<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997 Commission File No. 0-27338
GT INTERACTIVE SOFTWARE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3689915
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
16 East 40th Street, New York 10016
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (212) 726-6500
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of August 1, 1997, there were 67,005,218 shares of the registrant's
Common Stock outstanding.
Page 1 of 16
Exhibit index begins on page 16
<PAGE> 2
GT INTERACTIVE SOFTWARE CORP.
1997 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of December 31, 1996 3
(audited) and June 30, 1997
Consolidated Statements of Income for the three months
and the six months ended June 30, 1996 and 1997 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- -----------
(audited) (unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 71,867 $ 4,041
Short-term investments 4,717 105
Receivables, net 95,941 131,072
Inventories, net 60,457 62,334
Royalty advances 69,202 83,591
Deferred income taxes 15,283 16,325
Prepaid expenses and other current assets 6,510 10,045
-------- --------
Total current assets 323,977 307,513
Property and equipment, net 10,082 16,680
Goodwill, net 21,003 21,209
Investments 9,829 9,867
Other assets 2,220 1,494
-------- --------
Total assets $367,111 $356,763
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $107,842 $ 83,116
Accrued liabilities 52,812 41,391
Royalties payable 33,378 29,320
Deferred income 4,783 5,148
Income taxes payable 9,575 9,319
Current portion of long-term liabilities 1,334 80
Due to related party 601 909
-------- --------
Total current liabilities 210,325 169,283
Long-term debt - 23,200
Other long-term liabilities 4,648 1,972
-------- --------
Total liabilities 214,973 194,455
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par, 150,000,000 shares
authorized, 67,005,218 shares issued and
outstanding 664 670
Additional paid-in capital 119,033 120,470
Retained earnings 32,441 41,168
-------- --------
Total stockholders' equity 152,138 162,308
-------- --------
Total liabilities and stockholders' equity $367,111 $356,763
======== ========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
Page 3
<PAGE> 4
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For The Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $73,526 $ 102,737 $144,283 $ 196,118
Cost of goods sold 41,477 60,163 82,548 118,046
Selling and distribution expenses 18,162 21,764 33,294 39,028
General and administrative
expenses 7,615 11,991 14,685 22,567
Amortization of goodwill 273 283 546 631
------- --------- -------- ---------
Operating income 5,999 8,536 13,210 15,846
Interest and other income, net 884 (625) 2,252 (378)
------- --------- -------- ---------
Income before income taxes 6,883 7,911 15,462 15,468
Provision for income taxes 3,381 3,442 7,567 6,545
------- --------- -------- ---------
Net income $ 3,502 $ 4,469 $ 7,895 $ 8,923
======= ========= ======== =========
Net income per share $ 0.05 $ 0.07 $ 0.12 $ 0.13
Weighted average shares
outstanding 66,145 66,779 66,145 66,587
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
Page 4
<PAGE> 5
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------
1996 1997
-------- ---------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,895 $ 8,923
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,341 2,134
Deferred income taxes (1,451) (1,042)
Deferred income 115 (2,898)
Changes in operating assets and liabilities:
Receivables, net 20,934 (34,008)
Inventories, net 3,886 (1,387)
Royalty advances (19,300) (14,389)
Due to related party, net (796) 309
Prepaid expenses and other current assets (2,295) (3,337)
Accounts payable (21,965) (26,401)
Accrued liabilities (8,752) (11,423)
Royalties payable 2,079 (4,058)
Income taxes payable (306) (288)
Other (364) 353
-------- --------
Net cash used in operating activities (18,979) (87,512)
-------- --------
INVESTING ACTIVITIES:
Purchase of One Stop -- (846)
Purchase of property and equipment (2,551) (7,944)
Purchases of investments (2,794) (38)
Sales (purchases) of short-term investments, net (142) 4,613
Proceeds from disposal of property and equipment 32 --
-------- --------
Net cash used in investing activities (5,455) (4,215)
-------- --------
FINANCING ACTIVITIES:
Proceeds from exercise of warrants and stock options -- 2,109
Long-term debt -- 23,200
Long-term liabilities 724 (731)
-------- --------
Net cash provided by financing activities 724 24,578
-------- --------
Effect of exchange rates on cash and cash equivalents -- (677)
Net decrease in cash and cash equivalents (23,710) (67,149)
Cash and cash equivalents - beginning of year 84,069 71,867
-------- --------
Cash and cash equivalents - end of period $ 60,359 $ 4,041
======== ========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
Page 5
<PAGE> 6
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Significant Accounting Policies
Basis of Presentation
The accompanying interim consolidated financial statements of GT
Interactive Software Corp. and Subsidiaries (the "Company") are unaudited but in
the opinion of management reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the results for the
interim period in accordance with instructions for Form 10-Q. Accordingly, they
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
NOTE 2 - Acquisitions
In June 1996, the Company acquired all of the outstanding common stock of
WizardWorks Group, Inc. ("WizardWorks"), a developer and publisher of consumer
software, in exchange for 2.4 million shares of the Company's common stock, par
value $.01 per share ("Common Stock").
In June 1996, the Company acquired all of the outstanding common stock of
Candel Inc., the parent company of FormGen Corp. ("FormGen"), a publisher of
multimedia consumer software, in exchange for 1.0 million shares of the
Company's Common Stock.
In July 1996, the Company acquired all of the outstanding common stock of
Humongous Entertainment, Inc. ("Humongous"), a premier developer and publisher
of quality children's software, in exchange for 3.5 million shares of the
Company's Common Stock.
WizardWorks, FormGen and Humongous (collectively the "Acquired Companies")
have been accounted for as pooling of interests and accordingly are included in
the Company's Consolidated Financial Statements as if the acquisitions had
occurred as of the beginning of the periods presented.
In November 1996, the Company acquired the business of Warner Interactive
Europe ("Warner")for $6.3 million in cash, including acquisition costs.
Warner's financial results have been included in the Company's Consolidated
Financial Statements on a purchase basis for the period since the acquisition.
In January 1997, the Company acquired all of the outstanding capital stock
of Premier Promotion Limited, the parent company of One Stop Direct Limited
("One Stop"), a leading European value software publisher, for $.8 million in
cash. One Stop's financial results have been included in the Company's
Consolidated Financial Statements on a purchase basis for the period since the
acquisition.
Page 6
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 3 - Inventories, net
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- ----------
(in thousands)
<S> <C> <C>
Finished goods $ 58,464 $58,342
Raw materials 1,993 3,992
-------- -------
$ 60,457 $62,334
======== =======
</TABLE>
NOTE 4 - Commitments and Contingencies
On January 21, 1997, the Company entered into a Revolving Credit Agreement
(the "Credit Agreement") with banks expiring on December 31, 1998. The Credit
Agreement was amended on June 30, 1997 to increase the facility from $40 million
to a maximum of $65 million to be used for borrowings and letters of credit.
Borrowing is limited to fifty percent of adjusted, as defined, consolidated
accounts receivable, and is secured by these receivables. The borrowings under
this agreement bear interest at either the banks' reference rate (which is
generally equivalent to the published prime rate) or the LIBOR rate plus 1 1/4%.
The Company pays a commitment fee of 1/4% based on the unused portion of the
line. The Credit Agreement requires maintenance of certain financial ratios and
net income levels.
At June 30, 1997, the Company had outstanding long-term debt of $23.2
million, representing borrowings under the Credit Agreement, and letters of
credit amounting to $6.9 million.
NOTE 5 - Supplemental Cash Flow Information
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------
1996 1997
----------- ----------
(in thousands)
<S> <C> <C>
Cash paid for income taxes $ 9,073 $ 8,118
Cash paid for interest 119 352
</TABLE>
Page 7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results or future events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, world-wide business
and industry conditions, adoption of new hardware systems, product delays,
software development requirements and their impact on product launches, company
customer relations and other risks and factors detailed, from time to time, in
the Company's SEC filings including, but not limited to, the factors described
on pages 10-15 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
Overview
The Company creates, publishes, merchandises and distributes interactive
entertainment, edutainment and value-priced consumer software for a variety of
platforms on a world-wide basis. Since it commenced operations in February 1993,
the Company has experienced rapid revenue growth and its product and customer
mix have changed substantially.
An important element of the Company's financial performance is its product
mix, which has varied over time as the Company has built its business. The
Company's product mix has been composed of two broad product categories:
published software and third party software. Because each of these product
categories has different associated costs, the Company's margins have depended
and will depend, in part, on the percentage of net sales attributable to each
category. In addition, the Company's margins may vary significantly from quarter
to quarter depending on the timing of its new published product releases. To the
extent that mass merchants require greater proportions of third party software
products, some of which may yield lower margins, the Company's operating results
may be impacted accordingly.
The world-wide consumer software industry has undergone a number of
profound changes with the introduction of new hardware platforms. The "next
generation" of game systems are based on 32- and 64-bit microprocessors that
incorporate dedicated graphics chipsets. The Company began shipping Doom for the
Sony PlayStation ("PlayStation") internationally in the first quarter of 1996.
Domestically, shipments of Doom and Hexen for the Sega Saturn, and Tigershark
for the PlayStation began shipping in the first quarter of 1997. Shipments of
Hexen for the Nintendo 64 System ("N64") and PlayStation began shipping in the
current quarter. As evidenced by the strong initial sales of these platforms,
the Company believes that significant growth opportunities exist in both
domestic and international markets and across a variety of next generation
hardware platforms, including PlayStation, Sega Saturn, and N64, for which the
Company is creating software products.
In June 1996, the Company acquired all of the outstanding stock of
WizardWorks, a leading developer and publisher of value-priced interactive
entertainment, edutainment and productivity software, in exchange for 2.4
million newly issued shares of the Company's common stock, par value $.01 per
share ("Common Stock"). WizardWorks develops, publishes and distributes consumer
software for Windows, DOS and Macintosh formats.
In June 1996, the Company acquired all of the outstanding stock of Candel
Inc., the parent company of FormGen, a leading publisher of interactive PC
shareware and software in exchange for 1.0 million newly issued shares of the
Company's Common Stock.
In July 1996, the Company acquired all of the outstanding common stock of
Humongous, a premier developer and publisher of quality children's software, in
exchange for 3.5 million newly issued shares of the Company's Common Stock.
Page 8
<PAGE> 9
WizardWorks, FormGen and Humongous (collectively the "Acquired
Companies"), have each been accounted for as a pooling of interests.
Accordingly, the Company's historical Financial Statements have been restated to
include the results of the Acquired Companies.
In November 1996, the Company acquired the business of Warner Interactive
Europe for $6.3 million in cash, including acquisition costs. Warner's financial
results have been included in the Company's Consolidated Financial Statements on
a purchase basis for the period since the acquisition.
In January 1997, the Company acquired all of the outstanding capital stock
of Premier Promotion Limited, the parent company of One Stop, a leading European
value software distributor and publisher, for $.8 million in cash. One Stop's
financial results have been included in the Company's Consolidated Financial
Statements on a purchase basis for the period since the acquisition.
Sales are recorded net of expected future returns which historically have
been experienced and reserved for at approximately 30% of gross sales.
The consumer software industry is seasonal. Net sales are typically
highest during the fourth calendar quarter. This seasonality is primarily a
result of the increased demand for consumer software during the year-end holiday
buying season.
Results of Operations
The following table sets forth certain consolidated statement of
operations data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Three For the Six
Months Months
Ended June 30, Ended June 30,
---------------- -----------------
1996 1997 1996 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 56.4 58.6 57.2 60.2
Selling and distribution expenses 24.7 21.2 23.1 19.9
General and administrative
expenses 10.3 11.6 10.1 11.5
Amortization of goodwill 0.4 0.3 0.4 0.3
------- ------ ------- ------
Operating income 8.2 8.3 9.2 8.1
Interest and other income, net 1.2 (0.5) 1.5 (0.3)
------- ------ ------- ------
Income before income taxes 9.4 7.8 10.7 7.8
Provision for income taxes 4.6 3.4 5.2 3.3
------- ------ ------- ------
Net income 4.8 % 4.4 % 5.5 % 4.5 %
======= ====== ======= ======
</TABLE>
Page 9
<PAGE> 10
Net sales for the three months and six months ended June 30, 1997
increased approximately $29.2 million, or 40%, and $51.8 million, or 36%,
respectively, as compared to the three and six months ended June 30, 1996. This
growth in net sales for the three and six months ended June 30, 1997 was
primarily attributable to the release of Hexen for N64 and the PlayStation,
Mortal Kombat Trilogy for N64, the introduction of Blood, a newly published
title, the continuing strong sales of Duke Nukem 3D and Quake and an increase in
royalty income. In addition, an increase in sales from its existing mass
merchant shelf space and an increase in the number of mass merchant stores
supplied and serviced by the Company contributed to the sales growth.
