(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
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Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
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|
Preliminary
proxy statement
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For Use of the Commission Only (as permitted by Rule
14a—6(e)(2))
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¨
Definitive
proxy statement
¨
Definitive
additional materials
¨
Soliciting
material under Rule 14a-12
FortuNet,
Inc.
(Name
of Registrant as Specified in Its Charter)
(Name
of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Copies
to:
Bryan M.
Williams, Esq.
Sklar
Williams LLP
8383 West
Sunset Road, Suite 300
Las
Vegas, Nevada 89113
Telephone:
(702) 360-6000, Facsimile: (702) 360-0000
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FORTUNET,
INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON APRIL 17, 2009
TIME
8:00
a.m., Pacific Daylight Time, on April 17, 2009
LOCATION
FortuNet,
Inc.
2950
South Highland Drive
Las Vegas, Nevada 89109
PROPOSALS
|
1.
|
To
elect directors to serve until the 2010 annual meeting of stockholders and
until their successors are elected and
qualified.
|
|
2.
|
To
ratify the appointment of Schechter Dokken Kanter Andrews & Selcer
Ltd. as the independent registered public accounting firm for FortuNet,
Inc. for the fiscal year ending December 31,
2009.
|
|
3.
|
To
approve a special cash dividend of $2.50 per share common stock, $0.001
par value (the “Common Stock”) to be declared by the Board of Directors on
such terms and conditions as they deem appropriate and in accordance with
Nevada law and other laws and regulations governing the Company regarding
the payment of dividends.
|
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4.
|
To
consider such other business as may properly come before the annual
meeting and any adjournment or postponement
thereof.
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These
items of business are more fully described in the proxy statement which is
attached and made a part hereof.
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RECORD
DATE
|
You
are entitled to vote at the 2009 Annual Meeting of Stockholders (the
“Annual Meeting”) and any adjournment or postponement thereof if you were
a stockholder at the close of business on March 13,
2009.
|
VOTING
|
YOUR VOTE IS
IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL
MEETING, YOU ARE URGED TO VOTE PROMPTLY TO ENSURE YOUR PRESENCE AND THE
PRESENCE OF A QUORUM AT THE ANNUAL MEETING
.
You may
vote your shares by using the Internet or the
telephone. Instructions for using these services are set forth
on the enclosed proxy card. You may also vote your shares by
marking, signing, dating and returning the proxy card in the enclosed
postage-prepaid envelope. If you send in your proxy card and
then decide to attend the Annual Meeting to vote your shares in person,
you may still do so. Your proxy is revocable in accordance with
the procedures set forth in the proxy
statement.
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AVAILABILITY
|
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder
Meeting
|
to
be held on April 17, 2009. The proxy statement is available at
www.fortunet.com/2009AnnualMeeting
.
|
By Order
of the Board of Directors,
/s/ Yuri
Itkis
Yuri
Itkis
Chief
Executive Officer
FORTUNET,
INC.
2950
South Highland Drive
Las
Vegas, Nevada 89109
(702)
796-9090
______________________________
PROXY
STATEMENT
______________________________
GENERAL
INFORMATION
Why
am I receiving these proxy materials?
The Board
of Directors (the “Board”) of FortuNet, Inc., a Nevada corporation (the
“Company”), is furnishing these proxy materials to you in connection with the
Company’s 2009 annual meeting of stockholders (the “Annual
Meeting”). The Annual Meeting will be held at the offices of the
Company, 2950 South Highland Drive, Las Vegas, Nevada 89109, on April 17, 2009
at 8:00 a.m., Pacific Daylight Time. You are invited to attend the
Annual Meeting and are entitled and requested to vote on the proposals outlined
in this proxy statement (“Proxy Statement”).
What
proposals will be voted on at the Annual Meeting?
There are
three proposals scheduled to be voted on at the Annual Meeting:
|
1.
|
To
elect directors to serve until the 2010 annual meeting of stockholders and
until their successors are elected and
qualified.
|
|
2.
|
To
ratify the appointment Schechter Dokken Kanter Andrews & Selcer Ltd.,
as the Company’s independent registered public accounting firm
(hereinafter referred to as “independent auditors”) for the fiscal year
ending December 31,
2009.
|
|
3.
|
To
approve a special cash dividend of $2.50 per share of Common Stock to be
declared by the Board of Directors on such terms and conditions as they
deem appropriate and in accordance with Nevada law and other laws and
regulations governing the Company regarding the payment of
dividends.
|
|
4.
|
To
consider such other business as may properly come before the Annual
Meeting and any adjournment or postponement
thereof.
|
As to any
other business which may properly come before the Annual Meeting, the persons
named on the enclosed proxy card will vote according to their best
judgment. The Company does not know now of any other matters to be
presented or acted upon at the Annual Meeting.
What
are the recommendations of the Company’s Board of Directors?
The Board
of Directors recommends that you vote “FOR” the election of the directors
nominated for election herein, “FOR” the ratification of the appointment of
Schechter Dokken Kanter Andrews & Selcer Ltd. as the Company’s independent
auditors for the fiscal year ending December 31, 2009 and “FOR” the
approval of the special cash dividend of $2.50 per share of Common Stock to be
declared by the Board of Directors on such terms and conditions as they deem
appropriate and in accordance with Nevada law and other laws and regulations
governing the Company regarding the payment of dividends.
What
is the record date and what does it mean?
The
record date for the Annual Meeting is March 13, 2009. The record date
is established by the Board of Directors as permitted by Nevada
law. Holders of shares of our Common Stock at the close of business
on the record date are entitled to receive notice of the Annual Meeting and to
vote at the Annual Meeting and any adjournments or postponements
thereof.
What
shares can I vote?
Each
stockholder of the Company’s Common Stock, is entitled to one vote for each
share of Common Stock owned as of the record date. Holders of Common
Stock are referred to herein as “Stockholders.”
As of
March 13, 2009 (the “Record Date”), 11,042,011 shares of Common Stock were
issued and outstanding.
What
constitutes a quorum?
The
presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the shares of Common Stock outstanding and entitled to vote on the
record date will constitute a quorum permitting the Annual Meeting to conduct
its business.
How
are abstentions and broker non-votes treated?
Under
Nevada law, an abstaining vote and a broker non-vote are counted as present and
are, therefore, included for purposes of determining whether a quorum of shares
is present at the Annual Meeting.
A broker
non-vote occurs when a nominee holding shares for a beneficial owner does not
vote on a particular proposal because the nominee does not have the
discretionary voting instructions with respect to that item and has not received
instructions from the beneficial owner. Under the rules that govern
brokers who are voting with respect to shares held by them as nominee, brokers
have the discretion to vote such shares only on routine
matters. Routine matters include, among others, the election of
directors and ratification of auditors.
Under
Nevada law and the Company’s bylaws, directors must be elected by a plurality of
the votes cast at the election. Abstentions and broker non-votes are
not included in the tabulation of the voting results for the election of
directors and, therefore, do not have any effect on
Proposal 1.
Under
Nevada law and the Company’s bylaws, each matter other than the election of
directors is determined by the vote of the holders of a majority of the voting
power present or represented by proxy. For these matters, abstentions
are treated as shares present or represented by proxy, so abstentions have the
same effect as negative votes. For these matters, broker non-votes
are not deemed to be present or represented by proxy and, therefore, do not have
any effect on the outcome of these matters.
What
is the voting requirement to approve each of the proposals?
Proposal 1
. The five
candidates receiving the greatest number of affirmative votes of the shares of
Common Stock present in person, or represented by proxy, and entitled to vote at
the Annual Meeting will be elected, provided a quorum is present and
voting. Abstentions and broker non-votes will not be counted toward a
nominee’s total.
Proposal 2
. Ratification
of the appointment of Schechter Dokken Kanter Andrews & Selcer Ltd. as the
Company’s independent registered public accounting firm will require the
affirmative vote of a majority of the shares of Common Stock present in person,
or represented by proxy, and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes will not be counted as
having been voted on Proposal 2.
Proposal 3
. To approve a
special cash dividend of $2.50 per share of Common Stock to be declared by the
Board of Directors on such terms and conditions as they deem appropriate and in
accordance with Nevada law and other laws and regulations governing the Company
regarding the payment of dividends. Proposal 3 will require the
affirmative vote of a majority of the shares of Common Stock present in person,
or represented by proxy, and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes will not be counted as
having been voted on Proposal 3. (See Proposal 3 on Page 11 for an
agreement by certain of our Stockholders regarding the casting of their
votes)
All
shares of Common Stock represented by valid proxies will be voted in accordance
with the instructions contained therein. In the absence of
instructions, proxies from holders of Common Stock will be voted FOR Proposals
1, 2 and 3.
