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
[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-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:
[OBJECT OMITTED]
eGames, Inc.
2000 Cabot Boulevard West, Suite 110
Langhorne, Pennsylvania 19047-1811
October 27, 2005
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of eGames,
Inc. (the "Company") which will be held at 10 a.m. Eastern Standard Time on
Thursday, December 1, 2005 at the Company's offices, 2000 Cabot Boulevard West,
Suite 110, Langhorne, Pennsylvania. The official notice of the meeting together
with a proxy statement and form of proxy are enclosed. Please give this
information your careful attention.
To assure your representation at the meeting, whether or not you expect
to attend, please vote as soon as possible. Most shareholders have three options
for submitting their vote: (1) via the Internet at www.proxyvote.com; (2) by
phone, as indicated on your proxy card; or (3) by mail, using the paper proxy
card enclosed with the Proxy Statement.
Your copy of the Company's 2005 Annual Report on Form 10-KSB is also
enclosed. We appreciate your interest in the Company. Thank you for your
attention to this important matter.
Sincerely,
/s/:Gerald W. Klein
- -------------------
Gerald W. Klein
President and
Chief Executive Officer
EGAMES, INC.
2000 CABOT BOULEVARD WEST, SUITE 110
LANGHORNE, PA 19047-1811
(215) 750-6606
Notice of Annual Meeting of Shareholders
December 1, 2005
To Our Shareholders:
The Annual Meeting of Shareholders of eGames, Inc. (the "Company") will
be held at 10 a.m. Eastern Standard Time on Thursday, December 1, 2005, at the
Company's offices, 2000 Cabot Boulevard West, Suite 110, Langhorne,
Pennsylvania, for the following purposes:
1. To elect four (4) directors;
2. To vote on the ratification of the appointment of Stockton
Bates, LLP as the Company's auditors for the fiscal year
ending June 30, 2006; and
3. To act upon such other business as may properly come before
the meeting.
The Board of Directors has fixed October 12, 2005 as the record date
for the determination of shareholders entitled to vote at the meeting. Only
shareholders of record as of that date will be entitled to receive notice of
the meeting and to vote at the meeting.
You are invited to attend the meeting in person. All shareholders are
cordially invited to attend the Annual Meeting in person, but whether or not you
plan to attend, please vote as soon as possible. Most shareholders have three
options for submitting their vote: (1) via the Internet at www.proxyvote.com;
(2) by phone, as indicated on your proxy card; or (3) by mail, by using the
paper proxy card enclosed with this notice (which requires no postage if mailed
in the United States). Voting by Internet, phone or proxy card does not deprive
you of the right to attend the Annual Meeting and vote your shares in person.
By Order of the Board of Directors,
/s/: Ellen Pulver Flatt
- -----------------------
Ellen Pulver Flatt
Vice President, General Counsel and Secretary
October 27, 2005
EGAMES, INC.
2000 CABOT BOULEVARD WEST, SUITE 110
LANGHORNE, PA 19047-1811
PROXY STATEMENT
eGames, Inc. (the "Company") is providing to its shareholders this
proxy statement and the accompanying proxy card in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company for
use in voting at the Annual Meeting of Shareholders (the "Annual Meeting"). The
Meeting will be held at the Company's offices, 2000 Cabot Boulevard West, Suite
110, Langhorne, Pennsylvania on December 1, 2005 at 10 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 27, 2005.
VOTE REQUIRED AND PROXY INFORMATION
Proxies in the form enclosed, if properly submitted and not revoked,
will be voted as directed on the proxies. Any proxy not directing to the
contrary will be voted "for" the Company's nominees as directors and "for"
approval of each of the other proposals. Sending in a signed proxy will not
affect a shareholder's right to attend the meeting and vote in person, since the
proxy is revocable.
A proxy statement given pursuant to the solicitation may be revoked at
any time before it is voted. Proxies may be revoked by: (i) filing with the
Secretary of the Company, at or before the meeting, a written notice of
revocation bearing a date later than the proxy; (ii) duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of the
Company at or before the Meeting; or (iii) attending the Meeting and voting in
person (although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be delivered
to Ellen Pulver Flatt, Secretary, eGames, Inc., 2000 Cabot Boulevard West, Suite
110, Langhorne, Pennsylvania 19047-1811.
