SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 23, 1999
----------
GT INTERACTIVE SOFTWARE CORP.
(Exact name of registrant as specified in its charter)
Delaware 0-27338 13-3689915
(State or other jurisdiction of (Commission file number) (I.R.S. employer
incorporation or organization) identification no.)
417 Fifth Avenue, New York, NY 10016
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 726-6500
<PAGE>
Item 5. Other Events
On February 23, 1999, the Registrant issued to certain affiliates of
General Atlantic Partners, LLC, a Delaware limited liability company, 600,000
shares of its Series A Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock"), for an aggregate purchase price of $30 million.
Each share of Series A Preferred Stock is convertible at any time into ten
shares of the Registrant's common stock, par value $.01 per share ("Common
Stock"), and will vote on an as-converted basis with the Common Stock as a
single class. The Registrant may redeem the Series A Preferred Stock at any time
after February 8, 2003.
Item 7. Exhibits
3.1 Certificate of the Powers, Designations, Preferences and Rights
of the Series A Convertible Preferred Stock
10.1 Stock Purchase Agreement, dated February 8, 1999, among the Registrant,
General Atlantic Partners 54, L.P. and GAP Coinvestment Partners II,
L.P.
10.2 Employment Agreement, dated as of February 8, 1999, between the
Registrant and Thomas Heymann
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GT INTERACTIVE SOFTWARE CORP.
Date: March 2, 1999 By: /s/ David I. Chemerow
-----------------------------
Name: David I. Chemerow
Title: President and Chief
Operating Officer
GT INTERACTIVE SOFTWARE CORP.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
Pursuant to Section 151 of the Delaware General Corporation Law
The undersigned, David Chemerow, President of GT INTERACTIVE
SOFTWARE CORP., a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY
that the following resolution, creating a series of Six Hundred Thousand
(600,000) shares of Preferred Stock was duly adopted by unanimous written
consent of the Board of Directors, on February 8, 1999.
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to provide by resolution or resolutions for the issuance of shares
of Preferred Stock, par value $.01 per share, of the Corporation, in one or more
classes or series with such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions as shall
be stated and expressed in the resolution or resolutions providing for the
issuance thereof adopted by the Board of Directors, and as are not stated and
expressed in the Certificate of Incorporation, or any amendment thereto,
including (but without limiting the generality of the foregoing) such provisions
as may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant
to its authority as aforesaid, to authorize and fix the terms of a series of
Preferred Stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby
created and established a series of Preferred Stock designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"). The authorized
number of shares of
<PAGE>
2
Series A Preferred Stock shall be 600,000. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in Section 10 below.
2. Rank. The Series A Preferred Stock shall with respect to
distributions of assets and rights upon the occurrence of a Liquidation rank
senior to (i) all classes of common stock of the Corporation (including, without
limitation, the issued and outstanding shares of Common Stock, par value $.01
per share, of the Corporation (the "Common Stock")); and (ii) each other class
or series of Capital Stock of the Corporation hereafter created which does not
expressly rank pari passu with or senior to the Series A Preferred Stock
(collectively with the Common Stock, the "Junior Stock").
3. Dividends.
(a) The holders of shares of Series A Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
cumulative dividends at an annual rate equal to 8% of the Liquidation Preference
only, which shall accrue annually from the date of issuance thereof, whether or
not declared. All accrued and unpaid dividends shall, to the extent funds are
legally available therefor, be mandatorily paid immediately upon the earliest to
occur of (i) a Liquidation, (ii) an optional conversion of shares of Series A
Preferred Stock pursuant to Section 7(a) below, (iii) a mandatory conversion of
shares of Series A Preferred Stock pursuant to Section 7(b) below, (iv) the
redemption of all issued and outstanding shares of Series A Preferred Stock
pursuant to Section 5 below and (v) a Merger or a sale of all or substantially
all of the assets of the Corporation (the "Dividend Payment Date"). On the
Dividend Payment Date, all accrued dividends shall be paid (pro rated to such
Dividend Payment Date), (x) in the case of a Liquidation, a sale of all or
substantially all of the assets of the Corporation, a cash Merger or a
redemption pursuant to Section 5 below, in cash, and (y) in the case of a
conversion of shares of Series A Preferred Stock pursuant to Section 7(a) or (b)
below or a non-cash Merger, in shares of Common Stock. If dividends are to be
paid in shares of Common Stock pursuant to the preceding sentence, the value of
such shares shall be equal to (A) in the case of an optional conversion of
Series A Preferred Stock pursuant to Section 7(a) hereof, the Current Market
Price of the Common Stock on the date on which notice of such optional
conversion is delivered to the Corporation, (B) in the case of a mandatory
conversion of shares of Series A Preferred Stock pursuant to Section 7(b)
hereof, the Current Market Price of the Common Stock on the date on which notice
of such mandatory conversion is delivered to the holders of Series A Preferred
Stock and (c) in the case of a non-cash Merger, the Current Market Price of the
Common Stock on the date on which notice of such Merger is delivered to the
holders of Common Stock.
(b) If the Corporation declares and pays on the
Common Stock an in-kind dividend or distribution of the assets, shares of common
stock or other securities of any Person in a spin-off of such Person, then the
holders of shares of
<PAGE>
3
Series A Preferred Stock shall be entitled to share in such dividend or
distribution on a pro rata basis, as if their shares of Series A Preferred Stock
(excluding any accrued and unpaid dividends) had been converted into shares of
Common Stock pursuant to Section 7(a) immediately prior to the record date for
determining the stockholders of the Corporation eligible to receive such
dividend or distribution.
4. Liquidation Preference.
(a) Upon the occurrence of a Liquidation, the holders
of shares of Series A Preferred Stock shall be entitled to be paid for each
share of Series A Preferred Stock held thereby, out of the assets of the
Corporation legally available for distribution to its stockholders, an amount in
cash equal to (i) $50.00 (the "Liquidation Preference") plus (ii) all accrued
and unpaid dividends thereon to the date fixed for such Liquidation, before any
payment or distribution is made to any Junior Stock less (iii) the fair market
value of any assets or securities distributed pursuant to Section 3(b), as
determined on the date of any such Liquidation by (A) in the case of any
securities so distributed that are publicly traded, the Market Price or (B) in
all other cases, a valuation conducted by a nationally recognized investment
bank, reasonably satisfactory to the Company and the holders of a majority of
Series A Preferred Stock. If the assets of the Corporation available for
distribution to the holders of Series A Preferred Stock and any stock which is
ranked pari passu with the Series A Preferred Stock ("Parity Stock") shall be
insufficient to permit payment in full to such holders of the sums which such
holders are entitled to receive in such case, then all of the assets available
for distribution to holders of the Series A Preferred Stock and any Parity Stock
shall be distributed among and paid to such holders ratably in proportion to the
amounts that would be payable to such holders if such assets were sufficient to
permit payment in full.
(b) After the holders of all shares of Series A
Preferred Stock shall have been paid in full the amounts to which they are
entitled in Section 4(a), the shares of Series A Preferred Stock shall not be
entitled to any further participation in any distribution of assets of the
Corporation and the remaining assets of the Corporation shall be distributed to
the holders of Junior Stock.
(c) Written notice of a Liquidation stating a payment
or payments and the place where such payment or payments shall be payable, shall
be delivered in person, mailed by certified mail, return receipt requested,
mailed by overnight mail or sent by telecopier, not less than ten (10) days
prior to the earliest payment date stated therein, to the holders of record of
the Series A Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
<PAGE>
4
5. Redemption.
(a) At any time after February 8, 2003, the
Corporation shall have the right, at its option, to redeem for cash, out of the
funds legally available therefor, all of the issued and outstanding shares of
Series A Preferred Stock on not less than fifteen (15) Business Days' written
notice of the date of redemption (the "Optional Redemption Date") at a price per
share (the "Optional Redemption Price") equal to (i) the Liquidation Preference
plus (ii) all accrued and unpaid dividends thereon, whether or not declared or
payable, less (iii) the fair market value of any assets or securities
distributed pursuant to Section 3(b), as determined on the Optional Redemption
Date by (A) in the case of any securities so distributed that are publicly
traded, the Market Price or (B) all other cases, a valuation conducted by a
nationally recognized investment bank, reasonably satisfactory to the Company
and the holders of a majority of Series A Preferred Stock, to the Optional
Redemption Date, in immediately available funds.
(b) Notwithstanding Section 5(a) above, at any time
within 10 days after the delivery of such notice from the Corporation that it
intends to redeem the Series A Preferred Stock pursuant to Section 5(a) hereof,
each holder of shares of Series A Preferred Stock shall have the right, at its
option, prior to any such redemption to convert all of its shares of Series A
Preferred Stock, together with all accrued and unpaid dividends thereon, into
shares of Common Stock in accordance with the terms set forth in Sections 3 and
7(a) hereof.
(c) Written notice of any redemption of shares of
Series A Preferred Stock pursuant to Section 5(a) shall be delivered by the
Corporation in person, mailed by certified or registered mail, return receipt
requested, mailed by overnight mail or sent by telecopier, to the holders of
record of the Series A Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the Corporation. In order to
facilitate the redemption of shares of Series A Preferred Stock, the Board of
Directors may fix a record date for the determination of shares of Series A
Preferred Stock to be redeemed.
6. Voting Rights; Election of Directors.
(a) Subject to subsection (b) below, each outstanding
share of Series A Preferred Stock shall entitle the holder thereof to vote, in
person or by proxy, at a special or annual meeting of stockholders, on all
matters entitled to be voted on by holders of Common Stock voting together as a
single class with the Common Stock (and all other classes and series of stock of
the Corporation entitled to vote thereon with the Common Stock, if any). With
respect to any such vote, each share of Series A Preferred Stock shall entitle
the holder thereof to cast that number of votes per share as is equal to the
number of votes that such holder would be entitled to cast had such holder
converted its shares of Series A Preferred Stock (excluding any accrued and
<PAGE>
5
unpaid dividends) into shares of Common Stock pursuant to Section 7(a) on the
record date for determining the stockholders of the Corporation eligible to vote
on any such matters.
