-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3iXRgEHtMOXA+WDD347lPCEVcfvn7AhsnAMsI2+ycXx4vipbACmhPpZ5+E8shtg dQt50VHEBj2ov7uuMXBd6g== 0000950142-99-000610.txt : 19990811 0000950142-99-000610.hdr.sgml : 19990811 ACCESSION NUMBER: 0000950142-99-000610 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990810 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GT INTERACTIVE SOFTWARE CORP CENTRAL INDEX KEY: 0001002607 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133689915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-47017 FILM NUMBER: 99682546 BUSINESS ADDRESS: STREET 1: 417 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2127266500 MAIL ADDRESS: STREET 1: 417 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ATLANTIC PARTNERS LLC CENTRAL INDEX KEY: 0001017645 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 3 PICKWICK STREET 2: 3 PICKWICK PLAZA CITY: GREENWICH STATE: CT ZIP: 08330 BUSINESS PHONE: 2036223050 MAIL ADDRESS: STREET 1: 3 PICKWICK STREET 2: 3 PICKWICK PLAZA CITY: GREENWICH STATE: CT ZIP: 08330 SC 13D/A 1 AMENDMENT NO. 1 TO SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 1) ----------------------- GT INTERACTIVE SOFTWARE CORP. (Name of Issuer) Common Stock, par value $.01 per share (Title of Class of Securities) 36236E109 (CUSIP Number) William E. Ford c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Tel. No.: (203) 629-8600 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) ----------------------- July 29, 1999 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 1(f) or 1(g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 36236E109 Page 2 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON General Atlantic Partners, LLC 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON OO 36236E109 Page 3 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON General Atlantic Partners 16, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON OO 36236E109 Page 4 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON General Atlantic Partners 19, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON OO 36236E109 Page 5 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON General Atlantic Partners II, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON OO 36236E109 Page 6 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON General Atlantic Partners 54, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON OO 36236E109 Page 7 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GAP Coinvestment Partners II, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON PN 36236E109 Page 8 of 80 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GAP Coinvestment Partners, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York 7 SOLE VOTING POWER NUMBER OF -0- SHARES BENEFICIALLY OWNED 8 SHARED VOTING POWER BY EACH REPORTING PERSON 16,761,858 WITH 9 SOLE DISPOSITIVE POWER -0- 10 SHARED DISPOSITIVE POWER 16,761,858 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,761,858 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20.7% 14 TYPE OF REPORTING PERSON PN 36236E109 Page 9 of 80 Pages AMENDMENT NO. 1 TO SCHEDULE 13D This Amendment No. 1 (this "Amendment") to Schedule 13D (the "Original 13D") is filed by the undersigned to amend and supplement the Schedule 13D, dated as of March 4, 1999, with respect to the shares of common stock, par value $.01 per share (the "Common Stock"), of GT Interactive Software Corp., a Delaware corporation (the "Company"). Item 1. Security and Issuer. This Amendment relates to the shares of Common Stock of the Company. The address of the principal executive offices of the Company is 417 Fifth Avenue, New York, New York 10016. Capitalized terms used in this Amendment and not defined herein shall have the meanings ascribed to such terms in the Original 13D. Item 2. Identity and Background. Unchanged. 36236E109 Page 10 of 80 Pages Item 3. Source and Amount of Funds or Other Consideration. This Amendment is being filed as a result of recent acquisitions of (i) the Warrants (as defined in Item 5(c) below) to purchase shares of Common Stock and (ii) the Options (as defined in Item 5(c) below) to purchase shares of Common Stock. As more fully described in Item 5(c) below, the Warrants and the Options were acquired in consideration of the agreement by GAP 54 and GAPCO II to enter into the Commitment Letter (as defined in Item 5(c) below) and the unsecured subordinated loan of $20 million made by GAP 54 and GAPCO II to the Company on July 29, 1999. In the event that the Warrants and the Options are exercised, the source of the funds to be used for the exercise of such Warrants and Options shall be contributions from the partners of GAP 54 