<PAGE>
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year ended December 31, 1998
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-24363
INTERPLAY ENTERTAINMENT CORP.
(Exact name of Registrant as specified in its charter)
___________________________
Delaware 33-0102707
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16815 Von Karman Avenue, Irvine, California 92606
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 553-6655
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
___________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 22, 1999, 20,808,861 shares of Common Stock of the Registrant
were issued and outstanding and the aggregate market value of voting common
stock held by non-affiliates was $19,956,470.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
AMENDMENT NO. 1
TO THE ANNUAL REPORT ON FORM 10-K FILED BY
INTERPLAY ENTERTAINMENT CORP. ON MARCH 31, 1999
The following Items comprising Part III were omitted from the Annual Report
on Form 10-K filed by Interplay Entertainment Corp. on March 31, 1999 (the "Form
10-K"), as permitted by rules and regulations promulgated by the Securities
Exchange Commission. Part III of that Form 10-K is hereby amended and restated
to insert those Items as set forth herein. All capitalized terms used herein
but not defined shall have the meanings ascribed to them in the Form 10-K.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Summary Information Concerning Directors, Executive Officers and Certain
Significant Employees
The following table sets forth certain information regarding the Company's
directors and executive officers and certain significant employees, and their
ages as of April 30, 1999:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---------------------------- --- ------------------------------------------------------
<S> <C> <C>
Brian Fargo 36 Chairman of the Board of Directors and
Chief Executive Officer
Christopher J. Kilpatrick 42 President and Director
Richard S.F. Lehrberg 51 Executive Vice President and Director
Manuel Marrero 41 Chief Financial Officer(1) and Chief Operating Officer
James C. Wilson 50 Vice President of Finance(1)
Phillip G. Adam 44 Vice President of Business Development
Kim Motika 38 Vice President of Strategic Development
Patricia J. Wright 38 Vice President of Development
Jim Maia 38 Vice President, North American Sales
Cal Morrell 43 Vice President of Marketing
Peter A. Bilotta 43 President of Interplay Productions Limited
Jill S. Goldworn 34 President of Interplay OEM, Inc.
David Perry 31 President of Shiny Entertainment, Inc.
Charles S. Paul(2) 49 Director
Mark Pinkerton(3) 38 Director
Kenneth J. Kay(2)(3) 44 Director
- ---------------
</TABLE>
(1) Manuel Marrero replaced James Wilson as the Company's Chief Financial
Officer in April 1999. Mr. Wilson continues to serve the Company as its Vice
President of Finance.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
Background Information Concerning Directors
Brian Fargo, Chairman of the Company's Board of Directors, founded the
Company in 1983 and has served as the Company's chief executive officer since
that time. Prior to June 1995, Mr. Fargo also served as the Company's President.
Mr. Fargo also currently serves as a member of the Board of Directors of the
Interactive Digital Software Association.
2
<PAGE>
Kenneth J. Kay has served as director of the Company since February 1999.
Mr. Kay has served as Executive Vice President and Chief Financial Officer of
Universal Studios Consumer Products Group since December 1997, and prior to that
as Senior Vice President and Chief Financial Officer of Playmates, Inc., a
developer and distributor of toys and interactive entertainment games, since
January 1997. From July 1994 to January 1997, Mr. Kay served as Chief Financial
Officer/Senior Vice President, Finance and Administration of Systemed, Inc., a
pharmacy benefit management company. Prior to that, Mr. Kay served as Group
Vice President of Ameron International, a manufacturer of industrial products,
from January 1992 to September 1993 and as Chief Financial Officer/Senior Vice
President, Finance and Administration of Ameron from February 1990 to January
1992.
Christopher J. Kilpatrick has served as President of the Company since June
1995, and served as Vice President and General Counsel of the Company from May
1994 to May 1995. From June 1990 to May 1994 Mr. Kilpatrick was a shareholder
and member of Stradling Yocca Carlson & Rauth, counsel to the Company, and was a
shareholder of such firm until September 1997. Mr. Kilpatrick currently serves
as a director of several privately-held companies.
Richard S.F. Lehrberg joined the Company as Vice President in November 1991
and has served as Executive Vice President of the Company since October 1994.
Mr. Lehrberg has served as a director of the Company since April 1989. Prior to
joining the Company, from December 1988 to November 1991, Mr. Lehrberg served as
President of Lehrberg Associates, an international licensing company. From
August 1982 to November 1988, Mr. Lehrberg was employed by Activision, Inc., an
interactive entertainment software publisher, in various positions, including
Vice President and General Manager of the Entertainment Division.
Charles S. Paul has served as a director of the Company since October 1994.