All shares of the Company's Common Stock present in person or
represented by proxy and entitled to vote at the meeting, no matter how they are
voted or whether they abstain from voting, will be counted in determining the
presence of a quorum for each of the matters on which shareholders will vote at
the Meeting. If the Meeting is adjourned because of the absence of a quorum,
those shareholders entitled to vote who attend the adjourned meeting, although
constituting less than a quorum as provided herein, shall nevertheless
constitute a quorum for the purpose of electing directors. If the Meeting is
adjourned for one or more periods aggregating at least 15 days because of the of
the absence of a quorum, those shareholders entitled to vote who attend the
reconvened Meeting, if less than a quorum as determined under applicable law,
shall nevertheless constitute a quorum for the purpose of acting upon any matter
set forth in the Notice of Annual Meeting.
Election of Directors. On this matter, the quorum for the meeting is
the presence of shareholders, in person or represented by proxy, entitled to
cast a majority of the votes that all shareholders are entitled to cast in the
election. Directors shall be elected by a plurality, and the four nominees who
receive the most votes will be elected. Votes may be cast in favor of or
withheld from any or all nominees. Votes that are withheld will be excluded
entirely from the vote and will have no effect, other than for purposes of
determining the presence of a quorum. Abstentions will be considered present and
entitled to vote at the meeting, but will not be counted as votes cast in the
affirmative. Brokers have discretionary authority to vote on this proposal and,
therefore, there will be no "broker non-votes" on this proposal. A broker
non-vote occurs when no instructions are given to a broker as to how to vote the
shares held in street name on non-routine matters on which brokers do not have
discretionary authority. The New York Stock Exchange determines whether brokers
have discretionary authority to vote on a given proposal.
Ratification 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. Since abstentions are counted as a vote present and
entitled to vote, but are not counted as voted for the proposal, they will have
the effect of a vote against this proposal. Brokers have discretionary authority
to vote on this proposal and, therefore, there will be no broker non-votes on
this proposal.
The Company will pay the cost of this solicitation. In addition to
solicitation by mail, proxies may be solicited in person or by telephone or
facsimile by directors, officers or employees of the Company and its
subsidiaries without additional compensation. The Company will, on request,
reimburse shareholders of record who are brokers, dealers, banks or voting
trustee, or their nominees, for their reasonable expenses in sending proxy
materials and annual reports to the beneficial owners of the shares they hold of
record.
Householding. Certain shareholders who share the same address may
receive only one copy of this proxy statement and the Company's annual report,
unless the shareholder provided contrary instructions to the bank, broker or
other record holder of the shares. This practice, known as "householding," is
designed to reduce printing and postage costs. Once you have received notice
from your bank, broker or other record holder that they will be "householding"
communications to your address, this practice will continue until you are
notified otherwise or until you revoke your consent. If you own your shares
through a bank, broker or other holder of record and wish either to stop or
begin householding, you may do so by notifying the record holder of your shares.
You may also request a separate copy of the proxy statement or the Annual
Report, either by contacting your bank, broker or other holder of record or by
contacting us by telephone at 215-750-6606, extension 100, or in writing to
eGames, Inc., 2000 Cabot Boulevard West, Suite 110, Pennsylvania 19047,
Attention: Secretary.
VOTING SECURITIES
As of October 12, 2005, the record date for the determination of
shareholders entitled to receive notice of and to vote at the Company's Annual
Meeting of Shareholders, the Company's outstanding voting securities consisted
of 10,906,754 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 as of October 1, 2005 (unless otherwise noted) by: (i) those
persons or entities known by management to beneficially own more than five
percent of the Common Stock; (ii) each nominee for director and director of the
Company; (iii) each of the Company's executive officers named in the Summary
Compensation Table; and (iv) all directors and executive officers of the Company
as a group.
