<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[X] Preliminary Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
INTERPLAY ENTERTAINMENT CORP.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
INTERPLAY ENTERTAINMENT CORP.
16815 Von Karman Avenue
Irvine, California 92606
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 24, 1999
----------------
To the Stockholders of Interplay Entertainment Corp.:
The Annual Meeting of Stockholders of Interplay Entertainment Corp., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 16815 Von Karman Avenue, Irvine, California, on Thursday, June 24,
1999 at 10:00 a.m. Pacific Standard Time, to consider and vote on the
following matters described in the attached Proxy Statement:
(1) The election of five (5) directors to serve until the next Annual
Meeting of Stockholders or until their successors are elected and duly
qualified (Proposal 1);
(2) The approval (recommended by the Board of Directors) of the issuance to
Titus Interactive SA, a French corporation ("Titus") of an aggregate of up to
5,000,000 shares of the Company's Common Stock pursuant to the terms and
conditions of a Stock Purchase Agreement dated March 18, 1999, by and among
the Company, Titus and Brian Fargo (Proposal 2);
(3) The ratification (recommended by the Board of Directors) of the
appointment of Arthur Andersen LLP as independent auditors of the Company for
the fiscal year ending December 31, 1999 (Proposal 3); and
(4) Such other business as may properly come before the meeting or any
adjournment thereof.
The Board of Directors has fixed the close of business on May 14, 1999, as
the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any postponement and adjournment thereof. The
Company's stock transfer books will not be closed on such date.
The Board of Directors welcomes the personal attendance of stockholders at
the meeting. However, please sign and return the enclosed proxy, which you may
revoke at any time prior to its use, whether or not you expect to attend the
meeting. A self-addressed, postage prepaid envelope is enclosed for your
convenience. Your proxy will not be used if you attend the meeting and choose
to vote in person.
By Order of the Board of Directors
Brian Fargo
Chairman of the Board of Directors
and Chief Executive Officer
Irvine, California
May 24, 1999
<PAGE>
INTERPLAY ENTERTAINMENT CORP.
16815 Von Karman Avenue
Irvine, California 92606
----------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 24, 1999
10:00 a.m.
----------------
Solicitation and Revocation of Proxies
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Interplay Entertainment Corp., a Delaware corporation (the
"Company"), and the Company will bear the cost of such solicitation.
Solicitation of proxies will be primarily by mail, although some of the
officers, directors and employees of the Company may solicit proxies
personally or by telephone. The Company will reimburse brokerage houses and
other custodians, nominees or fiduciaries for their expenses in sending proxy
materials to their principals.
The persons named as proxies were designated by the Board of Directors and
are directors of the Company. All properly executed proxies will be voted
(except to the extent that authority to vote has been withheld) and where a
choice has been specified by the stockholder as provided in the proxy, it will
be voted in accordance with the specification so made. Proxies submitted
without specification will be voted FOR the election as directors of the
nominees proposed by the Board of Directors, FOR the approval of the issuance
of up to Five Million (5,000,000) shares of the Company's Common Stock to
Titus Interactive SA ("Titus") pursuant to the terms of the Stock Purchase
Agreement dated March 18, 1999 among the Company, Titus and Brian Fargo and
FOR the ratification of Arthur Andersen LLP as the Company's independent
auditors.
Any stockholder may revoke a proxy at any time before it is voted at the
meeting by a proxy bearing a later date. A proxy may also be revoked by any
stockholder by delivering written notice of revocation to the Secretary of the
Company or by voting in person at the meeting.
This Proxy Statement and proxy are being mailed to stockholders of the
Company on or about May 24, 1999. The mailing address of the executive offices
of the Company is 16815 Von Karman Avenue, Irvine, California 92606.
Voting at the Meeting
Only record holders of Common Stock of the Company at the close of business
on May 14, 1999, will be entitled to notice of, and to vote at, the meeting.
