<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
T-HQ, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant))
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Not applicable.
(2) Aggregate number of securities to which transactions applies:
Not applicable.
(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):
Not applicable.
(4) Proposed maximum aggregate value of transaction:
Not applicable.
(5) Total fee paid:
Not applicable
/ / 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:
Not applicable.
(2) Form, Schedule or Registration Statement no.:
Not applicable.
(3) Filing Party:
Not applicable
(4) Date Filed:
Not applicable.
<PAGE> 2
PRELIMINARY COPY
[LOGO]
5016 NORTH PARKWAY CALABASAS
CALABASAS, CALIFORNIA 91302
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 24, 1997
To the Shareholders of T-HQ, Inc.:
The 1997 Annual Meeting of Shareholders of T-HQ, Inc., a New York corporation
(the "Company"), will be held at the Warner Center Hilton, 6360 Canoga Avenue,
Woodland Hills, California on Tuesday, June 24, 1997, at 9:00 a.m. (Los Angeles
time) for the following purposes:
1. To elect five directors to serve until the next annual meeting
and until their successors are elected and qualify. The
persons nominated by the Board of Directors are described in
the attached Proxy Statement.
2. To consider and take action on a proposal to change the state
of incorporation of the Company from New York to Delaware.
3. To consider and act upon the recommendation of the Board of
Directors to adopt the Company's 1997 Stock Option Plan.
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
Shareholders of record at the close of business on May 8, 1997 are entitled to
notice of and to vote at the 1997 Annual Meeting of Shareholders and any
adjournment thereof.
By the order of the Board of Directors
Deborah A. Lake
Secretary
Calabasas, California
May __, 1997
THE COMPANY URGES THAT AS MANY SHAREHOLDERS AS POSSIBLE BE REPRESENTED AT THE
MEETING. CONSEQUENTLY, WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING,
YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT, AND THEN FILL IN, DATE, SIGN
AND RETURN PROMPTLY THE ENCLOSED PROXY TO THE COMPANY IN THE ENCLOSED ENVELOPE.
IF YOU ARE PRESENT IN PERSON AT THE MEETING, YOU MAY VOTE IN PERSON AT THE
MEETING. YOU MAY VOTE IN PERSON REGARDLESS OF HAVING SENT IN YOUR PROXY. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING AND YOUR PROMPTNESS
WILL ASSIST US IN PREPARATION FOR THE MEETING. YOU MAY REVOKE THE PROXY AT ANY
TIME BEFORE THE AUTHORITY GRANTED THEREIN IS EXERCISED.
<PAGE> 3
PRELIMINARY COPY
[LOGO]
----------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 24, 1997
----------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of T-HQ, Inc., a New York corporation, of proxies to
be voted at the 1997 Annual Meeting of Shareholders (the "Meeting") to be held
at the Warner Center Hilton, 6360 Canoga Avenue, Woodland Hills, California, on
June 24, 1997 at 9:00 a.m. (Los Angeles time) and at any adjournment thereof,
and for the purposes set forth in the foregoing Notice of Meeting. All properly
executed proxies in the accompanying form received by the Company prior to the
Meeting will be voted at the Meeting. Any proxy may be revoked at any time
before it is exercised by giving notice in writing to the Secretary of the
Company, by granting a proxy bearing a later date or by voting in person at the
Meeting.
One of the purposes of the Meeting is to consider and take action on a
proposal to change the state of incorporation of T-HQ, Inc. ("T-HQ New York")
from New York to Delaware by merging T-HQ New York with and into THQ Inc., a
Delaware corporation which is a wholly owned subsidiary of T-HQ New York ("THQ
Delaware"). As used in this Proxy Statement, the term the "Company" means T-HQ
New York prior to such merger and THQ Delaware after such merger.
The Company expects to mail this Proxy Statement together with a proxy,
the Notice of Annual Meeting of Shareholders, and the Company's annual report to
its shareholders on or about May 9, 1997.
The mailing address of the Company is 5016 North Parkway Calabasas,
Suite 100, Calabasas, California 91302.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
RETURN ENVELOPE PROVIDED.
THE DATE OF THIS PROXY STATEMENT IS MAY __, 1997.
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<PAGE> 4
INTRODUCTION
MATTERS TO BE CONSIDERED
At the Meeting, the shareholders of the Company will consider and vote
upon (1) the election of five directors, (2) a proposal to change the state of
incorporation of the Company from New York to Delaware (the "Reincorporation
Proposal"), (3) a proposal by the Board of Directors to adopt the Company's 1997
Stock Option Plan (the "Stock Option Proposal") providing for the issuance of
options covering up to 650,000 shares of the Company's common stock, $0.0001 par
value (the "Common Stock"), to officers, other employees, non-employee
directors, consultants and advisors of the Company, and (4) such other business
as may properly come before the Meeting and any adjournment thereof.
VOTING RIGHTS AND VOTE REQUIRED
The Board of Directors has fixed May 8, 1997, as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Meeting. At the close of business on May 8, 1997, there were outstanding and
entitled to vote __________ shares of Common Stock of the Company (the
"Shares").
A majority of the outstanding Shares must be represented in person or
by proxy at the Meeting in order to constitute a quorum for the transaction of
business. The record holder of each Share entitled to vote at the Meeting will
have one vote for each Share so held on all matters that may come before the
Meeting.
Directors are elected by the affirmative vote of the holders of a
majority of the outstanding Shares represented at the Meeting.
Approval of the Reincorporation Proposal requires the affirmative vote
of two-thirds of the outstanding Shares. In the event the Reincorporation
Proposal is approved, T-HQ New York will merge with and into its wholly owned
subsidiary THQ Delaware, with THQ Delaware as the surviving corporation. As a
result, the Certificate of Incorporation of the Company will be in the form
attached as Appendix B hereto, and each holder of Shares will become a holder of
an equal number of shares of common stock, no par value, of THQ Delaware.
Moreover, the five directors elected at the Meeting will become the directors of
THQ Delaware. See "Reincorporation Proposal: To Change the State of
Incorporation from New York to Delaware."
Approval of the Stock Option Proposal requires the affirmative vote of
the holders of a majority of the outstanding Shares represented at the Meeting.
In the event that the votes necessary to approve the Reincorporation
Proposal and the Stock Option Proposal have not been obtained, the Company may,
in its discretion, adjourn the Meeting from time to time to permit solicitation
of additional proxies.
VOTING OF PROXIES
A proxy submitted by a shareholder may indicate that all or a portion
of the Shares represented by such proxy are not being voted by such shareholder
with respect to a particular matter. This could occur, for example, when a
broker is not permitted to vote Shares held in street name on certain matters
in the absence of instructions from the beneficial owner of such Shares. The
Shares subject to any such proxy which are not voted with respect to a
particular matter (the "non-voted Shares") and abstentions will be considered
Shares not present and entitled to vote on such matter, although such Shares
may be considered present and entitled to vote for other purposes and will
count for purposes of determining the presence of a quorum. Accordingly,
non-voted Shares and abstentions on the Election of Directors, Reincorporation
Proposal and Stock Option Plan Proposal will not affect the outcome on the vote
upon the approval of such Proposals.
The Shares represented by all properly executed proxies will be voted
at the Meeting in accordance with the instructions specified thereon. If no
instructions are specified, the Shares represented by any properly executed
proxy will be voted FOR the election of the nominees listed below under
"Election of Directors," FOR the Reincorporation Proposal and FOR the Stock
Option Proposal.
The Board of Directors is not aware of any matters which will come
before the Meeting other than as described above. However, if such matters are
presented, the named proxies will, in the absence of instruction to the
contrary, vote such proxies in accordance with the judgment of such named
proxies with respect to any other matter.
REVOCABILITY OF PROXIES
Any shareholder may revoke such shareholder's proxy at any time prior
to its use by filing with the Secretary of the Company an instrument of
revocation or a valid proxy bearing a later date, or by attending the meeting
and voting in person.
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SOLICITATION OF PROXIES
The Company will bear all costs in connection with the solicitation of
proxies for the Meeting. Proxies may be solicited by any appropriate means by
directors, officers and regular employees of the Company, who will receive no
additional compensation therefor. In addition to the use of the mails,
solicitation may be made by employees of the Company personally or by mail or
telephone, telegram or other appropriate means of communication. The Company has
engaged the services of D.F. King & Co., Inc. to solicit proxies and to assist
in the distribution of proxy materials for a fee of $7,500, plus reimbursement
of reasonable out-of-pocket expenses. The Company intends to request brokerage
houses, custodians, nominees and others who hold stock in their names to solicit
proxies from the persons who own stock, and such brokerage houses, custodians,
nominees and others will be reimbursed for their out-of-pocket expenses and
reasonable clerical expenses.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Pursuant to the By-Laws of the Company, the number of directors
constituting the full Board of Directors has been fixed by the Board at five.
Accordingly, action will be taken at the meeting to elect a Board of five
directors to serve until the next Annual Meeting of Shareholders and until their
respective successors shall be duly elected and shall qualify. It is the
intention of the persons named in the accompanying form of proxy, unless
shareholders otherwise specify by their proxies, to vote for the election of the
nominees named below, each of whom is now a director. The Board of Directors has
no reason to believe that any of the persons named will be unable or unwilling
to serve as a director. Should any of the nominees be unable or unwilling to
serve it is intended that the proxies will be voted for the election of a
substitute nominee or nominees selected by the Board of Directors.
In the event the Reincorporation Proposal is approved by the
shareholders and becomes effective, the directors elected at the Meeting will
serve as directors of THQ Delaware.
Set forth below is the name, age, principal occupation during the past
five years and other information concerning each nominee as of April 2, 1997.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Brian J. Farrell 43 Director, President and Chief Executive Officer
Lawrence Burstein 54 Director
L. Michael Haller 53 Director, Senior Vice President
Bruce Jagid 57 Director
Jeffrey C. Lapin 40 Director
</TABLE>
BRIAN J. FARRELL has been the Company's President and Chief Executive
Officer since January 1995. Between October 1992 and January 1995, Mr. Farrell
was the Executive Vice President and Chief Operating Officer of the Company.
From July 1991 to October 1992, Mr. Farrell served as the Vice President, Chief
Financial Officer and Treasurer of the Company. Mr. Farrell has been a director
of the Company since March 1993. Prior to joining the Company, Mr. Farrell was
Vice President and Chief Financial Officer of Starwood Lodging Trust, a real
estate investment trust ("Starwood"). Mr. Farrell was employed by Deloitte
Haskins & Sells, a predecessor of Deloitte & Touche LLP, an international
accounting firm and the Company's current auditors ("Deloitte"), from 1978 to
1984 and is a certified public accountant.
LAWRENCE BURSTEIN has been a director of the Company since July 1991.
Since March 1996, Mr. Burstein has been President, Director and shareholder of
Unity Venture Capital Associates Ltd., a private investment company. Since
October 1982, Mr. Burstein has been Chairman of the Board and a principal
stockholder of Trinity Capital Corporation, a private investment company. Mr.
Burstein is a director of U.S. Communications, Inc., Brazil Fast Food Corp., CAS
Medical Systems, Inc., Unity First Acquisition Corp. and Medical Nutrition Inc.
L. MICHAEL HALLER has been a director of the Company and the Company's
Senior Vice President since December 1995. Between January
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<PAGE> 6
and December 1995, Mr. Haller was a consultant to the Company. For more than
five years prior to 1995, Mr. Haller was an agent of and consultant to companies
in the interactive entertainment business, principally representing Kodansha
Ltd., Japan's leading publisher of literature, magazines and comics. Mr. Haller
is also a director of Pacific Advisors Fund, Inc.
BRUCE JAGID has been a director of the Company since April 1995. Since
March 1991, Mr. Jagid has served as the Chairman of the Board of Ultralife
Batteries, Inc. ("Ultralife") a manufacturer of lithium batteries. Since January
1992, Mr. Jagid has served as Chief Executive Officer of Ultralife.
JEFFREY C. LAPIN has been a director of the Company since April 1995.
Mr. Lapin has been the President and Chief Operating Officer of House of Blues,
Inc. Hospitality and Executive Vice President of House of Blues, Inc.
Entertainment since July 1996. From January 1995 to June 1996, Mr. Lapin was the
President and Chief Operating Officer of Starwood. From May 1991 to January
1995, Mr. Lapin was the President and Chief Executive Officer of Starwood. Mr.
Lapin was a Vice President of Starwood from January 1988 to May 1991, Secretary
from September 1986 to May 1991, and served as Trustee of Starwood from
September 1992 to June 1996. Prior to his employment by Starwood, Mr. Lapin was
an attorney at Mitchell, Silberberg & Knupp in Los Angeles.
There are no family relationships between any of the Company's
directors and officers.
Directors are elected annually by the shareholders and hold office
until the next annual meeting and until their respective successors are elected
and qualified. Executive officers are elected by the Board of Directors and hold
office until their respective successors are elected and qualified.
THE COMMITTEES
The Company has an Audit Committee, a Compensation Committee and a
Stock Option Committee. The Board of Directors does not have a Nominating
Committee, and the usual functions of such committee are performed by the entire
Board of Directors.
AUDIT COMMITTEE. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. During 1996, the full Board of Directors met
to perform such functions in lieu of the Audit Committee, whose current members
are Messrs. Lapin and Jagid.
COMPENSATION COMMITTEE. The function of the Compensation Committee is
to make recommendations to the Board with respect to compensation of management
employees. In addition, the Compensation Committee makes recommendations to the
Stock Option Committee with respect to grants of options to management
employees. The Compensation Committee also administers plans and programs
relating to employee benefits, incentives and compensation. During 1996, the
full Board of Directors met to perform such functions in lieu of the
Compensation Committee, whose current members are Messrs. Burstein and Lapin.
STOCK OPTION COMMITTEE. The Stock Option Committee determines the
persons to whom options should be granted under the Company's stock option plan
and the number of options to be granted to each person. The Stock Option
Committee, whose current members are Messrs. Burstein and Jagid met once during
1996. The full Board of Directors met to determine additional option grants in
lieu of the Stock Option Committee during other times in 1996.
MEETINGS OF THE BOARD OF DIRECTORS
In 1996, there were five meetings of the Board of Directors held in
person or by conference telephone call. Each director of the Company attended at
least 80% of the meetings held.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
The directors and executive officers of the Company, and the owners of
more than 10 percent of the Company's outstanding Common Stock, are required to
file reports with the Securities and Exchange Commission and with NASDAQ,
reporting changes in the number of shares of Common Stock beneficially owned by
them. Such reports are
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<PAGE> 7
required to be filed within ten days after such person first becomes an
executive officer, director or beneficial owner of more than 10 percent of the
Common Stock, to report the number of shares beneficially owned by such person
(Form 3); within ten days after the end of the calendar month when there is a
change in the number of shares beneficially owned (Form 4); and within
forty-five days after the close of a calendar year reconciling all changes in
beneficial ownership of the Common Stock made during such calendar year (Form
5). To the Company's knowledge, based solely on a review of copies of such
reports furnished to the Company and written representations that no other
reports were required, all such Forms 3, 4 and 5 were timely filed during 1996.
