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 [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
INTERPLAY ENTERTAINMENT CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
INTERPLAY ENTERTAINMENT CORP.
-----------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------------------------------
TIME.............................. 12:00 p.m. Pacific Time on Thursday,
December 18, 2003
PLACE............................. Interplay Entertainment Corp.
16815 Von Karman Ave.
Irvine, California 92606
ITEMS OF BUSINESS................. (1) To elect seven members of
the Board of Directors to
serve until the next annual
stockholder meeting.
(2) To amend our Amended and
Restated Certificate of
Incorporation to increase
the number of authorized
shares of our Common Stock,
par value $0.001 per share,
by 50,000,000 shares for a
total authorized amount of
150,000,000 shares of
Common Stock.
(3) To transact such other
business as may properly
come before the Annual
Meeting and any adjournment
or postponement.
RECORD DATE....................... You can vote if, at the close of
business on November 5, 2003, 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.
November 3, 2003 /S/ HERVE CAEN
--------------------------
Herve Caen
Chief Executive Officer and interim
Chief Financial Officer
INTERPLAY ENTERTAINMENT CORP.
16815 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92606
(949) 553-6655
PROXY STATEMENT
- --------------------------------------------------------------------------------
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 2003
Annual Meeting of Stockholders and at any adjournments or postponements thereof.
You are invited to attend our Annual Meeting of Stockholders on December 18,
2003, beginning at 12:00 p.m. Pacific Time. The meeting will be held at
Interplay Entertainment Corp. office headquarters, 16815 Von Karman Ave.,
Irvine, California 92606.
It is anticipated that the 2002 Annual Report, the latest quarterly report filed
with the U.S. Securities and Exchange Commission for the period ended June 30,
2003 and this Proxy Statement and the accompanying Proxy will be mailed to
stockholders on or about November 19, 2003.
STOCKHOLDERS ENTITLED TO VOTE. Holders of our common stock at the close of
business on November 5, 2003 are entitled to receive this notice and to vote
their shares at the Annual Meeting. Common stock is the only outstanding class
of our securities entitled to vote at the Annual Meeting. As of the close of
business on November 5, 2003, there were 93,855,634 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. On the election of directors, our
stockholders have cumulative voting rights (please see "Election of Directors"
below for a description of your cumulative voting rights). 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.
PROXY SOLICITATION COSTS. The costs associated with the solicitation of
stockholder proxies by our Board in connection with this 2003 annual stockholder
meeting shall be borne by the Company.
ELECTION OF DIRECTORS. The seven 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
1
Directors to fill any vacancy. We have 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 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 our common stock owned by such stockholder 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 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.
AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. The approval
of the amendment to our Amended and Restated Certificate of Incorporation to
provide for an increase in our authorized shares of common stock by 50,000,000
shares will require the affirmative vote of a majority of the outstanding shares
of common stock present, in person or by proxy, at the Annual Meeting at which a
quorum is present. 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.
2
ITEM 1: ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
Item 1 is the election of seven 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. We have 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 nominee directors:
Herve Caen Eric Caen
Nathan Peck Michel H. Vulpillat
Michel Welter Robert Stefanovich
Gerald DeCiccio
If elected, the foregoing seven nominees are expected to serve until the 2004
Annual Meeting of Stockholders. The seven 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
the 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.
3
MANAGEMENT
- ----------
DIRECTORS AND EXECUTIVE OFFICERS
The following persons currently serve as our directors:
DIRECTORS AGE
- --------- ---
Herve Caen 42
Eric Caen 37
Nathan Peck 78
Michel Vulpillat 41
Michel Welter 45
Gerald DeCiccio 46
Robert Stefanovich 38
The following persons serve as our executive officers:
EXECUTIVE OFFICERS AGE TITLE
- ------------------ --- -----
Herve Caen 42 Chairman of the Board, Chief Executive
Officer and interim Chief Financial
Officer
Phillip G. Adam 49 President
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 us as President and as a director in November 1999. Mr. Caen
was appointed interim Chief Executive Officer in January 2002 and currently
serves as our Chief Executive Officer and interim Chief Financial Officer to
date. 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 was also Chief Executive Officer of Titus Interactive SA from 1991 through
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. Mr. Caen is also
currently the 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 K.K. 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 us as interim Chief Administrative Officer in August 2001 and
a director in September 2001. Mr. Peck resigned as interim Chief Administrative
Officer effective 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
(now named Avalon Interactive Group Ltd). 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 also currently serves as a director for Titus Japan K.K., a subsidiary
of Titus Interactive SA. Mr. Vulpillat
4
has also served as Vice President of Special Operations of Titus Interactive SA
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,
together with his company Weltertainment, is involved in the trading and
exploitation of animated TV series. From 2000 to 2002 he served 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.
GERALD DECICCIO joined our Board of Directors in October 2003. Since 1999, Mr.
DeCiccio has also served as the Chief Financial Officer of GTC Telecom Corp., a
telecommunications products provider, based in Costa Mesa, California. While at
GTC Telecom Corp., Mr. DeCiccio assisted GTC Telecom through its initial public
offering and with the completion of other types of financings. In 2000, Mr.
DeCiccio also became a member of the Board of Directors of GTC Telecom. Prior to
that, Mr. DeCiccio served as the Vice President of Finance and Administration
for National Telephone & Communications, Inc., a $150 million inter-exchange
carrier and provider of communications products and services. Between 1995 and
1997, Mr. DeCiccio was the Corporate Controller for Newport Corporation, a $140
million multi-national manufacturer and distributor of laser and optics
products. Mr. DeCiccio is a Certified Public Accountant in the State of
California.
ROBERT STEFANOVICH joined our Board of Directors in October 2003. Mr.
Stefanovich has served as Executive Vice President and Chief Financial Officer
of Artemis International Solutions Corporation since September 2002. He has held
senior finance positions in both publicly traded and privately held technology
companies. Prior to joining Artemis, he held several senior positions, including
Chief Financial Officer for a publicly traded medical device company, Vice
President for Administration at Science Applications International Corporation
(SAIC), a Fortune 500 company, and SEC Reporting Manager at Raychem Corporation.
Between 1992 and 1997, he served as an Audit Manager and member of the Software
Advisory Group at Price Waterhouse LLP (now PricewaterhouseCoopers) in San Jose,
California and Frankfurt, Germany. He holds an MBA in Finance/Accounting and
Engineering.
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.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
- -----------------------------------------------------
MEETINGS AND COMMITTEES. The Board of Directors held 14 meetings during fiscal
year 2002. The Board of Directors has an Audit Committee and a Compensation
Committee. The full Board of Directors performs the functions of a Nominating
Committee.
The Audit Committee currently consists of Mr. Welter , Mr. Stefanovich and Mr.
DeCiccio. In fiscal year 2002, Ms. Maren Stenseth and Mr. R. Parker Jones, who
resigned as directors in May 2003, were also members of the Audit Committee. The
Audit Committee recommends the engagement of our 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, our
Chief Financial Officer and controller to review matters relating to our
financial statements, our accounting principles and system of internal
accounting controls, and reports its recommendations as to the approval of our
financial statements to the Board of Directors. The role and
5
responsibilities of the Audit Committee are more fully set forth in a written
charter adopted by the Board of Directors. The Audit Committee held one meeting
during fiscal 2002.
