SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year ended December 31, 2001
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-24363
INTERPLAY ENTERTAINMENT CORP.
(Exact name of Registrant as specified in its charter)
---------------------------
Delaware 33-0102707
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16815 Von Karman Avenue, Irvine, California 92606
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 553-6655
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of April 15, 2002, 93,060,857 shares of Common Stock of the Registrant
were issued and outstanding and the aggregate market value of voting common
stock held by non-affiliates was $3,032,659.
DOCUMENTS INCORPORATED BY REFERENCE
None.
AMENDMENT NO. 1
TO THE ANNUAL REPORT ON FORM 10-K FILED BY
INTERPLAY ENTERTAINMENT CORP. ON APRIL 15, 2002
The following Items comprising Part III were omitted from the Annual Report
on Form 10-K filed by Interplay Entertainment Corp. (the "Company") on April 15,
2002 (the "Form 10-K"), as permitted by rules and regulations promulgated by the
Securities Exchange Commission. Part III of that Form 10-K is hereby amended and
restated to insert those Items as set forth herein. All capitalized terms used
herein but not defined shall have the meanings ascribed to them in the Form
10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
SUMMARY INFORMATION CONCERNING DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN
SIGNIFICANT EMPLOYEES
The following table sets forth certain information regarding the Company's
directors and executive officers and certain significant employees, and their
ages as of April 30, 2002:
NAME AGE POSITION WITH THE COMPANY
Herve Caen 39 Chairman of the Board of Directors,
President and Interim Chief
Executive Officer
Jeff Gonzalez 34 Chief Financial Officer
Nathan Peck 77 Chief Administrative Officer and Director
Phillip G. Adam 47 Vice President of Business Development
Gary Dawson 52 Vice President of Sales and Marketing
Jill S. Goldworn 38 President of Interplay OEM, Inc.
David Perry 33 President of Shiny Entertainment, Inc.
Calvin Morrell 45 President of GamesOnline.com, Inc.
Eric Caen 36 Director
Michel H. Vulpillat(2) 40 Director
Michel Welter 43 Director
Maren Stenseth(1)(2) 40 Director
R. Parker Jones(1) 45 Director
<FN>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
</FN>
BACKGROUND INFORMATION CONCERNING DIRECTORS
HERVE CAEN joined the Company as President and a director in November 1999.
Mr. Caen was appointed Interim Chief Executive Officer in January 2002 to fill
the vacancy created by Brian Fargo's resignation in January 2002. Mr. Caen has
served as Chairman of the Company's Board of Directors since September 2001. Mr.
Caen has served as Chairman of the Board of Directors and Chief Executive
Officer of Titus Interactive SA, an interactive entertainment software company,
since 1991. Mr. Caen also serves as Managing Director of Titus Interactive
Studio, Titus SARL and Digital Integration Services, which positions he has held
since 1985, 1991 and 1998, respectively. Mr. Caen also serves as Chief Executive
Officer of Titus Software Corporation, Chairman of Titus Software UK Limited and
Representative Director of Titus Japan KK, which positions he has held since
1988, 1991 and 1998, respectively.
ERIC CAEN has served as a director of the Company since November 1999. Mr.
Caen has served as a Director and as President of Titus Interactive SA since
1991. Mr. Caen also serves as Vice President of Titus Software Corporation,
Secretary and Director of Titus Software UK Limited and Director of Titus Japan
KK and Digital
Page 2
Integration Limited, which positions he has held since 1988, 1991, 1998 and
1998, respectively. Mr. Caen has also served as Managing Director of Total Fun
2, a French record production company, since 1998. Mr. Caen served as Managing
director of Titus SARL from 1988 to 1991.
NATHAN PECK joined the Company as interim Chief Administrative Officer in
August 2001 and a director in September 2001. Prior to joining the Company, From
November 1998 to August 2001, Mr. Peck served as a director and consultant to
Virgin Interactive Entertainment, Limited. Virgin Interactive Entertainment,
Limited is a developer, publisher, and distributor of video games in Europe. Mr.
