UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-24363
INTERPLAY ENTERTAINMENT CORP.
(Exact name of the registrant as specified in its charter)
DELAWARE 33-0102707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16815 VON KARMAN AVENUE, IRVINE, CALIFORNIA 92606
(Address of principal executive offices)
(949) 553-6655
(Registrant's telephone number, including area code)
Securities registered pursuant of Section 12 (b) of the Act: None
Securities registered pursuant of Section 12 (g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of June 28, 2002, the aggregate market value of voting common stock held by
non-affiliates was $3,056,628, based upon the closing price of the Common Stock
on that date.
As of April 25, 2003, 93,849,176 shares of Common Stock of the Registrant were
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
AMENDMENT NO. 1
TO THE ANNUAL REPORT ON FORM 10-K FILED BY
INTERPLAY ENTERTAINMENT CORP. ON APRIL 1, 2003
The following Items comprising Part III were omitted from the Annual
Report on Form 10-K filed by Interplay Entertainment Corp. (the "Company," "we,"
"us," or "our") on April 1, 2003 (the "Form 10-K"), as permitted by rules and
regulations promulgated by the Securities Exchange Commission. Part III of that
Form 10-K is hereby amended and restated to insert those Items as set forth
herein. All capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
SUMMARY INFORMATION CONCERNING DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN
SIGNIFICANT EMPLOYEES
The following table sets forth certain information regarding our
directors and executive officers and certain significant employees, and their
ages as of April 28, 2003.
Directors Age Present Position
--------- --- ----------------
Herve Caen 41 Chairman of the Board of Directors,
Chief Executive Officer and Interim
Chief Financial Officer
Eric Caen 37 Director
Nathan Peck 78 Director
Michel Vulpillat 41 Director
Michel Welter (1) (2) 44 Director
Maren Stenseth (1) (2) 41 Director
R. Parker Jones (1) 46 Director
Phillip G. Adam 49 President
Gary Dawson 53 Chief Operating Officer
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Herve Caen and Eric Caen are brothers. There are no other family relationships
between any director and/or any executive officer.
BACKGROUND INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
HERVE CAEN joined us 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, and was appointed
Chief Executive Officer later that year. In October 2002, Mr. Caen was appointed
Interim Chief Financial Officer to fill the vacancy created by the resignation
of our former Chief Financial Officer at that time. Mr. Caen has served as
Chairman of our Board of Directors since September 2001. Mr. Caen has served as
Chairman of the Board of Directors of Titus Interactive SA, an interactive
entertainment software company, since 1991. Mr. Caen also served as Chief
Executive Officer of Titus Interactive SA from 1991 to December 31, 2002. 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 since November 1999. Mr. Caen has served
as a Director and as President of Titus Interactive SA since 1991. In January
2003, Mr. Caen was appointed Chief Executive Officer of Titus Interactive SA.
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
2
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 us as interim Chief Administrative Officer in August
2001 and a director in September 2001. Mr. Peck's term as interim Chief
Administrative Officer expired on December 31, 2002. Mr. Peck, however, remains
on our Board of Directors. Prior to joining us, 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 our Board of Directors in September 2001. Mr.
Vulpillat is currently the owner of Edge LLC, a consulting company in the fields
of international business and business engineering started in 1996. Mr.
Vulpillat currently serves on the Board of Directors of Titus Interactive S.A.,
and 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 our 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 our Board of Directors in November 2001. Ms.
Stenseth, a Certified Public Accountant, 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 our 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.
PHILLIP G. ADAM joined us as Vice President of Sales and Marketing in
December 1990, served as our Vice President of Business Development since
October 1994, and has served as our President since October 2002. Prior to
joining us, 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 our Vice President of Sales and Marketing in
November 1999, and has served as our Chief Operating Officer since October 2002.
Prior to joining us, 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.
