INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
INTERPLAY ENTERTAINMENT CORP.
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date filed:
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INTERPLAY ENTERTAINMENT CORP.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TIME.............................. 10:00 a.m. Pacific Time on Tuesday,
September 17, 2002
PLACE............................. ________, _______, _______,
California ______
ITEMS OF BUSINESS................. (1) To elect 7 members of the Board
of Directors for one-year
terms.
(2) To amend the Company's 1997
Stock Incentive Plan to
increase the number of
authorized shares by 6,000,000.
(3) To amend the Company's Amended
and Restated Certificate of
Incorporation to effect a
one-for-ten reverse stock
split of shares of the
Company's Common Stock, par
value $0.001 per share.
(4) To transact such other business
as may properly come before the
Meeting and any adjournment or
postponement.
RECORD DATE....................... You can vote if, at the close of
business on August 15, 2002, you
were a stockholder of the Company.
PROXY VOTING...................... All stockholders are cordially
invited to attend the Annual
Meeting in person. However, to
ensure your representation at the
Annual Meeting, you are urged to
vote promptly by signing and
returning the enclosed Proxy card.
August 23, 2002 /s/ Jeff Gonzalez
--------------------------
Jeff Gonzalez
Chief Financial Officer
INTERPLAY ENTERTAINMENT CORP.
16815 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92606
(949) 553-6655
PROXY STATEMENT
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These Proxy materials are delivered in connection with the solicitation by the
Board of Directors of Interplay Entertainment Corp., a Delaware corporation
("Interplay," the "Company", "we", or "us"), of Proxies to be voted at our 2002
Annual Meeting of Stockholders and at any adjournments or postponements thereof.
You are invited to attend our Annual Meeting of Stockholders on Tuesday,
September 17, 2002, beginning at 10:00 a.m. Pacific Time. The meeting will be
held at the ___________, __________, _________, California ______.
It is anticipated that the 2001 Annual Report and this Proxy Statement and the
accompanying Proxy will be mailed to stockholders on or about August 23, 2002.
STOCKHOLDERS ENTITLED TO VOTE. Holders of our Common Stock at the close of
business on August 15, 2002 are entitled to receive this notice and to vote
their shares at the Annual Meeting. Common stock is the only outstanding class
of securities of the Company entitled to vote at the Annual Meeting. As of
August 15, 2002, there were ________ shares of Common Stock outstanding.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a stockholder of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend. All stockholders can vote by written Proxy card. Your submission of the
enclosed Proxy will not limit your right to vote at the Annual Meeting if you
later decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU
MUST OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE MEETING. If you are a stockholder of record, you may
revoke your Proxy at any time before the meeting either by filing with the
Secretary of the Company, at its principal executive offices, a written notice
of revocation or a duly executed Proxy bearing a later date, or by attending the
Annual Meeting and expressing a desire to vote your shares in person. All shares
entitled to vote and represented by properly executed Proxies received prior to
the Annual Meeting, and not revoked, will be voted at the Annual Meeting in
accordance with the instructions indicated on those Proxies. If no instructions
are indicated on a properly executed Proxy, the shares represented by that Proxy
will be voted as recommended by the Board of Directors.
QUORUM. The presence, in person or by Proxy, of a majority of the votes entitled
to be cast by the stockholders entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the Annual Meeting for determining
the presence of a quorum. Broker non-votes occur when a broker holding customer
securities in street name has not received voting instructions from the customer
on certain non-routine matters and, therefore, is barred by the rules of the
applicable securities exchange from exercising discretionary authority to vote
those securities.
VOTING. Each share of our Common Stock is entitled to one vote on each matter
properly brought before the meeting. Abstentions will be counted toward the
tabulation of votes cast on proposals submitted to stockholders and will have
the same effect as negative votes, while broker non-votes will not be counted as
votes cast for or against such matters.
ELECTION OF DIRECTORS. The 7 nominees for director receiving the highest number
of votes at the Annual Meeting will be elected. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Proxies
will be voted for such other nominee(s) as shall be designated by the current
Board of Directors to fill any vacancy. The Company has no reason to believe
that any nominee will be unable or unwilling to serve if elected as a director.
Our stockholders have cumulative voting rights when voting on the election of
directors. Cumulative voting rights entitle each stockholder to the number of
votes he or she would otherwise have in the absence of cumulative voting rights,
multiplied by the number of directors to be elected. Each stockholder may cast
all of the resulting votes for a
1
single director, or may distribute them among the directors to be elected at the
stockholder's discretion. In order to determine how many votes a stockholder is
entitled to cast as a consequence of cumulative voting rights, the stockholder
multiplies the total number of shares of the Company's common stock owned by the
number of directors being elected, in this case seven. The total that results is
the number of votes the stockholder may cast in the election of directors. The
seven nominees receiving the most votes will be elected. The proxies solicited
by the Board of Directors confer discretionary authority on the proxy holders to
cumulate votes to elect the nominees listed in this Proxy Statement. The proxy
holder may cumulate votes to elect one or several directors as may be necessary
to elect the maximum number of nominees.
AMENDMENTS TO 1997 STOCK INCENTIVE PLAN. The approval of the amendment to the
1997 Stock Incentive Plan will require the affirmative vote of a majority of the
shares of Common Stock present or represented and entitled to vote at the Annual
Meeting.
AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. The approval
of the amendment to the Company's Amended and Restated Certificate of
Incorporation to provide for a ten-for-one reverse stock split will require the
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting. For purposes of the vote regarding the
amendment to the Certificate of Incorporation, abstentions and broker non-votes
will have the same effect as a vote against approval of the amendment.
OTHER MATTERS. At the date this Proxy Statement went to press, we do not know of
any other matters to be raised at the Annual Meeting.
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ITEM 1: ELECTION OF DIRECTORS
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Item 1 is the election of 7 members of our Board of Directors. Our Bylaws
provide that the number of directors constituting the Board shall be between
seven and nine, to be fixed by the Board from time to time. The Board has
currently fixed the number of directors at seven.
Unless otherwise instructed, the Proxy holders will vote the Proxies received by
them for the nominees named below. If any nominee is unwilling to serve as a
director at the time of the Annual Meeting, the Proxies will be voted for such
other nominee(s) as shall be designated by the then current Board of Directors
to fill any vacancy. The Company has no reason to believe that any nominee will
be unable or unwilling to serve if elected as a director.
The Board of Directors proposes the election of the following nominees
directors:
Herve Caen Eric Caen
Nathan Peck Michel H. Vulpillat
Michel Welter Maren Stenseth
R. Parker Jones
If elected, the foregoing 7 nominees are expected to serve until the 2003 Annual
Meeting of Stockholders. The 7 nominees for election as directors at the Annual
Meeting who receive the highest number of affirmative votes will be elected.
The principal occupation and certain other information about the nominees and
certain executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons serve as our directors:
Directors Age Present Position
Herve Caen 39 Chairman of the Board of Directors
Eric Caen 36 Director
Nathan Peck 77 Director
Michel Vulpillat 40 Director
Michel Welter 43 Director
Maren Stenseth 40 Director
R. Parker Jones 45 Director
The following persons serve as our executive officers:
Executive Officers Age Present Position
Herve Caen 39 President and Interim Chief Executive Officer
Nathan Peck 77 Interim Chief Administrative Officer
Jeff Gonzalez 34 Chief Financial Officer
Phillip G. Adam 47 Vice President of Business Development
Gary Dawson 52 Vice President of Sales and Marketing
Our executive officers are appointed by and serve at the discretion of our board
of directors. Herve Caen and Eric Caen are brothers. There are no other family
relationships between any director and/or any executive officer.
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 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
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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.
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.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES. The Board of Directors held 23 meetings during fiscal
2001. The Board of Directors has an Audit Committee and a Compensation
Committee.
The Audit Committee currently consists of Ms. Stenseth and Messrs. Welter and
Jones. The Audit Committee recommends the engagement of the Company's
independent public accountants, reviews the scope of the audit to be conducted
by the independent public accountants, and periodically meets with the
independent public accountants and the Chief Financial Officer of the Company to
review matters relating to the Company's financial statements, the Company's
accounting principles and its system of internal accounting controls, and
reports its recommendations as to the approval of the financial statements of
the Company to the Board of Directors. The role and responsibilities of the
Audit Committee are more fully set forth in a written Charter adopted by the
Board of Directors. The Audit Committee held 3 meetings during fiscal 2001.
5
The Compensation Committee currently consists of Ms. Stenseth and Mr. Welter.
The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and,
as of December 2001, is responsible for administering the Company's stock option
and executive incentive compensation plans. The Compensation Committee did not
meet during fiscal 2001.
All directors attended 75% or more of all the meetings of the Board of Directors
and those committees on which he or she served in fiscal 2001.
DIRECTORS' COMPENSATION. Currently we pay our non-employee directors cash
compensation of $5,000 per quarter for attendance at Board of Directors and
committee meetings. In December 2001, the Company granted to each of Maren
Stenseth, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Compensation
Committee currently consists of Michel Welter and Maren Stenseth. From September
2001 through July 2002, Mr. Vulpillat served on the Compensation Committee.