and GAPCO II. Item 4. Purpose of Transaction. Item 4 is hereby amended and restated in its entirety as follows: The Reporting Persons acquired the shares of Preferred Stock reported in the Original 13D and the Warrants and the Options described in this Amendment for investment purposes. From time to time, the Reporting Persons may acquire additional shares of Common Stock upon exercise of the Warrants or the Options or otherwise, convert shares of Preferred Stock into shares of Common Stock or dispose of some or all of the shares of Common Stock owned by them. In addition, as described in Item 5(c) below, the Reporting Persons may acquire Additional Warrants (as defined in Item 5(c) below) upon the occurrence of the Triggering Events (as defined in Item 5(c) below). Except as described in 36236E109 Page 11 of 80 Pages this Item 4 or in Item 5(c) below, none of the Reporting Persons has any other plans which relate to or would result in any of the items listed in paragraphs (a) through (j) of Item 4. Item 5. Interest in Securities of the Issuer. Item 5 is hereby amended and restated in its entirety as follows: (a) As of the date hereof, GAP, GAP 16, GAP 19, GAP II and GAPCO each owns of record no shares of Common Stock, 4,184,545 shares of Common Stock, 2,092,373 shares of Common Stock, 504,000 shares of Common Stock and 647,707 shares of Common Stock, respectively, or 0%, 5.3%, 2.7%, 0.6% and 0.8%, respectively, of the Company's issued and outstanding shares of Common Stock. In addition, as of the date hereof, (i) GAP 54 owns (x) shares of Preferred Stock convertible into 4,897,440 shares of Common Stock or 6.1% of the Company's issued and outstanding shares of Common Stock, (y) Warrants to purchase 1,632,480 shares of Common Stock or 2.0% of the Company's issued and outstanding shares of Common Stock and (z) Options to purchase 1,088,320 shares of Common Stock or 1.4% of the Company's issued and outstanding shares of Common Stock and (ii) GAPCO II owns (x) shares of Preferred Stock convertible into 1,102,560 shares of Common Stock or 1.4% of the Company's issued and outstanding shares of Common Stock, (y) Warrants to purchase 367,520 shares of Common Stock or 0.5% of the Company's issued and outstanding shares of Common Stock and (z) Options to purchase 245,013 shares of Common Stock or 0.3% of the Company's issued and outstanding shares of Common Stock. Accordingly, on an as converted and exercised basis, GAP 54 owns 7,618,240 shares of Common Stock or 9.4% of the Company's issued and outstanding shares 36236E109 Page 12 of 80 Pages of Common Stock and GAPCO II owns 1,715,093 shares of Common Stock or 2.1% of the Company's issued and outstanding shares of Common Stock. By virtue of the fact that the GAP Managing Members are also the general partners authorized and empowered to vote and dispose of the securities held by GAPCO and GAPCO II, and that GAP is the general partner of GAP 16, GAP 19, GAP II and GAP 54, the Reporting Persons may be deemed to share voting power and the power to direct the disposition of the shares of Common Stock owned by each of the Reporting Persons. Accordingly, as of the date hereof, each of the Reporting Persons may be deemed to own beneficially an aggregate of 16,761,858 shares of Common Stock or 20.7% of the Company's issued and outstanding shares of Common Stock. (b) Each of the Reporting Persons has the shared power to direct the vote and the shared power to direct the disposition of the 16,761,858 shares of Common Stock that may be deemed to be owned beneficially by each of them. (c) On February 23, 1999, GAP 54 and GAPCO II acquired 600,000 shares of Preferred Stock pursuant to a private stock purchase agreement entered into with the Company. Each share of Preferred Stock is convertible at any time into 10 shares of Common Stock. On June 29, 1999, pursuant to the Warrant Agreement, dated as of June 29, 1999 (the "Warrant Agreement"), among the Company, GAP 54, GAPCO II, Joseph J. Cayre, Kenneth Cayre and Stanley Cayre, which Warrant Agreement is attached as Exhibit 1 to this Amendment, the Company issued to GAP 54, warrants to purchase, at an exercise price equal to $.01 per share, 408,120 shares of Common Stock, and to GAPCO II, 36236E109 Page 13 of 80 Pages warrants to purchase, at an exercise price equal to $.01 per share, 91,880 shares of Common Stock, in consideration of the execution by GAP 54 and GAPCO II of the Commitment Letter, dated June 29, 1999 (the "Commitment Letter"), among the Company, First Union National Bank, as Administrative Agent, GAP 54, GAPCO II and the other parties thereto. Pursuant to the Commitment Letter, GAP 54 and GAPCO II agreed to make on July 30, 1999, on an aggregate