Since March 1995, Mr. Paul has been employed by Sega GameWorks, a location-based
entertainment company, and has served as the Chairman of the Board of Sega
GameWorks L.L.C., a location-based entertainment software company, since March
1996. Mr. Paul previously served as Executive Vice President of Universal
Studios, Inc. ("Universal") from December 1986 to March 1995. Mr. Paul is a
director of National Golf Properties, Inc. and Entertainment Properties Trust,
both real estate investment trusts.
Mark Pinkerton has served as a director of the Company since March 1998. Mr.
Pinkerton has served as Vice President-Business Development in the Universal
Pictures division of Universal since September 1998, and prior to that as
Director-Corporate Development and Strategic Planning for Universal since July
1996. From February 1995 to June 1996, Mr. Pinkerton was an independent
consultant. Mr. Pinkerton was a Vice President in the Mergers and Acquisitions
Department of the Investment Banking Division of Lehman Brothers Inc., an
investment banking and stock brokerage firm, from August 1991 to January 1995.
Director Compensation
The Company's directors currently do not receive cash compensation for
attendance at Board of Directors or committee meetings. However, in the future,
non-employee directors may receive compensation for attendance and may be
reimbursed for certain expenses in connection with attendance at board and
committee meetings. In September 1998, Charles S. Paul and David R. Dukes were
each granted options to purchase 25,000 shares of the Company's Common Stock at
an exercise price of $8.00 per share, which options vest over a period of five
years following the date of the grant.
3
<PAGE>
Background Information Concerning Executive Officers and Certain Significant
Employees
Manuel Marrero joined the Company in April 1999 as its Chief Financial
Officer and Chief Operating Officer. Prior to joining the Company, Mr. Marrero
served as Chief Financial Officer, Senior Vice President and Corporate Secretary
of Precision Specialty Metals, Inc., a leading high precision conversion mill
for stainless steel and high performance alloys, from July 1996. From October
1993 through July 1996 Mr. Marrero served as the Senior Vice President, Chief
Financial Officer and corporate secretary for Autologic Information
International, Inc., a manufacturer of computerized image setting and
publications systems equipment and software for the publishing industry.
James C. Wilson joined the Company as Chief Financial Officer in August
1997 and has served as Vice President of Finance of the Company since April
1999. Prior to joining the Company, from January 1996 to August 1997, Mr.
Wilson served as Chief Financial Officer, Treasurer and Vice President of
Administration of Cloud 9 Interactive Inc., a publisher and developer of
educational and entertainment multi-media products. Between October 1993 and
December 1995, Mr. Wilson served as Vice President--Finance and Chief Financial
Officer of Applause Enterprises Inc., a worldwide distributor of gifts and toys.
Between February 1992 and October 1993, Mr. Wilson served as a Finance Executive
for Sega of America, a video game system manufacturer.
Phillip G. Adam joined the Company as Vice President of Sales and Marketing
in December 1990 and has served as Vice President of Business Development of the
Company since October 1994. Prior to joining the Company, from January 1984 to
December 1990, Mr. Adam served as President of Spectrum Holobyte, an interactive
entertainment software publisher, where he was a co-founder. From May 1990 to
May 1996, Mr. Adam served as the Chairman or a member of the Board of Directors
of the Software Publishers Association and, during part of such period, as
President of the Software Publishers Association. From March 1997 to March 1998
Mr. Adam served as the Chairman of the Public Policy Committee of the
Interactive Digital Software Association.
Kim Motika joined the Company as National Sales Manager in November 1991,
and was promoted to Vice President of Sales of the Company in October 1994. In
November 1998, she was promoted to Vice President of Strategic Development.
Prior to joining the Company, from May 1989 to October 1991, Ms. Motika served
as a Sales Manager for Ashton-Tate, a software publisher, and served as Western
Regional Vice President of Ingram Micro, a worldwide distributor of information
technology products, from 1983 to 1988.
Patricia J. Wright joined the Company as Vice President of Marketing in
October 1995 and has served as Vice President of Development since June 1997.
Prior to joining the Company, from April 1993 to October 1995, Ms. Wright served
as Vice President of Marketing for Activision, Inc. and as Director of Marketing
for the Barbie Products division of Mattel, Inc., a toy manufacturer, from
January 1990 to April 1993.
Jim Maia joined the Company as Canadian Sales Manager in May 1995, was
promoted to Senior Director, North American Sales in October 1997, and has
served as Vice President, North American Sales since November 1998. Prior to
joining the Company, Mr. Maia served as Merchandise Manager for Beamscope Canada
since January 1990.
Cal Morrell joined the Company as Vice President of Marketing in September
1998. Prior to joining the Company, from March 1997 to August 1998, Mr. Morrell
served as Senior Vice President of Games On-Line, Inc. dba Engage, and prior to
that served as Vice President of Marketing & Internet for Legacy Software from
June 1996 to February 1997, as well as Director of Worldwide Consumer Software
of IBM UK from January 1995 to June 1996. From June 1993 to December 1994, Mr.
