<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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
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(2) Aggregate number of securities to which transaction 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
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
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(2) Form, Schedule or Registration Statement No.:
Not applicable
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(3) Filing Party:
Not applicable
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(4) Date Filed:
Not applicable
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<PAGE> 2
[THQ INC. LOGO]
April 30, 1999
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 14, 1999 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 seven 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 1999 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 quite pleased with the Company's recent financial performance
and appreciate your continued support and interest in the Company.
Yours Very Truly,
Brian J. Farrell
President and
Chief Executive Officer
<PAGE> 3
[THQ INC. LOGO]
5016 NORTH PARKWAY CALABASAS
CALABASAS, CALIFORNIA 91302
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 1999
To the Stockholders of THQ Inc.:
NOTICE IS HEREBY GIVEN that the 1999 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 14, 1999, 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 seven 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 1,650,000 shares to 2,750,000 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 5, 1999
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 Gysi
Chief Financial Officer,
Vice President-Finance and Administration,
Treasurer and Secretary
Calabasas, California
April 30, 1999
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 STOCK
BE REPRESENTED AT THE MEETING AND YOUR PROMPTNESS
WILL ASSIST THE COMPANY IN PREPARATION FOR THE
MEETING. YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE THE AUTHORITY GRANTED
THEREIN IS EXERCISED.
<PAGE> 4
[THQ INC. LOGO]
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 14, 1999
----------------
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 1999 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 14, 1999, 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 6, 1999. 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 for the year ended
December 31, 1998, 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 APRIL 30, 1999.
<PAGE> 5
INTRODUCTION
MATTERS TO BE CONSIDERED
At the Meeting, the stockholders of the Company will consider and vote
upon (i) the election of seven 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 1,650,000 shares to 2,750,000 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 5, 1999, as the date
(the "Record Date") for the determination of stockholders entitled to notice of,
and to vote at, the Meeting. The Company anticipates that at the close of
business on the Record Date, 11,394,010 shares of Common Stock will be
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.
The seven directors to be elected at the Meeting will be elected by the
affirmative vote of the holders of a plurality of the shares of Common Stock
represented at the Meeting in person or by proxy. Because the seven directors
will be elected by plurality vote (i.e., the seven persons receiving the highest
number of favorable votes will be elected) and assuming such election is
unconstested, votes withheld from any one or more nominees and broker non-votes
will not have any effect on the outcome of the election of directors.
Approval of the Stock Option Proposal requires the affirmative vote of
the holders of a majority of the shares of Common Stock represented at the
Meeting in person or by proxy and entitled to vote on the 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 A. 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.
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
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<PAGE> 6
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 $6,000 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 By-Laws of the Company, the number of directors
constituting the full Board of Directors has been fixed by the Board at seven.
Accordingly, action will be taken at the meeting to elect a Board of seven
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 45 Director, President and Chief Executive Officer
Jeffrey C. Lapin 42 Director and Vice Chairman
L. Michael Haller 55 Director and Senior Vice President
Lawrence Burstein 56 Director
Bruce Jagid 59 Director
James L. Whims 44 Director
L. Greg Ballard 45 Director
</TABLE>
BRIAN J. FARRELL has been the Company's President and Chief Executive
Officer since January 1995 and a director since March 1993. Between October 1992
and January 1995, Mr. Farrell served as the Company's Executive Vice President
and Chief Operating Officer. From July 1991 to October 1992, Mr. Farrell served
as the Company's Vice President, Chief Financial Officer and Treasurer. From
1984 until joining the Company, Mr. Farrell was Vice President and Chief
Financial Officer of Starwood Hotels & Resorts (then known as Hotel Investors
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.
JEFFREY C. LAPIN has been the Company's Vice Chairman since November
1998 and a director since April 1995. From July 1996 through October 1998, Mr.
Lapin was the President and Chief Operating Officer of House of Blues, Inc.
Hospitality and Executive Vice President of House of Blues, Inc. Entertainment.
From January 1995 to June 1996, Mr. Lapin was the President and Chief Operating
Officer of Starwood, and 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, the
3
<PAGE> 7
Secretary of Starwood from September 1986 to May 1991, and served as a 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.
L. MICHAEL HALLER has been a Senior Vice President and a director of
the Company since December 1995. Between January and December 1995, Mr. Haller
served as a consultant to the Company. For more than five years prior to joining
the Company, 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 a
director of Pacific Advisors Fund, Inc.