3
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Executive
officers, directors and greater-than-ten percent stockholders are required by
SEC regulations to furnish us with all Section 16(a) forms they file. Based
solely on our review of the copies of the forms received by us and written
representations from certain reporting persons that they have complied with the
relevant filing requirements, we believe that, during the year ended December
31, 2002, all our executive officers, directors and greater-than-ten percent
stockholders complied with all Section 16(a) filing requirements, except for the
following: each of Herve Caen, our Chairman, Chief Executive Officer and Interim
Chief Financial Officer, Eric Caen, a Director, and Titus Interactive S.A., our
majority stockholder, filed one late Form 4, each reporting late five
transactions that occurred in March 2002 and June 2002, respectively; and Michel
Welter filed one Form 5, reporting late a transaction that occurred in November
2002 that should have been reported on Form 4.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned during the last three fiscal years ended December 31, 2002, by our Chief
Executive Officer and each of our four other most highly compensated executive
officers whose total salary and bonus during such year exceeded $100,000
(collectively, the "Named Executive Officers"). No other executive officer
serving at December 31, 2002, received total salary and bonus during 2002 in
excess of $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------- ---- ------ ----- ------------ ------------
Herve Caen (1)................ 2002 $ 250,000 -- -- (2)
Chairman of the Board of 2001 250,000 -- -- --
Directors, Chief Executive 2000 62,500 -- -- --
Officer and Interim Chief
Financial Officer
Nathan Peck (3)............... 2002 $ 115,800 -- -- --
Interim Chief Administrative 2001 33,775 -- -- --
Officer 2000 -- -- -- --
Phillip Adam.................. 2002 $ 168,000 -- -- $ 5,331(4)
President 2001 168,000 -- -- 5,137(4)
2000 168,000 -- -- 4,815(4)
Gary Dawson................... 2002 $ 185,000 -- -- --
Chief Operating Officer 2001 185,000 -- -- --
2000 185,000 -- -- --
- ----------
<FN>
(1) Mr. Caen joined us in November 1999 at an annual base salary of $250,000.
In March 2003, the Compensation Committee approved an annual base salary
increase from $250,000 to $360,000, retroactive from December 1, 2002. The
Compensation Committee also approved additional annual compensation of
$100,000 to be paid to Mr. Caen for services as our interim Chief Financial
Officer, retroactive from October 4, 2002. Mr. Caen waived payment of his
salary from November 1999 through October 2000.
(2) Mr. Caen received 1,000 shares of our Common Stock pursuant to a
non-discretionary grant made under the terms of our Employee Stock Purchase
Program.
</FN>
4
(3) Mr. Peck joined us as interim Chief Administrative Officer in August 2001
at an annual base salary of $115,800. His pro-rated annual base salary for
fiscal 2001 was $33,775. Mr. Peck was later appointed as a director in
September 2001. Mr. Peck resigned as interim Chief Administrative Officer
effective December 31, 2002 but remains a Director.
(4) Mr. Adam's other compensation consists of matching payments made under our
401(k) plan. STOCK OPTION GRANTS IN FISCAL 2002
There were no stock options granted to the Named Executive Officers
during the year ended December 31, 2002.
AGGREGATE OPTION EXERCISES
AND 2002 YEAR-END OPTION VALUES
There were no exercises of stock options during the year ended December
31, 2002 for any of the Named Executive Officers.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS AT
AT YEAR-END YEAR-END
SHARES ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)(1)
- ---- ----------- -------- -------------- -----------------
Herve Caen -- -- -- --
Nathan Peck -- -- -- --
Phillip Adam -- -- 8,000/2,000 $0/$0
Gary Dawson -- -- 81,667/3,333 --
- ----------
(1) Represents an amount equal to the difference between the closing sale price
for our common stock ($0.06) on the Over-The-Counter Bulletin Board on
December 31, 2002, and the option exercise price, multiplied by the number
of unexercised in-the-money options. None of the options held by the Named
Executive Officers were in-the-money at year-end.