Other members of the Compensation Committee during fiscal 2001 included Stanley
Roach and Kevin Baxter, former directors of the Company. None of these
individuals was an officer or employee of the Company at any time during fiscal
2001. Mr. Vulpillat currently serves as a member of the board of directors of
Titus Interactive S.A., a company for which Mr. Herve Caen is Chief Executive
Officer, and served in such capacity during fiscal 2001. During 2001, decisions
regarding executive compensation were made by the Compensation Committee. 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.
BRIAN FARGO'S RESIGNATION FROM THE BOARD. In a letter dated January 7, 2002,
Brian Fargo informed the Company of his resignation as a director, Chairperson
of the Board of Directors and Chief Executive Officer of the Company, effective
January 21, 2002. Mr. Fargo stated several reasons for his resignation, which
are summarized below.
Mr. Fargo gave as reasons for his resignation the alleged reduction in his
responsibilities as chief executive of the Company commencing in September 2001,
including his supervision of the Company's legal and contractual affairs, global
strategy and development of corporate relationships, and internal and external
product development activities. Mr. Fargo cited as specific examples the
instruction to company departments to report directly to Herve Caen, the
Company's President, and Nathan Peck, the Company's Chief Administrative
Officer. Mr. Fargo also referenced actions by Messrs. Caen and Peck to stop an
audit by the Company of Virgin Interactive Entertainment Limited, which Mr.
Fargo alleged was contrary to his express instructions in September 2001 to
continue to seek the audit. Mr. Fargo also referenced the return by the Company
of $1 million to Titus Interactive S.A. without his approval.
In response to reasons given by Mr. Fargo, the Company offers the following:
Mr. Fargo had not regularly attended to his responsibilities as Chief Executive
Officer of the Company for more than 4 months at the time of his resignation. As
to Mr. Fargo's contention that he was effectively removed from his ability to
supervise the Company's affairs, including its legal and contractual affairs,
its global corporate strategy, its development of corporate relationships and
its internal and external product development, the Company contends that he
could not have supervised these functions while absent from the workplace for a
third of the year. The supervision of these affairs requires regular attendance.
To the extent Mr. Fargo was not supervising these functions, it was as a result
of his own failure to perform the duties and responsibilities owed by him to the
Company.
Mr. Fargo's allegation that Virgin had refused to let the Company's auditors
perform an audit is without merit. The audit was in progress at the time of Mr.
Fargo's statements.
The circumstances of the Company's repayment to Titus of $1 million, which was
referred to in Mr. Fargo's letter as a reason for his resignation, had been
publicly disclosed previously in the Company's filings with the Securities and
Exchange Commission. The Company agreed to sell to Titus certain distribution
rights to the Company's products.
6
Because of Titus' relationship with the Company, the transaction was conditional
upon approval of the transaction by a Board committee of disinterested
directors, of which Mr. Fargo was a member. Titus advanced $1 million to the
Company to be held as a good faith deposit against the purchase price pending
approval of the transaction by Mr. Fargo and the other committee members. The
Board committee, however, never approved the transaction. Consequently, the
agreement was terminated and the $1 million deposit was returned to Titus.
In response to Mr. Fargo's letter, the Company informed Mr. Fargo that his
actions constituted violations of his employment agreement, and provided him
with thirty (30) days to cure his performance defects and immediately carry out
the responsibilities and duties required of him by his employment agreement. Mr.
Fargo declined to return to work at the Company, and his resignation took effect
on Monday, January 21, 2002.
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ITEM 2: INCREASE IN THE NUMBER OF SHARES UNDER THE 1997 STOCK INCENTIVE PLAN
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Item 2 is the increase in the number of shares that may be issued pursuant to
awards granted under the Company's 1997 Stock Incentive Plan ("the 1997 Plan").
The Board of Directors proposes that the stockholders approve an amendment to
the 1997 Plan to increase the number of shares reserved for issuance under the
1997 Plan from 4,000,000 to 10,000,000 shares.
The 1997 Plan is designed to assist the Company in attracting, retaining and
compensating highly qualified individuals and to provide them with a proprietary
interest in the Company's Common Stock. The 1997 Plan provides incentives in the
form of grants of Common Stock and derivative security awards (including stock
options, stock appreciation rights, dividend equivalents and performance units),
which allow employees, officers, directors and consultants to have a personal
financial stake in the Company, in addition to underscoring their common
interest with stockholders in increasing the value of the Company's stock over
the long term.
The Board of Directors believes it is in the best interest of the Company and
its stockholders to continue to make substantial use of stock-based incentives
to attract, retain and motivate qualified personnel. Accordingly, on August 7,
2002, the Board of Directors resolved to amend the 1997 Plan to increase the
number of shares reserved for issuance under the 1997 Plan. As of the Record
Date, options to purchase _______ shares were outstanding under the 1997 Plan
and _______ shares have been issued to participants upon exercise of options
issued under the 1997 Plan. As such, as of the Record Date, _______ shares were
available for future grants.
The following summary briefly describes the principal features of the 1997 Plan
and is qualified in its entirety by reference to the full text of the 1997 Plan,
a copy of which is attached hereto as Appendix "A" in the form proposed.
General. The Company adopted the "1997 Plan" in January 1997. Each director,
officer, employee or consultant of the Company or any of its subsidiaries is
eligible to be considered for the grant of awards under the 1997 Plan. The
maximum number of shares of Common Stock that may be issued pursuant to awards
granted under the 1997 Plan is currently 4,000,000, subject to certain
adjustments in the event of a stock split, recapitalization or similar event.
Any shares of Common Stock subject to an award, which for any reason expires or
terminates unexercised, are again available for issuance under the 1997 Plan. If
this amendment is approved, the maximum number of shares that may be issued will
be increased to 10,000,000.
The 1997 Plan may be administered by the Board of Directors or another committee
of two or more non-employee directors appointed by the Board of Directors, each
of whom shall be an "outside director" for purposes of 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The 1997 Plan is currently
administered by the Compensation Committee of the Board of Directors. Subject to
the provisions of the 1997 Plan, the Compensation Committee will have full and
final authority to select the employees, officers, directors and consultants to
whom awards will be granted thereunder, to grant the awards and to determine the
terms and conditions of the awards and the number of shares to be issued
pursuant thereto.
AWARDS. The 1997 Plan authorizes the Compensation Committee to enter into any
type of arrangement with an eligible employee that, by its terms, involves or
might involve the issuance of (1) shares of Common Stock, (2) an option,
warrant, convertible security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to the Common Stock, or (3)
any other security or benefit with a value derived from the value of the Common
Stock. An award may consist of one such arrangement or two or more such
arrangements in tandem or in the alternative. Currently, the maximum number of
shares of Common Stock with respect to which options or rights may be granted
under the 1997 Plan to any executive or other employee during any fiscal year is
currently 500,000, subject to certain adjustments in the event of a stock split,
recapitalization or similar event.
An award may provide for the issuance of Common Stock for any lawful
consideration, including services rendered or, to the extent permitted by
applicable state law, to be rendered. Currently, Delaware law does not permit
the issuance of Common Stock for services to be rendered.
8
An award granted under the 1997 Plan may include a provision conditioning or
accelerating the receipt of benefits, either automatically or in the discretion
of the Compensation Committee, upon the occurrence of specified events,
including a change of control of the Company, an acquisition of a specified
percentage of the voting power of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transaction. Any stock option
granted may be an incentive stock option within the meaning of Section 422 of
the Code or a nonqualified stock option.
An award under the 1997 Plan may permit the recipient to pay all or part of the
purchase price of the shares or other property issuable pursuant to the award,
and/or to pay all or part of the recipient's tax withholding obligations with
respect to such issuance, in cash or by delivering previously owned shares of
capital stock of the Company.
PLAN DURATION. The 1997 Plan became effective upon its adoption by the Board of
Directors on January 22, 1997, and was originally approved by the Company's
stockholders on January 22, 1997. Unless terminated earlier by the Board of
Directors, the 1997 Plan will automatically terminate on January 22, 2007.
AMENDMENTS. The Compensation Committee may amend or terminate the 1997 Plan at
any time and in any manner, subject to the following: (1) no recipient of any
award may, without his or her consent, be deprived thereof or of any of his or
her rights thereunder or with respect thereto as a result of such amendment or
termination; and (2) if any rule or regulation promulgated by the Securities and
Exchange Commission (the "SEC"), the Internal Revenue Service or any national
securities exchange or quotation system upon which any of the Company's
securities are listed requires that any such amendment be approved by the
Company's stockholders, then such amendment will not be effective until it has
been approved by the Company's stockholders.
EFFECT OF SECTION 16(B) OF THE SECURITIES EXCHANGE ACT OF 1934. The acquisition
and disposition of Common Stock by officers, directors and more than 10%
stockholders of the Company ("Insiders") pursuant to awards granted to them
under the 1997 Plan may be subject to Section 16(b) of the Securities Exchange
Act of 1934. Pursuant to Section 16(b), a purchase of Common Stock by an Insider
within six months before or after a sale of Common Stock by the Insider could
result in recovery by the Company of all or a portion of any amount by which the
sale proceeds exceed the purchase price. Insiders are required to file reports
of changes in beneficial ownership under Section 16(a) of the Securities
Exchange Act of 1934 upon acquisitions and dispositions of shares. Rule 16b-3
provides an exemption from Section 16(b) liability for certain transactions
pursuant to certain employee benefit plans. The 1997 Plan is designed to comply
with Rule 16b-3.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. The following is a general
discussion of the principal federal income tax consequences under the 1997 Plan.