The Compensation Committee currently consists of Mr. Welter, Mr. Stefanovich and
Mr. DeCiccio. In fiscal year 2002, Ms. Maren Stenseth was also a member of the
Compensation Committee. From September 2001 to August 2002, Mr. Vulpillat served
on the Compensation Committee. 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 our stock option and executive incentive compensation plans. The
Compensation Committee held one meeting during fiscal 2002.
All incumbent directors attended 75% or more of all the meetings of the Board of
Directors and those committees on which he served in fiscal year 2002 except for
Mr. DeCiccio and Mr. Stefanovich who joined our Board in October 2003.
DIRECTORS' COMPENSATION. Currently, we pay each of our non-employee directors
compensation as follows:
o $5,000 in cash compensation per quarter for attendance at
Board of Directors meetings.
o $5,000 in cash compensation per annum for each Board committee
a director is a member of and participates in.
o Upon election and appointment to the Board, or upon loss of
employee status of an employee director, an option to purchase
up to 25,000 shares of the Company's common stock under the
Company's Third Amended and Restated 1997 Stock Incentive
Plan. These director options are each for a term of ten years
and vest over the first three years.
o An option to purchase 5,000 shares of the Company's common
stock under the Company's Third Amended and Restated 1997
Stock Incentive Plan for each subsequent year of director
service. These 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, Robert Stefanovich and Gerald
DeCiccio. From September 2001 to August 2002, Mr. Vulpillat served on the
Compensation Committee. In fiscal year 2002, Ms. Maren Stenseth, who resigned as
a director in May 2003, was also a member of the Compensation Committee. During
2002, decisions regarding executive compensation were made by the 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.
6
ITEM 2: AMENDMENT TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON STOCK
- --------------------------------------------------------------------------------
INTRODUCTION. The Board has unanimously approved, subject to stockholder
approval, an amendment to our Amended and Restated Certificate of Incorporation,
as amended (the "Authorized Share Increase Amendment"), that will increase the
aggregate number of shares of common stock authorized for issuance from
100,000,000 shares to 150,000,000 (the "Authorized Share Increase"). The
complete text of the form of the Authorized Share Increase Amendment is set
forth as APPENDIX A to this Proxy Statement.
As of the close of business on November 5, 2003, we had 93,855,634 shares of
common stock issued and outstanding. Last year, the Company's stockholders voted
to approve an increase in the shares of common stock issuable pursuant to the
Company's Third Amended and Restated 1997 Stock Incentive Plan (the "1997 Plan")
from 4,000,000 shares to 10,000,000 shares. In addition, the Company's
stockholders last year approved an 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. Such approval reserved for the
Board the right to elect not to proceed with the reverse stock split if the
Board, in its sole discretion, determines that it is no longer in the best
interests of the Company and its stockholders. The Board has determined that the
reverse stock split is no longer in the best interests of the Company and its
stockholders and has elected not to effect the reverse stock split.
Although we have not currently entered into any agreements, nor do we currently
have any plans, to issue any of the additional shares to be available upon the
effectiveness of the Authorized Share Increase, the proposed increase in the
number of authorized shares of common stock has been recommended by the Board to
assure that an adequate supply of authorized but unissued shares is available
for use primarily in connection with corporate acquisitions, raising additional
capital for operations and the issuance of shares under the 1997 Plan.
If the Proposal is adopted, the first full sentence of Article 4 of our Amended
and Restated Certificate of Incorporation, as amended, will read as follows:
"Article 4
The total number of shares of all classes of stock
which this Corporation shall have authority to issue is
155,000,000, of which (i) 150,000,000 shares shall be
designated "Common Stock" and shall have a par value of
$0.001 per share; and (ii) 5,000,000 shares shall be
designated "Preferred Stock" and shall have a par value of
$0.001 per share."
CERTAIN EFFECTS OF THE AUTHORIZED SHARE INCREASE AMENDMENT. The Board believes
that approval of the Proposal is essential for our growth and development.
However, the following should be considered by a stockholder in deciding how to
vote upon this Proposal.
The Proposal, if approved, would strengthen the position of the Board and might
make the removal of the Board more difficult, even if the removal would be
generally beneficial to our stockholders. Once the stockholders approve an
increase in the Company's authorized shares of common stock, the Board will have
the authorization to issue the additional shares of common stock. The Board's
ability to issue additional shares of common stock may provide the Board with a
capacity to negate the efforts of unfriendly tender offerors through the
issuance of securities to others who are friendly or desirable to the Board.
The additional shares which the Board would be authorized to issue upon approval
of the Proposal, if so issued, would have a dilutive effect upon the percentage
of our equity owned by present stockholders. The issuance of the additional
shares might be disadvantageous to current stockholders in that any additional
issuances would potentially reduce per share dividends, if any. Stockholders
should consider, however, that the possible impact upon dividends is likely to
be minimal in view of the fact that we have never paid dividends on shares of
our common stock and we do not intend to pay any cash dividends in the
foreseeable future. We instead intend to retain earnings, if any, for investment
and use in business operations.
7
EFFECTIVENESS OF THE AUTHORIZED SHARE INCREASE. If the Authorized Share Increase
Amendment is approved by the requisite vote of our stockholders, the Authorized
Share Increase will be effective upon the date of filing and acceptance of the
Authorized Share Increase Amendment with the Delaware Secretary of State, which
filing is expected to take place shortly after the Annual Meeting. However, the
exact timing of the filing of the Authorized Share Increase Amendment will be
determined by the Board based upon its evaluation as to when such action will be
most advantageous to us and our stockholders, and the Board reserves the right
to delay filing the Authorized Share Increase 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 Authorized Share Increase
Amendment if, at any time prior to filing the Authorized Share Increase
Amendment, the Board, in its sole discretion, determines that it is no longer in
our best interests or in the best interests of our stockholders. If the
stockholders do not approve this proposal, then the Authorized Share Increase
Amendment will not be filed.
VOTE REQUIRED. The affirmative vote of a majority of the outstanding shares of
our common stock present, in person or by proxy, at the annual meeting at which
a quorum is present is required to approve the Authorized Share Increase
Amendment. For purposes of the vote to amend the Amended and Restated
Certificate of Incorporation, as amended, abstentions and broker non-votes will
have the same effect as a vote against approval of the Authorized Share Increase
Amendment. All proxies will be voted to approve the Authorized Share Increase
Amendment unless a contrary vote is indicated on the enclosed proxy card.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND OUR AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION IN ORDER TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF OUR COMMON STOCK.
8
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 (1)
--------------------------- ---- ------ ----- ----------- ----------------
Herve Caen (2) 2002 $ 250,000 -- -- --
Chief Executive Officer and
interim Chief Financial Officer 2001 250,000 -- -- --
2000 62,500 -- -- --
Brian Fargo (3) 2002 $ 24,372 -- -- $ 208
(former) Chief Executive Officer 2001 $200,000 -- -- 5,000
2000 $200,000 -- -- 2,917
Jeff Gonzalez (4) 2002 $ 152,751 -- -- --
Chief Financial Officer 2001 52,140 -- -- --
Phillip Adam (5) 2002 $ 168,000 -- -- $ 5,331
President 2001 168,000 -- -- 5,137
2000 168,000 $ 30,000 -- 4,815
Gary Dawson (6) 2002 $ 185,000 -- -- --
Chief Operating Officer 2001 182,083 $ 50,000 -- --
2000 175,008 -- -- --
Nathan Peck (7) 2002 $ 115,000 -- -- --
interim Chief Administrative
Officer 2001 38,600 -- -- --
2000 -- -- -- --
- ---------------
<FN>
(1) Consists of matching payments made under our 401(k) plan.
