<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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] 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)(1) 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:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(1) 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 SPECIAL MEETING OF STOCKHOLDERS
October 25, 2000
----------------
TO THE STOCKHOLDERS OF INTERPLAY ENTERTAINMENT CORP.:
A Special Meeting of Stockholders of Interplay Entertainment Corp., a
Delaware corporation (the "Company"), will be held at the Long Beach Marriott,
4700 Airport Plaza Drive, Long Beach, California, on Wednesday, October 25,
2000, at 5:00 p.m. Pacific Daylight Time, to consider and vote on the following
matters described in the attached Proxy Statement:
(1) The election of six (6) 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 shares of the
Company's Series A Preferred Stock pursuant to a Stock Purchase Agreement
dated April 14, 2000 between the Company and Titus (Proposal 2);
(3) The approval (recommended by the Board of Directors) of an Amendment
to the Certificate of Designation of the Company's Series A Preferred Stock
to limit the number of votes to which the Series A Preferred Stock is
entitled to 7,619,047 votes (Proposal 3);
(4) The approval of an amendment (recommended by the Board of Directors)
to the Company's Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of common stock to 100,000,000
from 50,000,000 (Proposal 4);
(5) The ratification (recommended by the Board of Directors) of the
appointment of Arthur Andersen LLP as the Company's independent auditors
for the fiscal year ending December 31, 2000 (Proposal 5); and
(6) 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 September 15,
2000, 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
September 25, 2000
<PAGE>
INTERPLAY ENTERTAINMENT CORP.
16815 Von Karman Avenue
Irvine, California 92606
----------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
To Be Held October 25, 2000
5:00 p.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 shares of the Company's Series A Preferred Stock to Titus Interactive SA
("Titus") and the issuance of shares of the Company's Common Stock to Titus
upon the conversion of the Series A Preferred Stock and the exercise of
warrants pursuant to the terms of the Stock Purchase Agreement dated April 14,
2000 between the Company and Titus; FOR an Amendment to the Certificate of
Designation of the Company's Series A Preferred Stock limiting the number of
votes to which the Series A Preferred Stock is entitled to 7,619,047 votes; FOR
the amendment of the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock to 100,000,000 shares from 50,000,000 shares; and FOR the
ratification of Arthur Andersen LLP as the Company's independent auditors for
the fiscal year ending December 31, 2000.
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 September 22, 2000. 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 the Company's common stock and Series A Preferred
Stock at the close of business on September 15, 2000 (the "Record Date"), will
be entitled to notice of, and to vote at, the meeting. As of the Record Date,
there were 30,081,865 shares of the Company's common stock outstanding, and
719,424 shares of the Company's Series A Preferred Stock outstanding. Each
share of common stock is entitled to one vote at the meeting, and the holders
of Series A Preferred Stock currently have aggregate voting power equivalent to
5,504,507 shares of common stock. 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.
1
<PAGE>
With respect to Proposals Two and Five, the affirmative vote of shares of
the Company's common stock and Series A Preferred Stock outstanding on the
Record Date having at least a majority of the votes to which such shares are
entitled, voting together as a single class, is required for a proposal to be
adopted. With respect to Proposals Three and Four, the affirmative vote of (a)
at least a majority of the shares of common stock outstanding as of the Record
Date and (b) at least a majority of the shares of Series A Preferred Stock
outstanding as of the Record Date is required for the 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 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 many 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 that they
own by the number of directors being elected, in this case six (6). The total
that results is the number of votes the Stockholder may cast in connection with
the election of directors. The six (6) 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 six (6)
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>
Name Age Principal Occupation Director Since
---- --- -------------------- --------------
<S> <C> <C> <C>
Brian Fargo............. 37 Chairman and Chief Executive Officer 1983
Herve Caen.............. 39 Chairman and Chief Executive Officer, Titus Interactive SA 1999
Eric Caen............... 34 President, Titus Interactive SA 1999
James Barnett(1)(2)..... 42 President and Chief Executive Officer, ThirdAge Media 1999
R. Stanley Roach(1)(2).. 45 Consultant 2000
Richard S.F. Lehrberg... 53 Consultant 2000
</TABLE>
--------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
2
<PAGE>
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.
Herve Caen joined the Company as President and a director in November 1999.
Mr. Caen has served as Chairman of the Board of Directors and Chief Executive
Officer of Titus Interactive SA, an interactive entertainment software company,
since 1991. Mr. Caen also serves as Managing Director of Titus Interactive
Studio, Titus SARL and Digital Integration Services, which positions he has
held since 1985, 1991 and 1998, respectively. Mr. Caen also serves as Chief
Executive Officer of Titus Software Corporation, Chairman of Titus Software UK
Limited and Representative Director of Titus Japan KK, which positions he has
held since 1988, 1991 and 1998, respectively.
Eric Caen has served as a director of the Company since November 1999. Mr.
Caen has served as a Director and as President of Titus Interactive SA since
1991. Mr. Caen also serves as Vice President of Titus Software Corporation,
Secretary and Director of Titus Software UK Limited and Director of Titus Japan
KK and Digital Integration Limited, which positions he has held since 1988,
1991, 1998 and 1998, respectively. Mr. Caen has also served as Managing
Director of Total Fun 2, a French record production company, since 1998. Mr.
Caen served as Managing director of Titus SARL from 1988 to 1991.
James Barnett joined the Board in November 1999. Since September of 1999,
Mr. Barnett has served as President and Chief Executive Officer of ThirdAge
Media, a leading Internet media company for first wave baby boomers. Prior to
ThirdAge, Mr. Barnett was President and Chief Executive Officer of Infogrames
North America, a leading publisher and developer of video games and interactive
entertainment software, and Chairman, President and Chief Executive Officer of
Accolade, the predecessor company to Infogrames North America. Mr. Barnett's
tenure at Accolade began in 1994.