EXECUTIVE OFFICERS
Information with respect to Messrs. Farrell and Haller is located
elsewhere in this Proxy Statement. All executive officers of the Company are
appointed by and serve at the discretion of the Board of Directors.
DEBORAH A. LAKE, 29, has been the Vice President-Finance and
Administration, Treasurer and Secretary of the Company since September 1996. Ms.
Lake is responsible for information systems, financial reporting and internal
controls. From August 1995 to August 1996, Ms. Lake was Chief Financial Officer
of MCL Distributing, Inc., a company engaged in produce sales and distribution.
Between June 1991 and August 1995, Ms. Lake rendered services to the Company in
a number of capacities, including serving as Vice President-Finance and
Administration from January 1995 until August 1995. Previously, Ms. Lake was
employed by Deloitte as a management consultant.
KEY EMPLOYEES
The following persons, although not executive officers of the Company,
are regarded by the Company's management as key employees:
GERMAINE GIOIA, 36, has been Vice President-Marketing since December
1995 and has been employed by the Company since November 1993. Ms. Gioia served
as Director of Corporate Communications at CIC, a software company, from 1991 to
1993. From 1989 to 1991, Ms. Gioia was employed by LucasArts Entertainment
Company in corporate marketing.
ALISON LOCKE, 42, the Company's Senior Vice President-Sales, is
responsible for sales in North America. Ms. Locke has been employed by the
Company since February 1991. Previously, Ms. Locke served as Vice President of
Computer Product and Nintendo Game Sales of Data East USA Incorporated, an
interactive entertainment company and in various sales capacities with
Activision Inc. and Broderbund Software Inc.
STEVE RYNO, 31, has been Vice President-Product Development of the
Company since December 1995. From June 1993 to December 1995, Mr. Ryno was the
Company's Director of Product Development. Mr. Ryno was also the Director of
Product Development of Black Pearl Software from 1993 until its acquisition by
the Company. From 1988 to 1993, Mr. Ryno was employed as an executive producer
at Atari Corporation. Mr. Ryno also previously served as an editor of Electronic
Gaming Monthly.
KAREN SHILLCOCK, 40, has been Managing Director of T-HQ International
Ltd. (a subsidiary of the Company) and responsible for the Company's European
operations since October 1995. From March 1993 to September 1995, Ms. Shillcock
was the Advertising and Public Relations Director of Columns Ltd., an
advertising agency. From October 1991 to February 1993, Ms. Shillcock was an
Associate Director at KPR Public Relations. Previously, Ms. Shillcock was the
Head of Business Development at TMD Carat Advertising, Ltd.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth information as to all persons who, to
the knowledge of the Company are the beneficial owners of 5% or more of the
outstanding Shares of Common Stock as of April 2, 1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Wisdom Tree Associates, LP 665,000 10.3%
333 Seventh Avenue, 5th Floor
New York, NY 10001
</TABLE>
- ----------------
(1) Based on information set forth in Amendment No. 4 to the Schedule 13D dated
September 3, 1996 and filed with the Securities and Exchange Commission (the
"Commission") by Wisdom Tree Associates, L.P. and its affiliates, Jonathan L.
Steinberg, Wisdom Tree Capital Management Inc. and Wisdom Tree Offshore, Ltd.
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as to the Shares of
Common Stock beneficially owned by each director and executive officer named in
the Summary Compensation Table and by all executive officers and directors of
the Company as a group as of April 2, 1997.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE PERCENT
OF BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP CLASS
- ------------------------------------ ------------- -------
<S> <C> <C>
Brian J. Farrell (1) 214,000(2) 3.2%
Lawrence Burstein (1) 66,184(3) 1.0%
Bruce Jagid (1) 42,000(4) *
Jeffrey C. Lapin (1) 42,000(4) *
L. Michael Haller (1) 30,834(5) *
Deborah A. Lake(1) 36,608(6) *
All Directors and Executive Officers 431,626(7) 6.3%
as a group (6 persons)
</TABLE>
- ----------
* Less than 1%.
(1) The address for each individual is c/o T-HQ, Inc., 5016 North Parkway
Calabasas, Calabasas, California 91302.
(2) Includes 206,667 Shares issuable upon exercise of options exercisable within
60 days and 1,333 Shares issuable upon exercise of a warrant.
(3) Includes 2,400 Shares owned by Mr. Burstein's wife, as to which Mr. Burstein
disclaims beneficial ownership, and 43,334 Shares issuable upon exercise of
options exercisable within 60 days.
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(4) Includes 40,000 Shares issuable upon exercise of options exercisable within
60 days.
(5) Consists of 30,834 Shares issuable upon exercise of options exercisable
within 60 days.
(6) Includes 33,333 Shares issuable upon exercise of options exercisable within
60 days.
(7) Includes an aggregate of 394,168 Shares issuable upon exercise of options
within 60 days and 1,333 Shares issuable upon exercise of a warrant.
DIRECTOR COMPENSATION
Directors who are also employees and officers of the Company are not
paid any compensation for service as directors, including attendance at Board
meetings or for attending or participating in any committee meetings.
Non-employee directors of the Company are compensated for their services and
attendance at meetings through cash payments comprised of $12,000, plus $1,500
for attendance at each Board meeting held in person and $500 for attendance at
each Board meeting held by telephone and the grant of options pursuant to the
Company's Amended and Restated 1990 Stock Option Plan (the "1990 Stock Option
Plan") and, if adopted, the Company's 1997 Stock Option Plan. The 1990 Stock
Option Plan provides for the annual grant to each non-employee director of the
Company of options to purchase 2,500 shares of Common Stock on the first day of
each fiscal quarter at an exercise price per share equaling the market price of
a share of Common Stock on the date of each grant. The proposed 1997 Stock
Option Plan provides for the same quarterly grants.
During 1996, each of the non-employee directors received grants under
the Company's 1990 Stock Option Plan of options exercisable for 10,000 Shares of
Common Stock. As of April 2, 1997, the aggregate number of shares of Common
Stock for which options granted to each non-employee director are: Mr. Burstein
43,334 shares, Mr. Jagid 40,000 shares and Mr. Lapin 40,000 shares.
EXECUTIVE COMPENSATION
The following tables set forth the Company's (i) executive compensation
paid during the last three years, (ii) options granted in 1996 and (iii)
aggregate option exercises in 1996 for the Chief Executive Officer and the other
most highly compensated executive officers of the Company whose cash
compensation exceeded $100,000 (the "Named Executives").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
--------------------------------------- ----------------------- ------
OTHER RESTRICTED SHARES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARDS OPTIONS(3) PAYOUT COMPENSATION
- ------------------ ---- --------- ------- --------------- ---------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian J. Farrell 1996 $233,519 $85,912 $9,000 -- 200,000(4) -- $6,000(5)
President and Chief 1995 $233,519 $21,812 $9,000 -- 140,000(4) -- $6,000(6)
Executive Officer 1994 $186,309 -- $9,000 -- 20,000(4) -- $8,846(7)
L. Michael Haller 1996 $119,631 $25,000 -- -- 7,500(8) -- 369(9)
Senior Vice 1995 7,385 10,000 -- -- 55,000(8) -- --
President 1994 -- (10) -- -- -- -- -- --
</TABLE>
- ----------
(1) Included in each Named Executive's salary are amounts which were deferred by
such Named Executive as contributions to the Company's Defined Contribution
Plan.
(2) Amounts shown do not include amounts expended by the Company pursuant to
plans (including group life and health) that do not discriminate in scope, terms
or operation in favor of executive officers or directors of the Company and that
are generally available to all salaried employees. The value of such benefits
did not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus reported for any individual named.
(3) All share figures reflect the Reverse Split effective as of February 15,
1995.
(4) In February 1994, all options previously granted to Mr. Farrell were
repriced. Mr. Farrell was also granted an option at such time to purchase an
additional 4,624 shares of Common Stock. In February 1995, Mr. Farrell was
granted an option to purchase an additional 140,000 shares of Common Stock, at
an exercise price of $3.06 per share. In August 1996, Mr. Farrell was granted an
option to purchase 200,000 shares of Common Stock at an exercise price of $5.00
per share. The exercise prices for these options is the market price on the date
of grant of such options. See "Employment Agreement with Brian J. Farrell".
(5) The amount shown for 1996 reflects matching contributions in the amount of
$6,000 made by the Company in accordance with the Defined Contribution Plan.
This amount does not reflect special awards and payments Mr. Farrell was
entitled to receive, if his employment is terminated as a result of a change in
control of the Company (see "Employment Agreement with Brian J. Farrell"
elsewhere in this Proxy Statement), which would have had a value of
approximately $897,000, as of December 31, 1996.
(6) The amount shown for 1995 reflects matching contributions in the amount of
$6,000 made by the Company in accordance with the Defined Contribution Plan.
This amount does not reflect special awards and payments Mr. Farrell was
entitled to receive, if his employment is terminated as a result of a change in
control of the Company (see "Employment Agreement with Brian J. Farrell"
elsewhere in this Proxy Statement), which would have had a value of
approximately $598,000, as of December 31, 1995.
(7) The amount shown for 1994 reflects matching contributions in the amount of
$8,846 made by the Company in accordance with the Defined Contribution Plan.
This amount does not reflect special awards and payments Mr. Farrell was
entitled to receive if his employment is terminated as a result of a change in
control of the Company (see "Employment Agreements with Brian J. Farrell"
elsewhere in this Proxy Statement), which would have had a value of
approximately $526,000, as of December 31, 1994.
(8) In June 1995, Mr. Haller was granted an option to purchase 25,000 shares of
Common Stock at an exercise price of $2.87 per share. Mr. Haller was granted an
option to purchase an additional 30,000 shares of Common Stock at an exercise
price of $3.75 per share in December 1995. In May 1996, Mr. Haller was granted
an option to purchase
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<PAGE> 11
7,500 more shares of Common Stock at an exercise price of $3.50 per share. The
exercise price for these options is the market price of the Common Stock on the
dates of grant of such options.
(9) The amount shown for 1996 reflects matching contributions in the amount of
$369 made by the Company in accordance with the Defined Contribution Plan.
(10) Mr. Haller commenced employment with the Company in December 1995.
Accordingly, no compensation is shown for 1994.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of stock options granted at
fair market value to each of the Named Executives during the fiscal year 1996.
In satisfaction of applicable SEC regulations, the table further sets forth the
potential realizable value of such stock options in the year of their expiration
at arbitrarily assumed annualized rates of stock price appreciation of five and
ten percent over the full term of the stock options. The amounts shown in the
table as potential realizable values for all shareholders' stock represent in
the corresponding increases in the market value of 4,739,883 shares of Common
Stock outstanding as of December 31, 1996. No gain to the Named Executives is
possible without an increase in the price of the Common Stock which will benefit
all shareholders proportionately. Actual gains, if any, on stock option
exercises and Common stock holdings are dependent on the future performance of
the Common Stock and overall stock market conditions. There can be no assurance
that the potential realizable values shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF PER ANNUAL RATES OF
SHARES TOTAL OPTIONS SHARE STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- --------------------------------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
All Shareholders n/a n/a n/a n/a $27,960,720(2) $70,857,953(2)
Stock Appreciation
Brian J. Farrell 200,000(2) 55% $5.00 8/28/06 $ 628,895(3) $ 1,593,742(3)
$3.50
L. Michael Haller 7,500(4) 2% 5/6/00 $ 5,657(5) $ 12,183(5)
</TABLE>
- ---------
(1) Exercise price multiplied by the annual appreciation rate shown compounded
annually for the term of each option, less the exercise price, and then
multiplied by the number of options granted. The dollar amounts set forth under
this heading are the result of calculations at the 5% and 10% rates set by the
SEC and therefore are not intended to forecast possible future appreciation, if
any, of the stock price of the Company.
(2) These figures reflect 5% and 10% appreciation of the Common Stock held as of
December 31, 1996.
(3) These figures reflect 5% and 10% appreciation of these options. Mr. Farrell
now holds (i) an option expiring August 28, 2006 to purchase 200,000 shares of
Common Stock at an exercise price of $5.00 and (ii) an option expiring April 6,
2000 to purchase 140,000 shares of Common Stock at an exercise price of $3.06.
The 5% and 10% appreciation for these options, respectively, are as follows: (i)
$628,895 and $1,593,742 and (ii) $118,359 and $261,542.
(4) This figure reflects the grant of an option under the 1990 Stock Option Plan
for up to 7,500 shares of Common Stock in May 1996, at an exercise price of
$3.50 per share (the market price of the Common Stock on the grant date),
expiring on May 6, 2000.
9
<PAGE> 12
(5) These figures reflect 5% and 10% appreciation of these options. Mr. Haller
now holds (i) an option expiring June 6, 2000 to purchase 25,000 shares of
Common Stock at an exercise price of $2.87; (ii) an option expiring December 6,
2000 to purchase 30,000 shares of Common Stock at an exercise price of $3.75,
and (iii) an option expiring May 6, 2000 to purchase 7,500 shares of Common
Stock at an exercise price of $3.50. The 5% and 10% appreciation for these
options, respectively, are as follows: (i) $19,823 and $43,804; (ii) $31,082 and
$68,682; and (iii) $5,657 and $12,183.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian J. Farrell -- -- 160,001 179,999 $881,872 $878,928
L. Michael -- -- 28,334 34,166 $166,854 $208,896
Haller
</TABLE>
- ----------
(1) Calculated based on the excess of fair market value of the Common Stock on
December 31, 1996 over the exercise price.
EMPLOYMENT AGREEMENT WITH BRIAN J. FARRELL
As of December 31, 1996, Mr. Farrell and the Company agreed to amend
and restate the terms of his employment agreement (as amended and restated, the
"Employment Agreement") which provides for Mr. Farrell's employment by the
Company through December 31, 2001 (the "Employment Period").
The Employment Agreement provides for an annual base salary of $300,000
in 1997, subject to annual review after 1997. For each fiscal year of the
Employment Period, Mr. Farrell is entitled to an annual bonus equal to the
lesser of $300,000 or 4.5% of the Company's annual net income before taxes for
such year. The Company will also provide Mr. Farrell with life insurance and
disability insurance during, and for 12 months after, the Employment Period.
The Employment Agreement provides that if Mr. Farrell's employment is
terminated by him voluntarily or by the Company for "cause," he will be
precluded without the Company's consent during the subsequent 12 months from
engaging, directly or indirectly, in any business activity that competes with
the Company's business and from detrimentally affecting any relationship between
the Company and, or soliciting away from the Company, any customer, supplier or
employee of the Company. If the Employment Agreement is not renewed by either
the Company or Mr. Farrell prior to its scheduled expiration date, the
noncompetition restriction will expire on March 31, 2002.