Additionally, during the six months ended June 30, 1997, the Company released
Doom and Hexen for Sega Saturn and Tigershark for PlayStation.
Cost of goods sold primarily includes costs of purchased products and
royalties paid to software developers. Cost of goods sold for the three and six
months ended June 30, 1997 increased approximately $18.7 million, or 45%, and
$35.5 million, or 43%, respectively, as compared to the three and six months
ended June 30, 1996. Cost of goods sold as a percentage of net sales for the
three and six months increased to 58.6% and 60.2%, respectively, compared to
56.4% and 57.2% during the three and six months ended June 30, 1997. The
increases were primarily due to the increase in sales of lower margin N64 titles
and the decline in the average wholesale price of the Company's value priced
products. The increase for the three months ended June 30, 1997, was partially
offset by a shift in the Company's overall sales mix toward its published and
value priced products which increased to approximately 63% of net revenue
compared to approximately 52% during the prior period.
Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. These expenses increased approximately $3.6
million, or 19.8%, and $5.7 million, or 17.2%, during the three and six months
ended June 30, 1997, respectively, compared to the comparable periods of the
prior year. The increase is attributable to the overall increase in sales
volume. Selling and distribution expenses as a percentage of net sales for the
three and six months ended June 30, 1997 decreased to 21.2% and 19.9%,
respectively, compared to 24.7% and 23.1% during the three and six months ended
June 30, 1996, respectively, due to the Company realizing greater economies of
scale.
General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses for the three and six months ended June 30, 1997 increased
approximately $4.3 million, or 57.5%, and $7.9 million, or 53.7%, respectively,
as compared to the three and six months ended June 30, 1996. The increase was
due primarily to additional personnel required to support the expansion of the
Company's research and development and publishing operations. General and
administrative expenses as a percentage of net sales for the three and six
months ended June 30, 1997 increased to 11.6% and 11.5%, respectively, from
10.3% and 10.1% for the three and six months ended June 30, 1996, respectively.
Interest and other income, net decreased approximately $1.5 million and
$2.6 million for the three and six months ended June 30, 1997, respectively, as
compared to the comparable periods of the prior year. This is primarily
attributable to the decrease in short-term investments and cash balances and the
interest costs associated with borrowings under the Revolving Credit Agreement
(the "Credit Agreement").
Page 10
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Liquidity and Capital Resources
Resources used to finance significant expenditures for the six months
ended June 30, 1997 and 1996 are reflected in the following table:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1997
------ ------
(in millions)
<S> <C> <C>
Resources used:
Payables and accrued liabilities $(28.9) $(42.2)
Receivables, net 20.9 (34.0)
Inventories, net 3.9 (1.4)
Purchase of One Stop -- (0.8)
Purchase of property and equipment (2.6) (7.9)
Royalty advances (19.3) (14.4)
Other, net (5.5) (3.1)
------ ------
(31.5) (103.8)
------ ------
Financed by:
Net income 7.9 8.9
Long-term debt -- 23.2
Sales (purchases) of short-term investments, net (0.1) 4.6
------ ------
7.8 36.7
------ ------
Cash and cash equivalents balance decrease $(23.7) $(67.1)
====== ======
</TABLE>
As of June 30, 1997, the Company's working capital increased to $138.2
million compared to $113.7 million at December 31, 1996. Cash and cash
equivalents decreased for the six months ended June 30, 1997 by approximately
$67.1 million. The primary sources of cash during the six months ended June 30,
1997 were bank borrowings of $23.2 million under the Credit Agreement and net
income of $8.9 million. These externally and internally generated funds were
primarily used to fund payables and accrued liabilities (which includes accounts
payable, royalties payable, income taxes payable and accrued liabilities) of
$42.2 million, receivables of $34.0 million, property and equipment of $7.9
million and royalty advances of $14.4 million. The decrease in payables is
primarily attributable to payment of the seasonally high balance of December 31,
1996, the shift in sales toward published titles versus third party products,
which on average have higher costs than published products and that Nintendo,
Sega and Sony products require cash payments on most purchases. The Company
utilizes its Credit Agreement to fund these purchases when required. The
receivable balance increase reflected higher sales at the end of the quarter.
The increase in property and equipment is primarily due to the investment in
computer hardware and software to support the Company's growth. Royalty advances
of $83.6 million as of June 30, 1997 represent advances to approximately 110
entities for various products expected to be delivered throughout the next
several years. Such advances are amortized to cost of goods sold on a per unit
basis as licensed products are sold in accordance with the individual
agreements.
On January 21, 1997, the Company entered into the Credit Agreement with
banks expiring on December 31, 1998. The Credit Agreement was amended on June
30, 1997 to increase the facility from $40 million to a maximum of $65 million
to be used for borrowings and letters of credit. At June 30, 1997, the Company
had outstanding, under the Credit Agreement, long-term debt and letters of
credit issued of approximately $23.2 million and $6.9 million, respectively.
General Atlantic Partners II, L.P., an affiliate of various General
Atlantic Partners entities which are stockholders of the Company, exercised its
warrants to purchase an aggregate of 504,000 shares of Common Stock on May 2,
1997 for approximately $2.1 million in cash.
Page 11
<PAGE> 12
The Company expects continued volatility in the use of cash due to varying
seasonal, receivable payment cycles and quarterly working capital needs to
finance its growing publishing and distribution business.
The Company believes that existing cash, cash equivalents and short-term
investments, together with cash expected to be generated from operations and
cash available through the Credit Agreement, will be sufficient to fund the
Company's anticipated operations for the next twelve months.
On June 18, 1997, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with SingleTrac Entertainment Technologies,
Inc. ("SingleTrac"), pursuant to which the Company agreed to acquire all the
capital stock of SingleTrac for an aggregate purchase price of $16 million. The
Agreement allows for up to approximately $5 million of the purchase price to be
in cash and the balance in Common Stock of the Company. The Company anticipates
that the acquisition will be completed in the fourth quarter, at which time it
is expected that the Company will take a one time charge of $10 to $12 million
for the write off of purchased in process research and development costs.
Additionally, pursuant to the Agreement the Company has structured a one time
retention oriented bonus pool of up to approximately $10 million in cash and
Common Stock of the Company, which will be distributed to SingleTrac employees
based on the achievement of certain performance goals of SingleTrac over the
succeeding two years.
Page 12
<PAGE> 13
Part II - Other Information
Item 2. Changes in Securities
There were no sales of unregistered securities by the Company during
the quarter ended June 30, 1997, except the issuance of an aggregate of 504,000
shares of Common Stock to General Atlantic Partners II, L.P., upon the exercise
on May 2, 1997 of certain of its warrants at an aggregate exercise price of
$2,101,680. Such issuance was made in reliance upon Section 4(2) of the
Securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on June 10, 1997.
(b) The directors elected at the meeting were:
<TABLE>
<CAPTION>
For Withheld Non-Votes
--- -------- ---------
<S> <C> <C> <C>
Jack J. Cayre 57,671,071 202,063 9,000
Steven A. Denning 57,675,921 197,213 9,000
Alvin N. Teller 57,675,921 197,213 9,000
</TABLE>
Other directors whose terms of office continued after the meeting
are as follows: Joseph J. Cayre, Stanley Cayre, Kenneth Cayre, Ron
Chaimowitz, William E. Ford and Jordan A. Levy.
(c) Other matters voted upon at the meeting and the results of those votes
are as follows:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Approval of the Company's 1997 Stock 49,300,240 1,525,339 135,298 6,921,257
Incentive Plan
Ratification of Arthur Andersen LLP as the 57,740,016 129,108 13,010 0
Company's independent auditors
</TABLE>
Page 13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation
(incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
3.2 Amended and Restated By-laws (incorporated herein by
reference to the exhibit with the corresponding number
filed as part of the Company's Registration Statement on
Form S-1 filed on October 18, 1996, and all amendments
thereto (Registration No. 333-14441)).
10.1 Amendment, dated as of June 30, 1997, to the Credit
Agreement, dated as of January 21, 1997, by and among the
Company, the banks parties thereto and Republic National
Bank of New York, as Agent.
10.2 Employment Agreement between the Company and David
Chemerow.
10.3 The 1997 Stock Incentive Plan.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
Page 14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
------------------------------------
Ronald Chaimowitz
Chief Executive Officer, President
and Director
Date: August 14, 1997
By: /s/ ANDREW GREGOR
------------------------------------
Andrew Gregor
Chief Financial Officer and Senior
Vice President, Finance and
Administration
Date: August 14, 1997
Page 15
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation
(incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
3.2 Amended and Restated By-laws (incorporated herein by
reference to the exhibit with the corresponding number
filed as part of the Company's Registration Statement on
Form S-1 filed on October 18, 1996, and all amendments
thereto (Registration No. 333-14441)).
10.1 Amendment, date as of June 30, 1997, to the Credit
Agreement, dated as of January 21, 1997, by and among the
Company, the banks parties thereto and Republic National
Bank of New York, as Agent.
10.2 Employment Agreement between the Company and David
Chemerow.
10.3 The 1997 Stock Incentive Plan.
27.1 Financial Data Schedule.
<PAGE> 1
Exhibit 10.1
As of June 30, 1997
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Chief Financial Officer
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement (the
"Credit Agreement") dated as of January 21, 1997 among GT Interactive Software
Corp., Republic National Bank of New York, individually and as agent, and The
First National Bank of Chicago as successor in interest to NBD Bank. Unless
otherwise defined herein, capitalized terms used herein shall have the
respective meanings ascribed to them in the Credit Agreement.
1. By signing this Letter Agreement, European American Bank and
First Union National Bank (collectively, the "New Banks") shall become
signatories to the Credit Agreement and a "Bank" for all purposes of
the Credit Agreement as of the First Amendment Effective Date (as
defined in Section 6 hereof) with (a) the Commitment set forth opposite
the name of such New Bank on the signature pages hereof, as such amount
may be reduced from time to time pursuant to Section 2.07 of the Credit
Agreement, and (b) the address, facsimile number or telex number set
forth on the signature pages hereof.
