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EXHIBIT 4.2
MODIFICATION AGREEMENT
MODIFICATION AGREEMENT dated as of July 1, 1996, (the "Modification
Agreement") modifying the amended employment agreement dated as of January 20,
1995 (the "Amended Agreement"), by and between ToHQ, INC., a New York
corporation having an address at 0000 Xxxxx Xxxxxxx Xxxxxxxxx, Xxxxxxxxx,
Xxxxxxxxxx 00000 (the "Company") and XXXX XXXXXXXX, having an address at 0000
Xxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxx 00000 ("Xxxxxxxx").
W I T N E S S E T H :
WHEREAS, the parties wish to restructure the cash consideration
(salary and bonus) and other benefits Xxxxxxxx is to receive under the Amended
Agreement so as to provide Xxxxxxxx with shares of the Company's common stock
for the amounts presently accrued under the Amended Agreement and services
being performed hereunder; and
WHEREAS, Xxxxxxxx agrees to waive all future payments and benefits due
under the Amended Agreement; and
WHEREAS, this Modification Agreement modifies the Amended Agreement to
such extent as is stated below, and represents the complete agreement between
the parties;
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto and of the mutual benefits to be gained by the performance thereof, the
parties hereby agree as follows:
1. Employment Term. Xxxxxxxx shall be retained by the Company as
a consultant until December 31, 1997 (the "Term").
2. Duties. From the date hereof until the expiration of the
Term, Xxxxxxxx shall consult with the management of the Company in connection
with special projects that Xxxxxxxx shall be called upon to evaluate and advise
the Company with respect to such special projects and such other business
matters that Xxxxxxxx may be called upon to become involved with.
3. Devotion of Time. The Company acknowledges that after the
date hereof, Xxxxxxxx shall devote a substantial amount of his time and
attention to other business matters. Except as specifically limited by
paragraph 7 hereafter, Xxxxxxxx shall be free to devote his time and attention
to such other activities as he deems appropriate and shall render services to
the Company subject to his availability and other commitments and upon three
(3) days prior written notice.
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4. Compensation.
(a) Xxxxxxxx hereby waives and relinquishes any right or
claim to receive any salary, bonus, payment or remuneration which he may
otherwise have been entitled to receive under the Amended Agreement.
(b) Shares of Common Stock.
(i) In consideration for Xxxxxxxx hereby agreeing
to waive and forego salary, bonuses and other benefits not previously paid to
him or otherwise due to him upon execution of this Modification Agreement, the
Company will grant and deliver to Xxxxxxxx an aggregate of seventy thousand
(70,000) shares of the Company's Common Stock (the "Shares").
(ii) Xxxxxxxx is acquiring the Shares for his own
account for investment, without a view to, or for resale in connection with,
any distribution of the Shares.
(iii) The Shares granted to Xxxxxxxx under this
section are not presently, and upon their issuance, will not be registered
under the Securities Act of 1933, as amended (the "Act"), or qualified or
registered under the applicable state securities laws. The Company agrees to
diligently pursue registration of the Shares, including the filing of a
registration statement on Form S-8, providing for the registration of the
Shares in order to provide for the sale of such shares of Common Stock within
fourteen (14) days from the date hereof, and, if necessary, the filing of a
reoffering prospectus.
(c) Previously Granted Stock Option. The stock option
previously granted to Xxxxxxxx, which is a nonstatutory option granted outside
of the ToHQ, Inc. Amended and Restated 1990 Stock Option Plan shall continue
and shall be exercisable until one year after the expiration of the Term, upon
the following terms and conditions:
(i) Such option is for an aggregate of eighty-nine
thousand three hundred forty-three (89,343) shares of the Company's
Common Stock at an exercise price of $3.75.
(ii) The right to exercise the option for the entire
eighty-nine thousand three hundred forty-three (89,343) shares of the
Company's Common Stock shall immediately vest upon execution of this
Modification Agreement.
