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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998 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.)
417 FIFTH AVENUE, NEW YORK, NY 10016
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 726-6500
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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 3, 1998, there were 68,080,134 shares of the registrant's
Common Stock outstanding.
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GT INTERACTIVE SOFTWARE CORP.
June 30, 1998 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of March 31, 1998 (audited) and June 30, 1998 3
Consolidated Statements of Operations for the Three Months Ended
June 30, 1997 and 1998 4
Consolidated Statements of Comprehensive Income for the Three Months Ended
June 30, 1997 and 1998 5
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 1997 and 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 11
Operations
PART II - OTHER INFORMATION
Item 1. Litigation 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1998
---- ----
(audited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,224 $ 8,660
Short-term investments 105 105
Receivables, net 134,815 162,065
Inventories, net 98,469 102,512
Royalty advances 10,009 8,924
Deferred income taxes 16,140 14,980
Income taxes receivable 10,684 12,117
Prepaid expenses and other current assets 7,954 7,736
--------- ---------
Total current assets 295,400 317,099
Property and equipment, net 29,049 32,497
Investments, at cost 10,089 10,089
Goodwill, net 28,043 27,162
Other assets 3,290 3,964
--------- ---------
Total assets $ 365,871 $ 390,811
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,062 $ 109,639
Accrued liabilities 49,414 48,784
Revolving credit facility 28,000 54,600
Royalties payable 40,395 31,798
Deferred income 156 167
Income taxes payable 3,449 1,853
Current portion of long-term liabilities 5 5
Due to related party 925 879
--------- ---------
Total current liabilities 225,406 247,725
Long-term liabilities 1,576 1,669
--------- ---------
Total liabilities 226,982 249,394
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par, 150,000,000 shares authorized,
67,991,926 and 68,074,935 shares issued and outstanding 680 681
Additional paid-in capital 131,382 131,730
Retained earnings 7,577 9,380
Cumulative translation adjustment (750) (374)
--------- ---------
Total stockholders' equity 138,889 141,417
--------- ---------
Total liabilities and stockholders' equity $ 365,871 $ 390,811
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1997 1998
---- ----
(unaudited)
<S> <C> <C>
Net revenues $ 102,737 $ 116,391
Cost of goods sold 60,163 55,898
Selling and distribution expenses 21,119 26,460
General and administrative expenses 9,344 12,453
Research and development 3,068 16,597
Amortization of goodwill 283 871
--------- ---------
Operating income 8,760 4,112
Interest and other expense, net (626) (1,176)
--------- ---------
Income before income taxes 8,134 2,936
Provision for income taxes 3,667 1,133
--------- ---------
Net income $ 4,467 $ 1,803
========= =========
Basic net income per share $ 0.07 $ 0.03
Weighted average number of shares outstanding 66,779 68,056
Diluted net income per share $ 0.07 $ 0.03
Weighted average number of shares outstanding 67,230 68,988
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1997 1998
---- ----
(unaudited)
<S> <C> <C>
Net income $ 4,467 $ 1,803
Other comprehensive income:
Foreign currency translation adjustments 358 376
Unrealized holding loss on securities (126) --
------- -------
Comprehensive income $ 4,699 $ 2,179
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------
1997 1998
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,467 $ 1,803
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,124 3,244
Deferred income taxes 4,353 1,159
Deferred income (2,403) 16
Changes in operating assets and liabilities:
Receivables, net (14,695) (27,310)
Inventories, net 5,631 (4,073)
Royalty advances (13,247) 1,085
Due to related party (119) (46)
Prepaid expenses and other current assets (342) 251
Accounts payable (6,391) 6,557
Accrued liabilities (7,071) (658)
Royalties payable (614) (8,598)
Income taxes payable (4,371) (1,605)
Income taxes receivable -- (1,433)
Long-term liabilities 1,330 88
Other 1,111 (672)
-------- --------
Net cash used in operating activities (31,237) (30,192)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (108) --
Purchase of property and equipment (6,073) (5,824)
Acquisitions, net (846) --
-------- --------
Net cash used in investing activities (7,027) (5,824)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility, net 23,200 26,600
Proceeds from exercise of stock options 2,107 348
-------- --------
Net cash provided by financing activities 25,307 26,948
-------- --------
Effect of exchange rates on cash and cash equivalents 358 504
-------- --------
Net decrease in cash and cash equivalents (12,599) (8,564)
Cash and cash equivalents - beginning of period 16,640 17,224
-------- --------
Cash and cash equivalents - end of period $ 4,041 $ 8,660
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS)
NOTE 1 - SUMMARY OF 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 notes 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 notes thereto included in the Company's
Transition Report on Form 10-K for the transition period from January 1, 1998 to
March 31, 1998.
Reclassifications
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to classifications used in the
current period.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 requires dual presentation of basic earnings per share ("EPS")
and diluted EPS on the face of all statements of earnings for all entities with
complex capital structures. Basic EPS is computed as net earnings divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation plans including stock options, restricted stock
awards, warrants and other convertible securities using the treasury stock
method.
Fiscal Year
Effective January 1, 1998, the Company has changed its fiscal year end
from December 31 to March 31.
NOTE 2 - ACQUISITIONS
In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), a software developer, for cash and stock.
Total consideration, including acquisition costs, was approximately $14.7
million, of which $5.4 million was cash and the balance of the purchase price
was the issuance of 0.7 million newly issued shares of the Company's Common
Stock and the assumption of approximately 0.3 million stock options. The
acquisition was accounted for as a purchase. The purchase price was allocated to
net assets acquired, purchased in-process research and development ("R&D"), and
goodwill and other intangibles. Purchased in-process R&D includes the value of
products in the development stage and not considered to have reached
technological feasibility. In accordance with the applicable accounting rules,
purchased in-process R&D is required to be expensed. Accordingly, $11,008 of
acquistion cost was expensed in the fourth quarter of 1997.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS)
NOTE 3 - INVENTORIES, NET
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1998
---- ----
(in thousands)
<S> <C> <C>
Finished goods $ 94,220 $ 97,721
Raw materials 4,249 4,791
-------- --------
$ 98,469 $102,512
======== ========
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
On January 21, 1997, the Company entered into a Revolving Credit
Agreement (the "Credit Agreement") with certain banks expiring on December 31,
1998. The Credit Agreement was amended on June 30, 1997 to increase the facility
from $40,000 to a maximum of $65,000 and subsequently, in July 1998, from
$65,000 to $80,000 through September 30, 1998, to be used for borrowings and
letters of credit. Borrowing is limited to fifty percent of adjusted
consolidated accounts receivable, and is secured by these receivables. The
borrowings under the Credit 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.
The Company intends to raise $100 million through a private placement
of senior subordinated notes (the "Notes") due 2005 to institutional investors
to be used for future acquisitions, fund operations and repay existing
indebtedness. The Company has also executed a commitment letter with First Union
National Bank and First Union Capital Markets for a revolving credit facility of
up to $125 million (the "New Credit Agreement") to be used to refinance certain
existing indebtedness, for ongoing working capital requirements and for other
general corporate purposes, including permitted acquisitions.
At June 30, 1998, the Company had outstanding debt of $54,600,
representing borrowings under the Credit Agreement, and letters of credit
amounting to $5,870.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Cash paid for income taxes $3,926 $4,525
Cash paid for interest 316 813
</TABLE>
NOTE 6 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS
The Company has two reportable segments: publishing and merchandising
and distribution. Publishing constitutes both internally developed and
externally licensed titles. Merchandising and distribution constitutes the sale
of other publishers' titles to various mass merchants.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on operating income of these segments.
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS)
NOTE 6 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
The Company's reportable segments are strategic business units with
different associated costs and profit margins. They are managed separately
because each business unit requires different planning, merchandising and
marketing strategies. The Company commenced reporting in these reportable
segments during the calendar year ended December 31, 1996.
The following unaudited summary represents the consolidated net
revenues and operating income by reportable segment for the three months ended
June 30, 1997 and 1998:
<TABLE>
<CAPTION>
Merchandising
and
Publishing Distribution Corporate Total
---------- ------------ --------- -----
<S> <C> <C> <C> <C>
Three Months Ended June 30, 1997:
Net revenues $ 64,094 $ 38,643 -- $102,737
Operating income 12,347 9,160 $(12,464) 9,043
Three Months Ended June 30, 1998:
Net revenues $ 70,662 $ 45,729 -- $116,391
Operating income 10,913 10,051 $(15,981) 4,983
</TABLE>
The following represents the reconciliation of operating income as
reported for reportable segments to consolidated totals for the three months
ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Operating income as reported for reportable segments $9,043 $4,983
Amortization of goodwill (283) (871)
------ ------
Operating income $8,760 $4,112
====== ======
</TABLE>
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GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS)
NOTE 6 - OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
Information about the Company's operations in the United States and
other geographic locations for the three months ended June 30, 1997 and 1998 are
presented below.
<TABLE>
<CAPTION>
Other
Geographic
United States Locations Total
------------- --------- -----
<S> <C> <C> <C>
Three Months Ended June 30, 1997:
Net revenues $ 86,466 $ 16,271 $ 102,737
Operating income 5,487 3,273 8,760
Total assets 313,817 42,946 356,763
Three Months Ended June 30, 1998:
Net revenues $ 96,053 $ 20,338 $ 116,391
Operating income (952) 5,064 4,112
Total assets 344,311 46,500 390,811
</TABLE>
NOTE 7 - SUBSEQUENT EVENTS
In July 1998, the Credit Agreement was amended to increase the facility
from $65,000 to $80,000 through September 30, 1998, to be used for borrowings
and letters of credit.
The Company intends to raise $100,000 through a private placement of
senior subordinated notes (the "Notes") due 2005 to institutional investors to
be used for future acquisitions, fund operations and repay existing
indebtedness. The Company has also executed a commitment letter with First
Union National Bank and First Union Capital Markets for a revolving credit
facility of up to $125,0000 (the "New Credit Agreement") to be used to
refinance certain existing indebtedness, for ongoing working capital
requirements and for other general corporate purposes, including permitted
acquisitions.
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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 11 through 17 of the Company's Transition Report on
Form 10-K for the transition period from January 1, 1998 to March 31, 1998.
OVERVIEW
The Company creates, publishes, merchandises and distributes
interactive entertainment, edutainment and value-priced consumer software for a
variety of platforms on a worldwide basis. Since it commenced operations in
February 1993, the Company has experienced rapid growth and its product and
customer mix has changed substantially.
Publishing, together with merchandising and distribution, are the two
major activities of the Company. Publishing is divided into front-line and
value-priced products. 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 revenues attributable to each category. In addition, a
particular product's margin may depend on whether it has been internally or
externally developed and on what platforms it is published. Further, 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 worldwide interactive entertainment software market is comprised
primarily of software for two distinct platforms: personal computers ("PCs") and
dedicated game consoles. The market has grown dramatically in recent years with
its growth driven by the increasing installed base of multimedia PCs and current
generation game console systems. In addition, the development of enabling
multimedia technologies, the proliferation of software titles, the development
of new and expanding distribution channels and the emergence of a strong
international market for interactive entertainment software have spurred the
rapid expansion of the interactive entertainment market.
There has recently been an increased rate of change and complexity in
the technological innovations affecting the Company's products, coupled with
increased competitiveness for shelf space and buyer selectivity. The market for
front-line titles has become increasingly hit-driven, which has led to higher
production budgets, more complex development processes, longer development
cycles and generally shorter product life cycles. The importance of the timely
release of hit titles, as well as the increased scope and complexity of the
product development and production process, have increased the need for
disciplined product development processes that limit cost and schedule overruns.
This in turn has increased the importance of leveraging the technologies,
characters or storylines of such hit titles into additional interactive
entertainment software products in order to spread development costs among
multiple products. In this environment, the Company has determined to increase
its focus on building internal development, alliances and acquisitions, and to
reduce its relative dependence on third-party developers.
Along with its industry competitors, the Company has historically
capitalized royalties advanced to third-party developers as a prepayment in
current assets and evaluated the realization of these royalty advances on a
quarterly basis. The market changes noted above have made it extremely difficult
to determine the likelihood of individual product acceptance and success. As a
result, in the quarter ended December 31, 1997, the Company expensed royalty
advances of $73.8 million on products that were in
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development or on sale. In connection with this change in the dynamics of the
marketplace, the Company changed its accounting, beginning on January 1, 1998,
for future royalty advances, treating such costs as research and development
expenses, which are expensed as incurred. Multi-year output advances will
continue to be capitalized as royalty advances and expensed over the development
periods, in accordance with generally accepted accounting principles.
Since royalty advances are fixed costs, their impact is more
significant during softer revenue quarters. As such, the Company expects higher
research and development costs as a percentage of net revenues, relative to the
prior year, to continue into its second fiscal quarter, due to the expensing of
royalty advances, as a result of the change in accounting. It is anticipated
that this change in accounting will not have a material effect on the Company's
operating income for the full fiscal year.
The distribution channels for interactive software have changed
significantly in recent years. Traditionally, consumer software was sold through
specialty stores. Today, consumer software is increasingly sold through mass
merchants such as Wal-Mart, Kmart and Target, as well as major retailers,
including Sam's Club, Price-Costco and Best Buy. The Internet and on-line
networks also present a new channel through which publishers and distributors
can distribute their products to end-users.
During the second half of 1997, Wal-Mart began purchasing software
directly from five publishers whose software was previously sold to Wal-Mart
through the Company. In addition, in July 1998, Wal-Mart agreed to purchase
directly from a sixth publisher whose software was previously sold to Wal-Mart
through the Company.
In October 1997, the Company acquired SingleTrac Entertainment
Technologies, Inc. ("SingleTrac"), a leading developer of front-line software.
Financial results of SingleTrac have been included in the Company's
Consolidated Financial Statements on a purchase basis for the period since the
acquisition. This acquisition did not have a material impact on the financial
condition or the results of operations of the Company in the year acquired.
Sales are recorded net of expected future returns. Historically, the
Company has experienced returns at approximately 30% of gross sales.
Effective January 1, 1998, the Company changed its fiscal year from
December 31 to March 31.
The consumer software industry is seasonal. Net revenues 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.
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RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for the three months ended June
30, 1997 and 1998.
<TABLE>
<CAPTION>
Three Months
Ended June 30,
-------------------
1997 1998
---- ----
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of goods sold 58.6 48.0
Selling and distribution expenses 20.6 22.7
General and administrative expenses 9.0 10.7
Research and development 3.0 14.3
Amortization of goodwill 0.3 0.7
----- -----
Operating income 8.5 3.6
Interest and other expense, net (0.6) (1.0)
----- -----
Income before income taxes 7.9 2.6
Provision for income taxes 3.5 1.0
----- -----
Net income 4.4% 1.6%
===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net revenues for the three months ended June 30, 1998 ("1999")
increased approximately $13.7 million, or 13.3% to $116.4 million from $102.7
million in the three months ended June 30, 1997 ("1998"). This growth in net
revenues was attributable to a nine percent increase in publishing revenue,
which includes both front-line publishing and value-priced publishing
("Published Product"), to $70.7 million in 1999 from $64.7 million in 1998, and
a 20% increase in products distributed for third parties, to $45.7 million in
1999 from $38.0 million in 1998. Value-priced publishing revenues increased 22%
from $19.7 million in 1998 to $24.1 million in 1999, due to the continued
strong sales of Deer Hunter for the PC and the hunting and fishing genre group
of products such as Zebco Pro Fishing 3D and Rocky Mountain Trophy Hunter for
the PC. The increase in revenues of products distributed for third parties is
primarily due to the release of Windows '98 Upgrade and the growth of the
Company's affiliated label program. The total front-line publishing component
of Published Product revenues has increased three percent in 1999 to $46.6
million from $45.0 million in 1998. International front-line publishing
revenues rose 17% from $20.0 million in 1998 to $23.4 million in 1999, while
domestic front-line publishing revenues declined seven percent from $25.0
million in 1998 to $23.1 million in 1999. The increase in front-line publishing
revenues is primarily due to the newly released Unreal for the PC, Total
Annihilation: the Core Contingency for the PC, Mike Piazza's Strike Zone for
N64, Dead Ball Zone for PSX and the continuing strong sales of Oddworld: Abe's
Oddysee for PSX, which was partially offset by fewer releases in 1999.
