<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 0-27338
GT INTERACTIVE SOFTWARE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
<TABLE>
<S> <C>
DELAWARE 13-3689915
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 726-6500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $0.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of shares of Common Stock of the registrant held
by non-affiliates, based on the closing sale price of the Common Stock on June
18, 1999 as reported on the Nasdaq National Market, was $109,189,723.
As of June 18, 1999, the registrant had 72,900,776 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
See pages 36 to 39 in the original Form 10-K filed on June 29, 1999 for the
exhibit index.
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<PAGE> 2
GT INTERACTIVE SOFTWARE CORP.
AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 2
Item 11. Executive Compensation............................ 6
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 12
Item 13. Certain Relationships and Related Transactions.... 15
Signature................................................... 18
</TABLE>
1
<PAGE> 3
AMENDMENT NO. 1
TO THE ANNUAL REPORT ON FORM 10-K
OF GT INTERACTIVE SOFTWARE CORP.
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
In compliance with General Instruction G(3) to Form 10-K, the following
Items comprising Part III were omitted from the Annual Report on Form 10-K filed
by GT Interactive Software Corp. on June 29, 1999. Part III of such Form 10-K is
hereby amended and restated to insert such Items as hereinafter set forth. All
capitalized terms used herein but not defined herein shall have the respective
meanings ascribed to them in such Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION CONCERNING EXECUTIVE OFFICERS
Certain information regarding the Company's executive officers (as of June
30, 1999) is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas A. Heymann......................... 41 Chairman of the Board of Directors and
Chief Executive Officer
John T. Baker IV.......................... 39 President and Chief Operating Officer
Harry M. Rubin............................ 46 President, International Division
Charles F. Bond........................... 43 President, Value Products and Close-Outs
Division
Jack J. Cayre............................. 26 Executive Vice President and Director
Walter Parks.............................. 40 Chief Financial Officer and Senior Vice
President, Finance and Administration
Michael A. Ryder.......................... 47 Senior Vice President, Domestic Frontline
Division
Frank Herman.............................. 66 Chairman and Managing Director, GT
Interactive Software (Europe) Limited
</TABLE>
THOMAS A. HEYMANN has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since February 8, 1999. From November 1994 to
February 1999, Mr. Heymann was President of The Disney Store, Inc. (the "Disney
Store"). Prior thereto, Mr. Heymann served as Senior Vice President and General
Manager, North America of the Disney Store.
JOHN T. BAKER IV has been President and Chief Operating Officer of the
Company since April 26, 1999. From June 1997 to April 1999, Mr. Baker served as
Senior Vice President, Corporate Development of Activision, Inc. ("Activision"),
a publisher, developer and distributor of interactive entertainment and leisure
software. Prior to Activision, Mr. Baker worked in a private equity firm.
HARRY M. RUBIN has served as President of the International Division since
April 1998. From March 1995 to April 1998, Mr. Rubin served as Executive Vice
President and General Manager -- International Division and Business Affairs of
the Company. From June 1994 to August 1995, Mr. Rubin served as Chief Financial
Officer of the Company.
CHARLES F. BOND has been President of the Value Products and Close-Outs
Division since the consolidation of the Slash Division with the operations of
WizardWorks Group, Inc., a wholly-owned subsidiary of the Company
("WizardWorks"). Prior thereto, Mr. Bond served as President of the Slash
Division of the Company from June 1995, when Slash Corporation was acquired by
the Company. From May 1991 to June 1995, Mr. Bond was the President of Slash
Corporation.
JACK J. CAYRE has been Executive Vice President and a Director of the
Company since its incorporation. From January 1993 to January 1995, Mr. Cayre
was Vice President of Licensing and Product Acquisition.
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<PAGE> 4
From January 1990 to August 1992, Mr. Cayre was the President of Double J
Records, a privately-held record company.
WALTER PARKS has been Chief Financial Officer and Senior Vice President of
Finance and Administration of the Company since May 18, 1999. Prior to joining
the Company, Mr. Parks served as Chief Financial Officer of AnnTaylor Stores
Corp., a specialty retailer of women's apparel, shoes and accessories, where he
worked for more than 10 years.
MICHAEL A. RYDER has been Senior Vice President of the Domestic Frontline
Division since October 1997. From 1994 to October 1997, when SingleTrac
Entertainment Technologies, Inc. ("SingleTrac") was acquired by the Company, Mr.
Ryder was the Chairman, Chief Executive Officer and co-founder of SingleTrac.
FRANK HERMAN has been Chairman and Managing Director of G.T. Interactive
Software (Europe) Limited since May 1995. From April to October 1995, Mr. Herman
was also Chairman of Probe Software Ltd., a software development house. From
July 1991 to April 1995, Mr. Herman was Deputy Chairman and Managing Director of
Sega (Europe) Ltd.
Each executive officer is elected annually by the Board of Directors of the
Company and serves at the pleasure of the Board.
INFORMATION CONCERNING DIRECTORS
Certain information regarding the Company's directors (as of June 30, 1999)
is set forth below. Each director has served continuously with the Company since
his first election as indicated below. Joseph J. Cayre and Stanley Cayre are
brothers and Jack J. Cayre is the son of Joseph J. Cayre.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE POSITION SINCE EXPIRES
- ---- --- -------- -------- -------
<S> <C> <C> <C> <C>
CLASS I DIRECTORS
William E. Ford(3)(4)........... 37 Director 1995 1999
Jordan A. Levy(1)(3)............ 43 Director 1996 1999
CLASS II DIRECTORS
Jack J. Cayre................... 26 Executive Vice President and 1992 2000
Director
Steven A. Denning(1)(2)......... 50 Director 1995 2000
Phillip J. Riese(4)............. 49 Director 1998 2000
Alvin N. Teller(1)(2)........... 54 Director 1996 2000
CLASS III DIRECTORS
Joseph J. Cayre(1).............. 57 Chairman Emeritus of the Board 1992 2001
of Directors
Stanley Cayre(3)(4)............. 63 Director 1992 2001
Thomas A. Heymann............... 41 Chairman of the Board of 1999 2001
Directors and Chief Executive
Officer
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Executive Stock Option Subcommittee of the Compensation
Committee.
(3) Member of the Audit Committee.
(4) Member of the Finance Committee.
At the time of the Company's initial public offering in December 1995,
Joseph J. Cayre, Kenneth Cayre, Stanley Cayre, the various trusts for the
benefit of their respective children, Jack J. Cayre (collectively, the "Cayre
Family Stockholders") and the Company entered into a stockholders' agreement,
which provides, among other things, that the Cayre Family Stockholders will vote
their respective shares of Common Stock to elect as directors of the Company (i)
two individuals designated by Mr. Joseph J. Cayre, (ii) one individual
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<PAGE> 5
designated by Mr. Kenneth Cayre and (iii) one individual designated by Mr.