Peck also served as a consultant and director of Synthean, Inc., a business
software development company, and is currently serving as a consultant for
Tag-It Pacific, Inc., a trim distribution company serving the apparel industry.
MICHEL H. VULPILLAT joined the Company's Board of Directors in September
2001. Mr. Vulpillat is currently the owner of Edge LLC, a consulting company in
the fields of international business and business engineering started in 1996.
Mr. Vulpillat has served as Vice President of Special Operations of Titus
Interactive since 1998. From 1988 to 1994, Mr. Vulpillat co-founded and served
as Chief Executive Officer of Titus Software Corporation. Mr. Vulpillat received
a Ph.D in thermodynamics and fluid mechanics from ENSAM, a French University,
and received various French Diplomas in business and mechanical engineering.
MICHEL WELTER joined the Company's Board of Directors in September 2001.
Mr. Welter also serves as President of CineGroupe International, a Canadian
company, which develops, produces and distributes animated television series and
movies. From 1990 to the end of 2000, Mr. Welter served as President of Saban
Enterprises where he launched the international merchandising for the hit series
"Power Rangers" and was in charge of international business development where he
put together numerous co-productions with companies in Europe and Asia.
MAREN STENSETH joined the Company's Board of Directors in November 2001.
Ms. Stenseth has worked in public accounting since 1986, concentrating on
business management for the entertainment industry. In December 1999, Ms.
Stenseth initiated her practice in Santa Monica, California specializing in
income taxation and personal financial planning. From 1997 to 1999, Ms. Stenseth
was a Manager of Satriano and Hilton, Certified Public Accountants.
R. PARKER JONES joined the Company's Board of Directors in December 2001.
From June 1990 to the present, Mr. Jones has served as Director of Manulife
Financial, the Toronto based financial services company with offices throughout
North America. Mr. Jones' responsibilities have been primarily focused on the
Los Angeles real estate portfolio. Prior to Manulife, Mr. Jones was Vice
President, Marketing at Westgroup, Inc. and Assistant Vice President at Lowe
Enterprises (1985-1990), both Los Angeles area real estate development concerns.
Mr. Jones received his B.A. in Political Science from the University of
California, Los Angeles.
DIRECTOR COMPENSATION
The Company's non-employee directors receive cash compensation of $5,000
per quarter for attendance at Board of Directors or committee meetings. In
December 2001, the Company granted to each of Michel H. Vulpillat and Michel
Welter an option to purchase up to 25,000 shares of the Company's common stock,
exercisable at $.68 per share and granted to R. Parker Jones an option to
purchase up to 25,000 shares of the Company's common stock, exercisable at $.80
per share. The above director options are each for a term of ten years and vest
over the first three years.
Page 3
BACKGROUND INFORMATION CONCERNING EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT
EMPLOYEES
JEFF GONZALEZ joined the Company in November 2001 as its Chief Financial
Officer and Secretary. Prior to joining the Company, he was Chief Financial
Office of Trimark Holdings, Inc. from September 1998 to September 2000. Mr.
Gonzalez was instrumental in the sale of Trimark to Lions Gate Entertainment.
During July 1994 to September 1998, Mr. Gonzalez was the controller of Morgan
Creek Productions, a film production company. Mr. Gonzalez started his career at
PricewaterhouseCoopers and is a Certified Public Accountant.
PHILLIP G. ADAM joined the Company as Vice President of Sales and Marketing
in December 1990 and has served as Vice President of Business Development of the
Company since October 1994. Prior to joining the Company, from January 1984 to
December 1990, Mr. Adam served as President of Spectrum Holobyte, an interactive
entertainment software publisher, where he was a co-founder. From May 1990 to
May 1996, Mr. Adam served as the Chairman or a member of the Board of Directors
of the Software Publishers Association and, during part of such period, as
President of the Software Publishers Association. From March 1997 to March 1998
Mr. Adam served as the Chairman of the Public Policy Committee of the
Interactive Digital Software Association.
GARY DAWSON was appointed as the Company's Vice President of Sales in
November 1999. Prior to joining the Company, from 1996 to November 1999, Mr.