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. From 1982
through March 1996, Mr. Burstein was Chairman of the Board and a principal
stockholder of Trinity Capital Corporation, a private investment company. Mr.
Burstein is a director of Brazil Fast Food Corp., CAS Medical Systems, Inc.,
Unity First Acquisition Corp. and Medical Nutrition Inc.
BRUCE JAGID has been a director of the Company since April 1995. Mr.
Jagid is an investor and also serves as President of Brumar Industries and
Coining Technologies, Inc. From April 1991 to January 1999, Mr. Jagid was the
Chairman and Chief Executive Officer of Ultralife Batteries, Inc. ("Ultralife"),
a manufacturer of lithium batteries. From 1970 to 1989 Mr. Jagid was President
of Power Conversion Inc. Mr. Jagid is also a director of I.D. Systems, Inc. and
Ultralife.
JAMES L. WHIMS has been a director of the Company since April 1997.
Since 1996, Mr. Whims has been a Managing Director of Techfund Capital I, L.P.
and TechFund Capital II, L.P., venture capital firms 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. Mr. Whims is
also a director of 3Dfx Interactive, Inc., which designs and develops 3D media
processors and software ("3Dfx").
L. GREG BALLARD has been a director of the Company since April 1998.
Since December 1996, Mr. Ballard has been the President and Chief Executive
Officer of 3Dfx. From May 1995 to November 1996, Mr. Ballard was president of
Capcom Entertainment, Inc., a videogame and multimedia entertainment company.
From 1994 to March 1995, Mr. Ballard served as Chief Operating Officer and Chief
Financial Officer of Digital Pictures, Inc., a video game company. From 1991 to
1994, Mr. Ballard was President and Chief Executive Officer of Warner Custom
Music Corp., a multimedia marketing division of Time Warner, Inc. Previously,
Mr. Ballard was President and Chief Operating Officer of Personics Corp., a
predecessor to Warner Music. In addition, Mr. Ballard has worked for Boston
Consulting Group and as an attorney in Washington, D.C. Mr. Ballard is also a
director of 3Dfx, Pinnacle Systems and Quantum 3D.
There are no family relationships between any of the Company's
directors and executive 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee, a Compensation Committee and a
Mergers and Acquisitions Committee. The Board of Directors does not have a
nominating committee, and the usual functions of such committee are performed by
the entire Board of Directors.
AUDIT COMMITTEE. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. The Audit Committee, whose current members
are Messrs. Burstein, Jagid and Lapin, met two times during 1998.
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 1997 Stock Option Plan and
the number of options granted to each
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<PAGE> 8
person, and administers plans and programs relating to employee benefits,
incentives and compensation. The current members of the Compensation Committee
are Messrs. Burstein and Whims. The Compensation Committee (and the Stock Option
Committee, whose functions the Compensation Committee assumed in April 1998) met
five times during 1998 and acted once by written consent.
MERGERS AND ACQUISITIONS. The Mergers and Acquisitions Committee was
established in December 1998 to investigate, analyze, advise and make
recommendations to the Board with respect to potential acquisitions. The Mergers
and Acquisitions Committee, whose current members are Messrs. Burstein, Jagid
and Whims, did not meet during 1998.
MEETINGS OF THE BOARD OF DIRECTORS
In 1998, there were 10 meetings of the Board of Directors held in
person or by conference telephone call. Each Director attended at least 75% of
the aggregate of the meetings of the Board of Directors and of the committees of
the Board 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, 1998, 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, with the exception of Mr. Whims who failed to file a report in November
1998 for a change in ownership that occurred in October 1998.
EXECUTIVE OFFICERS
The Company's executive officers include Messrs. Farrell, Gysi, Haller
and Lapin and Ms. Alison Locke. Information with respect to Messrs. Farrell,
Haller and Lapin 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, 44, has been the Company's Vice President - Finance and
Administration, Chief Financial Officer, Treasurer and Secretary since November
1997. From October 1996 to October 1997, Mr. Gysi was the Chief Financial
Officer of HPM-Stadco, a manufacturing company. 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.
ALISON LOCKE, 44, was appointed the Company's Senior Vice President -
Sales and Marketing in February 1999. Ms. Locke is responsible for all sales and
marketing activities in North America. From January 1995 to January 1999, Ms.
Locke served as the Company's Senior Vice President - Sales. From 1991 to
January 1995, Ms. Locke served as the Company's Vice President - Sales.