(2) Mr. Caen joined us in November 1999 at an annual base salary of $250,000.
Mr. Caen waived payment of his salary through October 2000. In January
2002, Mr. Caen assumed the position of Chief Executive Officer and in
October 2002, assumed the position of interim Chief Financial Officer. In
March 2003, the Compensation Committee approved an annual base salary
increase from $250,000 to $360,000, with retroactive pay from December 1,
2002. The Company paid Mr. Caen an additional $30,000 for the retroactive
pay increase for December 2002 in March 2003.
(3) Mr. Fargo had an employment agreement with the Company wherein he received
an annual base salary of $250,000. For fiscal years 2000 and 2001, Mr.
Fargo waived payment of $50,000 of his annual salary. Mr. Fargo resigned as
Chief Executive Officer effective January 21, 2002.
(4) Mr. Gonzalez joined us in October 2001 and resigned from the Company
effective October 4, 2002.
9
(5) Mr. 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.
(6) Mr. 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. Mr. Dawson resigned from the Company effective May 30, 2003.
(7) Mr. Peck was our interim Chief Administrative Officer from August 2001 to
December 31, 2002. Mr. Peck currently serves as a member of our Board of
Directors.
</FN>
No stock options were granted to any of the Named Executive Officers during the
year ended December 31, 2002. No stock options were exercised during the year
ended December 31, 2002, by any of the Named Executive Officers.
EMPLOYMENT AGREEMENTS
- ---------------------
Mr. Caen is currently serving as the Chief Executive Officer and interim Chief
Financial Officer of the Company. We previously 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
and 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 us from time to time. Mr. Caen waived
payment of his salary through October 2000. In March 2003, the Compensation
Committee approved an annual base salary increase from $250,000 to $360,000,
with retroactive pay from December 1, 2002. The Compensation Committee is
currently negotiating a new employment agreement with Mr. Herve Caen.
In March 2003, the Compensation Committee approved a three-year employment
agreement with Phil Adam as President of the Company for an annual base salary
of $200,000 with retroactive pay from January 1, 2003. The Compensation
Committee is currently negotiating an employment agreement with Mr. Adam as
President.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- -------------------------------------------------------
The following is the Report of the Compensation Committee describing the
compensation policies applicable to the Company's executive officers. This
information shall not be deemed to be "soliciting material" or to be "filed"
with the Securities and Exchange Commission nor shall this information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, except to
the extent that the Company specifically incorporates it by reference into a
filing.
Compensation Policies and Objectives
The Compensation Committee reviews and approves the annual salary, bonus and
other benefits, including incentive compensation awards, of the Company's
executive officers, including the Chief Executive Officer. The Compensation
Committee also reviews the Company's employee benefit plans and recommends
changes to the existing plans to the Company's Board of Directors. The Company's
executive compensation policy is designed to attract and retain exceptional
executives by offering compensation for superior performance that is competitive
with other well-managed organizations. The Compensation Committee measures
executive performance on an individual and corporate basis.
There are three components to the Company's executive compensation program, as
follows:
Base Salary. Base salaries for executives and other key employees
are determined by individual financial and non-financial performance and general
economic conditions of the Company and of the industry. In recommending salaries
for executive officers, the Compensation Committee (i) reviews the historical
performance of the executives, and (ii) reviews specific information provided by
its accountants and other consultants, as necessary, with respect to the
competitiveness of salaries paid to the Company's executives.
10
Annual Bonus. Annual bonuses for executives and other key employees
are tied directly to the Company's financial performance as well as individual
performance. The purpose of annual cash bonuses is to reward executives for
achievements of corporate, financial and operational goals. Annual cash bonuses
are intended to reward the achievement of outstanding performance. If certain
objective and subjective performance goals are not met, annual bonuses are
reduced or not paid.
Long-Term Incentives. The purpose of these plans is to create an
opportunity for executives and other key employees to share in the enhancement
of stockholder value through stock options. The overall goal of this component
of pay is to create a strong link between the management of the Company and its
stockholders through management stock ownership and the achievement of specific
corporate financial measures that result in the appreciation of Company share
price. Stock options are awarded in order to tie the executive officers'
interests to the Company's performance and align those interests closely with
those of the Company's stockholders. The Compensation Committee generally has
followed the practice of granting options on terms that provide that the options
become exercisable in installments over a two to five year period. The
Compensation Committee believes that this feature not only provides an employee
retention factor but also makes longer-term growth in share prices important for
those receiving options.
No stock options were granted to our executive officers in 2002. The
Compensation Committee continues to review the desirability of issuing stock
options to its executive officers in any given fiscal year to provide incentives
in connection with our corporate objectives.
Fiscal Year 2002 Chief Executive Officer Compensation
The salary, annual raises and annual bonus of Herve Caen, the Company's Chief
Executive Officer and interim Chief Financial Officer, are determined in
accordance with Mr. Caen's Employment Agreement with the Company. Mr. Caen's
Employment Agreement provides 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 are determined
in accordance with the policies and objectives set forth above. For the fiscal
year ended December 31, 2002, Mr. Caen received $280,000 in compensation as
Chief Executive Officer and interim Chief Financial Officer. The Compensation
Committee did not award Mr. Caen any options during 2002. The Compensation
Committee is currently negotiating a new employment agreement with Mr. Herve
Caen.
Tax Law Implications for Executive Compensation
Section 162(m) of the Internal Revenue Code limits us 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 present the compensation paid
to each Named Executive Officer in a taxable year will not exceed the deduction
limit of $1 million under Section 162(m). However, the Compensation Committee
has determined that stock awards granted under the long-term incentive plans
with an exercise price at least equal to the fair market value of our common
stock on the date of grant will be treated as "performance-based compensation."
..
The Compensation Committee*
Michel Welter
Gerald DeCiccio
Robert Stefanovich
* In fiscal year 2002, the Compensation Committee
was comprised of Michel Welter and Maren
Stenseth. Mr. Vulpillat served on the
Compensation Committee from September 2001 to
August 2002. Ms. Stenseth resigned as a director
in May 2003. Mr. DeCiccio and Mr. Stefanovich
joined our Board of Directors and became members
of the Compensation
11
Committee in October 2003. As Mr. DeCiccio and
Mr. Stefanovich were not members of the Company's
Board of Directors or Compensation Committee
during the period covered by this report, Mr.
DeCiccio and Mr. Stefanovich do not have any
independent knowledge of the Compensation
Committee's activities and have relied solely
upon Management and the Board's representations
in the preparation of this report.
