-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CXwZvSqVn5iU+0PQ1eplwEEWhI3zNx1xjRkF6sqUFVaXDbfAnklHExmoz9CYlJJG IVVhR3+eUibVy627kriiEQ== 0000948703-02-000016.txt : 20021025 0000948703-02-000016.hdr.sgml : 20021025 20021025163927 ACCESSION NUMBER: 0000948703-02-000016 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020625 FILED AS OF DATE: 20021025 EFFECTIVENESS DATE: 20021025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGAMES INC CENTRAL INDEX KEY: 0000948703 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 232694937 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27102 FILM NUMBER: 02798911 BUSINESS ADDRESS: STREET 1: 2000 CABOT BLVD STREET 2: SUITE 110 CITY: LANGHORNE STATE: PA ZIP: 19047-1833 BUSINESS PHONE: 2157506606 MAIL ADDRESS: STREET 1: 2000 CABOT BLVD SUITE 110 CITY: LANGHORNE STATE: PA ZIP: 19047-1833 DEF 14A 1 def14a2002proxy.txt DEF 14A (2002 PROXY AND NOTICE OF MEETING) 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 240.14a-11(c) or 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 25, 2002 Dear Shareholder: You are invited to attend the Annual Meeting of Shareholders of eGames, Inc. (the "Company") which will be held at 3 p.m. Eastern Standard Time on Wednesday, December 4, 2002 at the 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. 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 2002 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, 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 4, 2002 To Our Shareholders: The Annual Meeting of Shareholders of eGames, Inc. (the "Company") will be held at 3 p.m. Eastern Standard Time on Wednesday, December 4, 2002, at the Company's offices, 2000 Cabot Boulevard, Suite 110, Langhorne, Pennsylvania, for the following purposes: 1. To elect four (4) directors; 2. To vote on ratification of the appointment of Stockton Bates, LLP as the Company's auditors for the fiscal year ending June 30, 2003; and 3. To act upon such other business as may properly come before the meeting. The Board of Directors has fixed October 4, 2002 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 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, Ellen Pulver Flatt Secretary October 25, 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 Annual Meeting of Shareholders (the "Meeting") to be held at the Company's offices, 2000 Cabot Boulevard, Suite 110, Langhorne, Pennsylvania on December 4, 2002 at 3 p.m. Eastern Standard Time, or at any adjournment or postponement of the meeting. These proxy materials are first being mailed to shareholders on or about October 25, 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. 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 October 4, 2002, the record date for the determination of shareholders entitled to receive notice of and to vote at the Company's Annual Meeting of Shareholders, the Company's outstanding voting securities consisted of 9,989,337 shares of Common Stock. Holders of Common Stock are entitled to one vote per share. SECURITY OWNERSHIP The following table sets forth information as supplied to the Company regarding the number and percentage of shares of the Company's Common Stock beneficially owned on June 30, 2002 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 Percentof Class Beneficial Owner (1) Ownership (2) Beneficially Owned - -------------------- ------------------ ------------------ Robert M. Aiken, Jr. 73,000 (3) * 2 Cedar Marsh Retreat Savannah, GA 31411-2922 William C. Acheson 284,900 (4) 2.8% Lawrence Fanelle 179,675 (5) 1.7% Gerald W. Klein 375,000 (6) 3.7% Odyssey Capital Group, L.P. 769,500 (7) 7.7% 950 West Valley Road, Suite 2902 Wayne, PA 19087 Thomas W. Murphy 79,342 (8) * Thomas D. Parente 87,500 (9) * 133 Union Mill Terrace Mt. Laurel, NJ 08054 Richard Siporin 93,300(10) * Lambert C. Thom 116,124(11) 1.1% Bangert Dawes Reade Davis & Thom 106 Lyford Drive Tiburon, CA 94920 All officers and directors as a group (8 persons) (12) 11.9%
- ------- *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 that may be acquired upon exercise of stock options which are currently exercisable or which become exercisable within sixty days of June 30, 2002 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 60,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. (4) Includes 190,600 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. (5) Includes 166,600 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. Also includes 2,075 shares held by Mr. Fanelle's immediate family members. (6) Includes 130,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. (7) The information presented is as of June 30, 2002 based upon information supplied to the Company by Odyssey Capital Group, L.P. ("Odyssey"). Voting and investment power of the shares of Common Stock held by Odyssey are shared by Odyssey and John P. Kirwin, Bruce E. Terker and Kirk B. Griswold, who are each officers of the corporate general partner of Odyssey. Also includes 250,000 shares held by a partnership controlled by Mr. Terker. (8) Includes 70,700 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. Also includes 788 shares held by Mr. Murphy's immediate family members. (9) Includes 50,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. Also includes 5,500 shares held by Mr. Parente's immediate family members. (10) Includes 91,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. (11) Includes 60,000 shares of Common Stock that may be acquired through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. (12) Includes 818,900 shares of Common Stock that may be acquired by such persons through the exercise of options that were exercisable as of June 30, 2002 or became exercisable within 60 days of that date. Equity Compensation Plan Information The following table summarizes, as of June 30, 2002, outstanding options and warrants to acquire shares of the Company's Common Stock that may be issued under the Company's 1995 Amended and Restated Stock Option Plan, as well as options issued to the Company's outside directors, warrants issued to Fleet Bank, the underwriters of the Company's initial public offering, and former owners of Applied Optical Media Corporation, the issuance of which was not approved by the Company's shareholders.