Stanley Cayre. Mr. Kenneth Cayre resigned as a director of the Company in June
1998 and has not designated any individual to succeed him.
Steven A. Denning and William E. Ford are the Executive Managing Member and
a managing member, respectively, of General Atlantic Partners, LLC. In
connection with their acquisition of shares of Common Stock, certain affiliates
of General Atlantic Partners, LLC entered into a stockholders' agreement with
the Company and certain other stockholders, pursuant to which Messrs. Denning
and Ford were elected to the Board of Directors in February 1995. This
stockholders' agreement automatically expired by its terms upon the
effectiveness of the Company's initial public offering.
The name, principal occupation, business experience for at least the past
five years and certain other information concerning each director are set forth
below.
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ---- -------------------------------------------
<S> <C>
Joseph J. Cayre...................... Mr. Joseph J. Cayre, a co-founder of the Company, is
Chairman Emeritus of the Board of Directors and, until
April 28, 1998, was Chairman of the Board of Directors of
the Company since its incorporation in September 1992. Mr.
Cayre also co-founded GoodTimes Home Video Corp. ("GTHV"),
a privately-held publisher and distributor of pre-recorded
video tapes, in 1984 and has served as its President since
that time.
Thomas A. Heymann.................... Mr. Heymann has served as Chairman of the Board of
Directors and Chief Executive Officer of the Company since
February 8, 1999. From November 1994 to February 1999, Mr.
Heymann was President of The Disney Store, Inc. (the
"Disney Store"). Prior thereto, Mr. Heymann served as
Senior Vice President and General Manager, North America of
the Disney Store.
Stanley Cayre........................ Mr. Stanley Cayre, a co-founder of the Company, has been a
Director of the Company since its incorporation. Mr. Cayre
is the Chairman of the Audit Committee. Mr. Cayre also
co-founded GTHV and has served as its Chairman since that
time.
Jack J. Cayre........................ Mr. Jack J. Cayre has been Executive Vice President and a
Director of the Company since its incorporation. From
January 1993 to January 1995, Mr. Cayre was Vice President
of Licensing and Product Acquisition. From January 1990 to
August 1992, Mr. Cayre was the President of Double J
Records, a privately-held record company.
Steven A. Denning.................... Mr. Denning has served as a Director of the Company since
February 1995. Mr. Denning is currently the Executive
Managing Member of General Atlantic Partners, LLC, a
private investment firm, and has been the Executive
Managing Member of General Atlantic Partners, LLC or a
general partner of its predecessor limited partnership
since February 1989. From 1980 to 1989, Mr. Denning was
Managing Director of General Atlantic Corporation. Mr.
Denning is a member of the Boards of Directors of several
private companies in which General Atlantic Partners, LLC
or one of its affiliates is an investor.
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
- ---- -------------------------------------------
<S> <C>
William E. Ford...................... Mr. Ford has served as a Director of the Company since
February 1995. Mr. Ford is a managing member of General
Atlantic Partners, LLC, a private investment firm, and has
been with General Atlantic Partners, LLC or a general
partner of its predecessor partnership since July 1991.
From August 1987 to July 1991, Mr. Ford was an associate
with Morgan Stanley, Inc. in the mergers and acquisitions
department. Mr. Ford is also a director of LHS Group Inc.,
a provider of telecommunications billing systems software,
MAPICS, Inc., a provider of enterprise resource planning
software, Envoy Corporation, an electronic transaction
processing company, E*Trade Group, Inc., a deep-discount
electronic brokerage company, SS&C Technologies, Inc., an
investment management software company, and several private
software companies in which General Atlantic Partners, LLC
or one of its affiliates is an investor.
Jordan A. Levy....................... Mr. Levy has served as a Director of the Company since
February 1996. Since January 1997, Mr. Levy has served as
Vice Chairman of ClientLogic Corporation (formerly doing
business as SOFTBANK Services Group) ("ClientLogic"), an
international outsourcing services company to the computer
industry. From February 1991 to December 1996, Mr. Levy was
Co-Chief Executive Officer and President of ClientLogic.
Phillip J. Riese..................... Mr. Riese has served as a Director of the Company since
January 1998. Since November 1998, Mr. Riese has served as
Chief Executive Officer of OptiMark Technologies, Inc., a
privately-held transaction services company relating to
securities trading. Prior thereto, Mr. Riese was President
of the Consumer Card Services Group for American Express
Travel Related Services Company, Inc., a position to which
he was appointed in September 1995. Since joining American
Express in 1980, Mr. Riese has served the organization in
various capacities, including as Executive Vice
President/General Manager of the Charge Card Group,
President of the Cardmember Financial Services Group, and
Chairman of the Board and President of American Express
Centurion Bank. Mr. Riese continues to serve as Chairman of
the Board of American Express Centurion Bank.
Alvin N. Teller...................... Mr. Teller has served as a Director of the Company since
October 1996. Since December 1997, Mr. Teller has served as
Chief Executive Officer of Atomic Pop, an internet
entertainment company. Prior thereto, Mr. Teller served as
Co-Chairman, Chief Executive Officer, President and a
Director of Alliance Entertainment Corp., a producer and
distributor of recorded music and music- and
entertainment-related products ("Alliance"), from August
1996. From July 1996, Mr. Teller served as Chairman and
Chief Executive Officer of Red Ant Entertainment, a startup
music industry enterprise, until it was acquired by
Alliance in August 1996. Prior thereto, Mr. Teller served
as Chairman and Chief Executive Officer of MCA Music
Entertainment Group, a producer and distributor of recorded
music and music-related products, from September 1989 to
November 1995.
</TABLE>
5
<PAGE> 7
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company has an Audit Committee, a Compensation Committee and a Finance
Committee. During the fiscal year ended March 31, 1999, the Board of Directors
held twelve meetings, the Compensation Committee met four times, the Audit
Committee met two times, and the Finance Committee met one time. The Audit
Committee reviews the adequacy of internal controls, the results and scope of
annual audits and other services provided by the Company's independent public
accountants. During the fiscal year ended March 31, 1999, the Audit Committee
was comprised of Stanley Cayre, Jordan A. Levy and William E. Ford.
The Compensation Committee establishes salaries, bonuses and other forms of
compensation for officers of the Company. During the fiscal year ended March 31,
1999, the Compensation Committee was comprised of Joseph J. Cayre, Steven A.
Denning, Jordan A. Levy and Alvin N. Teller. In January 1998, the Board of
Directors also established an Executive Stock Option Subcommittee of the
Compensation Committee, comprised of Messrs. Denning and Teller. The Executive
Stock Option Subcommittee may, without further approvals by the Board of
Directors or the Compensation Committee, consider and grant any stock-based
compensation permitted under the Company's stock incentive plans, and modify or
amend any existing grants, to directors, executive officers and certain other
employees of the Company. The full Board of Directors, however, retains the
authority to make any such grants, modifications or amendment, independent of
the Executive Stock Option Subcommittee or the Compensation Committee.