(iii) The Company will at all times reserve for
issuance and delivery upon exercise of the Option all shares of Common
Stock due upon exercise of the Option. All such shares of Common
Stock shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid and nonassessable and free of all
preemptive rights.
(iv) The shares of Common Stock issuable upon
exercise of the Option are not presently, and upon their issuance may
not be, registered under the Securities Act of 1933, as amended (the
"Act"), or registered or qualified under the applicable state
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securities laws. The Company agrees to diligently pursue registration
of the shares underlying this option, including the filing of a
registration statement on Form S-8, providing for the registration of
the Shares in order to provide for the sale of such shares of Common
Stock within fourteen (14) days from the date hereof, and, if
necessary, the filing of a reoffering prospectus.
(v) The Common Stock issued upon exercise of the
Option may be sold or otherwise disposed of only in accordance with
the provisions of subparagraph (iii) above or pursuant any other
provisions provided under the Act and the applicable state securities
laws.
(vi) The Option shall not, by virtue hereof, grant
any rights of a stockholder of the Company, either at law or in
equity, and Xxxxxxxx'x rights, with respect to the Option, are limited
to those rights expressed herein.
(vii) The Option shall not be given, granted, sold,
exchanged, transferred, pledged, assigned or otherwise incumbered or
disposed of by Xxxxxxxx, otherwise than by Will or the laws of descent
and distribution, and, during Xxxxxxxx'x lifetime shall not be
exercisable by any other person, but only by him, and in the event of
his disability by his legal representative.
(viii) (a) In the event that the
outstanding Common Stock of the Company is hereafter changed by reason
of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock
dividends or the like, an appropriate adjustment shall be made in the
number of shares exercisable under the Option and the exercise price
per share. If the Company shall be reorganized, consolidated or
merged with another corporation, or if all of substantially all of the
assets of the Company shall be sold or exchanged, Xxxxxxxx shall, at
the time of issuance of the stock under such a corporate event, be
entitled to receive upon the exercise of the Option the same number
and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the
happening of such corporate event as if he had been, immediately prior
to such event, the holder of the number of shares covered by the
Option.
(b) Any adjustment in the number of
shares shall apply proportionately to only the unexercised portion of
the Option granted hereunder. If fractions of a share would result
from any such adjustment, the adjustment shall be revised to the next
lower whole number of shares.
(ix) Upon exercise of the Option and the issuance of
any of the shares of Common Stock thereunder, all certificates
representing shares which have not been registered under the Act or
applicable state securities laws shall bear on the face thereof
substantially the following legend, insofar as is consistent with New
York law:
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"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR ANY OPINION OF COUNSEL REASONABLY SATISFACTORY TO ToHQ,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(x) Xxxxxxxx may exercise the Option, at any time,
for all or any portion of the underlying shares of Common Stock by
giving the Company written notice of the number of shares he desires
to exercise and delivering payment to the Company in the amount of the
total exercise price for such shares, within 30 days after any such
exercise. In the event that not all of the shares are exercised, the
unexercised portion of the Option shall continue to be exercisable by
him, until such right expires pursuant to the terms provided
hereunder.
(d) "Lock-Up".
(i) The term "Locked-up Shares" shall mean (a)
the sum of (1) the Shares described in Section 4(b) above and (2) the 89,343
shares which may be purchased by Xxxxxxxx pursuant to the option described in
Section 4(c) above (collectively, the "Aggregated Shares"), less (b) 20,750 of
the Aggregated Shares.
(ii) With respect to such 20,750 of the Aggregated
Shares, the Company agrees that there is no "lock-up" or other contractual
restriction upon Xxxxxxxx.