How
do I vote my shares?
You can
either attend the Annual Meeting and vote in person or give a proxy to be voted
at the Annual Meeting by mailing the enclosed proxy card.
If your
shares are registered in the name of a brokerage firm, you may be eligible to
vote your shares electronically over the Internet. A large number of
brokerage firms are participating in the Broadridge Financial Solutions, Inc.
(“Broadridge”) online program, which provides eligible Stockholders who receive
a paper copy of this Proxy Statement the opportunity to vote via the
Internet. If your brokerage firm is participating in Broadridge’s
program, your proxy card will provide instructions for voting
online. If your proxy card does not reference Internet information,
please complete and return the proxy card in the postage-paid envelope
provided.
Who
will tabulate the votes?
An
automated system administered by Broadridge will tabulate votes cast by proxy at
the Annual Meeting and a representative of the Company will tabulate votes cast
in person at the Annual Meeting.
Is
my vote confidential?
Proxy
instructions, ballots and voting tabulations that identify individual
Stockholders are handled in a manner that protects your voting privacy. Your
vote will not be disclosed either within the Company or to third parties, except
(i) as necessary to meet applicable legal requirements, or (ii) to allow for the
tabulation and/or certification of the vote.
Can
I change my vote after submitting my proxy?
You may
revoke your proxy at any time before the final vote at the Annual
Meeting. You may do so by one of the following three
ways:
·
|
submitting
another proxy card bearing a later
date;
|
·
|
sending
a written notice of revocation to the Company’s corporate Secretary at
2950 South Highland Drive, Las Vegas, Nevada 89109;
or
|
·
|
attending
AND voting in person at the Annual
Meeting.
|
Who
is paying for this proxy solicitation?
This
proxy solicitation is being made by the Company. This Proxy Statement
and the accompanying proxy were first sent by mail to the Stockholders on or
about March [___], 2008. The Company will bear the cost of soliciting
proxies, including preparation, assembly, printing and mailing of the Proxy
Statement. In addition, the Company will reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies
may be solicited by certain of the Company’s directors, officers and regular
employees, without additional compensation, either personally, by telephone,
facsimile, or telegram.
How
can I find out the voting results?
The
Company will announce the preliminary results at the Annual Meeting and publish
the final results in the Company’s Quarterly Report on Form 10-Q for the [
first
] quarter of fiscal
2009.
How
can I avoid having duplicate copies of the proxy statements sent to my
household?
Some
brokers and other nominee record holders may be participating in the practice of
“householding” proxy statements and annual reports, which results in cost
savings for the Company. The practice of “householding” means that
only one copy of the proxy statement and annual report will be sent to multiple
Stockholders in a Stockholder’s household. The Company will promptly
deliver a separate copy of either document to any Stockholder who contacts the
Company’s corporate Secretary at 2950 South Highland Drive, Las Vegas, Nevada
89109 requesting such copies. The “householding” election appears on the Proxy
Card accompanying this Proxy Statement. If a Stockholder is receiving multiple
copies of the proxy statement and annual report at the Stockholder’s household
and would like to receive a single copy of those documents for a Stockholder’s
household in the future that Stockholder should indicate “YES” when voting his
or her proxy. The Stockholders’ affirmative or implied consent will
be perpetual unless the Stockholder withholds or revokes it. If the
Stockholder wishes to continue to receive separate proxy statements and annual
reports for each account in the Stockholder’s household, the Stockholder must
withhold his or her consent to the Company’s “householding” program by so
indicating when voting the proxy.
Please note that if a Company
Stockholder does not respond, the Stockholder will be deemed to have consented
and “householding” will begin
60
days after the mailing of this
document.
Each
Stockholder may revoke his or her consent to “householding” at any time by
contacting Broadridge, either by calling toll-free (800) 542-1061, or by writing
to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York
11717. If a Stockholder revokes his or her consent to participate in
the “householding” program, or if a Stockholder submits a written or oral
request to the Company to the attention of the Corporate Secretary, 2950 South
Highland Drive, Las Vegas, Nevada 89109, each Stockholder at the Stockholder’s
address will receive individual copies of the Company’s disclosure documents
within 30 days of receipt of the Stockholder’s revocation or
request.
When
are Stockholder proposals due for next year’s Annual Meeting?
Requirements for Stockholder
Proposals to be Brought Before an Annual Meeting.
For
Stockholder proposals to be considered properly brought before an annual meeting
by a Stockholder, the Stockholder must have given timely notice therefor in
writing to the Secretary of the Company. To be timely for the
Company’s 2010 Annual Meeting of Stockholders, a Stockholder’s notice must be
delivered to or mailed and received at the principal executive offices of the
Company between January 10, 2010 and February 9, 2010. A
Stockholder’s notice to the Secretary must set forth as to each matter the
Stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, (ii) the name
and record address of the Stockholder proposing such business and the beneficial
owner, if any, on whose behalf the proposal is made, (iii) the text of the
proposal or business (including the text of any resolutions proposed for
consideration) and the reasons for conducting such business at the annual
meeting, (iv) the class and number of shares of the Company which are
beneficially owned by the Stockholder and the beneficial owner, if any, on whose
behalf the proposal is made, (v) any material interest in such business of the
Stockholder or the beneficial owner, if any, on whose behalf the proposal is
made; (vi) any other information that is required to be provided by the
Stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) in such Stockholder’s capacity as a
proponent of a Stockholder proposal; (vii) a representation that the Stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
business; and (viii) a representation whether the Stockholder or beneficial
owner, if any, intends or is part of a group which intends (A) to deliver a
proxy statement and/or form of proxy to holders of at least the percentage of
the Company’s outstanding capital stock required to approve or adopt the
proposal or (B) otherwise to solicit proxies from Stockholders in support of
such proposal.
Requirements for Stockholder
Proposals to be Considered for Inclusion in the Company’s Proxy Materials.
Stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange
Act and intended to be presented at the Company’s 2010 Annual Meeting of
Stockholders must have been received by the Company not later than December 7,
2009
in order to be
considered for inclusion in the Company’s proxy materials for that
meeting.
PROPOSAL
1
ELECTION
OF DIRECTORS
The Board
of Directors is currently comprised of five directors, each of whose terms
expire at the Annual Meeting. Currently, our Board of Directors is
composed of the following five members:
Yuri Itkis
Boris Itkis
Merle Berman
Darrel Johnson
Harlan W. Goodson
The
Nominating and Corporate Governance Committee of the Board of Directors has
recommended, and the Board of Directors has nominated, Yuri Itkis, Boris Itkis,
Merle Berman, Darrel Johnson and Harlan W. Goodson for re-election as directors
of the Company, each to serve a term expiring at the 2010 annual meeting of
Stockholders and until a qualified successor is elected or until the director’s
earlier resignation or removal. Each of the nominees has consented,
if elected, to serve until his or her term expires. If each of these
nominees is elected, the Board of Directors will be comprised of five directors
with one vacancy that can be filled by a majority of the directors then in
office. The Board of Directors has no reason to believe that any of
the nominees will not serve if elected, but if any one of them should become
unavailable to serve as a director, and if the Board of Directors designates a
substitute nominee, the persons named as proxies will vote for the substitute
nominee designated by the Board.
Director-Nominees
Yuri
Itkis
Age
67
|
Mr. Itkis
is a co-founder of the Company and has been the Chief Executive Officer
and Chairman of the Board since 1989. He has also previously served as the
Treasurer and Secretary of the Company. For nearly 20 years prior to
founding the Company, Mr. Itkis was a Senior Scientist working on
NASA’s and foreign research institutions’ projects. He also taught
undergraduate and graduate courses in several United States and foreign
colleges and he is an author of numerous technical books, articles and
patents. From 1994 through 1998, Mr. Itkis served as a director of
Interactive Flight Technologies, Inc., a maker of in-flight gaming and
entertainment systems. Mr. Itkis is also the co-founder, a director
and the president, secretary and treasurer of the Company’s wholly-owned
subsidiary, Millennium Games, Inc. Mr. Itkis holds a Candidate of
Science degree (equivalent of a Ph.D.) in electrical engineering from the
Moscow Institute of Control Problems and master of science degree in
administrative sciences from Johns Hopkins University. Yuri Itkis is the
father of Boris Itkis.
|
|
Boris
Itkis
Age
40
|
Mr. Itkis
is a co-founder of the Company and has served as its Director of
Engineering since 1989 and as Chief Technical Officer since 2004. He was
appointed to the Board in January 2006 and as Vice President of
Engineering, Secretary and Treasurer in February 2006. He is also the
inventor or co-inventor of several issued and pending patents in the
Company’s portfolio. From 1994 through 1998, he served as a director of
Interactive Flight Technologies, Inc., a maker of in-flight gaming and
entertainment systems. Mr. Itkis is also a director of
Millennium Games, Inc., manufacturer, distributor and lessor of electronic
bingo and related equipment toys. Mr. Itkis holds a bachelor of
science degree in electrical engineering from the University of
California, Los Angeles. Boris Itkis is the son of Yuri
Itkis.
|
|
Merle
Berman
Age
62
|
Ms. Berman
joined the Board in 2006. She is also a member of our Audit Committee and
our Nominating and Corporate Governance Committee and serves as
chairperson of our Compensation Committee. Ms. Berman is a three-term
Nevada legislator, where she served from 1996 to 2001. As a member of the
Nevada Assembly, Ms. Berman served on the Legislative Activities,
Judiciary, Infrastructure, Elections, Procedures, and Ethics, Health and
Human Services, Commerce and Labor, and Government Affairs Committees.
