<PAGE> 1
SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14c INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
</TABLE>
GT INTERACTIVE SOFTWARE CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Rules 0-11(c)(i)(ii), or 14c-5(g) and 0-11.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
GT INTERACTIVE SOFTWARE CORP.
417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(212) 726-6500
------------------------
INFORMATION STATEMENT
------------------------
GENERAL INFORMATION
------------------------
YOUR VOTE IS NOT REQUIRED
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement (the "Information Statement") is being furnished
by GT Interactive Software Corp., a Delaware corporation (the "Company"), to the
holders of the Company's common stock, par value $0.01 per share (the "Common
Stock"), in connection with the approval and adoption of an amendment to the
Company's 1997 Stock Incentive Plan (the "1997 Plan") by a Written Consent of
the Stockholders in Lieu of a Special Meeting, dated January 8, 1999 (the
"Written Consent"). This Information Statement is being mailed on or about March
1, 1999 to all stockholders of record at the close of business on February 5,
1999 (the "Record Date"). As of the Record Date, there were 72,775,868 shares of
Common Stock outstanding, each entitled to one vote on each matter of business
put to a stockholder vote.
On January 8, 1999, the Board of Directors of the Company approved an
amendment to the 1997 Plan, which increases, from 1,000,000 to 3,000,000, the
total number of shares of Common Stock with respect to which options may be
granted to any one employee of the Company during any one-year period (the "1997
Plan Amendment"). On January 8, 1999, stockholders holding 42,801,556 shares of
Common Stock, representing approximately 59% of the outstanding shares of the
Company's Common Stock (the "Majority Stockholders"), executed and delivered the
Written Consent approving and adopting the 1997 Plan Amendment. As a result, the
1997 Plan Amendment was approved by a majority of the issued and outstanding
shares of Common Stock and no further votes will be needed. The immediate
purpose of the 1997 Plan Amendment was to enable the Company to grant Thomas
Heymann, who became the Company's Chairman of the Board and Chief Executive
Officer on February 8, 1999, options to purchase an aggregate of 3,000,000
shares of Common Stock. Stockholder approval of the 1997 Plan Amendment was
obtained so that compensation resulting from such options will constitute
qualified "performance-based compensation" under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code").
This Information Statement is being provided pursuant to the requirements
of Rule 14c-2 promulgated under Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to inform holders of Common Stock
entitled to vote or give an authorization or consent in regard to the action
authorized by the Written Consent, of the action being taken.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
<PAGE> 3
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 December 31, 1997 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company during the fiscal years ended
December 31, 1995, 1996 and 1997 and the twelve months ended March 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
--------------------- SECURITIES
RESTRICTED UNDERLYING ALL OTHER
STOCK OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) (#) ($)
- --------------------------- ------- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas Heymann................. -- -- -- -- -- --
Chairman of the Board
and Chief Executive
Officer(1)
Ronald W. Chaimowitz........... 3/31/98(2) $425,962 -- -- 1,000,000(4) 4,750(6)
Chairman of the Board 1997 414,615 251,988(5) -- 500,000 4,750(6)
and Chief Executive 1996 365,000 --(7) -- 250,000(7) 1,500(6)
Officer until February 8,
1999(3) 1995 300,000 --(8) -- 975,000(8) 718(6)
Harry M. Rubin................. 3/31/98(2) 300,000 -- -- 250,000 --
President of the 1997 299,808 151,800(5) -- 150,000 --
International Division(9) 1996 275,000 80,000(5) -- -- --
1995 250,000 60,000 -- 179,829 --
Richard Burns.................. 3/31/98(2) 277,885 -- -- 140,000 4,750(6)
Executive Vice President, 1997 266,346 124,817(5) -- 60,000 4,750(6)
Domestic Publishing(10)(11) 1996 201,538 40,000(5) 49,030(12) -- --
1995 6,923 -- -- 100,000 --
David I. Chemerow.............. 3/31/98(2) 256,154 -- -- -- --
President and Chief 1997 186,923 94,583(5) -- 300,000 --
Operating Officer(10)(13) 1996 -- -- -- -- --
1995 -- -- -- -- --
Andrew Gregor.................. 3/31/98(2) 265,000 -- -- 70,000(14) 4,750(6)
Senior Vice President, 1997 265,000 107,272(5) -- 100,000 4,750(6)
Finance and Administration, 1996 245,962 40,015(5) -- -- --
and Chief Financial
Officer(10) 1995 80,962 45,000 41,970(15) 144,000 --
Charles F. Bond................ 3/31/98(2) 308,078 -- -- -- 4,750(6)
Senior Vice President of 1997 300,001 743,750(17) -- 50,000 4,750(6)
the Value Price and 1996 300,001 500,000(17) -- -- --
Distribution Division(10)(16) 1995 155,770 233,654(17) -- 6,000 --
</TABLE>
- ---------------
(1) Since February 8, 1999, Mr. Heymann has served as Chairman of the Board and
Chief Executive Officer of the Company. Because Mr. Heymann was
unaffiliated with the Company prior to such time, no compensation
information with respect to him is presented.