The Employment Agreement also provides that in the event any person or
group of persons (i) acquires or obtains the right to acquire 30% or more of the
Common Stock, or (ii) (a) acquires at least 10% of the Common Stock or (b) files
a Schedule 13D or 13G with the Commission and the Board of Directors deems that
the ownership of Common Stock by such person or group of persons would cause a
material adverse impact on the Company's business (a "Change of Control"):
1. If Mr. Farrell's employment is subsequently terminated other than
for cause or if he voluntary terminates his employment within 180 days after the
Change of Control, he will be entitled to receive a lump sum cash payment equal
to 2.99 times the base compensation paid to him at the time of such Change of
Control; and
2. All options, warrants and other rights ("Options") held by Mr.
Farrell to purchase Common Stock will immediately vest, or he will be entitled
to surrender all of such Options and receive an amount in cash per share equal
to the difference between the option prices of the Options surrendered and the
greater of (i) the average price per share paid by the person acquiring control
of the Company, (ii) the average price paid in connection with a tender offer
for the
10
<PAGE> 13
Common Stock, or (iii) the average trading price of the Common Stock on the date
of termination of Mr. Farrell's employment.
In January 1995, in consideration for his previous service to the
Company, Mr. Farrell was granted an option to purchase up to 140,000 shares of
Common stock at a price of $3.06 per share. In August 1996, in recognition of
the Company's turnaround since Mr. Farrell's appointment as the Company's
President and Chief Executive Officer and in consideration for his services
rendered in those capacities, Mr. Farrell was granted an option to purchase
200,000 shares of Common Stock at a price of $5.00. The exercise prices of these
options are the market prices of the Common Stock on their respective grant
dates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; TRANSACTION WITH
MANAGEMENT
The Compensation Committee in 1996 consisted of Messrs. Burstein, Lapin
and Murray Skala, a director of the Company until January 1997. In 1996, the
Company paid the law firm of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP, of which Murray Skala is a partner, $215,000 for legal services. The
Company believes that the terms of such transaction were on terms comparable to
those that could have been obtained from unaffiliated persons.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report was prepared by the Compensation Committee of the Board of
Directors (the "Committee") which is composed of independent directors who are
not employees of the Company. The Committee has the responsibility for all
compensation matters for the Company's executive officers. The current members
of the Committee are Lawrence Burstein and Jeffrey C. Lapin.
The Company's executive officers are responsible for the overall
strategic direction and operation of the Company. Their compensation is based on
the contributions made by such individuals to the accomplishment of the
Company's objectives and also on the results of the Company. In 1996, the Board
approved the Committee's recommendation of amending and restating Mr. Farrell's
employment agreement to extend Mr. Farrell's employment contract for an
additional four years at substantially the same level of compensation Mr.
Farrell had been entitled to earn in 1997 under his existing employment
contract. See "Employment Agreement with Brian J. Farrell." The Committee
believes that ensuring Mr. Farrell's long term commitment to the Company is in
the best interest of its shareholders. In addition, Mr. Farrell's annual bonus
is based solely on the lower of $300,000 and a percentage of net income earned
by the Company, which is intended to align a substantial portion of Mr.
Farrell's compensation with the Company's results of operations. Further, in
August 1996, the Company granted Mr. Farrell an option to purchase up to 200,000
shares of Common Stock at a per share exercise price of $5.00, the per share
market price on grant date. Such grant reflected the Company's financial
turnaround and greatly improved financial performance.
The other executive officers' base salaries and cash bonuses are based
on the level of responsibility and the job requirements of each such position.
In addition, the Committee considers compensation paid to executive officers of
other companies who perform similar functions. The Committee reviews executive
compensation annually based on the merit of an individual's performance and the
financial performance of the Company.
In addition, it is also a fundamental objective of the Committee to
provide the Company's executive officers with an opportunity to share in the
short-term and long-term success of the Company by recommending to the Stock
Option Committee that the executive officers be granted options to purchase
shares of Common Stock. The Committee, along with the Stock Option Committee
have to date maintained a policy of rewarding the Company's executive officers
with options each year in respect of contributions made by the executive
officers to the Company for the prior fiscal year. Such annual options are
granted to most of the Company's employees based on their contributions. Special
option grants are also made to executive officers, if in the determination of
the Committee, an executive officer warrants additional compensation for such
executive officer's efforts.
As of December 31, 1996, the Named Executives had been granted options
to purchase an aggregate of 402,500 shares of Common Stock (after adjustment for
the Company's 1995 Reverse Stock Split). If all shares underlying such options
had been exercised as of such date they would have represented 8% of the
Company's then issued and outstanding Common Stock (6% as of April 2, 1997).
11
<PAGE> 14
Respectfully submitted,
Lawrence Burstein
Jeffrey C. Lapin
12
<PAGE> 15
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG T-HQ, INC., DOW JONES EQUITY MARKET INDEX, AND ENTERTAINMENT &
LEISURE - RECREATIONAL PRODUCTS & SERVICES INDEX
FISCAL YEAR ENDING DECEMBER 31
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
THQ, Inc. 100 1,100 700 156 125 72 125
Dow Jones Equity Market 100 128 135 144 142 190 229
Dow Jones Entertainment & Leisure 100 116 139 172 156 196 219
</TABLE>
The Common Stock commenced trading at a price of $1.00 per share on
August 30, 1990 under the name Trinity Acquisition Corp. The Company began
operations upon the merger of T-HQ-California into the Company as of July 31,
1991. Total returns assume $100 invested on December 31, 1991 in Common Stock.
Dow Jones Equity Market Index and Dow Jones Entertainment & Leisure -
Recreational Products & Services Index.
13
<PAGE> 16
REINCORPORATION PROPOSAL: TO CHANGE THE STATE OF INCORPORATION FROM NEW
YORK TO DELAWARE
(PROPOSAL NO. 2)
The following discussion summarizes certain aspects of the
Reincorporation Proposal. This summary is not intended to be complete and is
qualified in its entirety by reference to the Agreement and Plan of Merger (the
"Merger Agreement") between T-HQ New York and THQ Delaware, the form of which is
attached to this Proxy Statement as Appendix A and which has been unanimously
approved by the Board of Directors; and the Certificate of Incorporation of THQ
Delaware (the "Delaware Certificate") attached to this Proxy Statement as
Appendix B.
INTRODUCTION
General. The Company's Board of Directors has unanimously approved, and
for the reasons described below, unanimously recommends that the Company's
shareholders approve the Reincorporation Proposal for the purpose of changing
the Company's state of incorporation from New York to Delaware.
The Reincorporation. T-HQ New York has formed THQ Inc. a wholly-owned
subsidiary incorporated under the laws of the state of Delaware. Pursuant to the
Merger Agreement, T-HQ New York will be merged with and into THQ Delaware, with
THQ Delaware being the surviving corporation. After the effective time of the
Reincorporation (the "Effective Time") and pursuant to the Merger Agreement,
each Share outstanding immediately prior to the Effective Time will be deemed to
be one share of common stock, no par value per share, of THQ Delaware (the
"Delaware Common Stock"), each holder of Shares will become the holder of an
equal number of shares of the Delaware Common Stock, and T-HQ New York will
cease to exist.
The Reincorporation will not result in any changes in the business or
assets, liabilities or net worth of THQ Delaware as compared with that of T-HQ
New York prior to the Reincorporation, nor in the persons who constitute the
Board of Directors and management. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF
T-HQ NEW YORK TO EXCHANGE THEIR EXISTING SHARE CERTIFICATES. As with the Shares
prior to the Reincorporation, upon the consummation of the Reincorporation the
Delaware Common Stock will be traded in the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") as a National Market Issue, and
delivery of the existing shares certificates will constitute "good delivery" for
transactions in the shares of the Delaware Common Stock following the
Reincorporation.
The Reincorporation is expected to become effective as soon as
practicable following shareholder approval. Under applicable law and pursuant to
the terms of the Merger Agreement, the Reincorporation may be abandoned by the
Board of Directors prior to the Effective Time (either before or after
shareholder approval) if circumstances arise which, in the opinion of the Board
of Directors, make the Reincorporation inadvisable. However, the Board of
Directors has no reason to believe that it might do so.
Upon consummation of the Merger, the Delaware Certificate and Delaware
By-Laws shall be the Charter documents of the surviving entity, THQ Delaware.
After the Effective Time, the Delaware Certificate and the Delaware By-Laws may
be amended in accordance with their terms and Delaware law.
AT THE EFFECTIVE TIME, THE HOLDERS OF THE SHARES WILL BECOME
STOCKHOLDERS OF A COMPANY GOVERNED BY DELAWARE LAW, THE DELAWARE CERTIFICATE AND
THE DELAWARE BY-LAWS. THIS WILL HAVE MATERIAL EFFECTS ON SUCH STOCKHOLDERS. See
"Certain Significant Differences Between the Charter Documents of T-HQ New York
and THQ Delaware" and "Certain Significant Differences Between the New York and
Delaware Corporation Law".
The employee benefit plans of T-HQ New York will not be changed by the
Reincorporation. Each option to purchase Shares under the stock option plans of
T-HQ New York or pursuant to an option agreement with T-HQ New York will be
converted into an option to purchase the same number of shares of Delaware
Common Stock on the same terms and conditions as in effect immediately prior to
the Reincorporation, and options and rights granted under such plans and option
agreements in the future will be for shares of Delaware Common Stock. Approval
of the Reincorporation will constitute approval of the assumption of the plans
and option agreements by THQ Delaware.
14
<PAGE> 17
Approval of the Reincorporation Proposal requires the affirmative vote
of the holders of two-thirds of the outstanding Shares.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE REINCORPORATION
PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
REINCORPORATION PROPOSAL. Proxies solicited by the Board of Directors will be
voted FOR the Reincorporation Proposal unless a vote against the Reincorporation
Proposal or an abstention is specifically indicated thereon.
PRINCIPAL REASONS FOR CHANGING THE STATE OF INCORPORATION
Historically, Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically updated
and revised in response to the legal and business needs of corporations
organized under its laws. As a result, many corporations have initially chosen
Delaware for their domicile or have subsequently reincorporated in Delaware in a
manner similar to that proposed by the Company. Because of Delaware's
preeminence as the state of incorporation for many major corporations, both the
Delaware legislature and courts have demonstrated an ability and a willingness
to act quickly to meet changing business needs. The Delaware courts have
developed considerable expertise in dealing with corporate issues and a
substantial body of case law, establishing public policies with respect to
corporate legal affairs. Delaware has a more highly developed body of case law
interpreting its corporate statutes than New York, and this case law advantage
gives its corporate law an added measure of predictability that is crucial in a
judicial system based largely on precedent. These factors often provide the
directors and management of Delaware corporations with greater certainty and
predictability in managing the affairs of the corporation. Furthermore, the
Delaware court system provides for the expeditious resolution of corporate
disputes. Delaware has a specialized Court of Chancery which hears cases
involving corporate law and lacks jurisdiction over tort or criminal cases.
Moreover, appeals to the Supreme Court of Delaware in important cases can be
made and decided quite rapidly. Finally, Delaware law generally provides greater
protection to directors and officers from personal monetary liability.
For a discussion of certain differences in shareholders' rights and
interests and the authority of management under the New York Business
Corporation Law (the "New York BCL") and the Delaware General Corporation Law
(the "Delaware GCL"), see "Certain Significant Differences Between New York and
Delaware Corporation Law" and "Certain Significant Differences Between the
Charter Documents of T-HQ New York and THQ Delaware."
CERTAIN SIGNIFICANT DIFFERENCES BETWEEN NEW YORK AND DELAWARE CORPORATION LAW
The Merger will effect certain changes in the rights of shareholders as
a result of differences between the New York BCL and the Delaware GCL. The
provisions of the New York BCL and Delaware GCL differ in numerous respects.
Summarized below are certain of the principal differences which may affect the
rights and interests of shareholders and management. This summary does not
purport to be a complete statement of differences affecting shareholders' rights
under the New York BCL and the Delaware GCL and is subject to, and qualified in
its entirety by reference to, all the provisions thereof.
A. Shareholder Voting and Dissenters' Rights
A substantial number of corporate transactions require
shareholder approval in New York that do not require such approval in Delaware,
and where shareholder approval is required in each state, require a greater
percentage of affirmative vote in New York than Delaware. In addition, there are
a variety of circumstances in which the dissenting shareholders are entitled to
appraisal rights in New York where such entitlements do not exist under the
Delaware GCL.
1. Shareholder Vote Required for Certain Transactions
Under the New York BCL, certain mergers and consolidations
and sales of all or substantially all of the assets not in the ordinary course
of business may be authorized only by the vote of shareholders representing not
less than two-thirds of the outstanding shares of the corporation entitled to
vote thereon. Under the Delaware GCL, such transactions may be authorized by a
majority vote of the shareholders entitled to vote thereon. Further, in
Delaware, a vote of the stockholders of the surviving corporation is not
necessary where, in the case of a merger, (i) no amendment of its certificate of
incorporation is effected, (ii) each share of its stock outstanding immediately
prior to the effective time
15
<PAGE> 18
is to be an identical outstanding or treasury share of the surviving corporation
after the effective time, and (iii) the merger results in no more than a 20%
increase in its outstanding common stock.
2. Dissenters' Appraisal Rights
Under New York Law, dissenting shareholders who follow
prescribed statutory procedures are entitled to appraisal rights in connection
with certain mergers (excluding certain mergers involving a parent and
subsidiary), consolidations, and sales of substantially all of the assets of the
corporation. Delaware law provides similar rights and procedures for mergers and
consolidations only. Furthermore, such rights are not provided for in Delaware,
even in the case of a merger or consolidation, in many circumstances when shares
of such constituent corporation are listed on a national securities exchange or
NASDAQ National Market System or otherwise publicly-traded, so long as the only
consideration to be received by holders in such merger or consolidation consists
of any combination of (i) shares of stock of the surviving corporation (or stock
and cash in lieu of fractional shares), (ii) shares of stock of any corporation,
which shares are listed on a national securities exchange or the NASDAQ National
Market System or are held of record by more than 2,000 stockholders, or (iii)
cash in lieu of fractional shares. Appraisal rights may exist, however, when
such stockholder will receive non-stock consideration.
B. Business Combination Statutes
The New York BCL prohibits any "business combination" (as
therein defined) between a "resident domestic corporation" and an "interested
shareholder" for a period of five years after the date that the interested
shareholder became an interested shareholder unless prior to that date the board
of directors of the resident domestic corporation approved the business
combination or the transaction that resulted in the interested shareholder
becoming an interested shareholder. After such five year period has elapsed,
such a business combination is permitted only if (i) it is approved by a
majority of the outstanding voting stock not owned by the interested shareholder
or its affiliate or (ii) certain statutory fair price requirements are met. A
"resident domestic corporation" is defined as any corporation that (i) is
incorporated in New York, (ii) has its principal executive offices and
significant business operations in New York or has at least 250 employees or 25%
of its employees employed primarily in New York (including employees of its 80%
subsidiaries), and (iii) has at least 10% of its voting stock beneficially owned
by New York residents. An "interested shareholder" is any person who
beneficially owns, directly or indirectly, 20% or more of the outstanding voting
stock of the corporation.
