MicroProse Inc. has announced the cancellation of a proposed agreement in which investors would have received control of the Hunt Valley-based computer game maker in exchange for much-needed cash.
The company said Tuesday that it had tentatively agreed to a deal in which investors would have pumped in no more than $13 million for at least 4 million shares of MicroProse's common stock, the right to bring in a new chief executive and the receipt of a majority of seats on the board of directors.
MicroProse gave few details on the cancellation in its announcement, issued late Thursday night, saying only that the unnamed investors wanted an exclusive negotiating agreement. When MicroProse's board refused, it said, the investors withdrew the offer.
But analysts and others familiar with the situation said yesterday that MicroProse directors and other potential investors might have seen the proposed deal as too sweet.
The proposed agreement "was a freebie" for the investors, said Shuan Hong, a software industry researcher for Parker Hunter Inc. in Pittsburgh.
Mr. Hong said the proposed cash infusion was a bargain because the investors would have been able to buy about 38 percent of the company's shares -- making it the largest stake -- for an average of $3.25 a share.
When MicroProse first went public in October 1991, the shares sold for $9.
Yesterday, after weeks of financial troubles and reports of a loss in last year's fourth quarter, the stock closed at $5.75, down 25 cents.
Because new investors are jumping in with other offers, Mr. Hong said, MicroProse did not agree to the exclusivity clause.
Although short of cash, "this is a great company," Mr. Hong said, praising some of MicroProse's games, such as its flight simulations and "Civilization," a game in which players race to build the civilization that reaches Mars first.
Some attempts to branch into new fields, such as MicroProse's venture into the fantasy role-playing sector with "Darklands," have flopped. But other new products show promise. Mr. Hong said he likes a new software package that composes music, for example.
Lisa Thompson, who manages Evergreen Asset Management, a mutual fund that holds several thousand shares of MicroProse stock, said she, too, thought the earlier investment proposal was a bargain.
Although MicroProse's stock is somewhat speculative because the company has lost millions of dollars by marketing games before they were ready for stores, Ms. Thompson said, she thinks the company could be turned around. She projects that the stock could sell at $10 or $11 a share by the end of the year.
One reason why the company announced last month that it would report a $4.9 million in the fourth quarter and a $5.3 million loss for its 1993 fiscal year was that it wrote off about $1 million in inventory, such as games on outdated 5 1/4 -inch floppy disks, she noted.
But as more personal-computer owners get compact disc readers, MicroProse's costs will shrink because it can pack its complex games on only one or two compact discs -- which will cost the company only $1 or $2 to buy. MicroProse's games can now include as many as 10 3 1/2 -inch floppy disks, which costs the company a total of $10 a game, Ms. Thompson said.
The Thursday night announcement was another bump in a turbulent year for MicroProse.
In December, the company shipped its newest games too late to hit stores for the Christmas buying season. Within weeks, several top executives had resigned.
By March, the company founder and chairman, John W. "Wild Bill" Stealey, had conceded that the company needed to be restructured and refocused. He announced the layoffs of about 40 workers and said he was looking for financing to help MicroProse release all its planned Nintendo and Sega games.
The company announced June 1 that it would restate its third-quarter results to show a loss instead of a profit in the period that ended Dec. 31. And the company said that, instead of the previously projected $4.3 million annual profit, it would lose about $5.3 million.
As a result of its deteriorating financial condition, MicroProse said it had violated certain covenants on its bank debt and that it was searching for investors.
On Tuesday, it appeared that the search was over. MicroProse announced it had reached a tentative agreement with unnamed investors for an $8 million cash infusion in exchange for 8 percent subordinated notes, convertible into about 2.7 million shares of common stock, and warrants to buy 1.3 million shares for no more than $4.50 a share.
But that agreement fell through Thursday night.