DIRECTOR COMPENSATION.
We pay our non-employee directors cash compensation of $5,000 per
quarter for attendance at Board of Directors and committee meetings.
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Herve Caen for a term of
three years through November 2002, pursuant to which he currently serves as our
Chairman of the Board of Directors, Chief Executive Officer and Interim Chief
Financial 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 us from time to time. Mr. Caen waived
payment of his salary from November 1999 through October 2000. In March 2003,
the Compensation Committee approved an annual base salary increase from $250,000
to $360,000, retroactive from December 1, 2002. Because the term of his current
agreement has expired, Mr. Caen is negotiating a new agreement with the
Compensation Committee.
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. Mr. Vulpillat currently serves as a member of the
board of directors of Titus Interactive S.A., a company for which Mr. Herve Caen
was Chief Executive Officer, and served in such capacity during fiscal 2002.
During 2002, decisions regarding executive compensation were made by the
5
Compensation Committee. None of the 2002 members of the Compensation Committee
nor any of our 2002 executive officers or directors had a relationship that
would constitute an interlocking relationship with executive officers and
directors of another entity.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 25, 2003, unless otherwise
indicated, certain information relating to the ownership of our Common Stock by
(i) each person known by us to be the beneficial owner of more than five percent
of the outstanding shares of our Common Stock, (ii) each of our directors, (iii)
each of the Named Executive Officers, and (iv) all of our 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 us, 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............................. 67,450,021 (3)(4) 71.9%
Eric Caen.............................. 67,449,021 (3) 71.9%
Michel Welter.......................... 48,333 (5) *
Nathan Peck............................ 0 --
Michel Vulpillat....................... 54,833 (6) *
Maren Stenseth......................... 8,333 (7) *
R. Parker Jones........................ 8,333 (8) *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
Phillip Adam 206,779 (9) *
Gary Dawson 81,667 (10) --
5% HOLDERS:
Titus Interactive SA................... 67,449,021 (3) 71.9%
Parc de l'Esplanade
12, rue Enrico Fermi
St-Thibault-des-Vignes
77462 Lagny-sur-Marne Cedex
France
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)................. 67,768,632 (11) 72.2%
- ----------
* 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 25, 2003, 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. The information as to shares beneficially owned
has been individually furnished by the respective directors, Named
Executive Officers, and other stockholders, or taken from documents filed
with the SEC.
(2) Based on 93,849,176 shares of common stock outstanding as of April 25,
2003.
(3) Includes 460,298 shares subject to warrants exercisable within 60 days of
April 25, 2003. 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.
6
(4) Includes 1,000 shares of our Common Stock issued to Mr. Caen in 2002
pursuant to a non-discretionary grant made under the terms of our Employee
Stock Purchase Program.
(5) Includes 8,333 shares subject to stock options exercisable within 60 days
of April 25, 2003.
(6) Includes 8,333 shares subject to stock options exercisable within 60 days
of April 25, 2003. Mr. Vulpillat is currently a director of Titus and owns
less than 0.1% of the outstanding capital stock of Titus. Mr. Vulpillat
disclaims beneficial ownership of our shares held by Titus.
(7) Includes 8,333 shares subject to stock options exercisable within 60 days
of April 25, 2003.
(8) Includes 8,333 shares subject to stock options exercisable within 60 days
of April 25, 2003.
(9) Includes 8,000 shares subject to stock options exercisable within 60 days
of April 25, 2003.
(10) Includes 81,667 shares subject to stock options exercisable within 60 days
of April 25, 2003.
(11) Includes 460,298 shares subject to warrants, and 33,332 shares subject to
options, exercisable within 60 days of April 25, 2003.
EQUITY COMPENSATION PLANS INFORMATION
The following table sets forth certain information regarding the Company's
equity compensation plans as of December 31, 2002.