Section 203 of the Delaware GCL prohibits any "business
combination" (as therein defined) between a Delaware corporation and an
"interested stockholder" for three years following the date that the interested
stockholder became an interested stockholder unless (i) prior to that date the
board of directors approved the business combination or the transaction that
resulted in the interested stockholder becoming an interested stockholder, (ii)
upon consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (not counting shares owned by persons who are directors and also
officers and not counting certain shares in employee stock plans), or (iii) on
or subsequent to such date the business combination is approved by the board of
directors and approved at a meeting (not by written consent) by at least
two-thirds of the outstanding voting stock not owned by the interested
stockholder. The Delaware GCL defines "interested stockholder" as any person who
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
stock of the corporation. Unlike the New York BCL, the Delaware GCL does not
require, in order to be covered by these statutory provisions, that the
corporation's principal executive offices or significant operations be located
in the jurisdiction of incorporation or that at least a specified percentage of
its voting stock be beneficially owned by residents of such state.
C. Corporate Action by Shareholder Written Consent without
Shareholders Meeting
Under New York law, action may be taken by stockholders
without a stockholders meeting only on the unanimous written consent of the
corporation's stockholders. Delaware permits corporate action without a meeting
of stockholders upon the written consent of that number of shares necessary to
authorize at a meeting of the stockholders the proposed corporate action being
taken, unless the corporation's certificate of incorporation expressly provides
otherwise. The Delaware Certificate expressly provides that corporate action by
stockholders can only be taken by unanimous written consent in order to provide
the same protection currently afforded the Company's shareholders.
16
<PAGE> 19
D. Dividends
New York law has more restrictive provisions than Delaware
with respect to the declaration of dividends. Specifically, New York law would
permit payment of dividends out of surplus only, and if out of capital surplus,
only upon notice to shareholders. By contrast, under Delaware law, dividends may
be declared out of surplus of the corporation, or if there is no surplus, out of
its net profits for the fiscal year in which such dividend is declared or the
preceding fiscal year (provided that the amount of capital of the corporation is
not less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets).
E. Defenses Against Hostile Takeover Attempts
Delaware law provides a corporation with greater latitude to
take actions to defend itself against an unsolicited or hostile takeover than
does New York law. For example, Delaware courts have repeatedly upheld poison
pills which are probably the most potent and flexible anti-hostile takeover
measures available today. The THQ Delaware Charter documents do not currently
include any poison pill.
Additionally, the Delaware legislature has enacted a law
expressly designed to deter hostile "two tier" tender offers. Two-tier tender
offers are tender offers in which a potential acquiror purchases a substantial
amount of a corporation's stock through a tender offer at a given price, and
then merges or "squeezes" out the remaining stockholders at a lower price or for
difference consideration. In general, Delaware GCL Section 203 prohibits a
squeeze-out of remaining shareholders in a business combination for three years
after the acquiror first obtained 15% or more of the corporation's voting stock
unless the acquiror (a) initially acquired 85% of the corporation's voting
stock, (b) obtained approval of the corporation's Board prior to the tender
offer, or (c) obtained the approval of the corporation's Board and 66-2/3% of
the corporation's remaining stockholders to the business combination. See
"-Business Combination Statutes."
F. Board of Directors
1. Number of Directors
Under the New York BCL, the number of directors may not be
less than three, and any higher number may be fixed by the by-laws or by action
of the shareholders or of the board of directors under the specific provisions
of the by-laws adopted by the shareholders. The number of directors may be
increased or decreased by amendment of the by-laws or by action of the
shareholders or of the board of directors under the specific provisions of a
by-law adopted by the shareholders, subject to certain limitations.
Under the Delaware GCL, a corporation may have as few as one
director and there is no statutory upper limit on the number of directors. The
specific number may be fixed in the by-laws or in the certificate of
incorporation, but if fixed in the certificate of incorporation, may be changed
only by amendment of the certificate of incorporation. If the certificate of
incorporation is silent as to the number of directors, the board of directors
may fix or change the authorized number of directors pursuant to a provision of
the by-laws. The New York Bylaws and the Delaware Bylaws provide for a Board of
not less than three nor more than nine directors, and the number is currently
set at five.
2. Classified Board
The New York BCL permits a classified board with as many as
four classes (with each class to be as nearly equal in number as possible), but
forbids fewer than three directors in any class. The Delaware GCL permits a
classified board of directors with as many as three classes, without specifying
any minimum number required in each class or that they be as nearly equal in
number as possible. The Delaware Certificate does not provide for a classified
Board of Directors.
17
<PAGE> 20
G. Rights of and Transactions with Directors, Officers and
Employees and Limitation of Director Liability
1. Loans to Directors
The New York BCL requires that loans to directors be
authorized by stockholder vote (excluding any stockholders who are potential
borrowers). However, Delaware law permits the board of directors to authorize
such loans if the board of directors finds that the loan may benefit the
corporation.
2. Issuances of Rights and Options to Purchase Shares
Under New York law, any issuance to directors,
officers or employees of rights and options to purchase shares of the
corporation in connection with rendering future services thereto requires the
affirmative vote of the holders of a majority of the outstanding shares of the
corporation entitled to vote. The Delaware statute permits the board of
directors to authorize the issuance of such rights and options to such persons
without shareholder approval of such transactions. However, THQ Delaware will be
subject to various other applicable legal requirements, such as the rules of the
Securities and Exchange Commission and the NASDAQ National Market System, which
may make stockholder approval of certain rights or option plans and grants
thereunder necessary or desirable in certain circumstances.
3. Limitation of Director Liability
The provisions of Delaware law permitting
indemnification of officers, directors, agents and employees of a Delaware
corporation are somewhat more protective of directors and officers than the New
York statute. Delaware law permits a corporation to provide in its certificate
of incorporation that directors will have no personal liability to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for: (a) any breach of the director's duty of
loyalty, (b) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) the payment of illegal dividends
or distributions, or (d) any transaction from which the director derived an
improper personal benefit.
H. Indemnity
The provisions of Delaware law permitting indemnification of
officers, directors, agents and employees of a Delaware corporation are somewhat
more protective of directors and officers than the New York statute. Regarding
the ability of a corporation to indemnify its directors and officers, Delaware
law permits indemnification for an officer or director "if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
corporation and its stockholders."
I. Capital Stock
1. Redeemable Shares
The New York BCL generally permits redemption of shares of
common stock only at the option of the corporation. The Delaware GCL permits
redeemable shares to be subject to redemption, in accordance with the terms
thereof, by the corporation at its option or at the option of the holders
thereof, provided that at the time of such redemption, the corporation has
outstanding shares of at least one class or series of stock with full voting
powers which are not subject to redemption.
2. Consideration for Shares
Under the New York BCL, neither obligations of the subscriber
for future payments nor obligations of the subscriber for future services
constitutes payment or part payment for shares of a corporation. Furthermore,
certificates for shares may not be issued until the full amount of the
consideration therefor has been paid (except in the case of shares purchased
pursuant to stock options granted to directors, officers or employees under a
plan permitting installment payments). Under the Delaware GCL, shares of stock
may be issued, and deemed to be fully paid and nonassessable, if the corporation
receives consideration (in the form of cash, services rendered, personal
property, real property, leases of real property, or a combination thereof) for
the full subscription price of having a value not less than
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<PAGE> 21
the par value of such shares and the corporation receives a binding obligation
of the subscriber to pay the balance of the subscription price.
J. Inspection of Stockholders List
With respect to the inspection of shareholder lists, the New
York BCL provides a right of inspection, upon at least five days' written
demand, to (i) any person who shall have been a shareholder of record for at
least six months immediately preceding such shareholder's demand or (ii) any
person holding, or thereunto authorized in writing by the holder of, at least 5%
of any class of outstanding shares. The corporation has certain rights
calculated to assure itself that the demand for inspection is not for a purpose
that is in the interest of a business or object other than the business of the
corporation.
The Delaware GCL permits any stockholder to inspect the
stockholders list for any purpose reasonably related to such person's interest
as a stockholder. In addition, for a period of at least ten days prior to each
stockholders meeting, a list of stockholders entitled to vote at the meeting
shall be open for examination by any stockholder for any purpose germane to the
stockholders meeting.
K. Holding Company Reorganization
While no analogous provision under New York law, Section
251(g) has been added to the Delaware GCL permitting a Delaware corporation to
reorganize as a holding company without stockholder approval. The reorganization
contemplated by the statute is accomplished by merging the subject corporation
with or into a direct or indirect wholly owned subsidiary of the corporation and
converting the stock of the corporation into stock of another direct or indirect
wholly owned subsidiary of the corporation, which would be the new holding
company. The statute eliminates the requirement for a stockholder vote on such a
merger but contains several provisions designed to ensure that the rights of
stockholders are not changed by or as a result of the merger, except and to the
extent that such rights could be changed without such stockholder approval under
existing law.
CERTAIN SIGNIFICANT DIFFERENCES BETWEEN THE CHARTER DOCUMENTS OF T-HQ NEW YORK
AND THQ DELAWARE
The New York Certificate and Delaware Certificate differ in several
significant respects, as described below. Similarly, the New York By-laws and
the Delaware By-Laws also differ materially as described below and insofar as
the Delaware By-laws reflect the provisions of the Delaware Certificate and the
Delaware GCL. The following summary does not purport to be a complete statement
of such changes or of the Delaware Certificate or Delaware By-Laws and is
qualified in its entirety by reference to such Certificate and By-Laws. Copies
of the New York Certificate, the New York By-Laws, the Delaware Certificate and
the Delaware By-laws are available for inspection at the principal office of the
Company, and copies will be sent to shareholders on request at a nominal charge
to cover costs. A copy of the Delaware Certificate is also attached hereto as
Appendix B, and reference should be made to it for a more complete understanding
of its contents. The most important differences between the T-HQ New York
Charter documents and the provisions of the Delaware Certificate and Delaware
By-laws are summarized below.
NAME OF CORPORATION
The Delaware corporation will be named THQ Inc.
AUTHORIZED CAPITAL STOCK
T-HQ New York is authorized to issue 100,000,000 shares of common stock
, $0.0001 par value, and 5,000 shares of preferred stock, $0.01 par value. The
Delaware Certificate authorizes the corporation to issue 50,000,000 shares of
common stock, no par value, and 5,000 shares of preferred stock, $0.01 par
value. Such reduction of authorized common stock is intended to reduce the
potential amount of Delaware franchise taxes payable by the Company from that
amount resulting from the Company's current authorized capitalization.
The New York Certificate provides that ownership of shares of the
corporation does not create any preemptive or other rights to purchase,
subscribe for, or take any part of any shares of the Company or any part of the
notes, debentures, bonds or other securities convertible into or providing for
options or warrants to purchase shares of the
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Company which are issued, offered or sold by the Company. Further, the Board of
Directors may offer such securities on the terms and conditions deemed proper
and advisable in the sole discretion of the Board without first offering the
same to existing shareholders.
The Delaware Certificate has no analogous provisions regarding THQ
Delaware's common stock.
INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS
With no analogous provision in the New York Certificate, the Delaware
Certificate provides that no director shall be personally monetarily liable to
the Company or its stockholders for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders. However, the Delaware GCL substantially provides
as the New York Certificate without it being necessary to include in the
Company's charter documents, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the Delaware GCL (regarding unlawful payment of dividends
or unlawful stock purchase or redemption), or (iv) for any transaction from
which the director derived an improper personal benefit.
The New York Certificate provides for indemnification of directors and
officers (during and after services as a director or officer) to the fullest
extent permitted by the New York BCL. The New York Certificate does not
expressly provide for T-HQ New York's advancement of expenses incurred in
connection with certain proceedings.
The Delaware Certificate provides for indemnification of legal
representatives, directors, officers, employees and agents of THQ Delaware and
T-HQ New York to the fullest extent permitted by applicable law; provided that
if such indemnification is sought in connection with a proceeding, such person
shall be indemnified only if such proceeding was authorized by the Board of
Directors. The Delaware Certificate also provides for advancement of expenses
upon receipt of a repayment undertaking. The Delaware Certificate requires
repayment if such person is ultimately determined not to be entitled to
indemnification and allows claimants for such indemnification, after 30 days of
nonpayment by the Company, to sue the Company to recover unpaid amounts of
indemnification claims and the expenses of prosecuting such claim for repayment.
The THQ Delaware Certificate expressly authorizes the corporation to
purchase and maintain directors and officers liability insurance to insure
against liabilities or losses incurred in such capacities whether or not the
corporation would have the power to indemnify the individual under the Delaware
GCL. There is no similar provision in the New York Certificate or the New York
By-Laws.
This provision in the Delaware Certificate is intended to afford
directors additional protection and limit their potential liability from suits
alleging a breach of the duty of care. As a result of the inclusion of such a
provision, stockholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or that are
otherwise in violation of their duty of care, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to stockholders in any
particular situation, stockholders may not have an effective remedy against a
director in connection with such conduct.
In general, the purpose of the provisions in the THQ Delaware
Certificate is, in the Board of Directors' opinion, to provide indemnification
and exculpation provisions that are customary in modern charter documents of
Delaware corporations, particularly in charter documents of major, public
corporations that have incorporated in Delaware.
TRANSACTIONS WITH MANAGEMENT
The New York Certificate provides that an officer or director of the
Company shall not be disqualified from dealing or contracting with the Company
in the absence of fraud, as vendor, purchase or otherwise. It further specifies
that no transaction, contract or act of the Company, Board or any Committee be
void due to their interest in such transaction, contract or act in the absence
of fraud provided either (i) such interest is disclosed or known to the Board
and the Board approves the transaction, contract or act by a vote sufficient for
such purposes without the vote of such interested director, provided that any
such director may be counted in determining the presence of a quorum at such
meeting of the Board or (ii) such interest is disclosed or known to the
shareholders entitled to vote on such transaction and such transaction is
approved by vote of shareholders entitled to vote thereon, whether or not the
Board has approved the transaction, contract or act. When ratified by a majority
of a quorum of the Company's shareholders at an annual or special meeting, such
transaction shall be approved as though approved by every shareholder of the
Company if any such director's interest therein is disclosed.
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The Delaware Certificate does not include such a provision because the
Delaware GCL provides substantially what exists in the New York Certificate
without the need for inclusion in the Charter documents. The Delaware By-Laws
provide that "interested" directors may be counted in determining whether a
quorum is present at a Board meeting at which such contract or transaction is
considered or authorized, and such director may vote upon such transaction to
the extent permitted by applicable law.
AMENDING THE BY-LAWS
The T-HQ New York Charter and By-Laws provide for the alteration,
amendment or repeal of the By-Laws or the adoption of new By-Laws by the
shareholders or by the Board of Directors.
The Delaware Certificate expressly authorizes the Board of Directors to
make, alter or repeal the By-Laws, subject to any specific limitation on such
power contained in any By-laws adopted by the stockholders.
SHAREHOLDER MEETINGS
The annual meeting provision in the T-HQ New York By-Laws requires that
annual meetings be held within five months from the end of the Company's fiscal
year. The THQ Delaware By-Laws provide that the annual meeting of the
stockholders of THQ shall be held annually as the Board of Directors may
determine.