R. Stanley Roach joined the Board in April 2000. From 1995 through 2000, Mr.
Roach served in various positions with Accolade and with Infogrames after
Infogrames's acquisition of Accolade, including Chief Operating Officer of
Infogrames North America and Accolade's Executive Vice President of Marketing,
Sales and Operations. From 1993 to 1995, Mr. Roach was a consultant in the
consumer software industry.
Richard S.F. Lehrberg joined the Company as Vice President in November 1991
and served as Executive Vice President of the Company from October 1994 until
December 1999, at which time Mr. Lehrberg retired from his position as
Executive Vice President. Mr. Lehrberg continues to be employed by the Company
as a Consultant. Mr. Lehrberg served as a director of the Company from April
1989 until his retirement in December 1999. Mr. Lehrberg was re-appointed as a
director of the Company in September 2000. 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.
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. In April 2000, the Board of Directors adopted a written charter for
the Audit Committee, delineating the Audit Committee's functions, powers and
duties. The Compensation Committee determines officer and director compensation
and administers the Company's benefit plans. The Audit Committee met one time
during fiscal 1999. The Compensation Committee met one time during fiscal 1999.
3
<PAGE>
Attendance at Meetings
During the fiscal year ended December 31, 1999, the Board of Directors held
a total of nine 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 April 2000, the Company granted to each of James Barnett
and R. Stanley Roach, both of whom are directors, an option to purchase up to
20,000 shares of the Company's common stock. The options each have a term of
ten years, vest at the rate of 20% per year over the first five years, and are
exercisable at $3.50 per share. In August 2000, the Company granted to each of
Messrs. Barnett and Roach an option to purchase up to 5,000 shares of the
Company's common stock, with a 10-year term, vesting at the rate of 20% per
year over the first five years, exercisable at $2.44 per share.
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, 1999, all of
the Company's officers, directors and ten-percent Stockholders complied with
all applicable Section 16(a) filing requirements, with the following
exceptions: Titus Interactive SA, a stockholder holding more than ten percent
of the Company's outstanding shares of common stock, filed two late reports,
reporting two transactions late. Each of the following persons filed one late
report, reporting one transaction late: Director and President Herve Caen;
Director Eric Caen; and Executive Vice President Richard S.F. Lehrberg. To the
Company's knowledge, there were no failures to file a required form.
4
<PAGE>
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 August 31, 2000, 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>
Series A
Common Stock Preferred Stock
Name and Address of Beneficially Percentage of Beneficially Percentage of
Beneficial Owner Owned(1) Class Owned(1) Class
------------------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C>
Brian Fargo............. 4,031,378(2) 13.4% 0 *
16815 Von Karman Avenue
Irvine, CA 92606
Universal Studios,
Inc.................... 4,658,216 15.5% 0 *
100 Universal City
Plaza
Universal City, CA
91608
Titus Interactive SA.... 13,167,255(3) 43.9% 719,424(4) 100%
Herve Caen(5)
Eric Caen(5)
20432 Corisco Street
Chatsworth, CA 91311
Manuel Marrero.......... 150,000(6) * 0 *
Richard S.F. Lehrberg... 611,733(7) 2.0% 0 *
James Barnett........... 0 * 0 *
R. Stanley Roach........ 0 * 0 *
All Directors and
Executive Officers as a
Group (7 persons)...... 18,305,315(8) 60.9% 719,424 100%
</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 subject to options currently exercisable, or
exercisable within 60 days of August 31, 2000, 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 shown as beneficially owned by
them.
(2) Includes 460,000 shares subject to warrants and options exercisable within
60 days of August 31, 2000.
(3) Includes 350,000 shares subject to warrants exercisable within 60 days of
August 31, 2000.
(4) The 719,424 shares of Series A Preferred Stock are currently convertible
into 5,504,507 shares of Common Stock, and, except as otherwise required
by law, are currently entitled to 5,504,507 votes on any matter submitted
to the Company's Stockholders.
(5) Messrs. Herve Caen and Eric Caen, who are officers, directors and
principal shareholders of Titus, disclaim beneficial ownership of the
shares held by Titus, except to the extent of the pecuniary interest
therein.
(6) Consists of 150,000 shares subject to options exercisable within 60 days
of August 31, 2000.
(7) Includes 510,374 shares subject to options exercisable within 60 days of
August 31, 2000.
(8) Includes 1,537,874 shares subject to warrants and options exercisable
within 60 days of August 31, 2000.
Change in Control
Between March and August 1999, the Company issued and sold an aggregate of
4,545,455 shares of common stock to Titus Interactive SA for aggregate
consideration of $10,000,000. In November 1999, the
5
<PAGE>
Company issued and sold 6,250,000 shares of common stock to Titus for
$25,000,000. In addition, Titus exchanged 96,666 shares of its common stock for
2,000,000 shares of the Company's common stock held by Brian Fargo. In April
2000, the Company issued and sold 719,424 shares of its Series A Preferred
Stock and warrants to purchase up to 500,000 shares of common stock to Titus
for $20,000,000. Such transactions are discussed in more detail under the
subheading "Certain Relationships and Related Transactions" on pages 12-16 of
this proxy statement. As a result of these transactions, Titus currently holds
more than 50% of the total voting power of the Company's capital stock. Titus
obtained the funds used for such acquisitions through debt and equity
financings in France.