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.
5
<PAGE> 9
KEY EMPLOYEES
The following persons, although not executive officers of the Company,
are regarded by the Company's management as key employees:
JOSEPH E. ADNEY III has been the Company's Vice President - Marketing
since March 1999. Mr. Adney was the Director, Marketing at Baskin-Robbins from
July 1998 to February 1999. From January 1995 to June 1998, Mr. Adney was the
Director, Marketing at Disney Interactive and served in a number of other
capacities at Disney Software from August 1990 to December 1994.
C. NOAH DAVIS has been the Company's Chief Technology Officer since the
Company's acquisition of GameFx in May 1998. Mr. Davis co-founded GameFx in
December 1996 and served as its President and Chief Executive Officer until the
acquisition, 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 was appointed the Company's Vice President - Licensing
in February 1999. Ms. Gioia served as the Company's Vice President - Marketing
from December 1995 to January 1999 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.
MICHAEL RUBINELLI has been the Company's Vice President - Product
Development since November 1998. Mr. Rubinelli is responsible for the management
of the Company's external product development. Mr. Rubinelli was Vice President
of Product Acquisition from August 1997 to August 1998 and Vice President of
Product Development from February 1996 to August 1997 at Midway Home
Entertainment. From 1991 through January 1996, Mr. Rubinelli held various
positions at Electronics Arts, Inc.
STEVE RYNO has been the Company's Chief Creative Officer since November
1998. Mr. Ryno is responsible for creative supervision of all games in
development and under consideration for acquisition. From December 1995 to
November 1998, Mr. Ryno served as the Company's Vice President - Product
Development. From June 1993 to December 1995, Mr. Ryno was the Company's
Director of Product Development. From 1992 to June 1993, Mr. Ryno was the
Executive Producer of Black Pearl Software, an interactive game company that the
Company acquired in 1993. From 1988 to 1992, Mr. Ryno was employed as an
executive producer at Atari Corporation. Mr. Ryno also previously served as an
editor of Electronic Gaming Monthly.
TIFFANY TERNAN has been the Company's Vice President - Sales since
November 1998. Ms. Ternan served as the Company's National Sales Manager from
January 1998 to November 1998, the Company's Director of Sales from August 1995
to January 1998, the Company's Western Regional Sales Manager from December 1993
to June 1994, and as a Marketing Manager from June 1991 to December 1993. From
June 1994 to August 1995, Ms. Ternan was employed by Catapult Entertainment.
TIM F. WALSH has been the Company's Vice President - International
since January 1998. From May 1997 to January 1998 he was Director of
International for the Company. Mr. Walsh was Director of International and OEM
Sales of Accolade, a publisher of video and PC game software from January 1996
to May 1997. From September 1993 to December 1995, Mr. Walsh held various
positions at Time Warner Interactive.
6
<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
As of April 23, 1999 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
beneficial ownership of the Common Stock as of April 23, 1999 by each of the
Company's directors as of that date, by each of the Company's executive officers
named in the Summary 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 PERCENT
OF BENEFICIAL OF
NAME AND ADDRESS(1) OWNERSHIP CLASS
- ------------------------------------ ------------- -------
<S> <C> <C>
BRIAN J. FARRELL 337,000(2) 2.9%
LAWRENCE BURSTEIN 104,517(3) *
BRUCE JAGID 85,500(4) *
JEFFREY C. LAPIN 127,667(5) 1.1%
L. MICHAEL HALLER 18,251(6) *
JAMES L. WHIMS 84,734(7) *
FRED GYSI 1,000 *
ALISON LOCKE 35,727(8) *
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (8 INDIVIDUALS) 794,396(9) 6.9%
</TABLE>
- ----------------
* Less than 1%.
(1) The address for each individual is c/o THQ Inc., 5016 North Parkway
Calabasas, Calabasas, California 91302.
(2) Includes 325,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days and 2,000 shares of Common Stock
issuable upon exercise of a warrant.
(3) Includes 60,002 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(4) Includes 60,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(5) Includes 126,667 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(6) Consists of 18,251 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(7) Includes 37,500 shares of Common Stock issuable upon exercise of
options exercisable within 60 days and 36,765 shares of Common Stock
held of record by TechFund Capital L.P. ("TechFund"). Mr. Whims is a
managing member of the general partner of TechFund and accordingly may
be deemed to share beneficial ownership of the shares of Common Stock
held of record by TechFund. Mr. Whims disclaims beneficial ownership of
such shares.