The New York By-Laws do not specify the manner by which business is to
be conducted at the annual shareholders meeting. Unlike the New York By-laws,
the Delaware By-Laws provide that in order for a stockholder to properly bring
business before a stockholder meeting, the stockholder must have given written
notice of such business to the Secretary for receipt (x) not less than 60 days
nor more than 90 days prior to the meeting or (y) if less than 70 days' notice
of the meeting is made to stockholders, not later than the tenth day following
the day on which the notice of meeting was mailed or when public disclosure of
the date of the meeting was made. The stockholder's notice must (a) briefly
describe the business and the reason for bringing the same, (b) the name and
address of the proposing stockholder, (c) the stockholdings of such stockholder,
and (d) such stockholders interest in the proposed business.
LIMITATIONS ON CALL OF MEETINGS
The T-HQ New York By-Laws currently provide that a special meeting of
shareholders may be called by the Board of Directors, the Chairman of the Board,
the president, or by one or more shareholders holding not less than 10% of the
voting power of the Company. The THQ Delaware Certificate does not include a
provision with respect to who may call a special meeting of stockholders. In
the absence of such provision, Delaware law provides that the board of
directors may call special meetings.
OTHER CHANGES TO REFLECT TECHNICAL DIFFERENCES BETWEEN DELAWARE LAW AND NEW YORK
LAW
In addition to the changes described above, certain technical changes
have been made in the THQ Delaware Charter and By-Laws from the T-HQ New York
Charter and By-Laws to reflect differences between the Delaware GCL and the New
York GCL. Such technical changes include: designation of a registered office and
registered agent in the State of Delaware; and changing references in the
By-Laws to place (for example, the place for certain meetings) or to applicable
law from New York to Delaware.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Company intends that the Reincorporation constitute a tax-free
transaction under the Internal Revenue Code of 1986, as amended (the "Code"); if
it constitutes such a transaction, no gain or loss will be recognized by holders
of the Shares upon the consummation of the Reincorporation. The tax basis of the
shares of Delaware Common Stock will be the same as the tax basis of the Shares
of T-HQ New York.
Although it is not anticipated that state or local income tax
consequences to shareholders will vary from the federal income tax consequences
described above, shareholders should consult their own tax advisers as to the
effect of the Reincorporation.
The affirmative vote of two-thirds of the Shares represented at the
Annual Meeting of the Shareholders in person or by proxy and entitled to vote
will be necessary for shareholder approval of the Reincorporation Proposal. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
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REINCORPORATION PROPOSAL. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
REINCORPORATION PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE REINCORPORATION PROPOSAL. Proxies solicited by the Board of Directors will
be voted FOR the Reincorporation Proposal unless a vote against the
Reincorporation Proposal or an abstention is specifically indicated thereon.
ADOPTION OF THE COMPANY'S 1997 STOCK OPTION PLAN
(PROPOSAL NO. 3)
The Board of Directors is proposing for shareholder approval the
Company's 1997 Stock Option Plan (the "1997 Plan"). The purposes of the 1997
Plan are (i) to align the interests of the Company's shareholders and the
recipients of options under the 1997 Plan by increasing the proprietary interest
of such recipients in the Company's growth and success, (ii) to advance the
interests of the Company by attracting and retaining officers, other employees,
consultants, advisors and well-qualified persons who are not officers or
employees of the Company for service as directors of the Company, and (iii) to
motivate such persons to act in the long-term best interests of the Company's
shareholders. For purposes of the 1997 Plan, references to employment by the
Company shall also mean employment by a subsidiary.
Under the 1997 Plan, the Company may grant non-qualified stock options
and "incentive stock options" (within the meaning of Section 422 of the Code to
qualified officers, employees, consultants and advisors. Additionally,
commencing on July 1, 1997 and on the first day of each fiscal quarter
thereafter, each non-employee director will be granted an option to purchase
2,500 shares of Common Stock at an option exercise price per share equal to the
fair market value of the Common Stock on the date of grant. Approximately 50
employees and three non-employee directors are eligible to participate in the
1997 Plan. Reference is made to Appendix C to this Proxy Statement for the
complete text of the 1997 Plan, which is summarized below.
DESCRIPTION OF THE 1997 PLAN
Administration. The 1997 Plan shall be administered either by the Board
of Directors of the Company or by a stock option committee (the "Committee")
designated by the Board consisting of two or more members of the Board each of
whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" within the meaning of Section 162(m) of the Code. As used
herein, the term "Committee" shall mean the Board if no such committee is
designated, and shall mean such stock option committee during such times as it
is so designated.
The Committee shall, subject to the terms of the 1997 Plan, select
eligible persons for participation in the 1997 Plan and shall determine the
number of shares of Common Stock subject to each option granted hereunder, the
exercise price of such option, the time and conditions of exercise of such
option and all other terms and conditions of such option, including, without
limitation, the form of the written option agreement between the Company and the
optionee that evidences each option and sets forth the terms and conditions of
such option (the "Agreement"). The Committee shall, subject to the terms of the
1997 Plan, interpret the 1997 Plan and the application thereof, establish such
rules and regulations it deems necessary or desirable for the administration of
the 1997 Plan and may impose, incidental to the grant of an option, conditions
with respect to the grant, such as limiting competitive employment or other
activities. All such interpretations, rules, regulations and conditions shall be
final, binding and conclusive. The Committee may, in its sole discretion and for
any reason at any time, subject to the requirements imposed under Section 162(m)
of the Code and regulations promulgated thereunder in the case of an option
intended to be qualified performance-based compensation, take action such that
any or all outstanding options shall become exercisable in part or in full.
The Committee may delegate some or all of its power and authority
hereunder to the Chief Executive Officer or other executive officer of the
Company as the Committee deems appropriate; provided, however, that the
Committee may not delegate its power and authority with regard to the selection
for participation in the 1997 Plan of an officer or other person subject to
Section 16 of the Exchange Act or decisions concerning the timing, pricing or
amount of an option grant to such an officer or other person.
Available Shares. Subject to adjustment in the event of a Transaction
(as defined below) up to 650,000 shares of Common Stock shall be available for
grants of options under the 1997 Plan, reduced by the sum of the aggregate
number of shares of Common Stock which become subject to outstanding options. To
the extent that shares of Common
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Stock subject to an outstanding option are not issued or delivered by reason of
the expiration, termination, cancellation or forfeiture of such option, then
such shares of Common Stock shall again be available under the 1997 Plan.
Effect of Certain Transactions. In the event that the Company enters
into an agreement to dispose of all or substantially all of its assets, to
consummate a merger or consolidation in which the Company is not the surviving
or resulting corporation, or its shareholders sell 60% or more of its stock
(such distribution, merger, consolidation or sale being hereinafter referred to
as a "Transaction"), then the Committee shall provide, at its election made in
its sole and absolute discretion, for one or more of the following: (i) for each
outstanding option, whether or not then exercisable, to be replaced with a
comparable option to purchase shares of capital stock of a successor or
purchasing corporation or parent thereof, or (ii) for each outstanding option,
whether or not then exercisable, to be assumed by a successor or purchasing
corporation or parent thereof on the same terms and subject to the conditions
set forth in, or (iii) for each outstanding option, whether or not then
exercisable, to become exercisable during such period prior to the scheduled
consummation of such Transaction as may be specified by the Committee. The 1997
Plan provides for treatment of options to permit the treatment of a business
combination in which the Company is involved to be treated as a pooling of
interests for financial accounting purposes.
Effective Date, Termination and Amendment. If approved by shareholders,
the 1997 Plan will become effective as of June 24, 1997 (the date of approval by
the Company's shareholders) and will terminate ten years thereafter, unless
terminated earlier by the Board of Directors. Termination of the 1997 Plan shall
not affect the terms or conditions of any option granted prior to termination.
The Board may amend the 1997 Plan as it shall deem advisable, subject to any
requirement of stockholder approval required by applicable law, rule or
regulation; provided, however, that no amendment shall be made without
stockholder approval if such amendment would increase the maximum number of
shares of Common Stock available under the 1997 Plan or extend the term of the
1997 Plan; and, provided, further, that the 1997 Plan shall not be amended in a
manner which fails to comply with Section 16 of the Exchange Act.
Non-Qualified Stock Options. The period for the exercise of a
non-qualified stock option and the option exercise price will be determined by
the Committee, provided that no option shall be exercisable later than ten years
after its date of grant. The exercise price of all non-qualified stock options
must be no less than 100% of the fair market value of a share of Common Stock on
the date of the grant.
Incentive Stock Options. No incentive stock option will be exercisable
more than ten years after its date of grant. Additionally, if the recipient of
the incentive stock option owns greater than ten percent of the voting power of
all shares of capital stock of the Company (a "Ten Percent Holder"), the option
must be exercised within five years after its date of grant. The option exercise
price of an incentive stock option will not be less than the fair market value
of the Common Stock on the date of grant of such option. Additionally, if the
recipient of the incentive stock option is a Ten Percent Holder, the option
exercise price will be the price required by the Code, currently 110% of fair
market value.
Termination of Employment/Directorship. In the event of termination of
employment by reason of death or permanent and total disability, each stock
option will be exercisable to the extent that the option is exercisable on the
effective date of such termination of employment for a period of no more than
one year after the date of such termination, but in no event after the
expiration of such option. In the event of termination for "Cause", each stock
option shall terminate on the date of termination. "Cause" is defined in the
1997 Plan as termination by an optionee, willful engagement in conduct which is
demonstrably injurious to the Company or any Subsidiary, any act of dishonesty,
commission of a felony or a significant violation of any statutory or common law
duty of loyalty to the Company. In the event of termination by the Company for
any other reason, each non-qualified stock option will be exercisable to the
extent it is exercisable on the effective date of such termination for a period
of no more than three months after such termination, but in no event after the
expiration of such option. In the event of voluntary termination, each stock
option shall immediately terminate. If a holder dies during the applicable
one-year or three-month period, if any, following termination of employment,
each non-qualified stock option will be exercisable only to the extent that such
option was exercisable on the date of the holder's death, and may thereafter be
exercised for a period of no more than one year from the date of death, but in
no event after the expiration of such option.
Non-Employee Director Options. Beginning on July 1, 1997 and on each
January 1st, April 1st, July 1st and October 1st thereafter, each non-employee
director will be granted an option to purchase 2,500 shares of Common Stock at
an exercise price per share equal to the fair market value of the Common Stock
on the date of the grant of such option. Such options will be fully excisable on
and after their date of grant and will expire five years thereafter.
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If a non-employee director ceases to be a director by reason of death
or permanent and total disability, each option will become excisable on the
effective date of such cessation for a period of no more than one year after
such date, but in no event after the expiration of the option. In the event a
non-employee director is removed from the Board of Directors for cause, each
option shall terminate on the date of such removal. If a non-employee director
ceases to be a director for any other reason, each option will be exercisable to
the extent it is exercisable on the effective date of such cessation for a
period of no more than three months after such cessation, but in no event after
the expiration of such option. In the event a non-employee director dies during
the applicable one-year or three-month period, if any, following cessation of
his directorship, then each option will be exercisable only to the extent that
such option was exercisable on the date of death, and may thereafter be
exercised for a period of no more than one year from the date of death, but in
no event after the expiration of such option.
STOCK OPTION PLAN TABLE
The Stock Option Committee and the Board have not yet designated
recipients for grants of options under the proposed 1997 Plan; however, the
following table sets forth (i) the number of shares of Common Stock underlying
options which management, based upon option grants in 1996 under its 1990 Stock
Option Plan, anticipates to be granted during fiscal year 1997 to (a) the Named
Executives, (b) all executive officers as a group, (c) non-employee directors
and (d) to all persons (other than non-employee directors and executive
officers) eligible to receive awards under the 1997 Stock Option Plan and (ii)
the value of shares of Common Stock underlying such option grants as of April 2,
1997.
1997 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION SHARES UNDERLYING OPTIONS DOLLAR VALUE (1)
----------------- ------------------------- ----------------
<S> <C> <C>
Brian J. Farrell -- (2) --
President and Chief Executive
Officer
L. Michael Haller 7,500(2) $ 47,813
Senior Vice President
Executive Group (3 persons) 15,000(3) $ 95,625
Non-Executive Director Group 15,000(4) $ 95,625
(3 persons)
Non-Executive Officer Employee 100,000(5) $637,500
Group (45-50 persons)
</TABLE>
(1) Based upon a closing price per share of the Common Stock as reported by the
NASDAQ National Market System of $6.375 on April 2, 1997.
(2) No option grants were made in 1996 by the Company to Mr. Farrell under the
1990 Stock Option Plan.
(3) Based upon the option grants made by the Company in 1996 under the 1990
Stock Option Plan.
(4) Reflects 2,500 shares of Common Stock to be granted to each of three
non-employee directors on July 1, 1997 and October 1, 1997.
(5) Based upon option grants by the Company to its non-executive employees in
1996 under its 1990 Stock Option Plan.
Federal Income Tax Consequences. The following is a brief overview of
the U.S. federal income tax consequences generally arising with respect to
awards under the 1997 Plan.
A participant receiving a non-qualified stock option under the 1997
Plan will not recognize taxable income upon the grant of the option, but will
recognize taxable compensation at the time of exercise in the amount of the
difference
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between the purchase price and the fair market value of the shares purchased on
the date of exercise. At that time, the Company will be entitled to a deduction
as compensation expense in an amount equal to the amount taxable to the
participant as income.
A participant receiving an incentive stock option will not recognize
income at the time of grant or exercise of the option, but will recognize income
or loss upon disposition of the shares, which may be ordinary income or capital
gain (or loss), depending on the length of time the shares have been held. The
Company will not be entitled to any deduction with respect to the grant or
exercise of a participant's incentive stock option. However, if the participant
disposes of the shares acquired pursuant to the exercise of the option before
the later of two years from the date of grant and one year from the date of
exercise, the Company will be entitled to a deduction as compensation expense in
an amount taxable to the participant as ordinary income and not capital gain.
The affirmative vote of holders of a majority of the Shares represented
at the Meeting in person or by proxy and entitled to vote will be necessary for
shareholder approval of the 1997 Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR APPROVAL OF THE PROPOSED 1997 PLAN. Unless otherwise instructed, the proxy
holders will vote the proxies received by them FOR approval of the 1997 Plan.
INDEPENDENT AUDITORS
The Company's consolidated financial statements have been audited by
Deloitte & Touche LLP ("Deloitte") through the fiscal year ending December 1996.
Deloitte has been the Company's independent auditors since 1991 and the Board of
Directors intends to appoint Deloitte to be the Company's independent auditors
for the fiscal year ending December 31, 1997. Representatives of Deloitte are
expected to be present at the Annual Meeting to respond to appropriate questions
and will be given an opportunity to make a statement if they so desire.
OTHER BUSINESS
The Company knows of no business, other than as stated in the Notice of
Annual Meeting of Shareholders, to be brought before the Meeting. If other
matters should properly come before the meeting, proxies will be voted on such
matters in accordance with the best judgment and discretion of the persons
appointed by the proxies.