Plan Category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under equity
warrants and rights warrants and rights compensation plans
(excluding securities
reflected in column (a))
- --------------------------------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation plans 1,091,697 3.10 8,107,275
approved by security
holders
Equity compensation plans - - -
not approved by
security holders
-----------------------------------------------------------------------------
Total 1,091,697 3.10 8,107,275
=============================================================================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our operations involve significant transactions with Titus Interactive
S.A., our majority stockholder ("Titus"), Virgin Interactive Entertainment
Limited, a wholly-owned subsidiary of Titus ("Virgin"), and Vivendi Universal
Games, Inc. ("Vivendi"), an owner of 5 percent of our common stock (through its
ownership of Universal Studios, Inc.). In addition, we obtained financing from
our former Chairman.
TRANSACTIONS WITH TITUS INTERACTIVE S.A.
We perform distribution services on behalf of Titus for a fee, whereby
we distribute certain titles throughout North America and Australia. In
connection with such distribution services, we recognized fee income of $22,000
for the year ended December 31, 2002.
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 71.9 percent of our outstanding common stock, our only voting
security, as of April 25, 2003.
Also in March 2002, we entered into a distribution agreement with Titus
pursuant to which we granted to Titus the exclusive right to distribute one of
our products for the Sony Playstation console in North America, South America
and Central America in exchange for a minimum guarantee of $100,000 for the
first 71,942 units of the product sold, plus $.69 per unit on any product sold
above the 71,942 units.
In April 2002, we entered into an agreement with Titus, pursuant to
which, among other things, we sold to Titus all right, title and interest in the
games "EarthWorm Jim", "Messiah", "Wild 9", "R/C Stunt Copter", "Sacrifice",
"MDK", "MDK II", and "Kingpin", and Titus licensed from us the right to develop,
publish, manufacture and distribute
7
the games "Hunter I", "Hunter II", "Icewind Dale I", "Icewind Dale II", and "BG:
Dark Alliance II" solely on Nintendo Advance GameBoy game system for the life of
the games. As consideration for these rights, Titus issued to us a promissory
note in the principal amount of $3.5 million, which note bears interest at 6
percent per annum. The promissory note was due on August 31, 2002, and may be
paid, at Titus' option, in cash or in shares of Titus common stock with a per
share value equal to 90 percent of the average trading price of Titus' common
stock over the 5 days immediately preceding the payment date. Pursuant to our
April 26, 2002 agreement with Titus, on or before July 25, 2002, we had the
right to solicit offers from and negotiate with third parties to sell the rights
and licenses granted under the April 26, 2002 agreement. If we had entered into
a binding agreement with a third party to sell these rights and licenses for an
amount in excess $3.5 million, we would have rescinded the April 26, 2002
agreement with Titus and recovered all rights granted and released Titus from
all obligations thereunder. The Company's efforts to enter into a binding
agreement with a third party were unsuccessful. Moreover, we have provided Titus
with a guarantee under this agreement, which provides that in the event Titus
does not achieve gross sales of at least $3.5 million by June 25, 2003, and the
shortfall is not the result of Titus' failure to use best commercial efforts, we
will pay to Titus the difference between $3.5 million and the actual gross sales
achieved by Titus, not to exceed $2 million. We continue to negotiate with Titus
to repurchase these assets for a purchase price payable by canceling the $3.5
million promissory note, and any unpaid accrued interest thereon. Concurrently,
we and Titus would terminate any executory obligations relating to the original
sale, including our obligation to pay Titus up to $2 million if Titus does not
achieve gross sales of at least $3.5 million by June 25, 2003, and we would
obtain all or a portion of any rights or benefits Titus may have negotiated
during the time it has been exploiting these assets. As Titus is our majority
stockholder and the probability of the agreement being terminated, we have
offset the related note receivable in the amount of $3.5 million against the
deferred revenue in the amount of $3.5 million.