The Finance Committee reviews, and makes recommendations to the full Board
of Directors with respect to, the following matters: (i) the financial position
and results of operations of the Company, (ii) the capital requirements and
financing policies and strategies of the Company, (iii) the acquisition or
divesture of major assets, including by merger or consolidation, (iv) the
establishment and review of annual budgets of the Company, and (v) the domestic
and foreign investment policies of the Company. During the fiscal year ended
March 31, 1999, the Finance Committee was comprised of Stanley Cayre, William E.
Ford, Phillip J. Riese and, until February 8, 1999, Ronald W. Chaimowitz.
The Company does not have a nominating committee. The functions customarily
performed by a nominating committee are performed by the Board of Directors as a
whole. Any stockholder who wishes to make a nomination at an annual or special
meeting for the election of directors must do so in compliance with the
applicable procedures set forth in the Company's By-laws. The Company will
furnish copies of such By-law provisions upon written request to the Company at
its principal executive offices, 417 Fifth Avenue, New York, NY 10016,
Attention: Director, Investor Relations.
During the period in which he served as a director, each director attended
at least 75% of the aggregate of the total number of meetings of the Board of
Directors plus the total number of all committees of the Board on which he
served.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the directors and executive officers of the Company and persons who beneficially
own more than ten percent of the Company's Common Stock (collectively, the
"Reporting Persons") to report their ownership of and transactions in the
Company's Common Stock to the Securities and Exchange Commission (the
"Commission"). Copies of these reports are also required to be supplied to the
Company. The Company believes, upon a review of the copies of such reports
received by the Company and written representations furnished by the Reporting
Persons to the Company, that during the fiscal year ended March 31, 1999 the
Reporting Persons complied with all applicable Section 16(a) reporting
requirements.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth compensation
earned, whether paid or deferred, by the Company's Chief Executive Officer and
its other four most highly compensated executive officers during the fiscal year
ended March 31, 1999 (collectively, the "Named Executive Officers") for
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<PAGE> 8
services rendered in all capacities to the Company during the twelve months
ended December 31, 1996 and 1997, the fiscal years ended March 31, 1998 and
1999.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------------------
----------------- RESTRICTED SECURITIES ALL OTHER
SALARY BONUS STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) AWARDS($) OPTIONS(#) ($)
- --------------------------- ------- ------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Heymann.................. 3/31/99 70,615 250,000 -- 3,000,000 --
Chairman of the Board and Chief
Executive Officer(1)
Ronald W. Chaimowitz............... 3/31/99 541,500 -- -- -- 1,404,800(3)
Chairman of the Board 3/31/98(4) 425,962 251,988(5) -- 1,000,000(6) 4,750(7)
and Chief Executive Officer 1997 414,615 251,988(8) -- 500,000 4,750(7)
until February 8, 1999(2) 1996 365,000 --(9) -- 250,000(9) 1,500(7)
David I. Chemerow.................. 3/31/99 350,769 -- -- 100,000 4,800(7)
President and Chief 3/31/98(4) 256,154 94,583(5) -- 350,000(11) --
Operating Officer 1997 186,923 94,583(8) -- 350,000(11) --
until April 26, 1999(10) 1996 -- -- -- -- --
Harry M. Rubin..................... 3/31/99 381,769 -- -- -- --
President, International 3/31/98(4) 300,000 151,800(5) -- 250,000 --
Division 1997 299,808 151,800(8) -- 150,000 --
1996 275,000 80,000(8) -- -- --
Charles F. Bond.................... 3/31/99 354,231 631,250(12) -- 200,000 4,800(7)
President, Value Products 3/31/98(4) 308,078 825,000(5) -- -- 4,750(7)
and Close-Outs Division 1997 300,001 743,750(13) -- 50,000 4,750(7)
1996 300,001 500,000(13) -- -- --
Andrew Gregor...................... 3/31/99 277,475 -- -- -- 4,800(7)
Chief Financial Officer and 3/31/98(4) 265,000 107,272(5) -- 70,000(14) 4,750(7)
Senior Vice President, 1997 265,000 107,272(8) -- 100,000 4,750(7)
Finance and Administration 1996 245,962 40,015(8) -- -- --
until May 18, 1999
</TABLE>
- ---------------
(1) Mr. Heymann has served as Chairman of the Board and Chief Executive Officer
of the Company since February 8, 1999. Because Mr. Heymann was unaffiliated
with the Company prior to such time, compensation information with respect
to him is presented only with respect to the fiscal year ended March 31,
1999.
(2) Mr. Chaimowitz left the employ of the Company on March 31, 1999. From
February 8, 1999 to March 31, 1999, Mr. Chaimowitz served as Chairman of
the Board and Chief Executive Officer of the Company's subsidiary, One Zero
Media, Inc. From April 1998 until February 8, 1999, Mr. Chaimowitz served
as Chairman of the Board and Chief Executive Officer of the Company. From
February 1995 to April 1998, Mr. Chaimowitz served as President and Chief
Executive Officer of the Company. From January 1994 to January 1995, Mr.
Chaimowitz served as Executive Vice President and General Manager of the
Company.
(3) Includes (i) $1,400,000 as payment in lieu of certain severance payment
obligations under Mr. Chaimowitz's employment agreement and (ii) $4,800 as
Company contribution, on behalf of the Mr. Chaimowitz, to the Company's
401(k) Profit Sharing Plan.
(4) Represents the twelve months ended March 31, 1998. Effective January 1,
1998, the Company changed its fiscal year end from December 31 to March 31.
Because of the nine month overlap with the prior fiscal year ended December
31, 1997, certain information disclosed for the twelve months ended March
31, 1998 also includes information disclosed for 1997.
(5) Includes bonus earned during the fiscal year ended December 31, 1997.
(6) Includes options to purchase 500,000 shares of Common Stock granted to Mr.
Chaimowitz in May 1997 and options to purchase 500,000 shares of Common
Stock granted to Mr. Chaimowitz in February 1998.
(7) Represents Company contributions, on behalf of the Named Executive
Officers, to the Company's 401(k) Profit Sharing Plan.
(8) This bonus was earned in the year indicated, but paid in the immediately
subsequent year.
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(9) In lieu of cash bonus for 1996, in February 1997, Mr. Chaimowitz received
options to purchase 250,000 shares of Common Stock at an exercise price of
$14.00 per share. The closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market on the date of the grant was $8.125
per share. Such options become exercisable in four equal annual
installments commencing on February 7, 1998.