(iii) Xxxxxxxx agrees that for a period of nine (9)
months following the date hereof, Xxxxxxxx will not offer, sell, contract to
sell, grant any option or warrant to purchase or right to acquire, or otherwise
dispose of any of the Locked-up Shares, except that fifteen thousand (15,000)
of such Locked-up Shares may be sold without any contractual restriction and
without the written consent of the Company during each month subsequent to
January 1, 1997, and provided further that all restrictions herein provided
shall be terminated automatically in the event that the closing bid quotation
of the Company's Common Stock on Nasdaq is at least $12.50 per share for 20
consecutive days.
(e) Existing Stock Options Under the Plan. The option
granted to Xxxxxxxx on February 25, 1994, pursuant to the ToHQ, Inc. Amended
and Restated 1990 Stock Option Plan, as amended (the "Plan"), for three
thousand nine hundred eighty-nine (3,989) shares of the Company's Common Stock
at an exercise price of $13.95 is hereby cancelled.
(f) The option granted to Xxxxxxxx on February 15, 1995
for nineteen thousand (19,000) shares of the Company's Common Stock at an
exercise price of $3.75, of which six thousand three hundred thirty-four
(6,334) shares have been exercised by Xxxxxxxx as of the date hereof, leaving
an option for twelve thousand six hundred sixty-six (12,666) shares of the
Company's Common Stock, shall continue in effect in accordance with the terms
and
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conditions of such option which are set forth in the Plan and the accompanying
1990 Stock Option Agreement, in the form of Exhibit 1 annexed hereto, with the
exception that such option, shall vest in full as of the date hereof.
5. Benefits; Reimbursement of Expenses.
(a) Benefits. All benefits provided in the Amended
Agreement are hereby waived by Xxxxxxxx.
(b) Automobile Allowance. All allowances heretofore
provided in the Amended Agreement are hereby waived by Xxxxxxxx.
(c) Expenses. The Company shall pay directly or
reimburse Xxxxxxxx for all reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of his
duties under this Modification Agreement. For such purposes, Xxxxxxxx shall
submit to the Company itemized reports of such expenses in accordance with the
Company's policies and shall be reimbursed in accordance with past practices.
6. Books and Records; Audit. Xxxxxxxx waives any rights to
conduct an audit or to receive audit expenses.
7. Restrictive Covenant.
(a) Non-Compete. Xxxxxxxx agrees that, during the Term
and for a period of one year thereafter, he will not directly or indirectly, be
employed or otherwise involved with any business, other than the Company, which
sells video game titles for the Nintendo GameBoy or Sega Game Gear platforms
which originate from or are otherwise sold by Electronic Arts for any of its
other platforms. This restriction is expressly conditioned upon the Company's
performance of the terms and conditions contained in this Modification
Agreement.
(b) Blue Penciling. If, at the time of enforcement of
any provision of subparagraph (a) above, a court holds that the restrictions
stated therein are unreasonable under circumstances then existing, the parties
hereto agree that the maximum period, scope, or geographical area reasonable
under such circumstances will be substituted for the stated period, scope or
area.
8. Mutual Releases. Xxxxxxxx and the Company shall execute and
deliver to each other general releases in the forms annexed hereto as Exhibits
2 and 3, respectively, which releases, however, shall not discharge either from
any of their obligations under this Modification Agreement or any of the
exhibits to this Modification Agreement. In addition, such releases shall not
affect any of Xxxxxxxx'x rights with respect to any of the stock options
described in this Modification Agreement, whether pursuant to or outside of the
Plan.
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9. Termination.
(a) Termination of Employment. Xxxxxxxx'x employment
hereunder shall be automatically terminated upon his death or his resignation
from the Company, and in addition may be terminated, at the sole discretion of
the Company, upon 30 days' prior written notice by the Company, for cause as
set forth in paragraph (b) below.
(b) Cause. For purposes hereof, "cause" shall include:
(i) Xxxxxxxx'x willful malfeasance or gross negligence, (ii) the material
breach of any covenant made by Xxxxxxxx hereunder, and his failure to cure such
conduct or event constituting "cause" within 30 days after written notice
thereof, and (iii) termination for commission of an act of dishonesty, theft,
fraud, embezzlement, falsification of books and records, continued or prolonged
intoxication, either alcohol or drug related, and conviction of a felony or a
crime involving moral turpitude or securities laws.