7
<PAGE> 11
(8) Includes 10,728 shares of Common Stock issuable upon exercise of
options exercisable within 60 days.
(9) Includes an aggregate of 638,148 shares of Common Stock issuable upon
exercise of options within 60 days and 2,000 shares of Common Stock
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. 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 3,750 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 grant.
During 1998, each of the non-employee directors received grants under
the Company's 1997 Stock Option Plan of options exercisable for 15,000 shares of
Common Stock. In addition, in December 1998 each of the non-employee directors
received options exercisable for 7,500 shares of Common Stock for services as
members of the Mergers and Acquisition Committee.
EXECUTIVE COMPENSATION
The following tables summarizes the compensation for the fiscal years
ended December 31, 1996, 1997 and 1998 of the Company's Chief Executive Officer
and the other most highly compensated executive officers of the Company whose
cash compensation exceeded $100,000 in 1998 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
------------------------------------- ----------------------- ------
OTHER RESTRICTED SHARES
NAME ANNUAL STOCK UNDERLYING CHIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARDS OPTIONS(3) PAYOUT COMPENSATION
- ------------------ ---- --------- -------- -------------- ---------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian J. Farrell 1998 $310,109 $300,000 -- -- 150,000 -- $ 6,000(4)
President and Chief 1997 $308,769 $300,000 -- -- 75,000 -- $ 6,000(4)
Executive Officer 1996 $233,519 $ 85,920 -- -- 300,000 -- $ 6,000(4)
Jeffrey C. Lapin (5) 1998 -- $ 25,000 -- -- 215,000 -- $ 40,000(6)
Vice Chairman 1997 -- -- -- -- 15,000 -- --
1996 -- -- -- -- 15,000 -- --
L. Michael Haller 1998 $170,448 $140,000 -- -- 51,250 -- $ 6,000(7)
Senior Vice 1997 $146,423 $125,000 -- -- 45,000 -- $ 5,857(7)
President 1996 $119,631 $ 25,000 -- -- 11,500 -- $ 369(7)
Fred A. Gysi 1998 $149,380 $ 40,000 -- -- 22,500 -- $ 6,000(8)
CFO, V.P. - 1997 $ 24,038 $ 5,000 -- -- 60,000 -- --
Finance and 1996 -- -- -- -- -- -- --
Administration,
Treasurer and
Secretary
Alison Locke 1998 $147,335 $286,910 -- -- 26,250 -- $ 6,000(8)
Senior V.P. - 1997 $152,584 $166,497 -- -- 41,250 -- $ 6,000(8)
Sales and Marketing 1996 $147,201 $ 67,847 -- -- 11,250 -- $ 6,000(8)
</TABLE>
- ---------
(1) Included in each Named Executive's salary are amounts that were
deferred by such Named Executive pursuant to the
8
<PAGE> 12
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) Awards of stock option grants have been adjusted to reflect the 50%
stock dividend distributed in August 1998.
(4) The amounts shown for 1996, 1997 and 1998 reflect matching
contributions in the amounts of $6,000 made by the Company in
accordance with the Company's 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
$887,000 as of December 31, 1996, 1997 and 1998, respectively. See
"Employment Agreement with Brian J. Farrell."
(5) Mr. Lapin joined the Company in November 1998.
(6) The amount shown reflects the amount paid to Mr. Lapin for consulting
services rendered by him prior to Mr. Lapin becoming an employee of the
Company.
(7) The amounts shown for 1996, 1997 and 1998 reflect matching
contributions in the amounts of $369, $5,857 and $6,000, respectively,
made by the Company in accordance with the Company's Defined
Contribution Plan.
(8) The amount shown reflects the matching contribution in the amount of
$6,000 made by the Company in accordance with the Company's Defined
Contribution Plan.
