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EXHIBIT 2
to AMENDMENT NO. 1
to SCHEDULE 13D
June 29, 1999
Confidential
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Xxxxxx X. Xxxxx
Xxxxxxx Xxxxx
Xxxxxxx Xxxxx
c/o GT Interactive Software Corp.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs:
Reference is made to the Commitment Letter, dated the date hereof (the
"Commitment Letter"), among GT Interactive Software Corp., First Union National
Bank, as Administrative Agent, General Atlantic Partners 54, L.P. ("GAP LP"),
GAP Coinvestment Partners II, L.P. ("GAP Coinvestment" and, together with GAP
LP, "General Atlantic") and Xxxxxx Xxxxx, Xxxxxxx Xxxxx and Xxxxxxx Xxxxx (the
"Xxxxx Family"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Commitment Letter.
Reference is also made to the Warrant Agreement, dated as of the date
hereof (as the same may be amended from time to time, the "Warrant Agreement"),
among the Borrower, GAP LP, GAP Coinvestment and the Cayre Family.
If the obligation to make the Subordinated Loans was allocated between
General Atlantic and the Cayre Family based on their respective percentage
ownership interests in the Borrower, then General Atlantic would be obligated to
make $10 million of the Subordinated Loans and the Cayre Family would be
obligated to make $20 million of the Subordinated Loans. In consideration of
General Atlantic's agreement pursuant to the Commitment Letter to make $20
million of the Subordinated Loans, notwithstanding General Atlantic's percentage
ownership interest in the Borrower, each of Xxxxxx X. Xxxxx, Xxxxxxx Xxxxx and
Xxxxxxx Xxxxx hereby severally agree with GAP LP and GAP Coinvestment as
follows:
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1. June 29, 1999 Commitment Warrants.
(a) In order to induce the Subordinated Lenders to enter into the
Commitment Letter, the Borrower has agreed to issue to the Subordinated Lenders
on the date hereof warrants to purchase, at an exercise price per share equal to
$.01 per share, an aggregate of 500,000 shares of common stock of the Borrower.
The Cayre Family hereby assigns to General Atlantic the Cayre Family's right to
receive its pro rata share of such warrants, which the parties hereby agree is
warrants to purchase 166,667 shares of common stock of the Borrower (the
"Assigned Commitment Warrants") allocated among the Cayre Family in accordance
with the Allocable Percentage (as hereinafter defined). "Allocable Percentage"
means the percentage set forth opposite the name of each of Xxxxxx X. Xxxxx,
Xxxxxxx Xxxxx and Xxxxxxx Xxxxx on the signature page hereto.
(b) In the event that the Commitment Letter terminates on or prior to
July 30, 1999 and each of the Subordinated Lenders is released and discharged
from making any Subordinated Loans thereunder, then on August 1, 1999, General
Atlantic shall transfer, subject to applicable securities laws, the Assigned
Commitment Warrants to the Cayre Family; provided, however, that if such
transfer by General Atlantic will cause General Atlantic to violate Section 16
of the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder, then such transfer shall be delayed until a date upon which no such
violation shall occur; and provided further, that in lieu of such transfer,
General Atlantic and the Cayre Family may agree upon a cash settlement of the
Assigned Commitment Warrants at such time and under such circumstances as the
parties may agree.
2. July 30, 1999 Options. The Cayre Family hereby grants to General
Atlantic, effective on July 30, 1999, options to purchase, at an exercise price
per share equal to $.01, an aggregate of 1,333,333 shares of common stock of the
Borrower held by the Cayre Family, allocated among the Cayre Family in
accordance with the Allocable Percentage and subject to adjustment as provided
in Section 3(b)-(e)(i) below (the "Original Options"). As soon as practicable
after the date hereof, but in any case not later than the close of business on
July 30, 1999, General Atlantic and the Cayre Family shall enter into an option
agreement, in form and substance reasonably satisfactory to General Atlantic and
the Cayre Family, pursuant to which, among other things, each of Xxxxxx X.
Xxxxx, Xxxxxxx Xxxxx and Xxxxxxx Xxxxx shall be severally obligated to escrow
his shares of common stock of the Borrower subject to the Original Options. Each
of Xxxxxx X. Xxxxx, Xxxxxxx Xxxxx and Xxxxxxx Xxxxx severally covenant and agree
that from and after the date hereof until the earlier of (a) the exercise of the
Original Options by General Atlantic and (b) the date upon which the parties
hereto execute an option agreement requiring such escrow as described above, he
shall not sell, transfer, hypothecate, encumber or otherwise dispose of his
shares of common stock of the Borrower subject to the Original Options.