basis, a $20 million unsecured subordinated loan to the Company. Pursuant to the Warrant Agreement, the aggregate number of warrants automatically increases by the following number of warrants (the "Additional Warrants") on the following dates upon the occurrence of the following events (the "Triggering Events"): (i) 1,500,000 on July 30, 1999 if the parties to the Warrant Agreement make the subordinated loans under the Commitment Letter, (ii) 2,500,000 on November 1, 1999 if the Company has not executed on or prior to October 31, 1999, an agreement (a "Sale Agreement") relating to a recapitalization, reorganization, merger, sale or other business combination transaction after the consummation of which the stockholders of the Company do not hold at least a majority of the voting power of the surviving person, (iii) 2,500,000 on the date of termination of such Sale Agreement if the Company enters into such an agreement on or prior to October 31, 1999, but such Sale Agreement thereafter terminates for any reason, (iv) 3,000,000 on February 29, 2000 if the Company has not closed the transactions contemplated by the Sale Agreement on or prior to February 28, 2000 and repaid in full the subordinated loans made pursuant to the Commitment Letter, and (v) 3,000,000 on June 30, 2000 and the last day of each fiscal quarter thereafter if the Company has not repaid in full during such quarter the subordinated loans made pursuant to the Commitment Letter. The Additional 36236E109 Page 14 of 80 Pages Warrants have an exercise price of $.01 per share. The Additional Warrants will be allocated among GAP 54, GAPCO II and the other parties making the subordinated loans as agreed upon by GAP 54, GAPCO II and such other parties. On July 29, 1999, in accordance with the Commitment Letter, GAP 54 made a $16,324,800 unsecured subordinated loan to the Company and GAPCO II made a $3,675,200 unsecured subordinated loan to the Company. Concurrently, in accordance with the Warrant Agreement, as described in clause (i) of the immediately preceding paragraph, the Company issued to GAP 54, 1,224,360 Additional Warrants to purchase shares of Common Stock and to GAPCO II, 275,640 Additional Warrants to purchase shares of Common Stock. The Warrants issued by the Company to GAP 54 and GAPCO II on June 29, 1999 and the Additional Warrants issued by the Company to GAP 54 and GAPCO II on July 29, 1999 are referred to in this Amendment as the "Warrants". The Warrants are exercisable at any time, provided that they expire on June 29, 2004. In addition, in order to induce GAP 54 and GAPCO II to make the aggregate $20 million unsecured subordinated loan to the Company pursuant to the Commitment Letter, Joseph J. Cayre, Kenneth Cayre and Stanley Cayre, stockholders of the Company, granted to GAP 54 and GAPCO II options to purchase, at an exercise price per share equal to $.01, an aggregate of 1,333,333 shares of Common Stock (the "Options"), of which 1,088,320 options are allocated to GAP 54 and 245,013 options are allocated to GAPCO II. Such options were granted pursuant to the Letter Agreement, dated June 29, 1999 (the "Letter Agreement"), among GAP 54, GAPCO II, Joseph J. Cayre, Kenneth Cayre and Stanley Cayre. Such parties will enter into an Option Agreement, dated as of July 30, 36236E109 Page 15 of 80 Pages 1999 (the "Option Agreement"), among GAP 54, GAPCO II, Joseph J. Cayre, Kenneth Cayre, Stanley Cayre and Thomas J. Murphy, as escrowholder, substantially in the form attached as Exhibit 3 to this Amendment. The Options may be exercised in whole or in part, at any time or from time to time after July 30, 1999, but on or prior to July 30, 2006; provided, however, that in the event of the sale or merger of the Company or other business combination transaction after the closing of which the holders of a majority of the voting power of the Company prior to such merger, sale or business combination transaction do not hold a majority of the voting power of the surviving person, then the Options shall be exercisable only until the closing of such merger, sale or business combination transaction. In addition, as more fully described in Sections 3(b) through 3(e)(i) of the Letter Agreement, the number of Options is subject to reduction if the Company issues Additional Warrants to GAP 54 and GAPCO II upon the occurrence of certain of the Triggering Events. The Letter Agreement is attached as Exhibit 2 to this Amendment. (d) No person other than the persons listed is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, any securities owned by any member of the group. (e) Not Applicable. Item 6. Contracts, Arrangements, Understandings or Relationship with Respect to the