Since 2001, Ms. Berman has been a private real estate investor and a
member of the Nevada Ethics Commission. Ms. Berman holds a bachelor’s
degree from Pennsylvania State University.
|
|
Harlan
W. Goodson
Age
63
|
Mr. Goodson
joined the Board in 2006. He also serves as chairman of our Nominating and
Corporate Governance Committee. Mr. Goodson is a sole practitioner of
law. Previously, he was a partner in the law firm of Franchetti
& Goodson. Prior to that, he was Senior Counsel at the
Sacramento, California office of Holland & Knight LLP from 2003 to
2006. Mr. Goodson practices in the area of gaming law and Indian
gaming regulation. Prior to joining Holland & Knight, Mr. Goodson
was the Director of California’s Division of Gambling Control from
January 1999 to July 2003. Mr. Goodson is listed in the
2000 edition of Who’s Who in American Law, and in 2002, he received the
International Masters of Gaming Law inaugural Regulator of the Year award.
Mr. Goodson is also listed in America’s Best Lawyers in the practice of
gaming law. Mr. Goodson received his undergraduate degree from
Golden Gate University and his law degree from the John F. Kennedy School
of Law. He is a member of the California Bar.
|
|
Darrel
Johnson
Age
59
|
Since
2006, Mr. Johnson has been the chief financial executive of Pat Clark
Enterprises, a holding company whose assets include a beverage
distributorship, an automobile dealership, a motorcycle dealership and a
custom hauler and trailer dealership. From 1997 to 2006, Mr.
Johnson was the chief financial officer of Desert Meats & Provisions,
a wholesale meat distributor. From 1991 to 1997, Mr. Johnson
was president of Morevest Arizona, Inc., a chain of retail camera shops
and photo developing shops in Arizona, Nevada and New
Mexico. Prior to that, Mr. Johnson was the general manager of a
rental car franchise; chief financial officer of a holding company whose
assets included auto dealerships, rental car agencies, aircraft
operations, real estate and restaurants; controller of a manufacturing
firm; and an auditor with a certified public accounting
firm. If elected, it is expected that Mr. Johnson would be
appointed as chairman of our Audit Committee. Mr. Johnson holds
a bachelor’s degree in accounting from Texas Tech University and has been
a certified public accountant since
1973.
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION
TO
THE BOARD OF DIRECTORS OF EACH OF THE NOMINEES NAMED ABOVE
BOARD
OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS
Board
Committees and Meetings
Directors
are elected by the Stockholders and hold office until the next annual meeting
following their election and until their successors are duly elected and
qualified. Actions by the Board must be approved by a majority of directors. In
the event of a tie vote of the directors, our Chairman of the Board will cast an
additional tie-breaking vote. Vacancies on the Board and newly created
directorships resulting from any increase in the authorized number of directors
will be filled by a majority of the directors then in office, even if less than
a quorum, or by the sole remaining director.
During
fiscal 2008, the Board held four meetings. Each director attended at
least 75% of the total number of the meetings of the Board, with the exception
of Darrel Johnson. Each director on the Compensation Committee attended at least
75% of the meetings of the committee with the exception of Mr. Goodson and each
director of the Audit Committee attended 75% of the meetings of the committee
with the exception of Messrs. Goodson and Johnson. The Board has three
committees: Audit Committee, Compensation Committee, and Nominating and
Corporate Governance Committee. From time to time, the Board may
establish other committees to facilitate the
management
of our business and operations. The members of the committees during
fiscal 2008 are identified in the following table:
Director
|
Audit
|
Compensation
|
Nominating
and Corporate Governance
|
Yuri
Itkis
|
|
|
|
Boris
Itkis
|
|
|
|
Merle
Berman
|
X
|
Chair
|
X
|
Darrel
Johnson
|
Chair
|
|
|
Harlan
W. Goodson
|
X
|
X
|
Chair
|
Assuming
that all of the nominees identified herein are elected and a sixth director is
not elected at the Annual Meeting, it is expected that the members of the
committees following the Annual Meeting will be as follows:
Director
|
Audit
|
Compensation
|
Nominating
and Corporate Governance
|
Yuri
Itkis
|
|
|
|
Boris
Itkis
|
|
|
|
Merle
Berman
|
X
|
Chair
|
X
|
Harlan
W. Goodson
|
X
|
X
|
Chair
|
Darrel
Johnson
|
Chair
|
|
|
Annual
Meeting of Stockholders
The
Company encourages, but does not require, its Board members to attend the Annual
Meeting.
Committees
of the Board of Directors
The Audit
Committee met four times in fiscal 2008. The Audit Committee
currently consists of three members, Ms. Berman and Messrs. Goodson and Johnson,
each of whom are independent. Mr. Johnson is currently the chairman
of the Audit Committee. All of the members of the Audit Committee are
able to read and understand fundamental financial statements. Our
Board of Directors has determined that Mr. Johnson is an “audit committee
financial expert” as defined by Item 407(d)(5) of Regulation S-K as a
result of his education and prior employment experience as described
above.
Our Audit
Committee assists the Board in its oversight of the integrity of our financial
statements and oversees the qualifications, independence and performance of our
independent auditor. The Audit Committee has the sole direct responsibility for
the selection, appointment, evaluation and retention of our independent auditor
and for overseeing its work. All audit services and non-audit services to be
provided to us by our independent auditor must be approved in advance by our
Audit Committee. The Board has adopted a written charter for the Audit
Committee, which is available on our web site, www.fortunet.com.
The
Compensation Committee met four times in fiscal 2008. The
Compensation Committee consists of two members, Ms. Berman and Mr. Goodson, each
of whom each of whom are independent. Ms. Berman is the chairperson
of the Compensation Committee. The Compensation Committee reviews and
makes recommendations to the Board regarding the compensation and benefits of
our directors and executive officers and senior management and administers the
2005 Stock Incentive Plan and establishes and administers other compensation and
employee benefit policies. The Compensation Committee reviews and approves the
corporate goals and objectives relevant to the compensation of the President and
the other officers of the Company for the upcoming year, evaluates individual
current year performance in light of the established goals and recommends to the
Board of Directors the annual compensation of the President and other executive
officers, including salary and bonus targets, for the upcoming
year. The Compensation Committee reviews the evaluation process and
compensation structure for other members of senior management and provides
oversight regarding management’s decisions concerning the performance and
compensation of such senior management personnel. The Compensation
Committee may receive and review reports
from the
Company regarding the status of director compensation in relation to other U.S.
corporations or similar size and a peer industry survey group and make
recommendations to the Board of Directors regarding changes in director
compensation. The Compensation Committee has the authority to retain,
at the Company’s expense, a compensation consulting firm to assist in the
evaluation of director or executive compensation and any legal and other advisor
that it deems necessary. The Compensation Committee may delegate any
of its responsibilities to one or more subcommittees, each of which will be
comprised of two or more members. The Board has adopted a written
charter for the Compensation Committee, which is available on our web site,
www.fortunet.com.
The
Nominating and Corporate Governance Committee met two times in fiscal
2008. The Nominating and Corporate Governance Committee consists of
two members, Ms. Berman and Mr. Goodson, each of whom are independent. Mr.
Goodson is the chairman of our Nominating and Corporate Governance Committee.