Dawson was Senior Vice President, Manufacturing and Production for Chorus Line,
an apparel manufacturer. From 1993 to 1996, Mr. Dawson served as Vice President
and General Manager, Lee Jeanswear for Lee Apparel, a manufacturer of denim
products.
CAL MORRELL joined the Company as Vice President of Marketing in September
1998 and has served as President of GamesOnline.com, Inc. since September 2000.
Prior to joining the Company, from March 1997 to August 1998, Mr. Morrell served
as Senior Vice President of Games On-Line, Inc. dba Engage, and prior to that
served as Vice President of Marketing & Internet for Legacy Software, a software
developer, from June 1996 to February 1997, as well as Director of Worldwide
Consumer Software of the United Kingdom subsidiary of International Business
Machines, Inc., a world-wide computer company, from January 1995 to June 1996.
From June 1993 to December 1994, Mr. Morrell served as Brand Manager at IBM's
Consumer Division.
JILL S. GOLDWORN has served as President of Interplay OEM, Inc., the
Company's OEM subsidiary, since December 1996. Prior to that, Ms. Goldworn
served as Vice President, OEM and Merchandising of the Company since June 1995.
Prior to that, Ms. Goldworn served as Director of the OEM division of the
Company from September 1992 to June 1995. Prior to joining the Company, from
November 1991 to August 1992, Ms. Goldworn served as Director of Contract Sales
of PC Globe, Inc., a publisher of desktop geography software.
DAVID PERRY has served as President of Shiny Entertainment, Inc. since
October 1993. Mr. Perry founded Shiny, developer of Earthworm Jim, in October
1993. Prior to founding Shiny, from January 1991 to September 1993, Mr. Perry
served as a consulting engineer for Virgin Interactive Entertainment Inc., an
interactive entertainment software publisher.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and ten-percent Stockholders are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on the review of copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2001, all of the Company's
officers, directors and ten-percent Stockholders complied with all applicable
Section 16(a) filing requirements.
Page 4
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned during the last three fiscal years ended December 31, 2001, by the
Company's Chief Executive Officer and each of the two other most highly
compensated executive officers of the Company whose total salary and bonus
during such year exceeded $100,000 (collectively, the "Named Executive
Officers"). No other executive officer of the Company serving at December 31,
2001, received total salary and bonus during 2001 in excess of $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
----------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) (1)
- --------------------------- ---- ----------- -------- ------------- ------------
Brian Fargo 2001 $200,000(2) -- -- $2,500
Chief Executive Officer 2000 200,000(2) -- -- $2,917
1999 200,000 -- 500,000 --
Herve Caen 2001 $250,000 -- -- --
President 2000 62,500(3) -- -- --
1999 -- -- -- --
Manuel Marrero (4) 2001 $198,000 $200,000 $2,228
Chief Financial Officer and 2000 198,000 $100,000 150,000 $2,228
Chief Operating Officer 1999 158,775 -- 150,000 --
<FN>
- ---------------
(1) Consists of matching payments made under the Company's 401(k) plan (see
"--Employee Benefit Plans--401(k) Plan").
(2) In November 1999 Mr. Fargo entered into an employment agreement with the
Company providing for an annual base salary of $250,000. Mr. Fargo has
waived payment of $50,000 of his annual salary, but may require the Company
to re-commence payment of his full salary at any time. Mr. Fargo resigned
from the Company in January 2002.
(3) Mr. Caen joined the Company in November 1999 at an annual base salary of
$250,000. Mr. Caen waived payment of his salary through October 2000.
(4) Mr. Marrero's employment with the Company was terminated in November 2001.
</FN>
STOCK OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2001
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during the year ended December 31, 2001.
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM ($)(3)
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE(2) 5% 10%
- ---- ---------- ------------ -------- ---------- -------- --------
Manuel Marrero 300,000 40.6% $1.51 4/12/11 $284,889 $721,965
<FN>
- -------------------
(1) Represents options granted pursuant to the Company's 1997 Plan. All such
options were granted at an exercise price equal to, or greater than, the
fair market value of the common stock on the date of grant.