(10) Mr. Chemerow joined the Company in May 1997 and accordingly, the
information contained herein for the year ended December 31, 1997 reflects
a partial year. Mr. Chemerow currently serves as a consultant to the
Company. From May 1998 to April 26, 1999, Mr. Chemerow served as President
and Chief Operating Officer of the Company. From May 1997 to April 1998,
Mr. Chemerow served as Executive Vice President and Chief Operating Officer
of the Company.
(11) Represents options to purchase 350,000 shares of Common Stock granted to
Mr. Chemerow in May 1997.
(12) Includes annual bonuses payable under the new employment agreement, which
the Company and Mr. Bond entered into on July 1, 1998, and the original
employment agreement, which the Company and Mr. Bond entered into in
connection with the acquisition of Slash Corporation ("Slash"). See
"Employment Agreements." These bonuses were earned in the year indicated,
but a portion thereof was paid in the immediately subsequent year.
(13) Includes an annual bonus payable under the original employment agreement,
which the Company and Mr. Bond entered into in connection with the
acquisition of Slash. See "Employment Agreements." This bonus was earned in
the year indicated, but paid in the immediately subsequent year.
(14) Includes options to purchase 30,000 shares of Common Stock granted to Mr.
Gregor in May 1997 and options to purchase 40,000 shares of Common Stock
granted to Mr. Gregor in December 1997.
Option Grants Table. Shown below is information regarding grants of stock
options under the Company's stock incentive plans to the Named Executive
Officers during the fiscal year ended March 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENTAGE
OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEE IN PRICE FOR OPTION TERMS(2)
OPTIONS FISCAL PER EXPIRATION -------------------------------------
GRANTED YEAR(1) SHARE DATE 0% 5% 10%
---------- ----------- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Heymann......... 2,250,000(3) 39.44% $ 5.00(3) 02/08/09 -- $7,075,065 $17,929,603
250,000(3) 4.38% $10.00(3) 02/08/09 -- -- $ 742,178
250,000(3) 4.38% $15.00(3) 02/08/09 -- -- --
250,000(3) 4.38% $20.00(3) 02/08/09 -- -- --
David Chemerow............ 100,000(4) 1.75% $ 7.50 04/03/08 -- $ 471,671 $ 1,195,306
Charles F. Bond........... 200,000(5) 3.51% $ 6.75 08/04/08 -- $ 849,007 $ 2,151,552
</TABLE>
- ---------------
(1) During the fiscal year ended March 31, 1999, the Company granted options for
an aggregate of 5,705,132 shares to its employees.
(2) Represents the product of (1) difference between (A) the product of the
per-share fair market value at the time of grant compounded annually at the
assumed rate of appreciation over the term of the option, and (B) the
per-share exercise price of the option, and (ii) the number of shares
underlying the grant at the fiscal year end.
(3) The option is exercisable in four equal annual installments commencing on
February 8, 2000 at the following exercise prices: (i) 2,250,000 at $5.00
per share (the fair market value of the Common Stock on the date of grant),
(ii) 250,000 at $10.00 per share, (iii) $250,000 at $15.00 per share, and
(iv) 250,000 at $20.00 per share.
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<PAGE> 10
(4) The option is exercisable in four equal annual installments commencing on
April 3, 1999.
(5) The option is exercisable in three equal annual installments commencing on
June 29, 1999.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. Shown
below is information relating to the exercise of stock options during the fiscal
year ended March 31, 1999 for each of the Company's Named Executive Officers and
the year-end value of unexercised options held by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ----------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Thomas A. Heymann............. -- -- 0/3,000,000 --
Ronald W. Chaimowitz.......... -- -- 2,155,000/0 $275,438/$0
Harry M. Rubin................ -- -- 295,428/282,300 $87,887/$0
David I. Chemerow............. -- -- 87,500/362,500 --
Andrew Gregor................. -- -- 160,000/84,000 --
Charles F. Bond............... -- -- 29,500/226,500 --
</TABLE>
- ---------------
(1) Market value of underlying shares of Common Stock, based on the average of
the high and low sales price ($4.594), on March 31, 1999, minus the
aggregate exercise price.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company is paid an annual retainer of
$15,000 and a fee of $1,000 for each meeting of the Board of Directors or any
committee thereof he attends.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended March 31, 1999, the Company's Compensation
Committee consisted of Joseph J. Cayre, Steven A. Denning, Jordan A. Levy and
Alvin N. Teller. For certain transactions involving the Company and the members
of the Compensation Committee or entities affiliated with such individuals, see
"Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Ronald W. Chaimowitz,
pursuant to which he would serve as President-Chief Executive Officer and/or
Chairman of the Board of Directors of the Company, in each case as determined in
the sole discretion of the Company's Board of Directors, for a five-year term
ending on April 27, 2003. On April 28, 1998, Mr. Chaimowitz was appointed
Chairman of the Board of Directors and Chief Executive Officer of the Company.
The agreement provided that Mr. Chaimowitz's annual salary would be $550,000.
Such base salary would be increased at the sole discretion of the Board of
Directors, provided, however, that if the Company's net sales exceed $1 billion
for any fiscal year ending during the term of his employment, Mr. Chaimowitz's
base salary would be increased to an annual rate of $600,000. In addition, Mr.
Chaimowitz would be eligible to receive bonuses and stock option grants at the
discretion of the Board of Directors, provided that Mr. Chaimowitz would
participate in the Company's senior executive bonus plan with a target bonus of
60% of his base salary. Mr. Chaimowitz would be entitled to participate in the
Company's employee benefit plans generally available to the Company's senior
executives. In addition, Mr. Chaimowitz agreed not to engage in any competitive
business until the later of April 27, 2003 or, if his employment with the
Company were terminated for disability, or other than for cause, or he were to
resign for Good Reason (as defined in the agreement), then for so long as the
Company continues to pay him severance payments pursuant to the agreement. If
Mr. Chaimowitz's employment were not terminated prior to a Change of Control (as
defined below), then his obligation not to engage in any competitive business
would be limited to a period equal to the greater of (i) one year from the date
of such Change of Control or (ii) the period during which he remains employed by
the Company or its successor and parent company, if any. In
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<PAGE> 11
addition, if, following a Change of Control, there would occur Good Reason (as
defined in the agreement), Mr. Chaimowitz was not the President-Chief Executive
Officer and/or Chairman of the Board of Directors of the Company or its
successor and parent company, or if Mr. Chaimowitz's employment were terminated
other than for cause, then Mr. Chaimowitz could, within 90 days of any such
event, terminate his employment with the Company or its successor and parent
company and in such case he would receive severance payments otherwise payable
under the agreement with the same effect as if he were terminated without cause
or resigned with Good Reason. Upon the happening of a Change of Control, or if
Mr. Chaimowitz were terminated without cause, or for disability, or he were to
resign for Good Reason, or upon his death, all options then held by Mr.