(b) The holders of each share of Series A Preferred
Stock shall not be entitled to vote as a separate class on any matter, including
any Merger or sale of all or substantially all of the assets of the Corporation;
provided, however, that notwithstanding the foregoing, the holders of the Series
A Preferred Stock shall be entitled to vote together as a separate class with
respect to (i) any amendment to the terms or conditions of the Series A
Preferred Stock set forth in the Certificate of Designations or (ii) any
issuance or proposed issuance by the Corporation of any Capital Stock of the
Corporation that would rank senior to the Series A Preferred Stock upon a
Liquidation.
7. Conversion.
(a) Optional Conversion. Any holder of Series A
Preferred Stock shall have the right, at its option, at any time and from time
to time, to convert, subject to the terms and provisions of this Section 7, any
or all of such holder's shares of Series A Preferred Stock into such number of
fully paid and non-assessable shares of Common Stock as is equal to the product
of the number of shares of Preferred Stock being so converted multiplied by the
quotient of (i) the Liquidation Preference divided by (ii) the conversion price
of $5.00 per share, subject to adjustment as provided in Section 7(f) (such
price, the "Conversion Price"), then in effect. Such conversion shall be
exercised by the surrender of certificate(s) representing the shares of Series A
Preferred Stock to be converted to the Corporation at any time during usual
business hours at its principal place of business to be maintained by it (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of Series A Preferred Stock), accompanied by
written notice that the holder elects to convert such shares of Series A
Preferred Stock and specifying the name or names (with address) in which a
certificate or certificates for shares of Common Stock are to be issued and (if
so required by the Corporation) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation duly executed by the
holder or its duly authorized legal representative and transfer tax stamps or
funds therefor, if required pursuant to Section 7(l). All certificates
representing shares of Series A Preferred Stock surrendered for conversion shall
be delivered to the Corporation for cancellation and canceled by it.
(b) Mandatory Conversion. If at any time after the
date hereof the Current Market Price of the Common Stock is greater than $15.00
per share (as appropriately adjusted to reflect any event described in Section
7(f)(i), (ii) or (iii)) the Corporation shall have the right, at its option, to
cause the mandatory conversion of all (but not less than all) of the issued and
outstanding shares of Series A Preferred Stock into shares of Common Stock in
accordance with Section 7(a) above, on not less
<PAGE>
6
than 10 days' written notice of the date of such mandatory conversion. Not later
than 60 days following a date on which the Current Market Price of the Common
Stock exceeds $15.00 per share (as appropriately adjusted to reflect any event
described in Section 7(f)(i), (ii) or (iii)), written notice of such mandatory
conversion of the shares of Series A Preferred Stock shall be delivered by the
Corporation in person, mailed by certified or registered mail, return receipt
requested, mailed by overnight mail or sent by telecopier to the holders of
record of all of the outstanding shares of Series A Preferred Stock, with such
notice to be addressed to each such holder at its address as shown by the
records of the Corporation. Such mandatory conversion shall be effective upon
the close of business on the date of such mandatory conversion set forth in the
written notice.
(c) No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon the conversion of shares of
Series A Preferred Stock pursuant to Section 7(a) or (b) hereof. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of shares of Series A Preferred Stock, the Corporation shall pay to
the holder of the shares of Series A Preferred Stock that were converted a cash
adjustment in respect of such fractional shares in an amount equal to the same
fraction of the Market Price of the Common Stock on the date of such conversion.
(d) As promptly as practicable after the surrender of
certificate(s) representing any shares of Series A Preferred Stock with respect
to which there has been an optional conversion pursuant to Section 7(a) or a
mandatory conversion pursuant to Section 7(b), the Corporation shall deliver to
the holder of such shares so surrendered certificate(s) representing the number
of fully paid and nonassessable shares of Common Stock into which such shares of
Series A Preferred Stock have been converted in accordance with the provisions
of this Section 7 and a check or cash in respect of any fractional share arising
upon conversion. At the time of the surrender of such certificate(s), the Person
in whose name any certificate(s) for shares of Common Stock shall be issuable
upon such conversion shall be deemed to be the holder of record of such shares
of Common Stock on such date, notwithstanding that the share register of the
Corporation shall then be closed or that the certificates representing such
Common Stock shall not then be actually delivered to such Person. In case any
certificate shall be surrendered for partial conversion pursuant to Section 7(a)
hereof, the Company shall issue and deliver to the holder of the certificate so
surrendered a new certificate or certificates in an aggregate share amount equal
to the unconverted portion of the surrendered certificate.
(e) When shares of Series A Preferred Stock are
converted pursuant to this Section 7, all dividends payable in accordance with
Section 3 above on the shares of Series A Preferred Stock so converted shall be
immediately due and payable in accordance with Section 3 above and shall
accompany the shares of Common Stock issued upon such conversion.
<PAGE>
7
(f) Anti-dilution Adjustments. The Conversion Price,
and the number and type of securities to be received upon conversion of the
Series A Preferred Stock, shall be subject to adjustment as follows:
(i) Dividend, Subdivision, Combination or
Reclassification of Common Stock. In the event that the Corporation shall at any
time or from time to time, prior to any optional or mandatory conversion of the
Series A Preferred Stock, (w) pay a dividend or make a distribution (other than
a dividend or distribution paid or made to holders of shares of Series A
Preferred Stock, or in which holders of such shares participate, in the manner
provided in Section 3) on the outstanding shares of Common Stock payable in
Capital Stock, (x) subdivide the outstanding shares of Common Stock into a
larger number of shares, (y) combine the outstanding shares of Common Stock into
a smaller number of shares or (z) issue any shares of its Capital Stock in a
reclassification of the Common Stock (other than any such event for which an
adjustment is made pursuant to another clause of this Section 7(f)), then, and
in each such case, the Conversion Price in effect immediately prior to such
event shall be adjusted (and any other appropriate actions shall be taken by the
Corporation) so that the holder of any share of Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Corporation that such holder
would have owned or would have been entitled to receive upon or by reason of any
of the events described above, had such share of Series A Preferred Stock been
converted immediately prior to the record date applicable to such event. An
adjustment made pursuant to this Section 7(f)(i) shall become effective
retroactively to the close of business on the day upon which such corporate
action becomes effective.
(ii) Certain Distributions. In case the
Corporation shall at any time or from time to time prior to conversion of the
Series A Preferred Stock, distribute to all holders of shares of Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Corporation is the resulting or surviving Person and
the Common Stock is not changed or exchanged) cash, evidences of indebtedness of
the Corporation or another Person, securities of the Corporation or another
Person or other assets (excluding dividends or distributions (including any
spin-off) paid or made to holders of shares of Series A Preferred Stock, or in
which holders of such shares participate, in the manner provided in Section 3,
dividends declared in the ordinary course of business and payable in cash and
dividends payable in shares of Common Stock for which adjustment is made under
another paragraph of this Section 7(f)) or rights or warrants to subscribe for
or purchase securities of the Corporation (excluding those distributions in
respect of which an adjustment in the Conversion Price is made pursuant to
another paragraph of this Section 7(f)), then, and in each such case, the
Conversion Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) by multiplying the Conversion Price
in effect immediately prior to the date of such distribution by a fraction (x)
the numerator of which shall be the Current Market Price
<PAGE>
8
of the Common Stock immediately prior to the date of distribution less the then
fair market value (as determined in good faith by the Board of Directors) of the
portion of the cash, evidences of indebtedness, securities or other assets so
distributed or of such rights or warrants applicable to one share of Common
Stock and (y) the denominator of which shall be the Current Market Price of the
Common Stock immediately prior to the date of distribution; provided, however,
that no adjustment shall be made with respect to any distribution of rights or
warrants to subscribe for or purchase securities of the Corporation if the
holder of shares of Series A Preferred Stock would otherwise be entitled to
receive such rights or warrants upon conversion at any time of shares of Series
A Preferred Stock into Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iii) Other Changes. In case the
Corporation at any time or from time to time, prior to the conversion of the
Series A Preferred Stock, shall take any action affecting its Common Stock
similar to or having an effect similar to any of the actions described in any of
Sections 7(f)(i) through (ii) or Section 7(i) (but not including any action
described in any such Section) and the Board of Directors in good faith
determines that it would be equitable in the circumstances to adjust the
Conversion Price as a result of such action, then, and in each such case, the
Conversion Price shall be adjusted in such manner and at such time as the Board
of Directors in good faith determines would be equitable in the circumstances
(such determination to be evidenced in a resolution, a certified copy of which
shall be mailed to the holders of the shares of Series A Preferred Stock).
(iv) De Minimis Adjustments.
Notwithstanding anything herein to the contrary, no adjustment in the Conversion
Price shall be required unless such adjustment would require a change of at
least 1% in the Conversion Price, provided, however, that any adjustments which
by reason of this Section 7(f)(iv) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(g) Abandonment. If the Corporation shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to pay or deliver
such dividend or distribution, then no adjustment in the Conversion Price shall
be required by reason of the taking of such record.
(h) Certificate as to Adjustments. Upon any
increase or decrease in the Conversion Price, the Corporation shall within a
reasonable period (not to exceed 20 days) following the consummation of any of
the foregoing transactions deliver to each registered holder of Series A
Preferred Stock a certificate, signed by (i)
<PAGE>
9
the President or a Vice President of the Corporation and (ii) the Chief
Financial Officer of the Corporation, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Price then in
effect following such adjustment.