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 August 31, 2000:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Manuel Marrero...... 42 Chief Financial Officer and Chief Operating Officer(1)
Phillip G. Adam..... 45 Vice President of Business Development
Gary Dawson......... 51 Vice President of Sales(2)
Craig Relyea........ 46 Vice President of Marketing(3)
Jill S. Goldworn.... 35 President of Interplay OEM, Inc.
David Perry......... 32 President of Shiny Entertainment, Inc.
</TABLE>
--------
(1) Manuel Marrero was appointed as the Company's Chief Financial Officer and
Chief Operating Officer in April 1999.
(2) Gary Dawson was appointed as the Company's Vice President of Sales in
November 1999.
(3) Craig Relyea was appointed as the Company's Vice President of Marketing in
August 2000.
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, beginning in
July 1996, 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
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.
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.
Gary Dawson was appointed as the Company's Vice President of Sales in
November 1999. Prior to joining the Company, beginning in 1996, Mr. Dawson was
Senior Vice President, Manufacturing and
6
<PAGE>
Production for Chorus Line, an apparel manufacturer. From 1993 to 1996, Mr.
Dawson served as Vice President and General Manager, Lee Jeanswear for Lee
Apparel, a manufacturer of denim products.
Craig Relyea was appointed as the Company's Vice President of Marketing in
August 2000. From January 2000 to August 2000, Mr. Relyea was a partner in
ideaSpa, a marketing and interactive entertainment consultancy. From July 1998
through December 1999, Mr. Relyea served as Executive Vice President of the
Cimarron Group, a leading entertainment industry marketing agency. From January
1997 through July 1998, Mr. Relyea was headed Worldwide Marketing for
DreamWorks Interactive, a developer of interactive entertainment products. From
October 1993 through January 1997 Mr. Relyea served as Vice President,
Marketing for Universal Studios Home Video, during which he led marketing
campaigns for home video releases.
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.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned during the last three fiscal years ended December 31, 1999, by the
Company's Chief Executive Officer and each of the two other most highly
compensated executive officers of the Company whose total salary and bonus
during such year exceeded $100,000, as well as two former executives who would
have met such criteria had their status as executives not terminated during the
year (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation ------------
--------------------------------- Securities
Name and Principal Underlying All Other
Position Year Salary Bonus Other(1) Options(#) Compensation
------------------ ---- -------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Brian Fargo............. 1999 $200,000 -- -- 500,000(2)
Chief Executive Officer 1998 210,417 -- -- 150,000 --
1997 237,500 -- -- -- --
Manuel Marrero.......... 1999 158,775(3) -- -- 150,000 --
Chief Financial Officer
and 1998 -- -- -- -- --
Chief Operating Officer 1997 -- -- -- -- --
Cal Morrell............. 1999 142,634 $31,200 $1,087 100,000 --
Vice President of
Marketing 1998 130,000 11,200 -- -- --
1997 -- -- -- -- --
Richard S.F.
Lehrberg(4)............ 1999 160,000 -- 4,333 -- --
Former Executive Vice
President 1998 178,805 15,000 4,792 -- --
1997 200,000 -- 4,792 -- --
Phillip G. Adam......... 1999 138,000 -- 4,140 -- --
Vice President,
Business 1998 138,000 20,000 4,140 -- --
Development 1997 132,250 10,000 3,967 -- --
</TABLE>
--------
(1) Consists of matching payments made under the Company's 401(k) plan.
(2) In May 1999, in return for the extension of Mr. Fargo's personal guaranty
of the Company's line of credit, the Company assumed Mr. Fargo's guaranty
of the value of certain stock options held by former Company President
Christopher Kilpatrick, as discussed in more detail under the subheading
"Transactions with Fargo" on page 12 of this proxy statement.
(3) Mr. Marrero joined the Company in April 1999 at an annual base salary of
$198,000.
(4) Mr. Lehrberg's status as an executive officer terminated in December 1999.
8
<PAGE>
Stock Option Grants During Year Ended December 31, 1999
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during the year ended December 31,
1999.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Percent of Assumed Annual
Number of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term(3)
Options Employees In Price Expiration -------------------
Name Granted(1) Fiscal Year ($/Sh) Date(2) 5% 10%
---- ---------- ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian Fargo.... 500,000 22.4% $2.28 11/7/09 $716,939 $1,816,866
Manuel
Marrero....... 150,000 6.7% 1.94 5/6/09 183,001 463,779
Cal Morrell.... 50,000 2.2% 1.94 5/6/09 61,002 154,593
25,000 1.1% 2.69 7/7/09 42,293 107,179
25,000 1.1% 1.88 11/30/09 29,558 74,905
</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. Mr. Fargo's options
vest at the rate of 25% per year; Mr. Marrero's options fully vested upon
the change of control effected as a result of the Company's April 2000
transaction with Titus Interactive SA; Mr. Morrell's options vest at the
rate of 20% per year.
(2) Options granted to such individuals pursuant to the 1997 Plan expire 10
years from the date of grant.
(3) 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 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 1999 Year-End Option Values
Shown below is information relating to the exercise of stock options during
the year ended December 31, 1999, for each of the Named Executive Officers, and
the year-end value of unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised in-the-
Acquired Value Options at Year-End Money Options at Year-End
Name on Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
---- ----------- -------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
Brian Fargo............. -- -- 60,000/90,000 $ 0/$0
Phillip G. Adam......... -- -- 0/0 0/0
Richard S.F. Lehrberg... -- -- 572,874/0 1,598,318/0
Manuel Marrero.......... -- -- 0/150,000 0/150,000
Cal Morrell............. -- -- 0/100,000 0/82,750
</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, 1999, and the option exercise price, multiplied by the number of
unexercised in-the- money options.