Name of Amount and Nature Percent of Class
Beneficial Owner (1) Of Beneficial Beneficially Owned
------------------- Ownership (2) ------------------
------------
Robert M. Aiken, Jr. 75,500 (3) *
Lawrence F. Fanelle 223,000 (4) 2.0%
Gerald W. Klein 628,200 (5) 5.7%
Eugene H. Mauro -0- (6) n/a
Thomas W. Murphy 218,642 (7) 2.0%
Thomas D. Parente 93,925 (8) *
Ellen Pulver Flatt 102,600 (9) *
Richard H. Siporin 177,300 (10) 1.6%
Lambert C. Thom 143,624 (11) 1.3%
All executive officers and directors
as a group (8 persons) 1,662,791 (12) 14.5%
- --------
*Less than 1%
(1) Unless otherwise indicated, the address of each named holder is c/o
eGames, Inc., 2000 Cabot Boulevard West, Suite 110, Langhorne, PA 19047.
(2) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission (the "SEC") and generally
includes voting or investment power with respect to securities. In
accordance with SEC rules, the shares in this column include shares
that may be acquired upon exercise of stock options within sixty
days of October 1, 2005. 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 32,500 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2005
or become exercisable within 60 days of that date.
(4) Includes 113,000 shares of Common Stock that may be acquired
through the exercise of options that were exercisable as of October
1, 2005 or became exercisable within 60 days of that date.
(5) Includes 92,000 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2005
or became exercisable within 60 days of that date. Also includes
1,200 shares held by Mr. Klein's immediate family members.
(6) The security ownership disclosed for Mr. Mauro is as of October 12,
2005.
(7) Includes 135,000 shares of Common Stock that may be acquired
through the exercise of options that were exercisable as of October
1, 2005 or became exercisable within 60 days of that date. Also
includes 788 shares held by Mr. Murphy's immediate family members.
(8) Includes 32,500 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2005
or became exercisable within 60 days of that date. Also includes
4,425 shares held by Mr. Parente's immediate family members.
(9) Includes 52,000 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2005
or became exercisable within 60 days of that date.
(10) Includes 88,333 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2005
or became exercisable within 60 days of that date.
(11) Includes 7,500 shares of Common Stock that may be acquired through
the exercise of options that were exercisable as of October 1, 2005
or became exercisable within 60 days of that date.
(12) Includes 552,833 shares of Common Stock that may be acquired by
such persons through the exercise of options that were exercisable
as of October 1, 2005 or became exercisable 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 57 President and Chief Executive Officer
Lawrence F. Fanelle 54 Vice President, Operations
Thomas W. Murphy 47 Vice President, Finance and Chief Financial Officer
Ellen Pulver Flatt 42 Vice President, General Counsel and Secretary
Richard H. Siporin 46 Vice President, Sales and Marketing
Mr. Klein has been President and Chief Executive Officer of the Company
since June 1998. He joined the Company as Vice President and Chief Financial
Officer in February 1996 and has been a Director since August 1994. Prior to
joining the Company, Mr. Klein was President, Chief Executive Officer and a
Director of Megamation Incorporated, a publicly traded company that manufactured
automation work cells 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. Fanelle has been the Company's Vice President of Operations since
November 1998. He joined the Company as General Manager in September 1997. Prior
to joining the Company, Mr. Fanelle was Vice President of Operations of Besam,
Inc., a manufacturer of automatic doors primarily for retail stores and
supermarkets. Mr. Fanelle joined Besam in 1994 as Director of Operations. From
1979 to 1986, Mr. Fanelle was employed by Checkpoint Systems, Inc., a provider
of security and access control systems and was Vice President of Operations of
that company from 1987 to 1994.
Mr. Murphy has been Chief Financial Officer of the Company since July
1999. He joined the Company as Controller in May 1996. Prior to joining the
Company, Mr. Murphy was Controller of Megamation Incorporated, a publicly traded
company that manufactured automation work cells used in various industries, from
January 1995 until April 1996, and Accounting Manager of Ohmicron, Inc., a
biotechnology company, from January 1993 until December 1994. From September
1985 to May 1992, Mr. Murphy served in a number of financial positions at
Checkpoint Systems, Inc., a provider of security and access control systems,
including serving as Accounting Manager from 1991 to 1992.
Ms. Pulver Flatt has been Vice President and General Counsel since
August 2003. She joined the Company in July 1999, and from that time until
August 2003, she served as Senior Associate Counsel. From 1992 until she joined
eGames, she was an associate with the law firm of McCausland, Keen & Buckman.