AUDIT COMMITTEE REPORT
- ----------------------
The following is the Report of the Audit Committee. This information shall not
be deemed to be "soliciting material" or to be "filed" with the Securities and
Exchange Commission nor shall this information be incorporated by reference into
any future filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates it by reference into a filing. The Audit
Committee currently consists of Mr. Welter , Mr. Stefanovich and Mr. DeCiccio,
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 assists the Board of Directors in overseeing and monitoring
the integrity of our 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. Recent changes to federal securities laws, including
the passage of the Sarbanes-Oxley Act of 2002, has increased the oversight
responsibility and accountability of the audit committee of public companies. To
reflect the importance of the Audit Committee and in an effort to ensure
compliance with the securities laws, the Board of Directors in October 2003
amended the Audit Committee Charter to reflect the applicable new audit
committee regulations. A copy of the amended charter is attached as APPENDIX B.
The Audit Committee is responsible for overseeing our overall financial
reporting process. In fulfilling its responsibilities for the financial
statements for fiscal year 2002, the Audit Committee:
o Reviewed and discussed the audited financial statements for
the year ended December 31, 2002 with management and Squar
Milner Reehl & Williamson, LLP (the "Auditors"), our
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.
AUDIT FEES. The aggregate fees billed by the Auditors and Ernst & Young
LLP ("E&Y"), our former independent auditors, for professional services rendered
for the audit of our annual financial statements and the reviews of the
financial statements included in the Company's Forms 10-Q for the last fiscal
year was $181,872, of which $85,000 was paid to the Auditors and $96,872 was
paid to E&Y.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. No fees
were billed by the Auditors or E&Y for professional services rendered for
information technology services relating to financial information systems design
and implementation for the last fiscal year.
12
ALL OTHER FEES. The aggregate fees billed by E&Y for services rendered
to us other than the services described above under "Audit Fees" and "Financial
Information Systems Design and Implementation Fees," for the last fiscal year,
was $95,320. No fees were billed by our Auditors for services rendered to us
other than the services described above under "Audit Fees" and "Financial
Information Systems Design and Implementation Fees." The Company's tax returns
are prepared by PriceWaterhouse Coopers. We paid $42,000 to PriceWaterhouse
Coopers in connection with the Company's tax returns for fiscal year 2002.
The Audit Committee has considered and determined that any fees related to 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, 2002
for filing with the SEC.
Audit Committee*
Michel Welter
Jerry DeCiccio
Robert Stefanovich
* In fiscal year 2002, the Audit Committee was
comprised of Michel Welter, Maren Stenseth and R.
Parker Jones. Ms. Stenseth and Mr. Jones resigned
as directors in May 2003. Mr. DeCiccio and Mr.
Stefanovich joined our Board of Directors and
became members of the Audit Committee in October
2003. As Mr. DeCiccio and Mr. Stefanovich were
not members of the Company's Board of Directors
or Audit Committee during the period covered by
this report, Mr. DeCiccio and Mr. Stefanovich do
not have any independent knowledge of the Audit
Committee's activities and have relied solely
upon Management and the Board's representations
in the preparation of this report.
13
PERFORMANCE GRAPH
- -----------------
The following graph sets forth the percentage change in cumulative total
stockholder return of our common stock during the period from June 19, 1998 to
December 31, 2002, 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 19, 1998 in our common stock and in each of
the foregoing indices. Information presented below is as of the end of each
fiscal year ended December 31st.
[PERFORMANCE GRAPH OMITTED]
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
12/31/98 32.39 124.79 115.53
12/31/99 53.42 231.39 155.18
12/31/00 46.60 139.55 117.40
12/31/01 8.36 110.77 134.80
12/31/02 1.09 76.58 91.76
- -----
(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, Eidos Plc, Electronic Arts, Inc., Futuremedia
Plc, Infogrames, Inc., Macromedia, Inc.,
14
MakeMusic! Inc., Mapinfo Corp., Media Sciences International, Inc.,
Moldflow Corporation, OpenTV Corp., Pixar Animation Studios, Renaissance
Learning Inc., THQ Inc., Viewpoint Corporation, Vizacom Inc.
This performance graph and the data related thereto shall not be deemed to be
"soliciting material" or "filed" with the U.S. Securities and Exchange
Commission nor shall this information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference into a filing.
15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------
Our operations involve significant transactions with Titus Interactive SA
("Titus"), our majority stockholder, and its subsidiaries, including its wholly
owned subsidiary Virgin Interactive Entertainment Limited (re-named Avalon
Interactive Group Ltd. as of July 1, 2003) ("Virgin"). Mr. Herve Caen, our
Chairman of the Board, Chief Executive Officer and interim Chief Financial
Officer, and Mr. Eric Caen, our director, are directors of Titus. In addition,
Mr. Eric Caen is the Chief Executive Officer of Titus. As of November 5, 2003,
Mr. Herve Caen and Mr. Eric Caen collectively own approximately 7% of the shares
of stock of Titus and hold approximately 12% of the voting rights of Titus.
TRANSACTIONS WITH TITUS.
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% of our outstanding common stock, our only voting security,
immediately following the conversion. In connection with the equity investments
by Titus, we perform distribution services on behalf of Titus for fees. In
connection with such distribution services, we recognized fee income of $22,000
for the year ended December 31, 2002, zero dollars for the three months ended
June 30, 2003, and $5,000 for the six months ended June 30, 2003.
Titus retained Europlay 1, LLC ("Europlay") as consultants to assist with the
restructuring of the company. This arrangement with Europlay is with Titus,
however, we agreed to reimburse Titus for consulting expenses incurred on our
behalf. In connection with the sale of Shiny Entertainment, Inc., we agreed to
pay Europlay directly for their services with the proceeds received from the
sale, which Europlay received. We also entered into a commission-based agreement
with Europlay where Europlay would assist us with strategic transactions, such
as debt or equity financing, the sale of assets or an acquisition of the
company. Under this arrangement, Europlay assisted us with the sale of Shiny
Entertainment, Inc. In April 2003, the Company paid Europlay $448,000 in
connection with services provided by Europlay to the Company.
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 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 % per annum. The promissory note
was due on August 31, 2002, and was to be paid, at Titus' option, in cash or in
shares of Titus common stock with a per share value equal to 90 % 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 provided Titus with a guarantee under this agreement, which
provides that in the event Titus did not achieve gross sales of at least $3.5
million by June 25, 2003, and the shortfall was not the result of Titus' failure
to use best commercial efforts, we were to pay to Titus the difference between
$3.5 million and the actual gross sales achieved by Titus, not to exceed $2
million. We entered into a rescission agreement in April 2003 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 terminated any executory obligations remaining, including, without
limitation, our obligation to pay Titus up to the $2 million guarantee.
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. As of December 31, 2002, Titus owed us
16
$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.("TSC"), a subsidiary of Titus, for $226,000. The note earns interest at 8%
per annum and is due in February 2004. In May 2003, the Company's Board of
Directors rescinded the note receivable and demanded repayment of the $226,000
from TSC. The balance on the note receivable, with accrued interest, at
September 30, 2003 was $234,076.
In May 2003, the Company's CEO instructed the Company to pay TSC $60,000 to
cover legal fees in connection with a lawsuit against Titus. As a result of the
payment, the CEO requested that the Company credit the $60,000 to amounts owed
to him by the Company arising from expenses incurred in connection with
providing services to the Company. The Company's management is in the process of
investigating the details of the transaction, including independent counsel
review, in order to properly record the transaction.