(2) 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.
(3) Since February 8, 1999, Mr. Chaimowitz has served as Chairman of the Board
and Chief Executive Officer of the Company's One Zero Media subsidiary.
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
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<PAGE> 4
Company. From January 1994 to January 1995, Mr. Chaimowitz served as
Executive Vice President and General Manager of the Company.
(4) 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.
(5) This bonus was earned in the year indicated, but paid in the immediately
subsequent year.
(6) Represents Company contributions, on behalf of the Named Executive
Officers, to the Company's 401(k) Profit Sharing Plan.
(7) 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.
(8) In lieu of cash bonus for 1995, in December 1995, Mr. Chaimowitz received
options to purchase 75,000 shares of the Company's Common Stock at an
exercise price of $14.00 per share.
(9) 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.
(10) Messrs. Burns, Gregor, Bond and Chemerow joined the Company in December,
August and June 1995 and May 1997, respectively, and accordingly, the
information contained herein for the years ended December 31, 1995 and 1997
reflects a partial year.
(11) From December 1995 to May 1997, Mr. Burns served as Senior Vice President,
Sales, of the Company. Mr. Burns resigned from the Company on May 29, 1998.
(12) Represents the dollar value (net of consideration paid) of the award of
restricted stock calculated by multiplying the market price of the
Company's Common Stock on the date of grant, $19.125 per share, by the
number of shares awarded. These shares vested on December 30, 1996.
(13) From May 1997 to April 1998, Mr. Chemerow served as Executive Vice
President and Chief Operating Officer of the Company.
(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.
(15) Represents the dollar value (net of the consideration paid) of the award of
restricted stock, calculated by multiplying the initial public offering
price of the Company's Common Stock, $14.00 per share, by the number of
shares awarded. These shares vested on June 30, 1996.
(16) Mr. Bond is the Senior Vice President of the Value Price and Distribution
Division, where he has served since the consolidation of the Slash Division
with the operations of WizardWorks Group, Inc., a wholly-owned subsidiary
of the Company. Prior thereto, Mr. Bond served as President of the Slash
Division since June 1995.
(17) Represents an annual bonus payable under an employment agreement, which the
Company and Mr. Bond entered into in connection with the acquisition of
Slash Corporation ("Slash"). See "Employment Agreements." This bonus was
earned in the year indicated, but the entire amount or a portion thereof
was paid in the immediately subsequent year.
Option Grants. Information relating to grants of stock options under the
Company's stock incentive plans to the Named Executive Officers during the
fiscal year ended December 31, 1997 is incorporated herein by reference to the
Company's 1998 Proxy Statement.
Aggregate Option Exercises and Year-End Option Values. Information
relating to the exercise of stock options during the fiscal year ended December
31, 1997 for each of the Company's Named Executive Officers and the year-end
value of unexercised options held by the Named Executive Officers is
incorporated herein by reference to the Company's 1998 Proxy Statement.
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<PAGE> 5
10-YEAR OPTION REPRICING
Information relating to the repricing of options held by Mr. Burns, one of
the Named Executive Officers, is incorporated herein by reference to the
Company's 1998 Proxy Statement.
