<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
(Amendment No.1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THQ 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
[THQ LOGO]
May 15, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
THQ Inc. (the "Company") scheduled to be held at 9:00 a.m., Pacific Daylight
Time, on Monday, June 15, 1998 at the Warner Center Hilton, 6360 Canoga Avenue,
Woodland Hills, California. Your Board of Directors and management look forward
to greeting personally those stockholders able to attend.
At the meeting, stockholders will be asked to elect six directors to the
Board of Directors of the Company and to consider and act on approval of an
amendment to the Company's 1997 Stock Option Plan. Information regarding these
matters is set forth in the accompanying Notice of 1998 Annual Meeting of
Stockholders and Proxy Statement, to which you are urged to give your prompt
attention.
It is important that your shares of stock be represented and voted at the
meeting. Whether or not you plan to attend, please take a moment to sign, date
and promptly mail your proxy in the enclosed prepaid envelope. This will not
limit your right to vote in person should you wish to attend the meeting.
We are pleased with the Company's recent financial performance and
appreciate your continued support and interest in the Company.
Yours very truly,
Brian J. Farrell
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
[THQ LOGO]
5016 NORTH PARKWAY CALABASAS
CALABASAS, CALIFORNIA 91302
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
To the Stockholders of THQ Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Meeting") of THQ Inc., a Delaware corporation (the "Company"), will be held at
9:00 a.m., Pacific Daylight Time, on Monday, June 15, 1998 at the Warner Center
Hilton, 6360 Canoga Avenue, Woodland Hills, California for the following
purposes, all as set forth in the attached Proxy Statement:
1. To elect six directors to serve until the next annual meeting and until
their successors are elected and qualify;
2. To consider and act on approval of an amendment to the Company's 1997
Stock Option Plan to increase the number of shares of the Company's
Common Stock available for issuance under such plan from 650,000 shares
to 1,100,000 shares; and
3. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on May 13, 1998 as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the Meeting and any adjournment thereof.
By Order of the Board of Directors
Fred A. Gysi
Vice President-Finance and
Administration and Secretary
Calabasas, California
May 15, 1998
THE COMPANY URGES THAT AS MANY STOCKHOLDERS 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> 4
[THQ LOGO]
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
This Proxy Statement is furnished to holders of shares of Common Stock, par
value $.01 per share ("Common Stock"), of THQ Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company from holders of Common Stock for use at the 1998 Annual
Meeting of Stockholders of the Company (the "Meeting"), for the purposes set
forth in the foregoing notice of the Meeting, and at any and all adjournments of
the Meeting. The Meeting will be held at 9:00 a.m., Pacific Daylight Time, on
Monday, June 15, 1998, at the Warner Center Hilton, 6360 Canoga Avenue, Woodland
Hills, California. 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.
This Proxy Statement and the enclosed proxy are first being mailed or
otherwise released to stockholders entitled to vote at the Meeting on or about
May 15, 1998. The Company's audited financial statements, together with the
report thereon of Deloitte & Touche LLP and certain other information concerning
the Company, are included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, which is being mailed with this Proxy Statement.
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 15, 1998.
<PAGE> 5
INTRODUCTION
MATTERS TO BE CONSIDERED
At the Meeting, the stockholders of the Company will consider and vote upon
(i) the election of six directors to serve for one year and until their
successors have been elected and shall have qualified, (ii) the approval of an
amendment to the Company's 1997 Stock Option Plan (the "Stock Option Proposal")
to increase the number of shares of Common Stock available for issuance pursuant
to options granted under such plan from 650,000 shares to 1,100,000 shares; and
(iii) such other business as may properly come before the Meeting and any
adjournment thereof. The Board does not know of any matter to be presented at
the Meeting other than those described in the Proxy Statement.
VOTING RIGHTS AND VOTE REQUIRED
The Board of Directors (the "Board") has fixed May 13, 1998, as the date
(the "Record Date") for the determination of stockholders entitled to notice of,
and to vote at, the Meeting. At the close of business on the Record Date,
7,231,076 shares of Common Stock were outstanding (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. Abstentions and shares held by a broker or other nominee holding
shares for a beneficial owner that are not voted on a particular proposal
because the nominee does not have discretionary voting power with respect to
that proposal and has not received instructions from the beneficial owner (a
"broker non-vote") will be counted as present for purposes of determining the
presence of a quorum for the Meeting.