Page 5
(2) Options granted pursuant to the 1997 Plan expire 10 years from the date of
grant.
(3) Represents amounts that may be realized upon exercise of the options
immediately prior to expiration of their terms assuming appreciation of 5%
and 10% over the option term. The 5% and 10% numbers are calculated based
on rules required by the Securities and Exchange Commission and do not
reflect the Company's estimate of future stock price growth. The actual
value realized may be greater or less than the potential realizable value
set forth.
</FN>
AGGREGATE OPTION EXERCISES AND 2001 YEAR-END OPTION VALUES
Shown below is information relating to the exercise of stock options
during the year ended December 31, 2001, for each of the Named Executive
Officers, and the year-end value of unexercised options.
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT
AT YEAR-END YEAR-END
SHARES ACQUIRED (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE) UNEXERCISABLE)(1)
- ---- --------------- -------------- --------------------- -------------------
Brian Fargo -- -- 340,000/310,000 $0/$0
Herve Caen -- -- 0/0 $0/$0
Manuel Marrero -- -- 200,000/400,000 $0/$0
<FN>
- -------------------
(1) Represents an amount equal to difference between the closing sale price for
the Company's common stock ($0.46) on the Nasdaq National Market on
December 31, 2001, and the option exercise price, multiplied by the number
of unexercised in-the-money options.
</FN>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Brian Fargo for a
term of three years through November 2002. The employment agreement provides for
a base salary of $250,000 per year, with such annual raises as may be approved
by the Board of Directors, plus annual bonuses at the discretion of the Board of
Directors. In the event that Mr. Fargo is terminated without cause or resigns
for good reason as set forth in the agreement, the Company is required to pay
Mr. Fargo 150% of his base salary and 75% of his imputed annual bonuses for the
remainder of the term of the agreement, which payments are contingent upon Mr.
Fargo's non-competition with the Company, as defined in the agreement. Mr. Fargo
is also entitled to participate in the incentive compensation and other employee
benefit plans established by the Company from time to time. Mr. Fargo has waived
payment of $50,000 of his annual salary. Mr. Fargo resigned as Company's
Chairman of the Board of Directors and Chief Executive Officer in January 2002,
and his employment agreement has been terminated.
The Company has entered into an employment agreement with Herve Caen for a
term of three years through November 2002, pursuant to which he currently serves
as the Company's Chairman of the Board of Directors, President and interim Chief
Executive Officer. The employment agreement provides for an annual base salary
of $250,000, with such annual raises as may be approved by the Board of
Directors, plus annual bonuses at the discretion of the Board of Directors. Mr.
Caen is also entitled to participate in the incentive compensation and other
employee benefit plans established by the Company from time to time. Mr. Caen
waived payment of his salary through October 2000.
The Company entered into an employment agreement with Manuel Marrero for a
term of five years through March 15, 2004. The employment agreement provides for
a base salary of $198,000 per year, with such annual raises as may be approved
by the Board of Directors, plus annual bonuses at the discretion of the Board of
Directors. In the event that Mr. Marrero is terminated without cause, the
Company is required to pay Mr. Marrero his base salary plus a $50,000 annual
bonus for the longer of (i) a period of one year following the termination or
(ii) through the end of the term of the employment agreement. Such
post-termination payments are contingent upon Mr.
Page 6
Marrero's non-competition with the Company, as defined in the agreement. Mr.
Marrero was terminated with cause in November 2001, and his employment agreement
has been terminated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Michel H. Vulpillat and
Maren Stenseth. No member of the Compensation Committee or executive officer of
the Company has a relationship that would constitute an interlocking
relationship with executive officers and directors of another entity. During
2001, decisions regarding executive compensation were made by the Compensation
Committee. Directors who were members of the Compensation Committee during 2001
were Mr. Barnett, Mr. Roach, Mr. Vulpillat and Ms. Stenseth. None of the 2001
members of the Compensation Committee nor any of the Company's 2001 executive
officers or directors had a relationship that would constitute an interlocking
relationship with executive officers and directors of another entity.