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 ten months ended January 31, 1999, the Company's Compensation
Committee consisted of Joseph J. Cayre, Stanley Cayre, Steven A. Denning and
Jordan A. Levy.
Certain members of the Compensation Committee engaged in related
transactions as follows:
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
ten months ended January 31, 1999, the Company paid approximately $223,000 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 remains open
as of January 31, 1999.
GTHV also performs certain assembly and packaging services for the Company.
During the ten months ended January 31, 1999, the Company paid approximately
$983,000 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. The Company is currently operating on
a month to month basis under the terms of the expired agreement. During the ten
months ended January 31, 1999, the Company paid approximately $2,705,000 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 ten months
ended January 31, 1999, the Company paid approximately $228,000 and $267,000 to
JTAC and Excel, respectively.
Transactions with ClientLogic. The Company has entered into agreements
with ClientLogic Corporation (formerly doing business as SOFTBANK Services
Group) ("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 ten months ended January
31, 1999, the Company paid approximately $85,000 in fees to ClientLogic. Jordan
A. Levy is Vice Chairman of ClientLogic.
4
<PAGE> 6
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 in RCS. During the
ten months ended January 31, 1999, the Company paid approximately $24,000 to RCS
and generated approximately $18,000 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 ten
months ended January 31, 1999, the leasing company paid approximately $211,000
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.
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 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 ("GAP"), entities controlled or
managed by GAP, 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
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other entity; or (d) the approval by the Company's stockholders of a pla n 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 February 8, 1999, Thomas Heymann became Chairman of the Board and Chief
Executive Officer of the Company and Mr. Chaimowitz became Chairman of the Board
and Chief Executive Officer of the Company's One Zero Media subsidiary. The
Company has agreed to pay Mr. Chaimowitz the amount of $1.4 million on or before
March 31, 1999 in lieu of certain severance payment obligations under his
existing employment agreement. The Company and Mr. Chaimowitz are currently
negotiating an amended employment agreement. However, there can be no assurance
that such negotiations will be successful. In the event that such negotiations
are not successful, Mr. Chaimowitz would be entitled to terminate his existing
employment agreement for Good Reason (as defined in such agreement) and to
receive additional severance payments under his agreement over the remainder of
the term of that agreement.
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
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
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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 Mr. 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 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.
The Company has entered into an employment agreement with Charles F. Bond,
pursuant to which he serves as Senior Vice President of the Value Price and
Distribution Division of the Company 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.
The Company has entered into an employment agreement with Thomas 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
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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.
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.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Report of the Compensation Committee is incorporated herein by
reference to the Company's 1998 Proxy Statement.
STOCK PERFORMANCE GRAPH
The Stock Performance Graph is incorporated herein by reference to the
Company's 1998 Proxy Statement.
8
<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of February 10, 1999,
concerning the Common Stock of the Company beneficially owned(i) by each
director of the Company,(ii) by the Named Executive Officers(other than Mr.
Burns who resigned from the Company on May 29, 1998) and all executive officers
and directors 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, 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)............................................ 3,794,585 5.2
Stanley Cayre(3)............................................ 8,843,923 12.2
Kenneth Cayre(4)............................................ 8,825,135 12.1
Thomas Heymann(5)........................................... 0 *
Ronald W. Chaimowitz(6)..................................... 1,952,584 2.6
General Atlantic Partners, LLC(7) 3 Pickwick Plaza,
Greenwich, CT 06830....................................... 7,428,525 10.2
Steven A. Denning(8)........................................ 7,428,525 10.2
William E. Ford(9).......................................... 7,428,425 10.2
Jordan A. Levy(10).......................................... 83,500 *
Harry M. Rubin(11).......................................... 295,428 *
Alvin N. Teller(12)......................................... 47,500 *
Phillip J. Riese(13)........................................ 20,500 *
Various trusts for the benefit of the children of Joseph J.