9
<PAGE>
Employment Agreements
The Company has entered into an employment agreement with Brian Fargo for a
term of three years through November 2002, pursuant to which he currently
serves as the Company's Chairman of the Board of Directors and Chief Executive
Officer. 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 has entered into an employment agreement with Herve Caen for a
term of three years through November 2002, pursuant to which he currently
serves as the Company's President. The employment agreement provides for an
annual base salary of $250,000, with such annual raises as may be approved by
the Board of Directors, plus annual bonuses at the discretion of the Board of
Directors. Mr. Caen 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 Manuel Marrero for
a term of five years through March 15, 2004, pursuant to which he currently
serves as the Company's Chief Financial Officer and Chief Operating Officer.
The employment agreement provides for a base salary of $198,000 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.
Marrero is terminated without cause, the Company is required to pay Mr. Marrero
his base salary plus a $50,000 annual bonus for the longer of (i) a period of
one year following the termination or (ii) through the end of the term of the
employment agreement. Such post-termination payments are contingent upon Mr.
Marrero's non-competition with the Company, as defined in the agreement.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Barnett and Roach.
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 1999, decisions
regarding executive compensation were made by the Compensation Committee.
Directors who were members of the Compensation Committee during 1999 were
Charles S. Paul, Mr. Barnett and Kenneth Kay. Mr. Kay resigned as director in
June 1999, and Mr. Paul resigned as director in May 2000. None of the 1999
members of the Compensation Committee nor any of the Company's 1999 executive
officers or directors had a relationship that would constitute an interlocking
relationship with executive officers and directors of another entity.
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, 1999.
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 one
time during fiscal year 1999.
10
<PAGE>
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 is 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 the Company's Stockholders. The Compensation Committee generally has
followed the practice of granting options on terms that 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 connection with the Company's November 1999 sale of stock to Titus
Interactive SA, Mr. Fargo was granted an option to purchase 500,000 shares of
the Company's common stock. The option vests in equal amounts on each of the
first four anniversaries of the grant of the option. 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
11
<PAGE>
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 $1,000,000 per year. It is
not expected that the compensation to be paid to the Company's executive
officers for fiscal 1999 will exceed the $1,000,000 limit per officer. The
Company's 1991 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 $1,000,000 limitation.
The Compensation Committee of
the Board of Directors
James Barnett
R. Stanley Roach
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 below shall not be incorporated by reference into any
such filings.
12
<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 January 1, 1999, and ended on December 31, 1999.
The graph assumes $100 invested June 16, 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/ Nasdaq
Measurement Entertainment Graphics Market
Date Corp. Software) 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
03/31/99 39.58 88.21 130.90
06/30/99 43.23 90.79 142.43
09/30/99 35.42 102.04 144.75
12/31/99 48.96 124.56 213.79
</TABLE>
Certain Relationships and Related Transactions
Transactions With Fargo
In connection with the November 1998 amendment of the Company's line of
credit agreement with Greyrock Capital, Brian Fargo, the Company's Chairman and
Chief Executive Officer, provided a $5,000,000 personal guaranty, through May
31, 1999, of the Company's obligations under the line of credit. In March 1999,
in connection with Brian Fargo's extension, from May 31, 1999 through December
21, 2000, of his
13
<PAGE>
$5,000,000 guaranty, the Company agreed to assume Mr. Fargo's obligations under
an agreement between Mr. Fargo and Christopher J. Kilpatrick (the "Kilpatrick
Agreement"). Under the terms of the Kilpatrick Agreement as assumed by the
Company, the Company guaranteed that Mr. Kilpatrick will receive an aggregate
of $1,000,000 in pre-tax proceeds (the "Guaranty Amount") from the periodic
sale of shares of the Company's common stock issued to him upon exercise of his
options to purchase 271,528 shares of the Company's common stock. In 1999, Mr.
Kilpatrick received $400,000 in proceeds from the sale of such shares.
Additionally, the Company paid Mr. Kilpatrick $200,000 in May 1999, which was
deducted from the balance of the Guaranty Amount. Further, approximately
$200,000 was deducted from the remaining balance of the Guaranty Amount as an
income tax withholding for 1999. Although substantially the entire remaining
outstanding balance of the Guaranty Amount will be offset as an income tax
withholding for the year 2000, the Company has committed to pay to Mr.
Kilpatrick approximately $13,000 to reimburse certain expenses that Mr.
Kilpatrick has incurred. Mr. Fargo's guaranty of the Company's line of credit
with Greyrock Capital has since been extended through April 2001.
In March 2000, the Company entered into a Film Production Joint Venture
Agreement with Mr. Fargo under which Mr. Fargo will provide up to $1,000,000 to
fund the marketing of certain of the Company's game concepts, characters and
trademarks as motion picture projects. Under the terms of the Film Production
Joint Venture Agreement, net profits that the venture generates from the
Company's properties would be allocated first to reimburse Mr. Fargo for the
amount of his contributions, and then to the Company. In addition, certain
intellectual properties owned by Mr. Fargo may be marketed by the venture. Any
net profits that the venture generates from Fargo properties will be allocated
to Mr. Fargo.
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
$15,000,000 and 1,216,598 shares of common stock from Mr. Fargo for a purchase
price of $10,000,000. 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 Option 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 initial public offering of
the Company's common stock. For his services in connection with such
transaction, Mr. Fargo was awarded a bonus of $1,000,000 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
14
<PAGE>
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 $600,000, $600,000
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 $1,400,000 and were paid in June 1998.
Transactions with Engage and Fargo
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 $1,800,000 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 $800,000 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 $1,000,000 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
owes the Company approximately $1,200,000 under that agreement.