Each holder of record of Common Stock on the Record Date is entitled to one
vote for each share of Common Stock so held on each matter to be voted upon at
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 Stock Option Proposal requires the affirmative vote of the
holders of a majority of the outstanding Shares represented at the Meeting in
person or by proxy and entitled to vote on that matter. Abstentions will be
counted in determining the total number of shares present and entitled to vote
on each such proposal. Accordingly, although not counted as a vote "for" or
"against" a proposal, an abstention on any such proposal will have the same
effect as a vote "against" that proposal. Broker non-votes will not be counted
in determining the number of shares present and entitled to vote on each such
proposal, and will have no effect on the outcome.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In connection with the solicitation by the Board of proxies for use at the
Meeting, the Board has designated Brian J. Farrell and Fred Gysi as proxies.
Shares of Common Stock represented by proxies in the accompanying form, properly
executed, received prior to the Meeting and not revoked, will be voted at the
Meeting in accordance with the instructions specified thereon. IF NO
INSTRUCTIONS ARE SPECIFIED, SHARES OF COMMON STOCK REPRESENTED BY ANY SUCH PROXY
WILL BE VOTED FOR THE ELECTION OF EACH OF THE NOMINEES LISTED BELOW UNDER
"ELECTION OF DIRECTORS" AND FOR THE PROPOSED AMENDMENT TO THE 1997 STOCK OPTION
PLAN INCREASING THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH OPTIONS UNDER
SUCH PLAN MAY BE ISSUED, AND IN ACCORDANCE WITH THEIR BEST JUDGMENT WITH REGARD
TO ALL OTHER MATTERS, IF ANY, THAT MAY BE PRESENTED AT THE MEETING AND MATTERS
INCIDENT TO THE CONDUCT OF THE MEETING. The Board is not aware of any matter
that will come before the Meeting other than as described above.
2
<PAGE> 6
A stockholder may revoke his or her proxy at any time prior to its exercise
by filing with the Secretary of the Company at its principal executive office at
5016 North Parkway Calabasas, Suite 100, Calabasas, California 91302 a notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person. Attendance at the Meeting will not, in itself,
constitute a revocation of a previously granted proxy.
In the event that the votes necessary to approve any one or more of the
foregoing proposals have not been obtained by the date of the Meeting, the
chairman of the Meeting may, in his discretion, adjourn the Meeting from time to
time to permit the solicitation of additional proxies by the Board.
The costs of this solicitation, including expenses in connection with
preparing and mailing this Proxy Statement and the enclosed proxy, will be paid
by the Company. 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, telecopier
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 approximately $10,000, 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 bylaws of the Company, the number of directors constituting
the full Board of Directors has been fixed by the Board at six. Accordingly,
action will be taken at the meeting to elect a Board of six directors to serve
until the next Annual Meeting of Stockholders 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 stockholders 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.
Certain information concerning each of the persons proposed by the Board
for election at the Meeting as a director is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Brian J. Farrell............... 44 Director, President and Chief Executive Officer
Lawrence Burstein.............. 55 Director
L. Michael Haller.............. 54 Director and Senior Vice President
Bruce Jagid.................... 58 Director
Jeffrey C. Lapin............... 41 Director
James L. Whims................. 43 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 Hotel Investors Trust, currently
known as 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.
3
<PAGE> 7
LAWRENCE BURSTEIN has been a director of the Company since July 1991. Since
March 1996, Mr. Burstein has been President, Director and a stockholder 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 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.
JAMES L. WHIMS has been a director of the Company since April 1997. Since
1996, Mr. Whims has been a Managing Director at Techfarm, a venture capital firm
concentrating on high-technology enterprises. From 1994 to 1996, Mr. Whims was
Executive Vice President of Sony Computer Entertainment of America. From 1990 to
1994, Mr. Whims was Executive Vice President of The Software Toolworks Inc.
There are no family relationships between any of the Company's directors
and officers.
Directors are elected annually by the stockholders 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee. Until
April 28, 1997, the Company also had a Stock Option Committee, but on that date
the Stock Option Committee was discontinued and its function delegated to the
Compensation Committee. The Stock Option Committee, whose members were Messrs.
Burstein, Jagid and Whims met three times during 1997.
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 1997, the full Board of Directors met
to perform such functions in lieu of the Audit Committee. The Audit Committee's
current members are Messrs. Lapin, Jagid and Whims.
