted pursuant
to the Plan on or after ten years from the Effective Date, but Stock Options
granted prior to such tenth anniversary may be exercised after such date. If the
Plan is not approved by a majority of the votes cast at a duly held meeting at
which a quorum representing a majority of all outstanding voting stock of the
Company is, either in person or by proxy, present and voting on the Plan, within
12 months after such effective date, any Incentive Stock Options that have been
granted shall automatically become Non-Qualified Stock Options.
SECTION 19 - INTERPRETATION
A determination of the Board as to any question which may arise with
respect to the interpretation of the provisions of this Plan or any Options
shall be final and conclusive, and nothing in this Plan, or in any regulation
hereunder, shall be deemed to give any Participant, his legal representatives,
assigns or any other person any right to participate herein except to such
extent, if any, as the Board may have determined or approved pursuant to this
Plan. The Board may consult with legal counsel who may be counsel to the Company
and shall not incur any liability for any action taken in good faith in reliance
upon the advice of such counsel.
SECTION 20 - GOVERNING LAW
With respect to any Incentive Stock Options granted pursuant to the
Plan and the agreements thereunder, the Plan, such agreements and any Incentive
Stock Options granted pursuant thereto shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the
Commonwealth of Pennsylvania shall govern the operation of, and the rights of
Participants under, the Plan, the agreements and any Options granted thereunder.
SECTION 21 - COMPLIANCE WITH THE RULES
21.1 Unless an Insider could otherwise transfer shares of Stock issued
hereunder without incurring liability under Section 16(b) of the Exchange Act,
at least six months must elapse from the date of grant of an Option to the date
of disposition of the Stock issued upon exercise of such Option.
21.2 It is the intent of the Company that this Plan comply in all
respects with the Rules in connection with any grant of Options to, or other
transaction by, an Insider. Accordingly, if any provision of this Plan or any
agreement relating to an Option does not comply with the Rules as then
applicable to any such Insider, such provision will be construed or deemed
amended to the extent necessary to conform to such requirements with respect to
such person. In addition, the Board shall have no authority to make any
amendment, alteration, suspension, discontinuation, or termination of the Plan
or any agreement hereunder, or take other action if such authority would cause
an Insider's transactions under the Plan not to be exempt under the Rules.
21.3 Certain restrictive provisions of the Plan have been implemented
to facilitate the Company's and Insiders' compliance with the Rules. The Board,
in its discretion, may waive certain of these 13 14 restrictions, provided the
waiver does not relate in any way to an Insider and, provided further, such
waiver or amendment is carried out in accordance with Section 15 hereof.
SECTION 22 - SUBSTITUTION OF OPTIONS IN A MERGER, CONSOLIDATION OR SHARE
EXCHANGE
In the event that the Company becomes a party to a merger,
consolidation or share exchange (a "Business Combination") and in connection
therewith substitutes options under the Plan for options of another party to
such Business Combination, notwithstanding the provisions of the Plan, the terms
of such substituted options may have the same terms and conditions (provided
that the number of shares issuable and the exercise prices are adjusted in
accordance with the terms of the Business Combination) as the former options of
such other party to the Business Combination, provided, however, that the
exercise price of the Options to be granted under the Plan shall be lawful
consideration as determined by the Board.
Exhibit B
eGAMES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose and Effective Date
The 2000 Employee Stock Purchase Plan (the "Plan") of eGames,
Inc. ("eGames") is designed to encourage and assist employees of eGames and its
subsidiaries (together, the "Company") to acquire an equity interest in the
Company through the purchase of shares of eGames common stock (the "Common
Stock"). It is the intention of the Company to have the Plan qualify as an
"employee stock purchase plan" under section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), and the provisions of the Plan shall be construed
so as to comply with the requirements of section 423. This Plan is first
effective December 7, 2000.
2. Administration
(a) The Plan shall be administered by a committee of members
of the Board of Directors of eGames (the "Board") appointed by the Board (the
"Committee"). The Committee may appoint a secretary and shall make such rules
and regulations for the conduct of its business as it shall deem advisable.
(b) The Committee shall hold meetings at such times and places
as it may determine. Acts approved at a meeting by a majority of the members of
the Committee or acts approved in writing by the unanimous consent of the
members of the Committee shall be the valid acts of the Committee.