3. Assignment of the Right to Receive Warrants.
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(a) July 30, 1999. If the Holders make the Subordinated Loans pursuant
to the Commitment Letter, then pursuant to the Warrant Agreement the Borrower is
obligated to issue to General Atlantic and the Cayre Family warrants to
purchase, at an exercise price per share equal to $.01, an aggregate of
1,500,000 shares of common stock of the Borrower. The Cayre Family hereby
assigns to General Atlantic the Cayre Family's right to receive its pro rata
share of such warrants, which the parties hereby agree is warrants to purchase
500,000 shares of common stock of the Borrower allocated among the Cayre Family
in accordance with the Allocable Percentage.
(b) October 31, 1999. If the Borrower has not delivered to the Holders
on or prior to October 31, 1999, an agreement relating to a recapitalization,
reorganization, merger, sale (including, without limitation, a sale of all or
substantially all of the assets of the Borrower (which shall include a sale of
the Humongous business)) or other business combination transaction after the
consummation of which the stockholders of the Borrower prior to such transaction
do not own at least a majority of the voting power of the surviving person (a
"Sale Agreement"), then pursuant to the Warrant Agreement the Borrower is
obligated to issue on November 1, 1999 to General Atlantic and the Cayre Family
warrants to purchase, at an exercise price per share equal to $.01, an aggregate
of 2,500,000 shares of common stock of the Borrower (the "October Warrants").
The Cayre Family hereby assigns to General Atlantic the Cayre Family's right to
receive its pro rata share of such warrants, which the parties hereby agree is
warrants to purchase 833,333 shares of common stock of the Borrower allocated
among the Cayre Family in accordance with the Allocable Percentage, and upon the
issue of the 2,500,000 October Warrants to General Atlantic, the number of
shares of common stock of the Borrower subject to the Original Options shall be
reduced by 500,000; provided, however, that notwithstanding the foregoing, (i)
if General Atlantic has exercised the Original Options in whole on or prior to
November 1, 1999, then the assignment to General Atlantic by the Cayre Family of
its right to receive such warrants to purchase 833,333 shares of common stock
shall automatically terminate and the warrants shall be allocated pursuant to
Schedule 1 of the Warrant Agreement and (ii) if General Atlantic has exercised
the Original Options in part on or prior to November 1, 1999, then the remaining
number of shares of common stock of the Borrower subject to the Original Options
and, if necessary, the number of warrants assigned by the Cayre Family to
General Atlantic pursuant to this subsection (b) shall be proportionately
reduced.
(c) Termination of Sale Agreement. If the Borrower has delivered to the
Holders on or prior to October 31, 1999 a Sale Agreement, but such agreement
terminates for any reason after such date, then pursuant to the Warrant
Agreement the Borrower is obligated to issue on the date of such termination
(the "Termination Date") to General Atlantic and the Cayre Family warrants to
purchase, at an exercise price per share equal to $.01, an aggregate of
2,500,000 shares of common stock of the Borrower (the "Termination Warrants").
The Cayre Family hereby assigns to General Atlantic the Cayre Family's right to
receive its pro rata share of such warrants, which the parties hereby agree is
warrants to purchase 833,333 shares of
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common stock of the Borrower allocated among the Cayre Family in accordance with
the Allocable Percentage, and upon the issue of the 2,500,000 Termination
Warrants to General Atlantic, the number of shares of common stock of the
Borrower subject to the Original Options shall be reduced by 500,000; provided,
however, that notwithstanding the foregoing, (i) if General Atlantic has
exercised the Original Options in whole on or prior to the Termination Date,
then the assignment to General Atlantic by the Cayre Family of its right to
receive such warrants to purchase 833,333 shares of common stock shall
automatically terminate and the warrants shall be allocated pursuant to Schedule
1 of the Warrant Agreement and (ii) if General Atlantic has exercised the
Original Options in part on or prior to the Termination Date, then the remaining
number of shares of common stock of the Borrower subject to the Original Options
and, if necessary, the number of warrants assigned by the Cayre Family to
General Atlantic pursuant to this subsection (c) shall be proportionately
reduced.