Mr. Siporin joined the Company in January 2000 as Vice President of
Sales and Marketing. Prior to joining the Company, he served as Senior Vice
President of Sales for Sunbeam, Inc., Health Division. From 1988 to 1998, Mr.
Siporin served in a number of positions at Revlon, Inc., including serving as
Vice President of Sales from 1992 to 1998. From 1982 to 1988, Mr. Siporin held a
number of sales management positions with Playtex Family Products.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company currently has four directors. One director, Mr. Aiken, is
not standing for re-election but will continue to serve until the Annual
Meeting. The nominees named below were designated by the Board for election at
the Annual Meeting to serve for one-year terms until the next Annual Meeting and
until their respective successors are elected and qualified. Upon the
recommendation of the independent directors, 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. There is no family relationship between any nominee
and any other nominee or executive officer of the Company. Additionally, there
are no arrangements or understandings between the nominee and any other person
pursuant to which the nominee was selected.
Nominees:
All of the nominees have served as directors of the Company since the
last annual meeting of shareholders, except for Mr. Mauro who is standing for
election as a director for the first time at the Annual Meeting. The names of
the nominees and certain information about them are set forth below. The
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
- ------------- --- ----- -----
Gerald W. Klein 57 Director, President and Chief 1994
Executive Officer
Eugene H. Mauro 36 Nominee for Director
Thomas D. Parente (2)(3) 59 Director 1995
Lambert C. Thom (1)(2) 60 Director 1997
- -------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Chairman of Audit Committee
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.
Eugene H. Mauro is a 10-year veteran of the interactive entertainment
industry, and from March 2004 until September 2005 he served as Chief Executive
Officer and Executive Producer at Myelin Media, LLC, a start-up video game
publishing company. Mr. Mauro was the founder and, from May 2001 until December
2003, Chief Executive Officer of Capital Entertainment Group, Inc., an
independent video game production studio. From 1997 until 2001, Mr. Mauro served
as President of Dotted Line Entertainment, Inc., where he represented game
developers, publishers and licensors.
Thomas D. Parente joined the Company as a Director in June 1995, and
was elected as Chairman of the Board in August 1998, which position he held
until December 2000. Mr. Parente is Corporate Secretary and Director of
Corporate Development for Ole Hansen & Sons, Inc., a privately owned holding
company, a position he has held since December 1996. From May 1995 to November
1996, he was self-employed as a financial consultant to businesses. From April
1988 until April 1996, he was a Vice-President and the Chief Financial Officer
of Suvar Corporation, a manufacturer of specialty chemicals for the printing and
coatings markets. From June 1970 until April 1988, Mr. Parente was employed by
KPMG LLP and was a partner with that firm from April 1979 until April 1988. Mr.
Parente is a certified public accountant.
Lambert C. Thom joined the Company as a Director in December 1997. He
has served as Vice President and Managing Director of Bangert, Dawes, Reade,
Davis & Thom, Incorporated, a private investment firm, since 1975. From 1989 to
1995, Mr. Thom served as Vice President of John Hancock Capital Growth
Management, Inc., an investment management firm.
Director not standing for re-election:
Robert M. Aiken, Jr., has been a director since January 1998 and
Chairman of the Board since December 2000. Mr. Aiken was President of RMA
Consulting, Inc., a management-consulting firm, from July 1998 until December
2003. From November 1996 to June 1998, Mr. Aiken was Executive Vice President
and Chief Financial Officer of Sunoco, Inc. (formerly Sun Company, Inc.), and
from September 1990 to October 1996, Mr. Aiken was senior Vice President and
Chief Financial Officer of Sunoco, Inc. Mr. Aiken is a certified public
accountant. In addition to serving on the Company's board, Mr. Aiken serves on
the Board of Directors of NN, Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met 8 times during fiscal 2005. During fiscal
2005, all directors of the Company attended at least 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. Mr. Parente
has agreed to serve as Chairman of the Board upon Mr. Aiken's retirement.
The Board of Directors of the Company has an Audit Committee and a
Compensation Committee.