2. The parties hereto agree that the Credit Agreement is
modified by:
(a) inserting immediately after the definition of "Borrowing"
contained in Section 1.01 of the Credit Agreement a definition
of "Borrowing Base" reading in its entirety as follows:
"'BORROWING BASE' means the lesser of (a) the aggregate amount
of Commitments of the Banks or (b) 50% of Consolidated
Accounts Receivable.";
(b) inserting immediately after the definition of "Commitments"
contained in Section 1.01 of the Credit Agreement a definition
of "Consolidated Accounts
<PAGE> 2
Receivable" reading in its entirety as follows:
"'CONSOLIDATED ACCOUNTS RECEIVABLE' means at any date the
total accounts receivable of the Borrower and its Consolidated
Subsidiaries for goods sold in the ordinary course of their
respective businesses to third parties that are not
Subsidiaries of the Borrower, determined on a consolidated
basis as of such date.";
(c) restating the definition of "Financing Documents" contained in
Section 1.01 of the Credit Agreement to read in its entirety
as follows:
"'FINANCING DOCUMENTS' means this Agreement, the Notes and the
Security Agreements.";
(d) inserting immediately after the definition of "Sale-Leaseback
Transaction" contained in Section 1.01 of the Credit Agreement
a definition of "Security Agreements" reading as follows:
"'SECURITY AGREEMENTS' means, collectively, the Security
Agreement between each of the Borrower, Humongous
Entertainment, Inc., WizardWorks Group, Inc., Formgen Inc., GT
Interactive Software Germany GmbH, Renegade Interactive France
S.A., G.T. Interactive Software (Europe) Limited and One Stop
Direct Limited, and the Agent, respectively, for the benefit
of the Banks, as at any time amended, pursuant to which the
Borrower and each such Subsidiary granted the Agent a security
interest in its accounts receivables and related collateral as
described therein to secure the obligations of the Borrower
hereunder and under the Notes as described therein.";
(e) inserting immediately before the period at the end of the
first sentence of Section 2.01 of the Credit Agreement a
proviso reading in its entirety as follows:
"; and the aggregate principal amount of the Loans plus the
Standby Letter of Credit Liabilities at any time outstanding
shall not exceed the Borrowing Base.";
(f) adding new subsections (c) and (d) to Section 2.10 of the
Credit Agreement reading in their entireties as follows:
2
<PAGE> 3
"(c) If at any time the aggregate principal amount of all
Loans and Standby Letter of Credit Liabilities outstanding
hereunder shall exceed the Borrowing Base, the Borrower shall
promptly prepay the portion of the aggregate principal amount
of the Loans then outstanding, if any, equal to such excess at
such time.";
(g) deleting the reference to "$15,000,000" in Section 2.13(b)
of the Credit Agreement and by substituting "$35,000,000 (of which Standby
Letter of Credit Liabilities shall not exceed $10,000,000)" therefor and by
inserting immediately before the period at the end of such sentence the
following:
"provided further that after each Letter of Credit is issued,
the aggregate amount of the Standby Letters of Credit
Liabilities plus the aggregate outstanding amount of all Loans
shall not exceed the Borrowing Base";
(h) inserting immediately after reference to "(c)" in Section
3.02(c) of the Credit Agreement the following:
"The Agent shall have received the most recent Receivables
Statement deliverable pursuant to Section 5.01(l) and other
information necessary to permit the computation of the
Borrowing Base and";
(i) inserting before the semicolon in Section 3.02(c)
of the Credit Agreement the following:
"and the sum of the aggregate outstanding principal amount of
the Loans and the aggregate principal amount of the Standby
Letter of Credit Liabilities shall not exceed the Borrowing
Base";
(j) deleting reference to "and" at the end of Section 5.01(j)
of the Credit Agreement, deleting the reference to "." at the end of Section
5.01(k) of the Credit Agreement and by substituting "; and" therefor and by
adding a new clause (l) to Section 5.01 reading in its entirety as follows:
"(l) Before the 25th day of each month Borrower shall deliver
to the Agent a statement (a 'Receivables Statement'), in the
form attached hereto as Exhibit C, certified by a duly
authorized officer of the Borrower and setting forth, on a
consolidating basis,
3
<PAGE> 4
the (i) Consolidated Accounts Receivable of the Borrower and
(ii) the sales made in the prior month of the Borrower and
each Consolidated Subsidiary, as at and as of the last
Domestic Business Day of the prior month, which Receivables
Statement shall set forth the age of each account receivable
and the respective owner thereof.";
(k) deleting the reference to "and" at the end of Section 5.09
(l) of the Credit Agreement, by deleting reference to "1,000,000" contained in
Section 5.09(m) of the Credit Agreement and by substituting "$2,000,000"
therefor, by deleting the "." at the end of Section 5.09(m) of the Credit
Agreement and by substituting "; and" therefor and by adding a new subsection
(n) to Section 5.09 of the Credit Agreement reading in its entirety as follows:
"(n) Liens under the Security Agreements in favor of the Agent
for the benefit of the Banks.";
(l) restating Sections 5.11 and 5.12 of the Credit Agreement
to read in their entireties as follows:
"SECTION 5.11. Minimum Tangible Net Worth. The Borrower will
not permit Consolidated Tangible Net Worth as at December 31,
1996 to be less than $106,500,000, as at June 30, 1997 to be
less than $106,500,000 plus 25% of Consolidated Net Income for
the six-month period ending on June 30, 1997, as at December
31, 1997 to be less than $106,500,000 plus 25% of Consolidated
Net Income for the 12-month period ending on December 31,
1997, as at June 30, 1998 to be less than such December 31,
1997 required minimum amount plus 25% of Consolidated Net
Income for the six-month period ending on June 30, 1998 and as
at December 31, 1998 such December 31, 1997 required minimum
amount plus 25% of the Consolidated Net Income for the
12-month period ending on December 31, 1998.
"SECTION 5.12. Debt: Tangible Net Worth. The Borrower will not
permit the ratio of Consolidated Total Liabilities to
Consolidated Tangible Net Worth at the end of (a) any fiscal
quarter in 1997 (other than its first fiscal quarter) to
exceed 2.3 to 1.0 and (b) any fiscal quarter in 1998 to
4
<PAGE> 5
exceed 2.0 to 1.0.";
(m) restating Sections 5.14 and 5.15 of the Credit Agreement
to read in their entireties as follows:
"SECTION 5.14. Working Capital. The Borrower will not permit
Consolidated Working Capital (which term for the purpose of
this Section 5.14 shall be computed on a basis which excludes
the current portion of all outstanding Loans from Consolidated
Current Liabilities) at June 30, 1997 to be less than
$5,000,000, at September 30, 1997 to be less than $25,000,000,
at December 31, 1997 to be less than $50,000,000, at March 31,
1998 to be less than $15,000,000, at June 30, 1998 to be less
than $10,000,000, at September 30, 1998 to be less than
$25,000,000, and at December 31, 1998 to be less than
$50,000,000.
"SECTION 5.15. Current Ratio. The Borrower will not permit the
ratio of Consolidated Current Assets to Consolidated Current
Liabilities (which term, Consolidated Current Liabilities, for
the purposes of the computation of such ratio in clause (a)
below, shall exclude the current portion of all outstanding
Loans and which term, for the purposes of the computation of
such ratio in clause (b) below, shall include the amount of
all outstanding Loans and Standby Letter of Credit
Liabilities) (a) as at June 30, 1997 to be less than 1.0 to
1.0, as at September 30, 1997 and as at December 31, 1997 to
be less than 1.1 to 1.0, as at March 31, 1998 and June 30,
1998 to be less than 1.05 to 1.0, as at September 30, 1998 and
as at December 31, 1998 to be less than 1.1 to 1.0 and (b) as
at December 31, 1997 and as at December 31, 1998 to be less
than 1.0 to 1.0.";
(n) restating Section 5.17 of the Credit Agreement to read in
its entirety as follows:
"SECTION 5.17. Minimum Net Income. The Borrower will not
permit its Consolidated Net Income (which term for the
purposes of this Section shall be increased by the amount of
any deductions received by the Borrower and/or its
Subsidiaries which arise from the
5
<PAGE> 6
acquisition of research and development and all other
intangibles) for its fiscal years ending December 31, 1997 and
December 31, 1998 to be less than $25,000,000, and will not
permit its Consolidated Net Income for any two consecutive
quarters (whether or not in the same fiscal year) to be less
than $5,000,000.";
(o) inserting "except under the Security Agreements or"
immediately after the penultimate reference to "Affiliate" contained in Section
5.19 of the Credit Agreement;
(p) restating Sections 7.01 through 7.09 of the Credit
Agreement to read in their entireties as follows:
"SECTION 7.01. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers
under this Agreement, the Notes and the Security Agreements as
are delegated to the Agent by the terms hereof or thereof
together with all such powers as are reasonably incidental
thereto.
SECTION 7.02. Agent and Affiliates. RNB shall have the same
rights and powers under this Agreement as any other Bank and
may exercise or refrain from exercising the same as though it
were not the Agent, and RNB and its affiliates may accept
deposits from, lend money to, and generally engage in any kind
of business with the Borrower or any Subsidiary or affiliate
of the Borrower as if it were not the Agent.
SECTION 7.03. Action by Agent. The obligations of the Agent
hereunder and under the Security Agreements are only those
expressly set forth herein or therein. Without limiting the
generality of the foregoing, the Agent shall not be required
to take any action with respect to any Default hereunder,
except as expressly provided in Article 6, or with respect to
any Event of Default under any of the Security Agreements.
SECTION 7.04. Consultation with Experts. The Agent may consult
with legal counsel (who may be counsel for the Borrower),
independent public accountants and other experts selected
6
<PAGE> 7
by it and shall not be liable for any action taken or omitted
to be taken by it hereunder or under the Security Agreements
in good faith in accordance with the advice of such counsel,
accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any of
its affiliates nor any of their respective directors,
officers, agents or employees shall be liable for any action
taken or not taken by it as Agent in connection herewith or
the Security Agreements (i) with the consent or at the request
of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Agent nor any of
its affiliates nor any of their respective directors,
officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with
this Agreement or the Security Agreements or any borrowing
hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower hereunder or of the
Borrower or any Subsidiary under the Security Agreement to
which it is a party; (iii) the satisfaction of any condition
specified in Article 3, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes, the Security
Agreements or any other instrument or writing furnished in
connection herewith or therewith. The Agent shall not incur
any liability hereunder or under the Security Agreements by
acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its
affiliates and their respective directors, officers, agents
and employees (to the extent not reimbursed by the Borrower)
against any cost, expense (including counsel fees and
disbursements incurred by such indemnitees in
7
<PAGE> 8
any action; suit or proceeding between such indemnitees and
such indemnifying Bank or between such indemnitees and any
third party or otherwise), claim, demand, action, loss or
liability (except such as result from such indemnitees' gross
negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or the
Security Agreements or any action taken or omitted by such
indemnitees hereunder or thereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any
other Bank, and based on such documents and information as it
has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not
taking any action under this Agreement or the Security
Agreements.
SECTION 7.08. Successor Agent. The Agent may resign as agent
hereunder or under the Security Agreements at any time by
giving notice thereof to the Banks and the Borrower. Upon any
such resignation, the Required Banks shall have the right to
appoint a successor Agent reasonably acceptable to Borrower.
If no successor Agent shall have been so appointed by the
Required Banks, and shall have accepted such appointment,
within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent reasonably acceptable to
Borrower, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of
at least $100,000,000. Upon the acceptance of its appointment
as Agent hereunder or under the Security Agreements by a
successor Agent, such successor Agent shall thereupon succeed
to and become vested with all the rights and
8
<PAGE> 9
duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder and
thereunder. After any retiring Agent's resignation hereunder
or under the Security Agreements as Agent, the provisions of
this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent.
SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent
for its own account fees in the amounts and at the times
previously agreed upon between the Borrower and the Agent.";
(q) deleting "or" at the end of Section 9.05(iii) of the
Credit Agreement and by deleting the "." at the end of Section 9.05(iv) of the
Credit Agreement and by substituting the following therefor:
"or (v) release any security interest created under the
Security Agreements.";
(r) adding a new Section 9.13 to the Credit Agreement
reading in its entirety as follows:
"SECTION 9.13. Further Actions. Although the Agent may not
initially have a perfected security interest pursuant to the
Security Agreements in and to accounts receivable of any
Subsidiary of the Borrower organized in a jurisdiction outside
of the United States of America (a "Foreign Subsidiary"), upon
the request of the Agent (which request the Agent shall make
upon the written demand of the Required Banks), the Borrower
shall, and shall cause each of the Foreign Subsidiaries to, at
its sole cost and expense, make execute, endorse, acknowledge,
file or refile and/or deliver to the Agent from time to time
such lists, descriptions and designations of the collateral
covered by the Security Agreement to which such Foreign
Subsidiary is a party, vouchers, invoices, schedules,
confirmatory assignments, supplements, additional security
agreements, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps
relating to the collateral covered by such Security Agreement
and other
9
<PAGE> 10
property or rights covered by the security interest thereby
granted, which the Agent deems appropriate or advisable to
exercise and enforce its rights and remedies thereunder with
respect to any collateral subject thereto and to perfect,
preserve or protect the security interest in the collateral
created and granted by such Security Agreement, including such
opinion of counsel of such Foreign Subsidiary regarding such
matters as the Agent may request (at the sole cost and expense
of the Borrower)."; and
(s) deleting the reference to "$25,000,000" contained on the
signature page of the Credit Agreement opposite the name of RNB and substituting
"$22,500,000" therefor; and
(t) adding Exhibit C hereto as Exhibit C to the Credit
Agreement.
3. The Borrower shall pay to the Agent, for the account of the New Banks,
ratably in proportion to their Commitments, on the First Amendment
Effective Date, a non-refundable facility fee in an amount equal to 1/4
of 1% of the aggregate amount of the Commitments of the New Banks.