Our Nominating and Corporate Governance Committee is responsible for
identifying, evaluating, recruiting and recommending to the Board nominees for
election to the Board by the Stockholders, including annual evaluations relating
to the renomination of incumbents and proposed nominees to fill vacancies that
occur between Stockholders’ meetings. In addition, the Nominating and Corporate
Governance Committee reviews and makes recommendations to the Board regarding
corporate governance matters, policies and practices. Our Board has adopted a
written charter for the Nominating and Corporate Governance Committee, which is
available on our web site, www.fortunet.com.
As
provided in its charter, the Nominating and Corporate Governance Committee will
give consideration to candidates recommended by the Stockholders of the
Company. Pursuant to the bylaws of the Company, Stockholders wishing
to recommend candidates for consideration by the Nominating and Corporate
Governance Committee may do so by writing to the Secretary of the Company at
2950 South Highland Drive, Las Vegas, Nevada 89109 providing (i) as to each
person whom the Stockholder proposes to nominate, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in ach case pursuant
to Regulation 14A under the Exchange Act, including, without limitation, such
person’s written consent to be named in the proxy statement as a nominee and to
serving as a director if elected as well as (A) such person’s name, age,
business address and residence address, (B) his or her principal occupation or
employment, (C) the class and number of shares of the Company that are
beneficially owned by such person, and (D) a description of all arrangements or
understandings between the Stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the Stockholder; and (ii) as to such Stockholder (A) the name and
address, as they appear on the Company’s books, of such Stockholder and the
beneficial owner, if any, on whose behalf the nomination is made, and (B) the
class and number of shares of the Company which are beneficially owned by such
Stockholder the beneficial owner, if any, on whose behalf the nomination is
made, and any material interest of such Stockholder or owner, not less than 90
days nor more than 120 days in advance of the first anniversary of the preceding
year’s annual meeting of Stockholders to assure time for meaningful
consideration by the Nominating and Corporate Governance Committee. There are no
differences in the manner in which the Nominating and Corporate Governance
Committee evaluates nominees for director based on whether the nominee is
recommended by a Stockholder. Although the Nominating and Corporate
Governance Committee has the authority to retain third parties to identify or
assist in identifying or evaluating potential nominees, it has not done
so.
In
reviewing potential candidates for the Board, the Nominating and Corporate
Governance Committee considers the background and reputation of potential
nominees in terms of character, person and professional integrity, business and
financial experience and acumen, how they would complement the other members of
the Board in providing a diversity of expertise and experience, their
availability to devote sufficient time to Board duties and any other criteria
established by the Board. In considering whether to recommend a
director for re-election, the Nominating and Corporate Governance Committee will
consider the individual’s past attendance at meetings and participation in and
contributions to the activities of the Board and its committees. The
Nominating and Corporate Governance Committee will also consider the effect of
any change in a director’s principal occupation or business association from
that held when he or she became a member of the Board and the appropriateness of
continued membership under the circumstances. The Nominating and
Corporate Governance Committee will ensure that members of the Board committees
comprised of independent directors meet the independence standards established
by the Board. A detailed description of the criteria used by the
Nominating and Corporate Governance Committee in evaluating potential candidates
may be found in the charter of the Nominating and Corporate Governance Committee
which is posted on our web site.
Director
Independence
Under
independence standards established by the Board, a director does not qualify as
independent unless the Board affirmatively determines that the director is
independent of the Company. A director will not be considered
independent if he or she (i) accepts, directly or indirectly, any consulting,
advisory or other compensatory fee from the Company or any of its subsidiaries
other than in his or her capacity as a member of the Board or any committee
thereof, (ii) has participated in the preparation of the financial statements of
the Company or any of its subsidiaries at any time during the three years
preceding his or her appointment to the Board of any committee thereof, (iii) is
an affiliate of the Company or any of its subsidiaries, (iv) has a material
relationship with the Company or any of its subsidiaries (either directly or as
a partner, stockholder or officer of an organization that has a relationship
with the Company or a subsidiary and determined not merely from the standpoint
of the director but also from that of any person or organization with which the
director is affiliated) that may interfere with the exercise of his or her
independent from management and the Company, or (v) does not meet any other
independence requirement under the rules promulgated by the Nasdaq Global Market
under its listing standards that require a majority of the Company’s directors
to be independent.
The Board
has affirmatively determined that each of Ms. Berman and Messrs. Johnson and
Goodson satisfy the independence standards and qualify as independent
directors.
Executive
Sessions
Our
independent directors meet in executive session with no management directors or
employees present at least one (1) times per year. Mr. Goodson
presides over these executive sessions as the Presiding Director.
Access
to Corporate Governance Policies
Stockholders
may access the Company’s committee charters, the code of ethics and corporate
governance guidelines at Company’s web site at
www.fortunet.com. Copies of the Company’s committee charters,
corporate governance guidelines and code of ethics will be provided to any
Stockholder upon written request to the Secretary of the Company at 2950 South
Highland Drive, Las Vegas, Nevada 89109.
Communication
between Interested Parties and Directors
Stockholders
and other interested parties may communicate with individual directors
(including the Presiding Director), the members of a committee of the Board, the
independent directors as a group or the Board as a whole by addressing the
communication to the named director, the committee, the independent directors as
a group or the Board as a whole c/o the Secretary of the Company, 2950 South
Highland Drive, Las Vegas, Nevada 89109 or via electronic mail to
secretary@fortunet.com. The Secretary of the Company will forward all
correspondence to the named director, committee, independent directors as a
group or the Board as a whole, except for spam, junk mail, mass mailings,
product complaints or inquiries, job inquiries, surveys, business solicitations
or advertisements, or patently offensive or otherwise inappropriate material.
The Secretary of the Company may forward certain correspondence, such as
product-related inquiries, elsewhere within the Company for review and possible
response.
Director
Compensation
During
2008, all independent directors received an annual fee of $12,500 for Messrs.
Johnson and Goodson and $12,000 for Ms. Berman. All annual fees were paid in
quarterly installments in arrears. In addition, each independent director was
awarded 3,000 restricted shares of the Company’s Common Stock under the
Company’s 2005 Stock Incentive Plan for Independent Directors, the chairperson
of the Audit Committee was awarded an additional 3,000 restricted shares of the
Company’s Common Stock under the Company’s 2005 Stock Incentive Plan for
Independent Directors, and each non-chairperson member of the Audit Committee
was awarded an additional [250] restricted shares of the Company’s Common Stock
under the Company’s 2005 Stock Incentive Plan for Independent
Directors. All of such restricted shares vested in four equal
installments at the end of each fiscal quarter.
During
2009, all independent directors will receive an annual fee of $5,000, payable in
quarterly installments in arrears. In addition, each independent director will
receive an additional fee of $1,000 for each meeting of the Board that such
director attends; $500 for each meeting of the Audit Committee, Compensation
Committee or Nominating and Corporate Governance Committee that such director
attends as a non-chairperson committee member and each meeting of independent
directors in executive session with no management directors or employees present
that such director attends; and $750 for each meeting of the Audit Committee,
Compensation Committee or Nominating and Corporate Governance Committee that
such director attends as a chairperson. In addition, each independent
director will be awarded 2,000 restricted shares of the Company’s Common Stock
under the Company’s 2005 Stock Incentive Plan for Independent
Directors. The chairperson of the Audit Committee will be awarded an
additional 2,000 restricted shares of the Company’s Common Stock under the
Company’s 2005 Stock Incentive Plan for Independent Directors. All
such restricted shares shall vest in four equal installments at the end of each
fiscal quarter.
Relationships
Among Directors or Executive Officers
Yuri
Itkis is the father of Boris Itkis. Anna Itkis, wife of Yuri Itkis
and mother of Boris Itkis, is employed by the Company.
Code
of Ethics
The
Company has adopted a Code of Ethics for its directors, officers and other
employees, including our principal executive officer, principal financial
officer and principal accounting officer. The Company will post on
its website any amendments to, or waivers from, any provision of its Code of
Ethics. A copy of the Code of Ethics is available on the Company’s
web site, www.fortunet.com.
TRANSACTIONS WITH RELATED
PERSONS
For their
service as members of the Board during 2008, each of Ms. Berman and Messrs.