Page 7
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth certain information concerning the beneficial
ownership of the Company's outstanding common stock as of April 15, 2002, for
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially five percent or more of the Company's common stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group.
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) SHARES OWNED(2)
- ------------------------------------ ------------- ---------------
Titus Interactive SA 67,449,021(3) 63.6%
Herve Caen 67,449,021(4) 63.6%
Eric Caen 67,449,021(4) 63.6%
20432 Corisco Street
Chatsworth, CA 91311
Brian Fargo 4,004,378(5) 3.8%
16815 Von Karman Avenue
Irvine, CA 92606
Manuel Marrero 0 *
Jeff Gonzalez 0 *
Nathan Peck 0 *
Michel Vulpillat (6) 0 *
Maren Stenseth 0 *
R. Parker Jones 0 *
All Directors and Executive Officers
as a Group (9 persons) 67,449,021(3)(4) 63.6%
<FN>
- ----------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock subject to options currently
exercisable, or exercisable within 60 days of April 15, 2001, are deemed
outstanding for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote and subject to community property
laws where applicable, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) Based on 93,060,857 shares of common stock outstanding as of April 15,
2002.
(3) Includes 460,298 shares subject to warrants exercisable within 60 days of
April 25, 2002.
(4) Messrs. Herve Caen and Eric Caen are officers, directors and principal
shareholders of Titus Interactive SA. In such capacities Messrs. Herve Caen
and Eric Caen may be deemed to beneficially own shares of common stock
beneficially held by Titus, but disclaim such beneficial ownership, except
to the extent of their economic interest in these shares.
(5) Includes 500,000 shares subject to warrants exercisable within 60 days of
April 25, 2002.
(6) Mr. Vulpillat is currently director of Titus and owns less than 0.1% of the
outstanding capital stock of Titus. Mr. Vulpillat disclaims beneficial
ownership of the Company's shares held by Titus
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our operations involve significant transactions with Titus Interactive S.A.
("Titus"), our majority stockholder, Virgin Interactive Entertainment Limited
("Virgin"), a wholly-owned subsidiary of Titus, and Vivendi Universal Games,
Inc. ("Vivendi"), an owner of approximately 4.4% percent of our common stock. In
addition, we obtained financing from the former Chairman of the Company.
Page 8
EVENTS WITH TITUS INTERACTIVE S.A.
Titus, the Company's largest stockholder, recently gained a majority of the
Company's stockholders' voting power, providing Titus with the ability to
control the outcome of votes on proposals presented to the Company's
stockholders, as well as the ability to elect a majority of the Company's
directors. The events relating to Titus' gaining of majority voting power are as
follows:
o On September 5, 2001, the Company entered into a Support Agreement
with Titus providing for the nomination to the Company's Board of
Directors a slate of six individuals mutually acceptable to Titus and
the Company for election as directors at the Company's 2001 annual
meeting of stockholders, and appointing a Chief Administrative Officer
("CAO") to the Company. Also on September 5, 2001, as part of the
Support Agreement, three of the existing directors resigned and three
new directors acceptable to Titus were appointed by the remaining
directors to fill the three vacancies. As a consequence, from
September 6, 2001 until the 2001 annual meeting on September 18, 2001,
the Board of Directors consisted of five individuals nominated by
Titus, and two directors previously nominated by management.
o On September 13, 2001, the Company's Board of Directors established an
Executive Committee, consisting of the Company's President and CAO, to
administer and oversee all aspects of the Company's day-to-day
operations, including, without limitation, (a) the relationship with
lenders, including LaSalle Business Credit, Inc.; (b) relations with
Europlay I, LLC ("Europlay"), consultants retained to effect a
restructuring of the Company; (c) capital raising efforts; (d)
relationships with vendors and licensors; (e) employment of officers
and employees; (f) retaining and managing outside professionals and
consultants; and (g) directing management.
o The Company's 2001 annual meeting was held on September 18, 2001. At
the annual meeting, the five Titus nominees and one of the directors
previously nominated by management were elected to continue to serve
as directors. Subsequent to September 18, 2001, two additional
independent directors were elected to the Board of Directors.