Cost of goods sold primarily includes costs of purchased products.
Cost of goods sold for 1999 decreased approximately $4.3 million, or 7.1%, to
$55.9 million from $60.2 million in 1998. Cost of goods sold as a percentage of
net revenues decreased to 48.0% in 1999 as compared to 58.6% in 1998. The
decrease, as a percentage of net revenues, was due in part to the Company's
change in accounting with respect to royalty advances, resulting in the
expensing of such advances to research and development as incurred, rather than
recouping such advances based on sales. Additionally, the Company's revenues
from console products, as a percentage of Published Product revenues, decreased
in 1999 to 35% from 44% in 1998, as console products generally have a higher
overall cost than PC products. This decrease was partially offset by the higher
sales of products distributed for third parties, which generally have higher
costs than Published Product titles.
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Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. During 1999 these expenses increased
approximately $5.3 million, or 25.3%, to $26.5 million from $21.1 million in
1998. Selling and distribution expenses as a percentage of net revenues for 1999
increased to 22.7% as compared to 20.6% in 1998. The increase, as a percentage
of net revenues, was primarily attributable to the increase of advertising
worldwide to support new releases, primarily Unreal for the PC and Mike Piazza's
Strike Zone for N64, and existing and upcoming releases of the Company's
Published Product. The overall increase was also attributable to increased sales
volume.
General and administrative expenses primarily include personnel
expenses, facilities costs, professional expenses and other overhead charges.
These expenses in 1999 increased approximately $3.1 million, or 33.3% to $12.5
million from $9.3 million in 1998. General and administrative expenses as a
percentage of net revenues increased to 10.7% in 1999 from 9.0% in 1998. This
increase was due primarily to professional fees for potential mergers and
acquisitions, the related depreciation associated with the expansion of the
Company's worldwide facilities and the implementation of enterprise software to
enhance the Company's management information systems worldwide and higher rent
related to new facilities in several locations.
Research and development primarily includes payment for royalty
advances to third-party developers on products that are currently in development
and direct costs of internally developing and producing a title such as salaries
and related costs. These expenses in 1999 increased approximately $13.5 million,
or 441.0% to $16.6 million from $3.1 million in 1998. Research and development
as a percentage of net revenues increased to 14.3% in 1999 from 3.0% in
1998. This increase is primarily due to the change in accounting effective
January 1, 1998, whereby royalty advances on products that are currently in
development are expensed as incurred, and the additional headcount attributable
to increased in-house development capacity, primarily as a result of the
SingleTrac acquisition. Research and development expenses of the Company's
internal development studios, which primarily include SingleTrac, Cavedog
Entertainment and Humongous, increased from $3.1 million in 1998 to $7.1
million in 1999.
Interest and other expense, net, increased approximately $0.6 million
during 1999 to $1.2 million from $0.6 million in 1998. This increase was
primarily attributable to the increase in interest costs associated with
increased borrowings under the Revolving Credit Agreement (the "Credit
Agreement").
The Company's effective tax rate for 1999 was 39% compared to 45% in
1998. This decrease was attributable to the higher proportion of income at lower
statutory rates.
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's working capital was $69.4 million
compared to $70.0 million at March 31, 1998. Cash and cash equivalents were $8.7
million at June 30, 1998 compared to $17.2 million at March 31, 1998.
The primary source of cash during the three months ended June 30, 1998
was cash provided by financing activities of $26.9 million and net income of
$1.8 million. These externally and internally generated funds and the existing
cash balance at March 31, 1998 of $17.2 million were primarily used to fund
receivables of $27.3 million, inventory of $4.1 million, payables of $6.6
million, royalty payments in excess of recoupment of $8.6 million, and the
purchase of property and equipment of $5.8 million. The increase in the payable
and inventory balances as of June 30, 1998, as compared to March 31, 1998, was
primarily attributable to the purchases of Windows '98 Upgrade and additional
funding for inventory to support increased sales. The increase in the receivable
balance at June 30, 1998 reflects overall higher sales volume during the three
months ended June 30, 1998 and a larger proportion of those sales occurring late
in the quarter as compared to the three months ended March 31, 1998. June 1998
was the Company's third highest sales month in history, behind only September
and December 1997. The increase in property and equipment is primarily due to
additional investments in computer hardware and software and leasehold
improvements to support the Company's growth.
On January 21, 1997, the Company entered into the Credit Agreement with
certain 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 and subsequently, in July 1998, from $65 million to $80 million through
September 30, 1998, to be used for borrowings and letters of credit. At June 30,
1998, the Company had outstanding, under the Credit Agreement, debt and letters
of credit issued of approximately $54.6 million and $5.9 million, respectively.
Borrowing is limited to fifty percent of adjusted consolidated accounts
receivable, and is secured by these receivables. The borrowings under the Credit
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 Company intends to raise $100 million through a private placement
of senior subordinated notes (the "Notes") due 2005 to institutional investors
to be used for future acquisitions, fund operations and repay existing
indebtedness. The Company has also executed a commitment letter with First Union
National Bank and First Union Capital Markets for a revolving credit facility of
up to $125 million (the "New Credit Agreement") to be used to refinance certain
existing indebtedness, for ongoing working capital requirements and for other
general corporate purposes, including permitted acquisitions. The existing
Credit Agreement will be repaid and terminated upon the earlier to occur of the
consummation of the offering of the Notes or the closing of the proposed New
Credit Agreement. It is currently contemplated that the Company's obligations
under the proposed New Credit Agreement will be secured by significant assets of
the Company and its subsidiaries. The proposed New Credit Agreement will require
the Company to maintain certain financial ratios. The failure of the Company to
maintain such ratios would constitute an event of default under the proposed New
Credit Agreement, notwithstanding the ability of the Company to meet its debt
service obligations.
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 distribution and growing publishing businesses.
The Company believes that existing cash and cash equivalents, together
with cash expected to be generated from operations and from the existing Credit
Facility and future borrowings will be sufficient to fund the Company's
anticipated operations for the next twelve months.
Page 15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Litigation
On May 26, 1998, Big Tuna New Media, LLC ("Big Tuna"), a developer of
children's software titles, filed suit against the Company in the United States
District Court for the Southern District of New York seeking over $35 million
in damages, $9 million in punitive damages and injunctive relief for alleged
breaches of 1995 and 1996 rights acquisition agreements (the "1995 Agreement"
and the "1996 Agreement," respectively). Under the 1995 Agreement, Big Tuna has
delivered three out of four software titles and has been paid $1.75 million in
advances recoupable against royalties, with a remaining $250,000 advance due
upon acceptable delivery of the fourth title. Under the 1996 Agreement, the
Company has a five year option to have Big Tuna develop for commerical
exploitation between three and five children's software titles per year, as
proposed by Big Tuna, in exchange for a minimum $1 million per year in
royalties, stock warrant appreciation or cash payment, for a total of $5
million or more. Big Tuna claims that the Company repudiated and breached the
1996 Agreement, by among other things, sending to Big Tuna a notice to cure its
material and anticipatory breaches (in light of Big Tuna's failure to timely
deliver final proposals) and not making a $1 million payment on or about May 9,
1998, breached confidentiality provisions of the 1995 and 1996 Agreements by
allegedly misappropriating Big Tuna's "novel and original ideas" for use in
other games, violated the 1995 Agreement and the Lanham Act by improperly
bundling for sale two Big Tuna titles created under the 1995 Agreement with
non-Big Tuna titles, and violated the 1995 Agreement through accounting
irregularities. The Company intends to deny liability and assert counterclaims
against Big Tuna for, without limitation, its failure to timely provide final
proposals for software titles to the Company in accordance with the 1996
Agreement. The Company believes that Big Tuna's claims arose in the ordinary
course of business and that the ultimate resolution will not be material to the
Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of the Stockholders on June 17, 1998.
(b) The directors elected at the meeting were:
<TABLE>
<CAPTION>
For Withheld Non-Votes
--- -------- ---------
<S> <C> <C> <C>
Joseph J. Cayre 48,786,661 130,038 0
Ronald W. Chaimowitz 48,788,361 128,338 0
Stanley Cayre 48,787,861 128,838 0
</TABLE>
Other directors whose terms of office continued after the meeting are
as follows: William E. Ford, Jordan A. Levy, Jack J. Cayre, Steven A. Denning,
Phillip J. Riese and Alvin N. Teller. On June 17, 1998, the Board of Directors
accepted the resignations of Kenneth Cayre and Matthew Blank as directors of
the Company.
(c) Other matters voted upon at the meeting and the results of those votes are
as follows:
(i) Approval of the 1998 Employee Stock Purchase Plan.
For: 41,919,121
Against: 277,016
Abstain: 35,314
Non-Votes: 6,685,248
(ii) Approval of an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the maximum number of
individuals who can be members of the Board of Directors from
twelve to fifteen.
For: 48,536,221
Against: 349,304
Abstain: 31,174
Non-Votes: 0
(iii) Approval of an amendment to the Company's 1997 Stock Incentive
Plan to increase the number of shares reserved for issuance
thereunder by 4,000,000 shares, from 4,000,000 to 8,000,000
shares.
For: 38,240,834
Against: 3,793,935
Abstain: 48,596
Non-Votes: 6,833,334
(iv) Ratification of Arthur Andersen LLP as independent auditors
for the Company for the transitional fiscal year ended March
31, 1998 and for the fiscal year ending March 31, 1999.
For: 48,822,440
Against: 73,563
Abstain: 20,696
Non-Votes: 0
Page 16
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation and Certificate of
Amendment of the Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated By-laws (as amended on July 23, 1998).
10.1 Amendment, dated as of July 9, 1998, 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 Employment Agreement between the Company and Harry M. Rubin.
10.4 Employment Agreement between the Company and Ronald Chaimowitz.
10.5 The 1997 Stock Incentive Plan (as amended on June 17, 1998).
10.6 The 1998 Employee Stock Purchase Plan.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The Company previously reported on a Current Report on Form 8-K, dated
February 17, 1998 (the "Form 8-K"), that its Board of Directors had determined
to change the Company's fiscal year-end from December 31 to March 31, and that
the Company intended to file a transition report on Form 10-Q for the quarter
ended March 31, 1998. On May 7, 1998, the Company filed an Amendment No. 1 to
the Form 8-K to report that it intended to file within the prescribed period a
transition report on Form 10-K in lieu of such Form 10-Q, and to include therein
the Company's audited consolidated financial statements for the three months
ended March 31, 1998.
Page 17
<PAGE> 18
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
Chairman of the Board of
Directors and Chief Executive Officer
Date: August 7, 1998
By: /s/ ANDREW GREGOR
-------------------------------------
Andrew Gregor
Chief Financial Officer and Senior
Vice President, Finance and
Administration
Date: August 7, 1998
Page 18
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GT INTERACTIVE SOFTWARE CORP.
Pursuant to Section 245 of the
General Corporation Law
of the State of Delaware
GT Interactive Software Corp., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. That the name of the Corporation is GT Interactive Software Corp.
2. That the Certificate of Incorporation of the Corporation was filed
in the office of the Secretary of State of the State of Delaware on the 1st day
of September, 1992 under the name of GT Software Corporation; that Certificates
of Amendment to the Certificate of Incorporation were filed in the Office of the
Secretary of State of the State of Delaware on the 1st day of April, 1993, on
the 29th day of November, 1993, on the 19th day of December, 1994, a restated
certificate of incorporation was filed on the 22nd day of February, 1995, and an
amended and restated certificate of incorporation was filed on the 31st day of
July, 1995.
3. That this Amended and Restated Certificate of Incorporation restates
and amends the restated Certificate of Incorporation of this Corporation.
4. That the text of the Certificate of Incorporation is hereby restated
and amended to read in its entirety as follows:
FIRST: The name of the Corporation is GT Interactive Software
Corp.
SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
<PAGE> 2
THIRD: The nature of the business or purposes to be conducted
or promoted by the Corporation, is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware ("GCL").
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 155,000,000 shares, of
which 150,000,000 shall be designated Common Stock, and 5,000,000 shall be
designated Preferred Stock, all of which shall be $.01 par value per share. Upon
the filing of this Amended and Restated Certificate of Incorporation, pursuant
to action duly taken by the Board of Directors and stockholders of the
Corporation, each previously outstanding share of the Corporation's Class A
Common Stock, par value $.01 per share, and Class B Common Stock, par value $.01
per share, shall automatically and without further action on the part of any
holder thereof, be converted into and become one share of the Corporation's
Common Stock, par value $.01 per share. Following such filing, no shares of such
Class A Common Stock or Class B Common Stock are authorized or outstanding.
(a) The Common Stock:
The holders of Common Stock shall be entitled to one vote for
each Share so held and shall be entitled to notice of any stockholders meeting
and to vote upon any such matters as provided in the by-laws of the Corporation
or as may be provided by law. Except for and subject to those rights expressly
granted to holders of Preferred Stock or, except as may be provided by the laws
of the State of Delaware, the holders of Common Stock shall have exclusively all
other rights of stockholders, including, without limitation, (i) the right to
receive dividends, when and as declared by the Board of Directors of the
Corporation, out of assets lawfully available therefor, and (ii) in the event of
any distribution of assets upon a liquidation or otherwise, the right to receive
all the assets and funds of the Corporation remaining after the payment to the
holders of the Preferred Stock, if any, of the specific amounts which they are
entitled to receive upon such distribution.
(b) The Preferred Stock:
The Board of Directors is hereby expressly authorized to
provide for, designate and issue, out of the authorized but unissued shares of
Preferred Stock, one or more series of Preferred Stock, subject to the terms and
conditions set forth herein. Before any shares of any such series are issued,
the Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares of any such
series:
(i) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
(ii) whether the shares of such series shall have voting
rights or powers, in addition to any voting rights required by law, and, if so,
the terms of such voting rights or powers, which may be full or limited;
2
<PAGE> 3
(iii) the dividends, if any, payable on such series, whether
any such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the preference
or relation which such dividends shall bear to the dividends payable on any
shares of stock or any other class or any other series of such class;
(iv) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(v) the amount or amounts payable upon shares of such
series upon, and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any distribution of
the assets, of the Corporation;
(vi) whether the shares of such series shall be subject to
the operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(vii) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or any other
series of this class or any other securities and, if so, the price or prices or
the rate or rates of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and condition or exchange;
(viii) the limitations and restrictions, if any, to be
effective while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or any other series of such class;
(ix) the conditions or restrictions, if any, to be effective
while any shares of such series are outstanding upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(x) any other powers, designations, preferences and
relative, participating, optional or other special rights, and any
qualifications, limitations or restrictions thereof.
The powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of authorized shares of Preferred Stock) or decrease (but
not below the number of shares thereof then outstanding) the number of shares of
stock of any series of Preferred Stock designated to any one or more series of
Preferred Stock.
3
<PAGE> 4
Series A Convertible Preferred Stock:
Pursuant to the terms of the Amended and Restated Certificate of
Incorporation as in effect immediately prior to the filing of this Amended and
Restated Certificate of Incorporation, the 525 shares of Series A Convertible
Preferred Stock outstanding immediately prior to such filing have been
automatically converted into 2,520,000 shares of Common Stock upon filing
hereof, which filing occurred coincident with the consummation of the first sale
of shares of Common Stock by the Corporation in an underwritten public offering.
Following such filing, no shares of such Series A Preferred Stock are authorized
or outstanding.
FIFTH: The Board of Directors is expressly authorized to
adopt, amend or repeal the bylaws of the Corporation in the manner now or
hereafter prescribed by statute.
SIXTH: (a) The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors except as
otherwise provided herein or required by law.
(b) Election of Directors need not be by written ballot
unless the by-laws of the Corporation shall so provide.
(c) The number of Directors of the Corporation shall
not be less than four nor more than twelve (plus such number of Directors, if
any, who may be elected by the holders of any series of preferred stock), and
subject to such limits shall be fixed by resolution duly adopted from time to
time by the Board of Directors. The Directors, other than those who may be
elected by the holders of any series of preferred stock, shall be classified,
with respect to the term for which they severally hold office, into three
classes, as nearly equal in number as possible. One class of Directors shall be
initially elected for a term expiring at the annual meeting of stockholders to
be held in 1996, another class shall be initially elected for a term expiring at
the annual meeting of stockholders to be held in 1997, and another class shall
be initially elected for a term expiring at the annual meeting of stockholders
to be held in 1998. Members of each class shall hold office until their
successors are duly elected and qualified or until their earlier resignation or
removal. At each succeeding annual meeting of the stockholders of the
Corporation, the successors of the class of Directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast at such meeting
to hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. The persons serving as
Directors in classes whose terms expire in 1996, 1997 and 1998 shall be
determined by resolution of the Board of Directors.
Notwithstanding the foregoing, whenever pursuant to the provisions of
Article Fourth of this Amended and Restated Certificate of Incorporation, the
holders of any one or more series of preferred stock shall have the right,
voting separately as a series or together with holders of other such series, to
elect directors at an annual or special meeting of stockholders, the election,
term of office, filling of vacancies and other features of such
4
<PAGE> 5
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation and any certificate of designations applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article Sixth unless so provided by such terms.
During any period when the holders of any series of preferred stock
have the right to elect additional directors as provided for or fixed pursuant
to the provisions of Article Fourth hereof, then upon commencement and for the
duration of the period during which such right continues: (i) the then otherwise
total authorized number of Directors of the Corporation shall automatically be
increased by such specified number of Directors, and the holders of such
preferred stock shall be entitled to elect the additional Directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional Director
shall serve until such Director's successor shall have been duly elected and
qualified, or until such Director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
Director's earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of preferred stock having such
right to elect additional Directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional Directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
Directors, shall forthwith terminate and the total and authorized number of
Directors of the Corporation shall be reduced accordingly.
(d) Subject to the rights, if any, of the holders of
any series of preferred stock to elect Directors and to remove any Director whom
such holders have the right to elect, and notwithstanding the provisions of this
Article Sixth providing for the classification of the Board of Directors, any
Director or the entire Board of Directors (including persons elected by
Directors to fill vacancies in the Board of Directors) may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of Directors.
SEVENTH: (a) The corporation shall to the fullest extent
permitted by Delaware law, as in effect from time to time (but, in the case of
any amendment of the GCL, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), indemnify each person who
is or was a director or officer of the Corporation or of any of its wholly-owned
subsidiaries who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, or was or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Corporation or of any of its subsidiaries, or is or was at any time serving, at
the request of the Corporation, any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against all expense, liability and loss (including, but not limited to,
attorneys' fees, judgments, fines, excise taxes or penalties with respect to any
employee benefit plan or
5
<PAGE> 6
otherwise, and amounts paid or to be paid in settlement) incurred or suffered by
such director or officer in connection with such proceeding; provided, however,
that, except as provided in Paragraph (e) of this Article Seventh, the
Corporation shall not be obligated to indemnify any person under this Article
Seventh in connection with a proceeding (or part thereof) if such proceeding (or
part thereof) was not authorized by the Board of Directors of the Corporation
and was initiated by such person against (i) the Corporation or any of its
subsidiaries, (ii) any person who is or was a director, officer, employee or
agent of the Corporation or any of its subsidiaries and/or (iii) any person or
entity which is or was controlled, controlled by, or under common control with
the Corporation or has or had business relations with the Corporation or any of
its subsidiaries.
(b) The right to indemnification conferred in this
Article Seventh shall be a contract right, shall continue as to a person who has
ceased to be a director or officer of the Corporation or of any of its
wholly-owned subsidiaries and shall inure to the benefit of his or her heirs,
executors and administrators, and shall include the right to be paid by the
Corporation the expenses incurred in connection with the defense or
investigation of any such proceeding in advance of its final disposition;
provided, however, that if and to the extent that Delaware law so requires, the
payment of such expense in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer or former director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer or former director or officer is not entitled to be indemnified by the
Corporation.
(c) The Corporation's obligation to indemnify and to
pay expenses in advance of the final disposition of a proceeding under this
Article Seventh shall arise, and all rights and protections granted to directors
and officers under this Article Seventh shall vest, at the time of the
occurrence of the transaction or event to which any proceeding relates, or at
the time that the action or conduct to which any proceeding relates was first
taken or engaged in (or omitted to be taken or engaged in), regardless of when
any proceeding is first threatened, commenced or completed.
(d) Notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation or the by-laws of the
Corporation, no action by the Corporation, either by amendment to or repeal of
this Article Seventh or the by-laws of the Corporation or otherwise shall
diminish or adversely affect any right or protection granted under this Article
Seventh to any director or officer or former director or officer of the
Corporation or of any of its wholly-owned subsidiaries which shall have become
vested as aforesaid prior to the date that any such amendment, repeal or other
corporate action is taken.
(e) If a claim for indemnification and/or for payment
of expenses in advance of the final disposition of a proceeding arising under
this Article Seventh is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the
6
<PAGE> 7
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim.
(f) The right to indemnification and the payment of
expenses incurred in connection with the defense or investigation of a
proceeding in advance of its final disposition conferred in this Article Seventh
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of this Amended and Restated Certificated
of Incorporation, by-laws of the Corporation, insurance policy, agreement, vote
of stockholders or disinterested directors or otherwise.
(g) In addition to the persons specified in
subsection (a) of this Article Seventh, the Corporation may also indemnify all
other persons to the fullest extent permitted by Delaware law.
EIGHTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the GCL is amended after the date hereof to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware GCL, as so amended. No amendment to or repeal
of this Article Eighth shall apply to or have any effect on the liability or
alleged liability of any Director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment.
5. This Amended and Restated Certificate of Incorporation was declared
advisable by the Board of Directors of the Corporation and was duly adopted by
the Board of Directors in accordance with the provisions of Section 245 of the
GCL and it was duly adopted by a majority of the stockholders entitled to vote
thereon in accordance with the provisions of Section 228 of the GCL and written
notice was given to the stockholders in accordance with the provisions of
subsection (d) of such section of the GCL.
7
<PAGE> 8
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its President on this 19th
day of December, 1995.
GT INTERACTIVE SOFTWARE CORP.
/s/ Ronald Chaimowitz
-------------------------------------
Ronald Chaimowitz
President and Chief Executive Officer
8
<PAGE> 9
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GT INTERACTIVE SOFTWARE CORP.
Pursuant to Section 242
of the General Corporation Law
of the State of Delaware
GT Interactive Software Corp. (the "Corporation"), a corporation
organized and existing under the Delaware General Corporation Law (the "DGCL"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the Corporation is GT Interactive Software
Corp.
SECOND: The Certificate of Incorporation of the Corporation
was filed in the office of the Secretary of State of the State of Delaware on
September 1, 1992 under the name of GT Software Corporation. Certificates of
Amendment to the Certificate of Incorporation were filed in the Office of the
Secretary of State of the State of Delaware on April 1, 1993, November 29, 1993
and December 19, 1994. A Restated Certificate of Incorporation was filed on
February 22, 1995 and Amended and Restated Certificates of Incorporation were
filed on July 31, 1995 and December 19, 1995.
THIRD: The first sentence of Article Sixth, Paragraph (c) of
the Amended and Restated Certificate of Incorporation of the Corporation is
hereby amended and restated so that, as amended and restated, it shall read as
follows:
"The number of Directors of the Corporation
shall not be less than four nor more than
fifteen (plus such number of Directors, if any,
who may be elected by the holders of any series
of preferred stock), and subject to such limits
shall be fixed by resolution duly adopted from
time to time by the Board of Directors."
FOURTH: The foregoing amendment to the Corporation's Amended
and Restated Certificate of Incorporation has been duly adopted in accordance
with the provisions of Section 242 of the DGCL.
<PAGE> 10
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed this 16th day of July, 1998.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ Ronald Chaimowitz
----------------------------------------
Name: Ronald Chaimowitz
Title: Chairman of the Board of Directors and
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
GT INTERACTIVE SOFTWARE CORP.
(AS AMENDED ON JULY 23,1998)
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
held at the hour, date and place within or without the United States which is
fixed by the Board of Directors or an officer designated by the Board of
Directors, which time, date and place may subsequently be changed at any time by
vote of the Board of Directors. If no annual meeting has been held for a period
of thirteen months after the Corporation's last annual meeting of stockholders,
a special meeting in lieu thereof may be held if called as provided in these
By-Laws, and such special meeting shall have, for the purposes of these ByLaws
or otherwise, all the force and effect of an annual meeting. Any and all
references hereafter in these By-Laws to an annual meeting or annual meetings
also shall be deemed to refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
meeting of stockholders or any special meeting in lieu
<PAGE> 2
of annual meeting of stockholders (the "Annual Meeting"), only such business
shall be conducted, and only such proposals shall be acted upon as shall have
been properly brought before such Annual Meeting. To be considered as properly
brought before an Annual Meeting, business must be: (a) specified in the notice
of meeting, (b) otherwise properly brought before the meeting by, or at the
direction of, the Board of Directors, or (c) otherwise properly brought before
the meeting by any holder of record (both as of the time notice of such proposal
is given by the stockholder as set forth below and as of the record date for the
Annual Meeting in question) of any shares of capital stock of the Corporation
entitled to vote at such Annual Meeting on such business who complies with the
requirements set forth in this Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation, and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of
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<PAGE> 3
such Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting, or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-Laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the close of business on the day of the mailing of
such letter or report.
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<PAGE> 4
A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section 2 or that the information
provided in a stockholder's notice does not satisfy the information requirements
of this Section 2 in any
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<PAGE> 5
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the manner set
forth above, the presiding officer of the Annual Meeting shall determine whether
the stockholder proposal was made in accordance with the terms of this Section
2. If the presiding officer determines that any stockholder proposal was not
made in a timely fashion in accordance with the provisions of this Section 2 or
that the information provided in a stockholder's notice does not satisfy the
information requirements of this Section 2 in any material respect, such
proposal shall not be presented for action at the Annual Meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a stockholder proposal was made in accordance with the
requirements of this Section 2, the presiding officer shall so declare at the
Annual Meeting and ballots shall be provided for use at the meeting with respect
to such proposal.
Notwithstanding the foregoing provisions of these By-Laws, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this By-Law, and
nothing in this By-Law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement, or
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<PAGE> 6
the Corporation's right to refuse inclusion thereof, pursuant to Rule 14a-8
under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
subject to the rights, if any, of the holders of any one or more series of
preferred stock, special meetings of the stockholders of the Corporation may be
called only by the Chairman of the Board, the President of the Corporation or
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the Directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of all
Annual Meetings stating the hour, date and place of such Annual Meetings shall
be given by the Secretary (or other person authorized by these By-Laws or by
law) not less than 10 days nor more than 60 days before the Annual Meeting, to
each stockholder entitled to vote thereat and to each stockholder who, by law or
under the Amended and Restated Certificate of Incorporation of the Corporation
("Certificate of Incorporation") or under these By-Laws, is entitled to such
notice, by delivering such notice to him or by mailing it, postage prepaid,
addressed
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<PAGE> 7
to such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need
not be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
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<PAGE> 8
Article I or Section 3 of Article II of these By-Laws or otherwise. In no event
shall the public announcement of an adjournment, postponement or rescheduling of
any previously scheduled meeting of stockholders commence a new time period for
the giving of a stockholder's notice under Section 2 of this Article I or
Section 3 of Article II of these By-Laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned, provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Corporation's Amended and Restated Certificate of Incorporation
or these By-Laws, is entitled to such notice.
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<PAGE> 9
SECTION 6. Quorum. The holders of shares of voting stock
representing a majority of the voting power of the outstanding shares of voting
stock issued, outstanding and entitled to vote at a meeting of stockholders,
represented in person or by proxy at such meeting, shall constitute a quorum;
but if less than a quorum is present at a meeting, the holders of voting stock
representing a majority of the voting power present at the meeting or the
presiding officer may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 5 of
this Article I. At such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly constituted meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the Certificate
of Incorporation. Stockholders may vote either in person or by written proxy,
but no proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. Proxies shall be filed with the
Secretary of the meeting before being voted. Except as otherwise limited therein
or as otherwise provided by law, proxies shall entitle the persons authorized
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<PAGE> 10
thereby to vote at any adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by or
on behalf of any one of them unless at or prior to the exercise of the proxy the
Corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid, and the burden of proving invalidity shall rest on the
challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter
before any meeting of stockholders shall be decided by the vote of a majority of
the voting power of shares of voting stock, present in person or represented by
proxy at such meeting and entitled to vote on such matter, except where a larger
vote is required by law, by the Certificate of Incorporation or by these
By-Laws. Any election by stockholders shall be determined by a plurality of the
votes cast, except where a larger vote is required by law, by the Certificate of
Incorporation or by these By-Laws. The Corporation shall not directly or
indirectly vote any shares of its own stock; provided, however, that the
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
SECTION 9. Stockholder Lists. The Secretary (or the Corporation's
transfer agent or other person authorized by these By-Laws or by law) shall
prepare and make, at least 10 days before every Annual Meeting or special
meeting of stockholders, a
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<PAGE> 11
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the hour, date and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board or, in his
absence, such other officer as shall be designated by the Board of Directors
shall preside at all Annual Meetings or special meetings of stockholders and
shall have the power, among other things, to adjourn such meeting at any time
and from time to time, subject to Sections 5 and 6 of this Article I. The order
of business and all other matters of procedure at any meeting of the
stockholders shall be determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of, or at, any meeting of stockholders, appoint
one or more inspectors to act at the
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<PAGE> 12
meeting and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall perform such duties as are required by the General Corporation
Law of the State of Delaware, as amended from time to time, including the
counting of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors. The presiding officer may review all determinations made by the
inspector(s), and in so doing the presiding officer shall be entitled to
exercise his or her sole judgment and discretion and he or she shall not be
bound by any determinations made by the inspector(s). All determinations by the
inspector(s) and, if applicable, the presiding officer shall be subject to
further review by any court of competent jurisdiction.