Johnson and Goodson were paid cash in the amount of $12,500 and Ms. Berman was
paid cash in the amount of $12,000 and were granted awards of 2,000 restricted
shares of the Company’s Common Stock pursuant to the Company’s 2005 Stock
Incentive Plan for Independent Directors, all of which shares have fully
vested. For his service as Chairman of the Audit Committee during
2008, Mr. Johnson was granted an additional award of 3,000 restricted shares of
the Company’s Common Stock pursuant to the Company’s 2005 Stock Incentive Plan
for Independent Directors, all of which shares have fully
vested. Corporate governance guidelines adopted by the Board provide
that any transaction that is required to be reported under Item 404(a) of
Regulation S-K promulgated by the SEC must be reviewed, approved or ratified by
the Audit Committee, the Nominating and Corporate Governance Committee or
another committee consisting entirely of independent directors under applicable
Nasdaq rules. The types of transactions covered by this policy
include but are not limited to (i) the purchase, sale or lease of assets to or
from a related person, (ii) the purchase or sale of products or services to or
from a related person, or (iii) the lending or borrowing of funds from or to a
related person. Approval of transactions with related persons shall
be at the discretion of the reviewing body, but the reviewing body shall
consider (A) the consequences to the Company of consummating or not consummating
the transaction, (B) the extent to which the Company has a reasonable
opportunity to obtain the same or a substantially similar benefit of the
transaction from a person or entity other than the related person, and (C) the
extent to which the terms and conditions of such transaction are more or less
favorable to the Company and its Stockholders than the terms and conditions upon
which the Company could reasonably be expected to negotiate with a person or
entity other than the related person. Further, our code of ethics
requires our directors, officers and employees to raise with our chief
compliance officer any material transaction or relationship that could
reasonably be expected to give rise to a personal conflicts of
interest. Our corporate governance guidelines also prohibit the
Company’s making of any personal loans to directors, executive officers or their
immediate family members.
Executive
Officers
The
following sets forth certain information regarding the Company’s executive
officers:
|
|
|
|
|
Yuri
Itkis
|
|
67
|
|
Chairman
of the Board, Chief Executive Officer, Chief Financial
Officer
|
Boris
Itkis
|
|
40
|
|
Vice
President of Engineering, Secretary, Treasurer and Chief Technical
Officer
|
Jack
B. Coronel
|
|
42
|
|
Chief
Compliance Officer
|
Yuri
Itkis
.
Mr. Itkis is a co-founder of the Company and has been the Chief
Executive Officer and Chairman of the Board since 1989. He has also previously
served as the Treasurer and Secretary of the Company. For nearly 20 years
prior to founding the Company, Mr. Itkis was a Senior Scientist working on
NASA’s and foreign research institutions’ projects. He also taught undergraduate
and graduate courses in several United States and foreign colleges and he is an
author of numerous technical books, articles and patents. From 1994 through
1998, Mr. Itkis served as a director of Interactive Flight Technologies,
Inc., a maker of in-flight gaming and entertainment systems. Mr. Itkis is
also the co-founder, a director and the president, secretary and treasurer of
the Company’s wholly-owned subsidiary, Millennium Games, Inc. Mr. Itkis
holds a Candidate of Science degree (equivalent of a Ph.D.) in electrical
engineering from the Moscow Institute of Control Problems and master of science
degree in administrative sciences from Johns Hopkins University. Yuri Itkis is
the father of Boris Itkis.
Boris
Itkis
.
Mr. Itkis is a co-founder of the Company and has served as its
Director of Engineering since 1989 and as Chief Technical Officer since 2004. He
was appointed to the Board in January 2006 and as Vice President of Engineering,
Secretary and Treasurer in February 2006. He is also the inventor or co-inventor
of several issued and pending patents in the Company’s portfolio. From 1994
through 1998, he served as a director of Interactive Flight Technologies, Inc.
Mr. Itkis is also a director of Millennium Games, Inc. Mr. Itkis holds a
bachelor of science degree in electrical engineering from the University of
California, Los Angeles. Boris Itkis is the son of Yuri
Itkis.
Jack B.
Coronel
.
Mr. Coronel has been the Director of Compliance and Strategic
Development since joining the Company in 2002 and was appointed as Chief
Compliance Officer in 2005. Concurrent with his employment with the Company,
Mr. Coronel also serves as Chief Executive Officer and a director of Las
Vegas Card, Inc., a credit card marketing company. Prior to that, he
was a founder of Consumer Rewards International and that company’s chief
executive officer from 1996 until 2000. In that role, Mr. Coronel was
involved in the development of the Visa Las Vegas and Palm Springs Desert
Resorts credit card reward programs. Mr. Coronel received his undergraduate
degree,
cum laude
, from
Claremont McKenna College and a law degree from Southwestern University School
of Law.
PROPOSAL 2
RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Schechter
Dokken Kanter Andrews & Selcer Ltd. has served as the Company’s independent
registered public accounting firm since 2000 and has been appointed by the Board
to continue as the Company’s independent registered public accounting firm for
the Company’s fiscal year ending December 31, 2009. Although the
Company is not required to seek Stockholder approval of its selection of
independent registered public accounting firm, the Board believes it to be sound
corporate governance to do so. If the appointment is not ratified,
the Board will investigate the reasons for Stockholder rejection and will
reconsider its selection of its independent registered public accounting
firm. Even if the appointment is ratified, the Audit Committee, in
its discretion, may direct the appointment of a different independent registered
public accounting firm at any time during the fiscal year if the Audit Committee
determines that such a change would be in the Company’s and its Stockholders’
best interests.
A
representative of Schechter Dokken Kanter Andrews & Selcer Ltd. is expected
to be present at the Annual Meeting. The representative will have an
opportunity to make a statement if he or she desires to do so, although we do
not expect him or her to do so. The representative is expected to be
available to respond to appropriate questions.
Audit and Non-Audit
Fees
The
following table presents fees for professional audit services rendered by
Schechter Dokken Kanter Andrews & Selcer Ltd. for the audit of the Company’s
annual financial statements for the years ended December 31, 2008 and December
31, 2007 and fees billed for other services rendered by Schechter Dokken Kanter
Andrews & Selcer Ltd. during those periods.
|
Year
Ended
December 31, 2008
|
|
Year
Ended
December 31, 2007
|
|
|
|
|
Audit
Fees (1)
|
$169,855
|
|
$168,419
|
Audit-Related
Fees
|
|
|
—
|
Tax
Fees (2)
|
$29,258
|
|
29,500
|
All
Other Fees
|
|
|
—
|
|
|
|
|
Total
|
|
|
|
(1)
|
Audit
Fees include professional services rendered in connection with the audit
of the Company’s annual financial statements, reviews of financial
statements included in the Company’s Quarterly Reports on Form 10-Q
services provided in connection with other statutory and regulatory
filings. The fees in fiscal 2008 and fiscal 2007 included out
of pocket expenses.
|
(2)
|
Tax
Fees include professional services in connection with the preparation of
federal and state income tax returns incurred during the
year.
|
In making
its recommendation to ratify the appointment of Schechter Dokken Kanter Andrews
& Selcer Ltd. as the Company’s independent registered public accounting firm
for the fiscal year ending December 31, 2009, the Audit Committee has considered
whether services other than audit and audit-related services provided by
Schechter Dokken Kanter Andrews & Selcer Ltd. are compatible with
maintaining the independence of Schechter Dokken Kanter Andrews & Selcer
Ltd. The Audit Committee has reviewed the non-audit services provided
by Schechter Dokken Kanter Andrews & Selcer Ltd. and determined that the
provision of these services during fiscal 2009 is compatible with maintaining
Schechter Dokken Kanter Andrews & Selcer Ltd’s independence.
Audit Committee Pre-Approval of Audit
and Permissible Non-Audit Services of Independent Registered Public Accounting
Firm
The Audit
Committee pre-approves all audit and permissible non-audit services provided by
its independent registered public accounting firm. These services may
include audit services, audit-related services, tax services and other
services. The Audit Committee has adopted a policy for the
pre-approval of services provided by its independent registered public
accounting firm. Under the policy, the independent registered public
accounting firm will not be engaged to perform any non-audit service prohibited
by law or regulation or to provide any non-audit service unless it is
affirmatively determined that performing such service is compatible with
maintaining the independent registered public accounting firm’s
independence. The Audit Committee may delegate its pre-approval
authority to any member of the Audit Committee, and the decisions of any such
member to whom pre-approval authority is delegated must be presented to the full
Audit Committee at its next scheduled meeting.