Number of securities remaining available for Number of securities to Weighted-average future issuance under be issued upon exercise exercise price of equity compensation plans of outstanding options, outstanding options, (excluding securities warrants and rights warrants and rights reflected in column (a)) Plan category (a) (b) (c) - ---------------------------- ------------------------ ---------------------- ------------------------- Equity compensation plans approved by security holders 1,649,500 $1.452 1,217,668 Equity compensation plans not approved by security 870,100(1) $0.381 -0- holders - ---------------------------- ------------------------ ----------------------- ------------------------- Total 1,724,500 $1.082 1,217,668
(1) Includes the following equity securities: (a) 25,000 options issued to each of the Company's three outside directors (Lambert C. Thom, Robert M. Aiken Jr., and Thomas D. Parente) in December 1998. These options have an exercise price of $1.656, are currently fully vested and expire on December 14, 2003. (b) 37,900 warrants granted to the underwriter of the Company's initial public offering on October 18, 1995 remained outstanding and exercisable as of June 30, 2002. These warrants, which had an exercise price of $3.60 per share, expired on October 17, 2002. (c) 7,000 warrants issued to the former owners of Applied Optical Media Corporation, a company that merged with the Company on the date of its initial public offering, remained outstanding and exercisable as of June 30, 2002. These warrants, which had an exercise price of $.50 per share, expired on October 16, 2002. (d) 750,000 warrants issued to Fleet Bank in connection with a forbearance agreement the Company entered into with the bank on November 2, 2001. The warrants are exercisable until October 31, 2006 at an exercise price of $0.09 per share. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows: Name Age Position ---- --- -------- Gerald W. Klein 54 President and Chief Executive Officer William C. Acheson 52 Vice President, Business Development Lawrence Fanelle 51 Vice President, Operations Thomas W. Murphy 44 Vice President, Finance and Chief Financial Officer Richard Siporin 43 Vice President, Sales 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. Acheson has been the Company's Vice President of Business Development since July 2001. Prior to that he served as the Company's Executive Vice President from December 1999. He joined the Company in May 1997 as the Company's Vice President of 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, Inc. Mr. Fanelle has been the Company's Vice President of Operations since November 1998. He joined the Company as General Manager in September 1997. Prior to joining the Company, Mr. Fanelle was Vice President of Operations of Besam, Inc., a manufacturer of automatic doors primarily for retail stores and supermarkets. Mr. Fanelle joined Besam in 1994 as Director of Operations. From 1979 to 1986, Mr. Fanelle was employed by Checkpoint Systems, Inc., a provider of security and access control systems and was Vice President of Operations of that company from 1987 to 1994. Mr. Murphy has been Chief Financial Officer of the Company since July 1999. He joined the Company as Controller in May 1996. Prior to joining the Company, Mr. Murphy was Controller of Megamation Incorporated, a publicly traded company that manufactured automation work cells used in various industries, from January 1995 until April 1996, and Accounting Manager of Ohmicron, Inc., a biotechnology company, from January 1993 until December 1994. From September 1985 to May 1992, Mr. Murphy served as Accounting Manager at Checkpoint Systems, Inc., a provider of security and access control systems. Mr. Siporin joined the Company in January 2000 as Vice President of 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 Annual Meeting to serve for one-year terms until the next Annual Meeting and until their respective successors are elected and qualified. The Board of Directors has recommended and approved the nominees identified in the following table. It is intended that the proxies solicited on behalf of the Board of Directors (other than proxies in which the vote is withheld as to a nominee) will be voted at the Meeting "for" the election of the nominees identified below. If a nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute nominee as the Board of Directors may recommend. At this time, the Board of Directors knows of no reason why any nominee may be unable to serve, if elected. Except as disclosed herein, there are no arrangements or understandings between the nominee and any other person pursuant to which the nominee was selected. The following information about the Company's nominees for election as directors is based, in part, upon information furnished by the nominees.