(c) Subject to the express provisions of the Plan, the
Committee shall have plenary authority in its discretion to interpret and
construe any and all provisions of the Plan, to adopt rules and regulations for
administering the Plan, and to make all other determinations deemed necessary or
advisable for administering the Plan. The Committee may correct any defect or
omission or reconcile any inconsistency in the Plan, in the manner and to the
extent it shall deem desirable. The Committee's determination on the foregoing
matters shall be final, binding and conclusive.
(d) Subject to the limitations of Section 18, the Board shall
have the power to amend the Plan from time to time. In particular, but not in
limitationsignificant results of the foregoing the Board may increase the option price and/or
decrease the option term or make any other changes which the Committee, in its
sole discretion, determines are necessary or desirable to preclude the
establishmentactivities.
19. Annually review policies and procedures as well as audit results associated
with directors' and officers expense accounts and perquisites. Annually
review a summary of this Plan or the grant or exercisedirector and officers' related party transactions and
potential conflicts of any option under it from
resulting in a charge to earnings under applicable rules of the Financial
Accounting Standards Board.
(e) The Committee shall have the authority to delegate the
regular operation and administration of the Plan to the appropriate officers and
employees of the Company.
(f) Each Committee member shall be entitled to indemnification
by the Company in accordance with the provisions and limitations of the
Company's By-Laws, as the same may be amended from time to time, in connection
with or arising out of any action, suit or proceeding with respect to the
administration of the Plan or the granting of options under the Plan in which he
may be involved by reason of his being or having been a Committee member,
whether or not he continues to be a Committee member at the time of the action,
suit or proceeding.
3. Number of Shares
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Subsection (b), the maximum number of shares of the
Common Stock that may be purchased under the Plan shall be 500,000 shares of
Common Stock; plus an annual increase to be added on the first day of the
Company's fiscal year beginning on July 1, 2001 equal to the lesser of (i)
400,000 shares, (ii) 4% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board; provided that in no event shall more than
500,000 shares of Common Stock be sold under the Plan during any fiscal year.
Shares sold under the Plan may be newly issued shares or shares held in or
hereafter acquired for the Company's treasury, but all shares sold under the
Plan, regardless of source, shall be counted against the share limitation.
(b) The aggregate number of shares and class of shares as to
which options may be granted hereunder, the number of shares covered by each
outstanding option and the option exercise price thereof shall be appropriately
adjusted in the event of a stock dividend, stock split, recapitalization or
other change in the number or class of issued and outstanding equity securities
of the Company resulting from a subdivision or consolidation of the Common Stock
and/or other outstanding equity security or a recapitalization or other capital
adjustment (not including the issuance of Common Stock upon the conversion of
other securities of the Company which are convertible into Common Stock)
affecting the Common Stock which is effected without receipt of consideration by
the Company. The Committee shall have authority to determine the adjustments to
be made under this Subsection and any such determination by the Committee shall
be final, binding and conclusive.
4. Eligibility Requirements
(a) Each Covered Employee, as defined in Subsection (b), shall
become eligible to participate in the Plan on the first day of the calendar
quarter (January 1, April 1, July 1, October 1) following his commencement of
employment with the Company.
(b) "Covered Employee" means each Employee, as defined in
Subsection (c), other than:
(i) An employee who, immediately upon enrollment
in the Plan, would own stock directly or indirectly, or hold options,
warrants or rights to acquire stock, which in the aggregate represents five
percent or more of the total combined voting power or value of all classes of
stock of the Company;
(ii) An employee who is customarily employed
by the Company less than 20 hours per week or less than five months in any
calendar year; and
(iii) An employee who is prohibited by the laws
of the nation of his residence or employment from participating in the Plan.
(c) "Employee" shall mean any individual who is an employee
within the meaning of section 3401(c) of the Code and the Treasury Regulations
thereunder of eGames or a Participating Subsidiary (as defined below). Unless
otherwise designated by the Board of Directors, each corporation described in
section 424(e) or (f) of the Code shall be a "Participating Subsidiary."