(i) Reorganization, Reclassification. In the
event of any capital reorganization or reclassification or other change of
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value), each share of
Series A Preferred Stock shall be convertible into the kind and amount of shares
of stock or other securities, property or cash receivable upon such
reorganization or reclassification by a holder of the number of shares of Common
Stock into which such share of Series A Preferred Stock could have been
converted immediately prior to such reorganization or reclassification, and
provision shall be made therefor in the agreement, if any, relating to such
reorganization or reclassification. In the event of any Merger or sale of
substantially all of the assets of the Corporation each share of Series A
Preferred Stock shall, at (but not before) the effective time of such Merger or
sale, be automatically converted into the kind and amount of shares or stock or
other securities, property or cash receivable upon such Merger or sale by a
holder of the number of shares of Common Stock into which such share of Series A
Preferred Stock could have been converted immediately prior to the effective
time of such Merger or sale, and provision shall be made therefor in the
agreement, if any, relating to such Merger or sale.
(j) Notices. In case at any time or from time to
time:
(w) the Corporation shall declare a
dividend (or any other distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the
granting to the holders of its Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any other rights or
warrants;
(y) there shall be any reorganization or
reclassification of the Common Stock; or
(z) there shall occur a Merger or a sale of
all or substantially all of the assets of the Corporation;
then the Corporation shall mail to each holder of shares of Series A Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating the date on
which a record is to be taken for the purpose of such dividend, distribution or
granting of rights or warrants or, if a record is not to be taken, the date as
of which the holders of Common Stock of
<PAGE>
10
record to be entitled to such dividend, distribution or granting of rights or
warrants are to be determined, or the date on which such reorganization,
reclassification, Merger or sale is expected to become effective and the date as
of which it is expected that holders of Common Stock of record shall be entitled
to exchange their Common Stock for shares of stock or other securities or
property or cash deliverable upon such reorganization, reclassification, Merger
or sale.
(k) Reservation of Common Stock. The
Corporation shall at all times reserve and keep available for issuance upon the
conversion of the Series A Preferred Stock, such number of its authorized but
unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding shares of Series A Preferred Stock.
Each June 30th and December 31st, the Corporation shall reserve additional
shares of Common Stock reasonably determined by the Corporation to be required
to cover the conversion of all dividends (which have accrued to such date) into
shares of Common Stock in accordance with Section 3 hereof. The Corporation
shall take all action necessary to increase the authorized number of shares of
Common Stock if at any time there shall be insufficient authorized but unissued
shares of Common Stock to permit such reservation or to permit the conversion of
all outstanding shares (and accrued dividends) of Series A Preferred Stock.
(l) No Conversion Tax or Charge. The issuance
or delivery of certificates for Common Stock upon the conversion of shares of
Series A Preferred Stock shall be made without charge to the converting holder
of shares of Series A Preferred Stock for such certificates or for any
documentary stamp, or similar issue or transfer tax in respect of the issuance
or delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series A Preferred Stock converted; provided, however, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Series A Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
8. Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
9. Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
<PAGE>
11
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security whether or not it is
exchangeable for or convertible into such capital stock).
"Common Stock" shall have the meaning ascribed to it in
Section 2 hereof.
"Conversion Price" shall have the meaning ascribed to it in
Section 7(a) hereof.
"Corporation" shall have the meaning ascribed to it in the
first paragraph of this Certificate of Designation.
"Current Market Price" per share shall mean, as of the date of
determination, the average of the daily Market Price under clause (a), (b) or
(c) of the definition thereof of the Common Stock during the immediately
preceding thirty (30) trading days ending on such date.
"Dividend Payment Date" shall have the meaning ascribed to it
in Section 3 hereof.
"Junior Stock" shall have the meaning ascribed to it in
Section 2 hereof.
"Liquidation" shall mean the voluntary or involuntary
liquidation under applicable bankruptcy or reorganization legislation, or the
dissolution or winding up of the Corporation.
"Liquidation Preference" shall have the meaning ascribed to it
in Section 4(a) hereof.
"Market Price" shall mean, as of the date of determination,
(a) the closing price per share of Common Stock on such date published in The
Wall Street Journal or, if no such closing price on such date is published in
The Wall Street Journal, the average of the closing bid and asked prices on such
date, as officially reported on the principal national securities exchange
(including, without limitation, The Nasdaq Stock Market, Inc.) on which the
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
<PAGE>
12
but is designated as a national market system security by the National
Association of Securities Dealers, Inc., the last trading price of the Common
Stock on such date; or (c) if there shall have been no trading on such date or
if the Common Stock is not so designated, the average of the reported closing
bid and asked prices of the Common Stock on such date as shown by the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotations System and reported by any member firm of the New York Stock Exchange
selected by the Corporation.
"Merger" shall mean (x) the merger or consolidation or other
similar business combination of the corporation into or with one or more Persons
or (y) the merger or consolidation or other similar business combination of one
or more Persons into or with the Corporation, if, in the case of (x) or (y), the
stockholders of the Corporation prior to such merger or consolidation do not
retain at least a majority of the voting power of the surviving Person.
"Optional Redemption Date" shall have the meaning ascribed to
it in Section 5(a) hereof.
"Optional Redemption Price" shall have the meaning ascribed to
it in Section 5(a) hereof.
"Parity Stock" shall have the meaning ascribed to it in
Section 4(a) hereof.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Series A Preferred Stock" shall have the meaning ascribed to
it in Section 1 hereof.
IN WITNESS WHEREOF, the undersigned has executed and
subscribed this certificate this 8th day of February, 1999.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ David Chemerow
--------------------------
David Chemerow,
President
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated February 8, 1999 (the "Agreement"),
among GT Interactive Software Corp., a Delaware corporation (the "Company"),
General Atlantic Partners 54, L.P., a Delaware limited partnership ("GAP LP"),
and GAP Coinvestment Partners II, L.P., a Delaware limited partnership ("GAP
Coinvestment" and, together with GAP LP, the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell to (a) GAP LP at a purchase price per share
of $50.00, for an aggregate purchase price of $24,487,200, an aggregate of
489,744 shares of Series A Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Stock") and (b) GAP Coinvestment at a
purchase price per share of $50.00, for an aggregate purchase price of
$5,512,800, an aggregate of 110,256 shares of Preferred Stock; and
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into ten shares of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Audited Financial Statements" has the meaning set forth in Section 3.8
hereof.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Closing
Date, as the same may be amended from time to time.
<PAGE>
2
"Certificate of Designations" means the Certificate of Designations
with respect to the Preferred Stock adopted by the Board of Directors and filed
with the Secretary of State of the State of Delaware on or before the Closing
Date substantially in the form attached hereto as Exhibit A.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as the same may be amended from time to time.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
"Closing Date" has the meaning set forth in Section 2.3 of this
Agreement.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning set forth in the recitals to this
Agreement.
"Company" has the meaning set forth in the recitals to this Agreement.
"Condition of the Company" means the assets, business, properties,
prospects, operations or financial condition of the Company and its
Subsidiaries, taken as a whole.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Financial Statements" has the meaning set forth in Section 3.8 of this
Agreement.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States.
"GAP Coinvestment" has the meaning set forth in the recitals to this
Agreement.
<PAGE>
3
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning set forth in the recitals to this Agreement.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a capital lease obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the recitals to this
Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
Agreement.
"Purchasers" has the meaning set forth in the recitals to this
Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
substantially in the form attached hereto as Exhibit B.
"Requirements of Law" means, as to any Person, any law, statute,
treaty, rule, regulation, right, privilege, qualification, license or franchise
or determination of an arbitrator or a court or other Governmental Authority or
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
<PAGE>
4
"SEC Documents" means all registration statements, proxy statements,
reports and other documents required to be filed by the Company under the
Securities Act or the Exchange Act and all amendments or supplements thereto
filed by the Company with the Commission since December 31, 1997.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Stock Equivalents" means any security or obligation which is by its
terms convertible into or exchangeable for shares of common stock or other
capital stock or securities of the Company, and any option, warrant or other
subscription or purchase right with respect to common stock or such other
capital stock or securities.
"Subsidiary" means, as of the relevant date of determination, with
respect to any Person, a corporation or other Person of which 50% or more of the
voting power of the outstanding voting equity securities is held, directly or
indirectly, by such Person. Unless otherwise qualified, or the context otherwise
requires, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"Transaction Documents" means collectively, this Agreement, the
Certificate of Designations and the Registration Rights Agreement.
"Unaudited Financial Statements" has the meaning set forth in Section
3.8 hereof.
ARTICLE 2
PURCHASE AND SALE OF
PREFERRED STOCK
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the aggregate number of shares of Preferred Stock
set forth opposite such Purchaser's name on Schedule 2.1 hereto, for the
aggregate purchase price set forth opposite such Purchaser's name on Schedule
2.1 hereto (all of the shares of Preferred Stock being purchased by the
Purchasers listed on Schedule 2.1 being referred to herein as the "Purchased
Shares").
2.2 Certificate of Designations. The Purchased Shares shall have the
preferences and rights set forth in the Certificate of Designations.
<PAGE>
5
2.3 Closing. Subject to the satisfaction or waiver of the conditions
set forth in Articles 5 and 6 below, the closing of the sale and purchase of the
Purchased Shares (the "Closing") shall take place at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, at 10:00 a.m., local time, on the first Business
Day, which shall not be earlier than 8 days after February 9, 1999, on which the
conditions set forth in Articles 5 and 6 below are satisfied or waived, or at
such other time, place and date that the Company and the Purchasers may agree in
writing (the "Closing Date"). On the Closing Date, the Company shall deliver to
each Purchaser a stock certificate representing the Purchased Shares being
purchased by such Purchaser, against delivery by such Purchaser to the Company
of the aggregate purchase price therefor by wire transfer of immediately
available funds.
2.4 Fairness Opinion. The Company has received a fairness opinion from
Bear Stearns & Co. with respect to the transactions contemplated by this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. Each of the Company and its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite power and authority to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently, or is proposed to be, engaged, as described in the SEC Documents; (c)
is duly qualified as a foreign corporation, licensed and in good standing under
the laws of each jurisdiction in which its ownership, lease or operation of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a material adverse effect on
the Condition of the Company; and (d) has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the other Transaction Documents to which it is a party.