9
<PAGE> 13
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, 1998. 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 EXERCISE ANNUAL RATES OF
SHARES TOTAL OPTIONS OR BASE STOCK APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM (1)
OPTIONS EMPLOYEES IN PER EXPIRATION -----------------------------
GRANTED FISCAL YEAR SHARE DATE 5% 10%
---------- -------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian J. Farrell 150,000 13% $ 14.75 9/22/03 $ 611,273 $1,350,753
Jeffrey C. Lapin 3,750 $ 15.00 1/2/03 $ 15,541 $ 34,341
3,750 $ 16.00 4/1/03 $ 16,577 $ 36,631
3,750 $ 20.92 7/1/03 $ 21,674 $ 47,895
3,750 $ 16.13 10/1/03 $ 16,688 $ 36,898
200,000 17% $ 16.75 10/21/03 $ 925,543 $2,045,201
L. Michael Haller 26,250 2% $ 14.75 9/22/03 $ 106,973 $ 236,382
25,000 2% $ 16.75 10/21/03 $ 115,693 $ 255,651
Fred A. Gysi 22,500 2% $ 14.75 09/22/03 $ 91,691 $ 202,613
Alison Locke 26,250 2% $ 14.75 09/22/03 $ 106,973 $ 236,382
</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 set by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the stock price of the
Company.
10
<PAGE> 14
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, 1998 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
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------------------- ------------------------------
SHARES
ACQUIRED REALIZED
NAME ON EXERCISE VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian J. Farrell 120,000 $2,270,162 325,000 200,000 $7,859,250 $2,904,000
Jeffrey C. Lapin 22,500 $ 407,925 126,667 133,333 $2,001,529 $1,499,996
L. Michael Haller 82,500 $1,844,850 22,501 84,999 $ 499,193 $1,338,607
Fred A. Gysi 20,000 $ 317,500 0 62,500 $ 0 $1,031,325
Alison Locke 35,523 $ 526,443 6,978 57,498 $ 134,174 $1,003,585
</TABLE>
---------
(1) Calculated based on the excess of fair market value of the Common Stock
on December 31, 1998 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 provided for an annual base salary of
$300,000 in 1998, subject to annual review. For 1998, Mr. Farrell was 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 annual bonus is also subject
to annual review. The Company also is required to provide Mr. Farrell with life
insurance and disability insurance during, and for 12 months after, the
Employment Period. For information with respect to recent modifications to Mr.
Farrell's Employment Agreement see "Compensation Committee Report on Executive
Compensation."
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
11
<PAGE> 15
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.
EMPLOYMENT AGREEMENT WITH JEFFREY C. LAPIN
The Company has an agreement with Mr. Lapin to employ Mr. Lapin as the
Company's Vice Chairman for a two-year period commencing on January 1, 1999.
Pursuant to such agreement, Mr. Lapin received an initial payment upon becoming
Vice Chairman of $25,000 and will be paid an annual base salary of $200,000 for
1999 and $225,000 for 2000. In addition, Mr. Lapin is entitled to an annual
bonus of up to $200,000 in each year. A written agreement reflecting the terms
of Mr. Lapin's employment (including severance benefits) is currently being
negotiated.
SEVERANCE AGREEMENTS
The Company has entered into severance agreements (the "Severance
Agreements") with each of its officers except for Messrs. Farrell and Lapin. Mr.
Farrell's employment agreement provides for the payment of benefits upon his
termination following a Change of Control as discussed above in "Employment
Agreement with Brian J. Farrell."
The Severance Agreements provide for the payment of benefits to the
officers upon a "Change in Control." The officers agree to not voluntarily leave
the Company without "Good Reason" until the earlier of (a) such attempted Change
in Control terminates, or (b) if a Change in Control occurs, 90 days following
such Change in Control.
A "Change in Control" is defined, subject to certain exceptions, as an
acquisition by any person or group of persons of 30% or more of either (a) the
outstanding Common Stock, or (b) the combined voting power of the outstanding
securities entitled to vote for the election of directors.
"Good Reason" is defined to include any of the following events after a
Change in Control: (a) any removal or involuntary termination of the officer;
(b) a reduction of the officer's rate of annual base salary as in effect
immediately prior to the Change in Control or the Company's failure to pay such
salary; (c) a requirement that the officer relocate; (d) the Company's failure
to provide the officer with compensation, vacation and other fringe benefits,
expense reimbursement, and welfare benefits in accordance with the most
favorable plans and benefits in effect for the peer officers of the Company
after the Change in Control; and (e) the Company's failure to maintain the
effectiveness of the Severance Agreements after the Change in Control.
The Severance Agreements provides that if an officer's employment is
terminated within the year following a Change in Control for any other reason,
such officer will be entitled to receive, among other benefits, a cash amount
equal to (i) one times such officer's annual base salary paid to such officer at
the time of the Change in Control, plus (ii) one times such officer's annual
bonus paid or payable to such officer in respect of the fiscal year of the
Company immediately preceding the fiscal year in which the Change in Control
occurs. In addition, if on the date of termination such officer's stock options
are not fully vested, all such stock options shall become immediately vested and
exercisable for such period as provided in the plan and/or agreement governing
such options. If Messrs. Gysi and Haller and Ms. Locke were terminated in
accordance with the foregoing they currently would receive $180,000, $320,000
and $461,910, respectively.