THE
BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT
OF
SCHECHTER
DOKKEN KANTER ANDREWS & SELCER LTD. AS THE COMPANY’S
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
FOR
THE YEAR ENDING DECEMBER 31, 2009
PROPOSAL
3
APPROVAL
OF SPECIAL CASH DIVIDEND OF $2.50 PER SHARE TO BE DECLARED BY THE BOARD OF
DIRECTORS ON SUCH TERMS AND CONDITIONS AS THEY DEEM APPROPRIATE AND IN
ACCORDANCE WITH NEVADA LAW AND OTHER LAWS AND REGULATIONS GOVERNING THE COMPANY
REGARDING THE PAYMENT OF DIVIDENDS
On
Friday, March 13, 2009, the Board of Directors of the Company received a notice
(the “Notice”) from The Yuri Itkis Gaming Trust of 1993 (the “Itkis Trust”) of
which our Chairman of the Board, Chief Executive Officer and Chief Financial
Officer is the sole trustee and beneficiary. The Itkis Trust is the
beneficial holder of 74.9% of our issued and outstanding equity. The
notice required the Company to call a special meeting of stockholders, pursuant
to the rights granted under the Bylaws of the Company, for the purpose of voting
to approve a special cash dividend of $2.50 per share.
The
Notice from the Itkis Trust also obligated the Itkis Trust to vote its shares in
favor of the special cash dividend in the same proportion as the other
stockholders who vote for this proposal pursuant to this Proxy Statement at the
annual meeting. After the receipt of this Notice, a meeting of the
Board of Directors was held on March 15, 2009 and the Itkis Trust agreed that in
lieu of the requested special meeting, the annual meeting for the Company would
be scheduled for Friday April 17, 2009 and the proxy statement for the
annual meeting would include the $2.50 special cash dividend proposal for
stockholder vote. During this meeting, Mr. Boris Itkis, the holder of
83,500 shares of Common Stock and the son of Yuri Itkis and the Chief Technical
Officer of the Company agreed that he would also vote his shares in the same
manner as the Itkis Trust would for proposal 3. By way of example,
assuming that at the meeting 57% of the stockholders (other than the shares
owned by The Itkis Trust and Mr. Boris Itkis) vote in favor of this proposal 3,
then the Itkis Trust and Mr. Boris Itkis would then cast their votes for this
proposal 3 as follows: (i) 57% in favor of the proposal; and (ii) 43% against
the proposal thereby causing this proposal to be approved. The
obligation to vote as described in this paragraph by the Itkis Trust and Mr.
Boris Itkis are limited to this proposal 3 only. The Itkis Trust and
Mr. Boris Itkis are free to vote in any manner they deem appropriate for the
other proposals and matters contained in this proxy statement or that may be
properly come before the annual meeting and any adjournment or
postponement.
At the
Board of Directors meeting held on March 15, 2009, the Board (in which both
Messrs. Yuri and Boris Itkis did not participate in the deliberations and
abstained from any vote) approved the special cash dividend of $2.50 per share
to stockholders, with the provision that the effectiveness of the special cash
dividend was subject to the approval of the stockholders (with the Itkis Trust
and Mr. Boris Itkis casting their votes as set forth in the previous paragraph)
at the 2009 Annual Meeting. If approved by the Stockholders, the
Board of Directors will then call a special meeting of the Board for the purpose
of declaring the special cash dividend once it confirms that the dividend is
lawful, and complies with Nevada law and other laws and regulations governing
the Company and any dividends payable to stockholders.
Our Board
of Directors believes it gave due and proper consideration to all matters and
things that are necessary or appropriate to enable it to evaluate and reach an
informed conclusion as to the fairness and reasonableness of the special cash
dividend, and that such dividend complied with all applicable laws, including
Nevada Revised Statute Section 78.288, and all gaming laws to which the Company
is subject. Our Board of Directors recommends the approval of the
special cash dividend and believes it to be advisable, fair to, and in the best
interests of the Company’s Stockholders.
Certain Federal Tax
Consequences
The
following is a general discussion of the anticipated material federal income tax
consequences of the special cash dividend to holders of the Common Stock, if
approved by our Stockholders as set forth in this proxy
statement. This discussion is a summary for general information only
and applies solely to holders of our Common Stock and to us and assumes that the
proposal for the special cash dividend will be approved by our Stockholders and
declared by our Board to be paid by the Company.
The information provided below does
not constitute tax advice, guidance or findings of fact to us or our
Stockholders, but merely represents our opinion on the tax consequences of the
special cash dividend.
We strongly urge each holder of our
Common Stock that may receive the special cash dividend to consult his or her
own tax advisor regarding the United States federal income or other tax
consequences of this dividend.
This
general discussion is based on the U.S. Internal Revenue Code of 1986, as
amended, or the Code, administrative pronouncements, judicial decisions and
final, temporary and proposed Treasury regulations, all as in effect on the date
hereof, all of which may be changed, perhaps retroactively, so as to result in
U.S. federal income tax consequences different from those described below.
This summary does not address all aspects of U.S. federal income and estate
taxes and does not deal with foreign, state, local or other tax considerations
that may be relevant to holders of our Common Stock in light of their particular
circumstances. In addition, it does not address U.S. federal income tax
consequences applicable to entities that are subject to special treatment under
the U.S. federal income tax laws (including U.S. expatriates,
“controlled foreign corporations,” “passive foreign investment companies,”
corporations that accumulate earnings to avoid U.S. federal income tax or
investors in pass-through entities). Furthermore, this summary deals only with
holders of shares of our Common Stock that hold such shares as capital
assets.
For
purposes of this discussion, a “U.S. Holder” is a beneficial owner of our Common
Stock that is, for U.S. federal income tax purposes, an individual citizen or
resident of the U.S., a U.S. corporation, a trust if the trust (i) is
subject to the primary supervision of a U.S. court and one or more
U.S. persons are able to control all substantial decisions of the trust or
(ii) has elected to be treated as a U.S. person, or an estate the
income of which is subject to U.S. federal income tax regardless of its
source. A “non-U.S. Holder” is any holder of our Common Stock other than a
U.S. Holder.
U.S.
federal income tax treatment of the
special cash dividend.
We believe that the special cash
dividend will not be a taxable event to us and we believe that the special cash
dividend will be treated as a taxable dividend to the extent of our current or
accumulated earnings and profits (computed using U.S. federal income tax
principles), with any amount in excess of such current or accumulated earnings
and profits treated as a non-taxable return of capital to the extent of the
holder’s adjusted tax basis in our Common Stock and, thereafter, as capital
gain. Because our current earnings and profits must take into account
the results of operations for the entire year in which the special cash dividend
is made, we will not be able to determine the portion of the special cash
dividend that will be treated as a dividend until after the close of the taxable
year in which the special cash dividend is made. If the portion of a
U.S. Holder’s special cash dividend that is treated as a dividend equals or
exceeds 10% of the U.S. Holder’s tax basis in the U.S. Holder’s shares
of our Common Stock, the dividend may be treated as an “extraordinary dividend.”
See below for a description of the U.S. federal income tax consequences of
receiving an extraordinary dividend.
U.S.
federal income tax
consequences to
U.S.
Holders.
Current
U.S. federal income tax law applies long-term capital gains tax rates
(currently a maximum 15% rate) to the dividend income of an individual
U.S. Holder with respect to dividends paid by a domestic corporation if
certain minimum holding period requirements are met. Dividends paid to a
U.S. Holder that is a corporation will generally be eligible for the
dividends received deduction. Any gain will be capital gain and will be
long-term capital gain if the U.S. Holder held its shares of our Common
Stock for more than one year.
Tax treatment of extraordinary
dividends.
As noted above, the portion of the special cash dividend
that is a dividend for U.S. federal income tax purposes may be treated as
an extraordinary dividend. If a dividend received by an individual
U.S. Holder is subject to U.S. federal income tax at the capital gains
rates noted above, and the dividend is an extraordinary dividend with respect to
that holder, the holder will be required to treat any loss on a sale of its
shares of our Common Stock as long-term capital loss to the extent of the
extraordinary dividend. With regard to corporate holders claiming a
dividends-received deduction, the dividend may be an extraordinary dividend if
the corporate holder has not held its shares of our Common Stock for more than
2 years prior to the “dividend announcement date” as determined by the tax
law. For this purpose, the “dividend announcement date” is deemed to be the
Record Date. If the dividend is treated as an extraordinary dividend for a
U.S. Holder that is a corporation, the corporate holder will be required to
reduce its tax basis, and may be required to recognize current gain in respect
of the shares of our Common Stock that entitled the holder to the dividend.
U.S. Holders should consult their own tax advisors regarding the
application of the extraordinary dividend rules.
U.S.
federal income tax
consequences to non-U.S. Holders.