ARTICLE II
Directors
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<PAGE> 13
SECTION 1. Powers. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors except as
otherwise provided by the Certificate of Incorporation or required by law.
SECTION 2. Number and Terms. The number of Directors of the
Corporation shall not be less than 4 nor more than 15 (plus such number of
Directors, if any, who may be elected by the holders of any series of preferred
stock), and subject to such limits shall be fixed by resolution duly adopted
from time to time by the Board of Directors.
The Directors, other than those who may be elected by the holders of
any series of preferred stock, shall be classified, with respect to the term for
which they severally hold office, into three classes, as nearly equal in number
as possible. One class of Directors shall be initially elected for a term
expiring at the Annual Meeting to be held in 1996, another class shall be
initially elected for a term expiring at the Annual Meeting to be held in 1997,
and another class shall be initially elected for a term expiring at the Annual
Meeting to be held in 1998. Members of each class shall hold office until their
successors are duly elected and qualified or until their earlier death,
disqualification, resignation or removal. At each succeeding Annual Meeting, the
successors of the class of Directors whose term expires at that meeting shall be
elected by a plurality vote of all votes cast at such meeting to hold office for
a term
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<PAGE> 14
expiring at the Annual Meeting held in the third year following the year of
their election.
SECTION 3. Director Nominations. Nominations of candidates for
election as Directors of the Corporation at any Annual Meeting may be made only
(a) by, or at the direction of, the Board of Directors or (b) by any holder of
record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote for the election of Directors at such Annual Meeting who complies with the
timing, informational and other requirements set forth in this Section 3. Any
stockholder who seeks to make such a nomination or his representative must be
present in person at the Annual Meeting. Only persons nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as Directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the initial public offering of the common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (A) the 75th day prior to the
scheduled date of
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<PAGE> 15
such Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the Anniversary Date; provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(i) the 75th day prior to the scheduled date of such Annual Meeting or (ii) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a Director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, (iv)
the consent of each nominee to serve as a Director if elected, and (v) such
information concerning such person as is required to be disclosed concerning a
nominee for
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<PAGE> 16
election as Director of the Corporation pursuant to the rules and regulations
under the Exchange Act. A stockholder's notice to the Secretary shall further
set forth as to the stockholder giving such notice: (i) the name and address, as
they appear on the Corporation's stock transfer books, of such stockholder and
of the beneficial owners (if any) of the Corporation's capital stock registered
in such stockholder's name and the name and address of other stockholders known
by such stockholder to be supporting such nominee(s), (ii) the class and number
of shares of the Corporation's capital stock which are held of record,
beneficially owned or represented by proxy by such stockholder and by any other
stockholders known by such stockholder to be supporting such nominee(s) on the
record date for the Annual Meeting in question (if such date shall then have
been made publicly available) and on the date of such stock-holder's notice, and
(iii) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such stockholder or in connection therewith.
If the Board of Directors or a designated committee thereof
determines that any stockholder nomination was not timely made in accordance
with the terms of this Section 3 or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the
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<PAGE> 17
Annual Meeting in question. If neither the Board of Directors nor such committee
makes a determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not timely
made in accordance with the terms of this Section 3 or that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 3 in any material respect, then such nomination
shall not be considered at the Annual Meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a nomination was made in accordance with the terms of this Section 3, the
presiding officer shall so declare at the Annual Meeting and such nominee shall
be eligible for election at the meeting.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or the presiding
officer at such Annual Meeting. If written ballots are to be used, ballots
bearing the names of all the persons who have been nominated for election as
Directors at the Annual Meeting in accordance with the procedures set forth in
this Section shall be provided for use at the Annual Meeting.
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SECTION 4. Qualification. No Director need be a stockholder of the
Corporation.
SECTION 5. Vacancies. Except as otherwise fixed pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any one or more series of preferred stock to elect
Directors, any and all vacancies occurring on the Board of Directors, including,
without limitation, any vacancy created by reason of an increase in the number
of Directors, or resulting from death, resignation, disqualification, removal or
other causes, may be filled by the affirmative vote of a majority of the
remaining Directors then in office, even if such remaining Directors constitute
less than a quorum of the Board of Directors, or if such vacancy is not so
filled by the remaining Directors, by the stockholders of the Corporation. Any
Director appointed or elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified or until his or
her earlier death, disqualification, resignation or removal. When the number of
Directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of Directors shall
be apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director unless such Director is removed
as permitted in the
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<PAGE> 19
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in the
manner provided in the Certificate of Incorporation.
SECTION 7. Resignation. A Director may resign at any time by giving
written notice to the Chairman of the Board, the President or the Secretary. A
resignation shall be effective upon receipt, unless the resignation otherwise
provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board
of Directors shall be held, without notice other than this By-Law, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of
Directors may be called, orally or in writing, by or at the request of a
majority of the Directors then in office, the Chairman of the Board or the
President. The person calling any
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such special meeting of the Board of Directors may fix the hour, date and place
thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place
of all special meetings of the Board of Directors shall be given to each
Director by the Secretary or the person calling such meeting, or in case of the
death, absence, incapacity or refusal of such person, by the President or such
other officer as shall be designated by the Board of Directors. Notice of any
special meeting of the Board of Directors shall be given to each Director in
person, by telephone, or by telex, telecopy telegram, or other written form of
electronic communication, sent to his business or home address, at least 24
hours in advance of the meeting, or by written notice sent by next-day delivery
courier service to his business or home address, at least 48 hours in advance of
the meeting. Such notice shall be deemed to be delivered when hand delivered to
such address, read to such Director by telephone, deposited in the mail so
addressed, with postage thereon prepaid if mailed, dispatched or transmitted if
telexed or telecopied, or when delivered to the telegraph company if sent by
telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30
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<PAGE> 21
days or of the business to be transacted thereat, other than an announcement at
the meeting at which such adjournment is taken of the hour, date and place to
which the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate of
Incorporation or by these By-Laws, neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a
majority of the Directors then in office (but in no event less than one-third of
the total number of Directors) shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting as
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originally noticed may be transacted at such adjourned meeting at which a quorum
is present.
SECTION 12. Action at Meeting. At any meeting of the Board of
Directors at which a quorum is present, a majority of the Directors present may
take any action on behalf of the Board of Directors, unless otherwise required
by law, by the Certificate of Incorporation or by these By-Laws.
SECTION 13. Action by Consent. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors consent thereto in writing. Such
written consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-Laws.
SECTION 15. Committees. The Board of Directors, by vote of a
majority of the Directors then in office, may elect from its
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number, one or more committees, including but not limited to, an Executive
Committee, a Compensation Committee, and an Audit Committee, and may delegate
thereto some or all of its powers except those which by law, by the Certificate
of Incorporation or by these By-Laws may not be delegated. Except as the Board
of Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time.
Any committee to which the Board of Directors delegates any of its powers or
duties shall keep records of its meetings and shall report its action to the
Board of Directors. The Board of Directors shall have power to rescind any
action of any committee, to the extent permitted by law, but no such rescission
shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Directors then in office provided that Directors who are serving the Corporation
as employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
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ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall
consist of a Chairman of the Board, a President and Chief Executive Officer, a
Chief Financial Officer, a Secretary and such other officers, including, without
limitation, a Chairman Emeritus of the Board of Directors, a Treasurer and one
or more Vice-Presidents (including Executive Vice Presidents or Senior Vice
Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board
following the annual meeting of stockholders, the Board of Directors shall elect
the Chairman of the Board, the President and Chief Executive Officer, the Chief
Financial Officer, the Treasurer and the Secretary. Other officers may be
elected by the Board of Directors at such regular annual meeting of the Board of
Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a
Director. Any person may occupy more than one office at the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his duties in such amount and with such sureties as the
Board of Directors may determine.
- 24 -
<PAGE> 25
SECTION 4. Tenure. Except as otherwise provided by the Certificate
of Incorporation or by these By-Laws, each of the officers of the Corporation
shall hold office until the regular annual meeting of the Board of Directors
following the next Annual Meeting and until his successor is elected and
qualified or until his earlier death, disqualification, resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or
her written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. Removal. Except as otherwise provided by law, the Board
of Directors may remove any officer with or without cause by the affirmative
vote of a majority of the Directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
- 25 -
<PAGE> 26
SECTION 8. Vacancies. Any vacancy in any office may be filled for
the unexpired portion of the term by the Board of Directors.
SECTION 9. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present and exercise and perform such powers and duties as
generally pertain to his office as well as such powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
By-Laws.
SECTION 10. President and Chief Executive Officer. Unless otherwise
provided by the Board of Directors or the Certificate of Incorporation, the
President and Chief Executive Officer of the Corporation shall, subject to the
direction of the Board of Directors, manage the affairs of the Corporation's
business and have general supervision and control of the Corporation's
day-to-day business activities. In the absence of the Chairman of the Board, the
President and Chief Executive Officer shall preside, when present, at all
meetings of stockholders and of the Board of Directors. The President and Chief
Executive Officer shall have such other powers and perform such other duties as
the Board of Directors may from time to time designate.
SECTION 11. Chief Financial Officer. Unless otherwise provided by
the Board of Directors or the Certificate of
- 26 -
<PAGE> 27
Incorporation, the Chief Financial Officer of the Corporation shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the Corporation and shall cause to be kept accurate books of account.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the President and Chief Executive Officer
may from time to time designate.
SECTION 13. Treasurer and Assistant Treasurers; Controller. The
Treasurer shall, subject to the direction of the Board of Directors and except
as the Board of Directors or the President and Chief Executive Officer may
otherwise provide, assist the Chief Financial Officer with the financial affairs
of the Corporation and the books of account. The Treasurer shall have custody of
all funds, securities, and valuable documents of the Corporation. He or she
shall have such other duties and powers as may be designated from time to time
by the Board of Directors or the President and Chief Executive Officer.
Any Controller or Assistant Treasurer shall have such powers and
perform such duties as the Board of Directors or the President and Chief
Executive Officer may from time to time designate.
- 27 -
<PAGE> 28
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his absence from any such meeting, a temporary secretary chosen at the meeting
shall record the proceedings thereof. The Secretary shall have charge of the
stock ledger (which may, however, be kept by any transfer or other agent of the
Corporation). The Secretary shall have custody of the seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to affix it
to any instrument requiring it, and, when so affixed, the seal may be attested
by his or her signature or that of an Assistant Secretary. The Secretary shall
have such other duties and powers as may be designated from time to time by the
Board of Directors or the President and Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary or any officer designated by the Board
of Directors may perform his duties and responsibilities.
Any Assistant Secretary shall have such powers and perform such
duties as the Board of Directors or the President and Chief Executive Officer
may from time to time designate.
SECTION 15. Other Powers and Duties. Subject to these By- Laws and
to such limitations and restrictions as the Board of Directors may from time to
time prescribe, the officers of the Corporation shall each have such powers and
duties as generally
- 28 -
<PAGE> 29
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the President and
Chief Executive Officer.
- 29 -
<PAGE> 30
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be entitled
to a certificate of the capital stock of the Corporation in such form as may
from time to time be prescribed by the Board of Directors. Such certificate
shall be signed by the Chairman of the Board or the President and Chief
Executive Officer or a Vice President and by the Treasurer or the Secretary or
an Assistant Secretary. The corporate seal and the signatures by Corporation
officers, the transfer agent or the registrar may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the time of its issue. Every certificate for shares of
stock which are subject to any restriction on transfer and every certificate
issued when the Corporation is authorized to issue more than one class or series
of stock shall contain such legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer
- 30 -
<PAGE> 31
agent of the certificate theretofore properly endorsed or accompanied by a
written assignment or power of attorney properly executed, with transfer stamps
(if necessary) affixed, and with such proof of the authenticity of signature as
the Corporation or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by
law, by the Certificate of Incorporation or by these By-Laws, the Corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect thereto, regardless of any transfer, pledge or
other disposition of such stock, until the shares have been transferred on the
books of the Corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Corporation
of his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or entitled to receive payments of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of
- 31 -
<PAGE> 32
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting, and (2) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which the meeting is held, and (2) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
ARTICLE V
Indemnification
Indemnification. The Corporation shall to the fullest extent
permitted by Delaware law, as in effect from time to time (but, in the case of
any amendment of the Delaware General Corporation Law, only to the extent that
such amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
indemnify each person who is or was a director or officer of the Corporation or
of any of its wholly-owned
- 32 -
<PAGE> 33
subsidiaries who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, or was or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Corporation or of any of its subsidiaries, or is or was at any time serving, at
the request of the Corporation, any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against all expense, liability and loss (including, but not limited to,
attorneys' fees, judgments, fines, excise taxes or penalties with respect to any
employee benefit plan or otherwise, and amounts paid or to be paid in
settlement) incurred or suffered by such director or officer in connection with
such proceeding; provided, however, that, except as provided in Paragraph (e) of
Article Seventh of the Certificate of Incorporation of the Corporation, the
Corporation shall not be obligated to indemnify any person under this Article in
connection with a proceeding (or part thereof) if such proceeding (or part
thereof) was not authorized by the Board of Directors of the Corporation and was
initiated by such person against (i) the Corporation or any of its subsidiaries,
(ii) any person who is or was a director, officer, employee or agent of the
Corporation or any of its subsidiaries and/or (iii) any person or entity which
is or was controlled, controlled by, or under common control with the
Corporation or has or had business relations with the Corporation or any of its
subsidiaries.
- 33 -
<PAGE> 34
Subject to the Certificate of Incorporation, expenses incurred by a
Director or officer of the Corporation in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such Director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation. Such expenses incurred by other employees or agents of the
Corporation may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
For purposes of this Article V, the term "Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed by the Corporation in a
consolidation or merger; the term "other enterprise" shall include any
corporation, partnership, joint venture, limited liability company, trust or
employee benefit plan; service "at the request of the Corporation" shall include
service as a Director, officer or employee of the Corporation which imposes
duties on, or involves service by, such Director, officer or employee with
respect to an employee benefit plan, its participants or beneficiaries; any
excise taxes assessed on a person with respect to an employee benefit plan shall
be deemed to be indemnifiable expenses; and action by a person with respect to
any employee benefit plan which such person reasonably believes to be in the
- 34 -
<PAGE> 35
interest of the participants and beneficiaries of such plan shall be deemed to
be action in or not opposed to the best interests of the Corporation.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. Except as otherwise determined by the Board
of Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt
and alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Board of Directors
action may be executed on behalf of the Corporation by the Chairman of the
Board, the President and Chief Executive Officer, the Chief Financial Officer,
any Executive Vice President, or any other officer, employee or agent of the
Corporation as the Board of Directors may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
otherwise provides, the Chairman of the Board, the President and Chief Executive
Officer or the Chief Financial
- 35 -
<PAGE> 36
Officer may waive notice of and act on behalf of the Corporation, or appoint
another person or persons to act as proxy or attorney in fact for the
Corporation with or without discretionary power and/or power of substitution, at
any meeting of securityholders or holders of any interest in any corporation or
other enterprise or organization, any of whose securities or other interests
therein are held by the Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
Certificate of Incorporation, By-Laws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock transfer
books, which shall contain the names of all stockholders, their record addresses
and the amount of stock held by each, may be kept outside the State of Delaware
and shall be kept at the principal office of the Corporation, at the office of
its counsel or at an office of its transfer agent or at such other place or
places as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate of Incorporation. All references in these
By-Laws to the Certificate of Incorporation shall be deemed to refer to the
Amended and Restated Certificate of Incorporation of the Corporation, as
amended, or amended and restated, and in
- 36 -
<PAGE> 37
effect from time to time (including all certificates and other instruments which
are filed with the Secretary of State of the State of Delaware pursuant to the
provisions of the Delaware General Corporation Law and which have the effect of
amending or supplementing in some respect the Certificate of Incorporation of
the Corporation).