Morrell served as Brand Manager at IBM Consumer Division.
Peter A. Bilotta has served as President of Interplay Europe since August
1994. Prior to joining the Company, from January 1992 to July 1994, Mr. Bilotta
served as Managing Director--Distributed Territories of Acclaim Entertainment
Ltd., an entertainment software publisher. Mr. Bilotta also served as Managing
Director and Chief Executive Officer of Arena Entertainment Inc., an interactive
entertainment software publisher, from March 1991 to December 1991. Mr. Bilotta
serves as a director of Interactive Media, Ltd., a privately-held interactive
4
<PAGE>
entertainment software developer, and Bizarre Love Triangle, a privately-held
interactive entertainment software distributor.
Jill S. Goldworn has served as President of Interplay OEM, Inc., the
Company's OEM subsidiary, since December 1996. Prior to that, Ms. Goldworn
served as Vice President, OEM and Merchandising of the Company since June 1995.
Prior to that, Ms. Goldworn served as Director of the OEM division of the
Company from September 1992 to June 1995. Prior to joining the Company, from
November 1991 to August 1992, Ms. Goldworn served as Director of Contract Sales
of PC Globe, Inc., a publisher of desktop geography software.
David Perry has served as President of Shiny Entertainment, Inc. since
October 1993. Mr. Perry founded Shiny, developer of Earthworm Jim, in October
1993. Prior to founding Shiny, from January 1991 to September 1993, Mr. Perry
served as a consulting engineer for Virgin Interactive Entertainment Inc., an
interactive entertainment software publisher.
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 a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and ten-percent stockholders are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on the review of copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 1998 all of the Company's
officers, directors and ten-percent stockholders complied with all applicable
Section 16(a) filing requirements.
5
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned during the last two fiscal years ended December 31, 1998 by the Company's
Chief Executive Officer and each of the three other most highly compensated
executive officers of the Company whose total salary and bonus during such year
exceeded $100,000 (collectively, the "Named Executive Officers"). In April
1999, Manuel Marrero replaced Mr. Wilson as the Company's Chief Financial
Officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Annual Compensation ---------------------
---------------------------------------- Securities
Name and Principal Position Year Salary Bonus Other(1) Underlying Options(#)
- --------------------------- ---- ---------- ------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
Brian Fargo 1998 $210,417 -- -- 150,000
Chief Executive Officer 1997 237,500 -- -- --
Christopher J. Kilpatrick 1998 234,722 $75,000 $5,065 20,000
President 1997 200,000 -- 4,750 20,000
Richard S. F. Lehrberg 1998 178,805 15,000 4,792 --
Executive Vice President 1997 200,000 -- 4,792 --
James C. Wilson 1998 131,686 -- -- --
Chief Financial Officer 1997 50,625(2) -- -- 50,000
</TABLE>
_____________________
(1) Consists of matching payments made under the Company's 401(k) plan. See
"--Employee Benefit Plans--401(k) Plan."
(2) Mr. Wilson joined the Company in August 1997 at an annual base salary of
$135,000.
Stock Option Grants During Year Ended December 31, 1998
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term ($)(4)
Options Employees In Price Expiration --------------------
Name Granted(1) Fiscal Year ($/Sh)(2) Date(3) 5% 10%
- ---- ---------- ---------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian Fargo 150,000 33.3% $8.00 2/23/08 $754,674 $1,912,491
Christopher J. Kilpatrick 20,000 4.4 $8.00 2/23/08 $100,623 $ 254,999
</TABLE>
_____________________
(1) Represents options granted pursuant to the Company's 1997 Plan. All such
options were granted at an exercise price equal to, or less than, the fair
market value of the Common Stock on the date of grant. All such options vest
at the rate of 20% per year.
(2) In February 1998, the Compensation Committee repriced all options granted at
an exercise price of greater than $8.00 which were held by current employees
of the Company or its wholly owned subsidiaries, including the options
listed above, to an exercise price of $8.00.
6
<PAGE>
(3) Options granted to such individuals pursuant to the 1997 Plan expire 10
years from the date of grant.
(4) Represents amounts that may be realized upon exercise of the options
immediately prior to expiration of their terms assuming appreciation of 5%
and 10% over the option term. The 5% and 10% numbers are calculated based on
rules required by the Securities and Exchange Commission (the "Commission")
and do not reflect the Company's estimate of future stock price growth. The
actual value realized may be greater or less than the potential realizable
value set forth.