TRANSACTIONS WITH VIRGIN, A WHOLLY OWNED SUBSIDIARY OF TITUS
We entered into an International Distribution Agreement with Virgin in February
1999. Under this agreement, Virgin provides for the exclusive distribution of
substantially all of the Company's products in Europe, the Commonwealth of
Independent States, Africa and the Middle East for a seven-year period ending in
February 2006, cancelable under certain conditions, subject to termination
penalties and costs. Under this agreement, the Company pays Virgin a
distribution fee based on net sales, and Virgin provides certain market
preparation, warehousing, sales and fulfillment services on behalf of the
Company. In connection with the International Distribution Agreement, the
Company subleased office space from Virgin through March 2003. Rent expense paid
to Virgin was $104,000 for the year ended December 31, 2002. In September 2003,
we amended this International Distribution Agreement to provide Virgin with
exclusive Australian distribution rights to a product.
In connection with the International Distribution Agreement, for the year ended
December 31, 2002, the Company incurred distribution commission expense of $0.9
million and recognized overhead fees of $0.5 million. The Company incurred
distribution commission expense of $15,000 for the three months ended June 30,
2003, and $63,000 for the six months ended June 30, 2003. In addition, the
Company recognized overhead fees of zero dollars for the three months ended June
30, 2003, and zero dollars for the six months ended June 30, 2003.
Under a Product Publishing Agreement with Virgin, as amended, the Company has an
exclusive license to publish and distribute one future product release within
North America, Latin America and South America for a royalty based on net sales.
The Company does not anticipate releasing the title and does not anticipate any
further transactions under this agreement. In connection with the Product
Publishing Agreement with Virgin, the Company earned zero dollars in connection
with performing publishing and distribution services on behalf of Virgin for the
three months ended June 30, 2003,and for the six months ended June 30, 2003.
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 June 1997, the Company entered into a Development and Publishing Agreement
with Confounding Factor, a game developer, in which it 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. In March 2002, the Company 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 the Company 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 the Company's
Board of Directors rejected. While reserving its rights vis-a-vis Virgin, the
Company then resumed making payments to Confounding Factor to protect its
interests in "Galleon," and since that time has been providing production
assistance to the developer in order to finalize the Xbox version of the game.
The Company is currently negotiating a settlement with Virgin regarding the
publishing rights to "Galleon".
17
In January 2003, we entered into a waiver with Virgin 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 paid
Virgin $650,000 and will pay Virgin 50 % of all proceeds in excess of the
advance received from Vivendi. As of June 30, 2003, Vivendi has not reported
sales exceeding the minimum guarantee.
In February 2003, Virgin Interactive Entertainment (Europe) Limited (re-named
Avalon Interactive UK Ltd. ) ("Virgin Europe"), the operating subsidiary of
Virgin, filed for a Company Voluntary Arrangement, or CVA, a process of
reorganization in the United Kingdom. We are not creditors of Virgin Europe. In
May 2003, Virgin filed its own CVA in the United Kingdom in which we
participated in and approved as a creditor of Virgin. As part of the Virgin CVA
process, we submitted our creditor's claim. We continue to evaluate and adjust
as appropriate our claims against Virgin in the CVA process. However, the
effects of the approval of the Virgin CVA and of the approval of the CVA of its
operating subsidiary, Virgin Europe, on our ability to collect amounts due from
Virgin is uncertain. As a result, we cannot guarantee our ability to collect the
debts we believe are due and owing to us from Virgin. If Virgin is not able to
operate under the new CVA, the Company expects 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, the Company made a settlement payment of approximately $320,000
to a third-party on behalf of Virgin Europe to protect the validity of certain
license rights and to avoid potential third-party liability from various
licensors of its products. In connection with the settlement, the Company
incurred legal fees of $80,000. Consequently, Virgin owes the Company $400,000
pursuant to the indemnification provisions of the International Distribution
Agreement, which the Company has fully reserved for.
TRANSACTIONS WITH VIVENDI
In August 2001, we entered into a distribution agreement with Vivendi Universal
Games, Inc. ("Vivendi"). Vivendi is an affiliate company of Universal Studios,
Inc., which currently owns approximately 5% of our common stock but does not
have representation on our Board of Directors. The distribution agreement
provides 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. Under the agreement, Vivendi made
four advance payments to us of $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 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 order to improve the Company's cash flow, in August 2002, the Company entered
into a new distribution arrangement with Vivendi, whereby, Vivendi distributed
substantially all of the Company's 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. The August 2002 agreement amended and
superceded the August 2001 distribution agreement with Vivendi. Under the August
2002 agreement, Vivendi paid 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 delivery of a gold master to
Vivendi, Vivendi paid, as a minimum guarantee, a specified percent of the
projected amount due, 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
connection with the distribution agreements with Vivendi, the Company incurred
distribution commission expense of $2.6 million for the three months ended June
30, 2003, and $3.9 million for the six months ended June 30, 2003.
18
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, which were fully paid at June 30, 2003. The
Company retains the rights to the previously published "Hunter: The Reckoning"
titles on Microsoft Xbox and Nintendo GameCube.
The Company believes that Vivendi has not made certain payments it believes are
owed to it by Vivendi under the August 2002 agreement. In August 2003, the
Company sent several notifications to Vivendi accusing Vivendi of its failure to
perform in accordance with the distribution agreement but did not receive a
response acceptable to the Company. In September 2003, the Company decided to
terminate the distribution agreement with Vivendi as a result of its alleged
breaches, including for the non-payment of money owed to the Company under the
terms of this distribution agreement. In October 2003, the Company and Vivendi
reached a settlement as to their dispute under this distribution agreement.
TRANSACTIONS WITH TITUS JAPAN K.K.
In June 2003, the Company entered into a representation agreement with Titus
Japan K.K. ("Titus Japan"), a majority-controlled subsidiary of Titus, pursuant
to which Titus Japan represents the Company as an agent in regards to certain
sales transactions in Japan. This representation agreement has not been approved
by our Board and is currently being reviewed by the Board. As of September 30,
2003, the Company has received approximately $50,000 in income and incurred
approximately $10,000 in commission fees pursuant to this agreement.
TRANSACTIONS WITH EDGE LLC
In September 2003, our Board of Directors ratified and approved the Company's
engagement of Edge LLC to provide recommendations regarding the operation of our
legal department and strategies as well as interim executive functions. As of
September 30, 2003, the Company has incurred an aggregate expense of
approximately $38,400 to Edge LLC. Mr. Vulpillat, a director of the Company, is
the owner and consultant for Edge LLC.
PRINCIPAL STOCKHOLDERS
- ----------------------
The following table sets forth as of September 30, 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 5% 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.
19
NUMBER OF SHARES
OF COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED(1) PERCENT(2)
- ---------------- --------------------- ----------
DIRECTORS:
Herve Caen............................ 67,107,599 (3)(6) 72%
Eric Caen............................. 67,105,599 (3) 72%
Michel Welter......................... 56,667 *
Nathan Peck........................... 0 *
Michel Vulpillat...................... 54,833 (4) *
Gerald DeCiccio....................... 0 *
Robert Stefanovich.................... 0 *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
Phillip Adam 208,779 *
5% HOLDERS:
Titus Interactive SA.................. 67,105,599 (3) 72%
20432 Corisco Street
Chatsworth, CA 91311
Universal Studios, Inc................ 4,658,216 5%
100 Universal City Plaza
Universal City, CA 91608
Directors and Executive Officers as a
Group ( persons)................. 67,427,878 (5) 72%
- -----
* 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 September 30, 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, the Named Executive Officers, and other stockholders, or taken
from documents filed with the SEC.