The Company is co-lessee with Engage under a lease with General Electric
Capital Corporation ("GECC") for equipment utilized by Engage. The Company has
possession of substantially all of the equipment covered by such lease. As of
March 31, 2000, the Company's obligations to GECC through the term of the lease
are approximately $11,000.
Transactions with Titus and Fargo
In March 1999, the Company entered into a Stock Purchase Agreement with
Titus Interactive SA and Brian Fargo (the "Titus I Agreement"). Under the terms
of the Titus I Agreement, the Company issued 2,500,000 shares of its common
stock to Titus in exchange for consideration of $10,000,000. Pursuant to the
terms of the Stock Purchase Agreement, the purchase price was recalculated
based on the average closing price
15
<PAGE>
per share of the Company's common stock as reported by Nasdaq during the ten
trading days ended June 30, 1999, and the purchase price was recalculated again
based on the average closing price per share of the Company's common stock as
reported by Nasdaq during the ten trading days ending August 20, 1999. Pursuant
to the June 30, 1999, adjustment, the Company issued to Titus 1,161,771
additional shares of common stock without additional consideration, for a total
of 3,661,771 shares, and issued to Titus a promissory note in the principal
amount of $1,120,202.90, bearing interest at the rate of 10% per annum and due
January 1, 2000.
As a result of the August 1999 recalculation, the purchase price was
adjusted to $2.20, and the number of shares of common stock to be issued under
the Titus I Agreement was adjusted to 4,545,455. However, Nasdaq rules required
Stockholder approval for the issuance to Titus of shares of common stock over
and above the 3,661,771 shares already issued. On August 24, 1999, the
Company's Stockholders approved the Titus I Agreement. As a result of the
Stockholder approval, the Company issued to Titus the remaining 883,684 shares
of common stock, and Titus cancelled the June 1999 promissory note.
Under the terms of the Titus I 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 Titus I Agreement. Also, in
connection with the Titus I Agreement, Mr. Fargo agreed to not sell, assign,
pledge, mortgage or otherwise dispose of or transfer any shares of his
personally-held shares of the Company's common stock without the prior written
consent of Titus.
In May 1999 the Company signed a letter of intent with Titus pursuant to
which Titus loaned the Company $5,000,000 and the Company and Titus agreed to
negotiate certain additional transactions. Pursuant thereto, on July 19, 1999,
the Company and Titus entered into a Stock Purchase Agreement (the "Titus II
Agreement") providing for the sale and issuance of 6,250,000 shares of
Company's common stock to Titus in exchange for total consideration of
$25,000,000, including the $5,000,000 previously loaned to the Company. On
August 24, 1999, the Company's Stockholders approved the Titus II Agreement.
Upon the closing of the Titus II Agreement (the "Closing"), the Company, Titus
and Fargo entered into a Stockholder Agreement, pursuant to which (a) Titus and
Fargo would enter into certain voting agreements with respect to the shares of
common stock held by them, (b) Titus and Fargo would each grant to the other
certain rights of first refusal and tag-along rights with respect to the shares
of common stock held by them, (c) the Company would grant to Titus a right of
first refusal with respect to the issuance of certain equity securities by the
Company, and (d) the Company would agree not to take certain actions without
the prior approval of Titus and Fargo. In addition, at the Closing the Company
entered into Employment Agreements with each of Brian Fargo and Herve Caen,
pursuant to which Messrs. Fargo and Caen are employed as Chief Executive
Officer and President, respectively, of the Company, which agreements shall
each have an initial term of three years. Titus and Fargo also entered into an
Exchange Agreement, which was consummated concurrent with the Titus II
Agreement, pursuant to which Fargo exchanged 2,000,000 shares of the Company's
common stock for 96,666 shares of Titus common stock. At the Closing, Titus
cancelled the May 1999 promissory note.
In April 2000, the Company entered into a Stock Purchase Agreement with
Titus (the "Titus III Agreement") providing for the issuance to Titus of
719,424 shares of the Company's newly-designated Series A Preferred Stock (the
"Preferred Stock") with certain voting and conversion rights, and Warrants to
purchase up to 500,000 shares of the Company's common stock, in return for
consideration from Titus in the form of $20,000,000 cash and Titus's agreement
to certain obligations. Among the obligations that the Titus III Agreement
imposed upon Titus were: (i) that Titus provide a $20,000,000 guaranty (the
"Titus Guaranty") of the Company's principal line of credit from Greyrock
Capital; (ii) that Titus extend to the Company a $5,000,000 supplemental line
of credit; and (iii) that Titus provide the Company with financial reports
required by Greyrock Capital as a condition to the release of $2,500,000 in
cash collateral held by Greyrock Capital. The Preferred Stock bears a six
percent per annum cumulative dividend.
The Company is obligated to repay to Titus any amounts that Titus may pay
under the Titus Guaranty, and such repayment is secured by a second-priority
security interest in the Company's assets. Moreover, as a condition of the
Titus Guaranty, the Company has granted Titus a right of first refusal on any
sale of assets by the Company for $100,000 or more.
16
<PAGE>
The Preferred Stock is convertible by Titus at any time following May 31,
2001 or earlier under certain circumstances, into 5,504,407 shares of the
Company's common stock. Under certain circumstances, the Preferred Stock may be
convertible into up to a maximum of approximately 42.8 million shares of the
Company's common stock. The conversion right is described in more detail in
Proposal Two.