Audit Committee. The current members of the Audit Committee are Robert
M. Aiken Jr., Lambert C. Thom, and Thomas D. Parente. Mr. Parente is the
Chairman of the Audit Committee. It is anticipated that, upon Mr. Mauro's
election as a director of the Company, he will serve as a member of the Audit
Committee. All of the current members of the Audit Committee are independent, as
that term is defined in Section 10A of the Securities Exchange Act of 1934, the
SEC rules thereunder, and Section 121(A) of the American Stock Exchange's
Listing Standards, Policies and Requirements. The Board has determined that Mr.
Mauro also meets the applicable independence requirements set forth above. The
Board of Directors has determined that the Audit Committee has at least one
"audit committee financial expert," which is Mr. Parente. The Audit Committee
has the authority and duty to select the independent auditors to be engaged as
the Company's independent auditors, and to evaluate the performance provided by
the Company's independent auditors. The Audit Committee also assesses the
Company's internal accounting controls, reviews the Company's financial
disclosures and takes such other action as it deems appropriate to ensure the
appropriate safeguarding of the Company's assets and accounting of its assets
and liabilities. In September 2005, the Board of Directors conducted its annual
review of the written charter for the Audit Committee, which delineates the
Audit Committee's functions, powers and duties, and confirmed its approval of
the charter in its current form. A copy of the Audit Committee charter can be
viewed on the Company's website at http://investors.egames.com/audit.asp. This
committee met 10 times during fiscal 2005.
Compensation Committee. The current members of the Compensation
Committee are Mr. Aiken, Mr. Parente, and Mr. Thom. Mr. Aiken is the Chairman of
the Compensation Committee. It is anticipated that, upon Mr. Mauro's election as
a director of the Company, he will serve as a member of the Compensation
Committee. 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. In April 2004, the Board of Directors
adopted a charter for the Compensation Committee, a copy of which can be viewed
on the Company's website at http://investors.egames.com/compensation.asp. The
Compensation Committee conducted its annual review of this charter in September
2005 and confirmed its approval of the charter in its current form. The
Compensation Committee met one time during fiscal 2005.
Nominating Procedures. The Company does not have a nominating
committee, but in April 2004, the Board of Directors adopted procedures that
authorize the Board members who satisfy the definition of "independent" under
Section 121(A) of the American Stock Exchange's Listing Standards, Policies and
Requirements to:
- Identify individuals qualified to become members of the Board;
- Select, or recommend to the Board, director nominees to be
presented for shareholder approval at the annual meeting;
- Select, or recommend to the Board, director nominees to fill
vacancies on the Board as necessary.
- Retain a search firm to be used to identify director candidates;
- Retain and terminate any such search firm, including sole authority
to approve the firm's fees and other retention terms; and
- Retain other advisors as they deem necessary or appropriate.
The procedures adopted by the Board also state that the Company will
provide for appropriate funding, as determined by the independent Board members,
for payment of compensation to any search firm or other advisors employed as set
forth above. The Board reviews and reassesses the adequacy of these procedures
annually.
Mr. Aiken, Mr. Thom and Mr. Parente are all "independent" as defined by
Section 121(A) of the American Stock Exchange's Listing Standards, Policies and
Requirements, and they therefore have the authority pursuant to the policies
adopted by the Company to perform functions similar to a nominating committee.
The Board has also determined that Mr. Mauro also meets the applicable
independence requirements. The Board of Directors believes that it is
appropriate not to have a formal nominating committee because of the Company's
small size and because its three independent directors have the authority to
perform functions similar to a nominating committee comprised of independent
directors.
The independent directors identify, evaluate and recommend directors
for nomination by the Board for election as members of the Board. Some of the
qualifications the independent directors consider in evaluating director
candidates are: (i) business experience; (ii) educational background; (iii)
diversity; (iv) moral and ethical character; (v) accountability and integrity;
(vi) financial literacy; (vii) other board appointments; (viii) industry
knowledge; and (ix) independence from management. Mr. Klein, President and Chief
Executive Officer of the Company, presented Mr. Mauro to the independent
directors as a candidate for director of the Company. After evaluating Mr.
Mauro's qualifications, the independent directors determined that Mr. Mauro met
the criteria determined by the Board and recommended to the full Board his
nomination to stand for election as a director of the Company.