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 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, and administers plans and
programs relating to employee benefits, incentives and compensation. During
1997, the full Board of Directors met to perform such functions in lieu of the
Compensation Committee (other than the grant of options, which were determined
by
4
<PAGE> 8
the Stock Option Committee). The Compensation Committee's current members are
Messrs. Burstein and Lapin.
MEETINGS OF THE BOARD OF DIRECTORS
In 1997, there were eight meetings of the Board of Directors held in person
or by conference telephone call. Each director of the Company in 1997 attended
at least 75% of the aggregate of the meetings of the Board of Directors and of
the committees of the Board of Directors of which he was a member.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Exchange Act and the rules issued
thereunder, the Company's executive officers and directors are required to file
with the SEC and the Nasdaq Stock Market reports of ownership and changes in
ownership of the Common Stock. Copies of such reports are required to be
furnished to the Company. Based solely on the Company's review of the copies of
such reports furnished to the Company or on written representations to the
Company that no such reports were required, the Company believes that during the
year ended December 31, 1997, all of the Company's executive officers and
directors and all beneficial owners of more than 10% of the Common Stock filed
on a timely basis all reports, if any, required by Section 16(a) of the Exchange
Act.
EXECUTIVE OFFICERS
The Company's executive officers consist of Messrs. Farrell, Haller and
Fred A. Gysi. 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.
FRED A. GYSI, 43, joined the Company in October of 1997 as Vice
President-Finance and Administration. Mr. Gysi is responsible for financial
reporting, information systems and internal controls. From October 1996 to
October 1997, Mr. Gysi was the Chief Financial Officer of HPM-Stadco, a holding
company with operations in the machinery and aerospace/defense industries. From
August 1995 to October 1996 Mr. Gysi was the President and Co-founder of GP
Management Consulting, a provider of financial, operations and systems
consulting services to emerging and middle market companies. From 1992 to 1995,
Mr. Gysi was a Partner at Collett & Levy, an accounting firm. Mr. Gysi was
employed by Deloitte from 1980 to 1988 and was a partner of that firm from 1988
to 1992.
KEY EMPLOYEES
The following persons, although not executive officers of the Company, are
regarded by the Company's management as key employees:
C. NOAH DAVIS, 37, joined the Company on May 1, 1998 as its Chief
Technology Officer, upon the completion of the Company's acquisition of GameFx,
Inc. ("GameFx"). GameFx is an applied technology company focused on the
development of interactive entertainment software utilizing proprietary 3-D
acceleration technology. Mr. Davis co-founded GameFx in December 1996 and served
as its President and Chief Executive Officer until its acquisition by the
Company, and continues to serve as its President. From April 1996 to November
1996, Mr. Davis served as a Director of Game Development for 3dFx Interactive,
Inc., a developer of media processors, software and related technology for the
interactive electronic entertainment market. From December 1994 to April 1996,
Mr. Davis served as the Director of Technology and Engineering for Looking Glass
Technologies, Inc., an interactive game company. From 1993 to 1994, Mr. Davis
was a Senior Researcher at the Advanced Technology Group of Novell, Inc., a
network software company.
GERMAINE GIOIA, 37, 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.
5
<PAGE> 9
ALISON LOCKE, 43, 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 for Data East USA Incorporated, an interactive
entertainment company and in various sales capacities with Activision Inc. and
Broderbund Software Inc.
STEVE RYNO, 32, 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.
TIM WALSH, 34, has been Vice President-International of the Company since
May 1997. Before joining the Company, Mr. Walsh was director of International
and OEM Sales with Accolade, a publisher of video and PC game software. Mr.
Walsh has also held positions at Capital/EMI Music and Time Warner Interactive.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
As of May 7, 1998 there are no persons known to the Company that
beneficially own more than 5% of the outstanding Common Stock.
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of May 7, 1998 by each of the
Company's directors, by each of the Company's executive officers named in the
Summary of Compensation Table and by all directors and executive officers of the
Company as a group. Unless otherwise indicated below, each individual named in
the table has sole voting power and sole investment power with respect to all
the shares beneficially owned, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS(1) OWNERSHIP OF CLASS
------------------- ------------- --------
<S> <C> <C>
Brian J. Farrell..................................... 182,667(2) 2.53%
Lawrence Burstein.................................... 61,300(3) *
Bruce Jagid.......................................... 25,000(4) *
Jeffrey C. Lapin..................................... 37,000(5) *
L. Michael Haller.................................... 48,000(6) *
James L. Whims....................................... 36,857(7) *
Fred A. Gysi......................................... -- *
All Directors and Executive Officers as a group (7
individuals)....................................... 390,824(8) 5.40%
</TABLE>
- ---------------
* Less than 1%.