Cayre 417 Fifth Avenue, New York, NY 10016................ 6,380,000 8.8
Various trusts for the benefit of the children of Stanley
Cayre 417 Fifth Avenue, New York, NY 10016................ 4,720,670 6.5
Various trusts for the benefit of the children of Kenneth
and Lillian Cayre 417 Fifth Avenue, New York, NY 10016.... 7,119,688 9.8
David I. Chemerow(14)....................................... 185,752 *
Andrew Gregor(15)........................................... 163,000 *
Charles F. Bond(16)......................................... 1,943,900 2.7
All executive officers and directors as a group(16
persons)(17).............................................. 39,009,473 51.9
</TABLE>
- ---------------
* 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 284,500 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 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.
9
<PAGE> 11
(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) As of February 10, 1999, Mr. Heymann did not beneficially own any shares of
Common Stock of the Company.
(6) Includes 84,380 shares held in a trust for the benefit of Ronald W.
Chaimowitz's daughter, for which trust Ronald W. Chaimowitz's wife serves
as trustee. Ronald W. Chaimowitz disclaims beneficial ownership of such
shares. Also includes 1,238,750 shares subject to options exercisable
within 60 days.
(7) Also 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
("GAP"). The managing members of GAP, including Steven A. Denning and
William E. Ford, directors of the Company, are the general partners of GAP
Coinvestment. Messrs. Denning and Ford are the Executive Managing Member
and a managing member, respectively, of GAP. 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. Does not include 600,000 shares of the Company's Series
A Convertible Preferred Stock, par value $.01 per share, acquired by GAP on
February 23, 1999. Each share of Series A Convertible Preferred Stock is
convertible at any time into ten shares of Common Stock.
(8) 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.
(9) 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.
(10) Includes 75,000 shares subject to options exercisable within 60 days.
(11) Represents 295,428 shares subject to options exercisable within 60 days.
(12) Includes 15,000 shares subject to options exercisable within 60 days.
(13) Includes 7,500 shares subject to options exercisable within 60 days.
(14) Includes 112,500 shares subject to options exercisable within 60 days.
(15) Includes 160,000 shares subject to options exercisable within 60 days.
(16) Includes 50,000 shares held by Mr. Bond's wife (as to which shares he
disclaims beneficial ownership), 96,153 shares held in a grantor retained
annuity trust, and 29,500 shares subject to options exercisable within 60
days.
(17) Includes an aggregate of 2,393,928 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. Excludes shares
owned by Mr. Burns who resigned from the Company on May 29, 1998.
10
<PAGE> 12
AMENDMENT TO THE COMPANY'S 1997 STOCK INCENTIVE PLAN
On January 8, 1999, the Board of Directors of the Company (and the Majority
Stockholders in the Written Consent) approved the 1997 Plan Amendment, which
increases, from 1,000,000 to 3,000,000, the total number of shares of Common
Stock with respect to which options may be granted to any one employee of the
Company during any one-year period. The immediate purpose of the 1997 Plan
Amendment is to enable the Company to grant Thomas Heymann, who became the
Company's Chairman of the Board and Chief Executive Officer as of February 8,
1999, options to purchase an aggregate of 3,000,000 shares of Common Stock.
Stockholder approval of the 1997 Plan Amendment was obtained so that
compensation resulting from such options will constitute qualified
"performance-based compensation" under Section 162(m) of the Code. See "Interest
of Certain Persons in 1997 Plan Amendment." The Majority Stockholders' Written
Consent will become effective on March 21, 1999, which date is at least 20 days
after the Company has mailed this Information Statement to the stockholders of
the Company.
The Board of Directors believes that the 1997 Plan Amendment is in the best
interests of the Company and its stockholders. In the highly competitive market
for managerial and executive talent, the availability of an adequate stock
option program is an important factor in the Company's ability to recruit,
retain and motivate qualified directors, officers and employees who are
essential to the success of the Company and in aligning their long-term
interests with those of the Company's stockholders. In particular, the 1997 Plan
Amendment is an integral part of the Company's efforts to recruit and provide
incentives for Mr. Heymann and to retain and provide incentives to the Company's
existing management and employees. The Company's future success will be
substantially impacted by the efforts of these individuals.