The Board of Directors currently does not have a policy with regard to
the consideration of any director candidates recommended by security holders.
The Board believes that it is appropriate for the Company not to have such a
policy because the Company has not, during the nine years that it has been a
publicly-traded company, received any recommendations from security holders for
any director candidates, and believes it is unlikely that this will be a
frequent occurrence in the future. The Board will continue to evaluate from time
to time whether adopting a formal written policy regarding security holder
recommendations for director candidates is in the best interests of the
Company's shareholders.
Board Attendance at Annual Shareholder's Meeting. Although the Company
does not have a formal written policy with regard to Board members' attendance
at Annual Shareholder Meetings, board members are invited and encouraged to
attend. All of the directors attended last year's Annual Shareholder's Meeting,
held on December 8, 2004.
Security Holder Communications. Any shareholder who wants to send
communications to the Board of Directors may do so in writing by sending a
letter addressed to the director, c/o Corporate Secretary, eGames, Inc., 2000
Cabot Blvd. West, Suite 110, Langhorne, PA 19047. Any matter relating to the
Company's financial statements, accounting practices or internal controls should
be addressed to the Chairman of the Audit Committee. All other matters should be
addressed to the Chairman of the Board of Directors. Shareholders making such
communications are encouraged to state that they are shareholders and provide
the exact name in which the shares are held and the number of shares held. The
Board of Directors has approved a policy which provides that certain
communications which are unrelated to the duties and responsibilities of the
Board should be excluded, such as spam, junk mail and mass mailings, product
complaints, product inquiries, new product suggestions, resumes and other forms
of job inquiries, surveys, business solicitations, or advertisements.
The Director who receives correspondence may forward copies of any
communications to any other directors, any Board committee or the entire Board
for information and/or action as deemed appropriate. Copies of all
communications addressed to the non-management directors will be forwarded
concurrently to the General Counsel of eGames.
The Audit Committee has also established confidential, anonymous
procedures for the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls or auditing matters by Company
employees.
Code of Ethics. The Company has adopted a Code of Ethics that applies
to all of its directors and employees, including its Chief Executive Officer,
Chief Financial Officer and senior financial and accounting officers. In
addition to other matters, the Code of Ethics establishes policies to deter
wrongdoing and to promote honest and ethical conduct, including ethical handling
of actual or apparent conflicts of interest, compliance with applicable laws,
rules and regulations, full, fair, accurate, timely and understandable
disclosure in public communications and prompt internal reporting of violations
of the Code of Ethics. A copy of the eGames Code of Ethics is available on our
website at http://investors.egames.com/ethics.asp.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended June 30, 2005 with management and
has received the written disclosures and the letter from Stockton Bates, LLP,
the Company's independent auditors for the fiscal year ended June 30, 2005,
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee), as currently in effect. The Audit Committee
has also discussed with Stockton Bates, LLP the Company's audited financial
statements for the fiscal year ended June 30, 2005, including, among other
things, the quality of the Company's accounting principles, the methodologies
and accounting principles applied to significant transactions, the underlying
processes and estimates used by management in its financial statements and the
basis for the auditor's conclusions regarding the reasonableness of those
estimates, and the auditor's independence, as well as the other matters required
by Statement on Auditing Standards No. 61, as amended by Statement on Accounting
Standards No. 90 (Communication with Audit Committees), of the Auditing
Standards Board of the American Institute of Certified Public Accountants.
Based on these discussions with Stockton Bates, LLP and the results of
the audit of the Company's financial statements, the Audit Committee members
recommended unanimously to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2005.
Policy for Approval of Audit and Non-Audit Fees. During fiscal 2005,
the Audit Committee approved all audit, non-audit, tax and all other services
which Stockton Bates, LLP was to perform during the year and the range of fees
for each of these categories. The Audit Committee's current policy is to
consider for pre-approval annually all categories of audit, non-audit, tax and
other services proposed to be provided by our independent auditors for the
fiscal year, which categories and services are reviewed as needed throughout the
year. The Audit Committee must separately pre-approve any service that is not
included in the approved list of services or any proposed services exceeding
pre-approved cost levels.