(1) The address for each individual is c/o THQ Inc., 5016 North Parkway
Calabasas, Calabasas, California 91302.
(2) Includes 173,334 Shares issuable upon exercise of options exercisable within
60 days and 1,333 Shares issuable upon exercise of a warrant.
(3) Includes 53,334 Shares issuable upon exercise of options exercisable within
60 days.
(4) Consists of 25,000 Shares issuable upon exercise of options exercisable
within 60 days.
(5) Includes 35,000 Shares issuable upon exercise of options exercisable within
60 days.
(6) Consists of 48,000 Shares issuable upon exercise of options exercisable
within 60 days.
(7) Includes 10,000 Shares issuable upon exercise of options exercisable within
60 days.
6
<PAGE> 10
(8) Includes an aggregate of 344,668 Shares issuable upon exercise of options
exercisable 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 committee meetings. Commencing in 1997, non-employee directors of
the Company are compensated by 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 1997 Stock Option Plan. Pursuant to such plan, each non-employee
director of the Company is granted options to purchase 2,500 shares of Common
Stock on the first day of each fiscal quarter at a per share exercise price
equal to the market price of a share of Common Stock on the date of each grant.
During 1997, each of the non-employee directors received grants under the
Company's 1997 Stock Option Plan of options exercisable for 10,000 shares of
Common Stock, with the exception of Mr. Whims who received an option to purchase
5,000 shares of Common Stock. As of May 7, 1998, the aggregate number of Shares
of Common Stock for which options granted to each non-employee director are: Mr.
Burstein, 53,334 shares, Mr. Jagid, 50,000 shares; Mr. Lapin, 50,000 shares; and
Mr. Whims, 10,000 shares.
EXECUTIVE COMPENSATION
The following tables summarizes the compensation of the executive officers
of the Company (the "Named Executives") for the fiscal years ended December 31,
1995, 1996 and 1997:
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 PAYOUTS COMPENSATION
------------------ ---- --------- -------- --------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian J. Farrell....... 1997 $308,769 $300,000 -- 50,000(3) -- $6,000(4)
President and Chief 1996 $233,519 $ 85,920 -- -- 200,000(3) -- $6,000(4)
Executive Officer 1995 $233,519 $ 21,812 -- -- 140,000(3) -- $6,000(4)
L. Michael Haller...... 1997 $146,423 $125,000 -- -- 30,000(5) -- $5,857(6)
Senior Vice President 1996 $119,631 $ 25,000 -- -- 7,500(5) -- $ 369(6)
1995 $ 7,385 $ 10,000 -- -- 55,000(5) -- --
Fred A. Gysi(7)........ 1997 $ 24,038 $ 5,000 -- -- 40,000(8) -- --
Vice President -- 1996 -- -- -- -- -- -- --
Finance and 1995 -- -- -- -- -- -- --
Administration, and
Secretary
</TABLE>
- ---------------
(1) Included in each Named Executive's salary are amounts that were deferred by
such Named Executive pursuant 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) In February 1995, Mr. Farrell was granted an option to purchase 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. In October 1997, Mr. Farrell
was granted an option to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $14.50 per share. The exercise prices for
these options is the market price on the date of grant of such options.
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<PAGE> 11
(4) The amounts shown for 1996 and 1997 reflect matching contributions in the
amounts of $6,000, respectively, made by the Company in accordance with the
Defined Contribution Plan. This amount does not reflect special awards and
payments Mr. Farrell is entitled to receive if his employment is terminated
as a result of a change in control of the Company which would have had a
value of approximately $598,000 as of December 31, 1995 and $897,000 as of
each of December 31, 1996 and 1997. See "Employment Agreement with Brian J.
Farrell."
(5) 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. In December 1995, 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 May 1996, Mr.
Haller was granted an option to purchase 7,500 shares of Common Stock at an
exercise price of $3.50 per share. In August 1997, Mr. Haller was granted an
option to purchase 20,000 shares of Common Stock at an exercise price of
$9.75 per share. In October 1997, Mr. Haller was granted an option to
purchase 10,000 shares of Common Stock at an exercise price of $14.50 per
share. The exercise price for these options is the market price of the
Common Stock on the dates of grant of such options.