Because the United States federal income tax rules governing options and related
payments are complex and subject to change, optionees are advised to consult
their tax advisors prior to exercise of options or dispositions of stock
acquired pursuant to option exercise. The 1997 Plan does not constitute a
qualified retirement plan under Section 401(a) of the Code (which generally
covers trusts forming part of a stock bonus, pension or profit-sharing plan
funded by the employer and/or employee contributions which are designed to
provide retirement benefits to participants under certain circumstances) and is
not subject to the Employee Retirement Income Security Act of 1974 (the pension
reform law which regulates most types of privately funded pension, profit
sharing and other employee benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is recognized for
federal income tax purposes by an optionee at the time an Incentive Stock Option
is granted, and, except as discussed below, no income is recognized by an
optionee upon his or her exercise of an Incentive Stock Option. If the optionee
disposes of the shares received upon exercise after two years from the date such
option was granted and after one year from the date such option is exercised,
the optionee will recognize long-term capital gain or loss when he or she
disposes of his or her shares. Such gain or loss generally will be measured by
the difference between the exercise price of the option and the amount received
for the shares at the time of disposition. If the optionee disposes of shares
acquired upon exercise of an Incentive Stock Option within two years after being
granted the option, or within one year after acquiring the shares, any amount
realized from such disqualifying disposition will be taxable at ordinary income
rates in the year of disposition to the extent that the lesser of (a) the fair
market value of the shares on the date the Incentive Stock Option was exercised,
or (b) the fair market value at the time of such disposition, exceeds the
Incentive Stock Option exercise price. Any amount realized upon disposition in
excess of the fair market value of the shares on the date of exercise will be
treated as short-term or long-term capital gain, depending upon the length
9
of time the shares have been held. The use of stock acquired through exercise of
an Incentive Stock Option to exercise an Incentive Stock Option will constitute
a disqualifying disposition if the applicable holding period requirements have
not been satisfied. For alternative minimum tax purposes, the excess of the fair
market value of the stock as of the date of exercise over the exercise price of
the Incentive Stock Option is included in computing that year's alternative
minimum taxable income. However, if the shares are disposed of in the same year,
the maximum alternative minimum taxable income with respect to those shares is
the gain on disposition. There is no alternative minimum taxable income from a
disqualifying disposition in subsequent years. The Internal Revenue Service has
announced that the exercise of an Incentive Stock Option on or after January 1,
2003 will be considered wages subject to withholding for FICA purposes to the
extent of the spread between the exercise price and value of the Common Stock as
of the date of the exercise.
CONSEQUENCES TO EMPLOYEES: NON-STATUTORY OPTIONS. An optionee recognizes no
income at the time Non-Statutory Options are granted under the 1997 Plan. In
general, at the time shares are issued to an optionee pursuant to exercise of
Non-Statutory Options, the optionee will recognize income taxable at ordinary
income tax rates equal to the excess of the fair market value of the shares on
the date of exercise over the exercise price of such shares, unless the stock
received is not transferable and subject to a substantial risk of forfeiture
under Code Section 83 (stock received by you which is subject to continued
employment or subject to the six month holding period under Section 16(b) of the
Securities Act of 1934 is deemed to be subject to a substantial risk of
forfeiture under Code Section 83). An optionee will recognize gain or loss on
the subsequent sale of shares acquired upon exercise of Non-Statutory Options in
an amount equal to the difference between the selling price and the tax basis of
the shares, which will include the price paid plus the amount included in the
optionee's taxable income by reason of the exercise of the Non-Statutory
Options. Provided the shares are held as a capital asset, any gain or loss
resulting from a subsequent sale will be short-term or long-term capital gain or
loss depending upon the length of time the shares have been held.
CONSEQUENCES TO EMPLOYEES: RESTRICTED STOCK. The receipt of restricted stock
will not result in a taxable event to the participant until the expiration of
any repurchase rights retained by the Company with respect to such stock, unless
the participant makes an election under Section 83(b) of the Code to be taxed as
of the date of purchase. If no repurchase rights are retained, or if a Section
83(b) election is made, the participant will recognize ordinary income in an
amount equal to the excess of the fair market value of such shares on the date
of purchase over the purchase price paid for such shares. Even if the purchase
price and the fair market value of the shares are the same (in which case there
would be no ordinary income), a Section 83(b) election must be made to avoid
deferral of the date ordinary income is recognized. The election must be filed
with the Internal Revenue Service not later than thirty (30) days after the date
of transfer. If no Section 83(b) election is made or if no repurchase rights are
retained, a taxable event will occur on each date the participant's ownership
rights vest (e.g., when the Company's repurchase rights expire) as to the number
of shares that vest on that date, and the holding period for long-term capital
gain purposes will not commence until the date the shares vest. The participant
will recognize ordinary income on each date shares vest in an amount equal to
the excess of the fair market value of such shares on that date over the amount
paid for such shares. The income from the restricted stock will also be subject
to income and employment tax withholding in the year such income is includible
in the participant's income.
CONSEQUENCES TO EMPLOYEES: STOCK APPRECIATION RIGHTS. Individuals who receive
stock appreciation rights under the 1997 Plan will generally recognize taxable
income upon exercise of the stock appreciation right. The income received from
the exercise of the stock appreciation right will be ordinary and will be equal
to the amount of cash received or the value of the appreciated stock. This
amount will generally be reportable in the participant's income in the year of
receipt, however, if the stock appreciation right is exercised for stock and the
stock is subject to a substantial risk of forfeiture, it will be subject to tax
as restricted stock (see above discussion). The income from a stock appreciation
right will also be subject to income and employment tax withholding in the year
such income is includible in the participant's income.
10
CONSEQUENCES TO EMPLOYEES: CASH BONUS GRANTS. With respect to cash bonus grants
under the 1997 Plan, participants will recognize taxable income in the amount of
cash paid at the time amounts are paid or available for payment to the
participant pursuant to the terms of their award. The income from the cash bonus
grant will also be subject to income and employment tax withholding in the year
such income is includible in the participant's income.
CONSEQUENCES TO COMPANY: INCENTIVE STOCK OPTIONS. The Company will not be
allowed a deduction for federal income tax purposes at the time of the grant or
exercise of an Incentive Stock Option. There are also no United States federal
income tax consequences to the Company as a result of the disposition of shares
acquired upon exercise of an Incentive Stock Option if the disposition is not a
disqualifying disposition. At the time of a disqualifying disposition by an
optionee, the Company will be entitled to a deduction for the amount received by
the optionee to the extent that such amount is taxable to the optionee at
ordinary income tax rates.
CONSEQUENCES TO COMPANY: NON-STATUTORY OPTIONS AND OTHER GRANTS. The Company
generally will be entitled to a deduction for United States federal income tax
purposes in the same year and in the same amount as the optionee is considered
to have recognized income taxable at ordinary income tax rates in connection
with the exercise of Non-Statutory Options or other grants received under the
1997 Plan. In certain instances, the Company may be denied a deduction for
compensation attributable to awards granted to certain officers of the Company
to the extent that such compensation exceeds $1,000,000 in a given year.
BOARD RECOMMENDATION AND VOTE. The approval of this amendment to the 1997 Stock
Incentive Plan will require the affirmative vote of a majority of the shares of
Common Stock present or represented and entitled to vote at the Annual Meeting.
The Board of Directors is of the opinion that this amendment is in the best
interests of the Company and recommends a vote for the approval of this
amendment. All Proxies will be voted to approve this amendment unless a contrary
vote is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
1997 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER THE PLAN TO 10,000,000.
11
ITEM 3: AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A ONE-FOR-TEN REVERSE STOCK SPLIT OF SHARES OF
THE COMPANY'S COMMON STOCK
- --------------------------------------------------------------------------------
Item 3 is the approval of a one-for-ten reverse stock split of shares of the
Company's Common Stock. The Board has unanimously adopted a resolution
approving, and recommending to the Company's stockholders for their approval, an
amendment to the Company's Certificate of Incorporation, authorizing a
one-for-ten reverse stock split of the shares of Common Stock (the "Reverse
Stock Split"). The complete text of the form of the proposed amendment is set
forth on Appendix "B" to this Proxy Statement (the "Reverse Stock Split
Amendment"). The Board of Directors is submitting the Reverse Stock Split
Amendment to our stockholders for approval at the Annual Meeting. The Reverse
Stock Split Amendment will effect a one-for-ten reverse stock split of the
shares of Common Stock issued and outstanding, or held as treasury shares, but
will not change the number of authorized shares of Common Stock.
REASONS FOR THE REVERSE SPLIT. The Common Stock currently is listed on the
Nasdaq SmallCap Market. The continued listing requirements of the Nasdaq
SmallCap Market require, among other things, that the Common Stock maintain a
minimum bid price of $1.00 per share. The bid price of the Common Stock has
ranged between a low of $0.18 and a high of $0.61 between January 1, 2002 and
July 31, 2002. Nasdaq has informed the Company that it must regain compliance
with the minimum bid price requirement. If the Company does not come into
compliance with this requirement, the Common Stock will be delisted from the
Nasdaq SmallCap Market.
The Board has determined that the continued listing of the Common Stock on the
Nasdaq SmallCap Market is in the best interests of the Company's stockholders.