SECTION 8. Amendment of By-Laws.
(a) Amendment by Directors. Except as provided otherwise by law,
these By-Laws may be amended or repealed or new By-Laws (not inconsistent with
any provision of law or the Certificate of Incorporation) may be adopted, by the
affirmative vote of a majority of the Directors then in office.
(b) Amendment by Stockholders. These By-Laws may be amended or
repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least sixty
percent (60%) of the total votes eligible to be cast on such amendment or repeal
by holders of voting stock, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of a majority of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class.
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<PAGE> 1
EXHIBIT 10.1
As of July 9, 1998
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 dated as of
January 21, 1997, as amended by the letter agreement dated as of June 30, 1997
and the letter agreement dated as of October 10, 1997 (the "Credit Agreement")
among GT Interactive Software Corp. (the "Borrower"), the banks parties thereto
(each a "Bank" and collectively, the "Banks"), the Letter of Credit Issuing
Banks named therein and Republic National Bank of New York, as agent (the
"Agent"). Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings ascribed to them in the Credit Agreement.
In accordance with Section 9.05 of the Credit Agreement, the
undersigned Banks, constituting all of the Banks, and the Borrower hereby agree
to further amend the Credit Agreement as follows:
1. As of the Third Amendment Effective Date (as defined in Section 5
hereof), each Bank shall increase its Commitment ("Increase to
Commitment") by the amount set forth opposite the name of such Bank
directly below:
<TABLE>
<CAPTION>
Increase to Commitment Bank
---------------------- ----
<S> <C>
$5,250,000 Republic National Bank of New York
$3,450,000 The First National Bank of Chicago
$3,450,000 First Union National Bank
$2,850,000 European American Bank
</TABLE>
From the Third Amendment Effective Date up to and
including September 30, 1998, the term "Commitment" shall be deemed
amended to refer to the Commitment of each Bank existing immediately
prior to the Third Amendment Effective Date plus such Bank's
Increase to Commitment.
As of October 1, 1998, the Commitment of each Bank shall
be automatically reduced by such Bank's Increase to Commitment, and
thereupon each Bank's Commitment shall equal such Bank's Commitment
immediately prior to the Third Amendment Effective Date.
<PAGE> 2
2. The Borrower shall pay to the Agent, for the account of the Banks,
ratably in proportion to their Increase to Commitment, on the Third
Amendment Effective Date, a non-refundable facility fee in the
amount of $15,000. The Borrower also shall pay to the Agent, for its
own account, an administrative fee as set forth in a letter between
the Borrower and the Agent, There will be no adjustment in respect
of facility or other fees heretofore paid or otherwise payable.
3. Except as set forth herein, the Credit Agreement remains unmodified
and in full force and effect.
4. In addition to its obligations under the Credit Agreement the
Borrower agrees to pay all reasonable out-of-pocket expenses of the
Agent, including the reasonable fees and disbursements of Kronish,
Lieb, Weiner & Hellman, LLP, special counsel to the Agent, in
connection with the preparation of this letter agreement.
5. This letter agreement shall become effective (the "Third Amendment
Effective Date") upon receipt by the Agent of (a) a copy of this
letter agreement duly executed by the Borrower, each of the Banks
and the Agent and (b) an opinion of Messrs. Kramer, Levin, Naftalis
& Frankel, counsel to the Borrower, dated the Third Amendment
Effective Date, in form and substance satisfactory to the Agent.
6. 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.
7. This letter agreement shall be governed in all respects by the laws
of the State of New York.
(Intentionally left blank.)
- 2 -
<PAGE> 3
REPUBLIC NATIONAL BANK OF NEW YORK
as a Bank, Issuing Bank and Agent
BY: /s/ Estelle Dichazi
------------------------------
Name: Estelle Dichazi
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
BY: /s/ Juan J. Duarte
------------------------------
Name: Juan J. Duarte
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
BY: /s/ David V. Ring
------------------------------
Name: David V. Ring
Title: Vice President
EUROPEAN AMERICAN BANK
BY: /s/ Josephine F. Savastaro
------------------------------
Name: Josephine F. Savastaro
Title: Vice President
- 3 -
<PAGE> 4
ACCEPTED AND AGREED TO:
GT INTERACTIVE SOFTWARE CORP.
BY: /s/ David Chemerow
------------------------------
Name: David Chemerow
Title: President
Each of the undersigned has read the above letter agreement and confirms that
its obligations under its respective Continuing General Security Agreement dated
as of June 30, 1997, continue in full force and effect and that the security
interest granted to Republic National Bank of New York, as agent under the
above defined credit Agreement remains a first priority security interest.
HUMONGOUS ENTERTAINMENT, INC.
BY: /s/ Harry Rubin
------------------------------
Name: Harry Rubin
Title: Vice President
WIZARDWORKS GROUP, INC.
BY: /s/ Harry Rubin
------------------------------
Name: Harry Rubin
Title: Vice President
FORMGEN, INC.
By: /s/ Harry Rubin
------------------------------
Name: Harry Rubin
Title: Vice President
G.T. INTERACTIVE SOFTWARE (EUROPE) LIMITED
BY: /s/ Hillary Cole
------------------------------
Name: Hillary Cole
Title: Director & Secretary
- 4 -
<PAGE> 5
RENEGADE INTERACTIVE FRANCE S.A.
BY: /s/ Hillary Cole
------------------------------
Name: Hillary Cole
Title: Director
G.T. INTERACTIVE SOFTWARE GERMANY (GMBH)
BY: /s/ Ivana Soddu
------------------------------
Name: Ivana Soddu
Title: Director
ONE STOP DIRECT LIMITED
BY: /s/ John Shaw
------------------------------
Name: John Shaw
Title: Director
- 5 -
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AMENDED AGREEMENT (together with all exhibits hereto, the
"Agreement"), made in New York, New York as of the 15th day of May, 1997 and
amended on April 28, 1998, 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
<PAGE> 2
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 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
$360,000 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 April 30, 1999 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
- 2 -
<PAGE> 3
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 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
- 3 -
<PAGE> 4
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 a period ending on the later of (i)
the end of the Agreement Term, and (ii) the end of the Severance Period
described in Section 5(d)(i) hereof if severance payments are required to be
made to the Executive under any provision of Section 5(d) (or, if the
Executive's employment is terminated for disability pursuant to Section 5(c)
hereof prior to an event described in either clause (i) or clause (ii) above,
then during a period ending upon such termination); 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 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). Notwithstanding anything in this Agreement to the contrary, if
the Executive's employment with the Company shall not have terminated prior to
the happening of a Change of Control (as defined in Section 5(d)(iii) hereof),
then the Executive's obligation pursuant to this Section 4(b) shall be limited
to a period equal to the greater of (A) two (2) years from the date of the
happening of such Change of Control, and (B) the period during which Executive
remains in the employ of the Company or its successor and parent company, if
any.
For purposes hereof, the term "Competing Business" shall mean any
business or venture which develops, manufactures, publishes, licenses, sells,
distributes or supplies entertainment, educational or "edutainment" 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
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<PAGE> 5
doing so, nor employ such an employee in a Competing Business or any other
business.
(d) Company Customers. Executive shall not, during the period
which is coincident with Executive's obligation not to compete under Section
4(b) hereof, 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, Comp U.S.A., Kmart, Office Depot (or any of their respective
affiliated operations), for the purpose of selling entertainment, educational or
"edutainment" 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
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
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<PAGE> 6
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
wilfully 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.
(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
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<PAGE> 7
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 two (2) years
from the effective date of such termination if the Agreement Term shall not have
expired at the time of such termination, or one (1) year if the Agreement Term
shall have expired prior to the time 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 two
(2)-year period or one (1)-year period, as the case may be (the "Severance
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) In addition to any severance amounts payable hereunder, in
the event the Executive's employment is terminated by the Company or its
successor or parent company, if any, during the Agreement Term for any reason
other than as provided in Sections 5(b) or 5(c) hereof (including a deemed
termination by reason of any changes referred to in the last sentence of Section
5(d)(i)), then all options previously granted to Executive pursuant to the
Company's 1995 Stock Incentive Plan, 1997 Stock Incentive Plan or otherwise
shall immediately vest and be exercisable by Executive in full, and Executive
shall thereafter be entitled to exercise such options for the balance of the
Severance Period referred to in Section 5(d)(i) hereof.
(iii) Upon the happening of a Change of Control, as hereinafter
defined, then all options previously granted to Executive pursuant to the
Company's 1995 Stock Incentive Plan, 1997 Stock Incentive Plan or otherwise
shall immediately vest and be exercisable by Executive in full, and
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<PAGE> 8
Executive shall thereafter be entitled to exercise (x) the Option for the
balance of its term, and (y) all other options then held by Executive, for a
period of two (2) years from the termination of Executive's employment with the
Company or its successor for any reason whatsoever following such Change of
Control. In addition, if following a Change of Control, (A) Executive's
employment is terminated by the Company or its successor or parent company, if
any, 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 any time within ninety (90) days of any deemed termination
referred to above or the occurrence of an event referred to in clause (iii)(B)
hereof, Executive may voluntarily resign from employment with the Company or its
successor and parent company, and thereupon (and following the happening of the
event specified in clause (iii)(A)), the Company and its successor and parent
company shall be obligated to make severance payments and provide benefits and
perquisites as provided in Section 5(d)(i) hereof with the same effect as if the
Company terminated the employment of Executive as contemplated by the provisions
of Section 5(d)(i); provided, that following such voluntarily resignation (or
termination of Executive's employment as specified in clause (iii)(A)) and
during the applicable Severance Period described in Section 5(d)(i) hereof (but
subject to the limitations contained in the last sentence of Section 4(b)),
Executive shall be bound by the provisions of Section 4(b) hereof so long as the
Company, or its successor and parent company, if any, continue to make the
severance payments required by this Section 5(d). 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 (A) the
Company or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, (B) Joseph Cayre, Stanley
Cayre, Kenneth Cayre and their respective spouses or children or
trusts for such children, (C) General Atlantic Partners or any
entity managed or controlled by General Atlantic Partners ((A), (B)
and (C) together or individually, a "Current Owner"), or (D) any
entity more than 50% of whose voting and equity interests are owned
beneficially by a Current Owner), 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
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<PAGE> 9
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 the Company or
the surviving entity (or its parent) 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 (or its parent) 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 accordance
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<PAGE> 10
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,
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<PAGE> 11
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.
(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
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<PAGE> 12
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.
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
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<PAGE> 13
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., 417
Fifth Avenue, 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 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
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<PAGE> 14
"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 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
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<PAGE> 15
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.
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> 16
Schedule A
Title: President and Chief Operating Officer
Reporting to: The Chairman of the Board or the Chief Executive Officer of the
Company.
Boards of
Directors: Playboy Enterprises, Inc.
Dunham's Athleisure Corp.
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the "Agreement"),
made in New York, New York on April 28, 1998, effective as of the first day of
January 1998, 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 HARRY M. RUBIN, the undersigned individual
("Executive").
IN CONSIDERATION 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 January 1, 1998 and ending on December 31, 2001 (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 Executive Vice-President
and General Manager-International Division and Business Affairs, of the Company
and shall have such duties as are set forth in Schedule A, provided that if
Executive is promoted to President of the International Division, he shall have
only such title and responsibilities with respect to Business Affairs as are
established by the Company. Notwithstanding this provision, if such Business
Affairs title and responsibilities are modified, then Executive's failure to
accept them shall not be a breach of this Agreement by Executive, and such
modification shall not constitute Good Reason, as such term is defined in
Section 5(b), nor be a breach of this Agreement by the Company.
(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
three weeks' vacation per year and personal and sick leave in accordance with
Company policy. Executive shall have the title set forth in Section 2(a) hereof
and shall report to the Chief Executive Officer of the Company, or, if Ronald
Chaimowitz is the Chairman of the Board, then to the Chairman of the Board.
<PAGE> 2
(c) Place of Performance. During the Agreement Term, Executive
shall be based at the Company's principal executive offices in New York, New
York 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.
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
$360,000 for the year ended December 31, 1998, subject to annual review during
the Agreement Term and increases in such Base Salary of not less than five (5)
percent per year, but otherwise in the discretion of the Company.
(b) Benefits and Prerequisites; Bonus. (i) 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. Except as otherwise provided in this Agreement, Executive may
receive bonuses and be entitled to receive stock options at the sole discretion
of the Board of Directors, provided, that Executive shall participate in the
Company's senior executive bonus plan with a target bonus of 50% of Base Salary.
(ii) Executive shall receive an allowance of $2,000 per
month toward rental and/or expenses of owning/leasing and maintaining an
automobile.
(iii) During the Agreement Term, the Company shall provide to
Executive medical benefits on the same basis and at the same cost to Executive
as of December 31, 1997.
(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) Life Insurance. The Company shall pay for and maintain a term
life insurance policy on Executive's life, payable to his estate or other
beneficiary directed by Executive, in the face amount of $1,000,000, and shall
reimburse Executive for all taxes payable by him, if any, as a result of such
premium payment, net of any taxes payable by him as a result of such
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reimbursement. Executive shall provide documentation reasonably satisfactory to
the Company to support such reimbursement of taxes.
(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 that Executive shall be entitled to attend to personal affairs and
investments in a manner which does not unreasonably interfere with his
responsibilities hereunder, and except as otherwise 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 a period ending on the later of (i)
the end of the Agreement Term, (ii) the end of the Severance Period described in
Section 5(d)(i) hereof if severance payments are required to be made to the
Executive under any provision of Section 5(d), and (iii) the end of any period
during which payments are made to the Executive under Section 5(c) hereof;
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, partner, consultant,
advisor, agent, proprietor, trustee or investor, any Competing Business;
provided, however, that if Executive's employment hereunder is terminated by the
Company under Section 5(d) or Executive voluntarily resigns for Good Reason as
provided in 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)
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the Company continues to pay to Executive amounts as severance pursuant to
Section 5(d).
For purposes of this Section 4(b), the term "Competing Business"
shall mean any business or venture which develops, manufactures, publishes,
licenses, sells, distributes or supplies entertainment, educational or
"edutainment" computer software or video games 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, provided that
ownership of 2% 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 power to control, or direct the management
of, or is not otherwise associated with, such corporation. Notwithstanding
anything in this Agreement to the contrary, if the Executive's employment with
the Company shall not have terminated prior to the happening of a Change of
Control (as defined in Section 5(d)(iii) hereof), then the Executive's
obligation pursuant to this Section 4(b) shall be limited to a period equal to
the greater of (A) two (2) years from the date of the happening of such Change
of Control, and (B) the period during which Executive remains in the employ of
the Company or its successor and parent company, if any.
(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.