Aggregate Option Exercises And 1998 Year-End Option Values
Shown below is information relating to the exercise of stock options during
the year ended December 31, 1998 for each of the Named Executive Officers, and
the year-end value of unexercised options.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised in-the-
Unexercised Options Money Options at
Shares at Year-End Year-End
Acquired (Exercisable/ (Exercisable/
Name on Exercise Value Realized Unexercisable) Unexercisable)(1)
- ---- ----------- -------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Brian Fargo -- -- 0/150,000 $0/$0
Richard S.F. Lehrberg -- -- 572,874/0 $932,066/$0
Christopher J. Kilpatrick -- -- 251,528/20,000 $30,775/$0
James C. Wilson -- -- 10,000/40,000 $0/$0
</TABLE>
_____________________
(1) Represents an amount equal to difference between the closing sale price for
the Company's Common Stock on the Nasdaq National Market on December 31,
1998 and the option exercise price, multiplied by the number of unexercised
in-the-money options.
Employment Agreements
The Company has entered into an employment agreement with Brian Fargo, as
amended, for a term of six years through March 2000, pursuant to which he
currently serves as Chairman of the Board of Directors and Chief Executive
Officer of the Company. The employment agreement provides for a base salary of
$250,000 per year, with such annual raises as may be approved by the Board of
Directors, plus annual bonuses at the discretion of the Board of Directors. In
the event that Mr. Fargo is terminated without cause or resigns for good reason
as set forth in the agreement, the Company is required to pay Mr. Fargo 150% of
his base salary and 75% of his imputed annual bonuses for the remainder of the
term of the agreement, which payments are contingent upon Mr. Fargo's non-
competition with the Company, as defined in the agreement. Mr. Fargo is also
entitled to participate in the incentive compensation and other employee benefit
plans established by the Company from time to time.
The Company entered into an employment agreement with Christopher J.
Kilpatrick for a term of five years commencing May 1994, pursuant to which he
served as President of the Company until his resignation in April 1999. The
employment agreement provides for a base salary of $157,200 per year, with
annual raises determined by the Board of Directors of not less than ten percent
per year, plus annual bonuses at the discretion of the Board of Directors. In
the event Mr. Kilpatrick is terminated by the Company at any time for any
reason, or in the event Mr. Kilpatrick terminates his employment on or before
November 14, 1998 for good reason as defined in the agreement, or after November
14, 1998 for any reason, the Company is required to pay Mr. Kilpatrick 150% of
his base salary and 75% of his imputed annual bonuses for 12 months following
such termination, which payments are contingent upon Mr. Kilpatrick's non-
competition with the Company, as set forth in the agreement. In addition, in
the event Mr. Kilpatrick is terminated without cause or resigns for good reason
as defined in the agreement, all stock options held by Mr. Kilpatrick will vest
to the extent they would have vested through the end of the term of the
agreement. In June 1995, following a change in control of the Company as
defined in the agreement, all of the stock options then held by Mr. Kilpatrick
automatically vested. Upon the closing of the Offering, the options
7
<PAGE>
granted Mr. Kilpatrick in 1997 will automatically vest. Mr. Kilpatrick is also
entitled to participate in the incentive compensation and other employee benefit
plans established by the Company from time to time.
The Company has entered into an employment agreement with Richard S.F.
Lehrberg for a term of five years commencing March 1994, pursuant to which he
currently serves as Executive Vice President of the Company. The employment
agreement provides for a base salary of $200,000 per year, with annual raises as
approved by the Board of Directors. Mr. Lehrberg is also entitled to an annual
bonus based on the achievement of goals and objectives agreed upon by the Board
of Directors and Mr. Lehrberg, up to a maximum of $134,000 per year. In the
event Mr. Lehrberg is terminated without cause or resigns for good reason as set
forth in the agreement, the Company is required to pay Mr. Lehrberg 150% of his
base salary and 75% of his imputed annual bonuses for the remainder of the term
of the agreement, which payments are contingent upon Mr. Lehrberg's non-
competition with the Company, as defined in the agreement. Mr. Lehrberg is also
entitled to participate in the incentive compensation and other employee plans
established by the Company from time to time.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Paul and Kay. No
member of the Compensation Committee or executive officer of the Company has a
relationship that would constitute an interlocking relationship with executive
officers and directors of another entity. During 1998, decisions regarding
executive compensation were made by the Compensation Committee of the Board of
Directors, which then consisted of Mr. Paul, David R. Dukes and Paul Rioux. Mr.
Paul serves as a director of the Company and is employed by Sega GameWorks, a
location-based entertainment company. Mr. Dukes served as a director of the
Company until his resignation in September 1998. Mr. Rioux served as a director
of the Company until his resignation in November 1998. During such time, Mr.
Rioux was an officer of Universal Studios New Media, Inc., a subsidiary of
Universal, which has entered into various transactions with the Company. See
"Certain Relationships and Related Transactions--Transactions With Fargo and
Universal."
REPORT OF THE COMPENSATION COMMITTEE
The following report is submitted by the Compensation Committee of the Board
of Directors with respect to the executive compensation policies established by
the Compensation Committee and recommended to the Board of Directors and
compensation paid or awarded to executive officers for the fiscal year ended
December 31, 1998.