If the Common Stock were delisted from the Nasdaq SmallCap Market, trading, if
any, would thereafter be conducted on either the over-the-counter market on an
electronic bulletin board established for securities that do not meet the Nasdaq
SmallCap Market inclusion/maintenance requirements. The Board believes a
delisting from the Nasdaq SmallCap Market, could, among other things, decrease
the liquidity of the outstanding Common Stock and consequently reduce the
trading price and increase the transaction costs of trading these shares.
In addition, a higher stock price may increase investor interest and reduce
resistance of brokerage firms to recommend the purchase of the Common Stock.
Certain institutional investors have internal policies preventing the purchase
of low-priced stocks and many brokerage houses do not permit low-priced stocks
to be used as collateral for margin accounts. Further, a variety of brokerage
house policies and practices tend to discourage brokers within those firms from
dealing in low-priced stocks. Moreover, the Board believes that the perception
of the investment community may be negative toward common stock that sells below
$1.00 per share and that the Reverse Stock Split may improve the perception of
the Common Stock as an investment.
The Company believes that if the Reverse Stock Split is approved by the
stockholders and thereafter effected, the bid price of the Common Stock will
likely increase substantially over the $1.00 minimum bid price requirement,
thereby permitting the Company to continue to list the Common Stock on the
Nasdaq SmallCap Market so long as the Company meets the market's other continued
listing requirements. There can be no assurance, however, that the market price
of the Common Stock will rise in proportion to the reduction in the number of
outstanding shares resulting from the Reverse Stock Split or that the market
price of the post-split Common Stock can be maintained above $1.00.
POTENTIAL EFFECTS OF THE REVERSE STOCK SPLIT. Pursuant to the Reverse Stock
Split, each holder of ten shares of Common Stock (the "Old Common Stock"),
immediately prior to the effectiveness of the Reverse Stock Split would become
the holder of one share of Common Stock (the "New Common Stock"), after
consummation of the Reverse Stock Split.
Although the Reverse Stock Split, will not, by itself, impact the Company's
assets or prospects, the Reverse Stock Split could result in a decrease in the
aggregate market value of the Company's equity capital. The Board believes
12
that this risk is outweighed by the benefits of the continued listing of the
Common Stock on the Nasdaq SmallCap Market.
If approved, the Reverse Stock Split will result in some stockholders owning
"odd-lots" of less than 100 shares of Common Stock. Brokerage commissions and
other costs of transactions in odd-lots are generally higher than the costs of
transactions in "round-lots" of even multiples of 100 shares.
SHARES OF COMMON STOCK ISSUED AND OUTSTANDING OR HELD AS TREASURY SHARES. The
Company is currently authorized to issue a maximum of 100,000,000 shares of
Common Stock. As of the Record Date, there were ___________ shares of Common
Stock issued and outstanding, or held as treasury shares. Although the number of
authorized shares of Common Stock will not change as a result of the Reverse
Stock Split, the number of shares of Common Stock issued and outstanding, or
held as treasury shares, will be reduced to a number that will be approximately
equal to (a) the number of shares of Common Stock issued and outstanding, or
held as treasury shares, immediately prior to the effectiveness of the Reverse
Stock Split, divided by (b) ten.
With the exception of the number of shares issued and outstanding, or held as
treasury shares, the rights and preferences of the shares of Common Stock prior
and subsequent to the Reverse Stock Split will remain the same. It is not
anticipated that the financial condition of the Company, the percentage
ownership of management, the number of the Company's stockholders, or any aspect
of the Company's business would materially change as a result of the Reverse
Stock Split.
The Common Stock is currently registered under Section 12(g) of the Exchange
Act, and as a result, the Company is subject to the periodic reporting and other
requirements of the Exchange Act. The proposed Reverse Stock Split will not
affect the registration of the Common Stock under the Exchange Act.
INCREASE OF SHARES OF COMMON STOCK AVAILABLE FOR FUTURE ISSUANCE. As a result of
the Reverse Stock Split, there will be a reduction in the number of shares of
Common Stock issued and outstanding, or held as treasury shares, and an
associated increase in the number of authorized shares which would be unissued
and available for future issuance after the Reverse Stock Split (the "Increased
Available Shares"). The Increased Available Shares could be used for any proper
corporate purpose approved by the Board including, among others, future
financing transactions.
Because the Reverse Stock Split will create the Increased Available Shares, the
Reverse Stock Split may be construed as having an anti-takeover effect. Although
neither the Board nor the management of the Company views the Reverse Stock
Split as an anti-takeover measure, the Company could use the Increased Available
Shares to frustrate persons seeking to effect a takeover or otherwise gain
control of the Company.
EFFECTIVENESS OF THE REVERSE STOCK SPLIT. The Reverse Stock Split, if approved
by the Company's stockholders, would become effective (the "Effective Date")
upon the filing with the Secretary of State of the State of Delaware of a
Certificate of Amendment of the Company's Certificate of Incorporation in
substantially the form of the Reverse Stock Split Amendment attached to this
Proxy Statement as Appendix "B." It is expected that such filing will take place
on or shortly after the date of the Annual Meeting, assuming the stockholders
approve the Reverse Stock Split. However, the exact timing of the filing of the
Reverse Stock Split Amendment will be determined by the Board based upon its
evaluation as to when such action will be most advantageous to the Company and
its stockholders, and the Board reserves the right to delay filing the Reverse
Stock Split Amendment for up to twelve months following stockholder approval
thereof. In addition, the Board reserves the right, notwithstanding stockholder
approval and without further action by the stockholders, to elect not to proceed
with the Reverse Stock Split Amendment if, at any time prior to filing the
Reverse Stock Split Amendment, the Board, in its sole discretion, determines
that it is no longer in the best interests of the Company and its stockholders.
Commencing on the Effective Date, each Old Common Stock certificate will be
deemed for all corporate purposes to evidence ownership of the reduced number of
shares of Common Stock resulting from the Reverse Stock Split and any cash which
may be payable in lieu of fractional shares. As soon as practicable after the
Effective Date, stockholders will be notified as to the effectiveness of the
Reverse Stock Split and instructed as to how and when to surrender their
certificates representing shares of Old Common Stock in exchange for
certificates representing shares of New Common Stock (and, if applicable, cash
in lieu of fractional shares). The Company intends to use
13
U.S. Stock Transfer Corporation as its exchange agent in effecting the exchange
of certificates following the effectiveness of the Reverse Stock Split.
On the Effective Date, the interest of each stockholder of record who owns fewer
than ten shares of Common Stock will thereby be terminated, and he, she or it
will have no right to vote as a stockholder or share in the assets or any future
earnings of the Company.
FRACTIONAL SHARES. The Company will not issue fractional shares in connection
with the Reverse Stock Split. Instead, holders of Old Common Stock who would
otherwise be entitled to receive a fractional share of New Common Stock on
account of the Reverse Stock Split shall receive, upon surrender of the stock
certificates, formerly representing shares of the Old Common Stock, in lieu of
such fractional shares, an amount in cash (the "Cash-in-Lieu Amount") equal to
the product of (i) the fractional shares to which a holder would otherwise be
entitled, multiplied by (ii) ten times the closing sale price per share of the
Old Common Stock as quoted on the Nasdaq SmallCap Market on the business day
prior to the Effective Date. No interest shall be payable on the Cash-in-Lieu
Amount.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion summarizing
certain federal income tax consequences is based on the Internal Revenue Code of
1986, as amended, the applicable Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practices in effect on
the date of this Proxy Statement. This discussion is for general information
only and does not discuss consequences that may apply to special classes of
taxpayers (e.g., non-resident aliens, broker-dealers or insurance companies).
Stockholders are urged to consult their own tax advisors to determine the
particular consequences to them.
The receipt of New Common Stock solely in exchange for Old Common Stock
generally will not result in recognition of gain or loss to the stockholders.
The adjusted tax basis of a stockholder's New Common Stock will be the same as
the adjusted tax basis of the shares of Old Common Stock exchanged therefor, and
the holding period of the New Common Stock will include the holding period of
the Old Common Stock exchanged therefor. Generally, stockholders who receive
cash in lieu of fractional shares will be treated as if they had received such
fractional shares and then had them redeemed by the Company; and such
stockholders generally will recognize gain or loss equal to the difference
between the amount of cash received and their basis in such fractional shares.
The Company will not recognize any gain or loss as a result of the Reverse Stock
Split.
APPRAISAL RIGHTS. No appraisal rights are available under the Delaware General
Corporation Law or under the Company's Certificate of Incorporation or Bylaws to
any stockholder who dissents from the proposal to approve the Reverse Stock
Split Amendment.
VOTE REQUIRED. The Board has unanimously approved the Reverse Stock Split
Amendment. Stockholder approval of the Reverse Stock Split Amendment requires
the affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote thereon. Abstentions will be counted toward the tabulation of
votes cast on the proposal and will have the same effect as negative votes,
while broker non-votes will not be counted as votes cast for or against the
proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION IN ORDER TO EFFECT THE ONE-FOR-TEN
REVERSE STOCK SPLIT OF SHARES OF THE COMPANY'S COMMON STOCK.
14
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
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION (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.
(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. Mr. Fargo resigned from the
Company in January 2002.