(d) Company Customers. Executive shall not, during the period
which is coincident with the Executive's obligation not to compete under Section
4(b) hereof, directly or indirectly, contact, solicit or do business with (i)
Wal-Mart Corporation, Target Stores, Caldor, Phar-mor, Best Buy, Office Depot,
Comp U.S.A., Kmart, or any of their respective affiliated operations, for the
purpose of selling entertainment, educational or "edutainment" computer
software, video games or any other product (which is an integral product in a
material product line of the Company) then sold by the Company to such customers
or proposed to be sold to such customers at the time of termination of
Executive's employment hereunder; (ii) any "customers" (as defined below) of the
Company for the purpose of selling entertainment, educational or "edutainment"
computer software, video games or any other product (which is an integral
product in a material product line of the Company) then sold by the Company to
such customers or proposed to be sold to such customers at the time of
termination of Executive's employment hereunder; or (iii) any supplier, licensor
or licensee of the Company (or any such supplier, licensor or licensee solicited
by the Company within eight months prior to the expiration or termination of
this Agreement) with respect to licensing computer software, video
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<PAGE> 5
games or other intellectual property (which is related to computer software,
video games or any other material product line of the Company) from such person.
For the purposes of the provisions of this Section 4(d), "customer" shall
include any entity that purchased computer software, video games or any other
product from the Company within eight months prior to the termination of
Executive's employment hereunder, without regard to the reason for such
termination. The term "customer" also includes any former customer or potential
customer of the Company which the Company has solicited within eight months
prior to such termination, for the purpose of selling computer software or any
other product then sold by the Company.
5. Termination of Employment.
(a) Termination. The Company may terminate Executive's employment
for Cause (as defined below), in which case 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 (other than voluntary resignation
with Good Reason (as hereinafter defined) or following a Change of Control as
permitted by Section 5(d)(iii))), then the Company shall pay to Executive,
within thirty (30) days of the date of such termination, only the Base Salary
and car allowance 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 misconduct in the performance of Executive's duties hereunder; (iv) willful
failure or refusal to perform such material duties as may be delegated to
Executive commensurate with Executive's position and responsibilities as set
forth in Section 2 hereof; or (v) breach of any material 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
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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
willful failure to perform or a material breach of any provision of this
Agreement. For purposes hereof, the term "Good Reason" shall mean (i) the
modification of Executive's duties or responsibilities as set forth on Schedule
A, or the assignment to Executive of a position or title other than, Executive
Vice-President and General Manager-International Division and Business Affairs
of the Company or its successor and parent company, if any (unless Executive is
promoted to President of the International Division (which position or title
shall thereafter control for the purposes of the definition of Good Reason), in
which case he shall have only such title and responsibilities with respect to
Business Affairs as are established by the Company), or (ii) any requirement
that the Executive report to any person other than the Chief Executive Officer
of the Company or its successor and parent company, if any, or if Ronald
Chaimowitz is the Chairman of the Board of such entity, then to the Chairman of
the Board, or (iii) any requirement that Executive perform services in any
office of the Company or any successor or parent company located more than 30
miles from the Company's executive offices in New York City at the date hereof,
or (iv) the failure by the Company, or its successor or parent company, if any,
to pay compensation or provide benefits or perquisites to Executive as and when
required by the terms 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 and car allowance 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 covering the same
period of time.
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<PAGE> 7
In addition, in the event that the Company shall terminate this
Agreement pursuant to this Section 5(c), the Company shall thereafter pay to
Executive or his estate, severance pay equal to the Base Salary that Executive
would have otherwise received if the terms of this Agreement were in effect
during a period of two years following the date of such termination, commencing
with the date of such termination and payable at the times and in the amounts
such Base Salary would have been so paid, 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 covering the
same period of time.
(d) Termination By Company For Any Other Reason; Voluntary
Resignation for Good Reason; Change of Control.
(i) In the event that (A) 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 (B) Executive voluntarily resigns
for Good Reason, as defined in Section 5(b), then the Company shall pay to
Executive, within thirty (30) days of the date of such termination or
resignation, the Base Salary and car allowance through such date of termination
or resignation and, in lieu of any further compensation and benefits for the
balance of the Agreement Term, severance pay equal to the Base Salary that
Executive would have otherwise received if the terms of this Agreement were in
effect during a period equal to the greater of (A) the remainder of the
Agreement Term, and (B) two years from the date of such termination or
resignation (the "Severance Period"), plus an amount per annum for the remainder
of the Severance Period (pro-rated where appropriate for part of a year, if any)
equal to 50% of such Base Salary in lieu of bonus, in each case from the
effective date of such termination or resignation, commencing with such date of
termination or resignation and payable at the times and in the amounts such Base
Salary would have been so paid and, in the case of such amount in lieu of bonus,
one half thereof on each July 1 and January 1 following the date of such
termination or resignation. Under such circumstances, except as set forth below,
for the balance of the Severance Period, Executive shall also continue to
participate in and receive the benefits and perquisites provided for in Sections
3(b) and 3(c) hereof (excluding any bonus (other than the amount in lieu of
bonus provided for in this Section 5(d)) and stock options) to the same extent
as if Executive's employment hereunder had not been terminated or he had not
resigned; 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, benefits and perquisites
shall cease and Executive's rights thereto shall terminate and shall be
forfeited.
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<PAGE> 8
(ii) In addition to any severance amounts payable hereunder,
in the event (A) the Executive's employment is terminated by the Company or its
successor or parent company, if any, for any reason other than properly for
Cause as provided in Section 5(b), or (B) the Executive dies or (C) the
Executive voluntarily resigns for Good Reason, as defined in Section 5(b), then
all options previously granted to Executive pursuant to the Company's 1995 Stock
Incentive Plan, 1997 Stock Incentive Plan or otherwise shall immediately vest
and be exercisable by Executive in full, and Executive (or his estate in the
event of death) shall thereafter be entitled to exercise such options as
follows: (x) all options granted on or before December 31, 1997 (options to
purchase 327,728 shares at the date hereof, being referred to as the "Initial
Options") shall be exercisable for the balance of their respective terms; and
(y) all other options shall be exercisable for a period of two years from the
date of the termination, death or resignation referred to in this Section
5(d)(ii).
(iii) Upon the happening of a Change of Control, as
hereinafter defined, then all options previously granted to Executive pursuant
to the Company's 1995 Stock Incentive Plan, 1997 Stock Incentive Plan or
otherwise shall immediately vest and be exercisable by Executive in full, and
Executive shall thereafter be entitled to exercise (A) the Initial Options for
the balance of their respective terms and (B) all other options then held by
Executive for a period of three (3) years from the termination of Executive's
employment with the Company or its successor for any reason whatsoever following
such Change of Control. In addition, if, following a Change of Control, (1)
there occurs Good Reason, as defined in Section 5(b), (2) Executive is not an
Executive Vice- President of the Company or its successor and parent company, if
any, with responsibilities similar to those set forth on Schedule A, or (3)
Executive's employment is terminated by the Company or its successor or parent
company, if any, for any reason other than as provided in Sections 5(b) or (c),
then in any such case, at any time within ninety (90) days of any event
specified in clauses (1) or (2), Executive may voluntarily resign from
employment with the Company or its successor and parent company, and thereupon
(or following the happening of the event specified in clause (3)), the Company
and its successor and parent company shall be obligated to make severance
payments and provide benefits and perquisites as provided in Section 5(d)(i)
hereof with the same effect as if the Company terminated the employment of
Executive as contemplated by the provisions of Section 5(d)(i) or the Executive
voluntarily resigned for Good Reason; provided that following such voluntarily
resignation (or termination of Executive's employment as specified in clause
(3)) and during the applicable Severance Period described in Section 5(d)(i)
hereof (but subject to the limitations contained in the last sentence of Section
4(b)), Executive shall be bound by the provisions of Section 4(b) hereof so long
as the Company, or its successor and
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<PAGE> 9
parent company, if any, continue to make the severance payments required by this
Section 5(d).
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 (A) the
Company or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, (B) Joseph Cayre, Stanley
Cayre, Kenneth Cayre and their respective spouses or children or
trusts for such children, (C) General Atlantic Partners or any
entity managed or controlled by General Atlantic Partners ((A), (B)
and (C) together or individually, a "Current Owner"), or (D) any
entity more than 50% of whose voting and equity interests are owned
beneficially by a Current Owner), 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
the Company or the surviving entity (or its parent) 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
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<PAGE> 10
the voting securities of the Company or such surviving entity (or
its parent) 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 and car allowance through the date of termination of
Executive's employment and making any severance payment and continuing benefits
and perquisites pursuant to and in 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.
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
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<PAGE> 11
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 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. Notwithstanding the foregoing, Confidential Information
shall not include information which (a) is or becomes generally available to the
public or is now or later enters the public domain other than as a result of a
disclosure by Executive, (b) was available to Executive on a non-confidential
basis prior to the date of this Agreement, (c) becomes available to Executive
from a source other than the Company, its agents or representatives (or former
agents or representatives) or (d) is required to be disclosed pursuant to law;
provided, that Executive shall provide the Company with prompt notice of such
required disclosure to, and Executive shall fully cooperate with the Company to,
enable the Company to seek a protective order; provided, further, that in the
case of (c) above, the source of such information was not bound by a
confidentiality agreement with the Company.
(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,
without the prior written consent of the Chief Executive Officer, directly or
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
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<PAGE> 12
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, 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.
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.
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<PAGE> 13
(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 reasonably 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, Executive and the Company each agree that he or it will take no
action which is intended, or would reasonably be expected, to harm the other's
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 laws of the State of New York
applicable to agreements made and to be performed in such state without regard
to such state's conflicts of law principles. 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., 417 Fifth Avenue, New York, New York 10016, Attention:
Secretary, which agent may be changed by the Company upon thirty (30) days'
prior written notice to Executive).
(g) Entire Agreement. This Agreement (including the Exhibits hereto)
and that certain side letter, of even date herewith, from the Company to
Executive 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 agreements, if any, between the Company and
Executive, which
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<PAGE> 14
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, 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 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
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<PAGE> 15
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 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 General
Counsel), 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 and at reasonable times, 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.
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<PAGE> 16
(o) Insurance and Indemnification. Executive shall be covered
under any director and officer insurance policy obtained by the Company, if any,
and shall be entitled to benefit from any officer indemnification arrangements
adopted by the Company, if any, to the same extent as other senior executive
officers of the Company (including the right to such coverage or benefit
following Executive's employment to the extent such policy or benefit covers
former employees); provided, however that Executive acknowledges and agrees that
the Company shall not be obligated, in any way, to obtain such insurance
coverage or to adopt any such indemnification arrangements for such officers.
(p) Survival. This Agreement and the respective obligations,
rights and benefits of the Company and the Executive as set forth herein shall
survive the cessation or termination of Executive's employment with the Company
and the termination of the Agreement Term in accordance with the terms set forth
herein. In addition, the provisions of Sections 3(d) and 5(d)(iii) hereof shall
survive the expiration of the Agreement Term if Executive remains employed by
the Company, but only until such employment is terminated by the Company, by the
Executive, or for any other reason.
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/ Harry M. Rubin
------------------------ ----------------------------
Name: Ronald Chaimowitz Harry M. Rubin
Title: Chief Financial
Officer
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<PAGE> 17
Schedule A
Duties and Responsibilities
1. Management of, with authority to direct (subject to the
direction of the person to whom the Executive reports pursuant
to this Agreement) the international activities of the
Company, including Company-owned operations, joint ventures
and third party distribution and licensing.
2. Under the heading of "Business Affairs", management of the
contract related, legal and sublicensing functions of the
Company, including contract negotiations and preparation,
protection of Company rights and contract and legal
administration, unless Executive is promoted to President of
the International Division, in which event he shall have only
such title and responsibilities with respect to Business
Affairs as are established by the Company.
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<PAGE> 18
GT INTERACTIVE SOFTWARE CORP.
417 Fifth Avenue
New York, New York 10016
As of January 1, 1998
Mr. Harry M. Rubin
784 Park Avenue
New York, New York 10021
Dear Harry:
Reference is hereby made to that certain Employment Agreement (the
"Employment Agreement"), of even date herewith, by and between you and GT
Interactive Software Corp. (the "Company"). Capitalized terms used herein
without definition shall have the meanings ascribed thereto in the Employment
Agreement.
In the event that after the expiration of the Agreement Term, (i)
Executive continues in the employ of the Company and (ii) Executive and the
Company do not enter into an employment agreement regarding Executive's
continued employment, Executive agrees to be bound by the terms of Sections 4(a)
through (d) and 6 of the Employment Agreement for as long as Executive is
employed by the Company, provided, however, that provisions of the Employment
Agreement that are by its terms intended to survive such expiration, shall so
survive.
In the event that after the expiration of the Agreement Term, (i)
Executive and the Company do not enter into an employment agreement regarding
Executive's continued employment and (ii) Executive's employment is terminated
by the Company or its successor for any reason other than those described in
Section 5(b) of the Employment Agreement (collectively, "without cause"), or the
Executive resigns for Good Reason, the Company shall pay to Executive, within 30
days of such termination, the base salary then in effect through such date of
termination and, in lieu of any further compensation or benefits, severance pay
equal to the base salary that Executive would otherwise receive during the one
year period following the effective date of the termination, at the times and in
the amounts such salary would have been paid. Under such circumstances, except
as set forth below, for the balance of such one year period, Executive shall
also continue to participate in and receive the benefits and perquisites
(excluding any bonus and stock options) he would have received had his
employment not been terminated; provided, however, that in the event Executive
shall breach Sections 4 or 6 of the Employment Agreement (as if such provisions
were still in effect), in addition to any other remedies the Company may have,
the Company's obligations pursuant to this letter to continue
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<PAGE> 19
such salary, benefits and perquisites shall cease and Executive's rights thereto
shall terminate and be forfeited.
In the event Executive's employment after the expiration of the
Agreement Term is terminated without cause or the Executive resigns for Good
Reason, all options granted to Executive pursuant to the Company's Stock
Incentive Plans shall continue to vest in accordance with their terms and be
exercisable by Executive as if his employment had not been terminated.
Please indicate your agreement with the foregoing by signing this
letter in the space provided below and returning it to the undersigned at the
address set forth above.
Very truly yours,
GT INTERACTIVE SOFTWARE CORP.
By: /s/ Ronald Chaimowitz
------------------------------
Name: Ronald Chaimowitz
Title: Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Harry M. Rubin
- --------------------
Harry M. Rubin
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the "Agreement"),
made in New York, New York as of the 28th day of April, 1998, 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
RONALD CHAIMOWITZ, the undersigned individual ("Executive").
IN CONSIDERATION 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 five-year period commencing
on April 28, 1998 and ending on April 27, 2003 (as extended from time to time
pursuant to Section 8(o) hereof, 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 the President - Chief
Executive Officer and/or Chairman of the Board of Directors ("Chairman of the
Board") of the Company, in each case as determined in the sole discretion of the
Board of Directors of the Company.
(b) Performance of Duties. Throughout the Agreement Term, Executive
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Board of Directors 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 four weeks' vacation per year and sick leave in accordance with
Company policy. Executive shall have the title of President - Chief Executive
Officer and/or Chairman of the Board of the Company, in each case as determined
in the sole discretion of the Board of Directors, and shall report to the Board
of Directors of the Company, and at all times during the Agreement Term shall be
a director of the Company and its parent company, if any. Executive shall
perform the duties and shall have the responsibilities set forth on Exhibit 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, New York
and, in this regard,
<PAGE> 2
Executive shall maintain Executive's personal residence in such city or such
other location within reasonable access to Executive's place of employment, but
shall in no event be required to maintain such residence in any location more
than 30 miles from the Company's executive offices in New York City at the date
hereof.