The Company may redeem any unconverted shares of Preferred Stock at the
original purchase price plus any accrued but unpaid dividends at any time
following the later to occur of (i) the termination of the Titus Guaranty; or
(ii) the repayment to Titus of any amounts that Titus may pay under the Titus
Guaranty. In addition, the Preferred Stock is entitled to voting power
equivalent to the voting power of the shares of the Company's common stock into
which the Preferred Stock can be converted.
The supplemental line of credit that Titus has extended to the Company in
connection with the Titus III Agreement bears interest at the maximum legal
rate, not to exceed 12% per annum. There were three Warrants issued in
connection with the Titus III Agreement for the purchase of the Company's
common stock in the amounts of 350,000 shares, 100,000 shares, and 50,000
shares, respectively. The terms of the Warrants are described in more detail in
Proposal Two.
The Company is obligated to register all of the Company's common stock
issued pursuant to the Titus I Agreement, the Titus II Agreement and the Titus
III Agreement. In connection with the Titus III Agreement, Mr. Fargo has
granted to Titus an irrevocable proxy to vote all of his shares of common stock
in favor of the Titus III Agreement. (See Proposal Two--Approval of Issuance of
Stock to Titus Interactive SA.)
Other Transactions
Beginning in March 1998, the Company has 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 STOCK TO TITUS INTERACTIVE SA
Issuance of Convertible Preferred Stock
On April 14, 2000, the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with Titus Interactive SA, a French corporation
("Titus"), under the terms of which the Company issued 719,424 Shares of its
newly-designated Series A Preferred Stock (the "Preferred Stock") to Titus, and
issued Titus a total of three Warrants (collectively, the "Warrants") for the
purchase of up to an aggregate of 500,000 shares of the Company's common stock,
in exchange for consideration in the form of $20,000,000 cash and Titus's
agreement to certain obligations. Those obligations, among other things,
require Titus to provide to the Company a $5,000,000 supplemental line of
credit, and a $20,000,000 guaranty (the "Guaranty") of the Company's principal
line of credit from Greyrock Capital. In connection with the Stock Purchase
Agreement, the Company filed a Certificate of Designation of Rights,
Preferences, Privileges and Restrictions of Series A Preferred Stock of
Interplay Entertainment Corp. (the "Certificate") with the Delaware Secretary
of State.
In accordance with the Certificate, the Preferred Stock bears a cumulative
dividend of 6% per annum, and under certain circumstances may be redeemed by
the Company or converted by Titus into shares of the Company's common stock,
all as more fully set forth below. The Preferred Stock carries voting power
equivalent to the voting power of the shares of the Company's common stock
issuable upon conversion of the Preferred Stock. Until Stockholder approval,
the number of shares of the Company's common stock issuable upon conversion of
the Preferred Stock is limited to a maximum of 5,504,507 shares.
17
<PAGE>
Nasdaq National Market rules require that the Company obtain Stockholder
approval prior to the issuance of a number of shares of the Company's common
stock equal to or exceeding twenty percent of the number of shares of the
Company's common stock outstanding prior to the issuance transaction. Because
the Company may, under certain circumstances, be required to issue up to a
maximum of 43,343,164 shares of the Company's common stock under the terms of
the Stock Purchase Agreement and the Warrants (such issuance is referred to
herein as a "Full Conversion and Exercise Issuance"), 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 Proposal Two.
The non-interested members of the Board of Directors unanimously approved
the terms of the Stock Purchase Agreement and the transactions contemplated
thereby on April 13, 2000. Directors Herve Caen and Eric Caen, both of whom are
directors, officers and principal shareholders of Titus did not vote on the
matter. The net proceeds from the sale of Preferred Stock to Titus provided the
Company with additional working capital to finance its operations.
Redeemability and Convertibility of Preferred Stock
The Certificate provides that, at any time following the later to occur of
(a) the termination of the Guaranty or (b) the repayment to Titus of any
amounts Titus may pay under the Guaranty, the Company may redeem any
unconverted Preferred Stock at the price at which the Preferred Stock was
initially sold to Titus, plus any accrued but unpaid dividends.
The Certificate further provides that the holder or holders of Preferred
Stock can convert the Preferred Stock into shares of the Company's common stock
at any time following the earlier to occur of: (i) the end of a 180 day cure
period, which begins upon a demand by Greyrock Capital to Titus for payment
under the Guaranty; or (ii) May 31, 2001. The number of shares of the Company's
common stock issuable upon conversion of Preferred Stock is determined by
multiplying the number of shares of Preferred Stock to be converted by the
conversion ratio applicable at the time. The initial conversion ratio is
defined as a fraction, the numerator of which is the initial price of each
share of Preferred Stock, $27.80, and the denominator of which is the lower of
(i) $2.78 or (ii) 85% of the average trading price of the Company's common
stock for the 20 trading days preceding the date of conversion. The conversion
ratio can be adjusted to account for stock splits or similar other changes in
the Company's capital structure. If 85% of the average trading price of the
Company's common stock for the 20 trading days preceding the date of the
conversion is greater than or equal to $2.78, the Preferred Stock would be
convertible into 7,194,240 shares of common stock.
A further adjustment to the denominator of the conversion ratio would apply
if the Company defaults under its line of credit with Greyrock Capital and
Greyrock Capital makes a demand to Titus for payment under the Guaranty. Prior
to any conversion of the Preferred Stock following a demand for payment under
the Guaranty, however, Titus is obligated to grant the Company a 180-day period
during which the Company can cure any underlying default on the Company's
principal line of credit with Greyrock Capital, or repay any amounts that Titus
has paid under the Guaranty. If the Company were to effect such cure during the
cure period, the conversion ratio would revert to its previous value as if no
payment, and no demand for payment, had ever been made under the Guaranty.