There will be no adjustment in respect of facility fees heretofore
paid.
(a) The New Banks shall participate in fees payable under Sections
2.06(a), (b) and (d) of the Credit Agreement from and after
the First Amendment Effective Date.
(b) The Borrower shall pay to the Agent on the First Amendment
Effective Date a completion fee in accordance with a letter
agreement between the Borrower and the Agent.
4. Except as modified hereby, the Credit Agreement remains unmodified and
in full force and effect.
5. In addition to its obligations under the Credit Agreement the Borrower
agrees to pay all reasonable out-of-pocket expenses of the Banks and
the Agent, including the reasonable fees and disbursements of Kronish,
Lieb, Weiner & Hellman, LLP, special counsel to the Banks and the
Agent, in connection with the preparation of this letter agreement, the
Security Agreements, the UCC Financing Statements and the filing
thereof and any additional legal fees of such firm or any foreign
counsel to the Agent in connection with matters referred to in Section
9.13 to the Credit Agreement, as herein amended.
10
<PAGE> 11
6. This letter agreement shall become effective (the "First Amendment
Effective Date") upon the execution and delivery to the Agent by the
Borrower of a copy of this letter agreement, countersigned by the
Borrower as indicated below, the Security Agreements, the Notes payable
to each New Bank dated the First Amendment Effective Date and an
opinion of Messrs. Kramer, Levin, Naftalis & Frankel, counsel to the
Borrower and its Subsidiaries and local counsel satisfactory to the
Agent, dated the First Amendment Effective Date in form and substance
satisfactory to the Agent.
7. On the First Amendment Effective Date, (a) the Borrower shall be deemed
to have prepaid the Loans made by the Banks (other than the New Banks),
without any prepayment penalty or premium or cost under Section 2.11 of
the Credit Agreement, and the New Banks shall be deemed to have made
Loans, in such amount that after giving effect to such deemed
transactions the Loans by the Banks shall be proportionate to their
Commitments and (b) the Banks (other than the New Banks) shall be
deemed, without further action by any party hereto, to have sold to the
New Banks, and the New Banks shall be deemed, without further action by
any party hereto, to have purchased from the Banks (other than the New
Banks), a participation in the Letters of Credit and the related Letter
of Credit Liabilities in such amount that after giving effect to such
deemed transactions the participations of the Banks in such Letters of
Credit and the related Letter of Credit Liabilities shall be
proportionate to their Commitments.
8. This letter agreement may be executed in two or more counterparts, each
of which shall constitute an original, but all of which, when taken
together, shall constitute but one agreement.
9. This letter agreement shall be governed in all respects by the laws of
the State of New York.
11
<PAGE> 12
REPUBLIC NATIONAL BANK OF NEW YORK
as a Lender and as Issuing Bank
By: /s/ Estelle Dichazi
-------------------------------------
Name: Estelle Dichazi
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
(as successor in interest to NBD BANK)
as Authorized Agent
By: /s/ Robert E. O'Connell
-------------------------------------
Name: Robert E. O'Connell
Title: Vice President
REPUBLIC NATIONAL BANK OF NEW YORK, as
Agent
By: /s/ Estelle Dichazi
-------------------------------------
Name: Estelle Dichazi
Title: Senior Vice President
12
<PAGE> 13
$15,000,000 FIRST UNION NATIONAL BANK
By: /s/ David Ring
-------------------------------------
Name: David Ring
Title: Vice President
Domestic Lending Office:
50 Main Street
11th Floor
White Plains, New York 10606
Attention: Middle Market Lending
Attn: David Ring, Vice President
Facsimile: (914) 286-5001
EuroDollar Lending Office
London, England
$12,500,000 EUROPEAN AMERICAN BANK
By: /s/ Peter J. McGovern
----------------------------------
Name: Peter J. McGovern
Title: Vice President
Domestic Lending Office:
335 Madison Avenue
New York, New York 10017
Attention: NYC Corporate Division
Attn: Peter J. McGovern, Vice
President
Facsimile: (212) 503-2667
ACCEPTED AND AGREED TO:
GT INTERACTIVE SOFTWARE CORP.
BY: /s/ Andrew Gregor
-------------------------------------
Name: Andrew Gregor
Title: Chief Financial Officer
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the
"Agreement"), made in New York, New York as of the 15th day of May, 1997,
between GT Interactive Software Corp., a Delaware corporation having its
executive offices and principal place of business in New York, New York (the
"Company"), and David Chemerow, the undersigned individual ("Executive").
IN CONSIDERATION, therefore, of the mutual covenants and
agreements hereinafter set forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the three-year
period commencing on May 15, 1997 and ending on May 14, 2000 (the "Agreement
Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be
employed by the Company for the Agreement Term upon the terms and subject to the
conditions set forth in this Agreement. Executive shall serve as an executive of
the Company and shall have such duties as may be prescribed by the Chief
Executive Officer.
(b) Performance of Duties. Throughout the Agreement
Term, Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Company and serve the Company to the best
of Executive's ability. Executive shall devote Executive's entire working time,
attention and energies to the business and affairs of the Company, subject to
vacations and sick leave in accordance with Company policy, provided, that
Executive may devote a reasonable amount of time to civic, community and charity
work, and may serve on the Boards of Directors of the two corporations set forth
on Schedule A, in each case to the extent that such activities do not conflict
with Executive's performance of his duties as required hereunder. Executive
shall have the title and shall report to one of the persons set forth on
Schedule A hereto.
(c) Place of Performance. During the Agreement Term,
Executive shall be based at the Company's principal executive offices in New
York City (or, if such principal executive offices are relocated, at such
relocated principal executive offices) and, in this regard, Executive shall
maintain Executive's personal residence in such city or such other location(s)
within reasonable access to Executive's place of employment, and shall not
<PAGE> 2
be required to relocate such residence to any location more than 40 miles from
such city (or such relocated principal executive offices).
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to
Executive for employment hereunder a base salary ("Base Salary") at the annual
rate of $300,000 during the Agreement Term, payable in installments consistent
with the Company's payroll practices; provided, however, that the Board of
Directors will review such Base Salary not later than November 15, 1998 and may,
in its discretion, increase such Base Salary based upon its assessment of
Executive's performance or other factors; provided, that such Base Salary, as
increased from time to time, shall not be reduced.
(b) Benefits and Perquisites; Bonus. Executive shall
be entitled to participate in, to the extent Executive is otherwise eligible
under the terms thereof, the benefit plans and programs, and receive the
benefits and perquisites, generally provided to executives of the same level and
responsibility as Executive. Nothing in this Agreement shall preclude the
Company from terminating or amending from time to time any employee benefit plan
or program. Executive shall be eligible for an annual bonus, not to exceed an
amount equal to fifty percent (50%) of Executive's Base Salary, at such times
and in such amounts as shall be determined at the discretion of the Chief
Executive Officer and the Board of Directors of the Company based on their
assessment of Executive's performance of his duties and on the financial
performance of the Company; provided, however, that Executive shall receive a
minimum bonus for calendar year 1997 in the amount of $40,000 ("Guaranteed 1997
Bonus"). Subject to the minimum amount for 1997, such bonus shall be based on
the same criteria as the incentive bonus program for the Company's other senior
executives, based upon criteria set forth in the Company's Senior Level Bonus
Plan 1997 Summary, or such Bonus Plan as is in effect in any future year.
(c) Travel and Business Expenses. Upon submission of
itemized expense statements in the manner specified by the Company, Executive
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for executives of the same level
and responsibility as Executive.
(d) Grant of Option and Terms Thereof; Company Policy
on Pooling of Interests Restrictions. Simultaneous with the commencement of
employment, Executive shall be granted an option (the "Option"), pursuant to the
Company's 1995 Stock Incentive Plan or the 1997 Stock Incentive Plan (together,
the "Plan"), to purchase three hundred fifty thousand (350,000) shares of the
Company's common stock (the "Option Shares"). The exercise price for each Option
Share shall be the per share Fair Market Value (as such term is defined in the
Plan) on the date of the grant and the Option shall vest in four equal annual
installments commencing one year from the date of grant. The terms (including
exercisability) of the Option shall be governed by the Plan, as well as the
applicable option
- 2 -
<PAGE> 3
agreement entered into pursuant to the terms of such plan. The Board of
Directors of the Company has approved such grant.
Executive acknowledges and agrees to abide by the Company's
policy that prohibits executive officers who may be deemed affiliates under SEC
policy interpretations, from selling any shares of the Company's Common Stock at
a time when such officer is advised by the Chief Executive Officer or the Chief
Financial Officer (based upon advice from the Company's independent certified
public accountants) that such sale could adversely affect pooling of interests
accounting treatment of any acquisition or other business combination engaged in
or to be engaged in by the Company. If requested, Executive will execute an
"affiliate" agreement confirming such agreement in connection with any such
acquisition or business combination.
(e) No Other Compensation or Benefits; Payment. The
compensation and benefits specified in Sections 3 and 5 of this Agreement shall
be in lieu of any and all other compensation and benefits. Payment of all
compensation and benefits to Executive hereunder shall be made in accordance
with the relevant Company policies in effect from time to time, including normal
payroll practices, and shall be subject to all applicable employment and
withholding taxes.
(f) Cessation of Employment. In the event Executive
shall cease to be employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event, except as
otherwise provided herein or in any applicable employee benefit plan or program.
4. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the
period of Executive's employment with the Company, Executive shall not: (i)
engage in any activity which conflicts or interferes with or derogates from the
performance of Executive's duties hereunder nor shall Executive engage in any
other business activity, whether or not such business activity is pursued for
gain or profit, except as approved in advance in writing by the Chief Executive
Officer or the Board of Directors of the Company; or (ii) accept any other
full-time or substantially full-time employment, whether as an executive or
consultant or in any other capacity, and whether or not compensated therefor.
(b) No Competition. Without limiting the generality
of the provisions of Sections 2(b) or 4(a), during the Agreement Term and any
period thereafter during which Executive is receiving severance payments
pursuant to Section 5(d), Executive shall not, directly or indirectly, own,
manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including as an officer, director,
employee, independent contractor, partner, consultant, advisor, agent,
proprietor, trustee or investor, any Competing Business located in the United
States; provided, however, that ownership of 1% or less of the stock or other
securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on The Nasdaq Stock Market, shall not
constitute a breach of this Section 4, so long as Executive does not in fact
have the
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<PAGE> 4
power to control, or direct the management of, or is not otherwise associated
with, such corporation; provided further, however, that if Executive's
employment is terminated under Section 5(d), then the provisions of this Section
4(b) shall remain in effect only so long as and during the period in which the
Company continues to pay to Executive amounts as severance pursuant to Section
5(d).
For purposes hereof, the term "Competing Business"
shall mean any business or venture which develops, manufactures, publishes,
licenses, sells, distributes or supplies computer software or video games (or
any related books or other intellectual property or merchandise relating
thereto) for commercial use, whether for retail distribution, by direct
marketing, electronically, by license to others, or otherwise; or any other
business which is substantially similar to the whole or any significant part of
the business conducted by the Company.
(c) No Solicitation of Employment. During the
Agreement Term and for a period of two years thereafter, Executive shall not
solicit or encourage any other employee to leave the Company for any reason, nor
assist any business in doing so, nor employ such an employee in a Competing
Business or any other business.
(d) Company Customers. Executive shall not, during
the Agreement Term and any period thereafter during which Executive is receiving
severance payments pursuant to Section 5(d), except as required by the Company
in the performance by Executive of his duties under this Agreement, directly or
indirectly, contact, solicit or do business with (i) Wal-Mart Stores, Inc.,
Target Stores, Caldor, Phar-mor, Best Buy, Neostar, Kmart, Office Depot (or any
of their respective affiliated operations), for the purpose of selling computer
software, video games or any other product then sold by the Company or proposed
to be sold during the Agreement Term; (ii) any "customers" (as defined below) of
the Company for the purpose of selling computer software, video games or any
other product then sold by the Company or proposed to be sold during the
Agreement Term; or (iii) any supplier, licensor or licensee of the Company (or
any such supplier, licensor or licensee solicited by the Company prior to or
during the Agreement Term) with respect to purchasing or licensing computer
software, video games or other intellectual property to or from such person.