5. Enrollment and Reenrollment
Each Eligible Employee may become a Participant as of the
first Trading Day (as defined below) that occurs in January, April, July, or
October of each year, or such other days as may be established by the Committee
from time to time (the "Enrollment Dates"), by completing and executing an
enrollment form and submitting such form to the Company. Any enrollment form
received by the Company on or before the 15th day of the month immediately
preceding the month which contains an Enrollment Date (or received on or before
the Enrollment Date in the case of an Employee who becomes an Eligible Employee
after such 15th day), or such other date established by the Committee from time
to time, will be effective on that Enrollment Date. A "Trading Day" is any day
on which regular trading occurs on any established stock exchange or market
system on which the Common Stock is traded.
6. Grant of Option on Enrollment or Reenrollment
(a) Each Covered Employee who enrolls or re-enrolls in the
Plan is granted, as of his Enrollment Date, an option to purchase shares of the
Common Stock from the Company under the Plan. Any Participant whose option
expires and who has not withdrawn from the Plan will be automatically
re-enrolled in the Plan and granted a new option on the Enrollment Date
immediately following the date on which the option expires.
(b) In addition, if the "fair market value" (as defined in
Subsection 8(e)) of the Common Stock on any later Enrollment Date is equal to or
less than the fair market value on the Enrollment Date as of which any
outstanding option was granted, then (A) the earlier outstanding option shall
expire automatically (as provided under Subsection 6(c)) and (B) a new option
shall be granted automatically on the later Enrollment Date, which date shall be
referred to as an "Automatic Enrollment Date." An Automatic Enrollment Date
shall be treated as an Enrollment Date for purposes of establishing the number
of shares available for purchase, the term and any other operative provision of
an option granted on an Automatic Enrollment Date.
(c) Each option granted under the Plan shall have the
following terms.
(i) The option shall expire 27 months after
the Enrollment Date, or after such shorter option period as may be
established by the Committee from time to time (the "Offering Period");
notwithstanding the foregoing, however, whether or not the option has been
fully exercised, the option shall expire on the earliest to occur of (A)
the completion of the purchase of shares on the last Purchase Date occurring
within the Offering Period for all options to be granted on the Enrollment
Date, or (B) the occurrence of an Automatic Enrollment Date after the date on
which an option is granted under Subsection 6(a), or (C) the date on which
the Employee's participation in the Plan terminates for any reason.
(ii) Payment for shares under the option shall
be made only through payroll withholding in accordance with Section 7.
(iii) Purchase of shares upon exercise of the option
will be effected only on the Purchase
Dates established in accordance with Section 8.
(iv) The price per share under the option will be
determined as provided in Section 8.
(v) Unless otherwise established by the
Committee before an Enrollment Date for all options to be granted on such
Enrollment Date, the number of shares available for purchase under an
option granted to a Participant will be determined by dividing $25,000 by the
"fair market value" (as defined in Subsection 8(e)) of a share of Common Stock
on the Enrollment Date and by multiplying the result by the number of calendar
years included in whole or in part in the period from the Enrollment Date to the
expiration of the options.
(vi) The option (together with all other options
then outstanding under this and all other similar stock purchase plans of
the Company) will in no event give the Participant the right to purchase
shares in a calendar year which have a fair market value in excess of
$25,000, determined at the applicable Enrollment Dates.
(vii) The option will in all respects be subject
to the terms and conditions of the Plan, as interpreted by the Committee from
time to time.
7. Payroll Withholding and Tax Withholding
(a) Each Participant shall elect, before the Enrollment Date
as of which his participation is effective, to have amounts withheld from his
compensation paid by the Company during the Option Period, at a rate equal to
any whole percentage up to a maximum of fifteen percent (15%), or such lesser
percentage as the Committee may establish from time to time. For this purpose,
compensation includes regular salary payments, overtime pay, and Participant
elective contributions to the Company's benefit plans which are excluded from
taxation under section 402 or 125 of the Code, but excludes all other payment
including, without limitation, payment of deferred compensation, Company profit
sharing and matching contributions to a 401(k) plan, long-term disability,
workers' compensation payments, relocation payments, performance bonuses and
expense reimbursements (including but not limited to travel, entertainment, and
moving expenses). Each Participant shall designate a rate of withholding in his
enrollment form and may elect to increase or decrease the rate of withholding
effective as of any subsequent Enrollment Date, by delivery to the Company not
later than 15 days before such Enrollment Date, of written notice setting forth
the withholding rate.