(6) The amounts shown for 1996 and 1997 reflect matching contributions in the
amounts of $369 and $5,857, respectively, made by the Company in accordance
with the Company's Defined Contribution Plan.
(7) Mr. Gysi joined the Company on October 27, 1997.
(8) In October 1997, Mr. Gysi was granted an option to purchase 40,000 shares of
Common Stock at an exercise price of $14.50 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of stock options granted to each
of the Named Executives during the fiscal year ended December 31, 1997. The
table also 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 five-year term of the
stock options. No gain to the Named Executives is possible without an increase
in the price of the Common Stock, which will benefit all stockholders
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.
<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 OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ---------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Brian J. Farrell..... 50,000 12% $14.50 10/22/02 $200,304 $442,620
L. Michael Haller.... 20,000 5% $ 9.75 8/18/02 $ 53,875 $119,049
10,000 2% $14.50 10/22/02 $ 40,061 $ 88,524
Fred A. Gysi......... 40,000 10% $14.50 10/22/02 $160,243 $354,096
</TABLE>
- ---------------
(1) For the stock options indicated, these amounts represent the exercise price
multiplied by the annual appreciation rate shown compounded annually for the
term of each option, less the exercise price, 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 prescribed for this table by
the Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the stock price of the
Company.
8
<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Executives, certain
information regarding the number of stock options exercised during the fiscal
year ended December 31, 1997 and the value of stock options held at fiscal year
end.
<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..... 60,000 $938,400 166,668 163,332 $3,064,692 $2,555,508
L. Michael Haller.... -- -- 57,500 35,000 $1,129,500 $ 447,500
</TABLE>
- ---------------
(1) Calculated based on the excess of fair market value of the Common Stock on
December 31, 1997 over the respective exercise prices of the options.
EMPLOYMENT AGREEMENT WITH BRIAN J. FARRELL
Mr. Farrell and the Company agreed to amend and restate the terms of his
employment agreement effective as of December 31, 1996 (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 Common Stock, or (iii) the average
trading price of the Common Stock on the date of termination of Mr.
Farrell's employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 1, 1998, the Company acquired all of the outstanding shares of
GameFx pursuant to the merger of GameFx with and into a newly formed, wholly
owned subsidiary of the Company (the "GameFx Acquisition"). The consideration
paid by the Company consisted of (i) the issuance of approximately 236,800
9
<PAGE> 13
shares of Common Stock, (ii) the assumption of stock options issued by GameFx to
its employees that, if and when exercised, permit the holders thereof to acquire
approximately 9,900 shares of Common Stock, (iii) approximately $790,000 in
cash, and (iv) the assumption of the liabilities of GameFx incurred in the
ordinary course of its business.
James Whims, a director of the Company, is a limited partner of TechFarm
II, L.P. ("TechFarm") and had a 40% interest in TechFarm's investment in GameFx.
TechFarm owned 24.6% of the issued and outstanding shares of GameFx and received
approximately 40,600 shares of Common Stock upon the consummation of the GameFx
Acquisition.
In addition, Mr. Whims owns 33% of TechFund Capital L.P. ("TechFund").
TechFund held promissory notes issued by GameFx with an aggregate principal
balance of $451,000, and Mr. Whims held promissory notes issued by GameFx with
an aggregate principal balance of $45,000. These notes bore interest at the rate
of 10% per annum. Upon the consummation of the GameFx Acquisition, these notes
were paid in full with shares of Common Stock in number equal to (i) the
principal of and accrued interest on these notes, divided by (ii) $25.2785. As a
result, TechFund received approximately 18,300 shares and Mr. Whims received
approximately 2,000 shares of Common Stock.
TechFund and Mr. Whims each held warrants issued by GameFx. Upon the
consummation of the GameFx Acquisition and in consideration for the
extinguishment of these warrants, TechFund received approximately 6,200 shares
and Mr. Whims received approximately 600 shares of Common Stock.
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 Messrs. Burstein and Lapin. The compensation of the
Company's executive officers is determined by the Committee based on the goals
and policies established by the Board.