(c) Termination by Xxxxxxxx. Xxxxxxxx may terminate this
Modification Agreement without further obligation or liability to the Company
upon 30 days written notice to the Company, if the Company breaches any
material term, covenant or obligation contained in this Modification Agreement
and fails to cure such breach to Xxxxxxxx'x reasonable satisfaction within such
30-day period or files a petition in bankruptcy, liquidates or dissolves. In
the event Xxxxxxxx elects to terminate this Modification Agreement for any of
the reasons herein set forth, Xxxxxxxx shall be released from the restrictive
covenant set forth in Paragraph 7 hereof.
10. Indemnification. The Company hereby agrees to indemnify
Xxxxxxxx to the fullest extent permitted by law against any and all claims,
expenses, judgments and/or penalties, including attorneys' fees, arising from
or relating to any claims, actions, suits or proceedings instituted against the
Company and/or Xxxxxxxx by reason of his actions on behalf of the Company.
11. Dispute Resolution. The parties agree to submit all disputes
arising under this Modification Agreement before the Judicial Arbitration and
Mediation Services located in Santa Monica, California ("JAMS"). Pursuant to
the applicable provisions of the California Code of Civil Procedure, including
without limitation, Section 1283.05 thereof, the parties agree that they shall
be entitled to all rights to discovery as if the matter were litigated in the
California Superior Court. To the extent permitted by law, the parties agree
that the judge shall have full power and authority to resolve all discovery
disputes and issue any and all ancillary relief (injunctions, writs, etc.)
regarding such disputes.
12. Attorneys' Fees. In the event that any action or proceeding is
commenced by one party to this Modification Agreement against the other for the
purpose of determining or enforcing the rights of either party hereunder, the
prevailing party shall be entitled to recover against the other party the
reasonable attorneys' fees and costs the prevailing party incurred in
connection with such action or proceeding.
13. Omitted.
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14. Assigns. This Modification Agreement shall be binding upon,
shall inure to the benefit of, and shall be enforceable by the prospective
heirs, beneficiaries, representatives, successors, and assigns of the parties
hereto.
15. Entire Agreement; Amendment. This Modification Agreement, the
Exhibits hereto, all Stock Option Agreements covering Xxxxxxxx'x stock options
and the Plan, together reflect the entire agreement between the parties, with
respect to the subject matter contained herein, and supersede all prior
agreements and understandings between the parties with respect to such subject
matter. This Modification Agreement may be amended only by a written
instrument duly executed by the parties hereto or their respective successors
or assigns.
16. Governing Law. This Modification Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
California.
17. Severability. If any provision of this Modification Agreement is
declared by any court of competent jurisdiction to be invalid for any reason,
such invalidity shall not affect the remaining provisions of this Modification
Agreement. Such remaining provisions shall be fully severable, and this
Modification Agreement shall be construed and enforced as if such invalid
provisions had never been a part of this Modification Agreement.
18. Representation of the Parties. Each party has had full
opportunity to review this Agreement with independent and separate counsel.
The Company, in entering into this Modification Agreement has reviewed it with
and been represented by Sidley & Austin, and Xxxxxxxx has reviewed it with and
been represented by Xxxxx Xxxxxx, Esq.
19. Confidentiality. Unless the terms of this Modification Agreement
are publicly disclosed by the Company, Xxxxxxxx shall not reveal, divulge, or
disclose the terms of this Modification Agreement to any person, firm,
corporation or other business organization, without the prior written consent
of the Company.
20. Counterparts. This Modification Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have executed this Modification
Agreement as of the date and year first above written.
ToHQ, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx
President
/s/ Xxxx Xxxxxxxx
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XXXX XXXXXXXX
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