As of the record date, there were shares of the Company's
Common Stock outstanding. Each share is entitled to one vote at the meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulating the votes cast on proposals presented to
stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved. Except with respect to the
election of directors, the affirmative vote of at least a majority of the
shares of the Company's Common Stock outstanding on the record date is
required for a proposal to be adopted
The Company's stockholders have cumulative voting rights with respect to
their shares of the Company's Common Stock when voting on the election of
members of the Company's Board of Directors. Cumulative voting rights entitle
each stockholder to the number of votes he or she would otherwise have in the
absence of cumulative voting rights, multiplied by the number of directors to
be elected. Each stockholder may cast all of
<PAGE>
the resulting votes for a single director, or may distribute them among the
directors to be elected as the stockholder sees fit. In order to determine how
may votes a stockholder is entitled to cast as a consequence of cumulative
voting rights, the stockholder multiplies the total number of shares of the
Company's Common Stock which they own by the number of directors being
elected, in this case five (5). The total which results is the number of votes
the stockholder may cast in connection with the election of directors. The
five (5) nominees receiving the most votes will be elected. The proxies
solicited by the Board of Directors confer discretionary authority on the
proxy holders to cumulate votes to elect the nominees listed in this Proxy
Statement.
PROPOSAL ONE
ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect the five (5)
proposed nominees named below unless contrary instructions are given in the
proxy. The election of directors shall be by the affirmative vote of the
holders of a plurality of the shares voting in person or by proxy at the
meeting. Each director is to hold office until the next annual meeting and
until his successor is elected and qualified.
The names and certain information concerning the persons nominated by the
Board of Directors to become directors at the meeting are set forth below. The
Company's Board of Directors recommends that you vote FOR the election of each
of the nominees named below. Shares represented by the proxies will be voted
FOR the election to the Board of Directors of the persons named below, with
cumulative votes cast as the proxies deem necessary to elect such persons,
unless authority to vote for nominees has been withheld in the proxy. Although
each of the persons named below has consented to serve as a director if
elected and the Board of Directors has no reason to believe that any of the
nominees named below will be unable to serve as a director, if any nominee
withdraws or otherwise becomes unavailable to serve, the persons named as
proxies will vote for any substitute nominee designated by the Board of
Directors. The following information regarding the nominees is relevant to
your consideration of the slate proposed by the Board of Directors:
Nominees for Director
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<C> <C> <S> <C>
Brian Fargo............ 36 Chairman and Chief Executive Officer 1983
Kenneth J. Kay(1)(2)... 44 Vice President, Universal Studios, 1999
Inc.
Richard S.F. Lehrberg.. 51 Executive Vice President 1989
Charles S. Paul(2)..... 49 Chairman and Chief Executive Officer, 1994
SEGA GameWorks LLC
Mark Pinkerton(1)...... 38 Vice President, Universal Studios, 1998
Inc.
</TABLE>
- --------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of 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.
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 prescription benefit management company. Prior to that, Mr.
Kay served as Group
2
<PAGE>
Vice President of Ameron International, a manufacturer of construction
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.
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.
Board Committees
The Company has two standing committees of the Board of Directors: an Audit
Committee and a Compensation Committee. The Audit Committee reviews the
functions of the Company's management and independent auditors pertaining to
the Company's financial statements and performs such other related duties and
functions as are deemed appropriate by the Audit Committee and the Board of
Directors. The Compensation Committee determines officer and director
compensation and administers the Company's benefit plans. The Audit Committee
met times during fiscal 1998. The Compensation Committee met times
during fiscal 1998.
Attendance at Meetings
During the fiscal year ended December 31, 1998, the Board of Directors held
a total of meetings. No member of the Board of Directors attended fewer
than 75% of the meetings of the Board and of the committees of which he was a
member.
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.
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
3
<PAGE>
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.
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(5)................... 282,602(6) 1.3
Richard S.F. Lehrberg.......................... 590,979(7) 2.8
James C. Wilson(8)............................. 10,000(9) *
Charles S. Paul................................ 0 *
All Directors and Executive Officers as a Group
(7 persons)................................... 11,564,175(10) 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.