12
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee in 1998 consisted of Messrs. Burstein, Lapin
and Whims until November 1998 when Mr. Lapin became an executive officer of the
Company and resigned from this committee. Since Mr. Lapin's resignation, this
committee has consisted of Messrs. Burstein and Whims.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 1, 1998, the Company acquired all of the outstanding shares of
GameFx (the "GameFx Acquisition"). Mr. 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 60,841 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. Upon the consummation of the GameFx
Acquisition, these notes were paid in full with shares of Common Stock. As a
result, TechFund received 27,402 shares of Common Stock and Mr. Whims received
2,884 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 the warrants, TechFund received 9,363 shares of Common Stock
and Mr. Whims received 933 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 Whims. The compensation of the
Company's executive officers is determined by the Committee, in consultation
with other members of the Board, 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 1998. See "Employment Agreement
with Brian J. Farrell."
In January 1999, in recognition of the outstanding financial results of
the Company in 1998 and the growth of the company during recent years, the
Committee approved an increase in Mr. Farrell's base compensation to $360,000
per year commencing in 1999, and an increase in his maximum annual cash bonus,
payable commencing in 2000 based on the Company's net income in 1999, to
$360,000.
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.
13
<PAGE> 17
It is also a fundamental objective of the Committee to provide the
Company's executive officers with an opportunity to share in the success of the
Company by granting to the executive officers options to purchase shares of
Common Stock. Through April 1998, option grants were the responsibility of the
Company's Stock Option Committee. However, in that month the Board abolished the
Stock Option Committee and delegated all of its responsibilities to the
Committee.
The Committee has maintained the policy of the former Stock Option
Committee 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.
Respectfully submitted,
Lawrence Burstein
James Whims
14
<PAGE> 18
PERFORMANCE GRAPH
FISCAL YEAR ENDING DECEMBER 31
The following chart compares the cumulative total stockholder returns
on the shares of Common Stock since December 31, 1993 to the cumulative total
returns over the same period of the NASDAQ (US) Market Index and Hambrecht and
Quist High Technology Index. The Chart assumes that the value of the investment
in the shares of Common Stock and each index was $100 at December 31, 1993 and
that all dividends were reinvested.
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
AMONG THQ INC., NASDAQ (US) MARKET INDEX AND
HAMBRECHT AND QUIST HIGH TECHNOLOGY INDEX
FISCAL YEAR ENDING DECEMBER 31
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
THQ Inc. 100 80 46 80 196 358
NASDAQ (US) Market 100 98 138 170 208 293
Hambrecht and Quist High Technology 100 120 178 221 259 402
</TABLE>
15
<PAGE> 19
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 key 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 1,650,000. As of April 23, 1999 (i) a total of
249 persons had been granted options under the 1997 Plan, (ii) 113,004 shares of
Common Stock had been issued and sold by the Company pursuant to the exercise of
such options, and (iii) options to purchase an aggregate of 1,533,722 shares of
Common Stock were outstanding at a weighted average price of $14.55 per share.
As a result of the options granted and committed to be granted, 3,274
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 of Common Stock authorized for issuance under the 1997 Plan to 2,750,000
is necessary to facilitate the Company's growth and for the Company to continue
to benefit from the 1997 Plan. Included as Appendix A is a copy of the Plan as
proposed to be amended.
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 two tables
included above under the caption "Executive Compensation."
<TABLE>
<CAPTION>
Name and Position Dollar Value* Number of Shares
----------------- ------------- ----------------
<S> <C> <C>
Brian J. Farrell
President and Chief $2,603,992 225,000
Executive Officer
Jeffrey C. Lapin $ 241,218 22,500
Vice Chairman
L. Michael Haller $1,224,646 96,250
Senior Vice President
Fred Gysi
CFO, Vice President - Finance and
Administration, Treasurer and $1,119,896 82,500
Secretary
Alison Locke
Senior Vice President - Sales and $ 959,661 67,500
Marketing
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
Name and Position Dollar Value* Number of Shares
----------------- ------------- ----------------
<S> <C> <C>
Executive Officers, as a group (5 $ 6,149,413 493,750
individuals)
Directors who are not Executive Officers, $ 721,656 90,000
as a group (3 individuals)
Employees who are not Executive $11,130,261 1,114,051
Officers, as a group (241 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 of Common Stock for
which the exercise price is less than fair market value. Fair market
value was calculated based upon the average of the high and low sales
price of the Common Stock as reported on the Nasdaq National Market on
April 23, 1999 $24.63. 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 of Common Stock 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 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. This summary is in all respects qualified by the provisions of
the 1997 Plan itself.