Director Name Age Title Since - ------------- --- ----- ----- Robert M. Aiken, Jr.(1)(2) 60 Chairman of the Board of Directors 1998 Gerald W. Klein 54 Director, President and Chief Executive Officer 1994 Thomas D. Parente(2)(3) 56 Director 1995 Lambert C. Thom (1)(2) 57 Director 1997 - ------- (1) Member of Audit Committee (2) Member of Compensation Committee (3) Chairman of Audit Committee
The principal occupation of each of the directors of the Company is set forth below. Robert M. Aiken, Jr., who has been a director since January 1998 and Chairman of the Board since December 2000, has been President of RMA Consulting, Inc., a management-consulting firm, since July 1998. From November 1996 to June 1998, Mr. Aiken was Executive Vice President and Chief Financial Officer of Sunoco, Inc. (formerly Sun Company, Inc.), and from September 1990 to October 1996, Mr. Aiken was Senior Vice President and Chief Financial Officer of Sunoco, Inc. Mr. Aiken is a certified public accountant. In addition to serving on the Company's board, Mr. Aiken serves on the Board of 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. 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 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 Director in December 1997. He has served as Vice President and Managing Director of Bangert, Dawes, Reade, Davis & Thom, Incorporated, a private investment firm, since 1975. From 1989 to 1995, Mr. Thom served as Vice President of John Hancock Capital Growth Management, Inc., an investment management firm. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors met four times during fiscal 2002. During fiscal 2002, 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. The members of the Audit Committee are Messrs. Parente, Thom and Aiken. This committee met ten times during fiscal 2002. 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 two times during fiscal 2002. AUDIT COMMITTEE REPORT The Audit Committee has reviewed and discussed the Company's audited financial statements for the fiscal year ended June 30, 2002 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, 2002, 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, 2002, 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, 2002. The members of the Audit Committee are Robert M. Aiken, Jr., Lambert C. Thom and Thomas D. Parente. Mr. Parente is the Chairman of the Audit Committee. 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 grant. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL NOMINEES. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth certain information concerning the compensation paid during the fiscal years ended June 30, 2002, 2001 and 2000 to the Company's Chief Executive Officer and the Company's other executive officers whose salary and bonus exceeded $100,000 during the 2002 fiscal year.
Annual Compensation Long-Term Compensation ------------------- ---------------------- Securities Fiscal Underlying All Other Name & Principal Position Year Salary ($) Bonus ($) Options (#) Compensation (1) - ------------------------- ---- ---------- --------- ----------- ---------------- Gerald W. Klein 2002 176,000 4,000 -0- $5,942 President and Chief Executive Officer 2001 175,500 -0- 150,000 $5,549 2000 175,300 -0- 37,500 $5,585 William C. Acheson 2002 166,770 4,000 -0- $5,849 Vice President - 2001 165,500 -0- 50,000 $5,710 Business Development 2000 162,416 -0- 25,000 $5,835 Lawrence Fanelle 2002 121,000 4,000 -0- $6,437 Vice President - Operations 2001 120,500 -0- 50,000 $7,427 2000 120,300 -0- 10,000 $7,887 Thomas W. Murphy 2002 98,500 4,000 -0- $5,433 Vice President - Finance and Chief 2001 98,000 -0- 75,000 $5,433 Financial Officer 2000 97,800 -0- 10,000 $5,839 Richard Siporin 2002 151,000 4,000 -0- $5,940 Vice President - Sales 2001 150,500 -0- 50,000 $8,344 2000 60,577 -0- 100,000 $2,608 - --------------------------
(1) Represents: (a) amounts contributed by the Company to each named executive officer's 401(k) Plan, and (b) life insurance premiums paid by the Company. Option Grants During 2002 Fiscal Year No stock options were granted to executive officers during fiscal 2002. The Company does not have any outstanding stock appreciation rights. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values The following table provides information related to employee options exercised by the named executive officers during fiscal 2002 and the value of such options at year-end.