4
<PAGE>
(5) Mr. Kilpatrick's employment with the Company terminated in May 1999.
(6) Includes 255,528 shares subject to options exercisable within 60 days of
April 30, 1999.
(7) Includes 510,374 shares subject to options exercisable within 60 days of
April 30, 1999.
(8) 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.
(9) Includes 10,000 shares subject to options exercisable within 60 days of
April 30, 1999.
(10) Includes 1,205,902 shares subject to warrants and options exercisable
within 60 days of April 30, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Summary Information Concerning Executive Officers Who Are Not Director
Nominees and Certain Significant Employees
The following table sets forth certain information regarding the Company's
executive officers who are not also nominees for the Board of Directors and
certain significant employees, and their ages as of April 30, 1999:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Manuel Marrero...... 41 Chief Financial Officer(1) and Chief Operating Officer
James C. Wilson..... 48 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.
</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.
Background Information Concerning Executive Officers who are not Director
Nominees 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.
5
<PAGE>
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 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.
6
<PAGE>
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. Mr. Kilpatrick's employment with the Company
terminated in May 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Securities
Name and Principal Underlying
Position Year Salary Bonus Other(1) 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
$135,000.
Stock Option Grants During Year Ended December 31, 1998
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during the year ended December 31,
1998.
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees In Price Expiration ($)(4)
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.
(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.
7
<PAGE>
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>
Value of
Number of Securities Unexercised in-
Underlying the-Money
Unexercised Options 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 employment with the Company
terminated in May 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 Company's initial public offering in June 1998 (the "IPO"), the options
granted Mr. Kilpatrick in 1997 automatically vested. Mr. Kilpatrick was 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
8
<PAGE>
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, 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 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
9
<PAGE>
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 Proxy Statement, in whole or in part, the foregoing Report and
the performance graph on page 11 shall not be incorporated by reference into
any such filings.
10
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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/Graphics
Measurement Date Entertainment Corp. 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>
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
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<PAGE>
($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
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.
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<PAGE>
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).
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
13
<PAGE>
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 (see "Proposal
Two--Approval of Issuance of Common Stock to Titus Interactive SA," below).
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.
In May, 1999 the Company signed a letter of intent with Titus pursuant to
which Titus will loan the Company $5 million, and the Company and Titus will
negotiate certain additional transactions. Should the definitive agreements
contemplated by the letter of intent not be entered into by the Company and
Titus, the loan must be repaid by the Company, or, at the option of Titus, may
be convertible into the Company's Common Stock. In the event the agreements
contemplated by the letter of intent are entered into, Titus would make a
strategic equity investment of $25 million in the Company, purchasing 6.25
million shares of Common Stock at a purchase price of $4 per share. As part of
the agreements to be negotiated under the letter of intent, Titus chairman and
chief executive officer Herve Caen would become president of Interplay. The
letter of intent also contemplates the swap by Brian Fargo, the Company's
chairman and chief executive officer, of 2 million personal shares of
Interplay Common Stock for an agreed upon number of Titus shares.
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.
PROPOSAL TWO
APPROVAL OF ISSUANCE OF COMMON STOCK TO TITUS INTERACTIVE SA
On March 18, 1999, the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with Titus Interactive SA, a French corporation
("Titus"), and Brian Fargo, under the terms of which 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), which has
been paid to the Company. Pursuant to the terms of the Stock Purchase
Agreement, the Company may be obligated to issue up to Two Million Five
Hundred Thousand (2,500,000) additional shares to Titus without additional
consideration based on the price per share of the Company's Common Stock as of
certain future dates, as more particularly set forth below, provided that
Titus will not be issued a total number of shares of the Company's Common
Stock equal to or exceeding 3,661,772 shares, which is twenty percent (20%) of
the Company's outstanding Common Stock as of the date of the Stock Purchase
Agreement, without the prior approval of the Company's stockholders. The Board
of Directors unanimously approved the terms of the Stock Purchase Agreement
and the transactions contemplated thereby on March 17, 1999. The net proceeds
from the sale of Common Stock to Titus provided the Company with additional
working capital to finance its operations. Applicable law does not require the
Company's stockholders to approve the terms of the Stock Purchase Agreement,
or the issuance of Common Stock to Titus thereunder. However, as explained
below, in order to issue an aggregate of 3,661,772 or more shares of the
Company's Common Stock to Titus, which may be required by the terms of the
Stock Purchase
14
<PAGE>
Agreement, the rules of the Nasdaq Stock Market ("Nasdaq"), on which the
Company's Common Stock is traded, require the approval of the issuance of
those shares to Titus by the Company's stockholders (the "Share Issuance
Proposal"). The issuance of shares to Titus will have no adverse effect on the
rights of the Company's stockholders, other than the dilutive effect of the
issuance of additional shares of the Company's Common Stock.