3.2 Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary corporate action of the Company; (b) do not
contravene the terms of the Certificate of Incorporation or the By-laws, or any
certificate of incorporation or by-laws or other organizational documents of any
of its Subsidiaries; (c) do not violate, conflict with or result in any breach
or contravention of, or the
<PAGE>
6
creation of any Lien under, any Contractual Obligation of the Company or any of
its Subsidiaries, or any Requirement of Law applicable to the Company or any of
its Subsidiaries; and (d) do not violate any judgment, injunction, writ, award,
decree or order of any nature (collectively, "Orders") of any Governmental
Authority against, or binding upon, the Company or any of its Subsidiaries;
except in the case of clauses (c) and (d) for violations, conflicts, breaches,
contraventions or Liens which would not have a material adverse effect on the
Condition of the Company or the ability of the Company to perform its
obligations under this Agreement and each of the other Transaction Documents.
3.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Purchased Shares) by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby, except where the
failure to obtain an approval, consent, compliance, exemption, authorization or
other action or to make any filing would not have a material adverse effect on
the Condition of the Company or the ability of the Company to perform its
obligations under this Agreement or any of the other Transaction Documents.
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth in any SEC Documents or on Schedule
3.5, there are no actions, suits, proceedings, claims, complaints, disputes,
arbitrations or investigations (collectively, "Claims") pending or, to the
knowledge of the Company, threatened, at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its
Subsidiaries, which, if adversely determined, would have a material adverse
effect on the Condition of the Company. No Order has been issued by any court or
other Governmental Authority against the Company or any of its Subsidiaries
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any of the other Transaction Documents.
<PAGE>
7
3.6 Capitalization. On the Closing Date, after giving effect to the
transactions contemplated by this Agreement, the authorized capital stock of the
Company shall consist of (i) 150,000,000 shares of Common Stock, of which
72,775,868 shares are issued and outstanding as of the close of business on
February 5, 1999, and (ii) 5,000,000 shares of preferred stock, par value $.01
per share, of which 600,000 shares have been designated as Preferred Stock, all
of which are outstanding and issued to the Purchasers. The Company has reserved
an aggregate of 6,000,000 shares of Common Stock for issuance upon conversion of
the Purchased Shares. Except for the options and other stock purchase rights
authorized for issuance pursuant to the Company's two stock option plans which
began in 1995 and in 1997, respectively (as described in the SEC Documents), and
except for the issued and outstanding warrants to purchase an aggregate of
1,231,625 Common Shares, there are no options, warrants, conversion privileges,
subscription or purchase rights or other rights currently outstanding to
purchase or otherwise acquire (i) any authorized but unissued, unauthorized or
treasury shares of the Company's capital stock, (ii) any Stock Equivalents or
(iii) other securities of the Company. The Purchased Shares and the shares of
Common Stock issuable upon conversion of the Purchased Shares in accordance with
the Certificate of Designations are duly authorized, and when issued to the
Purchasers against payment therefor, will be validly issued, fully paid and
non-assessable, and will be issued pursuant to an exemption from, or in
compliance with the registration and qualification requirements of all
applicable federal and state securities laws. The issued and outstanding shares
of Common Stock are all duly authorized, validly issued, fully paid and
non-assessable.
3.7 Contractual Obligations. Neither the Company nor any of its
Subsidiaries has received notice of, or is in default under, or with respect to,
any Contractual Obligation which could have a material adverse effect on the
Condition of the Company or the ability of the Company to perform its
obligations under this Agreement and each of the other Transaction Documents.
Except as set forth on Schedule 3.7, all of the Contractual Obligations of the
Company or any of its Subsidiaries that are currently in effect and required to
be described in the SEC Documents or to be filed as exhibits thereto are valid,
subsisting, in full force and effect and binding upon the Company or the
applicable Subsidiary, as the case may be, and, to the knowledge of the Company,
the other parties thereto, in accordance with their terms.
3.8 Financial Statements. The audited consolidated financial statements
of the Company and its Subsidiaries (balance sheet and statements of operations,
cash flow and stockholders' equity, together with the notes thereto) for the
fiscal year ended December 31, 1997 (as such financial statements appear in (i)
the Company's Form 10-K for the fiscal year ended December 31, 1997, which was
filed with the Commission on March 31, 1998, as amended by the Company's on Form
10- K/A, which was filed with the Commission on April 30, 1998, and (ii) the
Company's
<PAGE>
8
Transitional Report on Form 10-K, which was filed with the Commission on June
29, 1998, the "Audited Financial Statements"), and the unaudited consolidated
financial statements (balance sheet and statements of operations) of the Company
and its Subsidiaries (balance sheet and statement of operations) for the nine
months ended and as at September 30, 1998 (as such financial statements appear
in the Company's Form 10-Q for the fiscal quarter ended September 30, 1998,
which was filed with the Commission on November 16, 1998, the "Unaudited
Financial Statements" and, together with the Audited Financial Statements, the
"Financial Statements") have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated and with each other, except as
may be indicated therein or in the notes thereto (and except that the Unaudited
Financial Statements does not contain full footnotes or typical year-end
adjustments). The Financial Statements fairly present the consolidated financial
condition, operating results and cash flows of the Company as of the respective
dates and for the respective periods indicated in accordance with GAAP, subject,
in the case of the Unaudited Financial Statements, to normal year-end
adjustments.
3.9 SEC Documents.
(a) The Company has (i) filed all SEC Documents required to be filed by
it since December 31, 1997 under the Securities Act or the Exchange Act, and all
amendments thereto and (ii) made available to the Purchasers true and complete
copies of (A) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as filed with the Commission on March 31, 1998, as amended by
the Company's on Form 10-K/A, which was filed with the Commission on April 30,
1998, (B) the Company's Transitional Report on Form 10-K, which was filed with
the Commission on June 29, 1998, (C) the Company's Quarterly Reports on Form
10-Q for each of the quarters ended March 31, 1998, June 30, 1998 and September
30, 1998, each as filed with the Commission, (D) its Current Reports on Form 8-K
filed with the Commission since December 31, 1997, as amended, (E) its proxy or
information sheets relating to meetings of, or actions without a meeting by, the
stockholders of the Company held since December 31, 1997 and (F) all other SEC
Documents.
(b) As of its filing date, each SEC Document (including all exhibits
and schedules thereto and documents incorporated by reference therein), in each
case as amended, (i) complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and (ii) did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
<PAGE>
9
3.10 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares. No registration of the Purchased
Shares, pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, will be required by the offer, sale or issuance of the
Purchased Shares. The Company agrees that neither it, nor anyone acting on its
behalf, shall offer to sell the Purchased Shares, or any other securities of the
Company so as to require the registration of the Purchased Shares, pursuant to
the provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Purchased Shares, or other securities are so registered.
3.11 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
or any of its Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any of its Subsidiaries or any action taken by any such Person.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Such Purchaser (a) is a partnership duly
organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite partnership power and authority to execute,
deliver and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby (a) have been duly authorized by all necessary partnership
action, (b) do not contravene the terms of such Purchaser's organizational
documents, or any amendment thereof, and (c) do not violate, conflict with or
result in any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of such Purchaser, or any Requirement of Law or Orders
applicable to such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a
<PAGE>
10
waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares) by, or enforcement against,
such Purchaser of this Agreement and each of the other Transaction Documents to
which such Purchaser is a party or the transactions contemplated hereby and
thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents to which such Purchaser is a party have been duly executed and
delivered by such Purchaser and constitute the legal, valid and binding
obligations of such Purchaser, enforceable against it in accordance with their
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforce ment of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Purchased Shares to be acquired by
such Purchaser pursuant to this Agreement are being or will be acquired for its
own account and with no intention of distributing or reselling such Purchased
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Purchaser at all times to sell or
otherwise dispose of all or any part of such Purchased Shares under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of such Purchaser's property being at all times within its
control. If such Purchaser should in the future decide to dispose of any of such
Purchased Shares, such Purchaser understands and agrees that it may do so only
in compliance with the Securities Act and applicable state securities laws, as
then in effect. Such Purchaser agrees to the imprinting, so long as required by
law, of legends on certificates representing all of its Purchased Shares and
shares of Common Stock issuable upon conversion of its Purchased Shares to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY
NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGIS TRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE ENTITLED TO
THE BENEFITS OF A REGISTRATION RIGHTS
<PAGE>
11
AGREEMENT AMONG GT INTERACTIVE SOFTWARE CORP. AND THE
ORIGINAL PURCHASERS OF THE PREFERRED STOCK REPRESENTED
HEREBY. TRANSFEREES OF SUCH SECURITIES SHOULD REVIEW SUCH
AGREEMENT TO DETERMINE THEIR RIGHTS.
4.6 Restricted Securities. Such Purchaser understands that the
Purchased Shares will not be registered at the time of their issuance under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4(2) of the Securities Act and that the reliance of
the Company on such exemption is predicated in part on such Purchaser's
representations set forth herein.
4.7 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Purchasers, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchasers or any action taken
by the Purchasers.
4.8 Accredited Investors. Such Purchaser is an accredited investor
within the meaning of Rule 501(a) under the Securities Act.
4.9 Transfer. On the date hereof, such Purchaser has no present
intention to transfer such Purchaser's Purchased Shares to any Person that is
not an affiliate of such Purchaser.
ARTICLE 5
CONDITIONS TO THE OBLIGATION OF
THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Purchased Shares, to
pay the purchase price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
the Purchasers of the following conditions on or before the Closing Date.
5.1 Secretary's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying that the attached copies of the Certificate
of Incorporation, the By-laws, the Certificate of Designations and resolutions
of the Board of Directors approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect.
<PAGE>
12
5.2 Filing of Certificate of Designations. The Certificate of
Designations shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.3 Registration Rights Agreement. The Company shall have duly executed
and delivered the Registration Rights Agreement, substantially in the form as
attached hereto as Exhibit B.