Chaimowitz would immediately vest and become exercisable. For purposes of the
agreement, the term Change of Control means any of the following: (a) any
person, as that term is used in Sections 13(d) and 14(d) of the Exchange Act
(other than the Company, fiduciaries or trustees under the Company's employee
benefit plan, members of the Cayre family, General Atlantic Partners, LLC ,
entities controlled or managed by General Atlantic Partners, LLC, or any entity
more than 50% owned beneficially by any of the aforementioned), becomes the
beneficial owner, directly or indirectly, of 50% or more of the voting power of
the Company's then outstanding securities; (b) 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 approved by such
persons), cease for any reason to constitute at least a majority of the Board of
Directors; (c) the approval by the Company's stockholders of certain mergers or
consolidations of the Company with any other entity; or (d) the approval by the
Company's stockholders of a plan of complete liquidation of the Company or an
agreement for the sale or distribution of all or substantially all of the
Company's assets.
On March 31, 1999, Mr. Chaimowitz left the employ of the Company. The
Company paid Mr. Chaimowitz an amount of $1.4 million on that date in lieu of
certain severance payment obligations under his existing employment agreement.
Mr. Chaimowitz is entitled to receive additional severance payments in lieu of
(and in the same amount as) his salary over the remainder of the term of such
employment agreement.
The Company has entered into an employment agreement with Thomas A.
Heymann, pursuant to which he will serve as Chairman of the Board of Directors
and Chief Executive Officer of the Company for a four-year term commencing on
February 8, 1999. The agreement provides that Mr. Heymann's annual salary is
$612,000. Such base salary will be increased annually by no less than 5%, and
may be increased further at the sole discretion of the Board of Directors. In
addition, Mr. Heymann is eligible to receive bonuses and stock option grants at
the sole discretion of the Board of Directors or the applicable committee
thereof, provided that Mr. Heymann will participate in the Company's senior
executive bonus plan with a target bonus equal to 60% of his base salary and
that for the fiscal year ending March 31, 2000, Mr. Heymann will receive a
minimum guaranteed bonus of no less than $150,000. Mr. Heymann was granted
options to purchase 3,000,000 shares of Common Stock and was paid a one time
commencement bonus of $250,000. Mr. Heymann is entitled to participate in the
employee benefit plans generally available to the Company's senior executives.
With certain exceptions, Mr. Heymann has agreed not to engage in any competitive
business for the term of his agreement. If his employment with the Company is
terminated other than for cause, death, retirement, voluntary resignation or
disability, or if he resigns for Good Reason (as defined in the agreement), then
the Company will continue to pay him severance payments pursuant to the
agreement. If, following a Change of Control (as defined above), Mr. Heymann
resigns for Good Reason, or he is no longer Chairman of the Board of Directors
and Chief Executive Officer of the Company, its successor or its parent, if any,
or Mr. Heymann's employment by the Company, its successor or parent company, if
any, is terminated for any reason other than cause, then, at any time within 90
days of such event, Mr. Heymann may terminate his employment with the Company,
its successor or parent company, if any, and in such case he would receive
severance payments otherwise payable to him under the agreement, as if he were
terminated without cause or he resigned for Good Reason. Upon the happening of a
Change of Control, or if Mr. Heymann's employment with the Company is terminated
by the Company for any reason other than for cause, or if Mr. Heymann
voluntarily resigns for Good Reason, then all options previously granted to him
will immediately vest and become exercisable.
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<PAGE> 12
The Company has entered into an employment agreement with Harry M. Rubin,
pursuant to which he serves as Executive Vice President and General
Manager -- International Division and Business Affairs for a three-year term
ending on December 31, 2001. On April 28, 1998, Mr. Rubin was appointed
President of the International Division. The agreement provides that Mr. Rubin's
annual salary is $360,000 for the year ending December 31, 1998, subject to
annual review during the term of Mr. Rubin's agreement in increases of not less
than 5% per year, but otherwise in the Company's discretion. In addition, Mr.
Rubin is eligible to receive bonuses and stock option grants at the discretion
of the Board of Directors, provided that Mr. Rubin will participate in the
Company's senior executive bonus plan with a target bonus of 50% of his base
salary. Mr. Rubin is entitled to participate in the Company's employee benefit
plans generally available to the Company's senior executives. In addition, Mr.
Rubin has agreed not to engage in any competitive business until the later of
December 31, 2001 or, if his employment with the Company is terminated for
disability, or other than for cause, or he resigns for Good Reason (as defined
in the agreement), then for so long as the Company continues to pay him
severance payments pursuant to the agreement. If Mr. Rubin's employment is not
terminated prior to a Change of Control (as defined above), then his obligation
not to engage in any competitive business is limited to a period equal to the
greater of (i) two years from the date of such Change of Control or (ii) the
period during which he remains employed by the Company or its successor and
parent company, if any. In addition, if, following a Change of Control, there
occurs Good Reason (as defined in the agreement), Mr. Rubin is not an Executive
Vice President of the Company, its successor or parent company, or if Mr.
Rubin's employment is terminated other than for cause, then Mr. Rubin may,
within 90 days of any such event, terminate his employment with the Company or
its successor and parent company and in such case he will receive severance
payments otherwise payable under the employment agreement with the same effect
as if he were terminated without cause or resigned with Good Reason. Upon the
happening of a Change of Control, or if Mr. Rubin is terminated without cause,
or for disability, or he resigns for Good Reason or upon his death, all options
then held by Mr. Rubin will immediately vest and become exercisable.
The Company has entered into an amended employment agreement with David I.
Chemerow, pursuant to which he serves as President and Chief Operating Officer
of the Company for a three-year term ending on May 14, 2000. The agreement
provides that Mr. Chemerow's annual salary is $360,000, that his base salary
will be subject to discretionary increase by the Company's Board of Directors
and that Mr. Chemerow will be eligible to receive annual bonuses not to exceed
an amount equal to 50% of his base salary in effect at such time, in such
amounts as determined by the Company's Chief Executive Officer and the Board of
Directors. Mr. Chemerow is entitled to participate in the Company's employee
benefit plans generally available to the Company's senior executives. In
addition, Mr. Chemerow has agreed not to engage in any competitive business
until the later of May 14, 2000 or, if his employment with the Company is
terminated for disability or other than for cause, then for so long as the
Company continues to pay him severance payments pursuant to the agreement. If
Mr. Chemerow's employment is not terminated prior to a Change of Control (as
defined above), then his obligation not to engage in any competitive business is
limited to a period equal to the greater of (i) two years from the date of such
Change of Control or (ii) the period during which he remains employed by the
Company or its successor and parent company, if any. If, following a Change of
Control, (i) Mr. Chemerow's employment is terminated other than for cause
(including a deemed termination as defined in the agreement) or (ii) Mr.