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
$550,000 for the entire Agreement Term, payable in installments consistent with
the Company's payroll practices. Such Base Salary may be increased at the sole
discretion of the Board of Directors, provided, however, that from and after the
date that the net sales of the Company for any fiscal year ending during the
Agreement Term exceeds $one (1) billion, such Base Salary shall, as of the
beginning of the month following such fiscal year, be adjusted to the annual
rate of $600,000 for the balance of the Agreement Term.
(b) Benefits and Perquisites; Bonus; Automobile Allowance; Options.
(i) 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 senior
level executive officers of the Company. Except as otherwise provided in this
Agreement, Executive may receive bonuses and be entitled to receive stock
options at the sole discretion of the Board of Directors, provided that
Executive shall participate in the Company's senior executive bonus plan with a
target bonus of 60% of Base Salary. Nothing in this Agreement shall preclude the
Company from terminating or amending from time to time any employee benefit plan
or program.
(ii) The Company shall provide to Executive, or pay for the
costs of rental, insurance and maintenance and repairs of, an automobile for
Executive, as designated by Executive, provided that the costs to the Company
for such rental, insurance and maintenance and repairs shall not exceed $2,000
per month.
(iii) The Company shall pay or reimburse Executive for all
medical insurance payments which would otherwise be required to be paid by him
pursuant to the Company's medical insurance plans, as well as for all taxes
payable by him, if any, as a result of such reimbursement. Executive shall
provide documentation reasonably satisfactory to the Company to support such
reimbursement of taxes.
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<PAGE> 3
(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) Life Insurance. The Company shall pay for and maintain a term
life insurance policy on Executive's life, payable to his estate or other
beneficiary directed by Executive, in the face amount of $2,000,000, and shall
reimburse Executive for all taxes payable by him, if any, as a result of such
premium payment, net of any taxes payable by him as a result of such
reimbursement.
(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 Board of Directors of the
Company; provided, that Executive shall be entitled to manage his personal
investments and otherwise attend to personal affairs, including charitable
activities, in a manner that does not unreasonably interfere with his
responsibilities hereunder, 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. Among other things, Executive
may serve on the Board of Directors of any company which is not a Competing
Business (as defined in Section 5 hereof), so long as service on such Board or
Boards does not unreasonably interfere with fulfillment of his obligations
hereunder, and so long as he
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<PAGE> 4
provides advance notice to the Board of Directors of his intention to so serve.
(b) No Competition. Without limiting the generality of the
provisions of Sections 2(b) or 4(a), during a period ending on the later of (i)
the end of the Agreement Term, (ii) the end of the Severance Period described in
Section 5(d)(i) hereof, if severance payments are required to be made to the
Executive under any provision of Section 5(d), and (iii) the end of any period
during which payments are made to the Executive under Section 5(c) hereof;
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, partner, consultant,
advisor, agent, proprietor, trustee or investor, any Competing Business;
provided, however, that if Executive's employment hereunder is terminated by the
Company under Section 5(d) or Executive voluntarily resigns for Good Reason as
provided in Section 5(d), then the provisions of this Section 4(b) shall remain
in effect only so long as the Company continues to pay to Executive amounts as
severance pursuant to Section 5(d). For purposes of this Section 4(b), the term
"Competing Business" shall mean any business or venture which develops,
manufactures, publishes, licenses, sells, distributes or supplies entertainment,
educational or "edutainment" computer software or video games 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; provided that ownership of 2% 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 power to control, or
direct the management of, or is not otherwise associated with, such corporation.
Notwithstanding anything in this Agreement to the contrary, if the Executive's
employment with the Company shall not have terminated prior to the happening of
a Change of Control (as defined in Section 5(d)(iii) hereof), then the
Executive's obligation pursuant to this Section 4(b) shall be limited to a
period equal to the greater of (A) one year from the date of the happening of
such Change of Control, and (B) the period during which Executive remains in the
employ of the Company or its successor and parent company, if any.
(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.
(d) Company Customers. Executive shall not, during the period which
is coincident with the Executive's obligation not to compete under Section 4(b)
hereof, directly or indirectly, contact, solicit or do business with (i)
Wal-mart
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<PAGE> 5
Corporation, Target Stores, Caldor, Phar-mor, Comp U.S.A., Best Buy, Office
Depot, Kmart or any of their respective affiliated operations, for the purpose
of selling entertainment, educational or "edutainment" computer software, video
games or any other product (which is an integral product in a material product
line of the Company) then sold by the Company to such customers at the time of
termination of Executive's employment hereunder; (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 to such customers at
the time of termination of Executive's employment hereunder; or (iii) any
supplier, licensor or licensee of the Company with respect to licensing computer
software, video games or other intellectual property (which is related to
computer software, video games or any other material product line of the
Company), from such person.
For the purposes of the provisions of this Section 4(d), "customer" shall
include any entity that purchased computer software, video games or any other
product from the Company within eight months of the termination of Executive's
employment hereunder, without regard to the reason for such termination. The
term "customer" also includes any former customer or potential customer of the
Company which the Company has solicited within eight months of such termination,
for the purpose of selling computer software or any other product then sold by
the Company.
5. Termination of Employment.
(a) Termination. The Company may terminate Executive's employment
for Cause (as defined below), in which case 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 (other than voluntary resignation
with Good Reason (as hereinafter defined) or following a Change of Control as
permitted by Section 5(d)(iii)), then the Company shall pay to Executive, within
thirty (30) days of the date of such termination, only the Base Salary,
automobile allowance and any bonus previously approved by the Board of Directors
through such date of termination. For purposes of this
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<PAGE> 6
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 affecting the
Company's business; (iii) willful and continued gross neglect or willful
misconduct in the performance of Executive's material duties hereunder; and (iv)
willful and repeated failure or refusal to perform such duties as may be
delegated to Executive by the Board of Directors in writing commensurate with
Executive's position as President Chief Executive Officer and/or Chairman of the
Board of the Company and consistent with his responsibilities set forth on
Exhibit A; provided, however, that (a) with respect to clauses (iii) and (iv),
Executive shall have received written notice from the Company setting forth the
alleged act or failure to act constituting "Cause" hereunder, and Executive
shall not have cured such act or refusal to act (other than fraud or
embezzlement, which may not be cured) within 15 business days of his actual
receipt of such notice; and (b) for purposes of this Section 5(b), no act or
failure to act by Executive shall be considered "willful" unless done, or
omitted to be done, by Executive in bad faith and without a reasonable belief
that his actions or omission was in the best interest of the Company. For
purposes hereof, the term "Good Reason" shall mean (i) the modification of the
duties and responsibilities, or the assignment or delegation to Executive of
duties or responsibilities inconsistent with those, set forth on Exhibit A with
respect to the Company or its successor and parent company, if any, or the
assignment to Executive of a position or title other than, Chief Executive
Officer and/or Chairman of the Board of, the Company or its successor and parent
company, if any, or (ii) any requirement that the Executive report to any person
other than the Board of Directors of the Company or its successor and parent
company, if any, or (iii) any requirement that Executive perform services in an
office of the Company or any successor or parent company located more than 30
miles from the Company's executive offices in New York City at the date hereof
or, (iv) the failure by the Company, or its successor or parent company, if any,
to pay compensation or provide benefits or perquisites to Executive as and when
required by the terms of this Agreement, or the failure of Executive to be
elected and remain a director of the Company or its successor and parent
company, if any.
(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,
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<PAGE> 7
within thirty (30) days, of the date of such termination, only the Base Salary,
automobile allowance and any bonus approved by the Board of Directors 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 covering the same period of time.
In addition, in the event that the Company shall terminate this
Agreement pursuant to this Section 5(c), the Company shall thereafter pay to
Executive or his estate, severance pay equal to the Base Salary that Executive
would have otherwise received if the terms of this Agreement were in effect
during a period of two years following the date of such termination, commencing
with the date of such termination and payable at the times and in the amounts
such Base Salary would have been so paid, 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 covering the
same period of time.
(d) Termination By Company For Any Other Reason; Voluntary
Resignation for Good Reason; Change of Control.
(i) In the event that (A) 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 (B) the Executive voluntarily
resigns for Good Reason, as defined in Section 5(b), then the Company shall pay
to Executive, within thirty (30) days of the date of such termination, the Base
Salary, automobile allowance and any bonus approved by the Board of Directors
through such date of termination or resignation and, in lieu of any further
compensation and benefits for the balance of the Agreement Term, severance pay
equal to the Base Salary that Executive would have otherwise received if the
terms of this Agreement were in effect during a period equal to the greater of
(A) the remainder of the Agreement Term, and (B) two-years from the date of such
termination or resignation (the "Severance Period"), plus an amount per annum
for the remainder of the Severance Period (pro rated where appropriate for part
of a year, if any) equal to 60% of such Base Salary in lieu of bonus, in each
case from the effective date of such termination or resignation, commencing with
such date of termination or resignation and payable at the times and in the
amounts such Base Salary would have been so paid and, in the case of such amount
in lieu of bonus, one half thereof on each July 1 and January 1 following the
date of such
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<PAGE> 8
termination or resignation. Under such circumstances, except as set forth below,
for the balance of the Severance Period, Executive shall also continue to
participate in and receive the benefits and perquisites provided for in Sections
3(b) and 3(c) hereof (excluding any bonus (other than the amount in lieu of
bonus provided for in this Section 5(d)) and stock options) to the same extent
as if Executive's employment hereunder had not been terminated or he had not
resigned; 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, amount in lieu of bonus,
benefits and perquisites shall cease and Executive's rights thereto shall
terminate and shall be forfeited.
(ii) In addition to any severance amounts payable hereunder, in
the event (A) the Executive's employment is terminated by the Company or its
successor or parent company, if any, for any reason other than properly for
Cause as provided in Section 5(b) hereof, or (B) the Executive dies or (C) the
Executive voluntarily resigns for Good Reason, as defined in Section 5(b), then
all options previously granted to Executive pursuant to the Company's 1995 Stock
Incentive Plan, 1997 Stock Incentive Plan or otherwise shall immediately vest
and be exercisable by Executive in full, and Executive (or his estate in the
event of death) shall thereafter be entitled to exercise such options for the
balance of their respective terms. This Section (d)(ii) and Section (d)(iii) are
intended to be amendments to any stock option agreement between the Company and
the Executive to the extent required to effectuate the provisions hereof and
thereof, and have been approved as such amendments by the Board of Directors of
the Company and the appropriate committee thereof.
(iii) Upon the happening of a Change of Control, as hereinafter
defined, then all options previously granted to Executive pursuant to the
Company's 1995 Stock Incentive Plan, 1997 Stock Incentive Plan or otherwise
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. In addition, if, following a Change of Control, (1) there
occurs Good Reason, as defined in Section 5(b), or (2) Executive is not the
President Chief Executive Officer and/or Chairman of the Board of the Company or
its successor and parent company, if any, or (3) Executive's employment is
terminated by the Company or its successor or parent company, if any, for any
reason other than as provided in Sections 5(b) or (c), then in any such case, at
any time within ninety (90) days of any event specified in clauses (1) or (2),
Executive may voluntarily resign from employment with the Company or its
successor and parent company, and thereupon (and following the happening of the
event specified in clause (3)), the Company and its successor and parent company
shall be
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<PAGE> 9
obligated to make severance payments and provide benefits and perquisites as
provided in Section 5(d)(i) hereof with the same effect as if the Company
terminated the employment of Executive as contemplated by the provisions of
Section 5(d)(i) or the Executive voluntarily resigned for Good Reason; provided,
that following such voluntarily resignation (or termination of Executive's
employment as specified in clause (3)) and during the applicable Severance
Period described in Section 5(d)(i) hereof (but subject to the limitations
contained in the last sentence of Section 4(b)), Executive shall be bound by the
provisions of Section 4(b) hereof so long as the Company, or its successor and
parent company, if any, continue to make the severance payments required by this
Section 5(d).
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 (A) the
Company or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, (B) Joseph Cayre, Stanley Cayre,
Kenneth Cayre and their respective spouses or children or trusts for
such children, (C) General Atlantic Partners or any entity managed or
controlled by General Atlantic Partners ((A), (B) and (C) together or
individually, a "Current Owner"), or (D) any entity more than 50% of
whose voting and equity interests are owned beneficially by a Current
Owner), 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 the Company or the surviving entity (or its
parent) 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
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<PAGE> 10
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 (or its parent) 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 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.
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<PAGE> 11
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 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.
(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
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<PAGE> 12
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, 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. For purposes of this Agreement, the term Company shall include any
successor to the Company, and any parent company of such successor (or of the
Company), pursuant to or resulting from a merger or consolidation involving the
Company which does not constitute a "Change of Control" pursuant to Section 5(d)
of this Agreement.
(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.
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants that
neither Executive's employment with the Company nor
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<PAGE> 13
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, Executive agrees that he will take no action which is intended, or
would reasonably be expected, to harm the Company or its reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
(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 laws of the State of New York
applicable to agreements made and to be performed in such state without regard
to such state's conflicts of law principles. 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., 417 Fifth Avenue, New York, New York 10016, Attention:
Secretary, which agent may be changed by the Company upon thirty (30) days'
prior written notice to Executive).
(g) Entire Agreement. This Agreement 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
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<PAGE> 14
employment agreements, if any, and any amendments or supplements thereto 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, 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 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
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<PAGE> 15
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 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 General
Counsel), 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.
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<PAGE> 16
(o) Automatic Extension of Agreement Term. This Agreement shall be
automatically extended for a period of one year at the end of the Agreement Term
(or any extension thereof) unless, not later than six months prior to the end of
the Agreement Term (or extension thereof) (the "Notice Date"), the Company or
the Executive shall have notified the other in writing of its or his intention
not to so renew this Agreement. Any such extension shall be effective and
binding as of the applicable Notice Date. (p) Insurance and Indemnification.
Executive shall be covered under any director and officer insurance policy
obtained by the Company, if any, and shall be entitled to benefit from any
officer or director indemnification arrangements adopted by the Company, if any,
to the same extent as other senior executive officers and directors of the
Company (including the right to such coverage or benefit following Executive's
employment to the extent such policy or benefit covers former employees);
provided, however that Executive acknowledges and agrees that the Company shall
not be obligated, in any way, to obtain such insurance coverage or to adopt any
such indemnification arrangements for such officers or directors.
(q) Survival. This Agreement and the respective obligations, rights
and benefits of the Company and the Executive as set forth herein shall survive
the cessation or termination of Executive's employment with the Company and the
termination of the Agreement Term in accordance with the terms set forth herein.
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/ Joseph Cayre /s/ Ronald Chaimowitz
------------------------- ------------------------
Name: Joseph Cayre Ronald Chaimowitz
Title:
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<PAGE> 17
EXHIBIT A
Chairman of the Board:
- Overall strategic direction (in conjunction with the Chief
Executive Officer).
- Plan, set agenda for and chair Board of Directors' Meetings.
- General responsibility for publishing and product development.
- If Chief Executive Officer is not the Executive, the Chief
Executive Officer will report to the Chairman of the Board of
Directors and all officers shall report to the Chief Executive
Officer.
Chief Executive Officer:
- Responsibility for developing and executing the Company's
strategic plan, and annual operating plans and budgets in
order to maximize long-term shareholder value.
- Responsibility for the recruitment and retention of the
management team; all executive officers will report to the
Chief Executive Officer.
- Responsibility for all corporate activities and initiatives
subject to direction of the Board of Directors.