The Compensation Committee determines the annual salary, bonus and other
benefits, including incentive compensation awards, of the Company's executive
officers and recommends new employee benefit plans and changes to existing plans
to the Company's Board of Directors. The Compensation Committee met four times
during fiscal year 1998.
Compensation Policies and Objectives
The Company's executive compensation policy is designed to attract and
retain exceptional executives by offering compensation for superior performance
that is highly competitive with other well-managed organizations. The
Compensation Committee measures executive performance on an individual and
corporate basis.
There are three components to the Company's executive compensation program,
and each is consistent with the stated philosophy as follows:
Base Salary. Base salaries for executives and other key employees are
determined by individual financial and non-financial performance, position in
salary range and general economic conditions of the Company. For purposes of
administering base pay, all executive positions are evaluated and placed in
appropriate salary grades. Salary range midpoint levels are reviewed on an
annual basis to ensure competitiveness with a peer group of comparable
entertainment software companies. In recommending salaries for executive
officers, the Compensation Committee (i) reviews the historical performance of
the executives, and (ii) formally reviews specific information
8
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provided by its accountants and other consultants, as necessary, with respect to
the competitiveness of salaries paid to the Company's executives.
Annual Bonus. Annual bonuses for executives and other key employees are
tied directly to the Company's financial performance as well as individual
performance. The purpose of annual cash bonuses are to reward executives for
achievements of corporate, financial and operational goals. Annual cash bonuses
are intended to reward the achievement of outstanding performance. If certain
objective and subjective performance goals are not met, annual bonuses are
reduced or not paid.
Long-Term Incentives. The purpose of these plans is to create an
opportunity for executives and other key employees to share in the enhancement
of stockholder value through stock options. The overall goal of this component
of pay is to create a strong link between the management of the Company and its
stockholders through management stock ownership and the achievement of specific
corporate financial measures that result in the appreciation of Company share
price. Stock options are awarded in order to tie the executive officers'
interests to the Company's performance and align those interests closely with
those of stockholders. The Compensation Committee generally has followed the
practice of granting options on terms which provide that the options become
exercisable in cumulative installments over a three to five year period. The
Compensation Committee believes that this feature not only provides an employee
retention factor but also makes longer term growth in share prices important for
those receiving options.
Chief Executive Officer Compensation
The salary, annual raises and annual bonus of Brian Fargo, the Company's
Chief Executive Officer, are determined in accordance with Mr. Fargo's
Employment Agreement with the Company. Mr. Fargo's Employment Agreement
provides for a base salary of $250,000 per year, with annual raises and bonuses
as may be approved at the discretion of the Company's Board of Directors. (see
"Employment Agreements," above). The amounts of any annual raises or bonuses
are determined in accordance with the policies and objectives set forth above.
In February 1998, Mr. Fargo was granted an option to purchase 150,000 shares of
the Company's Common Stock. The Compensation Committee believes it is crucial
to the Company's long-term success to continue to tie the Chief Executive
Officer's incentive to the Company's performance and to align individual
financial interests with those of the Company's stockholders.
Deductibility of Executive Compensation.
The Company is required to disclose its policy regarding qualifying
executive compensation deductibility under Section 162(m) of the Internal
Revenue Code of 1986, as amended, which provides that, for purposes of the
regular income tax and the alternative minimum tax, the otherwise allowable
deduction for compensation paid or accrued with respect to a covered employee of
a public corporation is limited to no more than $1 million per year. It is not
expected that the compensation to be paid to the Company's executive officers
for fiscal 1998 will exceed the $1 million limit per officer. The Company's
Executive Stock Option Plan, 1994 Stock Option Plan and 1996 Stock Incentive
Plan are structured so that any compensation deemed paid to an executive officer
when he exercises an outstanding option under the plan, with an exercise price
equal to the fair market value of the option shares on the grant date, will
qualify as performance-based compensation that will not be subject to the $1
million limitation.
The Compensation Committee of the
Board of Directors
Charles S. Paul
Kenneth J. Kay
Notwithstanding anything to the contrary set forth in the Company's previous
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate future filings, including this
Form 10-K/A, in whole or in part, the foregoing Report and the performance graph
on page 10 shall not be incorporated by reference into any such filings.