(3) Mr. Caen joined the Company in November 1999 at an annual base salary of
$250,000. Mr. Caen waived payment of his salary through October 2000.
(4) Mr. Marrero's employment with the Company was terminated in November 2001.
</FN>
STOCK OPTION GRANTS IN FISCAL 2001
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during the year ended December 31, 2001.
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM(3)
NAME GRANTED(1) FISCAL YEAR ($/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.
(2) Options granted pursuant to the 1997 Plan expire 10 years from the date of
grant.
15
(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 VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
SHARES AT YEAR-END AT YEAR-END
ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE 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
- ---------------
(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.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Brian Fargo for a term of
three years through November 2002. The employment agreement provided for a base
salary of $250,000 per year, with such annual raises as may have be approved by
the Board of Directors, plus annual bonuses at the discretion of the Board of
Directors. In the event that Mr. Fargo was terminated without cause or resigned
for good reason as set forth in the agreement, the Company was 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 were contingent upon Mr.
Fargo's non-competition with the Company, as defined in the agreement. Mr. Fargo
was also entitled to participate in the incentive compensation and other
employee benefit plans established by the Company from time to time. Mr. Fargo
waived payment of $50,000 of his annual salary in fiscal 2000 and 2001. Mr.
Fargo resigned as the 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 provided for a
base salary of $198,000 per year, with such annual raises as may have been
approved by the Board of Directors, plus annual bonuses at the discretion of the
Board of Directors. In the event that Mr. Marrero was terminated without cause,
the Company was 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 were contingent upon Mr.
16
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.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of August 7, 2002
regarding securities authorized for issuance under the Company's equity
compensation plans.
NUMBER OF SECURITIES WEIGHTED-AVERAGE
TO BE ISSUED UPON EXERCISE PRICE OF NUMBER OF SECURITIES
EXERCISE OF OUTSTANDING REMAINING AVAILABLE OR
OUTSTANDING OPTIONS, OPTIONS, WARRANTS FUTURE ISSUANCE UNDER
WARRANTS AND RIGHTS AND RIGHTS EQUITY COMPENSATION PLANS
-------------------- ----------------- -------------------------
Equity compensation plans approved 1,582,163 $3.20 1,615,862
by security holders...............
Equity compensation plans not
approved by security holders...... 0 -- 0
Total............................. 1,582,163 $3.20 1,615,862
The Company has adopted the 1997 Plan, which is discussed in this Proxy
Statement. The purpose of the 1997 Plan is to attract, retain and motivate
certain key employees of the Company and its subsidiaries by giving them
incentives, which are linked directly to increases in the value of the Common
Stock of the Company. Each director, officer, employee or consultant of the
Company, or any of its subsidiaries, is eligible to be considered for the grant
of awards under the 1997 Plan.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee currently consists of Ms. Stenseth and Mr. Welter,
neither of whom currently is an employee or an officer of the Company. It is the
responsibility of the Compensation Committee to establish and administer the
Company's policies governing employee compensation and to administer the
Company's employee benefits plans, including the Company's 1997 Stock Incentive
Plan (the "1997 Plan"). The Compensation Committee evaluates the performance of
management, determines compensation policies and levels, and makes decisions
concerning salaries and incentive compensation.
The Company's executive compensation program is designed to attract and retain
executives capable of leading the Company in its pursuit of its business
objectives and to motivate them in order to enhance long-term stockholder value.
Long-term equity compensation also is used to harmonize the interests of
management and stockholders. The main elements of the program are competitive
pay and equity incentives. Annual compensation for the Company's executive
officers historically consists of two elements: cash salary and stock options.
The Company does not have a management bonus plan; however, the Company does
award cash bonuses to its officers from time to time.
The Compensation Committee considers a variety of individual and corporate
factors in assessing the Company's executive officers and making informed
compensation decisions. These factors include each officer's contributions to
the Company, the compensation paid by comparable companies to employees in
similar situations, and, most importantly, the progress of the Company towards
its long-term business objectives.
During the fiscal year 2001, the Board of Directors provided stock option grants
to the executive officers of the Company pursuant to the 1997 Plan. In December
2001, the authority to grant stock options was delegated by the Board to the
Compensation Committee. The exercise price of the option grants was equal to the
fair market value of the Company's Common Stock on the date of grant. The
executive officers received a total of 319,952 options. The Compensation
Committee based this determination on the need to provide incentives to the
staff in connection with the Company's development efforts.
Compensation of the Chief Executive Officer is evaluated by the Compensation
Committee based on the criteria outlined above for all other executive officers
of the Company, including his contributions for the prior year, his
17
success in managing and motivating the Company's employees, and the challenges
to be faced in the year ahead, as well as the desire to offer a competitive
salary. The compensation paid to Brian Fargo, the Company's Chief Executive
Officer, in fiscal 2001 was determined in accordance with Mr. Fargo's Employment
Agreement with the Company. Prior to his resignation from the Company in January
2002, Mr. Fargo's Employment Agreement provided for a base salary of $250,000
per year, with annual raises and bonuses as may be approved at the discretion of
the Company's Board of Directors. The amounts of any annual raises or bonuses
were determined in accordance with the policies and objectives set forth above.
The Compensation Committee did not increase Mr. Fargo's compensation, or award
Mr. Fargo any options, during 2001.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION.
Section 162(m) of the Code limits the Company to a deduction for federal income
tax purposes of no more than $1 million of compensation paid to certain Named
Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The Compensation Committee believes that at the present time it is
unlikely that the compensation paid to any Named Executive Officer in a taxable
year, which is subject to the deduction limit will exceed $1 million. However,
the Compensation Committee has determined that stock awards granted under the
Plans with an exercise price at least equal to the fair market value of the
Company's Common Stock on the date of grant will be treated as
"performance-based compensation."
Compensation Committee
/s/ Maren Stenseth
/s/ Michel Welter
REPORT OF AUDIT COMMITTEE
The Audit Committee currently consists of Maren Stenseth, Michel Welter and R.
Parker Jones, all of whom are independent directors as that term is defined in
Rule 4200(a)(15) of the National Association of Securities Dealers' Marketplace
Rules.
The Audit Committee has furnished the following report:
The Audit Committee assists the Board of Directors in overseeing and monitoring
the integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the Audit Committee are set
forth in a written Charter adopted by the Board of Directors. The Audit
Committee reviews and reassesses the Charter periodically and recommends any
changes to the Board of Directors for approval.
Audit Committee is responsible for overseeing the Company's overall financial
reporting process. In fulfilling its responsibilities for the financial
statements for fiscal year 2001, the Audit Committee:
o Reviewed and discussed the audited financial statements for the year
ended December 31, 2001 with management and Ernst & Young, LLP (the
"Auditors"), the Company's independent auditors;
o Discussed with the Auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the
audit; and
o Received written disclosures and the letter from the Auditors
regarding its independence as required by Independence Standards Board
Standard No. 1. The Audit Committee discussed with the Auditors their
independence.
The Audit Committee also considered the status of pending litigation and other
areas of oversight relating to the financial reporting and audit process that
the committee determined appropriate.
18
AUDIT FEES. The aggregate fees billed by the Auditors for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2001, were $189,773.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. No fees were
billed by the Auditors for professional services rendered for information
technology services relating to financial information systems design and
implementation for the fiscal year ended December 31, 2001.
ALL OTHER FEES. The aggregate fees billed by the Auditors for services rendered
to the Company other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," for the fiscal
year ended December 31, 2001, were $512,419.
The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining the principal accountant's independence.
Based on the Audit Committee's review of the audited financial statements and
discussions with management and the Auditors, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001
for filing with the SEC.
Audit Committee
/s/ Maren Stenseth
/s/ Michel Welter
/s/ Parker Jones
19
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative total
stockholder return of the Company's common stock during the period from June 19,
1998 to December 31, 2001, compared with the cumulative returns of the NASDAQ
Stock Market (U.S. Companies) Index and the Media General Index 820. The
comparison assumes $100 was invested on June 16, 1998 in the Company's common
stock and in each of the foregoing indices. The cumulative total stockholder
return of the Company's common stock during the period from June 19, 1998 to
December 31, 2001 was (91.64)%, as compared to cumulative total stockholder
returns of 31.33% for Media General Index 820.
[GRAPH]
MEASUREMENT INTERPLAY NASDAQ STOCK MARKET MEDIA GENERAL
DATE ENTERTAINMENT CORP. (U.S. COMPANIES) INDEX INDEX 820(1)
- ----------- ------------------- ---------------------- -------------
06/19/98 100.00 100.00 100.00
06/30/98 104.55 106.47 109.02
09/30/98 57.95 96.07 84.15
12/31/98 32.39 124.84 110.42
03/31/99 43.18 139.98 117.11
06/30/99 47.16 152.97 119.37
09/30/99 38.64 156.73 130.42
12/31/99 53.42 231.52 158.43
03/31/00 63.64 260.07 168.60
06/30/00 47.73 226.16 142.99
09/30/00 69.33 208.13 155.11
12/31/00 46.60 139.37 119.68
03/31/01 28.42 104.03 105.57
06/30/01 40.00 122.60 141.03
09/30/01 7.64 85.07 100.51
12/31/01 8.36 110.58 131.33
- ---------------
(1) The Media General Index 820 consists of shares of common Stock of the
following companies: 3-D Systems, 3DO Company, Acclaim Entertainment, Inc.,
Activision, Inc., ATI Technologies Inc., Brilliant Digital Entertainment,
Inc., Convera Corporation, Corel Corporation, Eidos Plc, Electronic Arts,
Inc., Futuremedia Plc, Infogrames, Inc., Macromedia, Inc., MakeMusic! Inc.,
Mapinfo Corp., Media Sciences International, Inc., Moldflow Corporation,
OpenTV Corp., Pixar Animation Studios, Renaissance Learning Inc.,
SmartForce Plc, THQ Inc., Viewpoint Corporation, Vizacom Inc.