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<PAGE> 1
EXHIBIT 10.5
GT INTERACTIVE SOFTWARE CORP.
1997 STOCK INCENTIVE PLAN
(AS AMENDED ON JUNE 17, 1998)
<PAGE> 2
Table of Contents
Page
----
ARTICLE I
GENERAL
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
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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
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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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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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<PAGE> 7
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 8,000,000 shares and may be in
creased 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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<PAGE> 8
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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<PAGE> 9
(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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<PAGE> 10
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 other
wise.
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 pro vision 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 with respect to
options granted prior to June 17, 1998 or 30 days after employment terminates
with respect to options granted on or after June 17, 1998, except that such 90
or 30 day period, as the case may be, shall be
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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 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
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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 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
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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 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
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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
nonforfeitable, 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
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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.
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 with holding 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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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.
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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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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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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.
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EXHIBIT 10.6
GT INTERACTIVE SOFTWARE CORP.
EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN. GT Interactive Software Corp., (the "Company")
proposes to grant options for purchase of the Company's Common Stock to
eligible employees of the Company and Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (the "Plan").
For purposes of this Plan, "parent corporation" and "Subsidiary"
(collectively, "Subsidiaries") shall have the same meanings as "parent
corporation" and "subsidiary corporation" in Sections 424(e) and
424(f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
The Company intends that the Plan shall qualify as an "employee stock
purchase plan" under Section 423 of the Code (including any amendments
or replacements of such section), and the Plan shall be so construed.
Any term not expressly defined in the Plan but defined for purposes of
Section 423 of the Code shall have the same definition herein. A total
of 1,000,000 shares of Common Stock are reserved for issuance under the
Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of the Plan.
2. PURPOSES. The purposes of the Plan are to:
(a) provide employees of the Company and/or any Subsidiary (a
"Participating Subsidiary") designated by the Board of
Directors of the Company (the "Board"), based on the
recommendation of the Company's Compensation Committee, as
eligible to participate in the Plan, with a convenient means
to acquire an equity interest in the Company through payroll
deductions;
(b) enhance such employees' sense of participation in the affairs
of the Company and its Subsidiaries; and
(c) provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee (the
"Committee") appointed by the Compensation Committee and consisting of
one or more officers or other employees of the Company.
Subject to the provisions of the Plan and the limitations of Section
423 of the Code or any successor provision in the Code, all questions
of interpretation or application of the Plan shall be determined by the
Committee and its decisions shall be final and binding upon all
participants, subject at all times to the approval of the Compensation
Committee. All expenses incurred in connection with the administration
of the Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or a Participating Subsidiary
is eligible to participate in an Offering Period (as hereinafter
defined) under the Plan except the following:
(a) employees who are not employed by the Company or a
Participating Subsidiary on the first (1st) day of the month
before the beginning of such Offering Period;
(b) employees who are customarily employed for less than 20 hours
per week;
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<PAGE> 2
(c) employees who are customarily employed for less than five (5)
months in a calendar year; and
(d) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section
424(d) of the Code, own stock or hold options to purchase
stock or who, as a result of being granted an option under the
Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing five (5) percent or
more of the total combined voting power or value of all
classes of stock of the Company or any of its Subsidiaries.
5. OFFERING DATES. The offering periods of this Plan (each, an "Offering
Period") shall be of six (6) months duration commencing on January 1
and July 1 of each year and ending on June 30 and December 31 of each
year. The first Offering Period shall commence on July 1, 1998. The
first business day of each Offering Period is referred to as the
"Offering Date". The last business day of each Offering Period is
referred to as the "Purchase Date". The Committee shall have the power
to change the timing or duration of Offering Periods with respect to
future offerings if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be
affected.
6. PARTICIPATION IN THE PLAN. Eligible employees may become participants
in an Offering Period under the Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription
agreement to the Company's or Participating Subsidiary's (whichever
employs such employee) payroll department (the "payroll department")
not later than the first day of the month before such Offering Date
unless a later time for filing the subscription agreement is set by the
Committee for all eligible Employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription
agreement to the payroll department by such date after becoming
eligible to participate in such Offering Period under the Plan shall
not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in the Plan by filing the
subscription agreement with the payroll department not later than the
first day of the month preceding a subsequent Offering Date.
Once an employee becomes a participant in an Offering Period, such
employee will automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering
Period unless the employee withdraws from the Plan or terminates
further participation in the Offering Period as set forth in Section 11
below. Such participant is not required to file any additional
subscription agreements in order to continue participation in the Plan,
provided that if the participant wishes to change his or her
contribution level, a new subscription agreement must be filed as
provided in the preceding paragraph.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
the Plan with respect to an Offering Period will constitute the grant
(as of the Offering Date) by the Company to such employee of an option
to purchase on the Purchase Date for that Offering Period up to that
number of shares of Common Stock of the Company determined by dividing
the amount accumulated in such employee's payroll deduction account
during such Offering Period by the lower of (i) eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock
on the Offering Date (the "Entry Price") or (ii) eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock
on the Purchase Date, subject to the limitations set forth in Section
10, and subject to the following limitation: The number of shares of
the Company's Common Stock subject to an option granted to an employee
on any Offering Date shall not exceed two hundred percent (200%) of the
number of shares of the Company's Common Stock determined by dividing
an amount equal to ten percent (10%) of the employee's semi-annual
compensation as of the Offering Date by eighty-five percent (85%) of
the fair market value of a share of the Common Stock on the Offering
Date. An employee's semi-annual compensation shall be determined as
follows: (i) for any employee who was employed by the Company or a
Participating Subsidiary for an entire six-month
-2-
<PAGE> 3
period ending on the date prior to the Offering Date, the employee's
compensation (as defined in Section 9 (a)) for such six-month period;
or (ii) for any employee not employed for the entire six-month period,
the sum of the compensation (as defined in Section 9(a)) earned in each
of the full calendar months prior to the Offering Date during which the
employee was employed by the Company or a Participating Subsidiary,
divided by the number of full months during which the employee was so
employed, multiplied by six. The fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 8.
8. PURCHASE PRICE. The purchase price per share at which a share of Common
Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) the fair market value on the Offering Date; or
(b) the fair market value on the Purchase Date.
For purposes of the Plan, the term "Fair Market Value" shall mean, as
of any date, the value of Common Stock determined as follows:
(a) if such Common Stock is then quoted on the NASDAQ National
Market, its last reported sale price on the NASDAQ National
Market or, if no such reported sale takes place on such date,
the average of the closing bid and asked prices;
(b) if such Common Stock is publicly traded and is then listed on
a national securities exchange, its last reported sale price
or, if no such reported sale takes place on such date, the
average of the closing bid and asked prices on the principal
national securities exchange on which the Common Stock is
listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on
the NASDAQ National Market or listed or admitted to trading on
a national securities exchange, the average of the closing bid
and asked prices on such date, as reported in The Wall Street
Journal, for the over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board in good
faith.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The
deductions are made as a percentage of the employee's
compensation, as elected by the participant on his or her
subscription agreement, in one percent (1%) increments not to
exceed ten percent (10%). Compensation eligible for payroll
deduction shall be limited to base salary and overtime (if
any) paid in a payroll period, provided, however, that for
purposes of determining a participant's compensation, any
election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election.
Payroll deductions shall commence with the first pay period
following the Offering Date and shall continue to the end of
the Offering Period unless terminated as provided in the Plan.
(b) All payroll deductions made for a participant are credited to
his or her account under the Plan and are deposited with the
general funds of the Company; no interest accrues on the
payroll deductions. All payroll deductions received or held by
the Company may be used by the Company for any corporate
-3-
<PAGE> 4
purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(c) On the next business day following each Purchase Date, as long
as the Plan remains in effect and provided that the
participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company
that the participant wishes to withdraw from that Offering
Period under the Plan and have all payroll deductions
accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the
Company shall apply the funds then in the participant's
account to the purchase of whole shares of Common Stock
reserved under the option granted to such participant with
respect to the Offering Period to the extent that such option
is exercisable on the Purchase Date. The purchase price per
share shall be as specified in Section 8 of the Plan. Any cash
remaining in a participant's account after such purchase of
shares shall be carried forward, without interest, into the
next Offering Period. In the event that the Plan has been
oversubscribed, all funds not used to purchase shares on the
Purchase Date shall be returned to the participant, without
interest. No Common Stock shall be purchased on a Purchase
Date on behalf of any employee whose participation in the Plan
has terminated prior to such Purchase Date.
(d) Shares purchased by the participant will be restricted for
ninety (90) days from the Purchase Date. The participant will
not be able to sell or otherwise transfer ownership of the
stock during the 90-day restricted period. The participant
will retain voting rights to purchased shares during the
restricted period.
(e) Ninety (90) days following the Purchase Date, the Company
shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares
purchased upon exercise of his or her option; provided that
the Committee may deliver certificates to a broker or brokers
that hold such certificates in street name for the benefit of
each such participant.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her.
The participant will have no interest or voting right in
shares covered by his or her option until such option has been
exercised. Shares to be delivered to a participant under the
Plan will be registered in the name of the participant or in
the name of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under the Plan
at a rate which, when aggregated with his or her rights to
purchase stock under all other employee stock purchase plans
of the Company or any Subsidiary, exceeds $25,000 in fair
market value, determined as of the Offering Date (or such
other limit as may be imposed by the Code) for each calendar
year in which the employee participates in the Plan.
(b) If the number of shares to be purchased on a Purchase Date by
all employees participating in the Plan exceeds the number of
shares then available for issuance under the Plan, the Company
shall make a pro rata allocation of the remaining shares in as
uniform a manner as shall be practicable and as the Committee
shall determine to be equitable. In such event, the Company
shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each
employee affected thereby.
(c) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in
this Section 10 shall be returned to the participant as soon
as practicable after the end of the Offering Period.
-4-
<PAGE> 5
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under
the Plan by signing and delivering to the payroll department
notice on a form provided for such purpose. Such withdrawal
may be elected not later than the 1st day of the month prior
to the end of an Offering Period.
(b) The accumulated payroll deductions shall be returned to the
withdrawn participant within sixty (60) days following
withdrawal and his or her interest in the Plan shall
terminate. In the event a participant voluntarily elects to
withdraw from the Plan, he or she may not resume his or her
participation in the Plan during the same Offering Period, but
he or she may participate in any Offering Period under the
Plan which commences on a date subsequent to such withdrawal
by filing a new subscription agreement in the same manner as
set forth above for initial participation in the Plan.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement or death or the failure of a
participant to remain an eligible employee, terminates his or her
participation in the Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest within sixty (60) days following the
termination. For this purpose, an employee will not be deemed to have
terminated employment or failed to remain in the continuous employ of
the Company in the case of sick leave, military leave, or any other
leave of absence approved by the Committee; provided that such leave is
for a period of not more than ninety (90) days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event an employee's interest in
the Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event the Plan is terminated by the Board, the
Company shall deliver to the employee all payroll deductions credited
to his or her account. No interest shall accrue on the payroll
deductions of a participant in the Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the Entry Price of each option under the Plan
which has not yet been exercised, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the
number of 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
issue 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 option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Board. The Board may, in the exercise of its sole discretion in such
instances, declare that the options under the Plan shall terminate as
of a date fixed by the Board and give each participant the right to
exercise his or her
-5-
<PAGE> 6
option as to all of the optioned stock, including shares which would
not otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan
shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the
participant shall have the right to exercise the option as to all of
the optioned stock. If the Board makes an option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the participant that the option shall be fully
exercisable for a period of twenty (20) days from the date of such
notice, and the option will terminate upon the expiration of such
period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as
the Entry Price of each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding
common Stock, and in the event of the Company being consolidated with
or merged into any other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an
option or to receive shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution or as provided in Section 22
hereof) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect.
16. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Each participant shall receive promptly after the end of each
Offering Period a report of his account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward
to the next Offering Period.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if the
participant disposes of any of the shares purchased in any Offering
Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within twelve (12) months from the
Purchase Date on which such shares were purchased (the "Notice
Period"). Unless such participant is disposing of any of such shares
during the Notice Period, such participant shall keep the certificates
representing such shares in his or her name (and not in the name of a
nominee) during the Notice Period. The Company may, at any time during
the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to the Plan requesting the
Company's transfer agent to notify the Company of any transfer of the
shares. The obligation of the participant to provide such notice shall
continue notwithstanding the placement of any such legend on
certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain
in the employ of the Company or any Subsidiary or restrict the right of
the Company or any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to the Plan so that the Plan
qualifies as an "employee stock purchase plan" within the meaning of
Section 423 or any successor provision of the Code and the related
regulations. Any provision of the Plan which is inconsistent with
Section 423 or any successor provision of the Code shall without
further act or amendment by the Company or the Board be reformed to
comply with the requirements of Section 423. This Section
-6-
<PAGE> 7
19 shall take precedence over all other provisions in the Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the
receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. This Plan shall become effective on the
date that it is adopted by the Board. This Plan shall be approved by
the stockholders of the Company, in any manner permitted by applicable
corporate law, within twelve (12) months before or after the date this
Plan is adopted by the Board. No purchase of shares pursuant to this
Plan shall occur prior to such stockholder approval. This Plan shall
continue until the earlier to occur of (a) termination of this Plan by
the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance
under this Plan, or (c) July 1, 2003.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such
participant's death subsequent to the end of an Offering
Period but prior to delivery to him of such shares and cash.
In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's
account under this Plan in the event of such participant's
death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the
death of a participant and in the absence of a beneficiary
validly designated under this Plan who is living at the time
of such participant's death, the Company shall deliver such
shares or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator
has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such shares or cash to
the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is
known to the Company, then to such other person as the Company
may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the
exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange or automated quotation system upon
which the shares may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such
compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of New York
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend,
terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan,
nor may any amendment make any change in an option previously granted
which would adversely affect the right of any participant, nor may any
amendment be made without approval of the stockholders of the Company
obtained in accordance with Section 21 hereof within twelve (12) months
of the adoption of such amendment (or earlier if required by Section
21) if such amendment would:
-7-
<PAGE> 8
(a) increase the number of shares that may be issued under this
Plan;
(b) change the designation of the employees (or class of
employees) eligible for participation in this Plan; or
(c) constitute an amendment for which stockholder approval is
required by any stock exchange or automated quotation system
upon which the shares may then be listed.
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,660
<SECURITIES> 105
<RECEIVABLES> 164,639
<ALLOWANCES> (2,574)
<INVENTORY> 102,512
<CURRENT-ASSETS> 317,099
<PP&E> 45,477
<DEPRECIATION> (12,980)
<TOTAL-ASSETS> 390,811
<CURRENT-LIABILITIES> 247,725
<BONDS> 54,600
0
0
<COMMON> 681
<OTHER-SE> 140,736
<TOTAL-LIABILITY-AND-EQUITY> 390,811
<SALES> 116,391
<TOTAL-REVENUES> 116,391
<CGS> 55,898
<TOTAL-COSTS> 55,898
<OTHER-EXPENSES> 56,381
<LOSS-PROVISION> 338
<INTEREST-EXPENSE> (1,176)
<INCOME-PRETAX> 2,936
<INCOME-TAX> 1,133
<INCOME-CONTINUING> 1,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,803
<EPS-PRIMARY> 0.03<F1>
<EPS-DILUTED> 0.03
<FN>
AMOUNT REPORTED IS AS EPS BASIC AND NOT EPS PRIMARY.
</FN>
</TABLE>