COMPENSATION OF DIRECTORS
The non-employee members of the Board of Directors, who are also
members of the Company's Audit Committee and Compensation Committee, receive
$15,000 annually for their services as a member of the Board, Audit Committee
and Compensation Committee. This fee is payable in four quarterly installments.
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, which expired June 30, 2005, had
provided 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 received options to
purchase 5,000 shares of Common Stock on January 1 of each year that such person
is a non-employee director. The options have terms of five years and have an
exercise price equal to the fair market value on the date of grant. The final
automatic option grant to the non-employee members of the Board of Directors
pursuant to the Amended and Restated 1995 Stock Option Plan was made on January
1, 2005.
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, 2005, 2004, and 2003 to
the Company's Chief Executive Officer and the Company's other executive officers
whose salary and bonus exceeded $100,000 during the 2005 fiscal year.
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities All Other
Fiscal Underlying Compensation
Name & Principal Position Year Salary ($) Bonus ($) Options (#) (1) ($)
- ------------------------- ---- ---------- --------- ----------- -------
Gerald W. Klein 2005 207,308 59,701 -0- 9,023
President and Chief Executive 2004 188,269 49,160 110,000 7,904
Officer 2003 175,000 5,000 210,000 6,585
Lawrence F. Fanelle 2005 155,385 37,110 -0- 9,849
Vice President- Operations 2004 138,846 29,688 75,000 9,408
2003 128,077 5,166 147,000 7,817
Thomas W. Murphy 2005 128,385 30,435 -0- 7,053
Vice President- Finance and 2004 112,962 24,203 75,000 6,521
Chief Financial Officer 2003 103,558 5,166 120,000 5,964
Ellen Pulver Flatt 2005 90,724 19,191 -0- 6,857
Vice President and General Counsel 2004 75,615 12,611 60,000 5,774
2003 69,678 5,257 60,000 5,332
Richard H. Siporin 2005 176,154 42,244 -0- 7,202
Vice President- Sales and Marketing 2004 158,846 34,076 75,000 6,711
2003 150,000 5,166 110,000 6,065
(1) Represents: (a) amounts contributed by the Company to each named executive officer's 401(k) Plan, and (b) life
insurance premiums paid by the Company.
Option Grants During 2005 Fiscal Year
There were no option grants to the named executive officers during Fiscal 2005.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
The following table provides information related to employee options exercised
by the named executive officers during fiscal 2005 and the value of such options
at year-end.
Shares Value* of Unexercised
Acquired Number of Securities In-The-Money Options
on Underlying Unexercised at FY-End ($)
Exercise Value Realized Options at FY End (#) Exercisable/Un
Name (#) ($) Exercisable/Un-exercisable Exercisable
---- --- --- -------------------------- -----------
Gerald W. Klein 290,000 113,000 11,000 / 169,000 -0- / -0-
Lawrence F. Fanelle 99,000 44,550 56,500 / 116,500 1,960 / -0-
Thomas W. Murphy 75,000 33,750 87,500 / 107,500 13,200 / -0-
Ellen Pulver Flatt -0- -0- 26,000 / 74,000 800 / -0-
Richard H. Siporin 86,667 39,000 44,167 / 104,166 1,467 / -0-
* Value of options based upon a share price of $0.54, the closing price of the
Common Stock on June 30, 2005.
Long-Term incentive Plans
The Company does not have any long-term incentive plans.
Change of Control Severance Arrangements
In June 2004, the Company adopted a Change of Control Severance Plan
for Level One Employees (the "Severance Plan"). The Chief Executive Officer, the
President, any Vice President of the Company, and each other person designated
by the Board in writing are eligible to participate in the Severance Plan. The
Severance Plan provides for benefits in the event that the Company or its
successor terminates an eligible individual's employment within 90 days prior to
or 365 days after a change of control for any reason other than for "cause," as
defined in the Severance Plan, or an eligible employees terminates his or her
employment for "good reason," as defined in the Severance Plan. The eligible
employees under the Severance Plan may be eligible to receive (A) a lump sum
payment of two times the sum of their annual base salary and the greater of (1)
the annual cash bonus, if any, actually paid or declared for the year
immediately preceding the year in which the employee's employment terminates or
(2) the annual bonus for the year immediately preceding the year the change of
control giving rise to the termination of employment and (B) continuation of
health benefits for up to 24 months.