Chemerow is required to relocate as described in the agreement, then at any time
within 90 days of any such event, Mr. Chemerow may terminate his employment with
the Company or its successor and parent company and in such case he will receive
severance payments otherwise payable under the agreement with the same effect as
if he were terminated without cause. Upon the happening of a Change of Control,
or if Mr. Chemerow's employment is terminated without cause, all options then
held by Mr. Chemerow will immediately vest and become exercisable.
The Company has entered into a severance pay agreement with Andrew Gregor.
The agreement terminates on the earlier of (i) the date the Company terminates
his employment by written notice for any reason, (ii) the date he voluntarily
resigns from his employment, or (iii) the date the agreement is superseded by
any other written agreement between the Company and Mr. Gregor. Upon the
termination of his employment with the Company, Mr. Gregor will receive
severance payments payable under the agreement. The agreement was amended in
October 1998 to provide that in the event of a change of control, the Company
will terminate his employment and he will receive severance payments otherwise
payable under the agreement
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<PAGE> 13
with the same effect as if he were terminated for any reason other than for
Cause (as defined in the agreement) or for Disability (as defined in the
agreement). The amendment further provides that the Company will, on the earlier
of (i) March 31, 1999 or (ii) the date the change of control becomes effective,
waive all payments of principal and interest which are or will be due under Mr.
Gregor's Amended and Restated Promissory Note date March 13, 1998 in the
principal amount of $250,000. In March 1999, the Company further amended the
severance pay agreement to, among other things, (i) extend his severance period
(with benefits) to 18 months from the date of termination and (ii) extend the
expiration date of his option agreement to the later of March 3, 2002 and the
first anniversary of the date of termination.
The Company has entered into an employment agreement with Charles F. Bond
for a two-year term ending on June 30, 2000. The agreement also establishes a
base salary of $375,000 per annum through June 30, 1999 and $400,000 per annum
thereafter for the term of employment and provides that Mr. Bond will receive an
annual bonus of $375,000 for the period ending June 30, 1999 and $400,000 for
the period ending June 30, 2000. In addition, upon execution of his current
employment agreement in August 1998, Mr. Bond was granted options to purchase
200,000 shares of Common Stock and was paid a one-time signing bonus of
$100,000. Mr. Bond is entitled to participate in the Company's employee benefit
plans generally available to the Company's senior executives. In addition, in
connection with the purchase of Slash by the Company, as of June 23, 1995, the
Company entered into a Non-Competition Agreement with Mr. Bond, pursuant to
which he has agreed not to be involved in any competing business in the United
States until the earlier of one year following termination without cause or June
23, 2000.
Each of the employment agreements prohibits disclosure of proprietary and
confidential information regarding the Company and its business to anyone
outside the Company both during and subsequent to employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of June 15, 1999, concerning
the Common Stock of the Company beneficially owned (i) by each director and each
Named Executive Officer of the Company, (ii) by all directors and executive
officers of the Company as a group, and (iii) by each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock. Unless otherwise indicated in the footnotes to the table, the beneficial
owners named have, to the knowledge of the Company,
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<PAGE> 14
sole voting and dispositive power with respect to the shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED+
---------------------
NAME SHARES PERCENT
- ---- ---------- -------
<S> <C> <C>
Joseph J. Cayre(1).......................................... 13,909,388 19.1
Jack J. Cayre(2)............................................ 3,815,585 5.2
Stanley Cayre(3)............................................ 8,843,923 12.1
Kenneth Cayre(4)............................................ 8,825,135 12.1
Ronald W. Chaimowitz(5)..................................... 2,865,582 3.8
General Atlantic Partners, LLC(6)........................... 13,428,525 17.0
3 Pickwick Plaza, Greenwich, CT 06830
Steven A. Denning(7)........................................ 13,428,525 17.0
William E. Ford(8).......................................... 13,428,425 17.0
Jordan A. Levy(9)........................................... 83,500 *
Harry M. Rubin(10).......................................... 315,228 *
Alvin N. Teller(11)......................................... 47,500 *
Phillip J. Riese(12)........................................ 20,500 *
Various trusts for the benefit of the children of Joseph J.
Cayre..................................................... 6,380,000 8.8
417 Fifth Avenue, New York, NY 10016
Various trusts for the benefit of the children of Stanley
Cayre..................................................... 4,720,670 6.5
417 Fifth Avenue, New York, NY 10016
Various trusts for the benefit of the children of Kenneth
and Lillian Cayre......................................... 7,119,688 9.8
417 Fifth Avenue, New York, NY 10016
David I. Chemerow(13)....................................... 273,252 *
Andrew Gregor(14)........................................... 187,000 *
Charles F. Bond(15)......................................... 2,105,796 2.8
Frank Herman(16)............................................ 137,000 *
Michael A. Ryder(17)........................................ 164,848 *
All executive officers and directors as a group (15
persons)(18).............................................. 43,332,045 58.4
</TABLE>
- ---------------
+ This table does not include (i) Thomas A. Heymann, Chairman of the Board of
Directors and Chief Executive Officer of the Company, who joined the
Company on February 8, 1999; (ii) John T. Baker IV, President and Chief
Operating Officer of the Company, who joined the Company on April 26, 1999;
(iii) Walter Parks, Chief Financial Officer and Senior Vice President of
Finance and Administration of the Company, who joined the Company on May
18, 1999 and (iv) Richard Burns, who resigned from the Company on May 29,
1998. The Company has been informed that none of Messrs. Heymann, Baker or
Parks beneficially owned any shares of Common Stock of the Company as of
June 15, 1999.
* Less than 1%
(1) Includes 6,380,000 shares in the aggregate held in various trusts for the
benefit of Joseph J. Cayre's children, for which trusts his wife serves as
trustee. Also includes 1,759,388 shares held by a charitable foundation for
which Joseph J. Cayre and his wife serve as trustees. Joseph J. Cayre
disclaims beneficial ownership of the shares held by such trusts and such
foundation. Also includes 420,000 shares held by Joseph J. Cayre in grantor
retained annuity trusts.
(2) Includes 105,000 shares held by Jack J. Cayre in grantor retained annuity
trusts, 475,085 held by a charitable foundation for which he serves as
trustee, and 305,500 shares subject to options exercisable within 60 days.
Jack J. Cayre disclaims beneficial ownership of the shares held by such
foundation.
(3) Includes 4,720,670 shares in the aggregate held in various trusts for the
benefit of Stanley Cayre's children, for which trusts his wife serves as
trustee. Also includes 633,000 shares held by a charitable
13
<PAGE> 15
foundation for which Stanley Cayre and his wife serve as trustees. Stanley Cayre
disclaims beneficial ownership of the shares held by such trusts and such
foundation. Also includes 114,658 shares held by Stanley Cayre in a grantor
retained annuity trust.
(4) Includes 7,119,688 shares in the aggregate held in various trusts for the
benefit of Kenneth and Lillian Cayre's children, for which trusts Lillian
Cayre serves as trustee. Also includes 50,000 shares held by a charitable
foundation for which Kenneth Cayre and Lillian Cayre serve as trustees.