(b) Payroll withholdings shall be credited to each Participant
, as soon as practicable after the withholding occurs, although no separate
accounts will be established. The amounts so withheld shall remain general
assets of the Company until applied to the purchase of shares of Common Stock
under the Plan. The Company shall have no obligation to pay interest on
withholdings to any Participant and shall not be obligated to segregate
withholdings.
(c) Upon disposition (within in the meaning of section 424(c)
of the Code) of shares acquired by exercise of an option, each Participant shall
pay, or make provision adequate to the Company for payment of, all federal,
state, and other taxes and any other amount that the Company determines, in its
discretion, are then required (whether or not by tax withholding), including any
such payment or withholding that the Company determines in its discretion is
necessary to allow the Company to claim tax deductions or other benefits in
connection with the disposition. A Participant shall make such similar
provisions for any other payment that the Company determines, in its discretion,
are required due to the exercise of an option, including such provisions as are
necessary to allow the Company to claim tax deductions or other benefits in
connection with the exercise of the option.
8. Purchase of Shares
(a) On each "Purchase Date" within the Offering Period, the
Company shall apply the funds then credited to each Participant's payroll
withholdings account to the purchase of whole shares of Common Stock. A
"Purchase Date" shall be the last Trading Day of each month immediately
preceding a month containing an Enrollment Date, or on such other day as may be
established by the Committee from time to time.
(b) The cost to the Participant of shares purchased under any
option shall be not less than 85%, or such greater percentage as the Committee
shall determine, of the lower of:
(i) the fair market value of the Common Stock on
the Enrollment Date as of which such option was granted; or
(ii) the fair market value of the Common Stock on the
Purchase Date of such shares.
(c) Any funds in an amount less than the cost of one share of
Common Stock remaining in a Participant's payroll withholdings account on a
Purchase Date after any purchase made pursuant to Subsection (a) shall be
carried forward in such account for application on the next Purchase Date.
(d) If on any Purchase Date, the number of shares available
under the Plan are less than the number all Participants would otherwise be
entitled to purchase on such date, purchases shall be reduced proportionately to
eliminate the difference. Any funds that cannot be applied to the purchase of
shares due to such a reduction shall be refunded to Participants as soon as
administratively feasible or credited to another purchase plan.
(e) For purposes of the Plan, the fair market value of the
Common Stock as of any date shall be the closing price of the Common Stock on
such date on the NASDAQ SmallCap Market (or such other market or exchange as the
Committee selects).
9. Withdrawal from the Plan
A Participant may withdraw from the Plan in full (but not in
part) at any time, effective after written notice thereof is received by the
Company. All funds credited to a Participant's payroll withholdings account
shall be distributed to him without interest within 60 days after notice of
withdrawal is received by the Company. Any Eligible Employee who has withdrawn
from the Plan may enroll in the Plan again on any subsequent Enrollment Date in
accordance with the provisions of Section 5.
10. Termination of Employment
Participation in the Plan terminates immediately when a
Participant ceases to be a Covered Employee for any reason whatsoever (including
death, disability or transfer to a subsidiary of the Company that is not a
Participating Subsidiary). As soon as administratively feasible after
termination, the Company shall pay to the Participant or his beneficiary or
legal representative, all amounts credited to the Participant's payroll
withholdings account; provided, however, that if a Participant ceases to be a
Covered Employee because of the commencement of employment with a subsidiary of
the Company that is not a Participating Subsidiary, funds then credited to such
Participant's payroll withholdings account shall be applied to the purchase of
whole shares of Common Stock at the next Purchase Date and any funds remaining
after such purchase shall be paid to the Participant.
11. Distribution upon Death
As soon as administratively feasible after the death of a
Participant, amounts credited to his account shall be paid in cash to the
executor, administrator, or other legal representative of the Participant's
estate. Such payment shall relieve the Company of further liability with respect
to the Plan on account of the deceased Participant.
12. Assignment
(a) The rights of a Participant under the Plan shall not be
assignable by such Participant, by operation of law or otherwise, except to the
extent permitted by Section 11. No Participant may create a lien on any funds,
securities, rights, or other property held by the Company for the account of the
Participant under the Plan.
(b) A Participant's right to purchase shares under the Plan
shall be exercisable only during the Participant's lifetime and only by him,
except that a Participant may direct the Company in the enrollment form to issue
share certificates to the Participant and his spouse in community property, to
the Participant jointly with one or more other persons with right of
survivorship, or to certain forms of trusts approved by the Committee.