Dividends paid to a
non-U.S. Holder of our Common Stock generally will be subject to
withholding of U.S. federal income tax at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a trade or business
by the non-U.S. Holder within the U.S. are not subject to the
withholding tax, provided certain certification and disclosure requirements are
satisfied. Instead, such dividends are subject to U.S. federal income tax
on a net income basis in the same manner as if the non-U.S. Holder were a
U.S. person as defined under the Code, unless an applicable income tax
treaty provides otherwise. Any such effectively connected
dividends
received by a foreign corporation may be subject to an additional “branch
profits tax” at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
A
non-U.S. Holder of our Common Stock who wishes to claim the benefit of an
applicable treaty rate for dividends will be required to (a) complete
Internal Revenue Service Form W-8BEN (or other applicable form) and certify
under penalty of perjury that such holder is not a U.S. person as defined
under the Code and is eligible for treaty benefits or (b) if the holder’s
shares of our Common Stock are held through certain foreign intermediaries,
satisfy the relevant certification requirements of applicable U.S. Treasury
regulations. Special certification and other requirements apply to certain
non-U.S. Holders that are pass-through entities rather than corporations or
individuals.
Information reporting and backup
withholding.
Information reporting to the U.S. Internal Revenue
Service generally will be required with respect to a payment of cash to
U.S. Holders, other than corporations and other exempt recipients. A 28%
“backup” withholding tax may apply to those payments if such a holder fails to
provide a taxpayer identification number to the paying agent and to certify that
no loss of exemption from backup withholding has occurred. Non-U.S. Holders may
be required to comply with applicable certification procedures to establish that
they are not U.S. Holders in order to avoid the application of such
information reporting requirements and backup withholding. The amounts withheld
under the backup withholding rules are not an additional tax and may be
refunded, or credited against the holder’s U.S. federal income tax
liability, if any, provided the required information is furnished to the
U.S. Internal Revenue Service.
THE
BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF SPECIAL CASH DIVIDEND OF $2.50 PER
SHARE TO BE DECLARED BY THE BOARD OF DIRECTORS ON SUCH TERMS AND CONDITIONS AS
THEY DEEM APPROPRIATE AND IN ACCORDANCE WITH NEVADA LAW AND OTHER LAWS AND
REGULATIONS GOVERNING THE COMPANY REGARDING THE PAYMENT OF
DIVIDENDS
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information known to the Company with respect
to the beneficial ownership as of March 13, 2009, by (i) all persons who
are beneficial owners of five percent (5%) or more of the Company’s Common
Stock, (ii) each director and nominee, (iii) the Named Executive
Officers (as defined in the “Executive Compensation” section below), and
(iv) all current directors and executive officers as a group.
As of
March 13, 2009, 11,042,011 shares of the Company’s Common Stock were
outstanding. The amounts and percentages of Common Stock beneficially
owned are reported on the basis of regulations of the Securities and Exchange
Commission (“SEC”) governing the determination of beneficial ownership of
securities. Under the SEC rules, a person is deemed to be a
“beneficial owner” of a security if that person has or shares “voting power,”
which includes the power to vote or to direct the voting of such security, or
“investment power,” which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules, more than one
person may be deemed a beneficial owner of securities as to which such person
has no economic interest. Unless otherwise noted, the address of each
beneficial owner listed in the table is c/o FortuNet, Inc., 2950 Highland Drive,
Las Vegas, Nevada 89109.
|
|
Number
of Shares
Beneficially
Owned
|
|
|
|
|
|
|
|
|
Directors
and Named Executive Officers
|
|
|
|
|
|
|
Yuri
Itkis (1)
|
|
|
8,266,500
|
|
|
|
74.9
|
%
|
Boris
Itkis (2)
|
|
|
83,500
|
|
|
|
*
|
|
Merle
Berman (3)
|
|
|
7,250
|
|
|
|
*
|
|
Harlan
W. Goodson (4)
|
|
|
6,000
|
|
|
|
*
|
|
Darrel
Johnson (5)
|
|
|
8,667
|
|
|
|
*
|
|
Jack
B. Coronel
|
|
|
50,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
*
|
|
Directors
and executive officers (6 persons) (6)
|
|
|
8,425,573
|
|
|
|
76.3
|
%
|
Persons
owning more than 5% of the Company’s Common Stock
|
|
|
|
|
|
|
|
|
Yuri
Itkis (1)
|
|
|
8,266,500
|
|
|
|
74.9
|
%
|
|
|
|
|
|
|
|
|
|
* Less
than 1%
(1)
|
All
8,266.500 shares are held in the name of the Yuri Itkis Gaming Trust of
1993, of which Yuri Itkis is the sole trustee and
beneficiary.
|
(2)
|
Boris
Itkis is the son of Yuri Itkis.
|
(3)
|
Includes
6,250 shares of Common Stock held by Ms. Berman personally as well as
1,000 shares held by the Merle Berman 2003 Family Trust of which Ms.
Berman is the trustee. As trustee, Ms. Berman has the power to
vote and dispose of the shares owned by the Trust and therefore may be
deemed to be the beneficial owner of the shares. Ms. Berman
disclaims beneficial ownership of the shares except to the extent of her
pecuniary interest in the shares owned by the
Trust.
|
(4)
|
All
6,000 shares are held by Mr. Goodson
personally.
|
(5)
|
All
8,667 shares are held by Mr. Johnson
personally.
|
(6)
|
See
notes 1 through 5.
|
EXECUTIVE COMPENSATION
Summary
Compensation Table for 2007 and 2008
The
following table sets forth certain information concerning compensation of each
person that served as the principal executive officer or principal financial
officer of the Company during the fiscal years ended December 31, 2007 and
December 31, 2008, and the other two executive officers of the Company
during the fiscal years ended December 31, 2007 and December 31, 2008
(collectively, the “Named Executive Officers”):
PLEASE
CONFIRM THE NUMBERS IN THIS CHART
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
All
Other Compensation
($)
|
Total
($)
|
Yuri
Itkis
Chief
Executive Officer
|
2008
2007
|
$200,000
$200,000
|
—
|
—
|
$5,810
(1)
$9,393
(1)
|
$205,810$209,393
|
Kevin
A. Karo(2)
Chief
Financial Officer
|
2008
2007
|
$149,616
$26,923
(3)
|
|
|
—
|
$149,616
$26,923
|
Boris
Itkis
Chief
Technical Officer
|
2008
2007
|
$120,000
$120,000
|
—
|
—
|
—
|
$120,000
$120,000
|
Jack
B. Coronel
Chief
Compliance Officer
|
2008
2007
|
$175,000
$164,867
|
----
|
----
|
—
|
$175,000
$164,867
|
(1)
|
This
amount consists of: (i) $ 7,000 for 2007 and $3,500 for 2008 the aggregate
cost to Fortunet for Mr. Itkis’ use of an automobile owned by the Company
and (ii) the Company’s payment of $2,393 for 2007 and $2,310 for 2008 to
insure the Company owned automobile used by used by Mr. Itkis throughout
fiscal years ending December 31, 2007 and December 31,
2008.
|
(2)
|
Mr.
Karo resigned from the Company on January 5,
2009.
|
(3)
|
Represents
salary from October 15, 2007 through December 31,
2007.
|
As our
Chief Executive Officer, Yuri Itkis is employed pursuant to an unwritten
employment arrangement pursuant to which he is an employee at will, and either
he or the Company may terminate his employment at any time. At the
commencement of 2009, Yuri Itkis’ annual salary was $200,000.
Our
former Chief Financial Officer who resigned from the Company effective January
5, 2009, Mr. Karo was employed pursuant to the terms of a written employment
agreement, dated as of October 15, 2007, as amended on December 3,
2007. At the commencement of Mr. Karo’s employment with the Company
in October of 2007, Mr. Karo’s annual salary was approximately
$140,000. Effective on January 15, 2008, Mr. Karo’s annual salary was
increased to approximately $150,000. Mr. Karo also received other employee
benefits pursuant to our employee benefit policies. His employment agreement
contained a noncompetition provision that, with certain exceptions, prohibits
Mr. Karo from owning interests in or providing services to other companies
engaged in the development, manufacture, sale or distribution of bingo or
lottery products or related services for a period of two years following
termination of his employment with FortuNet.
As our
Chief Technical Officer, Boris Itkis is employed pursuant to an unwritten
employment arrangement pursuant to which he is an employee at will, and either
he or the Company may terminate his employment at any time. At the
commencement of 2009, Boris Itkis’ annual salary was $120,000.