PROPOSAL TWO
RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Company's Audit Committee has reappointed Stockton Bates, LLP as
the independent public accounting firm to audit the Company's financial
statements for the fiscal year ending June 30, 2006. The Board of Directors has
proposed that the shareholders ratify the appointment of Stockton Bates, LLP.
A representative of Stockton Bates, LLP is expected to attend the
Annual Meeting. He or she will be given the opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions.
The following table sets forth the fees that the Company paid to its
independent auditors for services provided to the Company during the last two
fiscal years:
2005 2004
---- ----
Audit Fees (1) $58,750 $55,000
Audit-Related Fees (2) $ -0- $ -0-
Tax Fees (3) $10,000 $12,000
All Other Fees (4) $ -0- $ 2,980
(1) Audit Fees consist of fees billed for professional services rendered
for the audit of the Company's annual financial statements and reviews
of the financial statements included in the Company's quarterly reports
on Forms 10-QSB.
(2) Audit-Related Fees consist of services that are reasonably related to
the performance of the audit or review of the Company's financial
statements and are not reported under "Audit Fees."
(3) Tax Fees consist of professional services rendered by the independent
auditors for tax compliance, tax advice, and tax planning. The services
for the fees disclosed under this category include tax return
preparation and tax advice.
(4) For the fiscal year ended June 30, 2004, All Other Fees consisted of
customer contract review ($1,480), research related to tax treatment
of stock option exercises ($840) and other miscellaneous items ($660).
The Audit Committee has considered whether the provision of services other than
audit services is compatible with maintaining the independent public
accountant's independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF STOCKTON BATES, LLP.
SHAREHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING
Pursuant to Rule 14a-8 under the Exchange Act, shareholders who meet
the eligibility requirements of Rule 14a-8 may present proposals for inclusion
in the Company's proxy statement for the 2006 Annual Meeting of Shareholders if
these proposals are received by the Company at its corporate office by June 30,
2006. In accordance with the Company's Bylaws, to be considered for presentation
at the next Annual Meeting of Shareholders, although not included in the
Company's proxy statement, shareholder proposals must be received no later than
July 30, 2006.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES AND EXCHANGE ACT 0F 1934
Section 16(a) of the Securities and Exchange Act of 1934 required the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission reports about their beneficial ownership of the Company's Common
Stock. All such persons are required by the Commission to furnish the Company
with copies of all reports that they file.
Based solely upon a review of the copies of such reports furnished to
the Company, or written representations from certain reporting persons that no
other reports were required, the Company believes that during the fiscal year
ended June 30, 2005, all of its officers and directors complied with all filing
requirements applicable to them.
OTHER MATTERS
The Company currently knows of no other business that will be presented
for consideration at the Annual Meeting. If any other business is properly
brought before the meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgment of the person
voting the proxies. If any such matters are presented at the meeting, then the
proxy agents named in the enclose proxy card will vote in accordance with their
judgment.
EVERY PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 2005, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT CHARGE, BY SENDING A WRITTEN REQUEST
TO ELLEN PULVER FLATT, SECRETARY, AT 2000 CABOT BOULEVARD WEST, SUITE 110,
LANGHORNE, PA 19047.
By order of the Board of Directors,
Ellen Pulver Flatt
Vice President, General Counsel, and Secretary
REVOCABLE PROXY
---------------
EGAMES, INC.
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 1, 2005
The undersigned hereby appoints Gerald W. Klein and Thomas W. Murphy,
with full powers of substitution, to act as attorneys and proxies for the
undersigned to vote all shares of capital stock of eGames, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
(the "Meeting") to be held at the offices of the Company, 2000 Cabot Boulevard
West, Suite 110, Langhorne, Pennsylvania on December 1, 2005 at 10 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.
GERALD W. KLEIN EUGENE H. MAURO THOMAS D. PARENTE LAMBERT C. THOM
2. The ratification of the appointment of Stockton Bates, LLP as the Company's
auditors for the fiscal year ending June 30, 2006.
[ ] 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: , 2005
----------------------------
(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