Administration. The 1997 Plan is administered by the Board of Directors
or, if the Board so elects, by a 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 Compensation Committee as
described above under the caption "Compensation 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
17
<PAGE> 21
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. No option issued under the Plan may be repriced, replaced or
regranted through cancellation, or by lowering of the option price of a
previously granted award, without prior stockholder approval except as a result
of an adjustment in the event of any stock split, stock dividend or similar
change in capitalization.
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 five years after the date of the 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, each option then held by that optionee 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
3,750 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
18
<PAGE> 22
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.
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 of
Common Stock 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 1,650,000 SHARES
TO 2,750,000 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 1998.
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, 1999. 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.
19
<PAGE> 23
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Stockholder proposals to be presented at the 2000 Annual Meeting of
Stockholders of the Company 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 1, 2000 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 Gysi
Chief Financial Officer,
Vice President-Finance and Administration,
Treasurer and Secretary
April 30, 1999
PLEASE COMPLETE, DATE, SIGN AND
RETURN YOUR PROXY PROMPTLY
20
<PAGE> 24
EXHIBIT A
THQ INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
(AMENDED AS OF APRIL 29, 1999)
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 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 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.
<PAGE> 25
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,
2,750,000 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. 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 stock option shall be exercisable 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.
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<PAGE> 26
(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 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; provided, however, that if the optionee's employment with
the Company
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<PAGE> 27
is terminated by the Company within the nine-month period following the
consummation of a Transaction (as defined in Section 4.8(a)) for any reason
other than Total Disability, death or for Cause, each 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; provided further, that if the
optionee's employment with the Company is terminated by the Company at any other
time for any reason other than Total Disability, death or for Cause, the
Committee may, in its sole and absolute discretion, provide that each 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.
(e) Death Following Termination of Employment. 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 by the Company 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.
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 3,750 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.
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<PAGE> 28
(ii) Death. Unless otherwise specified in the Agreement relating to an
option, if an optionee's directorship with the Company terminates by reason of
death, each option held by such optionee shall be exercisable only to the extent
that such option is exercisable on the date of such optionee's death and may
thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is one year (or such other period as set forth in
the Agreement relating to such option) after the date of death and (ii) the
expiration date of the term of such option.
(iii) Termination for Cause. Unless otherwise specified in the
Agreement relating to an option, if the holder of such option is removed from
the Board of Directors for Cause, such option shall terminate automatically on
the date of such termination.
(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 by the Company 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.
(a) 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.
(b) Without the prior approval of the stockholders of the Company, and
except as provided in Section 4.7 hereof, no option issued under this Plan shall
be repriced, replaced or regranted through cancellation, or by lowering the
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<PAGE> 29
option price of a previously granted award.
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 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
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of the option in whole or in part occurring after such adjustment, an amount in
cash determined by multiplying (A) the fraction of such security (rounded to the
nearest hundredth) by (B) the excess, if any, of (x) the Fair Market Value on
the exercise date over (y) the exercise price of the option.