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
on March 18, 1999 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.
Nasdaq rules require a listed company to obtain stockholder approval prior
to any issuance of its common stock which equals or exceeds twenty percent of
its outstanding common stock (or twenty percent or more of the Company's
outstanding voting power), for consideration less than the greater of book or
market value of the shares. Prior to the issuance of any of its shares to
Titus, the Company had 18,308,861 shares of common stock issued and
outstanding. Consequently, under Nasdaq Stock Market Rules, the Company may
not issue Titus an aggregate of 3,661,772 or more shares, or twenty percent
(20%) of the Company's outstanding Common Stock prior to the Titus
transaction, unless it first obtains stockholder approval of the issuance.
Because the Company may be required to issue an aggregate of 3,661,772 or more
shares to Titus under the terms of the Stock Purchase Agreement, and because
the price of those shares may be below market value at the time of issuance,
the Board of Directors seeks the approval by the Company's stockholders of the
Share Issuance Proposal.
If stockholder approval of the Share Issuance Proposal is not obtained, and
if the subsequent valuations of the Company's stock price are such that the
Company would otherwise have to issue Titus an aggregate of 3,661,772 or more
shares, the Stock Purchase Agreement provides that the Company must issue a
promissory note to Titus for any amount by which the value of the number of
shares otherwise issuable by the Company to Titus under the terms of the Stock
Purchase Agreement if stockholder approval had been obtained, exceeds the
value of the maximum number of shares issuable by the Company to Titus without
the approval of the Company's stockholders. If issued, the promissory note
would accrue interest at a rate of ten percent (10%) per annum from March 18,
1999 until the date paid, and would be due on January 1, 2000.
As a condition to entering into the Stock Purchase Agreement, Titus obtained
irrevocable proxies from Brian Fargo and Universal Studios, Inc., which own
5,572,378 shares and 4,658,216 shares, respectively, of the Company's common
stock as of the date of this Proxy Statement. The irrevocable proxies permit
Titus to vote the shares held by Mr. Fargo and Universal in favor of the Share
Issuance Proposal.
Vote Required; Board of Directors' Recommendation
The affirmative vote of a majority of the outstanding shares of Common Stock
of the Company is required to authorize the issuance to Titus of an aggregate
number of shares of the Company's Common Stock which equals or exceeds
3,661,772 shares. The Board of Directors recommends that you vote FOR the
approval of the Share Issuance Proposal. Shares represented by the proxies
will be voted FOR the proposal unless a vote against the proposal or an
abstention is specifically indicated on the proxy card.
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<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1999. The Board of Directors recommends that you vote FOR
the ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Representatives of Arthur Andersen LLP are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so and
are expected to be available to respond to appropriate questions.
The persons named in the enclosed proxy will vote FOR the appointment of
Arthur Andersen LLP unless contrary instructions are given in the proxy. The
appointment of Arthur Andersen LLP shall be by the affirmative vote of the
holders of a majority of the shares voting on the proposal in person or by
proxy at the meeting.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 2000 Annual
Meeting of Stockholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal to be delivered to
the Company's offices, 16815 Von Karman Avenue, Irvine, California 92606,
addressed to the Secretary, no later than January 28, 2000 in order to be
considered for inclusion in the Company's proxy statement relating to the
meeting. Matters relating to such proposals, including the number and length
thereof, eligibility of persons entitled to have such proposals included and
other aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer.