The major features of the 1997 Plan are summarized below, which summary is
qualified in its entirety by the actual text of the 1997 Plan. The Company will
furnish without charge a copy of the 1997 Plan to any stockholder of the Company
upon receipt from any such person of an oral or written request for the 1997
Plan. Such request should be sent to the Company at GT Interactive Software
Corp., 417 Fifth Avenue, New York, New York 10016, Attention: Director, Investor
Relations, or made by telephone at (212) 726-6500.
General. The 1997 Plan provides for awards in the form of (i) incentive
stock options, (ii) non-qualified stock options (incentive and non-qualified
stock options are collectively referred to as "options"), (iii) stock
appreciation rights, (iv) restricted stock, (v) restricted stock units, (vi)
dividend equivalent rights and (vii) other stock based awards. Awards may be
made to such directors, officers and other employees of the Company and its
subsidiaries (including employees who are directors and prospective employees
who become employees), and to such consultants to the Company and its
subsidiaries, as the Committee in its discretion selects (collectively, "key
persons").
Administration. The 1997 Plan may be administered by the Board of
Directors or the Compensation Committee of the Board of Directors. The Board of
Directors and the Compensation Committee are authorized to construe, interpret
and implement the provisions of the 1997 Plan, to select the key persons to whom
awards will be granted, to determine the terms and provisions of such awards,
and to amend outstanding awards. The determinations of the Board of Directors
and the Compensation Committee are made in their sole discretion and are
conclusive. The Compensation Committee presently consists of Messrs. Joseph J.
Cayre, Steven A. Denning, Jordan A. Levy and Alvin N. Teller.
In January 1998, the Board of Directors 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 1997 Plan, 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. (As used
herein, "Committee" refers to the Compensation Committee, the Executive Stock
Option Subcommittee and/or the Board of Directors as appropriate).
11
<PAGE> 13
GRANTS UNDER THE 1997 PLAN
Stock Options. Unless the Committee expressly provides otherwise, an
option will become exercisable as to 20% of the shares subject thereto on each
of the first through fifth anniversaries of the grant. The purchase price per
share payable upon the exercise of an option (the "option exercise price") will
be established by the Committee, provided that the option exercise price shall
be no less than 100% of the fair market value of a share of the Common Stock on
the date of grant in the case of an incentive stock option. The option exercise
price is payable in cash, or, with the consent of the Committee, by surrender of
shares of Common Stock having a fair market value on the date of the exercise
equal to part or all of the option exercise price, or by such other payment
method as the Committee may prescribe.
Currently, the total number of shares of Common Stock with respect to which
options may be granted to any one employee during any one year period may not
exceed 1,000,000. The 1997 Plan Amendment increases the maximum number of shares
of Common Stock with respect to which options may be granted to any one employee
during any one year period to 3,000,000.
As of March 31, 1998, the Company had granted options to purchase 2,262,757
shares of Common Stock under the 1997 Plan. The following table sets forth the
options which were granted under the 1997 Plan as of such date. For information
with respect to options granted to Mr. Heymann subsequent to that date, see
"-- New Plan Benefits."
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED
- ---- ---------------
<S> <C>
Ronald W. Chaimowitz........................................ 500,000
Chairman of the Board and Chief Executive Officer until
February 8, 1999
Harry M. Rubin.............................................. 250,000
President of the International Division
David I. Chemerow........................................... 100,000
President and Chief Operating Officer
Andrew Gregor............................................... 40,000
Senior Vice President, Finance and Administration, and
Chief Financial Officer
Charles F. Bond............................................. 0
Senior Vice President of The Value Price and Distribution
Division
Executive Group (9 persons)................................. 1,225,000
Non-Employee Director Group (7 persons)..................... 30,000
Non-Executive Employee Group (119 persons).................. 1,007,757
</TABLE>
Stock Appreciation Rights. Stock appreciation rights may be granted in
connection with all or any part of, or independently of, any option granted
under the 1997 Plan. Generally, no stock appreciation right will be exercisable
at a time when any option to which it relates is not exercisable. The grantee of
a stock appreciation right has the right to surrender the stock appreciation
right and to receive from the Company an amount equal to the aggregate
appreciation (since the date of the grant, or over the option exercise price if
the stock appreciation right is granted in connection with an option) in the
shares of Common Stock in respect of which such stock appreciation right is
being exercised. Payment due upon exercise of a stock appreciation right may be
in cash, in Common Stock, or partly in each, as determined by the Committee in
its discretion.