9
<PAGE>
Common Stock Price Performance
Set forth below is a line graph comparing the cumulative stockholder return
on the Company's Common Stock with the cumulative total return of the MG
Industry Group 820 (Multimedia/Graphics Software) and the Nasdaq Market Index
for the period that commenced June 19, 1998, the date on which the Company's
Common Stock was first registered under the Exchange Act, and ended on December
31, 1998. The graph assumes $100 invested June 19, 1998 in the Company's Common
Stock, the MG Industry Group 820 (Multimedia/Graphics Software) and the Nasdaq
Market Index, with the reinvestment of all dividends. The Performance Graph is
not necessarily an indicator of future price performance.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
MG Industry Group 820
Interplay (Multimedia/
Measurement Date Entertainment Corp. Graphics Software) Nasdaq Market Index
---------------- ------------------- ------------------ -------------------
<S> <C> <C> <C>
06/19/98 100.00 100.00 100.00
06/30/98 95.83 100.00 100.00
09/30/98 53.13 69.97 90.13
12/31/98 29.69 91.60 117.16
</TABLE>
10
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth certain information concerning the beneficial
ownership of the Company's outstanding Common Stock as of April 30, 1999 for (I)
each person (or group of affiliated persons) who is known by the Company to own
beneficially five percent or more of the Company's Common Stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Name and Address of Beneficial Owner Owned(1) Shares Owned
- ------------------------------------ --------- -------------
<S> <C> <C>
Brian Fargo 6,022,378(2) 28.4%
16815 Von Karman Avenue
Irvine, CA 92606
Universal Studios, Inc. 4,658,216 22.4
Mark Pinkerton(3)
Kenneth J. Kay(3)
100 Universal City Plaza
Universal City, CA 91608
Titus Interactive SA 7,180,016(4) 34.5
20432 Corisco Street
Chatsworth, CA 91311
Christopher J. Kilpatrick 282,602(5) 1.3
Richard S.F. Lehrberg 590,979(6) 2.8
James C. Wilson 10,000(7) *
Charles S. Paul 0 *
All Directors and Executive Officers as a Group
(7 persons) 11,564,175(8) 52.5%
</TABLE>
- ----------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options currently exercisable,
or exercisable within 60 days of April 30, 1999 are deemed outstanding for
computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated by footnote and subject to community property laws where
applicable, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them.
(2) Includes 430,000 shares subject to warrants and options exercisable within
60 days of April 30, 1999.
(3) Messrs. Pinkerton and Kay, who are employees of Universal or its
subsidiaries and have been appointed as directors by Universal, disclaim
beneficial ownership of the shares held by Universal.
(4) Includes 4,658,216 shares subject to an option granted to Titus by
Universal, which option may, under certain circumstances, be exercisable
within 60 days of April 30, 1999.
(5) Includes 255,528 shares subject to options exercisable within 60 days of
April 30, 1999.
(6) Includes 510,374 shares subject to options exercisable within 60 days of
April 30, 1999.
(7) Includes 10,000 shares subject to options exercisable within 60 days of
April 30, 1999.
(8) Includes 1,205,902 shares subject to warrants and options exercisable within
60 days of April 30, 1999.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Fargo
In connection with the amendment of the Company's line of credit agreement
in November 1998, Brian Fargo, the Company's Chairman and Chief Executive
Officer, provided a personal guarantee of the Company's obligations in the
amount of $5.0 million which is effective through May 31, 1999, and secured by
certain of Mr. Fargo's personal assets. As consideration for making such
guarantee, Mr. Fargo received warrants to purchase 400,000 shares of the
Company's Common Stock at an exercise price of $3.00 per share. In March 1999,
Mr. Fargo extended such guarantee through December 21, 1999. As consideration
for such extension, the Company agreed to assume the obligations of Mr. Fargo
under an agreement entered into between Mr. Fargo and Christopher J. Kilpatrick
(the "Kilpatrick Agreement"). Under the terms of the Kilpatrick Agreement as
assumed by the Company, the Company guarantees that Mr. Kilpatrick will receive
One Million Dollars ($1,000,000) in pre-tax proceeds from the sale, on or before
January 1, 2001 of the shares of the Company's Common Stock issuable to him upon
his exercise of his options to purchase 255,528 shares of the Company's Common
Stock. The amount of the Company's obligation under the Kilpatrick Agreement
will vary based on the market price of the Company's Common Stock. Based on the
closing sale price of the Common Stock on March 31, 1999, the amount of such
obligation would be approximately $915,000.