NOTICE OF INSURANCE PROVIDED DIRECTORS AND OFFICERS
Pursuant to the requirements of Section 726 of the New York BCL, the
Company hereby gives notice to its shareholders that the Company has purchased
insurance for the indemnification of its directors and officers pursuant to a
contract of insurance issued by the Agricultural Excess Surplus Insurance
Company. The annual premium of $148,990 provides coverage of up to $3,000,000
per claim, with an aggregate limit of up to $3,000,000 for all claims made
during the policy period, which runs from October 27, 1996 until October 27,
1997. Such coverage is available for acts and omissions occurring on or after
July 31, 1991. The insurance covers losses, including damages, judgments,
settlements, defense costs and expenses incurred in the defense of any civil or
criminal action or suit, arising out of claims against the Company's directors
or officers with respect to their acts or omissions solely in their capacity as
directors and/or officers of the Company. The policy provides coverage to the
Company for reimbursement of amounts paid by it to its directors and officers as
indemnification for such claims, subject to a retention (deductible amount) of
$75,000, a separate retention of $150,000 pertaining to claims relating to
securities issues, and also provides coverage to directors and officers in the
event that the Company cannot as a matter of law or otherwise provide
indemnification, with no deductible. The coverage is subject to certain
exclusions set forth in the policy and required by law, such as an exclusion for
any fraudulent, dishonest or criminal acts of an officer or director and
exclusion for losses arising out of claims in which there has been a finding
that the director or officer gained a personal profit, gain, or other advantage
to which he was not legally entitled.
The Certificate of Incorporation for THQ Delaware provides for
indemnification of the Company's directors and officers to the extent allowed by
the Delaware general Corporation Law. See Appendix A attached to this Proxy
Statement.
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The Company has also entered into an Employment Agreement in which it
has agreed to indemnify its Chief Executive Officer against any claim and hold
him harmless from any liability, cost or expense, including attorneys' fees and
amounts paid in settlement, arising out of any claim made by reason of the fact
that he was a director or officer of the Company or of any other entity or
enterprise that such person served in any capacity at the request of the
Company, to the fullest extent permitted by law. See "Employment Agreement with
Brian J. Farrell."
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Shareholder proposals to be presented at the 1998 Annual Meeting of
Shareholders of T-HQ New York (or THQ Delaware of the Reincorporation is
consummated) must be received by the Company at its principal executive offices
at 5016 North Parkway Calabasas, Calabasas, California 91302, addressed to the
attention of the Secretary, not later than February __, 1998 in order to be
included in the Company's proxy statement and form of proxy related to such
meeting.
By order of the Board of Directors
DEBORAH A. LAKE
Secretary
May __, 1997
PLEASE COMPLETE, DATE, SIGN AND
RETURN YOUR PROXY PROMPTLY
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of the
__ day of __________1997, by and between T-HQ, Inc., a New York corporation
("T-HQ New York") and THQ Inc., a Delaware corporation ("THQ Delaware"), with
reference to the following facts:
A. T-HQ New York has authorized capital stock consisting of
100,000,000 shares of Common Stock, $0.0001 par value ("T-HQ New York Stock"),
of which on the date hereof _______ shares are issued and outstanding and 5,000
shares of preferred stock, $0.01 par value, of which no shares are issued and
outstanding.
B. THQ Delaware has an authorized capital stock consisting of
50,000,000 shares of Common Stock, no par value ("THQ Delaware Stock"), of which
on the date hereof 100 shares are issued and outstanding and owned by T-HQ New
York and 5,000 shares of preferred stock, $0.01 par value, of which no shares
are issued and outstanding.
C. T-HQ New York is a NASDAQ National Market System-listed public
company incorporated in New York, and the Board of Directors considers it to be
in the best interests of T-HQ New York and its shareholders that said
corporation be reincorporated in Delaware.
D. T-HQ New York and THQ Delaware, and the respective Boards of
Directors thereof, deem it advisable and to the advantage, welfare and best
interests of said corporations and their respective shareholders to merge T-HQ
New York with and into THQ Delaware pursuant to the provisions of the Business
Corporation Law of the State of New York ("NY BCL") and the General Corporation
Law of the State of Delaware (the "DGCL")
E. This Agreement is being submitted for consideration and vote to the
shareholders of T-HQ New York and the sole stockholder of THQ Delaware as
required by the NY BCL and the DGCL.
NOW, THEREFORE, T-HQ New York and THQ Delaware hereby agree, subject to
the approval of their respective shareholders in accordance with the NY BCL and
DGCL, that T-HQ New York be merged with and into THQ Delaware with THQ Delaware
as the surviving corporation, and do hereby agree, prescribe and set forth the
terms and conditions of the merger, the mode of carrying the same into effect
and the manner and basis of converting the shares of T-HQ New York, as follows:
<PAGE> 30
1. Merger; Governing Documents and Name of Surviving Corporations.
1.1 T-HQ New York shall be merged with and into THQ Delaware in
accordance with the applicable provisions of the NY BCL and the DGCL (the
"Merger"), and at the "Effective Time" (as defined in Section 4.2 hereof), the
separate existence of T-HQ New York shall cease, except to the extent provided
by law in the case of a corporation after its merger into another corporation;
and THQ Delaware shall continue under the laws of the State of Delaware under
the name "THQ Inc." as the surviving corporation.
1.2 The Certificate of Incorporation and the Bylaws of THQ Delaware, as
presently constituted, shall be and continue to be the Certificate of
Incorporation and Bylaws of THQ Delaware, the surviving entity, until the same
are amended in accordance with applicable law.
1.3 The directors and officers of THQ Delaware, as presently
constituted and until their successors are duly elected or appointed and
qualified in accordance with applicable law, shall serve as the directors and
officers, respectively, of the surviving corporation.
2. Conversion of Shares.
2.1 At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, each share of T-HQ New York Stock that
is issued and outstanding immediately prior to the Effective Time shall be
changed and converted into one fully paid and nonassessable share of THQ
Delaware Stock (other than any shares of T-HQ New York Stock held in the
treasury of T-HQ New York which shall be canceled at the Effective Time).
2.2 Each share of THQ Delaware Stock that is issued and outstanding
immediately prior to the Effective Time shall be canceled and retired and shall
resume the status of authorized and unissued shares of THQ Delaware Stock.
2.3 At the Effective Time, the holder of certificates of T.HQ New York
shall cease to have any rights as a shareholder of T-HQ New York, and such
holder's sole right shall pertain to THQ Delaware Stock.
3. Transfer of Assets and Liabilities.
At the Effective Time:
3.1 The separate existence of T-HQ New York shall cease, and the
corporate existence and identity of THQ Delaware shall continue as the surviving
corporation and shall succeed to T-HQ New York in the manner set forth in the
provisions of the NY BCL and the DGCL.
3.2 THQ Delaware shall have the rights, privileges, amenities and
powers, and shall be subject to all the duties and liabilities, of a corporation
organized under the DGCL.
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3.3 THQ Delaware shall thereupon and thereafter possess all the rights,
privileges, amenities and franchises, of a public as well as of a private
nature, of each of the constituent corporations to the Merger; and all property,
real, personal and mixed, and all debts due on whatever account, and all and
every other interest of or belonging to or due to each of the constituent
corporations shall be taken and be deemed to be transferred to and vested in THQ
Delaware without further act or deed.
3.4 THQ Delaware shall thenceforth be responsible and liable for all
liabilities and obligations of each of the constituent corporations, and any
claim existing or action pending by or against either of the constituent
corporations may be prosecuted as if the Merger had not taken place or THQ
Delaware may be substituted in its place. Neither the rights of creditors nor
liens upon the property of either of the constituent corporations shall be
impaired by the Merger.
3.5 Each right to receive from T-HQ New York shares of T-HQ New York
Stock upon the exercise of options (the "Plan Options") granted under the
Amended and Restated 1990 Stock Option Plan of T-HQ New York, or the 1997 Stock
Option Plan of T.HQ New York (the "Plans") and pursuant to stock option
agreements (the "Option Agreements") entered into by T-HQ New York outside of
the Plan (the "Additional Options" and collectively with the Plan Options, the
"Options") which is outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become a right to acquire (and THQ Delaware
hereby assumes the obligation to deliver) the same number of shares of THQ
Delaware Stock at the same price per share, and upon the same terms and subject
to the same conditions, as set forth in the Plan and the agreements evidencing
the Options and as in effect at the Effective Time. THQ Delaware hereby assumes,
as of the Effective Time, (x) the Plans and all obligations of T-HQ New York
under the Plans\, including the outstanding Plan Options, (y) the Option
Agreements and all obligations of T-HQ New York under the Option Agreements,
including the outstanding Additional Options and (z) all obligations of T-HQ New
York under all other benefit plans in effect as of the Effective Time with
respect to which employee rights or accrued benefits are outstanding as of the
Effective Time.
4. Effectiveness of the Merger.
4.1 This Agreement shall be delivered and submitted for filing to the
Secretary of State for the State of Delaware together with an officers'
certificate of each of T-HQ New York and THQ Delaware stating the total number
of outstanding shares of stock entitled to vote on the Merger and that the
principal terms of this Agreement were approved by the Board of Directors of
each of T-HQ New York and THQ Delaware by a vote of a number of shares of stock
of each of T-HQ New York and THQ Delaware that equaled or exceeded the vote
required.
4.2 The "Effective Time" of the Merger shall be _____ a.m. on _______
__, 1997; provided, however, that the Effective Time may be either accelerated
to an earlier time and date
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or deferred to a later time and date upon the mutual agreement of T-HQ New York
and THQ Delaware and the filing of an appropriate amendment to this Agreement in
the office of the Secretary of State.
5. Stock Certificates. At and after the Effective Time of the Merger, all of
the outstanding certificates which immediately prior to the Effective Time
evidenced shares of T-HQ New York Stock shall be deemed for all purposes to
evidence ownership of, and to represent, shares of THQ Delaware Stock into which
the shares of T-HQ New York Stock formerly evidenced by such shares have been
converted as herein provided.
6. Further Assurances. From time to time, as and when required by THQ
Delaware, or by its successors or assigns, there shall be executed and delivered
on behalf of T-HQ New York such deeds and other instruments, and there shall be
taken or caused to be taken by it all such further and other action as shall be
appropriate or necessary to vest, perfect, or confirm, of record or otherwise,
in THQ Delaware the title to and possession of all property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of T-HQ New
York, and otherwise to carry out the purposes of this Agreement; and the
officers and directors of THQ Delaware are fully authorized, in the name and on
behalf of T-HQ New York or otherwise, to take any and all such actions and to
execute and deliver any and all such deeds and instruments.
7. Amendments; Abandonment. Subject to applicable law, this Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein. At any time prior to the Effective Time, this Agreement may be
terminated and the Merger may be abandoned by the Board of Directors of either
T-HQ New York or THQ Delaware, or both, in their sole discretion.
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
T-HQ, INC., THQ INC.,
a New York corporation a Delaware Corporation
By: _______________________________ By: _________________________________
Brian J. Farrell, President and Brian J. Farrell, President and
Chief Executive Officer Chief Executive Officer
By: _______________________________ By: _________________________________
Deborah A. Lake, Secretary Deborah A. Lake, Secretary
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<PAGE> 34
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
THQ INC.
FIRST: The name of the Corporation is THQ Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act of
activity for which corporations may be organized under the General Corporation
Law of Delaware ("DGCL"). The Corporation shall have perpetual existence.
FOURTH: The name and mailing address of the incorporator are Lisa A.
Fontenot, Sidley & Austin, 555 West Fifth Street, Suite 4000, Los Angeles,
California 90013.
FIFTH: The Corporation is authorized to issue two classes of capital
stock, designated Common Stock and Preferred Stock. The amount of total
authorized capital stock of the Corporation is 55,000,000 shares, divided into
50,000,000 shares of Common Stock, no par value per share, and 5,000 shares of
Preferred Stock, par value $0.01 per share.
The Preferred Stock may be issued in one or more series. The Board of
Directors is hereby authorized to issue the shares of Preferred Stock in such
series and to fix from time to time before issuance the number of shares to be
included in any series and the designation, relative powers, preferences and
rights and qualifications, limitations or restrictions of all shares of such
series. The authority of the Board of Directors with respect to each series
shall include, without limiting the generality of the foregoing, the
determination of any or all of the following:
(a) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;
(b) the voting powers, if any, and whether such voting powers are full
or limited, of any such series;
(c) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) whether dividends, if any, shall be cumulative or noncumulative,
the dividend rate, of method of determining the dividend rate, of such series,
and the dates and preferences of dividends on such series;
(e) the rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Corporation;
<PAGE> 35
(f) the provisions, if any, pursuant to which the shares of such
series are convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock, or any other security, of the Corporation or any other corporation, and
the price or prices or the rates of exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any securities
of the Corporation or any other corporation;
(h) the provisions, if any of a sinking fund applicable to such
series;
(i) the right, if any, to the benefit of conditions and restrictions
upon the creation of indebtedness of the Corporation or any subsidiary, upon the
issue of any additional shares (including additional shares of such series or
any other series) and upon the payment of dividends or the making of other
distributions on, and the purchase, redemption or other acquisition by the
Corporation or any subsidiary of, any outstanding shares of the Corporation; and
(j) any other relative, participating, optional or other special
powers, preferences, rights, qualifications, limitations or restrictions
thereof;
all as shall be determined from time to time by the Board of Directors and shall
be stated in a resolution or resolutions providing for the issuance of such
Preferred Stock (a "Preferred Stock Designation").
The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares then outstanding) by the
affirmative vote of the holders of a majority of the capital stock of the
Corporation entitled to vote, with all such holders voting as a single class.
SIXTH:
A. Each holder of Common Stock of the Corporation entitled to vote
shall have one vote for each share thereof held.
B. Except as may be provided by the Board of Directors in a Preferred
Stock Designation or By-law, the holders of Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of stockholders at which they are not entitled to vote or
consent.
C. The Corporation shall be entitled to treat the person in whose name
any share of its capital stock is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable other claim to, or
interest in, such share on the part of any other
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<PAGE> 36
person, whether or not the Corporation shall have notice thereof, except as
expressly provided by applicable law.
D. No vote at any meeting of stockholders need be by written ballot
unless the Board of Directors, in its discretion, or the officer of the
Corporation presiding at the meeting, in his discretion, specifically directs
the use of a written ballot.
E. Subject to any rights granted in a Preferred Stock Designation to
any series of Preferred Stock, any action required or permitted to be taken by
the stockholders of the Corporation at an annual or special meeting of
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, is signed by the holders of all of outstanding stock.
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter or
repeal the By-laws of the Corporation, subject to any specific limitation on
such power contained in any By-laws adopted by the stockholders. Elections of
directors need not be by written ballot unless the By-laws of the Corporation so
provide.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended. Any repeal or modification of this Article Eighth by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
NINTH:
A. Each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person for whom he or she is the legal
representative, is or was a director or officer of the Corporation or of
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<PAGE> 37
T.HQ, Inc., a New York corporation ("T.HQ New York"), or is or was serving at
the request of the Corporation or T.HQ New York as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise (including service with respect to employee benefit plans),
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith; and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Paragraph B of this Article VII,
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) which is initiated by such person
only if such proceeding (or part thereof) was authorized by the Board of
Directors. The right to indemnification conferred in this Article VII shall be a
contract right and shall include the right to have paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, to the extent the DGCL so requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (any not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article VII or
otherwise. The Corporation may, by action of the Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
B. Right of Claimant to Bring Suit. If a claim under Paragraph A of
this Article VII is not paid in full by the Corporation within 30 days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall also be
entitled to have paid the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the DGCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including the Board of Directors, independent legal counsel or the
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
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<PAGE> 38
because he or she has met the applicable standard of conduct set forth in the
DGCL, or an actual determination by the Corporation (including the Board of
Directors, independent legal counsel or the stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
C. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article VII shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Certificate of Incorporation, By-Law, agreement, vote of
stockholders or directors or otherwise.