18
<PAGE>
If, however, the Company does not effect such cure within the cure period,
the conversion ratio's denominator would be adjusted in accordance with the
following stock price-dependent formula, subject to a minimum of $0.466818926:
<TABLE>
<S> <C> <C>
X = 20,000,000
----------------------
Z + 5,000,000 (10-Y)
where: X = the new denominator;
Y = the lesser of (a) $10.00 per share (subject to adjustment for stock splits, combinations and
dividends following the date hereof with respect to the Common Stock) or (b) the average
closing price per share as reported by Nasdaq for the twenty (20) trading days immediately
preceding the last day of the cure period; and
Z = the greater of (a) $20,000,000 divided by $2.78 (subject to adjustment for stock splits,
combinations and dividends following the date hereof with respect to the Common Stock)
or (b) $20,000,000 divided by the product of .85 and Y.
</TABLE>
The effect of this adjustment is that the Preferred Stock would be
convertible, under such circumstances, into up to approximately 42.8 million
shares of the Company's common stock, less 50,000 shares for each $0.01 that
the trading price of the Company's common stock is above $3.00 per share at the
time of conversion.
Warrants to Purchase Common Stock
As a condition of the Stock Purchase Agreement, the Company has issued Titus
three Warrants for the purchase of 350,000, 50,000 and 100,000 shares of the
Company's common stock, respectively. Each Warrant is for a term of ten years,
and each is exercisable at the price of $3.79 per share. The Warrant for
350,000 shares is currently exercisable. The Warrant for 50,000 shares is
exercisable on condition that the Company's audited pre-tax income for the
fiscal year ended December 31, 2000, is less than $2,115,000. The Warrant for
100,000 shares is exercisable only in proportion to the extent that the Company
draws upon the $5,000,000 supplemental line of credit that Titus has extended
to the Company.
Nasdaq Requirements
Applicable law does not require the approval of the terms of the Stock
Purchase Agreement, or the issuance of common stock to Titus under the Stock
Purchase Agreement, by the Company's Stockholders. Nevertheless, Nasdaq rules
require all Nasdaq National Market-listed companies to obtain Stockholder
approval prior to any issuance of its common stock, or securities convertible
to common stock, that equals or exceeds twenty percent of its outstanding
common stock (or twenty percent or more of the voting power in the Company)
prior to the issuance transaction for consideration less than the greater of
book or market value of the shares.
Certain provisions of the Stock Purchase Agreement are subject to this
Stockholder approval requirement. Prior to the execution of the Stock Purchase
Agreement, the Company had 30,022,538 shares of common stock issued and
outstanding. Consequently, under Nasdaq rules, the Company may not issue an
aggregate of 6,004,508 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 a Full Conversion and
Exercise Issuance would entail the issuance of more than 6,004,508 shares, the
Board of Directors seeks Stockholder approval of the Full Conversion and
Exercise Issuance Proposal.
Proxy; Interests of Certain Persons
As a condition to entering into the Stock Purchase Agreement, Titus obtained
an irrevocable proxy from Brian Fargo, who beneficially owns 4,031,378 shares
of the Company's common stock as of the date of this
19
<PAGE>
Proxy Statement. The irrevocable proxy permits Titus to vote the shares held by
Mr. Fargo in favor of the Full Conversion and Exercise Issuance Proposal.
Herve Caen and Eric Caen, who are directors of the Company, are directors,
officers and principal shareholders of Titus, and as such have a material
interest in this proposal.
Vote Required; Board of Directors' Recommendation
The affirmative vote of a majority of the outstanding shares of common stock
of the Company and the votes to which the holder of Preferred Stock is entitled
is required to authorize a Full Conversion and Exercise Issuance. The Board of
Directors recommends that you vote FOR the approval of the Full Conversion and
Exercise 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.
PROPOSAL THREE
AMENDMENT TO SERIES A CERTIFICATE OF DESIGNATION
On April 14, 2000, the Company filed with the Secretary of State of the
State of Delaware a Certificate of Designation of Rights, Preferences,
Privileges and Restrictions of Series A Preferred Stock of Interplay
Entertainment Corp. (the "Certificate") setting forth the rights, preferences,
privileges and restrictions of Series A Preferred Stock (the "Preferred
Stock"), including the right of the holders of the Preferred Stock to a number
of votes equal to the number of shares of Common Stock into which the Preferred
Stock can be converted at the time of the vote. The terms of the Preferred
Stock are discussed in more detail under Proposal Two above. Currently, 719,424
shares of Preferred Stock are outstanding.
Subsequent to the filing of the Certificate, the Nasdaq Stock Market
notified the Company that it believes that the voting rights of the Preferred
Stock violate Nasdaq rules. To address Nasdaq's concern, the sole holder of the
Preferred Stock, Titus Interactive SA, agreed to limit the aggregate number of
votes to which the Preferred Stock is entitled to a maximum of 7,619,047 votes
regardless of the number of shares into which the Preferred Stock can be
converted.
The Board of Directors has approved, and has recommended that the
Stockholders approve, an Amendment to the Certificate to effectuate the voting
power limitation discussed above. The affirmative vote of (a) a majority of the
outstanding shares of common stock of the Company and (b) a majority of the
outstanding shares of Preferred Stock is required to approve the Amendment to
the Certificate. The Board of Directors recommends that you vote FOR the
approval of the Certificate Amendment 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. Titus Interactive SA,
as sole holder of the Preferred Stock, and as a holder of Common Stock, has
consented to the filing of the Amendment to the Certificate.