(2) Based on 93,855,634 shares of common stock outstanding as of the close of
business on September 30, 2003. Numbers have been rounded to the nearest
percentage.
(3) Includes 460,298 shares subject to warrants exercisable within 60 days of
September 30, 2003. Messrs. Herve Caen and Eric Caen are officers,
directors and major 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) Mr. Vulpillat is currently a director of Titus and owns less than 0.5% of
the outstanding capital stock of Titus. Mr. Vulpillat disclaims beneficial
ownership of our shares held by Titus.
(5) Includes 460,298 shares subject to warrants exercisable within 60 days of
September 30, 2003.
(6) Herve Caen, our Chief Executive Officer and interim Chief Financial
Officer, is also the beneficial owner of an additional 2,000 shares of
common stock by way of purchase through one of our employee benefit plans.
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 10% of a registered class of
our equity securities to file reports of ownership and changes in ownership with
the SEC. Executive officers, directors and greater than 10% stockholders are
required by SEC
20
regulations to furnish us 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, we believe that, during the year ended December
31, 2002, all of our executive officers, directors and greater than 10%
stockholders complied with all Section 16(a) filing requirements except for the
following: each of Herve Caen, our Chairman of the Board, Chief Executive
Officer and interim Chief Financial Officer, Eric Caen, a director, and Titus
Interactive SA, 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, a director, filed one Form 5, reporting late a transaction
that occurred in November 2002 that should have been reported on Form 4.
STOCKHOLDER PROPOSALS
- ---------------------
Any stockholder who intends to present a proposal at the 2004 Annual Meeting of
Stockholders for inclusion in our Proxy Statement and Proxy form relating to
such Annual Meeting must submit such proposal to us at its principal executive
offices by March 31, 2004. In addition, in the event a stockholder proposal is
not received by us by March 31, 2004, the Proxy to be solicited by the Board of
Directors for the 2004 Annual Meeting will confer discretionary authority on the
holders of the Proxy to vote the shares if the proposal is presented at the 2004
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 our 2004 Annual Meeting is
advanced or delayed more than 30 days from the date of the 2003 Annual Meeting,
stockholder proposals intended to be included in the proxy materials for the
2004 Annual Meeting must be received by us within a reasonable time before we
begin to print and mail the proxy materials for the 2004 Annual Meeting. Upon
determination by us that the date of the 2004 Annual Meeting will be advanced or
delayed by more than 30 days from the date of the 2003 Annual Meeting, we will
disclose such change in the earliest possible Quarterly Report on Form 10-Q.
INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------
On February 18, 2003, our Audit Committee and Board of Directors approved and
authorized the engagement of Squar, Milner, Reehl & Williamson, LLP ("Squar") as
our independent public accountants for fiscal year 2002. Squar has also been
selected by our Audit Committee and Board of Directors to serve as our
independent public accountants for fiscal year 2003.
Prior to that, the Audit Committee had engaged E&Y as our independent public
accountants for fiscal year 2001. The decision to change our independent public
accountants was approved by our Audit Committee. E&Y's report on our financial
statements for the year ended December 31, 2001 did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles, except that E&Y's opinion
contained a qualification as to our ability to continue as a going concern.
During the period of its engagement, from November 13, 2001 through February 18,
2003, the Company had no disagreements with E&Y on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure during the year ended December 31, 2001 or the subsequent interim
periods, which if not resolved to the satisfaction of E&Y, would have caused E&Y
to make reference to the matter in its report.
Neither representatives of E&Y, our former independent auditors, nor Squar, our
current independent auditors, are expected to be present at the Annual Meeting.
SOLICITATION OF PROXIES
- -----------------------
It is expected that the solicitation of Proxies will be by mail. We 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.
21
ANNUAL REPORT ON FORM 10-K
- --------------------------
OUR ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2002, WILL BE MADE AVAILABLE
TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS,
INTERPLAY ENTERTAINMENT CORP., 16815 VON KARMAN AVENUE, IRVINE, CALIFORNIA
92606.
ON BEHALF OF THE BOARD OF DIRECTORS
/S/ HERVE CAEN
-----------------------------------------
Herve Caen
CHIEF EXECUTIVE OFFICER AND INTERIM CHIEF
FINANCIAL OFFICER
Irvine, California
November 3, 2003
22
APPENDIX A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERPLAY ENTERTAINMENT CORP.
The undersigned, Herve Caen, the Chief Executive 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 first full sentence of Article 4 of the Amended and Restated
Certificate of Incorporation of the Corporation, as amended, is hereby amended
and restated to read in its entirety as follows:
"ARTICLE 4
The total number of shares of all classes of stock which this
Corporation shall have authority to issue is 155,000,000, of which (i)
150,000,000 shares shall be designated "Common Stock" and shall have a
par value of $0.001 per share; and (ii) 5,000,000 shares shall be
designated "Preferred Stock" and shall have a par value of $0.001 per
share."
3. The foregoing amendment of the Amended and Restated Certificate of
Incorporation of the Corporation, as amended, has been duly adopted by the
Corporation's Board of Directors and Stockholders in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment of Amended and Restated Certificate of Incorporation as of the __ day
of ______________.
---------------------------
Herve Caen
Chief Executive Officer
APPENDIX B
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF INTERPLAY ENTERTAINMENT CORP.
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Audit Committee (the "COMMITTEE") of the Board of Directors (the
"BOARD") of Interplay Entertainment Corp., a Delaware corporation (the
"COMPANY").
I. PURPOSE
The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent accountant's qualifications and independence
and (4) the performance of the Company's internal audit function; (b) prepare
the report of the audit committee required by the United States Securities and
Exchange Commission (the "SEC") for inclusion in the Company's annual proxy
statement; (c) retain and terminate the Company's independent accountant; (d)
approve audit and non-audit services to be performed by the independent
accountant; and (e) perform such other functions as the Board may from time to
time assign to the Committee. In performing its duties, the Committee shall seek
to maintain an effective working relationship with the Board, the independent
accountant, the internal auditors and management of the Company.
II. COMPOSITION
The Committee shall be composed of at least two, but not more than five,
members (including a Chairperson), all of whom shall be "independent directors,"
as such term is defined in the rules and regulations of the SEC and the NASDAQ
National Market System ("NASDAQ"). The members of the Committee and the
Chairperson shall be selected by the Board and serve at the pleasure of the
Board. A Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board. The Board may designate one or more
independent directors as alternate members of the Committee, who may replace any
absent or disqualified member or members at any meetings of the Committee. No
person may be made a member of the Committee if his or her service on the
Committee would violate any restriction on service imposed by any rule or
regulation of the SEC or any securities exchange or market on which shares of
the common stock of the Company are traded. The Chairperson shall maintain
regular communication with the chief executive officer, chief financial officer,
the lead partner of the independent accountant and the manager of the internal
audit.