The Company has an employment agreement with Mr. Farrell. In 1996, the
Board approved the Committee's recommendation to amend and restate Mr. Farrell's
employment agreement to extend its term for an additional four years at
substantially the same level of compensation Mr. Farrell had been entitled to
earn in 1997 under his prior employment contract. The Committee believes that
ensuring Mr. Farrell's long-term commitment to the Company is in the best
interest of its shareholders. In order to induce Mr. Farrell to make such
commitment and to align a substantial portion of Mr. Farrell's compensation with
the Company's results of operations, the amended employment agreement provides
that Mr. Farrell's annual cash bonus will be equal to the lower of $300,000 or a
percentage of net income earned by the Company. In accordance with such formula,
Mr. Farrell was paid a bonus of $300,000 for 1997. See "Employment Agreement
with Brian J. Farrell."
The other executive officers' base salaries and cash bonuses are based on
the level of responsibility and the job requirements of each such position. The
Committee also considers compensation paid to other persons with comparable
skills and experience in other companies in the Company's industry as well as
the Company's performance in comparison to its competitors. The Committee
reviews executive compensation annually based on the merit of each executive
officer's performance in such officer's specific area of responsibility as well
as the financial performance of the Company.
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 and the Stock Option Committee have maintained a policy of
rewarding the Company's executive officers with options each year in respect of
recent contributions made by the executive officers to the Company. 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.
10
<PAGE> 14
Accordingly, in 1997 the Company granted the following stock options to the
following executive officers of the Company: to Mr. Farrell, an option to
purchase 50,000 shares of Common Stock at an exercise price of $14.50 per share;
to Mr. Haller, an option to purchase 20,000 shares at an exercise price of $9.75
per share and an option to purchase 10,000 shares of Common Stock at an exercise
price of $14.50 per share; and to Mr. Gysi, an option to purchase 40,000 shares
of Common Stock at an exercise price of $14.50 per share. The exercise price of
each option is the market price of the Common Stock on the date the option was
granted.
Respectfully submitted,
Lawrence Burstein
Jeffrey C. Lapin
11
<PAGE> 15
COMPARISON OF CUMULATIVE TOTAL RETURNS
AMONG THQ INC., DOW JONES EQUITY MARKET INDEX, AND ENTERTAINMENT &
LEISURE -- RECREATIONAL PRODUCTS & SERVICES INDEX
FISCAL YEAR ENDING DECEMBER 31
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INDUSTRY GROUP
(FISCAL YEAR COVERED) COMPANY STOCK INDEX INDEX
<S> <C> <C> <C>
1992 100 100 100
1993 22 107 124
1994 18 105 113
1995 10 141 142
1996 18 170 158
1997 44 223 205
</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.
12
<PAGE> 16
APPROVAL OF PROPOSED AMENDMENT TO STOCK OPTION PLAN
(PROPOSAL NO. 2)
The Board of Directors is proposing for shareholder approval an amendment
to the Company's 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan was
adopted by the Board of Directors in March 1997 and approved by the stockholders
of the Company in June 1997. The purposes of the 1997 Plan are to provide
directors, officers and key employees of the Company with an opportunity to
acquire an equity interest in the Company as a long-term incentive for them to
remain in the Company's service and to align those individuals' interests with
those of the Company's stockholders. The Board of Directors believes that stock
options are a significant factor in the ability of the Company and its
subsidiaries to attract and retain the services of individuals who are critical
to the Company's long-range growth and success.
Currently, the number of shares of Common Stock for which options may be
granted under the 1997 Plan is 650,000. As of the date of this Proxy Statement,
(i) a total of 89 persons had been granted options under the 1997 Plan, (ii) no
shares of Common Stock had been issued by the Company pursuant to the exercise
of such options, and (iii) options to purchase an aggregate of 511,750 shares of
Common Stock were outstanding under the 1997 Plan at a weighted-average price of
$14.50 per share.
As a result of the options granted and committed to be granted, 138,250
shares of Common Stock remain available for additional grants under the 1997
Plan as of the date of this Proxy Statement. The Company expects to continue to
grant options in the ordinary course of business and in connection with
acquisitions to attract, retain and motivate directors, officers and key
employees in a competitive environment as the Company deems such issuances
appropriate. The Board of Directors believes that an increase in the number of
shares authorized for issuance under the 1997 Plan to 1,100,000 is necessary to
facilitate the Company's growth and for the Company to continue to benefit from
the 1997 Plan.