Restricted Stock. The Committee may grant or sell restricted shares of
Common Stock to such key persons, in such amounts, and subject to such terms and
conditions (which may depend upon or be related to performance goals and other
conditions) as the Committee shall determine in its discretion. Certificates for
the shares of Common Stock covered by a restricted stock award will remain in
the possession of the Company until such shares are free of restrictions.
Subject to the applicable restrictions, the grantee has the rights of a
stockholder with respect to the restricted stock.
Restricted Stock Units. The Committee may grant 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. Restricted stock units are
intended to give the recipient the economic equivalent of actual restricted
shares of stock, while postponing the tax consequences. A restricted stock unit
is an unsecured promise to transfer an
12
<PAGE> 14
unrestricted share of stock at a specified future maturity date (which can be
later than the vesting date at which the right to receive the shares becomes
nonforfeitable) selected by the recipient of the unit at the time of grant or
subsequent thereto.
Dividend Equivalent Rights. The Committee may include in any award a
dividend equivalent right entitling the recipient to receive amounts equal to
the ordinary dividends that would have been paid, during the time such award is
outstanding, unexercised or not vested, on the shares of Common Stock covered by
such award if such shares were then outstanding.
Other Stock Based Awards. The 1997 Plan permits the Committee to grant
other stock based awards, such as performance shares or unrestricted stock,
subject to such terms and conditions as the Committee deems appropriate.
Performance Shares. The Committee may grant performance share awards to
such key persons, in such amounts, and subject to such terms and conditions, as
the Committee shall determine in its discretion. The grantee of such an award
will be entitled to receive shares of Common Stock or the cash value thereof if
performance goals specified by the Committee are met.
TERMINATION OF EMPLOYMENT OR SERVICE
Options and Stock Appreciation Rights. Unless the Committee otherwise
specifies: (i) all options and stock appreciation rights not yet exercised shall
terminate upon termination of the grantee's employment or service by reason of
discharge for cause; (ii) if a grantee's employment or service terminates for
reasons other than cause or death, the grantee's options and/or stock
appreciation rights generally will be exercisable for 90 days after termination
to the extent that they were exercisable at termination, but not after the
expiration date of the award; and (iii) if a grantee dies while in the Company's
employ or service or during the aforementioned post-employment exercise period,
the grantee's options and/or stock appreciation rights will, to the extent
exercisable immediately prior to death, generally remain exercisable for one
year after the date of death, but not after the expiration date of the award.
Restricted Stock. If a grantee's employment or service terminates for any
reason, the Company will have the right to require forfeiture of restricted
shares in exchange for any amount paid by the grantee for such shares.
Other Features of the 1997 Plan. The Committee may amend any outstanding
award, 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 on the award. The Board of
Directors may, without stockholder approval, suspend, discontinue, revise or
amend the 1997 Plan at any time or from time to time; provided, however, that
stockholder approval shall be obtained to the extent necessary to comply with
Section 422 of the Code (relating to the grant of incentive stock options) and
other applicable law. Unless sooner terminated by the Board of Directors, the
provisions of the 1997 Plan respecting the grant of incentive stock options
shall terminate on the tenth anniversary of the adoption of the 1997 Plan by the
Board of Directors. All awards made under the 1997 Plan prior to its termination
shall remain in effect until they are satisfied or terminated.
In the event of a merger or consolidation of the Company with or into any
other corporation or entity, 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.
Tax Consequences. The following description of the tax consequences of
awards under the 1997 Plan is based on present Federal tax laws, and does not
purport to be a complete description of the tax consequences of the 1997 Plan.