All members of the Committee shall have a working familiarity with basic
finance and accounting practices and be able to read and understand financial
statements, and at least one member of the Committee shall be a "financial
expert." A member shall be deemed a "financial expert" if the Board determines
that such person has, through education and experience as a public accountant or
auditor, or a principal financial officer, controller, or principal accounting
officer of a company that at the time the person held such position was required
to file periodic reports with SEC, or experience in one or more positions that
involve the performance of similar functions (or that results, in the judgment
of the Board, in the person having similar expertise and experience), the
following attributes:
o An understanding of generally accepted accounting principles and
financial statements;
o Experience applying such generally accepted accounting principles in
connection with the accounting for estimates, accruals, and reserves
that are generally comparable to the estimates, accruals, and
reserves, if any, used in the registrant's financial statements;
o Experience preparing or auditing financial statements that present
accounting issues that are generally comparable to those raised by
the registrant's financial statements;
o Experience with internal controls and procedures for financial
reporting; and
o An understanding of audit committee functions.
Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the Company or
an outside consultant.
Except for Board and Committee fees, a member of the Committee shall not
be permitted to accept any fees paid directly or indirectly for services as a
consultant, legal advisor or financial advisor or any other fees prohibited by
the rules of the SEC and NASDAQ. In addition, no member of the Committee may be
an "affiliated person" of the Company or any of its subsidiaries (as such term
is defined by the SEC). Members of the Committee may receive their Board and
Committee fees in cash, Company stock or options or other in-kind consideration
as determined by the Board or the Compensation Committee, as applicable, in
addition to all other benefits that other directors of the Company receive. No
director may serve on the Committee, without the approval of the Board, if such
director simultaneously serves on the audit committee of more than three public
companies.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least quarterly, to enable
it to fulfill its responsibilities. The Committee shall meet at the call of any
member of the Committee, preferably in conjunction with regular Board meetings.
The Committee may meet by telephone conference call or by any other means
permitted by law or the Company's Bylaws. A majority of the members of the
Committee shall constitute a quorum. The Committee shall act on the affirmative
vote of a majority of members present at a meeting at which a quorum is present.
Without a meeting, the Committee may act by unanimous written consent of all
members. The Committee shall determine its own rules and procedures, including
designation of a chairperson pro tempore, in the absence of the Chairperson, and
designation of a secretary. The secretary need not be a member of the Committee
and shall attend Committee meetings and prepare minutes. The Committee shall
keep written minutes of its meetings, which shall be recorded or filed with the
books and records of the Company. Any member of the Board shall be provided with
copies of such Committee minutes if requested.
The Committee may ask members of management, employees, outside counsel,
the independent accountant or others whose advice and counsel are relevant to
the issues then being considered by the Committee, to attend any meetings and to
provide such pertinent information as the Committee may request.
The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.
As part of its responsibility to foster free and open communication, the
Committee should meet periodically with management, the internal auditors and
the independent accountant in separate executive sessions to discuss any matters
that the Committee or any of these groups believe should be discussed privately.
In addition, the Committee or at least its Chairperson should meet with the
independent accountant and management quarterly to review the Company's
financial statements prior to their public release consistent with the
provisions set forth below in SECTION IV. The Committee may also meet from time
to time with the Company's investment bankers, investor relations professionals
and financial analysts who follow the Company.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible to enable the Committee to react to changes in
circumstances and conditions so as to ensure the Company remains in compliance
with applicable legal and regulatory requirements. In addition to such other
duties as the Board may from time to time assign, the Committee shall have the
following responsibilities:
A. OVERSIGHT OF THE FINANCIAL REPORTING PROCESSES
1. In consultation with the independent accountant and the
internal auditors, review the integrity of the
organization's financial reporting processes, both
internal and external.
2. Review and approve all related-party transactions,
unless such responsibility has been reserved to the full
Board or delegated to another committee of the Board.
2
3. Consider the independent accountant's judgments about
the quality and appropriateness of the Company's
accounting principles as applied in its financial
reporting. Consider alternative accounting principles
and estimates.
4. Annually review major issues regarding the Company's
auditing and accounting principles and practices and its
presentation of financial statements, including the
adequacy of internal controls and special audit steps
adopted in light of material internal control
deficiencies.
5. Discuss with management and legal counsel the status of
pending litigation, taxation matters, compliance
policies and other areas of oversight applicable to the
legal and compliance area as may be appropriate.
6. Meet at least annually with the chief financial officer,
the internal auditors and the independent accountant in
separate executive sessions.
7. Review all analyst reports and press articles about the
Company's accounting and disclosure practices and
principles.
8. Review all analyses prepared by management and the
independent accountant of significant financial
reporting issues and judgments made in connection with
the preparation of the Company's financial statements,
including any analysis of the effect of alternative
generally accepted accounting principle ("GAAP") methods
on the Company's financial statements and a description
of any transactions as to which management obtained
Statement on Auditing Standards No. 50 letters.(1)
9. Review with management and the independent accountant
the effect of regulatory and accounting initiatives, as
well as off-balance sheet structures, on the Company's
financial statements.
B. REVIEW OF DOCUMENTS AND REPORTS
1. Review and discuss with management and the independent
accountant the Company's annual audited financial
statements and quarterly financial statements (including
disclosures under the section entitled "Management's
Discussion and Analysis of Financial Condition and
Results of Operation") and any reports or other
financial information submitted to any governmental
body, or the public, including any certification,
report, opinion or review rendered by the independent
accountant, considering, as appropriate, whether the
information contained in these documents is consistent
with the information contained in the financial
statements and whether the independent accountant and
legal counsel are satisfied with the disclosure and
content of such documents. These discussions shall
include consideration of the quality of the Company's
accounting principles as applied in its financial
reporting, including review of audit adjustments
(whether or not recorded) and any such other inquires as
may be appropriate. Based on the review, the Committee
shall make its recommendation to the Board as to the
inclusion of the Company's audited consolidated
financial statements in the Company's annual report on
Form 10-K.
2. Review and discuss with management and the independent
accountant earnings press releases, as well as financial
information and earnings guidance provided to analysts
and rating agencies. The Committee need not discuss in
advance each earnings release but should generally
discuss the types of information to be disclosed and the
type of presentation to be made in any earnings release
or guidance.
- -----
(1) SAS No. 50 provides performance and reporting standards for written reports
from accountants with respect to the application of accounting principles to new
transactions and financial products or regarding specific financial reporting
issues.
3
3. Review the regular internal reports to management
prepared by the internal auditors and management's
response thereto.
4. Review reports from management, the internal auditors
and the independent accountant on the Company's
subsidiaries and affiliates, compliance with the
Company's code(s) of conduct, applicable law and insider
and related party transactions.
5. Review with management and the independent accountant
any correspondence with regulators or government
agencies and any employee complaints or published
reports that raise material issues regarding the
Company's financial statements or accounting policies.
6. Prepare the report of the audit committee required by
the rules of the SEC to be included in the Company's
annual proxy statement.
7. Submit the minutes of all meetings of the Committee to,
or discuss the matters discussed at each Committee
meeting with, the Board.
8. Review any restatements of financial statements that
have occurred or were recommended. Review the
restatements made by other clients of the independent
accountant.