TENTH: The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
TWELFTH: Meeting of stockholders may be held within or without the
State of Delaware, as the By-laws of the Corporation may provide. The books of
the Corporation may be kept (subject to any provision contained in applicable
law) outside the State of Delaware at such place as may be designated from time
to time by the Board of Directors or the By-laws of the Corporation.
THE UNDERSIGNED, being the incorporator named above, has executed this
Certificate on June __, 1997.
________________________________
Lisa A. Fontenot
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APPENDIX C
THQ INC.
1997 STOCK OPTION PLAN
I. INTRODUCTION
1.1 Purposes. The purposes of the 1997 Stock Option Plan (this "Plan")
of THQ Inc. (the "Company"), and its subsidiaries (individually a "Subsidiary"
and collectively the "Subsidiaries") are (i) to align the interests of the
Company's stockholders and the recipients of options under this Plan by
increasing the proprietary interest of such recipients in the Company's growth
and success, (ii) to advance the interests of the Company by attracting and
retaining officers, other employees, consultants, advisors and well-qualified
persons who are not officers or employees of the Company for service as
directors of the Company, and (iii) to motivate such persons to act in the
long-term best interests of the Company's stockholders. For purposes of this
Plan, references to employment by the Company shall also mean employment by a
Subsidiary.
1.2 Administration. This Plan shall be administered either by the
Board of Directors of the Company (the "Board") or by a stock option committee
(the "Committee") designated by the Board consisting of two or more members of
the Board each of whom shall be a "Non-Employee Director" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and (if the Board wishes to qualify under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") an "outside director" within the
meaning of Section 162(m) of the Code. As used herein, the term "Committee"
shall mean the Board if no such committee is designated, and shall mean such
stock option committee during such times as it is so designated.
The Committee shall, subject to the terms of this Plan, select eligible
persons for participation in this Plan and shall determine the number of shares
of Common Stock subject to each option granted hereunder, the exercise price of
such option, the time and conditions of exercise of such option and all other
terms and conditions of such option, including, without limitation, the form of
the written option agreement between the Company and the optionee that evidences
each option and sets forth the terms and conditions of such option (the
"Agreement"). The Committee shall, subject to the terms of this Plan, interpret
this Plan and the application thereof, establish such rules and regulations it
deems necessary or desirable for the administration of this Plan and may impose,
incidental to the grant of an option, conditions with respect to the grant, such
as limiting competitive employment or other activities. All such
interpretations, rules, regulations and conditions shall be final, binding and
conclusive. The Committee may, in its sole discretion and for any reason at any
time, subject to the requirements imposed under Section 162(m) of the Code and
regulations promulgated thereunder in the case of an option intended to be
qualified performance-based compensation, take action such that any or all
outstanding options shall become exercisable in part or in full.
The Committee may delegate some or all of its power and authority
hereunder to the Chief Executive Officer or other executive officer of the
Company as the Committee deems appropriate; provided, however, that the
Committee may not delegate its power and authority with regard to the selection
for participation in this Plan of an officer or other person subject to Section
16 of the Exchange Act or decisions concerning the timing, pricing or amount of
an option grant to such an officer or other person.
<PAGE> 40
No member of the Board of Directors or the Committee, and neither the
Chief Executive Officer nor other executive officer to whom the Committee
delegates any of its power and authority hereunder, shall be liable for any act,
omission, interpretation, construction or determination made in connection with
this Plan in good faith, and the members of the Board of Directors and the
Committee and the Chief Executive Officer or other executive officer shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including attorneys' fees) arising therefrom to
the full extent permitted by law and under any directors' and officers'
liability insurance that may be in effect from time to time.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (ii) acts approved in
writing by all of the members of the Committee without a meeting.
1.3 Eligibility. Participants in this Plan shall consist of such
officers, other employees, consultants and advisors of the Company and its
Subsidiaries from time to time as the Committee in its sole discretion may
select from time to time. The Committee's selection of a person to participate
in this Plan at any time shall not require the Committee to select such person
to participate in this Plan at any other time. Non-employee directors of the
Company shall be eligible to participate in this Plan in accordance with Section
III.
1.4 Shares Available. Subject to adjustment as provided in Section
4.7, 650,000 shares of the common stock, no par value per share, of the Company
("Common Stock"), shall be available for grants of options under this Plan,
reduced by the sum of the aggregate number of shares of Common Stock which
become subject to outstanding options. To the extent that shares of Common Stock
subject to an outstanding option are not issued or delivered by reason of the
expiration, termination, cancellation or forfeiture of such option, then such
shares of Common Stock shall again be available under this Plan.
Shares of Common Stock shall be made available from authorized and
unissued shares of Common Stock, or authorized and issued shares of Common Stock
reacquired and held as treasury shares or otherwise or a combination thereof.
II. STOCK OPTIONS
2.1 Grants of Stock Options. The Committee may, in its discretion,
grant options to purchase shares of Common Stock to such eligible persons as may
be selected by the Committee. The Committee may, in its discretion, grant
options to purchase shares of Common Stock to such eligible persons as may be
selected by the Committee. Each option, or portion thereof, that is not an
incentive stock option, shall be a non-qualified stock option. An incentive
stock option shall mean an option to purchase shares of Common Stock that meets
the requirements of Section 422 of the Code, or any successor provision, which
is intended by the Committee to constitute an incentive stock option. Each
incentive stock option shall be granted within ten years of the effective date
of this Plan. To the extent that the aggregate Fair Market Value (determined as
of the date of grant) of shares of Common Stock with respect to which options
designated as incentive stock options are exercisable for the first time by a
participant during any calendar year (under this Plan or any other plan of the
Company, or any Subsidiary as defined in Section 424 of the Code) exceeds the
amount (currently $100,000) established by the Code, such options shall
constitute non-qualified stock options. "Fair Market Value" shall mean the
closing transaction price of a share of Common Stock as reported in the NASDAQ
National Market System, or other exchange where the Common Stock is listed, on
the date as of which such value is being determined
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or, if there shall be no reported transactions on such date, on the next
preceding date for which transactions were reported; provided that if Fair
Market Value for any date cannot be determined as above provided, Fair Market
Value shall be determined by the Committee by whatever means or method as the
Committee, in the good faith exercise of its discretion, shall at such time deem
appropriate.
2.2 Terms of Stock Options. Options shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. The number of shares of
Common Stock subject to an option and the purchase price per share of Common
Stock purchasable upon exercise of the option shall be determined by the
Committee; provided, however, that such purchase price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date of grant of
such option; provided further, that if an incentive stock option shall be
granted to any person who, at the time such option is granted, owns capital
stock possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any Subsidiary) (a "Ten Percent
Holder"), the purchase price per share of Common Stock shall be the price
(currently 110% of Fair Market Value) required by the Code in order to
constitute an incentive stock option.
(b) Option Period and Exercisability. The period during which an
option may be exercised shall be determined by the Committee; provided, however,
that no incentive stock option shall be exercised later than ten years after its
date of grant; provided further, that if an incentive stock option shall be
granted to a Ten Percent Holder, such option shall not be exercised later than
five years after its date of grant. The Committee may, in its discretion,
establish performance measures or other criteria which shall be satisfied or met
as a condition to the grant of an option or to the exercisability of all or a
portion of an option. The Committee shall determine whether an option shall
become exercisable in cumulative or non-cumulative installments and in part or
in full at any time. An exercisable option, or portion thereof, may be exercised
only with respect to whole shares of Common Stock. Notwithstanding Section 2.3
hereof or the provisions of any Agreement, the Committee may in its sole and
absolute discretion extend the time for the exercise of any option.
(c) Method of Exercise. An option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares of Common
Stock to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Company's satisfaction) either (A) in
cash, (B) by delivery of previously owned whole shares of Common Stock (which
the optionee has held for at least six months prior to the delivery of such
shares or which the optionee purchased on the open market and in each case for
which the optionee has good title, free and clear of all liens and encumbrances)
having an aggregate Fair Market Value, determined as of the date of exercise,
equal to the aggregate purchase price payable by reason of such exercise, (C) in
cash by a broker-dealer acceptable to the Company to whom the optionee has
submitted an irrevocable notice of exercise, or (D) a combination of (A), (B)
and (C), in each case to the extent not prohibited by the Agreement relating to
the option and (ii) by executing such documents as the Company may reasonably
request; provided, however, that notwithstanding the foregoing or anything in
the Agreement relating to such option to the contrary, the Company shall have
sole discretion to disapprove of an election pursuant to clauses (B)-(D). Any
fraction of a share of Common Stock which would be required to pay such purchase
price shall be disregarded and the remaining amount due shall be paid in cash by
the optionee. No certificate representing Common Stock shall be delivered until
the full purchase price therefor has been paid (or arrangement made for such
payment to the Company's satisfaction).
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2.3 Termination of Employment.
(a) Total Disability. Unless otherwise specified in the Agreement
relating to an option, if an optionee's employment with the Company terminates
by reason of Total Disability, each option held by such optionee shall be
exercisable only to the extent that such option is exercisable on the effective
date of such optionee's termination of employment and may thereafter be
exercised by such optionee (or such optionee's legal representative or similar
person) until and including the earliest to occur of (i) the date which is one
year (or such other period as set forth in the Agreement relating to such
option) after the effective date of such optionee's termination of employment,
and (ii) the expiration date of the term of such option. For purposes of this
Plan, "Total Disability" shall, with respect to any optionee who at such time is
employed by the Company, mean the permanent and total disability of such
optionee as described in such optionee's written employment agreement; and
otherwise shall mean the inability of such optionee substantially to perform
such optionee's duties and responsibilities for a continuous period of six
months.
(b) Death. Unless otherwise specified in the Agreement relating to an
option, if an optionee's employment with the Company terminates by reason of
death, each option held by such optionee shall be exercisable only to the extent
that such option is exercisable on the date of such optionee's death and may
thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is one year (or such other period as set forth in
the Agreement relating to such option) after the date of death and (ii) the
expiration date of the term of such option.
(c) Termination for Cause. Unless otherwise specified in the Agreement
relating to an option, if the employment of the holder of such option is
terminated by the Company for Cause, such option shall terminate automatically
on the date of such termination. For purposes of this Plan, "Cause" shall, with
respect to any optionee who at such time has a written employment agreement with
the Company, have the meaning ascribed thereto in such agreement and (i) shall
also include an optionee's termination of his employment for any reason, but
(ii) shall not include termination by reason of an optionee's Total Disability
notwithstanding any language to the contrary in such employment agreement; and
otherwise shall mean the willful and continued failure to substantially perform
the duties with the Company (other than a failure resulting from the optionee's
Total Disability), the willful engaging in conduct which is demonstrably
injurious to the Company or any Subsidiary, monetarily or otherwise, including
conduct that, in the reasonable judgment of the Company, does not conform to the
standard of the Company's executives, any act of dishonesty, commission of a
felony or a significant violation of any statutory or common law duty of loyalty
to the Company, or such optionee's termination of his employment for any reason.
(d) Other Termination. Unless otherwise specified in the Agreement
relating to an option, if an optionee's employment with the Company is
terminated by the Company for any reason other than Total Disability, death or
for Cause, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the effective date of such optionee's
termination of employment and may thereafter be exercised by such optionee (or
such optionee's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months (or such other period as
set forth in the Agreement relating to such option) after the effective date of
such optionee's termination of employment, and (ii) the expiration date of the
term of such option.
(e) Death Following Termination of Employment. Subject to paragraph
(f) below and unless otherwise specified in the Agreement relating to an option,
if an optionee dies during the period set forth in Section 2.3(a) following
termination of employment by reason of Total Disability, or if an optionee dies
during the period set forth in Section 2.3(d) following termination of
employment for any other reason other than Total Disability, death or for Cause,
each option held by such optionee shall be exercisable only
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<PAGE> 43
to the extent that such option is exercisable on the date of such optionee's
death and may thereafter be exercised by such optionee's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the earliest to occur of (i) the date which is one
year (or such other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of the term of such
option.
(f) Termination of Employment - Incentive Stock Options. Unless
otherwise specified in the Agreement relating to the option, if the employment
with the Company of a holder of an incentive stock option terminates by reason
of Permanent and Total Disability (as defined in Section 22(e)(3) of the Code),
each incentive stock option held by such optionee shall be exercisable only to
the extent that such option is exercisable on the effective date of such
optionee's termination of employment by reason of Permanent and Total
Disability, and may thereafter be exercised by such optionee (or such optionee's
legal representative or similar person) until and including the earliest to
occur of (i) the date which is one year (or such other period as set forth in
the Agreement relating to such option) after the effective date of such
optionee's termination of employment by reason of Permanent and Total Disability
and (ii) the expiration date of the term of such option.
Unless otherwise specified in the Agreement relating to the option, if
the employment with the Company of a holder of an incentive stock option
terminates by reason of death, each incentive stock option held by such optionee
shall be exercisable only to the extent that such option is exercisable on the
date of such optionee's death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or similar person
until and including the earliest to occur of (i) the date which is one year (or
such shorter period as set forth in the Agreement relating to such option) after
the date of death and (ii) the expiration date of the term of such option.
If the employment with the Company of a holder of an incentive stock
option terminates for any reason other than Permanent and Total Disability or
death or for Cause, each incentive stock option held by such optionee shall
become fully exercisable, and may thereafter be exercised by such holder (or
such holder's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months after the effective date
of such optionee's termination of employment and (ii) the expiration date of the
term of such option.
If the holder of an incentive stock option dies during the period set
forth in the first paragraph of this Section 2.3(f) following termination of
employment by reason of Permanent and Total Disability (or such other period as
set forth in the Agreement relating to such option), or if the holder of an
incentive stock option dies during the period set forth in the third paragraph
of this Section 2.3(f) following termination of employment for any reason other
than Permanent and Total Disability or death, each incentive stock option held
by such optionee shall be exercisable only to the extent such option is
exercisable on the date of the optionee's death and may thereafter be exercised
by the optionee's executor, administrator, legal representative, beneficiary or
similar person until and including the earliest to occur of (i) the date which
is one year (or such shorter period as set forth in the Agreement relating to
such option) after the date of death and (ii) the expiration date of the term of
such option.
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III. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS
3.1 Eligibility. Each member of the Board of Directors of the
Company who is not an employee, either full-time or part-time, of the Company or
any Subsidiary (a "non-employee director") shall be granted options to purchase
shares of Common Stock in accordance with this Section III. All options granted
under this Section III shall constitute non-qualified stock options.