20
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
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 5% percent of our common stock. In
addition, we obtained financing from the former Chairman of the Company.
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 72.1% of our outstanding common stock, our only voting security,
immediately following the conversion.
21
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 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,
22
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.
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 VIVENDI
In August 2001, the Company entered into a distribution agreement with Vivendi
(the parent company of Universal Studios, Inc., which currently owns
approximately 5 percent of our common stock at March 31, 2002 but does not have
representation on our Board of Directors) providing for Vivendi to become our
distributor in North America through December 31, 2003 for substantially all of
our products, with the exception of products with pre-existing distribution
agreements. OEM rights were not among the rights granted to Vivendi under the
distribution agreement. Under the terms of the agreement, as amended, Vivendi
earns a distribution fee based on the net sales of the titles distributed. Under
the agreement, Vivendi made four advance payments to us totaling $13.5 million.
Vivendi will recoup their advances from future sales of our products, which will
reduce our future cash in-flows. As of December 31, 2001, Vivendi has recouped
$3.4 million of the advance payments.
In connection with the distribution agreement with Vivendi, the Company incurred
distribution commission expense of $2.2 million for the year ended December 31,
2001. As of December 31, 2001, Vivendi owed the Company $2.4 million.
TRANSACTIONS WITH 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.
23
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 15, 2002, unless otherwise indicated,
certain information relating to the ownership of our Common Stock by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding shares of our Common Stock (23,106,142 shares), (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all of the Company's executive officers and directors as a group. Except as may
be indicated in the footnotes to the table and subject to applicable community
property laws, each such person has the sole voting and investment power with
respect to the shares owned. The address of each person listed is in care of the
Company, 16815 Von Karman Avenue, Irvine, California 92606, unless otherwise set
forth below such person's name.
Number of Shares
Of Common Stock
Name and Address Beneficially Owned(1) Percent(2)
- ---------------- --------------------- ----------
DIRECTORS:
Herve Caen................................ 67,449,021 (3) 72.1%
Eric Caen................................. 67,449,021 (3) 72.1%
Brian Fargo .............................. 4,004,378 (4) 4.3%
Nathan Peck............................... 0 *
Michel Vulpillat.......................... 0 (5) *
Maren Stenseth............................ 0 *
R. Parker Jones........................... 0 *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
Manuel Marrero............................ 0 *
Jeff Gonzalez............................. 0 *
5% HOLDERS:
Titus Interactive SA...................... 67,449,021 (3) 72.1%
20432 Corisco Street
Chatsworth, CA 91311
Universal Studios, Inc.................... 4,658,216 5.0%
100 Universal City Plaza
Universal City, CA 91608
Directors and Executive Officers as a
Group (9 persons)....................... 71,453,399 (6) 76.0%
- ---------------
* Less than one percent.
(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 15, 2002. 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.
(4) Includes 500,000 shares subject to warrants exercisable within 60 days of
April 15, 2002.
(5) 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.
(6) Includes 960,298 shares subject to warrants exercisable within 60 days of
April 15, 2002.
24
The information as to shares beneficially owned has been individually furnished
by the respective directors, Named Executive Officers, and other stockholders of
the Company, or taken from documents filed with the SEC.
CHANGES IN CONTROL
In August 2001, Titus converted 336,070 shares of its Series A Preferred Stock
of the Company into approximately 6.7 million shares of common stock, which
increased Titus's beneficial ownership of the Company's common stock to 51.95%
at the time of conversion. Subsequently, in March 2002, Titus converted an
additional 383,354 shares of its Series A Preferred Stock into approximately
47.5 million shares of the Company's common stock, which increased Titus's
beneficial ownership of the Company's common stock to 72.4% at the time of
conversion. Titus did not pay any additional consideration to the Company or any
other party in connection with the conversions of its preferred stock.
As a consequence, Titus can control substantially all matters requiring
stockholder approval, including the election of directors, subject to the
Company's stockholders' cumulative voting rights, and the approval of mergers or
other business combination transactions. At the Company's 2001 annual
stockholders meeting on September 18, 2001, Titus exercised its voting power to
elect a majority of the Company's Board of Directors. Three of the seven members
of the Board are employees or directors of Titus, and Titus' Chief Executive
Officer serves as the Company's Chairman, President and Interim Chief Executive
Officer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the SEC. Executive officers, directors and
greater-than-ten percent stockholders are required by SEC regulations to furnish
the Company with all Section 16(a) forms they file. Based solely on its review
of the copies of the forms received by it and written representations from
certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the year ended December 31,
2001, all of the Company's executive officers, directors and greater-than-ten
percent stockholders complied with all Section 16(a) filing requirements.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2003 Annual Meeting of
Stockholders for inclusion in the Company's Proxy Statement and Proxy form
relating to such Annual Meeting must submit such proposal to the Company at its
principal executive offices by March 27, 2003. In addition, in the event a
stockholder proposal is not received by the Company by March 27, 2003, the Proxy
to be solicited by the Board of Directors for the 2003 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares if
the proposal is presented at the 2003 Annual Meeting without any discussion of
the proposal in the Proxy Statement for such meeting.
SEC rules and regulations provide that if the date of the Company's 2003 Annual
Meeting is advanced or delayed more than 30 days from the date of the 2002
Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2003 Annual Meeting must be received by the Company within a
reasonable time before the Company begins to print and mail the proxy materials
for the 2003 Annual Meeting. Upon determination by the Company that the date of
the 2003 Annual Meeting will be advanced or delayed by more than 30 days from
the date of the 2002 Annual Meeting, the Company will disclose such change in
the earliest possible Quarterly Report on Form 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young, LLP, independent public accountants, were selected by the Board
of Directors to serve as independent public accountants of the Company for
fiscal 2001 and have been selected by the Board of Directors to serve as
independent public accountants for fiscal 2002. Representatives of Ernst &
Young, LLP are not expected to be present at the Annual Meeting.
25
SOLICITATION OF PROXIES
It is expected that the solicitation of Proxies will be by mail. The cost of
solicitation by management will be borne by the Company. The Company will
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable disbursements in forwarding solicitation material to
such beneficial owners. Proxies may also be solicited by certain of our
directors and officers, without additional compensation, personally or by mail,
telephone, telegram or otherwise.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2001, WILL BE
MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, INTERPLAY ENTERTAINMENT CORP., 16815 VON KARMAN AVENUE, IRVINCE,
CALIFORNIA 92606.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Jeff Gonzalez
-----------------------------------
Jeff Gonzalez
Chief Financial Officer
Irvine, California
August 23, 2002
26
APPENDIX A
INTERPLAY ENTERTAINMENT CORP.
THIRD AMENDED AND RESTATED
1997 STOCK INCENTIVE PLAN
This THIRD Amended and Restated 1997 STOCK INCENTIVE PLAN (the "Plan")
is hereby established by INTERPLAY ENTERTAINMENT CORP., a Delaware corporation
(the "Company") and adopted by its Board of Directors as of the7th day of
August, 2002, thereby amending and restating the Company's Second Amended and
Restated Stock Incentive Plan, dated as of the 6th day of May, 1999.
ARTICLE 1
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
The Plan has been amended and restated as of the date hereof to increase the
umber of shares of Common Stock issuable hereunder.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CAUSE. "Cause" means (i) failure by a Participant to substantially
perform his or her duties and obligations to the Company or an Affiliated
Company , as applicable (other than any such failure resulting from his or her
incapacity due to physical or mental illness); (ii) engaging in misconduct or a
fiduciary breach which is or potentially is materially injurious to the Company
or any Affiliated Company or any of their stockholders; (iii) commission of a
felony; (iv) the commission of a crime against the Company or any Affiliated
Company which is or potentially is materially injurious to any of such entities;
or (v) as otherwise provided in the
Option Agreement or Stock Purchase Agreement. For purposes of this Plan, the
existence of Cause shall be determined by the Administrator in its sole
discretion.
2.5 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly of the beneficial ownership of securities of
the Company possessing more than fifty percent (50%) of the total combined
voting power of all outstanding securities of the Company by any person or group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) different from the persons holding those securities immediately
prior to the acquisition; (ii) a merger or consolidation in which the Company is
not the surviving entity, provided securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to or acquired by any person or group (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) different
from the persons holding those securities immediately prior to such merger;
(iii) the sale, transfer or other disposition of all or substantially all of the
assets of the Company; (iv) a complete liquidation or dissolution of the
Company; or (v) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred to
or acquired by any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) different from the persons
holding those securities immediately prior to such merger. Notwithstanding the
foregoing, a transaction shall not constitute a Change in Control if its sole
purpose is to change the state of the Company's incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
2.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.7 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.8 COMMON STOCK. "Common Stock" means the Common Stock, no par value
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.9 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.10 EFFECTIVE DATE. "Effective Date" means the date on which the Plan
is adopted by the Board or a Committee thereof, as set forth on the first page
hereof. The adoption of the Plan was approved by the Company's stockholders
within 12 months from the date the Plan was originally adopted by the Board.