As of December 31, 2002, Titus owed us $200,000, and we owed Titus
$321,000. Amounts due to Titus at December 31, 2002 consisted primarily of trade
payables.
In March 2003, we entered into a note receivable with Titus Software
Corp., or "TSC", a subsidiary of Titus, for $226,000. The note earns interest at
8 percent per annum and is due in February 2004. The note is secured by (i) 4
million shares of our common stock held by Titus, (ii) TSC's rights in and to a
note receivable due from the President of Interplay and (iii) rights in and to
TSC's most current video game title releases during 2003 and 2004.
In April 2003, we paid Europlay I, LLC ("Europlay"), a financial
advisor originally retained by Titus, and subsequently retained by us, $448,000
in connection with prior services provided by Europlay to us.
TRANSACTIONS WITH VIRGIN, A WHOLLY OWNED SUBSIDIARY OF TITUS
In February 1999, we 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, as
amended, we pay Virgin a distribution fee based on net sales, and Virgin
provides certain market preparation, warehousing, sales and fulfillment services
on our behalf.
Under an April 2001 settlement, we paid Virgin a monthly overhead fee
of $83,000 per month for the six month period beginning January 2002, with no
further overhead commitment for the remainder of the term of the International
Distribution Agreement.
In connection with the International Distribution Agreement, we
incurred distribution commission expense of $0.9 million for the year ended
December 31, 2002. In addition, we recognized overhead fees of $0.5 million for
the year ended December 31, 2002.
We have 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 the terms of an 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
8
connection with the Product Publishing Agreement with Virgin, we earned $66,000
for performing publishing and distribution services on behalf of Virgin for the
year ended December 31, 2002.
In connection with the International Distribution Agreement, we
sublease office space from Virgin in the United Kingdom. Rent expense paid to
Virgin was $104,000 for the year ended December 31, 2002.
In June 1997, we entered into a Development and Publishing Agreement
with Confounding Factor in which we agreed to commission the development of the
game "Galleon" in exchange for an exclusive worldwide license to fully exploit
the game and all derivates including all publishing and distribution rights.
Subsequently, in March 2002, we entered into a Term Sheet with Virgin, pursuant
to which Virgin assumed all responsibility for future milestone payments to
Confounding Factor to complete development of "Galleon" and Virgin acquired
exclusive rights to ship the game in certain territories. Virgin paid an initial
$511,000 to Confounding Factor, but then ceased making the required payments.
Subsequently, Virgin proposed that Interplay refund the $511,000 to Virgin and
void the Term Sheet (except with respect to Virgin's rights to publish Galleon
in Japan), which the independent Committee of our Board of Directors rejected.
While reserving our rights vis-a-vis Virgin, we then resumed making payments to
Confounding Factor to protect our interests in "Galleon." We are currently
negotiating a settlement with Virgin regarding "Galleon" publishing rights.
In January 2003, we and Virgin entered into a waiver related to the
distribution of a video game title in which we sold the European distribution
rights to Vivendi. In consideration for Virgin relinquishing its rights, we
agreed to pay Virgin $650,000 and will pay Virgin 50 percent of all proceeds in
excess of the advance received from Vivendi. As of December 31, 2002 the Company
had paid Virgin $220,000 of the $650,000 due under the waiver agreement. We paid
the remaining balance of $430,000 in January 2003.
In February 2003, Virgin Interactive Entertainment (Europe) Limited
("Virgin Europe"), the operating subsidiary of Virgin filed for a Company
Voluntary Arrangement, or CVA, a process of reorganization in the United Kingdom
which must be approved by Virgin's creditors. Virgin owed us approximately $1.8
million under our International Distribution Agreement at December 31, 2002. As
of March 28, 2003, the CVA was rejected by Virgin Europe's creditors, and Virgin
Europe is presently negotiating with its creditors to propose a new CVA. We do
not know what affect approval of the CVA will have on our ability to collect
amounts Virgin owes us. If the new CVA is not approved, we expect Virgin to
cease operations and liquidate, in which event we will most likely not receive
any amounts presently due us by Virgin, and will not have a distributor for our
products in Europe and the other territories in which Virgin presently
distributes our products.