For the purposes of the provisions of this Section 4(d), "customer" shall
include any entity that purchased or licensed computer software, video games or
any other product from the Company during, or prior to, the Agreement Term. The
term "customer" also includes any former customer or potential customer of the
Company which the Company has solicited prior to or during such Agreement Term,
for the purpose of selling computer software, video games or any other product
then sold by the Company or proposed to be sold during the Agreement Term.
5. Termination of Employment.
(a) Termination. The Company may terminate
Executive's employment for Cause (as defined below) or for any breach of this
Agreement, in which case
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<PAGE> 5
the provisions of Section 5(b) shall apply. The Company may also terminate
Executive's employment in the event of Executive's Disability (as defined
below), in which case the provisions of Section 5(c) shall apply. The Company
may also terminate the Executive's employment for any other reason by written
notice to Executive, in which case the provisions of Section 5(d) shall apply.
If Executive's employment is terminated by reason of Executive's death,
retirement or voluntary resignation, the provisions of Section 5(b) shall apply.
(b) Termination for Cause; Termination by Reason of
Death or Retirement or Voluntary Resignation. In the event that Executive's
employment hereunder is terminated during the Agreement Term (x) by the Company
for Cause (as defined below), (y) by reason of Executive's death or retirement
or (z) by reason of Executive's voluntary resignation, then the Company shall
pay to Executive, within thirty (30) days of the date of such termination, only
the Base Salary through such date of termination. For purposes of this
Agreement, "Cause" shall mean (i) conviction of any crime (whether or not
involving the Company) constituting a felony in the jurisdiction involved; (ii)
engaging in any substantiated act involving moral turpitude; (iii) gross neglect
or willful misconduct in the performance of Executive's duties hereunder; (iv)
willful failure or refusal to perform such duties as may be delegated to
Executive commensurate with Executive's position as set forth in Section 2
hereof; or (v) material breach of any provision of this Agreement by Executive;
provided, however, that with respect to clause (iii), clause (iv) and clause
(v), Executive shall have received written notice from the Company setting forth
the manner in which he has been grossly negligent or engaged in misconduct, he
has willfully failed to perform his duties prior to such notice or has
materially breached any provision of this Agreement, and Executive shall not
have cured such gross neglect, misconduct, willful failure or refusal to perform
or breach, to the extent curable, within 10 business days of such notice;
provided, however, Executive's good faith inability to perform shall not
constitute Executive's wilful failure to perform or a material breach of any
provision of this Agreement.
(c) Disability. If, as a result of Executive's
incapacity due to physical or mental illness, Executive shall have been absent
from Executive's duties hereunder on a full time basis for either (i) one
hundred twenty (120) days within any three hundred sixty-five (365) day period,
or (ii) ninety (90) consecutive days, and within thirty (30) days after written
notice of termination is given shall not have returned to the performance of
Executive's duties hereunder on a full time basis, the Company may terminate
Executive's employment hereunder for "Disability". In that event, the Company
shall pay to Executive, within thirty (30) days, of the date of such
termination, only the Base Salary through such date of termination. During any
period that Executive fails to perform Executive's duties hereunder as a result
of incapacity due to physical or mental illness (a "Disability Period"),
Executive shall continue to receive the compensation and benefits provided by
Section 3 hereof until Executive's employment hereunder is terminated; provided,
however, that the amount of compensation and benefits received by Executive
during the Disability Period shall be reduced by the aggregate amounts, if any,
payable to Executive under disability benefit plans and programs of the Company
or under the Social Security disability insurance program.
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<PAGE> 6
(d) Termination By Company For Any Other Reason.
(i) In the event that Executive's employment
hereunder is terminated by the Company during the Agreement Term for any reason
other than as provided in Sections 5(b) or 5(c) hereof, or this Agreement
expires and the Company terminates the employment of Executive for any reason
other than as provided in Sections 5(b) or 5(c) hereof had this Agreement
remained in effect, then the Company shall pay to Executive within thirty (30)
days of the date of such termination, the Base Salary through such date of
termination and, in lieu of any further compensation and benefits for the
balance of the Agreement Term, or otherwise, severance pay equal to the Base
Salary for a period of one (1) year from the effective date of such termination,
which severance pay shall be paid commencing with such date of termination at
the times and in the amounts such Base Salary would have been paid in the normal
course hereunder. Under such circumstances, except as set forth below, for the
balance of the one-year period, Executive shall also continue to participate in
and receive the benefits and perquisites provided for in Sections 3(b) and 3(c)
hereof (including the Guaranteed 1997 Bonus, but excluding any other bonus and
stock options) to the same extent as if Executive's employment hereunder had not
been terminated; provided, however, that in the event that Executive shall
breach Sections 4 or 6 hereof, in addition to any other remedies the Company may
have in the event Executive breaches this Agreement, the Company's obligation
pursuant to this Section 5(d) to continue such salary, Guaranteed 1997 Bonus,
benefits and perquisites shall cease and Executive's rights thereto shall
terminate and shall be forfeited. In addition, the Company shall provide
out-placement services to Executive, using a mutually acceptable out-placement
firm, for up to six (6) months from the date of termination under this Section
5(d); provided, however, that the cost to the Company for such services shall
not exceed $20,000. Any changes by the Company in Executive's title, duties,
reporting responsibility or place of performance as set forth in Section 2
hereof, without the consent of Executive, shall be deemed a termination pursuant
to this Section 5(d).
(ii) If, within one year following a Change of
Control, as hereafter defined, (A) Executive's employment is terminated by the
Company or its successor for any reason other than as provided in Sections 5(b)
or (c) (including a deemed termination by reason of any changes referred to in
the last sentence of Section 5(d)(i)), or (B) Executive is required to relocate
to an office of the Company located outside the Tri-State Area (i.e., New York,
New Jersey and Connecticut) (whether or not such office is the principal
executive office of the Company), then at the time of such event, all options
previously granted to Executive pursuant to the Company's 1995 Stock Incentive
Plan or the 1997 Stock Incentive Plan, including options assumed, or substituted
therefor, by the Company or its successor, shall immediately vest and be
exercisable by Executive in full, and Executive shall thereafter be entitled to
exercise such options for the balance of their respective terms. For purposes
hereof, Change of Control shall mean any of the following occurrences:
(1) any "person" as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934 ("Exchange Act") (other
than the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company and
other than Joseph Cayre, Stanley Cayre, Kenneth Cayre and
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<PAGE> 7
their respective spouses or children or trusts for such
children), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding
securities (other than as a result of a merger or
consolidation covered by clause (3)(i) below in connection
with a merger involving the Company which would result in
voting securities of the Company outstanding immediately prior
thereto continuing to represent more than 50% of the combined
voting power of the voting securities of such "person"
outstanding immediately after such merger or consolidation);
(2) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
of the Company, and any new director (other than a director
designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (1),
(3) or (4) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
(3) the stockholders of the Company approve a merger or
consolidation of the Company with any other entity, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) No Further Liability; Release. Payment made and
performance by the Company in accordance with this Section 5 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary through the date of termination of Executive's
employment and making any severance payment and continuing benefits and
perquisites pursuant to and in
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<PAGE> 8
accordance with this Section 5 (as applicable), the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives shall have no further obligation or
liability to Executive or any other person under this Agreement. The Company
shall have the right to condition the payment of any severance or other amounts
pursuant to Sections 5(c) or 5(d) hereof upon the delivery by Executive to the
Company of a release in form and substance satisfactory to the Company of any
and all claims Executive may have against the Company and its directors,
officers, employees, subsidiaries, affiliates, stockholders, successors,
assigns, agents and representatives arising out of or related to Executive's
employment by the Company and termination of such employment.
(f) Option Term in the Event of Death or Disability.
In the event that this Agreement is terminated by reason of Executive's death or
disability, he or his estate, as the case may be, shall be entitled to exercise
any Options which have vested as of the date of such termination, for a period
of one year from such termination, and the applicable option agreement between
the Company and Executive shall reflect such extension.
6. Confidential Information.
(a) Existence of Confidential Information. The
Company owns and has developed and compiled, and will develop and compile,
certain proprietary techniques and confidential information which have great
value to its business (referred to in this Agreement, collectively, as
"Confidential Information"). Confidential Information includes not only
information disclosed by the Company to Executive, but also information
developed or learned by Executive during the course or as a result of employment
with the Company, which information shall be the property of the Company.
Confidential Information includes all information that has or could have
commercial value or other utility in the business in which the Company is
engaged or contemplates engaging, and all information of which the unauthorized
disclosure could be detrimental to the interests of the Company, whether or not
such information is specifically labelled as Confidential Information by the
Company. By way of example and without limitation, Confidential Information
includes any and all information developed, obtained, licensed by or to or owned
by the Company concerning trade secrets, techniques, know-how (including
designs, plans, procedures, merchandising, marketing, distribution and
warehousing know-how, processes, and research records), software, computer
programs and designs, development tools, and any other intellectual property
created, used or sold (through a license or otherwise) by the Company,
Electronic Data Information know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, store plans, budgets, projections, customer, supplier, licensee, licensor
and subcontractor identities, characteristics, agreements and operating
procedures, and salary, staffing and employment information.
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<PAGE> 9
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of duties hereunder the Company
discloses to and entrusts Executive with Confidential Information which is the
exclusive property of the Company and which Executive may possess or use only in
the performance of duties for the Company. Executive also acknowledges that
Executive is aware that the unauthorized disclosure of Confidential Information,
among other things, may be prejudicial to the Company's interests, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
directly of indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership, individual or other third party,
other than in the course of Executive's assigned duties and for the benefit of
the Company, any Confidential Information, either during the Agreement Term or
thereafter. In the event Executive desires to publish the results of Executive's
work for or experiences with the Company through literature, interviews or
speeches, Executive will submit requests for such interviews or such literature
or speeches to the Chief Executive Officer of the Company at least fourteen (14)
days before any anticipated dissemination of such information for a
determination of whether such disclosure is in the best interests of the
Company, including whether such disclosure may impair trade secret status or
constitute an invasion of privacy. Executive agrees not to publish, disclose or
otherwise disseminate such information without the prior written approval of the
Chief Executive Officer of the Company.
(c) Delivery of Records, Etc. In the event
Executive's employment with the Company ceases for any reason, Executive will
not remove from the Company's premises without its prior written consent any
records (written or electronic), files, drawings, documents, equipment,
materials and writings received from, created for or belonging to the Company,
including those which relate to or contain Confidential Information, or any
copies thereof. Upon request or when employment with the Company terminates,
Executive will immediately deliver the same to the Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the
benefit of and be enforceable by, and may be assigned by the Company to, any
purchaser of all or substantially all of the Company's business or assets, any
successor to the Company or any assignee thereof (whether direct or indirect, by
purchase, merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place.
(b) Executive. Executive's rights and obligations
under this Agreement shall not be transferable by Executive by assignment or
otherwise, and any purported assignment, transfer or delegation thereof shall be
void; provided, however, that if Executive shall die, all amounts then payable
to Executive hereunder shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be no
such designee, to Executive's estate.
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<PAGE> 10
8. Miscellaneous.
(a) Other Obligations. Executive represents and
warrants that neither Executive's employment with the Company nor Executive's
performance of Executive's obligations hereunder will conflict with or violate
or otherwise are inconsistent with any other obligations, legal or otherwise,
which Executive may have.
(b) Nondisclosure; Other Employers. Executive will
not disclose to the Company, or use, or induce the Company to use, any
proprietary information, trade secrets or confidential business information of
others. Executive represents and warrants that Executive has returned all
property, proprietary information, trade secrets and confidential business
information belonging to all prior employers.
(c) Cooperation. Following termination of employment
with the Company, Executive shall cooperate with the Company, as requested by
the Company, to affect a transition of Executive's responsibilities and to
ensure that the Company is aware of all matters being handled by Executive.
(d) No Duty to Mitigate. Executive shall be under no
duty to mitigate with respect to any severance or other amounts payable pursuant
to Sections 5(c) or 5(d) hereof.
(e) Protection of Reputation. During the Agreement
Term and thereafter, the Company and Executive agree that neither will take any
action which is intended, or would reasonably be expected, to harm the other or
its reputation or which would reasonably be expected to lead to unwanted or
unfavorable publicity to the other.