13. Administrative Assistance
(a) The Committee may retain a brokerage firm, bank, or other
financial institution to assist in the purchase or sale of shares, delivery of
reports, or other administrative aspects of the Plan. If the Committee so
elects, each Participant shall (unless prohibited by the laws of the nation of
his employment or residence) be deemed upon enrollment in the Plan to have
authorized the establishment of an account on his behalf at such institution.
Shares purchased by a participant under the Plan shall be issued to and held in
the account established for such Participant.
(b) The Committee may restrict the transfer of Shares
purchased under the Plan out of any account established with an institution
pursuant to Subsection (a) as the Committee determines is necessary or desirable
to facilitate administration of the Plan or compliance with Section 7 of the
Plan.
14. Costs
All costs and expenses incurred in administering the Plan
shall be paid by the Company, except that any stamp duties or transfer taxes
applicable to participation in the Plan may be charged to the accounts of
Participants to whom such expenses are attributable. Any brokerage fees for the
purchase of shares by a Participant shall be paid by the Company, but brokerage
fees for the resale of shares by a Participant shall be paid by the Participant.
15. Equal Rights and Privileges
All Eligible Employees shall have equal rights and privileges
with respect to the Plan so that the Plan qualifies as an "employee stock
purchase plan" within the meaning of section 423 of the Code and the Treasury
Regulations thereunder. Any provision of the Plan which is inconsistent with
section 423 of the Code shall without further act or amendment by the Company,
the Board of Directors or the Committee be reformed to comply with the
requirements of section 423. This Section 15 shall take precedence over all
other provisions of the Plan.
16. Applicable Law
Except to the extent superseded by Federal law, the Plan shall
be governed by the substantive laws (excluding the conflict of laws rules) of
the Commonwealth of Pennsylvania.
17. Gender and Number
Except where otherwise clearly indicated by context, the
masculine shall include the feminine and the singular shall include the plural.
18. Modification and Termination
(a) The Board may amend, alter, or terminate the Plan at any
time, including amendments to outstanding options. No amendment shall be
effective unless within 12 months after it is adopted by the Board, it is
approved by the holders of a majority of the votes cast at a duly held
shareholders' meeting, if such amendment would:
(i) increase the number of shares reserved for
purchase under the Plan; or
(ii) amend the requirements regarding the class
of Employees eligible to purchase stock under the Plan.
(b) In the event the Plan is terminated, the Committee may
elect to terminate all outstanding options either immediately or upon completion
of the purchase of shares on the next Purchase Date, or may elect to permit
options to expire in accordance with their terms (and participation to continue
through such expiration dates). If the options are terminated prior to
expiration, all funds contributed to the Plan that have not been used to
purchase shares shall be returned to the Participants as soon as
administratively feasible.
(c) In the event of the sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, or the dissolution or liquidation of the Company, a Purchase Date
shall occur on the Trading Day immediately preceding the date of such event,
unless otherwise provided by the Committee in its sole discretion, including
provision for the assumption or substitution of each option under the Plan by
the successor or surviving corporation, or a parent or subsidiary thereof.
19. Rights as an Employee
Nothing in the Plan shall be construed to give any person the
right to remain in the employ of the Company or to affect the Company's right to
terminate the employment of any person at any time with or without cause.
20. Rights as a Shareholder; Delivery of Certificates
Participants shall be treated as the owners of their shares
effective as of the Purchase Date.
21. Board and Shareholder Approval
The Plan was approved by the Board on August 31, 2000 and will
be submitted to the shareholders of eGames on December 7, 2000.interest.
REVOCABLE PROXY
EGAMES, INC.
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 7, 2000MARCH 12, 2002
The undersigned hereby appoints Gerald W. Klein and William C. Acheson,
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 Sheraton Bucks County, 400 Oxford Valley Road,offices of the Company, 2000 Cabot Boulevard
West, Suite 110, Langhorne, Pennsylvania on December 7, 2000March 12, 2002 at 2:11:00 p.m.a.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 approval of an amendment to the Company's 1995 Amended and Restated Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The approval of the 2000 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. The ratification of the appointment of KPMG LLP as auditors for the Company.
[ ] 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: , 2000
---------------------------------------2002
---------------------------------
(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