In March 2003, we made a settlement payment of approximately $320,000
to a third-party on behalf of Virgin Europe to protect the validity of certain
of our license rights and to avoid potential third-party liability from various
licensors of our products, and incurred legal fees in the amount of
approximately $80,000 in connection therewith. Consequently, Virgin owes us
$400,000 pursuant to the indemnification provisions of the International
Distribution Agreement.
TRANSACTIONS WITH VIVENDI
In August 2001, we entered into a distribution agreement with Vivendi
(an affiliate company of Universal Studios, Inc., which currently owns
approximately 5 percent of our common stock at December 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 $10.0 million. In
amendments to the agreement, Vivendi agreed to advance us an additional $3.5
million. The distribution agreement, as amended, provides for the acceleration
of the recoupment of the advances made to us, as defined. During the three
months ended March 31, 2002, Vivendi advanced us an additional $3.0 million
bringing the total amounts advanced to us under the distribution agreement with
Vivendi to $16.5 million. In April 2002, the distribution agreement was further
amended to provide for Vivendi to distribute substantially all of our products
through December 31, 2002, except certain future products, which
9
Vivendi would have the right to distribute for one year from the date of
release. As of August 1, 2002, all distribution advances relating to the August
2001 agreement from Vivendi were fully recouped or repaid.
In August 2002, we entered into a new distribution agreement with
Vivendi whereby Vivendi will distribute substantially all of our products in
North America for a period of three years as a whole and two years with respect
to each product giving a potential maximum term of five years. Under the August
2002 agreement, Vivendi will pay us sales proceeds less amounts for distribution
fees, price concessions and returns. Vivendi is responsible for all
manufacturing, marketing and distribution expenditures, and bears all credit,
price concessions and inventory risk, including product returns. Upon our
delivery of a gold master to Vivendi, Vivendi will pay us as a minimum
guarantee, a specified percent of the projected amount due us based on projected
initial shipment sales, which are established by Vivendi in accordance with the
terms of the agreement. The remaining amounts are due upon shipment of the
titles to Vivendi's customers. Payments for future sales that exceed the
projected initial shipment sales are paid on a monthly basis. As of December 31,
2002, Vivendi had advanced us $3.6 million related to future minimum guarantees
on undelivered products.
In February 2003, the Company sold to Vivendi all future interactive
entertainment publishing rights to the "Hunter: The Reckoning" franchise for $15
million, payable in installments. The Company retains the rights to the
previously published "Hunter: The Reckoning" titles on Microsoft Xbox and
Nintendo GameCube.
TRANSACTIONS WITH BRIAN FARGO, A FORMER OFFICER OF THE COMPANY
In connection with our working capital line of credit obtained in April
2001, we 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 $3.0 million loan, payable in May
2002, with interest at 10 percent. In connection with the guarantee and loan,
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. The
amount was fully paid in April 2002 in connection with the sale of Shiny.
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, at Irvine, California
this 30th day of April 2003.
INTERPLAY ENTERTAINMENT CORP.
/s/ Herve Caen
By:_________________________________
Herve Caen
Its: Chief Executive Officer and
Interim Chief Financial Officer
(Principal Executive and
Financial and Accounting Officer)
11
Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Herve Caen, certify that:
1. I have reviewed this annual report on Form 10-K/A of Interplay
Entertainment Corp.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Herve Caen
-----------------------
Herve Caen
Chief Executive Officer
12
Certification of Interim CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Herve Caen, certify that:
1. I have reviewed this annual report on Form 10-K/A of Interplay
Entertainment Corp.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003
/s/ Herve Caen
-------------------------------
Herve Caen
Interim Chief Financial Officer