(f) Governing Law. This Agreement, including the
validity, interpretation, construction and performance of this Agreement, shall
be governed by and construed in accordance with the internal laws of the State
of New York, without regard to principles of conflicts of law. All actions and
proceedings relating directly or indirectly to this Agreement shall be litigated
in any state court or federal court located in New York, New York. The parties
hereto expressly consent to the jurisdiction of any such court and to venue
therein and consent to the service of process in any such action or proceeding
by certified or registered mailing of the summons and complaint therein directed
to Executive at the address as provided in Section 8(m) hereof and to the
Company's designated agent for service of process (which initially shall be GT
Interactive Software Corp., 16 East 40th Street, New York, New York 10016, Attn:
Director of Legal Affairs; which agent may be changed by the Company upon thirty
(30) days' prior written notice to Executive).
(g) Entire Agreement. This Agreement (including the
Exhibit hereto) contains the entire agreement and understanding between the
parties hereto in respect of the subject matter hereof and supersedes, cancels
and annuls any prior or contemporaneous written or oral agreements,
understandings, commitments and practices between them respecting the subject
matter hereof, including all prior employment
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<PAGE> 11
agreements, if any, between the Company and Executive, which agreement(s) hereby
are terminated and shall be of no further force or effect.
(h) Amendment. This Agreement may be amended only by
a writing which makes express reference to this Agreement as the subject of such
amendment and which is signed by Executive and, on behalf of the Company, by its
duly authorized officer.
(i) Severability. If any term, provision, covenant or
condition of this Agreement or part thereof, or the application thereof to any
person, place or circumstance, shall be held to be invalid, unenforceable or
void by a court of competent jurisdiction, the remainder of this Agreement and
such term, provision, covenant or condition shall remain in full force and
effect, and any such invalid, unenforceable or void term, provision, covenant or
condition shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited, and the court shall have the power to
modify, to the extent necessary to render the same and the remainder of this
Agreement valid, enforceable and lawful. In this regard, Executive acknowledges
that the provisions of Sections 4 and 6 are reasonable and necessary for the
protection of the Company.
(j) Construction. The headings and captions of this
Agreement are provided for convenience only and are intended to have no effect
in construing or interpreting this Agreement. The language in all parts of this
Agreement shall be in all cases construed according to its fair meaning and not
strictly for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation". As used
herein, "Company" shall mean the Company and its subsidiaries and any purchaser
of, successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.
(k) Nonwaiver. Neither any course of dealing nor any
failure or neglect of either party hereto in any instance to exercise any right,
power or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(l) Remedies for Breach. The parties hereto agree
that Executive is obligated under this Agreement to render personal services
during the Agreement Term of a special, unique, unusual, extraordinary and
intellectual character, thereby giving this Agreement peculiar value, and, in
the event of a breach or threatened breach of any covenant of Executive herein,
the injury or imminent injury to the value and the goodwill of the Company's
business could not be reasonably or adequately compensated in damages in an
action at law. Accordingly, Executive expressly acknowledges that the Company
shall be
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<PAGE> 12
entitled to specific performance, injunctive relief or any other equitable
remedy against Executive, without the posting of a bond, in the event of any
breach or threatened breach of any provision of this Agreement by Executive
(including Sections 4 and 6 hereof). Without limiting the generality of the
foregoing, if Executive breaches Sections 4 or 6 hereof, such breach will
entitle the Company to enjoin Executive from disclosing any Confidential
Information to any Competing Business, to enjoin such Competing Business from
receiving Executive or using any such Confidential Information and/or to enjoin
Executive from rendering personal services to or in connection with such
Competing Business. The rights and remedies of the parties hereto are cumulative
and shall not be exclusive, and each such party shall be entitled to pursue all
legal and equitable rights and remedies and to secure performance of the
obligations and duties of the other under this Agreement, and the enforcement of
one or more of such rights and remedies by a party shall in no way preclude such
party from pursuing, at the same time or subsequently, any and all other rights
and remedies available to it.
(m) Notices. Any notice, request, consent or approval
required or permitted to be given under this Agreement or pursuant to law shall
be sufficient if in writing, and if and when sent by certified or registered
mail, return receipt requested, with postage prepaid, to Executive's residence
(as reflected in the Company's records or as otherwise designated by Executive
on thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office, attention: President (with copies to the Director of
Legal Affairs), as the case may be. All such notices, requests, consents and
approvals shall be effective upon being deposited in the United States mail.
However, the time period in which a response thereto must be given shall
commence to run from the date of receipt on the return receipt of the notice,
request, consent or approval by the addressee thereof. Rejection or other
refusal to accept, or the inability to deliver because of changed address of
which no notice was given as provided herein, shall be deemed to be receipt of
the notice, request, consent or approval sent.
(n) Assistance in Proceedings, Etc. Executive shall,
without additional compensation, during and after expiration of the Agreement
Term, upon reasonable notice, furnish such information and proper assistance to
the Company as may reasonably be required by the Company in connection with any
legal or quasi-legal proceeding, including any external or internal
investigation, involving the Company or any of its affiliates or in which any of
them is, or may become, a party.
(o) Survival. Cessation or termination of Executive's
employment with the Company shall not result in termination of this Agreement.
The respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder. This Agreement shall not terminate upon, and
shall remain in full force and effect following, expiration of the Agreement
Term and all rights and obligations of the parties hereto as and to the extent
provided herein shall survive such expiration.
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<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
GT Interactive Software Corp. EXECUTIVE:
By: /s/ Ronald Chaimowitz /s/ David Chemerow
------------------------------- ----------------------------------------
Name: Ronald Chaimowitz David Chemerow
Title: Chief Executive Officer
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<PAGE> 14
Schedule A
Title: Executive Vice President and Chief Operating Officer
Reporting to: The Chairman of the Board, the Chief Executive Officer or the
President of the Company.
Boards of Directors: Playboy Enterprises, Inc.
Dunham's Athleisure Corp.
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<PAGE> 1
Exhibit 10.3
GT INTERACTIVE SOFTWARE CORP.
1997 STOCK INCENTIVE PLAN
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
ARTICLE I
GENERAL
<S> <C> <C>
1.1 Purpose................................................................................. 1
1.2 Administration.......................................................................... 1
1.3 Persons Eligible for Awards............................................................. 3
1.4 Types of Awards Under Plan.............................................................. 4
1.5 Shares Available for Awards............................................................. 4
1.6 Definitions of Certain Terms............................................................ 6
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards............................................................ 10
2.2 No Rights as a Shareholder.............................................................. 10
2.3 Grant of Stock Options, Stock Appreciation Rights and Dividend Equivalent Rights........ 11
2.4 Exercise of Options and Stock Appreciation Rights....................................... 15
2.5 Termination of Employment; Death........................................................ 17
2.6 Grant of Restricted Stock............................................................... 19
2.7 Grant of Restricted Stock Units......................................................... 21
2.8 Other Stock-Based Awards................................................................ 22
2.9 Grant of Dividend Equivalent Rights..................................................... 23
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards........................................... 24
3.2 Tax Withholding......................................................................... 25
3.3 Restrictions............................................................................ 26
3.4 Nonassignability........................................................................ 27
3.5 Requirement of Notification of Election Under Section 83(b) of the Code................. 27
3.6 Requirement of Notification Upon Disqualifying Disposition Under Section 421(b) of the
Code.................................................................................. 28
3.7 Dissolution, Liquidation, Merger........................................................ 28
3.8 Right of Discharge Reserved............................................................. 30
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
3.9 Nature of Payments...................................................................... 30
3.10 Non-Uniform Determinations.............................................................. 30
3.11 Other Payments or Awards................................................................ 31
3.12 Section Headings........................................................................ 31
3.13 Effective Date and Term of Plan......................................................... 31
3.14 Governing Law........................................................................... 32
</TABLE>
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<PAGE> 4
ARTICLE I
GENERAL
1.1 Purpose
The purpose of the GT Interactive Software Corp. 1997 Stock
Incentive Plan (the "Plan") is to provide for officers, other employees and
directors of, and consultants to, GT Interactive Software Corp. (the "Company")
and its subsidiaries an incentive (a) to enter into and remain in the service of
the Company, (b) to enhance the long-term performance of the Company, and (c) to
acquire a proprietary interest in the success of the Company.
1.2 Administration
1.2.1 Subject to Section 1.2.6, the Plan shall be administered
by the Compensation Committee (the "Committee") of the board of directors of the
Company (the "Board"), which shall consist of not less than two directors. The
members of the Committee shall be appointed by, and serve at the pleasure of,
the Board. To the extent required for transactions under the Plan to qualify for
the exemptions available under Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934 (the "1934 Act"), all actions relating to awards
to persons subject to Section 16 of the 1934 Act shall be taken by the Board
unless each person who serves on the Committee is a "non-employee director"
within the meaning of Rule 16b-3 or such actions are taken by a sub-committee of
the Committee (or the Board) comprised solely of "non-employee directors". To
the
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<PAGE> 5
extent required for compensation realized from awards under the Plan to be
deductible by the Company pursuant to section 162(m) of the Internal Revenue
Code of 1986 (the "Code"), the members of the Committee shall be "outside
directors" within the meaning of section 162(m).
1.2.2 The Committee shall have the authority (a) to exercise
all of the powers granted to it under the Plan, (b) to construe, interpret and
implement the Plan and any Plan Agreements executed pursuant to Section 2.1, (c)
to prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations, (d) to make all determinations
necessary or advisable in administering the Plan, (e) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, and (f) to
amend the Plan to reflect changes in applicable law.
1.2.3 Actions of the Committee shall be taken by the vote of a
majority of its members. Any action may be taken by a written instrument signed
by a majority of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
1.2.4 The determination of the Committee on all matters
relating to the Plan or any Plan Agreement shall be final, binding and
conclusive.
1.2.5 No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any award
thereunder.
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1.2.6 Notwithstanding anything to the contrary contained
herein: (a) until the Board shall appoint the members of the Committee, the Plan
shall be administered by the Board; and (b) the Board may, in its sole
discretion, at any time and from time to time, grant awards or resolve to
administer the Plan. In either of the foregoing events, the Board shall have all
of the authority and responsibility granted to the Committee herein.
1.3 Persons Eligible for Awards
Awards under the Plan may be made to such directors, officers
and other employees of the Company and its subsidiaries (including prospective
employees conditioned on their becoming employees), and to such consultants to
the Company and its subsidiaries (collectively, "key persons") as the Committee
shall in its discretion select.
1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a) incentive
stock options (within the meaning of section 422 of the Code), (b) nonqualified
stock options, (c) stock appreciation rights, (d) dividend equivalent rights,
(e) restricted stock, (f) restricted stock units and (g) other stock-based
awards, all as more fully set forth in Article II. The term "award" means any of
the foregoing. No incentive stock option (other than an incentive stock option
that may be assumed or issued by the Company in connection with a transaction to
which section 424(a) of the
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Code applies) may be granted to a person who is not an employee of the Company
on the date of grant.
1.5 Shares Available for Awards
1.5.1 The total number of shares of common stock of the
Company, par value $.01 per share ("Common Stock"), which may be transferred
pursuant to awards granted under the Plan shall be initially 4,000,000 shares
and may be increased annually, commencing January 1, 2000 at the discretion of
the Board, by an amount up to 1% of the shares of Common Stock then outstanding.
Such shares may be authorized but unissued Common Stock or authorized and issued
Common Stock held in the Company's treasury or acquired by the Company for the
purposes of the Plan. The Committee may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend setting forth
such restrictions on transferability as may apply to such shares pursuant to the
Plan.
1.5.2 The total number of shares of Common Stock with respect
to which stock options and stock appreciation rights may be granted to any one
employee of the Company or a subsidiary during any one year period shall not
exceed 1,000,000.
1.5.3 Subject to any required action by the shareholders of
the Company, the number of shares of Common Stock covered by each outstanding
award, the number of shares available for awards, the number of shares that may
be subject to awards to any one employee, and the price per share of Common
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Stock covered by each such outstanding award shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an award.
After any adjustment made pursuant to this Section 1.5.3, the number of shares
subject to each outstanding award shall be rounded to the nearest whole number.