Kenneth Cayre disclaims beneficial ownership of the shares held by such
trusts and such foundation. Also includes 41,242 shares held by Kenneth
Cayre in a grantor retained annuity trust.
(5) Includes 84,380 shares held in a trust for the benefit of Mr. Chaimowitz's
daughter, for which trust Mr. Chaimowitz's wife serves as trustee. Mr.
Chaimowitz disclaims beneficial ownership of such shares. Also includes
2,155,000 shares subject to options exercisable within 60 days.
(6) Includes 4,184,545 shares held by General Atlantic Partners 16, L.P. ("GAP
16"), 2,092,273 shares held by General Atlantic Partners 19, L.P. ("GAP
19"), 647,707 shares held by GAP Coinvestment Partners, L.P. ("GAP
Coinvestment") and 504,000 shares held by General Atlantic Partners II,
L.P. ("GAP II"). The general partner of GAP 16, GAP 19 and GAP II is
General Atlantic Partners, LLC, a Delaware limited liability company. The
managing members of General Atlantic Partners, LLC are Steven A. Denning,
David C. Hodgson, Stephen P. Reynolds, J. Michael Cline, William O. Grabe,
William E. Ford, Nancy E. Cooper, Peter L. Bloom and Franchon M. Smithson.
The same individuals are the general partners of GAP Coinvestment. Messrs.
Denning and Ford, directors of the Company, are the Executive Managing
Member and a managing member, respectively, of General Atlantic Partners,
LLC and general partners of GAP Coinvestment. Messrs. Denning and Ford
disclaim beneficial ownership of shares owned by GAP 16, GAP 19, GAP
Coinvestment and GAP II, except to the extent of their respective pecuniary
interests therein. Includes 6,000,000 shares of Common Stock which certain
affiliates of General Atlantic Partners, LLC have the right to acquire upon
conversion of 600,000 shares of the Company's Series A Convertible
Preferred Stock, par value $.01 per share, acquired by such affiliates on
February 23, 1999. Each share of Series A Convertible Preferred Stock is
convertible at any time into ten shares of Common Stock at a conversion
price of $5.00 per share. Does not include (i) warrants to purchase 500,000
shares of the Company's Common Stock acquired by affiliates of General
Atlantic Partners, LLC on June 29, 1999 in connection with a commitment by
such affiliates to lend an aggregate of $20 million to the Company on or
before July 30, 1999 or (ii) warrants to purchase 1,500,000 shares of the
Company's Common Stock acquired by affiliates of General Atlantic Partners,
LLC on July 29, 1999 in connection with such lending.
(7) Also includes 4,184,545 shares held by GAP 16, 2,092,273 shares held by GAP
19, 647,707 shares held by the GAP Coinvestment and 504,000 shares held by
GAP II. Mr. Denning disclaims beneficial ownership of shares owned by GAP
16, GAP 19, GAP Coinvestment and GAP II, except to the extent of his
respective pecuniary interests therein.
(8) Also includes 4,184,545 shares held by GAP 16, 2,092,273 shares held by GAP
19, 647,707 shares held by GAP Coinvestment and 504,000 shares held by GAP
II. Mr. Ford disclaims beneficial ownership of shares owned by GAP 16, GAP
19, GAP Coinvestment and GAP II, except to the extent of his respective
pecuniary interests therein.
(9) Includes 75,000 shares subject to options exercisable within 60 days.
(10) Represents 315,228 shares subject to options exercisable within 60 days.
(11) Includes 15,000 shares subject to options exercisable within 60 days.
(12) Includes 7,500 shares subject to options exercisable within 60 days.
(13) Includes 200,000 shares subject to options exercisable within 60 days.
(14) Includes 184,000 shares subject to options exercisable within 60 days.
(15) Includes 50,000 shares held by Mr. Bond's wife (as to which shares he
disclaims beneficial ownership), 89,882 shares held in a grantor retained
annuity trust, and 97,667 shares subject to options exercisable within 60
days.
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<PAGE> 16
(16) Includes 137,000 shares subject to options exercisable within 60 days.
(17) Includes 21,250 shares subject to options exercisable within 60 days. Also
includes 21,450 shares which are held in escrow subject to certain
indemnification rights of the Company.
(18) Does not include Mr. Chaimowitz, who left the employ of the Company on
March 31, 1999, and Mr. Burns, who resigned from the Company on May 29,
1998. Includes an aggregate of 1,358,145 shares subject to options
exercisable within 60 days. Also includes 21,450 shares which are held in
escrow and subject to certain indemnification rights of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Leases. In May 1995, G.T. Interactive Software (Europe) Limited, the
Company's European subsidiary, entered into a lease with respect to its
principal executive offices with Marylebone 248 Realty LLC ("Marylebone 248"),
an entity controlled by Joseph J. Cayre and Jack J. Cayre, an Executive Vice
President and a director of the Company. This lease expires in 2020. During the
fifteen months ended June 30, 1999, the Company paid approximately $333,080 in
rent to Marylebone 248.
Transactions with GoodTimes Home Video Corp. ("GTHV"). During the year
ended December 31, 1996, the Company sold approximately $3,488,000 of software
products to GTHV, a majority of whose stock is owned by Joseph J. Cayre, Stanley
Cayre and Kenneth Cayre, a stockholder and former director of the Company. In
connection with the sales of such products, the Company had a receivable from
GTHV for approximately $2,996,000 at December 31, 1997. In February 1998,
$2,869,000 of such receivable was paid. The balance due the Company remained
open as of June 30, 1999.
GTHV also performs certain assembly and packaging services for the Company.
During the fifteen months ended June 30, 1999, the Company charged to operations
approximately $1,254,000 in fees for such services.
REPS Agreement. In servicing its mass merchant accounts, the Company uses
field representatives supplied by REPS, a company owned by Joseph J. Cayre,
Stanley Cayre and Kenneth Cayre. REPS provides such services to the Company as
well as to third parties not affiliated with the Cayre family. The Company had
an agreement with REPS pursuant to which REPS supplied such services, at its
cost, which expired on December 31, 1997. Until June 28, 1999, the Company
operated on a month to month basis under the terms of the expired agreement, and
on June 28. 1999 the Company entered into a new agreement with REPS effective as
of May 1, 1999. During the fifteen months ended June 30, 1999, the Company
charged to operations approximately $5,186,000 in fees to REPS.
Travel Services. The Company occasionally hires JT Aviation Corp.
("JTAC"), a company owned by Joseph J. Cayre, and Excel Aire Service, Inc.
("Excel") to provide business travel services for its officers and employees.