With respect to Section 4.1, the Effective Date means the date on which the Plan
is approved by the Company's stockholders, which approval must be obtained
within 12 months from the date this Third Amended and Restated 1997 Stock
Incentive Plan is adopted by the Board.
2.11 EXERCISE PRICE. "Exercise Price" means the purchase price per
share of Common Stock payable upon exercise of an Option.
2
2.12 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading
on a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of valuation
on such Nasdaq market system or principal stock exchange on which the Common
Stock is then listed or admitted to trading, or, if no closing sale price is
quoted on such day, then the Fair Market Value shall be the closing sale price
of the Common Stock on such Nasdaq market system or such exchange on the next
preceding day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to
trading on a Nasdaq market system or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which determination
shall be conclusive and binding on all interested parties.
2.13 INCENTIVE OPTION. "Incentive Option" means any Option designated
and qualified as an "incentive stock option" as defined in Section 422 of the
Code.
2.14 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.15 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member
of the National Association of Securities Dealers, Inc.
2.16 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that
is not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Stockholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.17 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement"
means an Option Agreement with respect to a Nonqualified Option.
2.18 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.19 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.20 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.21 OPTIONEE. "Optionee" means a Participant who holds an Option.
3
2.22 PARTICIPANT. "Participant" means an individual or entity who holds
an Option, a Right to Purchase or Restricted Stock under the Plan.
2.23 PURCHASE PRICE. "Purchase Price" means the purchase price per
share of Restricted Stock payable upon acceptance of a Right to Purchase.
2.24 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.25 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.26 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.27 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.28 10% STOCKHOLDER. "10% Stockholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
ARTICLE 3
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the
Company or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other
key employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), Service
Providers or any trust, IRA account or estate planning device (an "Estate
Planning Device") for the benefit of the foregoing are eligible to receive
Nonqualified Options or Rights to Purchase under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 500,000 shares.
ARTICLE 4
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 10,000,000 shares may be
issued under the Plan, subject to adjustment as to the number and kind of shares
pursuant to Section 4.2 hereof. For purposes of this limitation, in the event
that (a) all or any portion of any Option or
4
Right to Purchase granted or offered under the Plan can no longer under any
circumstances be exercised, or (b) any shares of Common Stock are reacquired by
the Company pursuant to an Incentive Option Agreement, Nonqualified Option
Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to
the unexercised portion of such Option or such Right to Purchase, or the shares
so reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
ARTICLE 5
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall
be evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock
covered by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Stockholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares
5
so purchased to pay for the Exercise Price and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the Exercise Price
directly to the Company; (h) provided that a public market for the Common Stock
exists, a "margin" commitment from the Optionee and an NASD Dealer whereby the
Optionee irrevocably elects to exercise the Option and to pledge the shares so
purchased to the NASD Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the Exercise Price
directly to the Company; or (i) any combination of the foregoing methods of
payment or any other consideration or method of payment as shall be permitted by
applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Stockholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted. For Options granted on or after August 7, 2002, in the event of
termination of an Optionee's employment or service, such Optionee's Options
shall be exercisable (i) at least three months after the date the Optionee's
service with the Company or Affiliated Company as an employee, director,
consultant or other service provider terminates if such termination is for any
reason other than death, Disability or Cause, (ii) at least one year after the
date the Optionee's service with the Company or Affiliated Company as an
employee, director, consultant or other service provider terminates if such
termination is a result of death or Disability, and (iii) if the Optionee's
service with the Company or Affiliated Company as an employee, director,
consultant or other service provider terminates for Cause, all outstanding
Options granted to such Optionee shall expire as of the commencement of business
on the date of such termination. Subsections (i) and (ii) of the foregoing
sentence shall not apply in the event counsel for the Company determines the
terms set forth therein are no longer required to comply with California
securities laws. The Administrator may, in its sole discretion, waive or
otherwise adjust any termination related expiration provided in an Option
Agreement. Outstanding Options that are not exercisable at the time of
termination of employment for any reason shall expire at the close of business
on the date of such termination.
5.5 VESTING EXERCISE OF OPTIONS. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
Notwithstanding the foregoing, for Options granted on or after August 7, 2002,
in the case of an Optionee who is not an officer, director, consultant or other
service provider of the Company or an Affiliated Company, the Option shall
become exercisable at least as rapidly as 20% per year over the five-year period
commencing on the Date of Grant. The foregoing sentence shall not apply in the
event counsel for the Company determines the terms set forth therein are no
longer required to comply with California securities laws.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the
6
Administrator, any Option may be assigned or transferred in any manner which an
"incentive stock option" is permitted to be assigned or transferred under the
Code. Notwithstanding the foregoing, the Administrator, in its sole discretion,
may permit the transfer of a Nonqualified Option (but not an Incentive Option or
Right to Purchase) as follows: (i) by gift to a member of the Participant's
immediate family or (ii) by transfer by instrument to a trust providing that the
Option is to be passed to beneficiaries upon death of the trustor (either or
both (i) or (ii) referred to as a "Permitted Transferee"). For purposes of this
Section, "immediate family" shall mean the Optionee's spouse (including a former
spouse subject to terms of a domestic relations order); child, stepchild,
grandchild, child-in-law; parent, stepparent, grandparent, parent-in-law;
sibling and sibling-in-law, and shall include adoptive relationships. A
Permitted Transferee may not further assign, sell or transfer the transferred
Option, in whole or in part, other than by will or by operation of the laws of
descent and distribution. In addition a Permitted Transferee shall agree in
writing to be bound by the provisions of this Plan.
5.8 RIGHTS AS STOCKHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person. Once the Option has been duly exercised and certificates
representing shares purchased upon exercise have been issued, an Optionee shall
have the rights of a stockholder with respect to the shares acquired upon
exercise of the Option, including voting and dividend rights, subject to the
terms, restrictions and conditions as are set forth in the Option Agreement.
5.9 COMPANY'S REPURCHASE RIGHT. In the event of termination of a
Participant's employment or service as a director of the Company for any reason
whatsoever (including death or disability), the Option Agreement may provide, in
the discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase shares of
Common Stock acquired pursuant to the exercise of an Option at either of the
following prices:
(a) The price which is the greater of the Fair Market Value
per share of Common Stock (determined in accordance with Section 2.12 hereof) as
of the date of termination of Optionee's employment or the original Exercise
Price; or
(b) The original Exercise Price paid by the Optionee for those
shares of Common Stock issued pursuant to Options, provided that the right of
repurchase under this Section 5.9(b) shall lapse as to 20% of the options each
year until after five (5) years at which time the Company shall have no right of
repurchase with respect to any of such shares of Common Stock issued pursuant to
said Options.
In any event, the right to repurchase must be exercised within ninety (90) days
of the termination of employment and may be paid by the Company by cash, check,
or cancellation of Optionee's purchase money indebtedness to the Company. The
Company may assign the right to repurchase provided that if the right is
assigned, the assignee must pay the Company by cash, check or wire transfer the
difference between the original Purchase Price and the Fair Market Value of the
shares to be repurchased, unless the assignee is a 100% owned subsidiary of the
issuer or is the parent of the issuer owning 100% of the issuer.
5.10 RESTRICTIONS ON UNDERLYING SHARES OF COMMON STOCK. Shares of
Common Stock issued pursuant to the exercise of an Option may not be sold,
assigned, transferred,
7
pledged or otherwise encumbered or disposed of except as specifically provided
in the Option Agreement.
ARTICLE 6
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights
with respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions,
payment of the Purchase Price upon acceptance of a Right to Purchase Restricted
Stock may be made, in the discretion of the Administrator, by: (a) cash; (b)
check; (c) the surrender of shares of Common Stock owned by the Offeree that
have been held by the Offeree for at least six (6) months, which surrendered
shares shall be valued at Fair Market Value as of the date of such exercise; (d)
the Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A STOCKHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a stockholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS AND REPURCHASE RIGHT. Shares of Restricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered or disposed
of except as specifically provided in the Stock Purchase Agreement. In the event
of termination of a Participant's employment, service as a director of the
Company or Service Provider status for any reason whatsoever (including death or
disability), the Stock Purchase Agreement may provide, in the discretion of the
Administrator, that the Company shall have the right, exercisable
8
at the discretion of the Administrator, to repurchase any share of Restricted
Stock, whether Vested or Unvested, at either of the following prices:
(a) The price that is the greater of the Fair Market Value per
share of Restricted Stock as of the date of termination of Purchaser's
employment or the original Purchase Price; or
(b) The price that is the original Purchase Price per share of
Restricted Stock. However, the right of repurchase under this Section 6.5(b)
shall lapse as to 20% of the Restricted Stock each year until after five (5)
years at which time the Company shall have no right of repurchase with respect
to any Restricted Stock.