1.5.4 Except as provided in this Section 1.5 and in Section
2.3.8, there shall be no limit on the number or the value of the shares of
Common Stock that may be subject to awards to any individual under the Plan.
1.6 Definitions of Certain Terms
1.6.1 The "Fair Market Value" of a share of Common Stock on
any day shall be determined as follows.
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(a) If the principal market for the Common Stock (the
"Market") is a national securities exchange or the NASDAQ Stock Exchange, the
last sale price or, if no reported sales take place on the applicable date, the
average of the high bid and low asked price of Common Stock as reported for such
Market on such date or, if no such quotation is made on such date, on the next
preceding day on which there were quotations, provided that such quotations
shall have been made within the ten (10) business days preceding the applicable
date;
(b) If the Market is the NASDAQ National List, the
NASDAQ Supplemental List or another market, the average of the high bid and low
asked price for Common Stock on the applicable date, or, if no such quotations
shall have been made on such date, on the next preceding day on which there were
quotations, provided that such quotations shall have been made within the ten
(10) business days preceding the applicable date; or,
(c) In the event that neither paragraph (a) nor (b)
shall apply, the Fair Market Value of a share of Common Stock on any day shall
be determined in good faith by the Committee.
1.6.2 The term "incentive stock option" means an option that
is intended to qualify for special federal income tax treatment pursuant to
sections 421 and 422 of the Code, as now constituted or subsequently amended, or
pursuant to a successor provision of the Code, and which is so designated in the
applicable Plan Agreement. Any option that is not specifically designated as an
incentive stock option shall under no circumstances be considered an incentive
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stock option. Any option that is not an incentive stock option is referred to
herein as a "nonqualified stock option."
1.6.3 The term "employment" means, in the case of a grantee of
an award under the Plan who is not an employee of the Company, the grantee's
association with the Company or a subsidiary as a director, consultant or
otherwise.
1.6.4 A grantee shall be deemed to have a "termination of
employment" upon ceasing employment with the Company and all of its subsidiaries
or by a corporation assuming awards in a transaction to which section 424(a) of
the Code applies. The Committee may in its discretion determine (a) whether any
leave of absence constitutes a termination of employment for purposes of the
Plan, (b) the impact, if any, of any such leave of absence on awards theretofore
made under the Plan, and (c) when a change in a non-employee's association with
the Company constitutes a termination of employment for purposes of the Plan.
The Committee shall have the right to determine whether the termination of a
grantee's employment is a dismissal for cause and the date of termination in
such case, which date the Committee may retroactively deem to be the date of the
action that is cause for dismissal. Such determinations of the Committee shall
be final, binding and conclusive.
1.6.5 The term "cause," when used in connection with
termination of a grantee's employment, shall have the meaning set forth in any
then-effective employment agreement between the grantee and the Company or a
subsidiary
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thereof. In the absence of such an employment agreement provision, "cause"
means: (a) conviction of any crime (whether or not involving the Company)
constituting a felony in the jurisdiction involved; (b) engaging in any
substantiated act involving moral turpitude; (c) engaging in any act which, in
each case, subjects, or if generally known would subject, the Company to public
ridicule or embarrassment; (d) material violation of the Company's policies,
including, without limitation, those relating to sexual harassment or the
disclosure or misuse of confidential information; (e) serious neglect or
misconduct in the performance of the grantee's duties for the Company or a
subsidiary or willful or repeated failure or refusal to perform such duties; in
each case as determined by the Committee, which determination shall be final,
binding and conclusive.
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ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards
Each award granted under the Plan (except an award of
unrestricted stock) shall be evidenced by a written agreement ("Plan Agreement")
which shall contain such provisions as the Committee in its discretion deems
necessary or desirable. By accepting an award pursuant to the Plan, a grantee
thereby agrees that the award shall be subject to all of the terms and
provisions of the Plan and the applicable Plan Agreement.
2.2 No Rights as a Shareholder
No grantee of an option or stock appreciation right (or other
person having the right to exercise such award) shall have any of the rights of
a shareholder of the Company with respect to shares subject to such award until
the issuance of a stock certificate to such person for such shares. Except as
otherwise provided in Section 1.5.3, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
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2.3 Grant of Stock Options, Stock Appreciation Rights and Dividend Equivalent
Rights
2.3.1 The Committee may grant incentive stock options and
nonqualified stock options (collectively, "options") to purchase shares of
Common Stock from the Company, to such key persons, in such amounts and subject
to such terms and conditions, as the Committee shall determine in its
discretion, subject to the provisions of the Plan.
2.3.2 The Committee may grant stock appreciation rights to
such key persons, in such amounts and subject to such terms and conditions, as
the Committee shall determine in its discretion, subject to the provisions of
the Plan. Stock appreciation rights may be granted in connection with all or any
part of, or independently of, any option granted under the Plan. A stock
appreciation right granted in connection with a nonqualified stock option may be
granted at or after the time of grant of such option. A stock appreciation right
granted in connection with an incentive stock option may be granted only at the
time of grant of such option.
2.3.3 The grantee of a stock appreciation right shall have the
right, subject to the terms of the Plan and the applicable Plan Agreement, to
receive from the Company an amount equal to (a) the excess of the Fair Market
Value of a share of Common Stock on the date of exercise of the stock
appreciation right over (b) the exercise price of such right as set forth in the
Plan Agreement (or over the option exercise price if the stock appreciation
right is granted in connection with an
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option), multiplied by (c) the number of shares with respect to which the stock
appreciation right is exercised. Payment upon exercise of a stock appreciation
right shall be in cash or in shares of Common Stock (valued at their Fair Market
Value on the date of exercise of the stock appreciation right) or both, all as
the Committee shall determine in its discretion. Upon the exercise of a stock
appreciation right granted in connection with an option, the number of shares
subject to the option shall be correspondingly reduced by the number of shares
with respect to which the stock appreciation right is exercised. Upon the
exercise of an option in connection with which a stock appreciation right has
been granted, the number of shares subject to the stock appreciation right shall
be correspondingly reduced by the number of shares with respect to which the
option is exercised.
2.3.4 Each Plan Agreement with respect to an option shall set
forth the amount (the "option exercise price") payable by the grantee to the
Company upon exercise of the option evidenced thereby. The option exercise price
per share shall be determined by the Committee in its discretion; provided,
however, that the option exercise price of an incentive stock option shall be at
least 100% of the Fair Market Value of a share of Common Stock on the date the
option is granted (except as permitted in connection with the assumption or
issuance of options in a transaction to which section 424(a) of the Code
applies), and provided further that in no event shall the option exercise price
be less than the par value of a share of Common Stock.
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2.3.5 Each Plan Agreement with respect to an option or stock
appreciation right shall set forth the periods during which the award evidenced
thereby shall be exercisable, whether in whole or in part. Such periods shall be
determined by the Committee in its discretion; provided, however, that no
incentive stock option (or a stock appreciation right granted in connection with
an incentive stock option) shall be exercisable more than 10 years after the
date of grant.
2.3.6 The Committee may in its discretion include in any Plan
Agreement with respect to an option (the "original option") a provision that an
additional option (the "additional option") shall be granted to any grantee who,
pursuant to Section 2.4.3(b), delivers shares of Common Stock in partial or full
payment of the exercise price of the original option. The additional option
shall be for a number of shares of Common Stock equal to the number thus
delivered, shall have an exercise price equal to the Fair Market Value of a
share of Common Stock on the date of exercise of the original option, and shall
have an expiration date no later than the expiration date of the original
option. In the event that a Plan Agreement provides for the grant of an
additional option, such Agreement shall also provide that the exercise price of
the original option be no less than the Fair Market Value of a share of Common
Stock on its date of grant, and that any shares that are delivered pursuant to
Section 2.4.3(b) in payment of such exercise price shall have been held for at
least six months.
2.3.7 To the extent that the aggregate Fair Market Value
(determined as of the time the option is granted) of the stock with respect to
which incentive
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stock options granted under this Plan and all other plans of the Company and any
subsidiary are first exercisable by any employee during any calendar year shall
exceed the maximum limit (currently, $100,000), if any, imposed from time to
time under section 422 of the Code, such options shall be treated as
nonqualified stock options.
2.3.8 Notwithstanding the provisions of Sections 2.3.4 and
2.3.5, to the extent required under section 422 of the Code, an incentive stock
option may not be granted under the Plan to an individual who, at the time the
option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of his employer corporation or of its
parent or subsidiary corporations (as such ownership may be determined for
purposes of section 422(b)(6) of the Code) unless (a) at the time such incentive
stock option is granted the option exercise price is at least 110% of the Fair
Market Value of the shares subject thereto and (b) the incentive stock option by
its terms is not exercisable after the expiration of 5 years from the date it is
granted.
2.4 Exercise of Options and Stock Appreciation Rights
Subject to the provisions of this Article II, each option or
stock appreciation right granted under the Plan shall be exercisable as follows:
2.4.1 Unless the applicable Plan Agreement otherwise provides,
an option or stock appreciation right shall become exercisable in five
substantially equal installments, on each of the first, second, third, fourth
and fifth anniversaries
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of the date of grant, and each installment, once it becomes exercisable, shall
remain exercisable until expiration, cancellation or termination of the award.
2.4.2 Unless the applicable Plan Agreement otherwise provides,
an option or stock appreciation right may be exercised from time to time as to
all or part of the shares as to which such award is then exercisable (but, in
any event, only for whole shares). A stock appreciation right granted in
connection with an option may be exercised at any time when, and to the same
extent that, the related option may be exercised. An option or stock
appreciation right shall be exercised by the filing of a written notice with the
Company, on such form and in such manner as the Committee shall prescribe.
2.4.3 Any written notice of exercise of an option shall be
accompanied by payment for the shares being purchased. Such payment shall be
made: (a) by certified or official bank check (or the equivalent thereof
acceptable to the Company) for the full option exercise price; or (b) unless the
applicable Plan Agreement provides otherwise, by delivery of shares of Common
Stock acquired at least six months prior to the option exercise date and having
a Fair Market Value (determined as of the exercise date) equal to all or part of
the option exercise price and a certified or official bank check (or the
equivalent thereof acceptable to the Company) for any remaining portion of the
full option exercise price; or (c) at the discretion of the Committee and to the
extent permitted by law, by such other provision as the Committee may from time
to time prescribe.
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2.4.4 Promptly after receiving payment of the full option
exercise price, or after receiving notice of the exercise of a stock
appreciation right for which payment will be made partly or entirely in shares,
the Company shall, subject to the provisions of Section 3.3 (relating to certain
restrictions), deliver to the grantee or to such other person as may then have
the right to exercise the award, a certificate or certificates for the shares of
Common Stock for which the award has been exercised. If the method of payment
employed upon option exercise so requires, and if applicable law permits, an
optionee may direct the Company to deliver the certificate(s) to the optionee's
stockbroker.
2.5 Termination of Employment; Death
2.5.1 Except to the extent otherwise provided in Section 2.5.2
or 2.5.3 or in the applicable Plan Agreement, all options and stock appreciation
rights not theretofore exercised shall terminate upon termination of the
grantee's employment for any reason (including death).
2.5.2 If a grantee's employment terminates for any reason
other than death or dismissal for cause, the grantee may exercise any
outstanding option or stock appreciation right on the following terms and
conditions: (a) exercise may be made only to the extent that the grantee was
entitled to exercise the award on the date of employment termination; and (b)
exercise must occur within 90 days after employment terminates, except that this
90 day period shall be increased to one year if the termination is by reason of
disability, but in no event after the expiration date of the award as set forth
in the Plan Agreement. In the case of an incentive
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stock option, the term "disability" for purposes of the preceding sentence shall
have the meaning given to it by section 422(c)(7) of the Code.