C. INDEPENDENT ACCOUNTANT MATTERS
1. The Committee shall be directly responsible for
interviewing and retaining the Company's independent
accountant, considering the accounting firm's
independence and effectiveness and approving the
engagement fees and other compensation to be paid to the
independent accountant.
2. On an annual basis, the Committee shall evaluate the
independent accountant's qualifications, performance and
independence. To assist in this undertaking, the
Committee shall require the independent accountant to
submit a report (which report shall be reviewed by the
Committee) describing (a) the independent accountant's
internal quality-control procedures, (b) any material
issues raised by the most recent internal
quality-control review, or peer review, of the
accounting firm or by any inquiry or investigations by
governmental or professional authorities (within the
preceding five years) respecting one or more independent
audits carried out by the independent accountant, and
any steps taken to deal with any such issues and (c) all
relationships the independent accountant has with the
Company and relevant third parties to determine the
independent accountant's independence. In making its
determination, the Committee shall consider not only
auditing and other traditional accounting functions
performed by the independent accountant, but also
consulting, legal, information technology services and
other professional services rendered by the independent
accountant and its affiliates. The Committee shall also
consider whether the provision of any of these non-audit
services is compatible with the independence standards
under the guidelines of the SEC and of the Independence
Standards Board.
3. Approve in advance any non-audit services to be provided
by the independent accountant and adopt policies and
procedures for engaging the independent accountant to
perform non-audit services.
4. Review on an annual basis the experience and
qualifications of the senior members of the audit team.
Discuss the knowledge and experience of the independent
accountant and the senior members of the audit team with
respect to the Company's industry. The Committee shall
ensure the regular rotation of the lead audit partner
and audit review partner as required by law and consider
whether there should be a periodic rotation of the
Company's independent accountant.
4
5. Review the performance of the independent accountant and
terminate the independent accountant when circumstances
warrant.
6. Establish and periodically review hiring policies for
employees or former employees of the independent
accountant.
7. Review with the independent accountant any problems or
difficulties the auditor may have encountered and any
"management" or "internal control" letter provided by
the independent accountant and the Company's response to
that letter. Such review should include:
(a) any difficulties encountered in the course of the
audit work, including any restrictions on the
scope of activities or access to required
information and any disagreements with management;
(b) any accounting adjustments that were proposed by
the independent accountant that were not agreed to
by the Company;
(c) communications between the independent accountant
and its national office regarding any issues on
which it was consulted by the audit team and
matters of audit quality and consistency;
(d) any changes required in the planned scope of the
internal audit; and
(e) the responsibilities, budget and staffing of the
Company's internal audit function.
8. Communicate with the independent accountant regarding
(a) critical accounting policies and practices to be
used in preparing the audit report, (b) alternative
treatments of financial information within the
parameters of GAAP that were discussed with management,
including the ramifications of the use of such
alternative treatments and disclosures and the treatment
preferred by the independent accountant, (c) other
material written communications between the independent
accountant and management of the Company, and (d) such
other matters as the SEC and NASDAQ, as applicable, may
direct by rule or regulation.
9. Periodically consult with the independent accountant out
of the presence of management about internal controls
and the fullness and accuracy of the organization's
financial statements.
10. Oversee the independent accountant relationship by
discussing with the independent accountant the nature
and rigor of the audit process, receiving and reviewing
audit reports and ensuring that the independent
accountant has full access to the Committee (and the
Board) to report on any and all appropriate matters.
11. Discuss with the independent accountant prior to the
audit the general planning and staffing of the audit.
12. Obtain a representation from the independent accountant
that Section 10A of the Securities Exchange Act of 1934
has been followed.
D. INTERNAL AUDIT CONTROL MATTERS
1. Discuss with management policies with respect to risk
assessment and risk management. Although it is
management's duty to assess and manage the Company's
exposure to risk, the Committee should discuss
guidelines and policies to govern the process by which
risk assessment and management is handled and review the
steps management has taken to monitor and control the
Company's risk exposure.
5
2. Establish regular and separate systems of reporting to
the Committee by each of management, the independent
accountant and the internal auditors regarding any
significant judgments made in management's preparation
of the financial statements and the view of each as to
appropriateness of such judgments.
3. Following completion of the annual audit, review
separately with each of management, the independent
accountant and the internal auditors any significant
difficulties encountered during the course of the audit,
including any restrictions on the scope of work or
access to required information.
4. Review with the independent accountant, the internal
auditors and management the extent to which changes or
improvements in financial or accounting practices have
been implemented. This review should be conducted at an
appropriate time subsequent to implementation of changes
or improvements, as decided by the Committee.
5. Advise the Board about the Company's policies and
procedures for compliance with applicable laws and
regulations and the Company's code(s) of conduct.
6. Establish procedures for receipt, retention and
treatment of complaints and concerns regarding
accounting, internal accounting controls or auditing
matters, including procedures for confidential,
anonymous submissions from employees regarding
questionable accounting or auditing matters.
7. Periodically discuss with the chief executive officer
and chief financial officer (a) significant deficiencies
in the design or operation of the internal controls that
could adversely affect the Company's ability to record,
process, summarize and report financial data and (b) any
fraud that involves management or other employees who
have a significant role in the Company's internal
controls.
8. Ensure that no officer, director or any person acting
under their direction fraudulently influences, coerces,
manipulates or misleads the independent accountant for
purposes of rendering the Company's financial statements
materially misleading.
E. EVALUATION OF INTERNAL AUDITORS
1. Review activities, organizational structure and
qualifications of the internal auditors.
2. Review and concur in the appointment, replacement,
reassignment or dismissal of the manager of internal
auditing.
3. Consider and review with management and the manager of
internal auditing:
(a) significant findings during the year and
management's responses thereto;
(b) any difficulties encountered in the course of
internal audits, including any restrictions on the
scope of the internal auditors' work or access to
required information;
(c) any changes required in the planned scope of the
internal auditors' audit plan;
(d) the internal auditors' budget and staffing; and
(e) the internal auditors' compliance with The
Institute of Internal Auditors' Standards for the
Professional Practice of Internal Auditing.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountant.
6
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it is
meeting its responsibilities under this Charter. In this review, the Committee
shall consider, among other things, (a) the appropriateness of the scope and
content of this Charter, (b) the appropriateness of matters presented for
information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
written materials and presentations. The Committee may recommend to the Board
such changes to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee shall have the authority and sufficient funding to retain
special legal, accounting or other consultants (without seeking Board approval)
to advise the Committee. The Committee may conduct or authorize investigations
into or studies of matters within the Committee's scope of responsibilities as
described herein, and may retain, at the expense of the Company, independent
counsel or other consultants necessary to assist the Committee in any such
investigations or studies. The Committee shall have sole authority to negotiate
and approve the fees and retention terms of such independent counsel or other
consultants.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities.
Adopted by the Audit Committee and approved
by the Board of Directors in October 2003.
7
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 as proxy of the undersigned 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 December 18, 2003, 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 Robert Stefanovich
Gerald DeCiccio
|_| 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 approve an amendment to our Restated Certificate of
Incorporation, as amended, to increase the aggregate number of
shares of common stock authorized for issuance from 100,000,000
shares to 150,000,000 shares.
|_| 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 November__, 2003, relating to the
Annual Meeting.
Dated: , 2003
----------------------------
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,
administrator, 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