On May 21, 1998 the Securities and Exchange Commission adopted an amendment
to Rule 14a-4, as promulgated under the Securities and Exchange Act of 1934,
as amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at
least 45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion
of the matter in the proxy statement.
With respect to the Company's 2000 Annual Meeting of Stockholders, if the
Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by April 13, 2000, the Company will be allowed to use its voting
authority as described above.
TRANSACTION OF OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not aware
of any matters other than those set forth herein and in the Notice of Annual
Meeting of Stockholders that will come before the meeting. Should any other
matters arise requiring the vote of stockholders, it is intended that proxies
will be voted in respect thereto in accordance with the best judgment of the
person or persons voting the proxies.
Please return your proxy as soon as possible. Unless a quorum consisting of
a majority of the outstanding shares entitled to vote is represented at the
meeting, no business can be transacted. Therefore, please be sure to date and
sign your proxy exactly as your name appears on your stock certificate and
return it in the enclosed postage prepaid return envelope. Please act promptly
to ensure that you will be represented at this important meeting.
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THE COMPANY WILL PROVIDE WITHOUT CHARGE, AT THE WRITTEN REQUEST OF ANY
BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE ANNUAL MEETING OF
STOCKHOLDERS, A COPY (WITHOUT EXHIBITS) OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998. REQUESTS SHOULD BE MAILED TO THE SECRETARY, INTERPLAY
ENTERTAINMENT CORP., 16815 VON KARMAN AVENUE, IRVINE, CALIFORNIA 92606.
By Order of the Board of Directors
Brian Fargo
Chairman of the Board of Directors
and Chief Executive Officer
May 24, 1999
17
<PAGE>
INTERPLAY ENTERTAINMENT CORP.
PROXY SOLICITED BY BOARD OF DIRECTORS
Brian Fargo and Richard S.F. Lehrberg, and each or either of them, with
full power of substitution, are hereby appointed proxies to vote the stock of
the undersigned in Interplay Entertainment Corp. at the Annual Meeting of
Stockholders on June 24, 1999, and at any postponement and adjournment thereof,
to be held at 16815 Von Karman Avenue, Irvine, California, on Thursday, June 24,
1999 at 10:00 a.m. Pacific Standard Time.
Management recommends that you vote FOR Proposal 1, FOR Proposal 2 and FOR
--------------------------------------------------------------------------
Proposal 3.
- ----------
1. PROPOSAL 1. ELECTION OF DIRECTORS.
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[_] FOR all Nominees listed below [_] WITHHOLD AUTHORITY to
(except as indicated to the vote for all Nominees
contrary below) listed below
Brian Fargo, Richard S. F. Lehrberg, Mark Pinkerton, Charles S. Paul and
Kenneth J. Kay.
INSTRUCTION: To withhold authority to vote for any individual Nominee,
write that Nominee's name in the space provided below.
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2. PROPOSAL 2. THE ISSUANCE OF UP TO 5,000,000 SHARES OF THE COMPANY'S
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COMMON STOCK TO TITUS INTERACTIVE SA, PURSUANT TO THE TERMS OF THE STOCK
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PURCHASE AGREEMENT DATED MARCH 18, 1999.
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[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL 3. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
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INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
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1999.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof,
including procedural and other matters relating to the conduct of the meeting.
[Front of Proxy Card]
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE FIVE DIRECTOR NOMINEES LISTED ABOVE AND
FOR PROPOSAL 2.
Please sign exactly as name appears hereon.
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Date: _____________________________, 1999
When shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE IMMEDIATELY DATE, SIGN AND RETURN THIS CARD IN THE ENCLOSED
ENVELOPE. THANK YOU FOR YOUR PROMPT ATTENTION TO THIS IMPORTANT MATTER.
[Back of Proxy Card]