5.4 Opinion of Counsel. The Purchasers shall have received an opinion
of Kramer Levin Naftalis & Frankel, counsel to the Company and the Subsidiary,
dated the Closing Date, relating to the transactions contemplated by or referred
to herein, reasonably satisfactory to the Purchasers.
5.5 Purchased Shares. The Company shall be prepared to deliver to the
Purchasers certificates in definitive form representing the number of Purchased
Shares set forth opposite such Purchaser's name on Schedule 2.1 hereto,
registered in the name of such Purchaser, as applicable.
5.6 Chief Executive Officer. The Company shall have entered into an
employment contract with Thomas Heymann appointing him Chief Executive Officer
of the Company pursuant to an executed employment agreement between the Company
and Heymann and the Company shall have publicly announced such employment
contract.
5.7 Representations and Warranties. All of the representations and
warranties of the Company contained in Article 3 hereof shall be true and
correct on the Closing Date, as if made by the Company on such date.
5.8 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the reasonable judgment of the Company, prohibit or restrict the
sale of the Purchased Shares or the consummation of the transactions
contemplated by this Agreement.
<PAGE>
13
ARTICLE 6
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligation of the Company to issue and sell the Purchased Shares
and the obligation of the Company to perform its other obligations hereunder,
shall be subject to the satisfaction as determined by, or waiver by, the Company
of the following conditions on or before the Closing Date:
6.1 Registration Rights Agreement. The Purchasers shall have duly
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B.
6.2 Payment of Purchase Price. Each Purchaser shall be prepared to pay
the aggregate purchase price for the Purchased Shares to be purchased by such
Purchaser.
6.3 Chief Executive Officer. The Company shall have entered into an
employment contract with Thomas Heymann appointing him Chief Executive Officer
of the Company pursuant to an executed employment agreement between the Company
and Heymann.
6.4 No Material Judgment or Order. There shall not be on the Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the reasonable judgment of the Purchasers, prohibit or restrict
the purchase of the Purchased Shares or the consummation of the transactions
contemplated by this Agreement.
ARTICLE 7
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchasers as follows:
7.1 Financial Statements and Other Information. The Company shall
deliver to each Purchaser at any time when the Company is not subject to Section
13 or 15(d) of the Exchange Act, upon request of such Purchaser, information of
the type that would satisfy the requirements of Rule 144(c)(2) and Rule
144A(d)(4)(i) (or any similar successor-provisions thereof) under the Securities
Act.
<PAGE>
14
7.2 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issue or delivery upon conversion of the Purchased Shares as provided
in the Certificate of Incorporation, the maximum number of shares of Common
Stock that may be issuable or deliverable upon such conversion. The Company
shall issue such shares of Common Stock in accordance with the terms of the
Certificate of Incorporation and otherwise comply with the terms hereof and
thereof.
7.3 Registration and Listing. If any shares of Common Stock required to
be reserved for purposes of conversion of the Purchased Shares as provided in
the Certificate of Designations require registration with or approval of any
Governmental Authority under any Federal or state or other applicable law before
such shares of Common Stock may be issued or delivered upon conversion, the
Company will in good faith and as expeditiously as possible cause such shares of
Common Stock to be duly registered or approved, as the case may be. The
Purchasers will cooperate with the Company, as necessary, in preparing any
documents or making any filings in connection with such registration or
approval. So long as the Common Stock is quoted on The Nasdaq Stock Market, Inc.
or listed on any national securities exchange, the Company will, if permitted by
the rules of such system or exchange, quote or list and keep quoted or listed on
such system or exchange, upon official notice of issuance, all shares of Common
Stock issuable or deliverable upon conversion or exchange of the Purchased
Shares.
ARTICLE 8
TERMINATION OF AGREEMENT
8.1 Termination. This Agreement may be terminated prior to the Closing
as follows:
(a) at any time on or prior to the Closing Date, by mutual written
consent of the Company and the Purchasers;
(b) at the election of the Company or the Purchasers by written notice
to the other parties hereto after 5:00 p.m., New York time, on March 1, 1999, if
the Closing shall not have occurred, unless such date is extended by the mutual
written consent of the Company and the Purchasers; provided, however, that the
right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose breach of any representation, warranty, covenant or
agreement under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date;
<PAGE>
15
(c) at the election of the Company, if there has been a material breach
of any representation, warranty, covenant or agreement on the part of any
Purchaser contained in this Agreement, which breach has not been cured within
five (5) Business Days of notice to the Purchasers of such breach; or
(d) at the election of the Purchasers, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of the
Company contained in this Agreement, which breach has not been cured within five
(5) Business Days notice to the Company of such breach.
If this Agreement so terminates, it shall become null and void and have
no further force or effect, except as provided in Section 8.2.
8.2 Survival. If this Agreement is terminated and the transactions
contemplated hereby are not consummated as described above, this Agreement shall
become void and of no further force and effect; except for the provisions of
this Section 8.2; provided, that (a) none of the parties hereto shall have any
liability in respect of a termination of this Agreement pursuant to Section
8.1(a) or Section 8.1(b) and (b) nothing shall relieve any party from any
liability for actual damages resulting from a termination of this Agreement
pursuant to Section 8.1(c) or 8.1(d); and provided, further, that none of the
parties hereto shall have any liability for speculative, indirect, unforeseeable
or consequential damages resulting from any legal action relating to this
Agreement or any termination of this Agreement.
ARTICLE 9
MISCELLANEOUS
9.1 Survival of Representations and Warranties. The representations and
warranties made in Sections 3.1, 3.2, 3.3, 3.4, 3.6 and 3.10 shall survive until
2 years from the Closing Date. All other representations and warranties made
herein shall survive until 30 days after receipt by the Purchasers of the
audited financial statements for the Company's fiscal year ending March 31,
1999.
9.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
<PAGE>
16
(a) if to the Company, to:
GT Interactive Software Corp.
16 East 40th Street
New York, NY 10016
Telecopy: (212) 679-6850
Attention: Chief Executive Officer
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
47th Floor
New York, New York 10022
Telecopy: (212) 715-8000
Attention: David P. Levin, Esq.
(b) if to the Purchasers, to:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
9.3 Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws,
each of the Purchasers may assign any of its rights under any of the Transaction
Documents to
<PAGE>
17
any of its affiliates. The Company may not assign any of its rights under this
Agreement without the written consent of the Purchasers. No Person other than
the parties hereto and their successors and permitted assigns is intended to be
a beneficiary of this Agreement.
9.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the Purchasers in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by the Company and the Purchasers. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
9.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
<PAGE>
18
9.9 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
9.10 Fees. Upon the Closing, the Company shall reimburse the Purchasers
for their fees, disbursements and other charges of counsel incurred in
connection with the transactions contemplated by this Agreement.
9.11 Publicity. Except as may be required by applicable Requirement of
Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto (which approval shall not be unreasonably withheld); provided, however,
that nothing in this Agreement shall restrict any Purchaser from disclosing
information (a) that is already publicly available; (b) to the prospective
transferee in connection with any contemplated transfer of any of the Purchased
Shares; and (c) to its attorneys, accountants, consultants and other advisors to
the extent necessary to obtain their services in connection with such
Purchaser's investment in the Company. GAP LLC may disclose on its worldwide web
page, www.gapartners.com, the name of the Company, its address, the identity of
the Chief Executive Officer, a description of the Company's business and the
aggregate dollar amount invested by the Purchasers in the Company; provided,
that GAP LLC shall not disclose any information pertaining to the transactions
contemplated under this Agreement or the Transaction Documents at any time prior
to the publication of a press release by the Company. If any announcement is
required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
9.12 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person, and otherwise fulfilling, or causing the fulfillment of, the
conditions to Closing set forth in Articles 5 and 6) as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement and to consummate and make effective as promptly as possible the
transactions contemplated by this Agreement.
<PAGE>
19
IN WITNESS WHEREOF, the parties hereto have caused this Stock
Purchase Agreement to be executed and delivered by their respective officers
hereunto duly authorized on the date first above written.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ Joseph J. Cayre
-----------------------
Name: Joseph J. Cayre
Title: Chairman Emeritus
GENERAL ATLANTIC PARTNERS 54, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ William E. Ford
------------------------
Name: William E. Ford
Title: Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ William E. Ford
------------------------
Name: William E. Ford
Title: General Partner
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the "Agreement"),
made in New York, New York as of the 8th day of February, 1999, between GT
Interactive Software Corp., a Delaware corporation having its executive offices
and principal place of business in New York, New York (the "Company"), and
Thomas Heymann, the undersigned individual ("Executive").
IN CONSIDERATION of the mutual covenants and agreements hereinafter set
forth, the Company and Executive agree as follows:
1. Agreement Term.
The term of this Agreement shall be the four-year period
commencing on February 8, 1999 (the date on which Executive will commence his
employment, subject to Section 2(c) hereof, at the Company's offices in New
York, New York, referred to as the "Commencement Date") and ending on February
8, 2003 (as extended from time to time pursuant to Section 8(n) hereof, the
"Agreement Term").
2. Employment.
(a) Employment by the Company. Executive agrees to be employed by
the Company for the Agreement Term upon the terms and subject to the conditions
set forth in this Agreement. Executive shall serve as the Chief Executive
Officer of the Company. Executive shall at all times be the Company's most
senior executive officer, and shall have all of the authority commensurate with
the offices he holds.
(b) Performance of Duties. Throughout the Agreement Term,
Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Board of Directors of the Company,
commensurate with Executive's titles, and serve the Company to the best of
Executive's ability. Executive shall devote Executive's entire working time,
attention and energies to the business and affairs of the Company, subject to
four weeks' vacation per year, sick leave in accordance with Company policy and
except as otherwise set forth in Section 4(a) hereof. Executive shall have the
titles of Chairman of the Board and Chief Executive Officer, and shall report to
the Board of Directors of the Company, and at each annual or special meeting of
stockholders at which directors are elected (to the extent the class of
directors in which Executive serves is to be elected) during the Agreement Term
shall be nominated by the Board to serve as a director of the Company. Executive
shall initially be appointed to serve as a Class III director of the Company
beginning
<PAGE>
as of the Commencement Date. Executive shall perform the duties and shall have
the responsibilities set forth on Exhibit A hereto.