(d) February 28, 2000. If on or prior to February 28, 2000, the
Borrower has not closed the transactions contemplated by the Sale Agreement and
paid in full to the Holders the aggregate amount of the Subordinated Loans made
under the Commitment Letter, then pursuant to the Warrant Agreement the Borrower
is obligated to issue on February 29, 2000 to General Atlantic and the Cayre
Family warrants to purchase, at an exercise price per share equal to $.01, an
aggregate of 3,000,000 shares of common stock of the Borrower (the "February
Warrants"). The Cayre Family hereby assigns to General Atlantic the Cayre
Family's right to receive its pro rata share of such warrants, which the parties
hereby agree is warrants to purchase 1,000,000 shares of common stock of the
Borrower allocated among the Cayre Family in accordance with the Allocable
Percentage, and upon the issue of the 3,000,000 February Warrants to General
Atlantic, the number of shares of common stock of the Borrower subject to the
Original Options shall be reduced by 500,000; provided, however, that
notwithstanding the foregoing, (i) if General Atlantic has exercised the
Original Options in whole on or prior to February 29, 2000, then the assignment
to General Atlantic by the Cayre Family of its right to receive such warrants to
purchase 1,000,000 shares of common stock shall automatically terminate and the
warrants shall be allocated pursuant to Schedule 1 of the Warrant Agreement and
(ii) if General Atlantic has exercised the Original Options in part on or prior
to the Termination Date, then the remaining number of shares of common stock of
the Borrower subject to the Original Options and, if necessary, after giving
effect to any adjustments previously made under subsection (b) or (c) above, the
number of warrants assigned by the Cayre Family to General Atlantic pursuant to
this subsection (d) shall be proportionately reduced.
(e) June 30, 2000 and Fiscal Quarters Thereafter.
(i) June 30, 2000. If on or prior to the last day the
Borrower's fiscal quarter ending June 30, 2000, the Borrower has not paid in
full to the Holders the aggregate amount of the Subordinated Loans made under
the Commitment Letter, then pursuant to the Warrant Agreement the Borrower is
obligated to issue to General Atlantic and the Cayre Family on the last day of
such fiscal quarter warrants to purchase, at an exercise price per share equal
to $.01, an aggregate of 3,000,000 shares of common stock of the Borrower (the
"June Warrants").
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The Cayre Family hereby assigns to General Atlantic the Cayre Family's right to
receive its pro rata share of such warrants, which the parties hereby agree is
warrants to purchase 1,000,000 shares of common stock of the Borrower allocated
among the Cayre Family in accordance with the Allocable Percentage, and upon the
issue of the 3,000,000 June Warrants to General Atlantic, the number of shares
of common stock of the Borrower subject to the Original Options shall be reduced
by 333,333; provided, however, that notwithstanding the foregoing, (i) if
General Atlantic has exercised the Original Options in whole on or prior to June
30, 2000, then the assignment to General Atlantic by the Cayre Family of its
right to receive such warrants to purchase 1,000,000 shares of common stock
shall automatically terminate and the warrants shall be allocated pursuant to
Schedule 1 of the Warrant Agreement and (ii) if General Atlantic has exercised
the Original Options in part on or prior to the Termination Date, then, if
necessary, after giving effect to any adjustments previously made under
subsection (b), (c) or (d) above, the remaining number of shares of common stock
of the Borrower subject to the Original Options and the number of warrants
assigned by the Cayre Family to General Atlantic pursuant to this subsection
(e)(i) shall be proportionately reduced.
(ii) September 30, 2000 and Thereafter. If on the last day of
each fiscal quarter of the Borrower commencing with the fiscal quarter ending
September 30, 2000, the Borrower has not paid in full to the Holders the
aggregate amount of the Subordinated Loans made under the Commitment Letter,
then pursuant to the Warrant Agreement the Borrower is obligated to issue to
General Atlantic and the Cayre Family on the last day of each such fiscal
quarter warrants to purchase, at an exercise price per share equal to $.01, an
aggregate of 3,000,000 shares of common stock of the Borrower. With respect to
each such fiscal quarter, such warrants shall be allocated pursuant to Schedule
1 of the Warrant Agreement.
4. Termination. In the event that the Commitment Letter terminates on
or prior to July 30, 1999, and each of the Subordinated Lenders is released and
discharged from making any Subordinated Loans thereunder, this letter agreement
shall terminate and be of no further force or effect, other than Sections 1 and
5 hereof, which shall survive such termination.
5. Assignment. None of the parties hereto may assign any of its rights
or obligations under this letter agreement without the prior written consent of
the other party, provided that GAP may assign its rights hereunder to one or
more affiliated limited partnerships.
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If the terms of this letter agreement are acceptable, please so
indicate on the enclosed copy of this letter and return it to the undersigned.
Very truly yours,
General Atlantic Partners 54, L.P.
By: General Atlantic Partners, LLC,
its general partner
By: /s/ Xxxxxxx X. Xxxx
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Name: Xxxxxxx X. Xxxx
Title: A Managing Member
GAP Coinvestment Partners II, L.P.
By: /s/ Xxxxxxx X. Xxxx
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Name: Xxxxxxx X. Xxxx
Title: A General Partner
Accepted and Agreed:
Allocable Percentage
/s/ Xxxxxx X. Xxxxx 50%
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Xxxxxx X. Xxxxx
/s/ Xxxxxxx Xxxxx 25%
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Xxxxxxx Xxxxx
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/s/ Xxxxxxx Xxxxx 25%
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Xxxxxxx Xxxxx
Total 100%