3.2 Grants of Stock Options. Each non-employee director shall be
granted non- qualified stock options as follows:
(a) Time of Grant. Commencing on July 1, 1997 (or, if later, on the
date on which a person is first elected or begins to serve as a non-employee
director other than by reason of termination of employment with the Company or
any Subsidiary), and, on each January 1st, April 1st, July 1st and October 1st
thereafter, each person who is a non-employee director on such date shall be
granted an option to purchase 2,500 shares of Common Stock (which amount shall
be pro-rated if such person is first elected or begins to serve as a
non-employee director on a date other than the dates set forth above) at a
purchase price per share equal to the Fair Market Value of the Common Stock on
the date of grant of such option.
(b) Option Period and Exercisability. Each option granted under this
Article III shall be fully exercisable on and after its date of grant. Each
option granted under this Article III shall expire five years after its date of
grant. An exercisable option, or portion thereof, may be exercised in whole or
in part only with respect to whole shares of Common Stock. Options granted under
this Article III shall be exercisable in accordance with Section 3.2(c).
(c) Termination of Directorship.
(i) Total Disability. Unless otherwise specified in the
Agreement relating to an option, if an optionee's directorship with the Company
terminates by reason of Total Disability, each option held by such optionee
shall be exercisable only to the extent that such option is exercisable on the
effective date of such optionee's termination of directorship and may thereafter
be exercised by such optionee (or such optionee's legal representative or
similar person) until and including the earliest to occur of (i) the date which
is one year (or such other period as set forth in the Agreement relating to such
option) after the effective date of such optionee's termination of directorship
and (ii) the expiration date of the term of such option. For purposes of this
Plan, "Total Disability" of a non-employee director shall mean the inability of
such optionee substantially to perform such optionee's duties and
responsibilities as a director for a continuous period of six months.
(ii) Death. Unless otherwise specified in the Agreement relating
to an option, if an optionee's directorship with the Company terminates by
reason of death, each option held by such optionee shall be exercisable only to
the extent that such option is exercisable on the date of such optionee's death
and may thereafter be exercised by such optionee's executor, administrator,
legal representative, beneficiary or similar person until and including the
earliest to occur of (i) the date which is one year (or such other period as set
forth in the Agreement relating to such option) after the date of death and (ii)
the expiration date of the term of such option.
(iii) Termination for Cause. Unless otherwise specified in the
Agreement relating to an option, if the holder of such option is removed from
the Board of Directors for Cause, such option shall terminate automatically on
the date of such termination.
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(iv) Other Termination. Unless otherwise specified in the
Agreement relating to an option, if an optionee's directorship with the Company
is terminated by the Company for any reason other than Total Disability, death
or for Cause, each option held by such optionee shall be exercisable only to the
extent that such option is exercisable on the effective date of such optionee's
termination of directorship and may thereafter be exercised by such optionee (or
such optionee's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months (or such other period as
set forth in the Agreement relating to such option) after the effective date of
such optionee's termination of directorship and (ii) the expiration date of the
term of such option.
(v) Death Following Termination. Unless otherwise specified in
the Agreement relating to an option, if an optionee dies during the period set
forth in Section 3.2(c)(i) following termination of directorship by reason of
Total Disability, or if an optionee dies during the period set forth in Section
3.2(c)(iv) following termination of directorship for any other reason other than
Total Disability, for Cause or death, each option held by such optionee shall be
exercisable only to the extent that such option is exercisable on the date of
such optionee's death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or similar person, as
the case may be, until and including the earliest to occur of (i) the date which
is one year (or such other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of the term of such
option.
IV. GENERAL
4.1 Effective Date and Term of Plan. This Plan shall be submitted
to the stockholders of the Company for approval and, if approved by the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the 1997 annual meeting of the stockholders, shall
become effective as of June __, 1997, the date of approval of this Plan by the
stockholders. No option may be exercised prior to the date of such stockholder
approval. This Plan shall terminate ten years after its effective date, unless
terminated earlier by the Board. Termination of this Plan shall not affect the
terms or conditions of any option granted prior to termination.
4.2 Amendments. The Board may amend this Plan as it shall deem
advisable, subject to any requirement of stockholder approval required by
applicable law, rule or regulation; provided, however, that no amendment shall
be made without stockholder approval if such amendment would (a) increase the
maximum number of shares of Common Stock available under this Plan (subject to
Section 4.7), or (b) extend the term of this Plan; and, provided, further, that
this Plan shall not be amended in a manner which fails to comply with Rule
16b-3(c)(2)(ii)(B) under Section 16 of the Exchange Act. No amendment may impair
the rights of a holder of an outstanding option without the consent of such
holder or effect any change inconsistent with Section 422 of the Code; provided
further, that the number of shares of Common Stock subject to an option granted
to non-employee directors pursuant to Article III, the purchase price therefor,
the date of grant of any such option, the termination provisions relating
thereto, and the category of persons eligible to be granted such options shall
not be amended more than once every six months, other than to comply with
changes in the Code and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules and regulations thereunder.
4.3 Agreement. No option shall be valid until an Agreement is
executed by the Company and the optionee and, upon execution by the Company and
the optionee and delivery of the Agreement to the Company, such option shall be
effective as of the effective date set forth in the Agreement.
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<PAGE> 46
4.4 Non-Transferability. No option hereunder shall be transferable
other than (i) by will or the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company or (ii) as otherwise
permitted under Rule 16b-3 under the Exchange Act as set forth in the Agreement
relating to such option. Except to the extent permitted by the foregoing
sentence, each option may be exercised during the optionee's lifetime only by
the optionee or the optionee's legal representative or similar person. Except as
permitted by the second preceding sentence, no option hereunder shall be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option hereunder, such
option and all rights thereunder shall immediately become null and void.
4.5 Tax Withholding. The Company shall have the right to require,
prior to the issuance or delivery of any shares of Common Stock, payment by the
optionee of any Federal, state, local or other taxes which may be required to be
withheld or paid in connection with an option hereunder. Unless otherwise
provided in an Agreement relating to an option, the optionee may elect that (i)
the Company shall withhold whole shares of Common Stock which would otherwise be
delivered upon exercise of the option having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with the option (the "Tax Date") in the amount necessary to satisfy
any such obligation or (ii) the optionee satisfy any such obligation by any of
the following means: (A) a cash payment to the Company, (B) delivery to the
Company of previously owned whole shares of Common Stock (which the optionee has
held for at least six months prior to the delivery of such shares or which the
optionee purchased on the open market and in each case for which the optionee
has good title, free and clear of all liens and encumbrances) having an
aggregate Fair Market Value determined as of the Tax Date, equal to the amount
necessary to satisfy any such obligation, (C) a cash payment by a broker-dealer
acceptable to the Company to whom the optionee has submitted an irrevocable
notice of exercise, or (D) any combination of (A), (B) and (C), in each case to
the extent not prohibited by the Agreement relating to the option. Any fraction
of a share of Common Stock which would be required to satisfy such an obligation
shall be disregarded and the remaining amount due shall be paid in cash by the
optionee; provided, however, that the Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(D) and that in the
case of an optionee who is subject to Section 16 of the Exchange Act, the
Company may require that the method of satisfying any such obligation be in
compliance with Section 16 and the rules and regulations thereunder. Any
fraction of a share of Common Stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the optionee.
4.6 Restrictions on Shares. Each option hereunder shall be subject to
the requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the delivery of shares
thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any option hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
4.7 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding option and the
purchase price per security shall be appropriately
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<PAGE> 47
adjusted by the Committee, such adjustments to be made in the case of
outstanding options without an increase in the aggregate purchase price. The
decision of the Committee regarding any such adjustment shall be final and
binding. If any adjustment would result in a fractional security being (a)
available under this Plan, such fractional security shall be disregarded, or (b)
subject to an option under this Plan, the Company shall pay the optionee, in
connection with the first exercise of the option in whole or in part occurring
after such adjustment, an amount in cash determined by multiplying (A) the
fraction of such security (rounded to the nearest hundredth) by (B) the excess,
if any, of (x) the Fair Market Value on the exercise date over (y) the exercise
price of the option.
4.8 Effect of Certain Transactions.
(a) In the event that the Company enters into an agreement (a) to
dispose of all or substantially all of its assets, in contemplation of the
distribution of the net proceeds of such sale to the Company's shareholders, or
(b) to consummate a merger or consolidation in which the Company is not the
surviving or resulting corporation, or in the event the persons who, as of the
date of the adoption of this Plan by the Board of Directors, hold 60% or more of
the outstanding capital stock of the Company enter into an agreement to sell all
of such stock (such distribution, merger, consolidation or sale being
hereinafter referred to as a "Transaction"), then (unless otherwise specified in
the Agreement relating to an option), the Committee shall provide, at its
election made in its sole and absolute discretion, for one or more of the
following: (i) for each outstanding option, whether or not then exercisable, to
be replaced with a comparable option to purchase shares of capital stock of a
successor or purchasing corporation or parent thereof, or (ii) for each
outstanding option, whether or not then exercisable, to be assumed by a
successor or purchasing corporation or parent thereof (and, in the event of such
assumption, each outstanding option shall continue to be exercisable, on the
terms and subject to the conditions set forth in, and in cumulative amounts at
the times provided in, the Agreement relating to such option but shall, from and
after the consummation of such Transaction, be exercisable for the capital
stock, cash and/or other property received by the common stockholders of the
Company in such Transaction in an amount equal to what the holder of such option
would have received had he exercised such option immediately prior to the
consummation of such Transaction), or (iii) for each outstanding option, whether
or not then exercisable, to become exercisable during such period prior to the
scheduled consummation of such Transaction as may be specified by the Committee;
provided, however, that such elections of the Committee shall apply identically,
by their terms, to all holders of options granted under this Plan (unless
otherwise required by an Agreement). In the event the Committee elects to cause
the options not then otherwise exercisable to become exercisable prior to such
Transaction (an "Accelerated Option"), any exercise of an Accelerated Option
shall be conditioned upon, and shall be effective only concurrently with, the
consummation of such Transaction; and if such Transaction is not consummated,
the exercise of such Accelerated Options shall be of no further force or effect
(and an optionee may elect, with respect to the exercise during such period of
an option that was otherwise exercisable, to so condition such exercise upon the
consummation of the Transaction). All options not exercised prior to the
consummation of such Transaction (and which are not being assumed by a successor
or purchasing corporation or parent thereof) shall terminate and be of no
further force or effect as of the consummation of such Transaction.
(b) With respect to any optionee who is subject to Section 16 of the
Exchange Act, (i) notwithstanding the exercise periods set forth in Section 2.3
and 3.2(c), or as set forth pursuant to such Section in any Agreement to which
such optionee is a party, and (ii) notwithstanding the expiration date of the
term of such option, in the event the Company is involved in a business
combination that is intended to be treated as a pooling of interests for
financial accounting purposes (a "Pooling Transaction") or pursuant to which
such optionee receives a substitute option to purchase securities of any entity,
including an entity directly or indirectly acquiring the Company, then each
option (or option in substitution thereof) held by such optionee shall be
exercisable to the extent set forth in the Agreement evidencing such option
until and including the latest of (x) the date set forth pursuant to the then
applicable paragraph of
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<PAGE> 48
Section 2.3, 3.2(c) or the expiration date of the term of the option, as the
case may be, (y) the date which is six months and one day after the consummation
of such business combination and (z) the date which is ten business days after
the date of expiration of any period during which such optionee may not dispose
of a security issued in the Pooling Transaction in order for the Pooling
Transaction to be accounted for as a pooling of interests.
4.9 No Right of Participation or Employment. No person shall have any
right to participate in this Plan. Neither this Plan nor any option granted
hereunder shall confer upon any person any right to continued employment by the
Company, any Subsidiary or any affiliate of the Company or affect in any manner
the right of the Company, any Subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder.
4.10 Rights as Stockholder. No person shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock which are
subject to an option hereunder until such person becomes a stockholder of record
with respect to such shares of Common Stock.
4.11 Designation of Beneficiary. If permitted by the Company, an
optionee may file with the Committee a written designation of one or more
persons as such optionee's beneficiary or beneficiaries (both primary and
contingent) in the event of the optionee's death. To the extent an outstanding
option granted hereunder is exercisable, such beneficiary or beneficiaries shall
be entitled to exercise such option.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the optionee's lifetime on a form prescribed
by the Committee. The spouse of a married optionee domiciled in a community
property jurisdiction shall join in any designation of a beneficiary other than
such spouse. The filing with the Committee of a new beneficiary designation
shall cancel all previously filed beneficiary designations.
If an optionee fails to designate a beneficiary, or if all designated
beneficiaries of an optionee predecease the optionee, then each outstanding
option hereunder held by such optionee, to the extent exercisable, may be
exercised by such optionee's executor, administrator, legal representative or
similar person.
4.12 Governing Law. This Plan, each option hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to principles of conflicts of laws.
4.13 Foreign Employees. Without amending this Plan, the Committee may
grant options to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of this Plan and, in furtherance of such purposes the Committee may
make such modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its Subsidiaries operates or has
employees.
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APPENDIX D
PRELIMINARY COPY
T-HQ, Inc.
5016 North Parkway Calabasas
Calabasas, California 91302
1997 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE T-HQ, INC. BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes Brian J. Farrell and
Deborah A. Lake, and each of them the true and lawful attorneys, agents and
proxies of the undersigned, with full power of substitution, to represent and
vote with all the shares of Common Stock of T-HQ, Inc. ("the Company"), standing
in the name of the undersigned at the close of business on May 8, 1997, at the
Annual Meeting of Shareholders of the Company to be held at the Warner Center
Hilton, 6360 Canoga Avenue, Woodland Hills, California, on June 10, 1997, at
9:00 a.m., Los Angeles time and any postponement or adjournment thereof, with
all the powers the undersigned would possess if personally present, and
especially (but without limiting the general authorization and power hereby
given) to vote as follows:
(Continued and to be signed on reverse side)
1. ELECTION OF DIRECTORS: To elect each of the following nominees as directors
of the Company to serve until the next annual meeting and until their
successors are elected and qualify (the "Election of Directors"):
Brian J. Farrell INSTRUCTION: To withhold authority to vote for any
Lawrence Burstein nominee(s), write that nominee's name
L. Michael Haller in the space provided:
Bruce Jagid
Jeffrey C. Lapin ___________________________________________________
/ / FOR all of the nominees / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
2. REINCORPORATION PROPOSAL: To approve the "Reincorporation Proposal"
pursuant to which, among other things, the Company will change its state of
incorporation from New York to Delaware.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
REINCORPORATION PROPOSAL.
3. STOCK OPTION PLAN PROPOSAL: To approve the Company's 1997 Stock Option
Plan.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK
OPTION PLAN PROPOSAL.
4. For the proxies, in their discretion, to vote upon such other matters as
may properly come before the Annual Meeting.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the election of the nominees listed above under Election of Directors, FOR the
Reincorporation Proposal and FOR the Stock Option Plan Proposal.
Please sign exactly as the name(s) appears hereon. 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 the authorized officer. If a
partnership, please sign in partnership name by authorized person.
<PAGE> 50
PRELIMINARY COPY
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND THE
PROXY STATEMENT.
________________________ _________________________ Dated: _____________, 1997
Signature of Shareholder Signature if held jointly
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