In September 2001, Titus retained Europlay as consultants to assist with
the restructuring of the Company. Because the arrangement with Europlay is with
Titus and Europlay's services have a direct benefit to the Company, the Company
has recorded an expense and a capital contribution by Titus of $75,000 for the
year ended December 31, 2001 in accordance with the SEC's Staff Accounting
Bulletin No. 79 "Accounting for Expenses and Liabilities Paid by Principal
Stockholders." Beginning in October 2001, the Company agreed to reimburse Titus
for consulting expense incurred on behalf of the Company. As of December 31,
2001, the Company owed Titus $450,000 as a result of this arrangement. The
Company has also entered into a commission-based agreement with Europlay where
Europlay will assist the Company with strategic transactions, such as debt
financing or equity financing, the sale of assets or an acquisition of the
Company.
In March 2002, Titus converted its remaining 383,354 shares of Series A
Preferred Stock into approximately 47.5 million shares of our common stock.
Titus now owns approximately 67 million shares of common stock, which represents
approximately 64% of our outstanding common stock, our only voting security,
immediately following the conversion.
TRANSACTIONS WITH TITUS
In connection with the equity investments by Titus, the Company performs
distribution services on behalf of Titus for a fee. In connection with such
distribution services, we recognized fee income of $21,000, $435,000 and
$200,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
During the year ended December 31, 2000, the Company recognized $3 million
in licensing revenue under a multi-product license agreement with Titus for the
technology underlying one title and the content of three titles for multiple
game platforms, extended for a maximum period of twelve years, with variable
royalties payable to us from
Page 9
five to ten percent, as defined. We earned a $3 million non-refundable
fully-recoupable advance against royalties upon signing and completing all of
our obligations under the agreement. During the year ended December 31, 1999,
the Company executed publishing agreements with Titus for three titles. As a
result of these agreements, the Company recognized revenue of $2.6 million for
delivery of these titles to Titus.
On September 13, 2001, the Company orally agreed to sell to Titus
distribution rights to its products in the territories of Australia, New Zealand
and Asia. Because of Titus' relationship with the Company, the sale of the
properties was conditional upon approval of the transaction by a committee of
our Board of Directors comprised of disinterested directors. The transaction was
also conditional upon the completion by Titus of its due diligence on the
properties. Titus advanced $1.0 million to the Company to be held as a good
faith deposit against the purchase price pending approval by the Board committee
and completion by Titus of its due diligence. If the agreement was not
consummated, Titus would be entitled to a breakup fee of 0.25 percent per week
that we held the $1.0 million deposit. The Board committee did not approve the
transaction, and Titus elected not to purchase the properties following
completion of its due diligence. As a consequence, the Company terminated the
agreement and on September 26, 2001 the $1.0 million deposit was returned to
Titus and Titus waived the breakup fee.
As of December 31, 2001 and 2000, Titus owed the Company $260,000 and
$280,000, respectively, and the Company owed Titus $1.3 million and $1.1
million, respectively. Amounts due to Titus at December 31, 2001 include
dividends payable of $740,000 and $450,000 for services rendered by Europlay.
Amounts due to Titus at December 31, 2000 include borrowings of $1.0 million
under the supplemental line of credit. In March 2002, Titus paid the outstanding
balance due to the Company.
TRANSACTIONS WITH VIRGIN, A WHOLLY OWNED SUBSIDIARY OF TITUS
In February 1999, the Company entered into an International Distribution
Agreement with Virgin, which provides for the exclusive distribution of
substantially all of our products in Europe, Commonwealth of Independent States,
Africa and the Middle East for a seven-year period, cancelable under certain
conditions, subject to termination penalties and costs. Under this agreement, we
pay Virgin a monthly overhead fee, certain minimum operating charges, a
distribution fee based on net sales, and Virgin provides certain market
preparation, warehousing, sales and fulfillment services on our behalf.