(c) Place of Performance. Subject to Section 8(o) hereof, during
the Agreement Term, Executive shall be based within thirty miles of Los Angeles
County, California and, in this regard, Executive shall maintain Executive's
personal residence within such area or such other location within reasonable
access to Executive's office. Notwithstanding the foregoing, Executive will make
such arrangements for reasonable travel to the Company's existing offices in New
York, New York as reasonably requested by the Board of Directors, with due
regard for Executive's need and desire to spend considerable time with his
family in Los Angeles, until such time as the Company's executive offices are
re-located as set forth in Section 8(o) hereof, provided that the Company shall
bear the costs of Executive's travel to and living costs (housing and meals) in
New York City during such period.
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive for
employment hereunder a base salary ("Base Salary") at the annual rate of
$612,000 for the entire Agreement Term, payable in installments consistent with
the Company's payroll practices. Such Base Salary shall be increased annually by
not less than five (5) percent, and may be increased further at the sole
discretion of the Board of Directors.
(b) Benefits and Perquisites.
(i) Benefits Generally. Executive shall be entitled to
participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to senior level executive officers of the
Company. Except as otherwise provided in this Agreement, Executive may receive
bonuses and be entitled to receive stock options at the sole discretion of the
Board of Directors, provided that (A) Executive shall participate in the
Company's senior executive bonus plan with a target bonus of 60% of Base Salary,
and (B) for the Company's fiscal year ending March 31, 2000, Executive shall
receive a minimum guaranteed bonus of no less than $150,000. The company shall
provide, at no cost to Executive, health insurance coverage for Executive and
his wife and children.
(c) Travel and Business Expenses. Upon submission of itemized
expense statements in the manner specified by the Company, Executive shall be
entitled to reimbursement for reasonable travel and other reasonable business
expenses duly incurred by Executive in the performance of Executive's duties
under this Agreement in accordance with the policies and procedures established
by the Company from time to time for its senior executives.
<PAGE>
(d) Options. The Board of Directors or the stock option
subcommittee of the Compensation Committee of the Board of Directors has
approved, and the Company will grant to Executive on the Commencement Date the
stock options at the prices and on the other terms set forth on Exhibit B
hereto.
(e) Commencement Bonus. On or within one day of the Commencement
Date, the Company shall pay to Executive a one-time cash payment of $250,000.
(f) Life Insurance. Assuming the Executive is insurable at
customary rates, the Company shall pay for and maintain during the Agreement
Term a term life insurance policy on Executive's life, payable to his estate or
other beneficiary directed by Executive, in the face amount of $2,000,000, and
shall reimburse Executive for all taxes payable by him, if any, as a result of
such premium payment, net of any taxes payable by him as a result of such
reimbursement. In the event that Executive is not insurable at customary rates,
Executive shall have the option to require the Company to pay the customary rate
for such insurance (and provide reimbursement for taxes as set forth above) in
the event that Executive obtains such policy and pays the additional premium. At
the end of the Agreement Term, Executive shall have the option to obtain
ownership of (either directly or through a trust or other estate planning
vehicle) any such life insurance policy provided that the Company shall
thereafter have no obligation to pay the premiums therefor.
(g) No Other Compensation or Benefits; Payment. The compensation
and benefits specified in Sections 3 and 5 of this Agreement shall be in lieu of
any and all other compensation and benefits. Payment of all compensation and
benefits to Executive hereunder shall be made in accordance with the relevant
Company policies in effect from time to time, including normal payroll
practices, and shall be subject to all applicable employment and withholding
taxes.
(h) Cessation of Employment. In the event Executive shall cease
to be employed by the Company for any reason, then Executive's compensation and
benefits shall cease on the date of such event, except as otherwise provided
herein or in any applicable employee benefit plan or program.
(i) Company Rules, Regulations and Policies. Executive agrees to
observe all reasonable rules, regulations and policies adopted by the Company in
connection with the operation of its business, including but not limited to the
standards and policies set forth in the Company's policy manual. In particular,
Executive acknowledges and agrees to abide by the Company's policy that
prohibits executive officers who may be deemed affiliates under SEC policy
interpretations, from selling any shares of the Company's Common Stock at a time
when such officer is advised by the Chief Financial Officer (based upon advice
from the Company's independent certified public accountants) that such sale
could adversely affect pooling of interests accounting treatment of any
acquisition or other business combination engaged in or to be engaged in by the
Company. If requested, Executive will execute
<PAGE>
an "affiliate" agreement confirming such agreement in connection with any such
acquisition or business combination.
4. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of
Executive's employment with the Company, Executive shall not: (i) wilfully
engage in any activity which conflicts or interferes with or materially and
unreasonably derogates from the performance of Executive's duties hereunder nor
shall Executive engage in any other business activity, whether or not such
business activity is pursued for gain or profit, except as approved in advance
in writing by the Board of Directors of the Company; provided, that Executive
shall be entitled to manage his personal investments and otherwise attend to
personal affairs, including charitable activities and directorships in
noncompetitive activities, in a manner that does not unreasonably interfere with
his responsibilities hereunder, or (ii) accept any other full-time or
substantially full-time employment, whether as an executive or consultant or in
any other capacity, and whether or not compensated therefor.
(b) No Competition. Without limiting the generality of the
provisions of Sections 2(b) or 4(a) hereof, during the Agreement Term, Executive
shall not, directly or indirectly, own, manage, operate, join, control,
participate in, invest in or otherwise be connected or associated with, in any
manner, including as an officer, director, employee, partner, consultant,
advisor, agent, proprietor, trustee or investor, any Competing Business;
provided, however, that if Executive's employment hereunder is terminated by the
Company under Sections 5(c) or 5(d) hereof or Executive voluntarily resigns for
Good Reason as provided in Section 5(d), then the provisions of this Section
4(b) shall terminate at the time of such event. For purposes of this Section
4(b), the term "Competing Business" shall mean (A) any business or venture which
develops, manufactures, publishes, licenses, sells, distributes or supplies
entertainment, educational or "edutainment" computer software or video games for
commercial use, whether for retail distribution, by direct marketing,
electronically, by license to others or otherwise; (B) any Internet-related
business which is substantially similar to the whole or any significant part of
the business conducted by the Company's One Zero Media subsidiary; or (C) any
other business which is substantially similar to the whole or any significant
part of the business conducted by the Company (any such activities described in
the foregoing clauses (A), (B) or (C) shall for purposes of this section be
hereinafter referred to as "Prohibited Activities"); provided that ownership of
2% or less of the stock or other securities of a corporation, the stock of which
is listed on a national securities exchange or is quoted on The NASDAQ Stock
Market, shall not constitute a breach of this Section 4, so long as Executive
does not in fact have the power to control, or direct the management of, or is
not otherwise associated with, such corporation. Notwithstanding anything to the
contrary contained herein, Executive may be employed by a business or venture
which engages in Prohibited Activities only so long as (x) Executive does not
engage directly or indirectly in any Prohibited Activities, (y) such business or
venture derives only immaterial revenues and profits from Prohibited Activities
in relation to its overall business and (z) Executive's ownership of such
business or venture is less than 2% of the stock or other securities thereof and
Executive does not have the power to control or direct the management thereof.
<PAGE>
(c) No Solicitation of Employment. During the Agreement Term and
for a period of two years thereafter, Executive shall not solicit or encourage
any other employee to leave the Company for any reason.
(d) Company Customers. Executive shall not, during the period
which is coincident with the Executive's obligation not to compete under Section
4(b) hereof, directly or indirectly, contact, solicit or do business with (i)
Wal-mart Corporation, Target Stores, Caldor, Phar-mor, Comp U.S.A., Best Buy,
Office Depot, Kmart or any of their respective affiliated operations, for the
purpose of selling entertainment, educational or "edutainment" computer
software, video games or any other product (which is an integral product in a
material product line of the Company) then sold by the Company to such customers
at the time of termination of Executive's employment hereunder; (ii) any
"customers" (as defined below) of the Company for the purpose of selling
computer software, video games or any other product then sold by the Company to
such customers at the time of termination of Executive's employment hereunder;
or (iii) any supplier, licensor or licensee of the Company with respect to
licensing computer software, video games or other intellectual property (which
is related to computer software, video games or any other material product line
of the Company), from such person.
For the purposes of the provisions of this Section 4(d), "customer" shall
include any entity that purchased computer software, video games or any other
product from the Company within eight months of the termination of Executive's
employment hereunder, without regard to the reason for such termination. The
term "customer" also includes any former customer or potential customer of the
Company which the Company has solicited within eight months of such termination,
for the purpose of selling computer software or any other product then sold by
the Company.
5. Termination of Employment.
(a) Termination. The Company may terminate Executive's employment
for Cause (as defined below), in which case the provisions of Section 5(b) shall
apply. The Company may also terminate Executive's employment in the event of
Executive's Disability (as defined below), in which case the provisions of
Section 5(c) shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 5(d) shall apply. If Executive's employment is
terminated by reason of Executive's death, retirement or voluntary resignation,
the provisions of Section 5(b) shall apply.