Transactions With Fargo and Universal
The Company, Mr. Fargo and Universal entered into a Stock Purchase
Agreement, dated January 25, 1994, for the purchase of Common Stock. On March
30, 1994, pursuant to the Stock Purchase Agreement, Universal purchased
1,824,897 shares of Common Stock from the Company for a purchase price of $15
million and 1,216,598 shares of Common Stock from Mr. Fargo for a purchase price
of $10 million. Pursuant to the Stock Purchase Agreement, the Company, Mr. Fargo
and Universal entered into an Option Agreement, dated March 30, 1994, pursuant
to which Mr. Fargo granted Universal an option to purchase additional shares of
Common Stock held by Mr. Fargo. Pursuant to such Agreement, Universal purchased
1,216,598 additional shares of Common Stock from Mr. Fargo at a price of $9.10
per share on April 25, 1995 and 1,150,123 additional shares of Common Stock at a
price of $14.62 per share on April 26, 1996, such that Universal became a 35%
owner of the Company as of April 25, 1995 and a 45% owner of the Company as of
April 26, 1996. In order to acquire sufficient shares of Common Stock for sale
to Universal on each of the three sale dates, Mr. Fargo acquired such number of
shares as was required for sale to Universal from existing shareholders of the
Company in simultaneous transactions. Pursuant to the Stock Purchase Agreement,
the Company, Mr. Fargo and Universal entered into a Shareholders' Agreement
dated March 30, 1994, as amended October 8, 1996 and in March 1998, which
contains certain restrictions on transfer of shares, rights of first refusal,
voting provisions, registration rights and certain restrictions on corporate
actions. Only the mutual rights of first refusal as between Universal and Mr.
Fargo and the registration rights of Universal and Mr. Fargo survived the
closing of the IPO. For his services in connection with such transaction, Mr.
Fargo was awarded a bonus of $1.0 million by the Board of Directors on March 28,
1994. Mr. Fargo has agreed to defer the payment of such bonus to a future date.
The Company has entered into three Merchandising License Agreements with
MCA/Universal Merchandising Inc., a subsidiary of Universal. Pursuant to an
agreement dated May 23, 1994, the Company had the exclusive right to use the
theme and characters of the Waterworld motion picture in software products for
specified platforms. Such right expired July 31, 1998. Pursuant to an agreement
dated May 23, 1994, the Company has the non-exclusive right to use the theme and
characters of the Casper motion picture in software products for specified
platforms for a period of three years following the release of such motion
picture. Pursuant to an agreement dated April 16, 1996, the Company has the
exclusive right to the theme and characters of the Flipper motion picture for an
interactive story book product on specified platforms until June 1, 2001. Each
of the agreements provide for the Company to pay specified advances against
royalties and for specified royalty guarantees. To date, the Company has paid a
total of $0.5 million, $0.3 million and $30,000, respectively, in advances and
royalty payments under such agreements. In addition, pursuant to a letter
agreement dated September 27, 1996, with Universal Interactive Studios, a
subsidiary of Universal ("UIS"), the Company has the exclusive distribution
rights in North America for PlayStation versions of Disruptor (the "Disruptor
Agreement"), plus the exclusive rights to manufacture, publish
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and distribute Disruptor on any video game platform outside of North America. On
August 16, 1995, the Company and UIS entered into an exclusive distribution
agreement pursuant to which UIS agreed to distribute the Company's interactive
software products in Europe through UIS's affiliate, MCA Home Video, Inc., which
in turn distributes through Cinema International Corporation ("CIC"). The
distribution agreement was subsequently terminated. In March 1998, the Company
entered into an agreement with UIS whereby the Company agreed to pay to UIS all
remaining amounts owed to UIS. Such amounts totaled $1.4 million and were paid
in June 1998.
Mark Pinkerton and Kenneth J. Kay, directors of the Company, are employees
of Universal and/or its subsidiaries.
Engage Transactions
In June 1995, the Company formed a subsidiary to divest Games On-Line,
Inc., dba Engage Games Online ("Engage"), which formerly operated as a division
of the Company. Pursuant to a Stock Purchase Agreement dated June 30, 1995, the
Company sold 10,000,000 shares of common stock of Engage to Mr. Fargo for
$237,000. In connection with such sale, the Company and Mr. Fargo entered into
an Option Agreement dated June 30, 1995, granting the Company an option to
repurchase all of such shares at an aggregate exercise price of $337,000 at any
time prior to June 30, 2005 (the "Termination Date"). In conjunction with a
financing agreement between Engage and Mr. Fargo, the Option Agreement was
amended in March 1998 to reduce the shares subject to such option to 19% of the
shares held by Mr. Fargo and to reduce the exercise price to $250,000. In the
event the Company elects not to exercise its option to repurchase the shares,
upon certain events Universal has an option to purchase the shares at the same
exercise price. If Universal exercises its option to purchase the shares, the
Company has an option to purchase such shares from Universal at the $250,000
exercise price until the Termination Date.
Prior to March 1996, the Company loaned Engage approximately $1.8 million
to fund the operations of Engage, which debt was evidenced by a convertible
demand promissory note dated March 29, 1996, bearing interest at the prime rate
plus two percent per annum. Approximately, $0.8 million of the principal amount
was repaid to the Company in a number of installments during 1996 and 1997. In
connection with a secured debt financing in August 1997, the remaining
outstanding principal of approximately $1.0 million was converted into a secured
convertible promissory note bearing interest at a rate of eight percent per
annum. As part of the August 1997 transaction, the Company loaned an additional
$100,000 to Engage on the same terms.