The following table sets forth certain information with respect to options
granted under the 1997 Plan since its inception to (i) each of the Company's
executive officers, (ii) all current executive officers, as a group, (iii) all
current directors who are not executive officers, as a group, and (iv) all
employees who are not executive officers, as a group. The option grants
disclosed in the following table include those reflected in the tables included
above under the caption "Executive Compensation."
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE* NUMBER OF SHARES
----------------- ------------- ----------------
<S> <C> <C>
Brian J. Farrell............................... $ 550,000 50,000
President and Chief
Executive Officer
L. Michael Haller.............................. $ 425,000 30,000
Senior Vice President
Fred Gysi...................................... $ 440,000 40,000
Vice President -- Finance and Administration,
Treasurer and Secretary
Executive Officers, as a group................. $1,415,000 120,000
(3 individuals)
Directors who are not Executive Officers,...... $ 323,750 40,000
as a group (4 individuals)
Employees who are not Executive Officers,...... $3,953,587 351,750
as a group (82 individuals)
</TABLE>
- ---------------
* Dollar value is calculated by subtracting the exercise price from the assumed
fair market value of the Common Stock underlying the option and multiplying
the result by the number of shares for which the exercise price is greater
than fair market value. Fair market value was calculated based upon the
closing price per share of the Common Stock as reported on the Nasdaq National
Market on May 7, 1998 ($25.50). There is no guarantee that if and when any
option is exercised, it will have this value.
If the stockholders of the Company do not approve the proposed increase in
the number of shares for which options may be granted under the 1997 Plan the
plan will continue in effect in its present form. Except as described above, the
amount of compensation that will accrue to the Company's directors, executive
officers
13
<PAGE> 17
and other employees pursuant to the 1997 Plan, if the proposed amendment is
approved by the Company's stockholders, cannot be determined at this time.
SUMMARY OF 1997 PLAN
The principal provisions of the 1997 Plan as currently in effect are
summarized below. The summary is in all respects qualified by the provisions of
the 1997 Plan itself, a copy of which is attached hereto as Appendix A.
Administration. The 1997 Plan is administered by the Board of Directors or,
if the Board so elects, by a stock option committee (the "Committee") designated
by the Board consisting of two or more directors of the Board. Each member of
the Committee must 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" means the Board if no such committee is designated,
and means such stock option committee during such times as it is so designated.
Currently the 1997 Plan is administered by the Stock Option Committee as
described above under the caption "Stock Option Committee."
The Committee selects eligible persons for participation in the 1997 Plan
and determines the number of shares of Common Stock subject to each option
granted, 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 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 interprets the 1997 Plan and the application
thereof, establishes 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. The Committee may, subject to the requirements
imposed under Section 162(m) of the Code 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 to the
Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate. However, the Committee may not delegate its power
and authority with regard to the selection for participation in the 1997 Plan of
an executive 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 executive officer or other person.
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 (such distribution, merger, consolidation or sale being hereinafter
referred to as a "Transaction"), the Committee must provide, at its election,
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 a parent thereof,
or (ii) for each outstanding option, whether or not then exercisable, to be
assumed by a successor or purchasing corporation or a parent thereof on the same
terms and subject to the same conditions, 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.
Effective Date, Termination and Amendment. The 1997 Plan became effective
as of March 28, 1997 and will terminate ten years thereafter unless terminated
earlier by the Board of Directors. Termination of the 1997 Plan will 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 stockholder
approval in certain circumstances. No amendment may be made without stockholder
approval if the amendment would increase the maximum number of shares of Common
Stock available under the 1997 Plan or extend the term of the 1997 Plan.
14
<PAGE> 18
Non-Qualified Stock Options. The exercise price of each non-qualified stock
option may not be less than 100% of the fair market value of the Common Stock on
the date the option is granted. The maximum term of each non-qualified stock
option is ten years after the date of the grant.
Incentive Stock Options. The exercise price of each incentive stock option
may not be less than 100% of the fair market value of the Common Stock on the
date the option is granted; however, 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 exercise price will
be the price required by the Code, which is currently 110% of the fair market
value of the Common Stock on the date the option is granted. The maximum term of
each incentive stock option is ten years after the date of the grant; however,
if the recipient is a Ten Percent Holder the maximum term of each incentive
stock option is five years after its date of grant.