As our
Chief Compliance Officer, Mr. Coronel is employed pursuant to the terms of a
written employment agreement, dated as of September 9, 2002, as amended on
September 9, 2002 and July 6, 2006. At the commencement of 2009,
Mr. Coronel’s annual salary was $175,000. Under his employment agreement,
Mr. Coronel is not required to devote his full business time to our
operations and is permitted to pursue other business opportunities that are not
competitive with our business. Mr. Coronel is required to disclose his
other business interests to us, but we are not entitled to any financial
interest in such opportunities. Currently, Mr. Coronel devotes his full
time to the Company. His employment agreement contains a noncompetition
provision that, with certain exceptions, prohibits him from owning or providing
services to other companies engaged in the development, manufacture, sale or
distribution of bingo or lottery products or related services for a period of
two years following termination of his employment with the Company. The
noncompetition covenant will immediately terminate, however, upon a change of
control in which Yuri Itkis ceases to own, directly or indirectly, more than 50%
of the issued and outstanding Common Stock of the Company. The employment
agreement may be terminated immediately by Mr. Coronel or by
us.
Outstanding
Equity Awards at December 31, 2008
As of the
end of the fiscal year ended December 31, 2008, there were not outstanding any
unexercised options, stock that had not vested or equity incentive plan awards
for any Named Executive Officer.
Director
Compensation in 2008
The
following table sets forth certain information concerning the compensation of
our directors for the fiscal year ended December 31, 2008:
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Total
($)
|
Yuri
Itkis
|
—
|
—
|
—
|
Boris
Itkis
|
—
|
—
|
—
|
Merle
Berman
|
$
12,000
|
$18,600
(1)
|
$
30,600
|
Darrel
Johnson
|
$
12,500
|
$37,200
(2)
|
$
49,700
|
Harlan
W. Goodson
|
$
12,500
|
$18,600
(3)
|
$
31,100
|
(1)
|
Represents
the aggregate fair value of the grant of 3,000 shares of restricted stock
on March 13, 2008 computed in accordance with FAS
123R.
|
(2)
|
Represents
the aggregate fair value of the grant of 6,000 shares of restricted stock
on March 13, 2008 computed in accordance with FAS
123R.
|
(3)
|
Represents
the aggregate fair value of the grant of 3,000 shares of restricted stock
on March 13, 2008 computed in accordance with FAS
123R.
|
All
independent directors received an annual fee of $5,000 during Fiscal 2008,
payable in quarterly installments in arrears. In addition, each independent
director received an additional fee of $1,000 for each meeting of the Board that
such director attended; $500 for each meeting of the Audit Committee,
Compensation committee or Nominating and Corporate Governance Committee that
such director attended as a non-chairperson committee member and each meeting of
independent directors in executive session with no management directors or
employees present that such director attended; and $750 for each meeting of the
Audit Committee, Compensation Committee or Nominating and Corporate Governance
Committee that such director attended as a chairperson. In addition, each
independent director was award 3,000 restricted shares of the Company’s Common
Stock under the Company’s 2005 Stock Incentive Plan for Independent Directors
the chairperson of the Audit Committee is awarded an additional 3,000 restricted
shares of the Company’s Common Stock under the Company’s 2005 Stock Incentive
Plan for Independent Directors. The chairperson of the Audit Committee was
awarded an additional 3,000 restricted shares of the Company’s Common Stock
under the Company’s 2005 Stock Incentive Plan for Independent
Directors. All of such restricted shares vest in four equal
installments at the end of each fiscal quarter.
Compensation
Committee Interlocks and Insider Participation
Ms.
Berman and Mr. Goodman served as members of the Compensation Committee during
2008. No interlocking relationship exists between any member of the Board of
Directors or Compensation Committee and any member of the Board of Directors or
compensation committee of any other companies, nor has such interlocking
relationship existed in the past.
REPORT OF
COMPENSATION COMMITTEE
The
information contained in the following report shall not be deemed to be
“soliciting material” or to be “filed” with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the 1934
Securities Exchange Act, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis set forth in this Proxy Statement. Based
upon such review and discussions, the Compensation Committee recommended to the
Board of Directors that the Compensation Discussion and Analysis be included in
this Proxy Statement.
MEMBERS OF THE COMPENSATION
COMMITTEE
/s/ Merle
Berman /s/
Harlan Goodson
Merle
Berman Harlan
Goodson
REPORT OF THE AUDIT
COMMITTEE
The
information contained in the following report shall not be deemed to be
“soliciting material” or to be “filed” with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the 1934
Securities Exchange Act, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
The Audit
Committee of the Board of Directors consists of Ms. Berman and Mr.
Johnson. Mr. Johnson serves as Chairman of the
Committee. The Board of Directors has determined that each member of
the Audit Committee meets the experience requirements of the rules and
regulations of the Nasdaq Global Market and the SEC, as currently applicable to
the Company. The Board of Directors has also determined that Ms.
Berman and Mr. Johnson meet the independence requirements of the rules and
regulations of the Nasdaq Global Market and the SEC, as currently applicable to
the Company.
The Audit
Committee operates under a written charter approved by the Board of
Directors. A copy of the charter is available on our web site,
www.fortunet.com.
The Audit
Committee provides assistance to the Board of Directors in fulfilling its
oversight responsibility to the stockholders, potential stockholders, investment
community and others relating to the integrity of the Company’s financial
statements and its financial reporting process, the Company’s compliance with
legal and regulatory requirements, the independent auditors’ qualifications,
independence and performance and the performance of the Company’s internal audit
function.
As part
of that oversight process, the Audit Committee regularly meets with management,
the CFO, and the outside auditors. In 2008 the Audit Committee met four times,
including quarterly closed sessions with the auditors in which management was
not present. The Audit Committee routinely reviews the Company’s financial
statements and annually reviews the auditors report on matters required by SAS
61, management’s representation letters to the auditors, and have consulted with
advisors regarding the Sarbanes-Oxley Act and the ongoing development of
internal controls. The Audit Committee additionally reviews all Board and
Committee meeting minutes, legal proceedings, compliance issues and the
Company’s Code of Ethics.
The
primary responsibility of the Audit Committee is to oversee the accounting and
financial reporting processes of the Company and the audits and reviews of the
financial statements of the Company and to report to the Board of Directors with
respect thereto. The Audit Committee annually recommends to the Board
of Directors the appointment of an independent registered public accounting firm
to audit the consolidated financial statements and internal controls over
financial reporting of the Company and meets with such personnel of the Company
to review the scope and the results of the annual audits, the amount of audit
fees, the Company’s internal controls over financial reporting, the Company’s
consolidated financial statements in the Company’s Annual Report on Form 10-K
and other related matters.
The Audit
Committee has reviewed and discussed with management the consolidated financial
statements for fiscal year 2008 audited by Schechter Dokken Kanter Andrews &
Selcer Ltd., the Company’s independent registered public accounting firm, and
management’s assessment of internal controls over financial reporting. The Audit
Committee has discussed with Schechter Dokken Kanter Andrews & Selcer Ltd.
various matters related to the financial statements, including those matters
required to be discussed by SAS 61. The Audit Committee has also received the
written disclosures and the letter from Schechter Dokken Kanter Andrews &
Selcer Ltd. required by Independence Standards Board Standard No. 1, and has
discussed with Schechter Dokken Kanter Andrews & Selcer Ltd. its
independence. Based upon such review and discussions, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008 for filing with the SEC.
The Audit
Committee and the Board of Directors also have recommended, subject to
Stockholder ratification, the selection of Schechter Dokken Kanter Andrews &
Selcer Ltd. as our independent registered public accounting firm for the year
ending December 31, 2009.
Members
of the Audit Committee
/s/ Merle
Berman /s/
Darrel Johnson
Merle
Berman Darrel
Johnson
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors, executive officers and any persons who directly or indirectly hold
more than 10 percent of the Company’s Common Stock (“Reporting Persons”) to file
reports of ownership and changes in ownership with the SEC. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based
solely on its review of the copies of such forms received and written
representations from certain Reporting Persons that no such forms were required,
the Company believes that during fiscal 2008 all Reporting Persons complied with
the applicable filing requirements on a timely basis.
OTHER
MATTERS
The
Company knows of no other matters that will be presented for consideration at
the Annual Meeting. If any other matters properly come before the
Annual Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgments of the persons voting the
proxies.
ANNUAL
REPORT ON FORM 10-K AND ANNUAL REPORT TO STOCKHOLDERS
UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY, 2950 SOUTH HIGHLAND DRIVE, LAS
VEGAS, NEVADA 89109, THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON
SOLICITED A COPY OF THE FISCAL 2008 REPORT, INCLUDING FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES FILED THEREWITH.
By
Order of the Board of Directors,
/s/ Yuri Itkis
Yuri
Itkis
Chief
Executive Officer
March [___],
2009
Las
Vegas, Nevada