2.5.3 If a grantee dies while employed by the Company or any
subsidiary, or after employment termination but during the period in which the
grantee's awards are exercisable pursuant to Section 2.5.2, any outstanding
option or stock appreciation right shall be exercisable on the following terms
and conditions: (a) exercise may be made only to the extent that the grantee was
entitled to exercise the award on the date of death; and (b) exercise must occur
by the earlier of the first anniversary of the grantee's death or the expiration
date of the award. Any such exercise of an award following a grantee's death
shall be made only by the grantee's executor or administrator, unless the
grantee's will specifically disposes of such award, in which case such exercise
shall be made only by the recipient of such specific disposition. If a grantee's
personal representative or the recipient of a specific disposition under the
grantee's will shall be entitled to exercise any award pursuant to the preceding
sentence, such representative or recipient shall be bound by all the terms and
conditions of the Plan and the applicable Plan Agreement which would have
applied to the grantee including, without limitation, the provisions of Sections
3.3 and 3.7 hereof.
2.6 Grant of Restricted Stock
2.6.1 The Committee may grant restricted shares of Common
Stock to such key persons, in such amounts, and subject to such terms and
conditions as the Committee shall determine in its discretion, subject to the
provisions of the
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Plan. Restricted stock awards may be made independently of or in connection with
any other award under the Plan. A grantee of a restricted stock award shall have
no rights with respect to such award unless such grantee accepts the award
within such period as the Committee shall specify by executing a Plan Agreement
in such form as the Committee shall determine and, if the Committee shall so
require, makes payment to the Company by certified or official bank check (or
the equivalent thereof acceptable to the Company) in such amount as the
Committee may determine.
2.6.2 Promptly after a grantee accepts a restricted stock
award, the Company shall issue in the grantee's name a certificate or
certificates for the shares of Common Stock covered by the award. Upon the
issuance of such certificate(s), the grantee shall have the rights of a
shareholder with respect to the restricted stock, subject to the
nontransferability restrictions and Company repurchase rights described in
Sections 2.6.4 and 2.6.5 and to such other restrictions and conditions as the
Committee in its discretion may include in the applicable Plan Agreement.
2.6.3 Unless the Committee shall otherwise determine, any
certificate issued evidencing shares of restricted stock shall remain in the
possession of the Company until such shares are free of any restrictions
specified in the applicable Plan Agreement.
2.6.4 Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically
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provided in this Plan or the applicable Plan Agreement. The Committee at the
time of grant shall specify the date or dates (which may depend upon or be
related to the attainment of performance goals and other conditions) on which
the nontransferability of the restricted stock shall lapse. Unless the
applicable Plan Agreement provides otherwise, additional shares of Common Stock
or other property distributed to the grantee in respect of shares of restricted
stock, as dividends or otherwise, shall be subject to the same restrictions
applicable to such restricted stock.
2.6.5 During the 120 days following termination of the
grantee's employment for any reason, the Company shall have the right to require
the return of any shares to which restrictions on transferability apply, in
exchange for which the Company shall repay to the grantee (or the grantee's
estate) any amount paid by the grantee for such shares.
2.7 Grant of Restricted Stock Units
2.7.1 The Committee may grant awards of restricted stock units
to such key persons, in such amounts, and subject to such terms and conditions
as the Committee shall determine in its discretion, subject to the provisions of
the Plan. Restricted stock units may be awarded independently of or in
connection with any other award under the Plan.
2.7.2 At the time of grant, the Committee shall specify the
date or dates on which the restricted stock units shall become fully vested and
nonforfeit-
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able, and may specify such conditions to vesting as it deems appropriate. In the
event of the termination of the grantee's employment by the Company and its
subsidiaries for any reason, restricted stock units that have not become
nonforfeitable shall be forfeited and cancelled. The Committee at any time may
accelerate vesting dates and otherwise waive or amend any conditions of an award
of restricted stock units.
2.7.3 At the time of grant, the Committee shall specify the
maturity date applicable to each grant of restricted stock units, which may be
determined at the election of the grantee. Such date may be later than the
vesting date or dates of the award. On the maturity date, the Company shall
transfer to the grantee one unrestricted, fully transferable share of Common
Stock for each restricted stock unit scheduled to be paid out on such date and
not previously forfeited. The Committee shall specify the purchase price, if
any, to be paid by the grantee to the Company for such shares of Common Stock.
2.8 Other Stock-Based Awards
The Board may authorize other types of stock-based awards
(including the grant of unrestricted shares), which the Committee may grant to
such key persons, and in such amounts and subject to such terms and conditions,
as the Committee shall in its discretion determine, subject to the provisions of
the Plan. Such awards may entail the transfer of actual shares of Common Stock
to Plan participants, or payment in cash or otherwise of amounts based on the
value of shares of Common Stock.
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2.9 Grant of Dividend Equivalent Rights
The Committee may in its discretion include in the Plan
Agreement with respect to any award a dividend equivalent right entitling the
grantee to receive amounts equal to the ordinary dividends that would be paid,
during the time such award is outstanding and unexercised, on the shares of
Common Stock covered by such award if such shares were then outstanding. In the
event such a provision is included in a Plan Agreement, the Committee shall
determine whether such payments shall be made in cash, in shares of Common Stock
or in another form, whether they shall be conditioned upon the exercise of the
award to which they relate, the time or times at which they shall be made, and
such other terms and conditions as the Committee shall deem appropriate.
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ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards
3.1.1 The Board may from time to time suspend, discontinue,
revise or amend the Plan in any respect whatsoever, except that no such
amendment shall materially impair any rights or materially increase any
obligations under any award theretofore made under the Plan without the consent
of the grantee (or, after the grantee's death, the person having the right to
exercise the award). For purposes of this Section 3.1, any action of the Board
or the Committee that alters or affects the tax treatment of any award shall not
be considered to materially impair any rights of any grantee.
3.1.2 Shareholder approval of any amendment shall be obtained
to the extent necessary to comply with section 422 of the Code (relating to
incentive stock options) or other applicable law or regulation.
3.1.3 The Committee may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would accelerate the time or
times at which the award becomes unrestricted or may be exercised, or waive or
amend any goals, restrictions or conditions set forth in the Agreement. However,
any such amendment (other than an amendment pursuant to Section 3.7) that
materially impairs the rights or materially increases the obligations of a
grantee
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under an outstanding award shall be made only with the consent of the grantee
(or, upon the grantee's death, the person having the right to exercise the
award).
3.2 Tax Withholding
3.2.1 As a condition to the receipt of any shares of Common
Stock pursuant to any award or the lifting of restrictions on any award, or in
connection with any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of the Company relating to
an award (including, without limitation, FICA tax), the Company shall be
entitled to require that the grantee remit to the Company an amount sufficient
in the opinion of the Company to satisfy such withholding obligation.
3.2.2 If the event giving rise to the withholding obligation
is a transfer of shares of Common Stock, then, unless otherwise specified in the
applicable Plan Agreement, the grantee may satisfy the withholding obligation
imposed under Section 3.2.1 by electing to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount of tax to be
withheld. For this purpose, Fair Market Value shall be determined as of the date
on which the amount of tax to be withheld is determined (and any fractional
share amount shall be settled in cash).
3.3 Restrictions
3.3.1 If the Committee shall at any time determine that any
consent (as hereinafter defined) is necessary or desirable as a condition of, or
in connection
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with, the granting of any award under the Plan, the issuance or purchase of
shares or other rights thereunder, or the taking of any other action thereunder
(each such action being hereinafter referred to as a "plan action"), then such
plan action shall not be taken, in whole or in part, unless and until such
consent shall have been effected or obtained to the full satisfaction of the
Committee.
3.3.2 The term "consent" as used herein with respect to any
plan action means (a) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or under any federal, state or
local law, rule or regulation, (b) any and all written agreements and
representations by the grantee with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (c) any and all consents,
clearances and approvals in respect of a plan action by any governmental or
other regulatory bodies.
3.4 Nonassignability
Except to the extent otherwise provided in the applicable Plan
Agreement, no award or right granted to any person under the Plan shall be
assignable or transferable other than by will or by the laws of descent and
distribution, and all such awards and rights shall be exercisable during the
life of the grantee only by the grantee or the grantee's legal representative.
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3.5 Requirement of Notification of Election Under Section 83(b) of the Code
If any grantee shall, in connection with the acquisition of
shares of Common Stock under the Plan, make the election permitted under section
83(b) of the Code (that is, an election to include in gross income in the year
of transfer the amounts specified in section 83(b)), such grantee shall notify
the Company of such election within 10 days of filing notice of the election
with the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code section
83(b).
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3.6 Requirement of Notification Upon Disqualifying Disposition Under Section
421(b) of the Code
If any grantee shall make any disposition of shares of Common
Stock issued pursuant to the exercise of an incentive stock option under the
circumstances described in section 421(b) of the Code (relating to certain
disqualifying dispositions), such grantee shall notify the Company of such
disposition within 10 days thereof.
3.7 Dissolution, Liquidation, Merger
3.7.1 In the event of the proposed dissolution or liquidation
of the Company, all outstanding awards will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, accelerate the date on which any award becomes exercisable or fully
vested and/or declare that any award shall terminate as of a specified date.
3.7.2 In the event of a merger or consolidation ("Merger") of
the Company with or into any other corporation or entity ("Corporation"),
outstanding awards shall be assumed or an equivalent option or right shall be
substituted by such successor Corporation or a parent or subsidiary of such
successor Corporation, unless the Committee determines, in the exercise of its
sole discretion, to accelerate the date on which an award becomes exercisable or
fully vested. In the absence of an assumption or substitution of awards, awards
shall, to the extent not exercised, terminate as of the date of the closing of
the Merger. For the
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<PAGE> 29
purposes of this Section 3.7.2, an award shall be considered assumed if, for
every share of Common Stock subject thereto immediately prior to the merger, the
grantee has the right, following the Merger, to acquire the consideration
received in the merger transaction by holders of shares of Common Stock (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares); provided, however, that
if such consideration received in the Merger was not solely common stock of the
successor Corporation or its parent, the Committee may, with the consent of the
successor Corporation and the participant, provide for the consideration to be
acquired pursuant to the award, for each share of Common Stock subject thereto,
to be solely common stock of the successor Corporation or its parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the Merger. For purposes hereof, the term "Merger" shall include any
transaction in which another corporation acquires all of the issued and
outstanding Common Stock of the Company.
3.8 Right of Discharge Reserved
Nothing in the Plan or in any Plan Agreement shall confer upon
any grantee the right to continue in the employ of the Company or affect any
right which the Company may have to terminate such employment.
-26-
<PAGE> 30
3.9 Nature of Payments
3.9.1 Any and all grants of awards and issuances of shares of
Common Stock under the Plan shall be in consideration of services performed for
the Company by the grantee.
3.9.2 All such grants and issuances shall constitute a special
incentive payment to the grantee and shall not be taken into account in
computing the amount of salary or compensation of the grantee for the purpose of
determining any benefits under any pension, retirement, profit-sharing, bonus,
life insurance or other benefit plan of the Company or under any agreement
between the Company and the grantee, unless such plan or agreement specifically
provides otherwise.
3.10 Non-Uniform Determinations
The Committee's determinations under the Plan need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective Plan
agreements, as to (a) the persons to receive awards under the Plan, (b) the
terms and provisions of awards under the Plan, and (c) the treatment of leaves
of absence pursuant to Section 1.6.4.
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<PAGE> 31
3.11 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to
limit or restrict the Company from making any award or payment to any person
under any other plan, arrangement or understanding, whether now existing or
hereafter in effect.
3.12 Section Headings
The section headings contained herein are for the purpose of
convenience only and are not intended to define or limit the contents of the
sections.
3.13 Effective Date and Term of Plan
3.13.1 The Plan was adopted by the Board on April 30, 1997,
subject to approval by the Company's shareholders. All awards under the Plan
prior to such shareholder approval are subject in their entirety to such
approval. If such approval is not obtained prior to the first anniversary of the
date of adoption of the Plan, the Plan and all awards thereunder shall terminate
on that date.
3.13.2 Unless sooner terminated by the Board, the provisions
of the Plan respecting the grant of incentive stock options shall terminate on
the day before the tenth anniversary of the adoption of the Plan by the Board,
and no incentive stock option awards shall thereafter be made under the Plan.
All awards made under the Plan prior to its termination shall remain in effect
until such awards
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<PAGE> 32
have been satisfied or terminated in accordance with the terms and provisions of
the Plan and the applicable Plan Agreements.
3.14 Governing Law
All rights and obligations under the Plan shall be construed
and interpreted in accordance with the laws of the State of New York, without
giving effect to principles of conflict of laws.
-29-
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