(b) Termination for Cause; Termination by Reason of Death or
Retirement or Voluntary Resignation. In the event that Executive's employment
hereunder is terminated during the Agreement Term (x) by the Company for Cause
(as defined below), (y) by reason of Executive's death or retirement or (z) by
reason of Executive's voluntary resignation (other than voluntary resignation
with Good Reason (as hereinafter defined) or following a Change of Control as
permitted by Section 5(d)(iii)), then the Company shall pay to Executive, within
fifteen (15) days of the
<PAGE>
date of such termination, only the Base Salary and any bonus previously approved
by the Board of Directors and provide benefits to Executive through such date of
termination. For purposes of this Agreement, "Cause" shall mean (i) conviction
of any crime (whether or not involving the Company) constituting a felony in the
jurisdiction involved; (ii) engaging in any substantiated act involving moral
turpitude adversely affecting the Company's business and not involving a de
minimis amount of money; (iii) willful and continued gross neglect or willful
misconduct in the performance of Executive's material duties hereunder; and (iv)
willful and repeated failure or refusal to perform such duties as may be
delegated to Executive by the Board of Directors in writing commensurate with
Executive's position as Chief Executive Officer of the Company and consistent
with the responsibilities of a Chief Executive Officer; provided, however, that
(a) with respect to clauses (iii) and (iv), Executive shall have received
written notice from the Company setting forth the alleged act or failure to act
constituting "Cause" hereunder, and Executive shall not have cured such act or
refusal to act (other than fraud or embezzlement, which may not be cured) within
15 business days of his actual receipt of such notice; and (b) for purposes of
this Section, no act or failure to act by Executive shall be considered
"willful" unless done, or omitted to be done, by Executive in bad faith and
without a reasonable belief that his actions or omission were in the best
interest of the Company. For purposes hereof, the term "Good Reason" shall mean
(i) the modification of the duties and responsibilities, or the assignment or
delegation to Executive of duties or responsibilities inconsistent with, or of
less responsibility, importance or scope than, those of a Chairman of the Board
and Chief Executive Officer, or the assignment to Executive of a position or
title other than, Chairman of the Board and Chief Executive Officer, or (ii) any
requirement that the Executive report to any person other than the Board of
Directors of the Company, or (iii) any requirement that Executive perform
services in an office of the Company located more than 30 miles from Los Angeles
County, California (except for reasonably required travel to New York during the
transition period prior to relocation referred to in Section 2(c) hereof), or
(iv) the failure of the Company to relocate its executive headquarters to, or
the subsequent removal of such headquarters from, within thirty miles of Los
Angeles County, California, in each case as provided in Section 8(o) hereof, or
(v) the failure by the Company to pay compensation or provide benefits or
perquisites to Executive as and when required by the terms of this Agreement, or
the failure of Executive to be elected and remain a director of the Company.
(c) Disability. If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) two hundred ten (210) days
within any three hundred sixty-five (365) day period, or (ii) one hundred eighty
(180) consecutive days, and within thirty (30) days after written notice of
termination is given shall not have returned to the performance of Executive's
duties hereunder on a full time basis, the Company may terminate Executive's
employment hereunder for "Disability". In that event, the Company shall pay to
Executive, within fifteen (15) days of the date of such termination, only the
Base Salary and an appropriately pro-rated bonus and provide benefits to
Executive through such date of termination. During any period that Executive
fails to perform Executive's duties hereunder as a result of incapacity due to
physical or mental illness (a "Disability Period"), Executive shall continue to
receive
<PAGE>
the compensation and benefits provided by Section 3 hereof until Executive's
employment hereunder is terminated; provided, however, that the amount of
compensation and benefits received by Executive during the Disability Period
shall be reduced by the aggregate amounts, if any, payable to Executive under
disability benefit plans and programs of the Company or under the Social
Security disability insurance program covering the same period of time.
Following such termination, for one year the Company shall provide continued
medical coverage and other insurance benefits as previously provided to
Executive, as well as COBRA benefits and other insurance benefits required by
law.
(d) Termination By Company For Any Other Reason; Voluntary
Resignation for Good Reason; Change of Control.
(i) In the event that (A) Executive's employment hereunder
is terminated by the Company during the Agreement Term for any reason other than
as provided in Sections 5(b) or 5(c) hereof, or (B) the Executive voluntarily
resigns for Good Reason, as defined in Section 5(b), then the Company shall pay
to Executive, within fifteen (15) days of the date of such termination, the Base
Salary and an appropriately pro-rated bonus and provide benefits through such
date of termination or resignation and, in lieu of any further compensation,
benefits and perquisites for the balance of the Agreement Term, severance pay of
Fifty Thousand Dollars ($50,000) per annum during a period equal to two-years
from the date of such termination or resignation (the "Severance Period"),
commencing with such date of termination or resignation and payable at the times
that Executive's Base Salary would have been so paid. In addition, under such
circumstances, the Company and Executive will enter into a consulting agreement
(as attached hereto as Exhibit C) for a term of two years commencing from the
date of such termination or resignation.
(ii) In addition to any severance amounts payable hereunder,
in the event (A) the Executive's employment is terminated by the Company or its
successor or parent company, if any, for any reason other than properly for
Cause as provided in Section 5(b) hereof, or (B) the Executive voluntarily
resigns for Good Reason, as defined in Section 5(b), then all options previously
granted to Executive pursuant to the Company's 1997 Stock Incentive Plan or
otherwise shall immediately vest and be exercisable by Executive in full, and
(except as provided in Section 8(o) hereof), Executive (or his estate in the
event of death) shall thereafter be entitled to exercise such options for two
years following such termination or resignation.
(iii) Upon the happening of a Change of Control, as
hereinafter defined, then all options previously granted to Executive pursuant
to the Company's 1997 Stock Incentive Plan or otherwise shall immediately vest
and be exercisable by Executive in full, and Executive shall thereafter be
entitled to exercise such options for two years from the occurrence of such
Change of Control. In addition, if, following a Change of Control, (1) there
occurs Good Reason, as defined in Section 5(b), or (2) Executive is not the
Chairman of the Board and Chief Executive Officer of the Company or its
successor and ultimate parent company, if any, or (3)
<PAGE>
Executive's employment is terminated by the Company or its successor or parent
company, if any, for any reason other than as provided in Sections 5(b) or (c),
then in any such case, at any time within ninety (90) days of any event
specified in clauses (1) or (2), Executive may voluntarily resign from
employment with the Company or its successor and parent company, and thereupon
(and following the happening of the event specified in clause (3)), the Company
and its successor and parent company shall be obligated to make severance
payments and enter into the consulting agreement as provided in Section 5(d)(i)
hereof with the same effect as if the Company terminated the employment of
Executive as contemplated by the provisions of Section 5(d)(i) or the Executive
voluntarily resigned for Good Reason.
For purposes hereof, Change of Control shall mean any of the following
occurrences:
(1) any "person" as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934 ("Exchange Act") or
"group" as contemplated by, or required to comply with the
provisions of Rule 13d- 1(b)(1)(ii)(H) promulgated under the
Exchange Act (other than (A) the Company or any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company, (B) Joseph Cayre, Stanley Cayre, Kenneth
Cayre and their respective spouses or children or trusts for
such children, (C) General Atlantic Partners or any entity
managed or controlled by General Atlantic Partners ((A), (B)
and (C) together or individually, a "Current Owner"), or (D)
any entity more than 50% of whose voting and equity interests
are owned beneficially by a Current Owner), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power
of the Company's then outstanding securities (other than as a
result of a merger or consolidation covered by clause (3)(i)
below in connection with a merger involving the Company which
would result in voting securities of the Company outstanding
immediately prior thereto continuing to represent more than
50% of the combined voting power of the voting securities of
the Company or the surviving entity (or its parent)
outstanding immediately after such merger or consolidation);
(2) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
of the Company, and any new director (other than a director
designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (1),
(3) or (4) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
<PAGE>
(3) the stockholders of the Company approve a merger or
consolidation of the Company with any other entity, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting
power of the voting securities of the Company or such
surviving entity (or its parent) outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" or "group" (as
hereinabove defined) acquires more than 50% of the combined
voting power of the Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) No Further Liability; Release. Full payment made and complete
performance by the Company in accordance with this Section 5 shall operate to
fully discharge and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, agents and representatives
from any further obligation or liability with respect to Executive's employment
and termination of employment. Other than paying Executive's Base Salary through
the date of termination of Executive's employment and making any severance
payment and continuing benefits and perquisites pursuant to and in accordance
with this Section 5 (as applicable), the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, agents and
representatives shall have no further obligation or liability to Executive or
any other person under this Agreement. The Company shall have the right to
condition the payment of any severance or other amounts pursuant to Sections
5(c) or 5(d) hereof upon the delivery by Executive to the Company of a release
in form and substance satisfactory to the Company of any and all claims
Executive may have against the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives arising out of or related to Executive's employment by the
Company and termination of such employment, other than any failure by the
Company to pay amounts otherwise required by this Agreement.
6. Confidential Information.
(a) Existence of Confidential Information. The Company owns and
has developed and compiled, and will develop and compile, certain proprietary
techniques and confidential information which have great value to its business
(referred to in this Agreement, collectively, as "Confidential Information").
Confidential Information includes not only information disclosed by the Company
to Executive, but also information developed or learned by Executive during the
course
<PAGE>
of or as a result of employment with the Company, which information shall be the
property of the Company. Confidential Information includes all information that
has or could have commercial value or other utility in the business in which the
Company is engaged or contemplates engaging, and all information of which the
unauthorized disclosure could be detrimental to the interests of the Company,
whether or not such information is specifically labelled as Confidential
Information by the Company. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained,
licensed by or to or owned by the Company concerning trade secrets, techniques,
know-how (including designs, plans, procedures, merchandising, marketing,
distribution and warehousing know-how, processes, and research records),
software, computer programs, and any other intellectual property created, used
or sold (through a license or otherwise) by the Company, Electronic Data
Information know-how and processes, innovations, discoveries, improvements,
research, development, test results, reports, specifications, data, formats,
marketing data and plans, business plans, strategies, forecasts, unpublished
financial information, orders, agreements and other forms of documents, price
and cost information, merchandising opportunities, expansion plans, store plans,
budgets, projections, customer, supplier, licensee, licensor and subcontractor
identities, characteristics, agreements and operating procedures, and salary,
staffing and employment information.