4.8 EFFECT OF CERTAIN TRANSACTIONS.
(a) In the event that the Company enters into an agreement (a) to
dispose of all or substantially all of its assets, in contemplation of the
distribution of the net proceeds of such sale to the Company's shareholders, or
(b) to consummate a merger or consolidation in which the Company is not the
surviving or resulting corporation, or in the event the persons who, as of the
date of the adoption of this Plan by the Board of Directors, hold 60% or more of
the outstanding capital stock of the Company enter into an agreement to sell all
of such stock (such distribution, merger, consolidation or sale being
hereinafter referred to as a "Transaction"), then (unless otherwise specified in
the Agreement relating to an option), the Committee shall provide, at its
election made in its sole and absolute discretion, for one or more of the
following: (i) for each outstanding option, whether or not then exercisable, to
be replaced with a comparable option to purchase shares of capital stock of a
successor or purchasing corporation or parent thereof, or (ii) for each
outstanding option, whether or not then exercisable, to be assumed by a
successor or purchasing corporation or parent thereof (and, in the event of such
assumption, each outstanding option shall continue to be exercisable, on the
terms and subject to the conditions set forth in, and in cumulative amounts at
the times provided in, the Agreement relating to such option but shall, from and
after the consummation of such Transaction, be exercisable for the capital
stock, cash and/or other property received by the common stockholders of the
Company in such Transaction in an amount equal to what the holder of such option
would have received had he exercised such option immediately prior to the
consummation of such Transaction), or (iii) for each outstanding option, whether
or not then exercisable, to become exercisable during such period prior to the
scheduled consummation of such Transaction as may be specified by the Committee;
provided, however, that such elections of the Committee shall apply identically,
by their terms, to all holders of options granted under this Plan (unless
otherwise required by an Agreement). In the event the Committee elects to cause
the options not then otherwise exercisable to become exercisable prior to such
Transaction (an "Accelerated Option"), any exercise of an Accelerated Option
shall be conditioned upon, and shall be effective only concurrently with, the
consummation of such Transaction; and if such Transaction is not consummated,
the exercise of such Accelerated Options shall be of no further force or effect
(and an optionee may elect, with respect to the exercise during such period of
an option that was otherwise exercisable, to so condition such exercise upon the
consummation of the Transaction). All options not exercised prior to the
consummation of such Transaction (and which are not being assumed by a successor
or purchasing corporation or parent thereof) shall terminate and be of no
further force or effect as of the consummation of such Transaction.
(b) With respect to any optionee who is subject to Section 16 of the
Exchange Act, (i) notwithstanding the exercise periods set forth in Section 2.3
and 3.2(c), or as set forth pursuant to such Section in any Agreement to which
such optionee is a party, and (ii) notwithstanding the expiration date of the
term of such option, in the event the Company is involved in a business
combination that is intended to be treated as a pooling of interests for
financial accounting purposes (a "Pooling Transaction") or pursuant to which
such optionee receives a substitute option to purchase securities of any entity,
including an entity directly or indirectly acquiring the Company, then each
option (or option in substitution thereof) held by such optionee shall be
exercisable to the extent set forth in the Agreement evidencing such option
until and including the latest of (x) the date set forth pursuant to the then
applicable paragraph of Section 2.3, 3.2(c) or the expiration date of the term
of the option, as the case may be, (y) the date which is six months and one day
after the consummation of such business combination and (z) the date which is
ten business days after the date of expiration of any period during which such
optionee may not dispose of a security issued in the Pooling Transaction in
order for the Pooling Transaction to be accounted for as a pooling of interests.
4.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in this Plan. Neither this Plan nor any option granted
hereunder shall confer upon any person any right to continued employment by the
Company, any Subsidiary or any affiliate of the Company or affect in any manner
the right of the Company, any Subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder.
4.10 RIGHTS AS STOCKHOLDER. No person shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock which are
subject to an option hereunder until such person becomes a stockholder of record
with respect to such shares of Common Stock.
4.11 DESIGNATION OF BENEFICIARY. If permitted by the Company, an
optionee may file with the Committee
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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
1999 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 14, 1999 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)
________________________________________________________________________________
1. ELECTION OF DIRECTORS: To elect each of the following nominees as
directors of the Company to serve until the next annual meeting and
until their successors are elected and qualify (the "Election of
Directors"):
<TABLE>
<S> <C>
Brian J. Farrell [ ] WITHHOLD AUTHORITY to vote for the following nominee(s) only
Lawrence Burstein (Write the name of the nominee(s) below):
L. Michael Haller
Bruce Jagid
Jeffrey C. Lapin
James L. Whims
L. Greg Ballard ______________________________________________________________
[ ] FOR ALL OF THE NOMINEES [ ] WITHHOLD AUTHORITY to vote for all nominees listed above
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
2. STOCK OPTION PLAN PROPOSAL: 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 2,750,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE STOCK
OPTION PLAN PROPOSAL.
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.
Please sign exactly as the name(s) appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the authorized officer. If a
partnership or limited liability company, or any other entity, please sign in
such entity's name by authorized person.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND THE
PROXY STATEMENT.
<TABLE>
<S> <C>
________________________________ Dated: _______, 1999 ________________________________ Dated: __________, 1999
Signature of Shareholder Signature if held jointly
</TABLE>