PROPOSAL FOUR
AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON STOCK
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") currently authorizes the issuance of up to
50,000,000 shares of common stock. The Board of Directors on April 20, 2000,
adopted a resolution proposing that the Certificate of Incorporation be amended
to increase the authorized number of shares of common stock to 100,000,000,
subject to Stockholder approval of the amendment.
20
<PAGE>
The purpose of the proposed increase is to provide sufficient authorized and
unissued shares to allow for conversion of the Series A Preferred Stock to
Common Stock in the event that a demand for payment by Titus is made under the
Guaranty, and to make additional shares available for issuance from time to
time as and when the Board of Directors deems it advisable. As of August 31,
2000, the Company had 30,081,865 shares of common stock outstanding and
4,209,425 shares of common stock reserved for issuance under its stock option
and stock purchase plans. Because the Stock Purchase Agreement dated April 14,
2000 between the Company and Titus contemplates the potential issuance, under
certain contingent circumstances, of up to approximately 42.8 million
additional shares of the Company's common stock, the number of shares of common
stock currently authorized by the Certificate of Incorporation would be
exceeded. An amendment of the Certificate of Incorporation to increase the
number of authorized shares of common stock is therefore required to carry out
the purposes of the Stock Purchase Agreement. (The terms of the Stock Purchase
Agreement are described in more detail above under Proposal Two--Approval of
Issuance of Stock to Titus Interactive SA.)
The Company's common stock does not have preemptive rights. The remaining
shares, if so authorized, could be issued at the discretion of the Board of
Directors without any further action by the stockholders, except as required by
applicable law or regulation, in connection with acquisitions, future
financings and other corporate purposes. The additional shares could also be
used to render more difficult or prevent a merger, tender offer, proxy contest
or other change in control of the Company. Such shares will only be issued upon
a determination by the Board of Directors that a proposed issuance is in the
best interests of the Company. Except for reserving shares for issuance to
Titus upon the conversion of the Series A Preferred Stock, the Board of
Directors has no immediate plans, intentions or commitments to issue additional
shares of common stock in excess of the 50,000,000 shares currently authorized.
Vote Required; Board of Directors' Recommendation
The affirmative vote of a majority of the outstanding shares of common stock
of the Company plus the votes to which holders of Preferred Stock are entitled
is required to approve the amendment of the Certificate of Incorporation to
increase the number of authorized shares of common stock to 100,000,000 from
50,000,000. The Board of Directors recommends that you vote FOR the approval of
the Certificate of Incorporation Amendment 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.
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent public
accountants, to audit the Company's financial statements for the fiscal year
ending December 31, 2000. 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 Special
Meeting of Stockholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal
21
<PAGE>
to be delivered to the Company's offices, 16815 Von Karman Avenue, Irvine,
California 92606, addressed to the Secretary, no later than September 15, 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
that 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 Special Meeting of Stockholders, if by
September 15, 2000 the Company is not provided notice of a Stockholder proposal
that the Stockholder has not previously sought to include in the Company's
proxy statement, 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 Special
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.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1999 and
1998, and the consolidated statements of income, retained earnings, and cash
flows of the Company for the years ended December 31, 1999 and 1998, the eight
months ended December 31, 1997 and the fiscal year ended April 30, 1997, have
been incorporated by reference herein in reliance on the report of Arthur
Andersen LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing. A representative of Arthur Andersen LLP is
expected to be present at the Special Meeting and to be available to answer
questions.
INCORPORATION OF INFORMATION BY REFERENCE
The following information is hereby incorporated into this proxy statement
by reference:
1. The information set forth in Items 6, 7 and 8 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1999; and
2. The information set forth in Items 1 and 2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.
22
<PAGE>
INTERPLAY ENTERTAINMENT CORP.
PROXY SOLICITED BY BOARD OF DIRECTORS
Brian Fargo and Manuel Marrero, 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 Special Meeting of
Stockholders on October 25, 2000, and at any postponement and adjournment
thereof, to be held at the Long Beach Marriott, 4700 Airport Plaza Drive, Long
Beach, California, on Wednesday, October 25, 2000, at 5:00 p.m. Pacific
Daylight Time.
Management recommends that you vote FOR Proposal 1, FOR Proposal 2, FOR
Proposal 3; FOR Proposal 4; and FOR Proposal 5.
1. PROPOSAL 1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
[_] For all Nominees [_] Withhold authority to
listed below (except as vote for all Nominees
indicated to the contrary listed below
below)
</TABLE>
Brian Fargo, James Barnett, Eric Caen, Herve Caen, R. Stanley Roach and
Richard S.F. Lehrberg.
INSTRUCTION: To withhold authority to vote for any individual Nominee, write
that Nominee's name in the space provided below.
--------------
2. PROPOSAL 2. APPROVAL OF THE ISSUANCE OF CONVERTIBLE PREFERRED STOCK AND
WARRANTS TO TITUS INTERACTIVE SA.
FOR [_] AGAINST [_] ABSTAIN [_]
3. PROPOSAL 3. APPROVAL OF AN AMENDMENT OF THE SERIES A PREFERRED STOCK
CERTIFICATE OF DESIGNATION.
FOR [_] AGAINST [_] ABSTAIN [_]
4. PROPOSAL 4. APPROVAL OF AN AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON STOCK TO 100,000,000.
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued on other side)
(Continued from other side)
5. PROPOSAL 5. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
2000.
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.
THIS PROXY WILL BE VOTED AS DIRECTED. UNLESS OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE SIX DIRECTOR NOMINEES LISTED ABOVE AND
FOR PROPOSALS 2, 3, 4 AND 5.
Please sign exactly as name
appears hereon.
Dated: _________, 2000
----------------------
----------------------
Signature(s)
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.