In March 1996, the Company entered into an agreement with Engage which,
among other things, provides that the Company will provide certain
administrative services to Engage, and grants Engage the exclusive right to use
certain of the Company's products in Internet-based on-line services. Engage
currently owes the Company approximately $900,000 in connection with such
agreement.
The Company is co-lessee with Engage under a lease with General Electric
Capital Corporation ("GECC") for equipment utilized by Engage. As of April 30,
1999, the Company's obligations to GECC through the term of the lease are
approximately $246,000.
Financing Transactions
In October 1996, the Company sold an aggregate of $2,400,000 in
Subordinated Secured Promissory Notes and Common Stock Warrants to Brian Fargo
($2,000,000), Richard S.F. Lehrberg ($300,000) and Christopher J. Kilpatrick
($100,000). The Secured Subordinated Promissory Notes provided for interest at a
rate of 12% per annum. Messrs. Fargo, Lehrberg and Kilpatrick elected to receive
11,688, 1,683 and 100 shares of Common Stock, respectively, in lieu of the May
1997 interest payment due under the Secured Subordinated Promissory Notes, at a
price of $11.25 per share. In February 1998, the terms of such Notes and
Warrants were amended to permit the exercise of the Warrants or the repayment of
the Notes upon the closing of the Company's IPO whether or not the IPO
constituted a Qualified Event (as defined in the Notes and Warrants). Messrs.
Fargo, Lehrberg and Kilpatrick elected to exercise such Warrants for 519,481,
77,922 and 25,974 shares of Common Stock, respectively, by canceling such Notes
effective upon the closing of the IPO at an exercise price of $3.85 per share
(based upon the IPO price of $5.50 per share).
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In March 1999, the Company entered into a Stock Purchase Agreement with
Titus Interactive SA and Brian Fargo. Under the terms of the Stock Purchase
Agreement, the Company issued Two Million Five Hundred Thousand (2,500,000)
shares of its common stock to Titus in exchange for consideration of Ten Million
Dollars ($10,000,000). The Stock Purchase Agreement provides that the purchase
price will be recalculated based on the average closing price per share of the
Company's Common Stock as reported by Nasdaq during each of two periods of ten
trading days, ending June 30, 1999, and August 20, 1999, respectively. If the
average price per share of the Company's Common Stock as calculated during such
periods is below four dollars ($4.00), the Company will be required under the
terms of the Stock Purchase Agreement to issue additional shares to Titus so
that the total number of shares issued to Titus equals $10,000,000 divided by
the stock price as so recalculated up to a maximum of 2,500,000 additional
shares, or 5,000,000 shares in the aggregate. In the event the stock price
determined pursuant to the second recalculation is higher than that determined
pursuant to the first recalculation, Titus would be required to return shares to
the Company accordingly.
Under the terms of the Stock Purchase Agreement, the Company is obligated
to register all of the shares of the Company's Common Stock purchased by Titus
pursuant to the terms and conditions of the Stock Purchase Agreement, as well as
any shares purchased by Titus by exercise of an option it holds to purchase the
4,658,216 shares of the Company's Common Stock currently held by Universal.
Also, in connection with the Stock Purchase Agreement, Mr. Fargo agreed to not
sell, assign, pledge, mortgage or otherwise dispose of or transfer any shares of
the Company's Common Stock without the prior written consent of Titus. In
addition, in connection with such transaction Mr. Fargo granted to Titus an
irrevocable proxy to vote all of his shares of Common Stock in favor of the
issuance of Common Stock to Titus pursuant to the Stock Purchase Agreement.
Other Transactions
In March 1998, the Company entered into Indemnification Agreements with all
of its directors and executive officers providing for indemnification of such
persons by the Company in certain circumstances.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Irvine,
State of California, on the 30th day of April, 1999.
INTERPLAY ENTERTAINMENT CORP.
(Registrant)
By: /s/ BRIAN FARGO
---------------
Brian Fargo
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ BRIAN FARGO Chief Executive Officer April 30, 1999
- ------------------------- and Chairman of the Board
Brian Fargo (Principal Executive Officer)
President and Director
- -------------------------
Christopher J. Kilpatrick
/s/ MANUEL MARRERO Chief Financial Officer and April 30, 1999
- -------------------------------- Chief Operating Officer
Manuel Marrero (Principal Financial and Accounting
Officer)
* Executive Vice President and Director April 30, 1999
- --------------------------------
Richard S.F. Lehrberg
* Director April 30, 1999
- --------------------------------
Mark Pinkerton
* Director April 30, 1999
- ---------------------------------
Charles S. Paul
* Director April 30, 1999
- ---------------------------------
Kenneth J. Kay
*By: /s/ BRIAN FARGO
----------------------------------
Brian Fargo, Attorney-in-Fact
</TABLE>
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