In any event, the right to repurchase upon termination of Purchaser's employment
must be exercised within ninety (90) days of the termination of employment and
may be paid by the Company by cash, check, or cancellation of Optionee's
purchase money indebtedness to the Company. The Company may assign the right to
repurchase provided that if the right is assigned, the assignee must pay the
Company by cash, check or wire transfer the difference between the original
Purchase Price and the Fair Market Value of the shares to be repurchased.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Participant's Right to Purchase
shall be assignable or transferable except by will or the laws of descent and
distribution or as otherwise provided by the Administrator.
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee. Notwithstanding the foregoing, on or
after August 7, 2002 at any period of time during which the Company's stock is
registered pursuant to Section 12 of the Exchange Act, the Board shall delegate
any or all of its duties and authority with respect to the Plan to a Committee
comprised of two or more members of the Board who are members of the Board who
are (i) non-employee directors as such term is defined in Rule 16b-3(b)(3)(i)
promulgated by the Securities and Exchange Commission and (ii) outside directors
as such term is defined in Treasury Regulations (26 Code of Federal Regulation
Section 1.162-27(e)(3)).
9
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or Right to Purchase and
to release, waive, or assign any repurchase rights of the Company with respect
to Restricted Stock or shares issued pursuant to the exercise of an Option; (h)
to extend the exercise date of any Option or acceptance date of any Right to
Purchase; (i) to provide for rights of first refusal and/or repurchase rights;
(j) to amend outstanding Option Agreements and Stock Purchase Agreements to
provide for, among other things, any change or modification which the
Administrator could have provided for upon the grant of an Option or Right to
Purchase or in furtherance of the powers provided for herein; and (k) to make
all other determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of
the Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In the event of a Change of Control, then, the
Administrator, to the extent permitted by applicable law, but otherwise in its
sole discretion may provide for: (i) the continuation of outstanding Options
and/or Rights to Purchase by the Company (if the Company is the surviving
entity); (ii) the assumption of the Plan and such outstanding Options and/or
Rights to Purchase by the surviving entity or its parent; (iii) the substitution
by the surviving entity or its parent of Options and/or Rights to Purchase with
substantially the same terms for such outstanding Options and/or Rights to
Purchase; (iv) the cancellation of outstanding Options and/or Rights to Purchase
without payment of any consideration, provided that if such Options and/or
Rights to Purchase would be canceled in accordance with the foregoing, the
Administrator shall cause written notice of the proposed transaction to be given
to all affected Participants not less than 15 days prior to the anticipated
effective date of the proposed transaction and on or before the effective date
of the proposed transaction, such persons shall have the right to exercise the
vested portion of their Options and/or Rights to Purchase; or (v) the
acceleration of vesting or the adjustment of other terms, provided that if such
10
Options and/or Rights to Purchase would be accelerated or otherwise adjusted in
accordance with the foregoing, the Administrator shall cause written notice of
the proposed transaction to be given to all affected Participants not less than
15 days prior to the anticipated effective date of the proposed transaction and
on or before the effective date of the proposed transaction, all affected
Participants shall have the right to exercise their Options and/or Rights of
Purchase as accelerated or otherwise adjusted. In the event a Participant's
Option Agreement and/or Stock Purchase Agreement contains Change in Control
provisions and such provisions conflict with the provisions of this Section 8.1,
the terms of the Participant's Option Agreement and/or Stock Purchase Agreement
shall govern.
ARTICLE 9
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board or a Committee of the Board may from time to
time alter, amend, suspend or terminate the Plan in such respects as the Board
may deem advisable. No such alteration, amendment, suspension or termination
shall be made which shall substantially affect or impair the rights of any
Participant under an outstanding Option Agreement or Stock Purchase Agreement
without such Participant's consent. The Board may alter or amend the Plan to
comply with requirements under the Code relating to Incentive Options or other
types of options which give Optionees more favorable tax treatment than that
applicable to Options granted under this Plan as of the date of its adoption.
Upon any such alteration or amendment, any outstanding Option granted hereunder
may, if the Administrator so determines and if permitted by applicable law, be
subject to the more favorable tax treatment afforded to an Optionee pursuant to
such terms and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the Plan. To
the extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
11
ARTICLE 11
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to interfere with the right of the Company or any Affiliated Company
to discharge any Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
11.4 INFORMATION TO PARTICIPANTS. For Options and Rights to Purchase
granted on or after August 7, 2002, the Company shall furnish to Participants
Company financial statements at least annually, unless such Participants are
limited to key employees whose duties with the Company assure them access to
equivalent information. The foregoing sentence shall not apply in the event
counsel for the Company determines the terms set forth therein are no longer
required to comply with California securities laws.
IN WITNESS WHEREOF, the undersigned has executed this Third Amended and
Restated 1997 Stock Incentive Plan as of the date first written above.
/s/ Jeff Gonzalez
-----------------------
Jeff Gonzalez
Chief Financial Officer
12
APPENDIX B
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERPLAY ENTERTAINMENT CORP.
The undersigned, Jeff Gonzalez, the Chief Financial Officer of
Interplay Entertainment Corp. (the "Corporation"), a corporation organized and
existing by virtue of the General Corporation Law (the "GCL") of the State of
Delaware, does hereby certify pursuant to Section 103 of the GCL as to the
following:
1. The name of the Corporation is Interplay Entertainment Corp. The
original Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on February 27, 1998.
2. The Board of Directors and Stockholders of the Corporation,
pursuant to Section 242 of the GCL, adopted the following resolution:
"RESOLVED, that the Amended and Restated Certificate of Incorporation
of the Corporation, as amended, is amended as follows:
Simultaneously with the effective date of the filing of this
amendment to the Amended and Restated Certificate of Incorporation (the
"Effective Date"), each share of Common Stock of the Corporation issued
and outstanding or held as treasury shares immediately prior to the
Effective Date (the "Old Common Stock") shall automatically be
reclassified and continued (the "Reverse Split"), without any action on
the part of the holder thereof, as one-tenth on one share (0.1) of
Common Stock. The Corporation shall not issue fractional shares on
account of the Reverse Split. Holders of Old Common Stock who would
otherwise be entitled to a fraction of a share on account of the
Reverse Split shall receive, upon surrender of the stock certificates
formerly representing shares of the Old Common Stock, in lieu of such
fractional share, an amount in cash (the "Cash-in-Lieu Amount") equal
to the product of (i) the fractional share which a holder would
otherwise be entitled to, multiplied by (ii) ten (10) times the closing
sale price per share of the Old Common Stock as quoted on the Nasdaq
SmallCap Market (or, if the Old Common Stock is not then quoted on the
Nasdaq SmallCap Market, the principal securities exchange, market or
automated quotation system on which the Old Common Stock is then listed
or quoted) on the day prior to the Effective Date. No interest shall be
payable on the Cash-in-Lieu Amount.
The Corporation's authorized shares of Common Stock and
Preferred Stock, each having a par value of $0.001 per share, shall not
be changed. The Corporation's stated capital shall be reduced by an
amount equal to the aggregate par value of the shares of Common Stock
issued prior to the effectiveness of this Certificate of Amendment
which, as a result of the reverse split provided for herein, are no
longer issued shares of Common Stock."
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Amended and Restated Certificate of Incorporation as of the __ day
of ______________, 2002.
-----------------------
Jeff Gonzalez
Chief Financial Officer
INTERPLAY ENTERTAINMENT CORP.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of INTERPLAY ENTERTAINMENT CORP., a
Delaware corporation (the "Company"), hereby nominates, constitutes and appoints
Herve Caen and Jeff Gonzalez, or either one of them, as proxy of the
undersigned, each with full power of substitution, to attend, vote and act for
the undersigned at the Annual Meeting of Stockholders of the Company, to be held
on September 17, 2002, and any postponements or adjournments thereof, and in
connection therewith, to vote and represent all of the shares of the Company
which the undersigned would be entitled to vote with the same effect as if the
undersigned were present, as follows:
A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
Proposal 1. To elect the Board of Directors' seven nominees as directors:
Herve Caen Eric Caen
Nathan Peck Michel H. Vulpillat
Michel Welter Maren Stenseth
R. Parker Jones
|_| FOR ALL NOMINEES LISTED ABOVE (except as marked to the
contrary below)
|_| WITHHELD for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below:)
-----------------------------------------------------------------------
The undersigned hereby confer(s) upon the proxies, and each of them,
discretionary authority with respect to the election of directors in
the event that any of the above nominees is unable or unwilling to
serve.
Proposal 2. To amend the Company's 1997 Stock Incentive Plan to increase the
number of authorized shares by 6,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 3. To amend the Company's Amended and Restated Certificate of
Incorporation to effect a one-for-ten reverse stock split of
shares of the Company's Common Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. With respect to matters not
known at the time of the solicitation hereof, said proxies are authorized to
vote in accordance with their best judgment.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
ABOVE OR, TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A
GRANT OF AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED
AT THE ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated August 23, 2002, relating to the
Annual Meeting.
Dated: , 2002
--------------------------------
Signature:
-----------------------------------
Signature:
-----------------------------------
Signature(s) of Stockholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond
exactly with the name(s) of the Stockholder(s)
appearing on the Share Certificate. If stock
is held jointly, all joint owners should sign.
When signing as attorney, executor, adminis-
trator, trustee or guardian, please give full
title as such. If signer is a corporation,
please sign the full corporation name, and
give title of signing officer.
|_| Please indicate by checking this box if
you anticipate attending the Annual
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
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