13
<PAGE> 15
There are generally no Federal tax consequences either to the optionee or
to the Company upon the grant of a stock option. On exercise of an incentive
stock option, the optionee will not realize any income, and the Company will not
be entitled to a deduction for tax purposes, although such exercise may give
rise to liability for the optionee under the alternative minimum tax provisions
of the Code. However, if the optionee disposes of shares acquired upon exercise
of an incentive stock option within two years of the date of grant or one year
of the date of exercise, the optionee will recognize compensation income, and
the Company will be entitled to a deduction in the amount of the excess of the
fair market value of the shares of Common Stock on the date of exercise over the
option exercise price (or the gain on sale, if less); the remainder of any gain
to the optionee will be treated as capital gain. On exercise of a non-qualified
stock option, the amount by which the fair market value of the Common Stock on
the date of exercise exceeds the option exercise price will generally be taxable
to the optionee as compensation income and will generally be deductible for tax
purposes by the Company.
The grant of a stock appreciation right or restricted stock unit award will
not result in income for the grantee or in a tax deduction for the Company. Upon
the settlement of such a right or award, the grantee will include in gross
income an amount equal to the fair market value of any shares of Common Stock
and/or any cash received, and the Company will be entitled to a tax deduction in
the same amount. An award of restricted shares of Common Stock will not result
in income for the grantee or in a tax deduction for the Company until such time
as the shares are no longer subject to forfeiture unless the grantee elects
otherwise. At that time, the grantee generally will include in gross income an
amount equal to the fair market value of the shares less any amount paid for
them, and the Company will be entitled to a tax deduction in the same amount.
Limitations on the Company's Compensation Deduction. Section 162(m) of the
Code limits the deduction which the Company may take for otherwise deductible
compensation payable to certain executive officers to the extent that
compensation paid to such officers for a year exceeds $1.0 million, unless such
compensation meets certain criteria. The Company believes that compensation
realized from stock options and stock appreciation rights granted under the 1997
Plan generally will satisfy the requirements of Section 162(m) of the Code if
the options or stock appreciation rights are granted by a committee of "outside
directors" (as defined under Section 162(m)); however, there is no assurance
that such awards will satisfy such requirements. In addition, because other
awards under the 1997 Plan will generally not meet the requirements of Section
162(m) of the Code, the deduction attributable to any compensation realized
under any such awards to the affected executive officers may be limited.
New Plan Benefits. The following table sets forth the number of shares
subject to stock options being granted under the 1997 Plan, as amended pursuant
to the 1997 Plan Amendment, during fiscal year 1999 which are determinable as of
the date of this Information Statement. Because awards under the 1997 Plan are
authorized by the Committee in its discretion, no other future awards are
determinable as of the date of this Information Statement.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS DOLLAR VALUE
- ----------------- ------------------ ------------
<S> <C> <C>
Thomas Heymann.............................................. 3,000,000(1) (2)
Chairman of the Board and Chief Executive Officer
</TABLE>
- ---------------
(1) Mr. Heymann was granted options to purchase an aggregate of 3,000,000 shares
of Common Stock. The options will vest in four equal annual installments
commencing on February 8, 2000 at the following exercise prices: (i)
2,250,000 at $5 per share (the fair market value of the Common Stock on the
date of grant), (ii) 250,000 at $10 per share, (iii) 250,000 at $15 per
share, and (iv) 250,000 at $20 per share. The options expire on February 8,
2009, unless earlier terminated as set forth in Mr. Heymann's employment
agreement with the Company.
(2) The dollar value of the option grant to Mr. Heymann cannot be determined
because the value depends on, among other factors, the Company's future
stock price.
14
<PAGE> 16
INTEREST OF CERTAIN PERSONS IN 1997 PLAN AMENDMENT
On January 8, 1999, the Board of Directors approved the 1997 Plan Amendment
and Thomas Heymann was granted options to purchase 3,000,000 shares of Common
Stock, effective upon his commencement of employment on February 8, 1999.
Options as to 2,000,000 shares were subject to approval of the 1997 Plan
Amendment. On January 8, 1999, the Majority Stockholders executed and delivered
the Written Consent approving and adopting the 1997 Plan Amendment. See
"Amendment to the Company's 1997 Stock Incentive Plan."
By Order of the Board of Directors,
STANLEY CAYRE
Secretary and Director
New York, New York
March 1, 1999
15