Shares Number of Securities Value* of Unexercised Acquired Underlying Unexercised In-The-Money Options on Exercise Value Realized Options at FY End (#) at FY-End ($) Name (#) ($) Exercisable/Un-exercisable Exercisable/Un-exercisable ---- --- --- -------------------------- -------------------------- Gerald W. Klein -0- -0- 130,000 / 87,500 -0- / -0- William C. Acheson -0- -0- 190,600 / 33,400 -0- / -0- Lawrence Fanelle -0- -0- 166,600 / 28,400 -0- / -0- Thomas W. Murphy -0- -0- 68,900 / 41,100 -0- / -0- Richard Siporin -0- -0- 91,000 / 59,000 -0- / -0-
* Value of options based upon a share price of $0.07, the closing price of the Common Stock on June 30, 2002. Long-Term Incentive Plans The Company does not have any long-term incentive plans. PROPOSAL TWO RATIFICATION OF THE APPOINTMENT OF AUDITORS On February 19, 2002, the Company received notice from its independent auditor, KPMG, LLP ("KPMG"), of its resignation as the Company's certifying accountant. On March 1, 2002, the Company's Audit Committee unanimously approved the engagement of Stockton Bates, LLP ("Stockton Bates") as the Company's principal accountant to audit the Company's financial statements for the fiscal year ending June 30, 2002 and to review the Company's interim financial statements. KPMG's audit report on the Company's consolidated financial statements as of and for the fiscal year ended June 30, 2001 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except as follows: KPMG's audit report on the Company's consolidated financial statements as of June 30, 2001 and for the year ended June 30, 2001 included a separate paragraph as follows: "The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has working capital and stockholders' deficits at June 30, 2001, suffered a net loss, incurred negative cash flows from operations for the year ended June 30, 2001, and no longer has a credit facility available for future borrowings. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty." In connection with the audit as of and for the fiscal year ended June 30, 2001, and the subsequent interim period through February 19, 2002, there were no disagreements between the Company and KPMG on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of KPMG, would have caused them to make reference in connection with their audit report to the subject matter of the disagreement. KPMG advised the Company that, in connection with KPMG's audit of the Company's consolidated financial statements for the year ended June 30, 2001, KPMG had noted a matter involving the Company's internal control procedures and its operation that KPMG considered to be a reportable condition of a material weakness under standards established by the American Institute of Certified Public Accountants. KPMG advised the Audit Committee that the Company did not have sufficient internal controls in place to ensure that shipments with FOB destination shipping terms were recognized as revenue only after the customer had received these shipments. KPMG advised the Audit Committee of the foregoing in a letter to the Audit Committee dated February 11, 2002, although KPMG had previously communicated this issue to the Audit Committee prior to the date of the letter. The Company's management has implemented the procedures recommended by KPMG in its February 11, 2002 letter, to obtain the requisite proof of delivery documentation for product shipments made during approximately the last two weeks of a reporting period, in order to enable the Company to comply with accounting principles generally accepted in the United States of America. The Company has authorized KPMG to respond fully to the inquiries of any successor auditor concerning this matter. Stockton Bates' audit report on the Company's consolidated financial statements as of and for the fiscal year ended June 30, 2002 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, except as follows: Stockton Bates' audit report on the Company's consolidated financial statements as of June 30, 2002 and for the year ended June 30, 2002 included a separate paragraph as follows: "The accompanying financial statements have been prepared assuming that eGames, Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, eGames, Inc. has minimal stockholders' equity and working capital and no longer has access to its previous credit facility and its liquidity needs are entirely dependent on cash flow from operations. These matters raise substantial doubt about eGames, Inc.'s ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." The Audit Committee has appointed Stockton Bates to be the Company's auditors for the fiscal year ending June 30, 2003, subject to the ratification of the appointment by the Company's shareholders. A representative of Stockton Bates 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 OF STOCKTON BATES, LLP. The Company incurred the following fees for audit and other services performed by Stockton Bates with respect to fiscal 2002: Audit Fees............................................................ $ 58,500 Financial Information, Systems Design and Implementation Fees......... $ - 0 - All Other Fees........................................................ $ - 0 - 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 2003 Annual Meeting of Shareholders, shareholder proposals must be received by the Company at its corporate office by June 26, 2003. In accordance with the Company's Bylaws, to be considered for presentation at the next Annual Meeting of Shareholders, although not included in the Company's proxy statement, shareholder proposals must be received no later than July 26, 2003. 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, 2002, 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 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, 2002, 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 REVOCABLE PROXY EGAMES, INC. ANNUAL MEETING OF SHAREHOLDERS DECEMBER 4, 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 offices of the Company, 2000 Cabot Boulevard West, Suite 110, Langhorne, Pennsylvania on December 4, 2002 at 3 p.m. and at any and all adjournments and postponements thereof. 1. The election as directors of all nominees listed below (except as marked to the contrary). [ ] FOR [ ] VOTE WITHHELD INSTRUCTION: To withhold your vote for any individual nominee, strike a line in that nominee's name below. ROBERT M. AIKEN, JR. GERALD W. KLEIN THOMAS D. PARENTE LAMBERT C. THOM 2. The ratification of the appointment of Stockton Bates, LLP as the Company's auditors for the fiscal year ending June 30, 2003. [ ] 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: , 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 -----END PRIVACY-ENHANCED MESSAGE-----