The Company amended our International Distribution Agreement with Virgin
effective January 1, 2000. Under the amended Agreement, we no longer pay Virgin
an overhead fee or minimum commissions. In addition, we extended the term of the
agreement through February 2007 and implemented an incentive plan that will
allow Virgin to earn a higher commission rate, as defined. Virgin disputed the
amendment to the International Distribution Agreement with us, and claimed that
we were obligated, among other things, to pay for a portion of Virgin's overhead
of up to approximately $9.3 million annually, subject to decrease by the amount
of commissions earned by Virgin on its distribution of our products.
The Company settled this dispute with Virgin in April 2001 and further
amended the International Distribution Agreement and amended the Termination
Agreement and the Product Publishing Agreement, all of which were entered into
on February 10, 1999 when we acquired an equity interest in VIE Acquisition
Group LLC ("VIE"), the parent entity of Virgin. As a result of the April 2001
settlement, Virgin dismissed its claim for overhead fees, VIE fully redeemed our
ownership interest in VIE and Virgin paid us $3.1 million in net past due
balances owed under the International Distribution Agreement. In addition, we
paid Virgin a one-time marketing fee of $333,000 for the period ending June 30,
2001 and the monthly overhead fee was revised for us to pay $111,000 per month
for the nine month period beginning April 2001, and $83,000 per month for the
six month period beginning January 2002, with no further overhead commitment for
the remainder of the term of the International Distribution Agreement. We no
longer have an equity interest in VIE or Virgin as of April 2001.
In connection with the International Distribution Agreement, The Company
incurred distribution commission expense of $2.3 million, $4.6 million and $3.4
million for the years ended December 31, 2001, 2000 and 1999, respectively. In
addition, we recognized overhead fees of $1.0 million, zero and $3.9 million and
certain minimum operating charges to Virgin of $333,000, zero and $2.9 million
for the years ended December 31, 2001, 2000 and 1999, respectively.
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The Company has also entered into a Product Publishing Agreement with
Virgin, which provides us with an exclusive license to publish and distribute
substantially all of Virgin's products within North America, Latin America and
South America for a royalty based on net sales. As part of terms of the April
2001 settlement between Virgin and us, the Product Publishing Agreement was
amended to provide for us to publish only one future title developed by Virgin.
In connection with the Product Publishing Agreement with Virgin, the Company
earned $36,000, $63,000 and $41,000 for performing publishing and distribution
services on behalf of Virgin for the years ended December 31, 2001, 2000 and
1999, respectively.
In connection with the International Distribution Agreement, the Company
subleases office space from Virgin. Rent expense paid to Virgin was $104,000,
$101,000 and $50,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
As of December 31, 2001 and 2000, Virgin owed us $7.5 million and $12.1
million, and the Company owed Virgin $5.8 million and $4.8 million,
respectively.
TRANSACTIONS WITH A BRIAN FARGO, A FORMER OFFICER OF THE COMPANY
In connection with our working capital line of credit obtained in April
2001, the Company obtained a $2 million personal guarantee in favor of the bank,
secured by $1.0 million in cash, from Brian Fargo, the former Chairman of the
company. In addition, Mr. Fargo provided us with a $3 million loan, payable in
May 2002, with interest at 10 percent. In connection with the guarantee and
loan, Mr. Mr. Fargo received warrants to purchase 500,000 shares of our common
stock at $1.75 per share, expiring in April 2011. In January 2002, the bank
redeemed the $1.0 million in cash pledged by Mr. Fargo in connection with his
personal guarantee, and subsequently we agreed to pay that amount back to Mr.
Fargo pursuant to a settlement agreement entered into in March 2002.
The Company had amounts due from a business controlled by Mr. Fargo. Net
amounts due, prior to reserves, at December 31, 2000 were $2.5 million. Such
amounts at December 31, 2000 are fully reserved. In 2001, the Company wrote off
this receivable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, at Irvine, California
this 30th day of April 2002.
INTERPLAY ENTERTAINMENT CORP.
By: /S/ HERVE CAEN
---------------------------------
Herve Caen
Its: Interim Chief Executive Officer
(Principal Executive Officer)
By: /S/ JEFF GONZALEZ
---------------------------------
Jeff Gonzalez
Its: Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
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