(b) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of duties hereunder the Company
discloses to and entrusts Executive with Confidential Information which is the
exclusive property of the Company and which Executive may possess or use only in
the performance of duties for the Company. Executive also acknowledges that
Executive is aware that the unauthorized disclosure of Confidential Information,
among other things, may be prejudicial to the Company's interests, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
directly of indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership, individual or other third party,
other than in the course of Executive's assigned duties and for the benefit of
the Company, any Confidential Information, either during the Agreement Term or
thereafter. Notwithstanding the foregoing, Confidential Information shall not
include that information which (i) is or comes into the public domain, unless
such information comes into the public domain as a result of a breach of this
Agreement or violation of a confidentiality obligation to the Company, or (ii)
is required to be disclosed pursuant to law or under a court order.
(c) Delivery of Records, Etc. In the event Executive's employment
with the Company ceases for any reason, Executive will not remove from the
Company's premises without its prior written consent any records, files,
drawings, documents, equipment, materials and writings received from, created
for or belonging to the Company, including those which relate to or contain
Confidential Information, or any copies thereof, except that Executive shall be
permitted to remove his personal files, records and belongings (including copies
of his correspondence, which may include Confidential Information). Upon request
or when employment with the Company terminates, Executive will immediately
deliver the same to the Company.
<PAGE>
7. Assignment and Transfer.
(a) Company. Subject to Executive's rights under Section
5(d)(iii) hereof, this Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place. For purposes of this Agreement, the term Company shall include any
successor to the Company, and any parent company of such successor (or of the
Company), pursuant to or resulting from a merger or consolidation involving the
Company which does not constitute a "Change of Control" pursuant to Section 5(d)
of this Agreement.
(b) Executive. Executive's rights and obligations under this
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
8. Miscellaneous.
(a) Nondisclosure; Other Employers. Executive will not disclose
to the Company, or use, or induce the Company to use, any proprietary
information, trade secrets or confidential business information of others.
Executive represents and warrants that Executive has returned all property,
proprietary information, trade secrets and confidential business information
belonging to all prior employers.
(b) Cooperation. Following termination of employment with the
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
(c) No Duty to Mitigate. Executive shall be under no duty to
mitigate with respect to any severance or other amounts payable pursuant to this
Agreement and such payments shall be made without regard to sums earned by
Executive from any other source, except as provided in Section 5(d) hereof.
(d) Protection of Reputation. During the Agreement Term and
thereafter, Executive agrees that he will take no action which is intended, or
would reasonably be expected, to harm the Company or its reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
<PAGE>
(e) Governing Law. This Agreement, including the validity,
interpretation, construction and performance of this Agreement, shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in such state without regard
to such state's conflicts of law principles. All actions and proceedings
relating directly or indirectly to this Agreement shall be litigated in any
state court or federal court located in New York, New York. The parties hereto
expressly consent to the jurisdiction of any such court and to venue therein.
(f) Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties hereto in respect of the subject
matter hereof and supersedes, cancels and annuls any prior or contemporaneous
written or oral agreements, understandings, commitments and practices between
them respecting the subject matter hereof, including all prior employment
agreements, if any, and any amendments or supplements thereto between the
Company and Executive, which agreement(s) hereby are terminated and shall be of
no further force or effect.
(g) Amendment. This Agreement may be amended only by a writing
which makes express reference to this Agreement as the subject of such amendment
and which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(h) Severability. If any term, provision, covenant or condition
of this Agreement or part thereof, or the application thereof to any person,
place or circumstance, shall be held to be invalid, unenforceable or void, the
remainder of this Agreement and such term, provision, covenant or condition
shall remain in full force and effect, and any such invalid, unenforceable or
void term, provision, covenant or condition shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this regard, Executive acknowledges that the
provisions of Sections 4 and 6 are reasonable and necessary for the protection
of the Company.
(i) Construction. The headings and captions of this Agreement are
provided for convenience only and are intended to have no effect in construing
or interpreting this Agreement. The language in all parts of this Agreement
shall be in all cases construed according to its fair meaning and not strictly
for or against the Company or Executive. The use herein of the word "including,"
when following any general provision, sentence, clause, statement, term or
matter, shall be deemed to mean "including, without limitation". As used herein,
"Company" shall mean the Company and its subsidiaries and any purchaser of,
successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.
(j) Nonwaiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
<PAGE>
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(k) Remedies for Breach. The parties hereto agree that Executive
is obligated under this Agreement to render personal services during the
Agreement Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this Agreement peculiar value, and, in the event of a
breach or threatened breach of any covenant of Executive herein, the injury or
imminent injury to the value and the goodwill of the Company's business could
not be reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of Sections 4 and 6 hereof. Without limiting the generality of
the foregoing, if Executive breaches Sections 4 or 6 hereof, such breach will
entitle the Company to enjoin Executive from disclosing any Confidential
Information to any Competing Business, to enjoin such Competing Business from
receiving from Executive or using any such Confidential Information and/or to
enjoin Executive from rendering personal services to or in connection with such
Competing Business. The rights and remedies of the parties hereto are cumulative
and shall not be exclusive, and each such party shall be entitled to pursue all
legal and equitable rights and remedies and to secure performance of the
obligations and duties of the other under this Agreement, and the enforcement of
one or more of such rights and remedies by a party shall in no way preclude such
party from pursuing, at the same time or subsequently, any and all other rights
and remedies available to it.
(l) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, or by hand delivery or by
reputable overnight delivery service (such as Federal Express) to Executive's
residence (as reflected in the Company's records or as otherwise designated by
Executive on thirty (30) days' prior written notice to the Company with a copy
to Jeffrey D. Zukerman, Esq., Zukerman, Gore & Brandeis, LLP, 900 Third Avenue,
New York, New York 10022) or to the Company's principal executive office,
attention: Vice President Legal Affairs (with a copy to David P. Levin, Esq.,
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York
10022), as the case may be. All such notices, requests, consents and approvals
shall be effective upon receipt. However, the time period in which a response
thereto must be given shall commence to run from the date of receipt on the
return receipt of the notice, request, consent or approval by the addressee
thereof. Rejection or other refusal to accept, or the inability to deliver
because of changed address of which no notice was given as provided herein,
shall be deemed to be receipt of the notice, request, consent or approval sent.
<PAGE>
(m) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Agreement Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi- legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party. The Company shall, in connection therewith, pay Executive's
reasonable attorney's fees and expenses incurred in connection with this Section
8.
(n) Automatic Extension of Agreement Term. This Agreement shall
be automatically extended for a period of one year at the end of the Agreement
Term (or any extension thereof) upon economic terms and conditions to be agreed
upon (which shall be no less favorable than those contained herein) unless, not
later than six months prior to the end of the Agreement Term (or extension
thereof) (the "Notice Date"), the Company or the Executive shall have notified
the other in writing of its or his intention not to so renew this Agreement. Any
such extension shall be effective and binding as of the applicable Notice Date.
(o) Executive Headquarters. Subject to the following sentence of
this Section 8(o), within one year of the Commencement Date ("Initial Relocation
Date"), the Company will relocate its executive headquarters to, or within
thirty miles of, Los Angeles County, California. Notwithstanding the foregoing,
if the Company, by action of its Board of Directors, determines not to move such
headquarters during such period, or removes such headquarters from such location
thereafter, in each case without the consent of the Executive, then (i) all
options previously granted to Executive pursuant to the Company's 1997 Stock
Incentive Plan or otherwise shall immediately vest and be exercisable in full,
and Executive shall thereafter be entitled to exercise such options for two (2)
years from the date of such Initial Relocation Date (if the Company determines
not to relocate its executive headquarters) or the date of such subsequent
removal, as the case may be, and (ii) Executive may, by written notice given
within thirty days of the Initial Relocation Date or subsequent removal, as the
case may be, terminate his employment with Good Reason pursuant to Section 5(d)
hereof.
(p) Fees. The Company shall reimburse Executive for attorney's
fees and expenses incurred by him in connection with or arising out of the
execution of this Agreement, up to a maximum aggregate amount of $25,000.
(q) Insurance and Indemnification. Executive shall be covered
under any director and officer insurance policy obtained by the Company, if any,
and shall be entitled to benefit from any officer or director indemnification
arrangements to the fullest extent permitted under applicable law and in
accordance with the Company's existing Certificate of Incorporation (including
the right to such coverage or benefit following Executive's employment to the
extent such policy or benefit covers former employees). The Company shall use
commercially reasonable efforts to maintain director and officer insurance in
customary amounts. In the event that the Company does not maintain dirctor and
officer insurance of at least ten million
<PAGE>
dollars ($10,000,000), Executive may terminate this Agreement, in which case
neither the Company nor the Executive shall have any further liability
(including without limitation any obligation to enter into the Consulting
Agreement pursuant to Section 5(d) hereof) under this Agreement from and after
such termination.
(r) Authorization of Option Issuance. Attached hereto as Exhibit
D is a copy of the written consent of certain shareholders of the Company, which
shareholders hold more than 50% of the Company's common stock, consenting to the
amendment (as described in Exhibit B attached hereto) to the Company's 1997
Stock Incentive Plan (the "Company Plan") required to grant stock options to
Executive under Section 3(d) hereof. As promptly as reasonably practicable, the
Company will prepare and file with the Securities Exchange Commission an
information statement describing such written consent and amendment in
accordance with applicable federal securities laws.
(s) Execution by Date Certain. This Agreement shall have no force
or effect unless it is executed by both parties hereto on or before February 15,
1999.
(t) Survival. This Agreement and the respective obligations,
rights and benefits of the Company and the Executive as set forth herein shall
survive the cessation or termination of Executive's employment with the Company
and the termination of the Agreement Term in accordance with the terms set forth
herein.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed on its behalf by an officer thereunto duly authorized and
Executive has duly executed this Agreement, all as of the date and year first
written above.
GT Interactive Software Corp. EXECUTIVE:
By: /s/ JOSEPH J. CAYRE /s/ THOMAS HEYMANN
------------------- ------------------
Name: Joseph J. Cayre Thomas Heymann
Title: Chairman Emeritus