Termination of Employment. Upon termination of an optionee's employment
with the Company by reason of the optionee's death or permanent and total
disability, each option then held by that optionee will be exercisable to the
extent that the option is exercisable on the effective date of such termination,
for a period of no more than one year after the date of such termination, but in
no event after the expiration date 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 (i) an optionee's termination of the
optionee's employment for any reason, (ii) the optionee's willful and continued
failure to substantially perform the optionee's duties with the Company, or
(iii) the optionee's willful engagement 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 if the optionee is subject to a written employment agreement
with the Company, "Cause" has the meaning ascribed thereto in such agreement and
(i) shall also include an optionee's termination of the optionee's 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. In the event of termination by the Company for any other
reason, (I) each non-qualified option will be exercisable only 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
date of such option, and (II) each incentive stock option will be fully
exercisable for a period of no more than three months after such termination,
but in no event after the expiration date of such option. If a holder dies
during the applicable one-year or three-month period following such termination,
each 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.
Director Options. On each January, April, July and October, each director
who is not an employee of the Company is 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
are fully exercisable on and after their date of grant and expire five years
thereafter.
If a director ceases to be a director by reason of death or permanent and
total disability, each option will be exercisable on the effective date of such
cessation for a period of no more than one year after such date, but in no event
after their expiration dates. In the event a director is removed from the Board
of Directors for cause, each option held by such non-employee director shall
terminate on the date of such removal. If a 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 director dies during the applicable one-year or
three-month period 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.
Federal Income Tax Consequences. The following is a brief overview of the
U.S. federal income tax consequences generally arising with respect to options
granted under the 1997 Plan.
15
<PAGE> 19
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 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 equal to the 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 amendment to the 1997 Plan. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE 1997 PLAN TO INCREASE THE NUMBER
OF SHARES OF COMMON STOCK FOR WHICH OPTIONS MAY BE GRANTED FROM 650,000 SHARES
TO 1,100,000 SHARES. Unless otherwise instructed, the proxy holders will vote
the proxies received by them FOR the proposal to amend 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 1997.
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, 1998. 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 Stockholders, 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.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Stockholder proposals to be presented at the 1999 Annual Meeting of
Stockholders of THQ Delaware if 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 January 15, 1999 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
Fred A. Gysi
Vice President-Finance
and Administration and Secretary
May 15, 1998
PLEASE COMPLETE, DATE, SIGN AND RETURN YOUR PROXY PROMPTLY
16
<PAGE> 20
APPENDIX A
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.
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.
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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, $0.01, 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 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
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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).
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
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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 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
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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.
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, April, July and
October 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.
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(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.
(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 March 28, 1997, the date of approval of this Plan by the
Board of Directors. 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.
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
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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 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.
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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 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.
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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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THQ INC.
5016 NORTH PARKWAY CALABASAS
CALABASAS, CALIFORNIA 91302
1998 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes Brian J. Farrell and Fred Gysi,
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 THQ Inc. ("the Company"), standing in the name of
the undersigned, at the Annual Meeting of Stockholders of the Company to be
held on June 15, 1998 at the Warner Center Hilton, 6360 Canoga Avenue, Woodland
Hills, California, at 9:00 a.m., Pacific Daylight 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)
<PAGE> 30
[X] Please mark your votes as in this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
[ ] FOR all of the nominees Nominees:
Brian J. Farred
[ ] WITHHOLD AUTHORITY to vote for all members Lawrence Burstein
L. Michael Hader
1. ELECTION OF DIRECTORS: Bruce Jagid
To elect each of the following nominees Jeffrey C. Lapin
as directors of the Company to serve until James L. Whims
the next annual meeting and until their
successors are elected and qualify (the "Election of Directors"):
[ ] WITHHOLD AUTHORITY to vote for the following nominee(s) only
(Write the name of the nominee(s) below):
_________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK OPTION
PLAN PROPOSAL.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. AMENDMENT OF THE COMPANY'S 1997 STOCK OPTION PLAN: To approve the amendment
to the Company's 1997 Stock Option Plan to increase the number of shares of
Common Stock for which options may be issued to 1,000,000:
3. 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 shareholder. If no direction is made, this proxy will be voted FOR
the election of the nominees listed above under Election of Directors, and FOR
the Stock Option Plan Proposal.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND THE
PROXY STATEMENT.
Signature(s) _____________________________________ Dated: ________________, 1998
Please sign exactly as the name(s) appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executive,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the authorized voter. If a
partnership, please sign in partnership name by authorized person.