Excel leases its planes from JTAC. Excel is not owned in whole or in part by any
member of the Cayre family. JTAC and Excel provide air travel to the Company at
an hourly rate and on an as needed as available basis. During the fifteen months
ended June 30, 1999, the Company paid approximately $235,000 and $347,000 to
JTAC and Excel, respectively.
Transactions with ClientLogic. The Company has entered into agreements
with ClientLogic pursuant to which ClientLogic (i) provides toll-free customer
support for some of the Company's published products and (ii) takes direct
customer orders and provides fulfillment services for the Company, in each case
on a per service basis. Both agreements provide for automatic renewal on a month
to month basis upon expiration unless terminated by either party. Pursuant to
their terms, the agreements have been renewed on a month to month basis since
the expiration of the agreement providing for customer support service on
December 17, 1996 and the expiration of the agreement providing for the
fulfillment service on August 2, 1997. During the fifteen months ended June 30,
1999, the Company paid approximately $252,000 in fees to ClientLogic. Jordan A.
Levy is Vice Chairman of ClientLogic. During the fifteen months ended June 30,
1999, the Company paid $10,000 to Jordan A. Levy for consulting services.
Purchases of Computer Equipment. From time to time, the Company purchases
computer equipment from and sells computer software to RCS Computer Experience,
LLC ("RCS"). In June 1998, Rockwell Computer Services, LLC, a company controlled
by Joseph J. Cayre, purchased approximately a 70% interest
15
<PAGE> 17
in RCS. During the fifteen months ended June 30, 1999, the Company paid
approximately $24,000 to RCS and generated approximately $54,000 in net revenues
from RCS.
Leasing Transactions. The Company has entered into agreements with an
unaffiliated leasing company for computer equipment. This leasing company
purchases computer equipment from various vendors including RCS. During the
fifteen months ended June 30, 1999, the leasing company paid approximately
$231,000 to RCS for equipment leased by the Company.
The Company believes that the terms of the foregoing transactions are no
less favorable to the Company than could be obtained by the Company from
unrelated parties on an arm's-length basis.
Gregor Loan. On August 31, 1996, the Company extended a loan to Andrew
Gregor in the principal amount of $250,000. Such loan accrued interest at the
rate of 6.15% per annum and was amended in March 1998 to extend the maturity
date from August 31, 1998 to August 31, 2000. In October 1998, the Company
amended a severance pay agreement with Mr. Gregor to provide that the Company
would, on the earlier of (i) March 31, 1999 or (ii) the date the change of
control becomes effective, waive all payments of principal and interest which
would be due under the loan.
SingleTrac Loans. The Company has extended non-interest bearing loans to
three employees of the Company who were former stockholders of SingleTrac,
including Michael A. Ryder, Senior Vice President of the Domestic Frontline
Division of the Company. The principal amount of each such loan is $100,000.
Such loans become due and payable at the earliest of the sale of their stock of
the Company, in November 1999 or six months following termination of the
borrowers' respective employment with the Company. Each of the borrowers has
pledged 20,000 shares of the Company's Common Stock, as collateral security for
the loans.
Transactions with General Atlantic and the Cayre Family. On February 23,
1999, certain partnerships affiliated with General Atlantic Partners, LLC
(together with its affiliates, "General Atlantic") purchased from the Company
600,000 shares of the Company's Series A Convertible Preferred Stock (the
"Preferred Stock") for an aggregate purchase price of $30.0 million. These
shares of Preferred Stock are convertible into 6.0 million shares of the
Company's common stock at a conversion price of $5.00 per share.
On June 29, 1999, as a further condition to the agreement by the Company's
lenders to amend the Company's $125 million credit facility (the "New Credit
Agreement"), the Company received Commitments from General Atlantic and certain
members of the Cayre family (together with General Atlantic, the "Junior
Debtholders") to loan to the Company an aggregate of $30.0 million (the "Junior
Debt"). Certain members of the Cayre family and affiliates of General Atlantic
own, in the aggregate, a significant percentage of the Company's Common Stock.
The Junior Debt would be made available to the Company on or before July 30,
1999. Of the $30.0 million which the Junior Debtholders are obligated to loan
the Company, $20.0 million would be funded by General Atlantic and $10.0 million
would be funded by the Cayre family. The Junior Debt would be evidenced by
promissory notes (the "Notes") from the Company to the Junior Debtholders. The
Company will use the borrowings under the Notes to prepay a portion of the
amount borrowed under the New Credit Agreement, which may be reborrowed.
To induce General Atlantic to enter into the Commitments, the Company
amended the terms of the Certificate of Designation designating its Series A
Convertible Preferred Stock to provide that in the event of a change of control,
the holders of the Preferred Stock will receive, before any payment or
distribution is made on any other equity securities of the Company, an amount
equal to the liquidation preference set forth in the Certificate of Designation
plus all accrued and unpaid dividends thereon to the date fixed for such change
of control. Further, the Company issued to General Atlantic warrants (the
"Commitment Warrants") to purchase, at an exercise price equal to $0.01 per
share, an aggregate of 500,000 shares (subject to anti-dilution adjustments) of
the Company's Common Stock. The Cayre family has granted to General Atlantic an
option to purchase a total of 1,500,000 shares of Common Stock owned by them.
One-third of the Commitment Warrants will be credited against this option.
Concurrently with the issuance of the Commitment Warrants, the Company will
amend the Registration Rights Agreement, dated February 23, 1999, between the
Company and General Atlantic, to extend those registration rights to the shares
of Common Stock issuable upon
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exercise of the Commitment Warrants and any additional warrants issued to
General Atlantic, as described below.
The Notes will mature on July 30, 2000 (the "Maturity Date") and will bear
cumulative interest, compounding quarterly, at the rate of 9% per year until
January 1, 2000, on which date the rate will increase to 12% per year. All
accrued and unpaid interest will be due and payable in cash on the earlier of
(i) the Maturity Date and (ii) the first business day after the Line has been
repaid in full. In the event of a change in control of the Company, the Company
is required to prepay the aggregate unpaid principal amount of the Notes plus
all accrued and unpaid interest thereon. After the amount borrowed under the New
Credit Agreement has been repaid in full, the Company may prepay the Notes in
whole or in part. The Notes, including all unpaid principal of and interest
thereunder, will be subordinate and junior in right of payment to all amounts
owed under the New Credit Agreement, as amended.
On July 29, 1999, the Junior Debtholders funded the Junior Debt and the
Company issued the Notes to the Junior Debtholders. Concurrently with the
issuance of the Notes, the Company issued to General Atlantic warrants to
purchase, at an exercise price of $0.01 per share, an aggregate of 1,500,000
shares of the Company's Common Stock.
Under certain circumstances, the Company may be obligated to issue
additional warrants to the Junior Debtholders.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ THOMAS A. HEYMANN
------------------------------------
Name: Thomas A. Heymann
Title: Chairman of the Board of
Directors and Chief
Executive Officer
Date: July 29, 1999
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