Securities of the Issuer. Item 6 is hereby amended and restated in its entirety as follows: As noted above, the GAP Managing Members are the partners authorized and empowered to vote and dispose of the securities held by GAPCO and GAPCO 36236E109 Page 16 of 80 Pages II, and GAP is the partner authorized and empowered to vote and dispose of the securities held by GAP 16, GAP 19, GAP II and GAP 54. Accordingly, GAP and any of the GAP Managing Members may, from time to time, consult among themselves and coordinate the voting and disposition of the Company's shares of Common Stock, the conversion of the Company's shares of Preferred Stock, the exercise of the Warrants and the Options and such other action taken on behalf of the Reporting Persons with respect to the Company's shares of Common Stock or Preferred Stock as they deem to be in the collective interest of the Reporting Persons. As described in Item 5(c) above, GAP 54 and GAPCO II are parties to (i) the Warrant Agreement pursuant to which GAP 54 and GAPCO were granted the Warrants and may receive Additional Warrants and (ii) the Letter Agreement and the Option Agreement pursuant to which GAP 54 and GAPCO II were granted the Options. Item 7. Materials to be Filed as Exhibits. Exhibit 1: Warrant Agreement, dated as of June 29, 1999, among the Company, GAP 54, GAPCO II and the other parties named therein. Exhibit 2: Letter Agreement, dated June 29, 1999, among GAP 54, GAPCO II, Joseph J. Cayre, Kenneth Cayre and Stanley Cayre. Exhibit 3: Form of Option Agreement, dated as of July 30, 1999, among GAP 54, GAPCO II and the other parties named therein. 36236E109 Page 17 of 80 Pages SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated as of August 9, 1999. GENERAL ATLANTIC PARTNERS, LLC By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact GENERAL ATLANTIC PARTNERS 16, L.P. By: General Atlantic Partners, LLC, Its general partner By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact GENERAL ATLANTIC PARTNERS 19, L.P. By: General Atlantic Partners, LLC, Its general partner By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact 36236E109 Page 18 of 80 Pages GENERAL ATLANTIC PARTNERS II, L.P. By: General Atlantic Partners, LLC, Its general partner By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact GENERAL ATLANTIC PARTNERS 54, L.P. By: General Atlantic Partners, LLC, Its general partner By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact GAP COINVESTMENT PARTNERS, L.P. By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Thomas J. Murphy ------------------------ Name: Thomas J. Murphy Title: Attorney-In-Fact EX-1 2 EXHIBIT 1 36236E109 Page 19 of 80 Pages EXHIBIT 1 to AMENDMENT NO. 1 to SCHEDULE 13D WARRANT AGREEMENT Dated as of June 29, 1999 among GT INTERACTIVE SOFTWARE CORP. and THE HOLDERS NAMED HEREIN 36236E109 Page 20 of 80 Pages WARRANT AGREEMENT, dated as of June 29, 1999 (as amended, restated, supplemented or otherwise modified from time to time, this Agreement"), by and among GT INTERACTIVE SOFTWARE CORP., a Delaware corporation (the Company"), and the Holders of the Warrants described herein. W I T N E S S E T H : WHEREAS, pursuant to the Credit Agreement dated as of September 11, 1998 (as amended, restated, supplemented or otherwise modified, the "Credit Agreement"), by and among the Company, the lenders parties thereto (collectively, the "Lenders") and the Administrative Agent, the Lenders made certain loans and other extensions of credit to the Company as more particularly described therein; WHEREAS, the Company, the Lenders and the Administrative Agent have agreed to execute a Second Amendment, Waiver and Agreement, dated as of June 29, 1999 (the "Second Amendment"), under the Credit Agreement to, among other things, amend certain provisions thereof; WHEREAS, in connection with the execution of the Second Amendment, the Company, the Administrative Agent and the Holders have agreed to execute the Commitment Letter, dated June 29, 1999 (the "Commitment Letter") and each of the Holders have severally agreed to make a Subordinated Loan (as defined in the Commitment Letter) to the Company; WHEREAS, in consideration of, among other things, each of the Holder's agreement to execute the Commitment Letter and make the Subordinated Loan, the Company has agreed to execute and deliver this Agreement and issue warrants (the "Warrants") to purchase from the Company shares of common stock of the Company; and WHEREAS, in connection with the issuance of the Warrants to the Holders pursuant to this Agreement, the Company hereby confirms that the Warrant Shares are entitled to the registration rights granted by the Company pursuant to the Registration Rights Agreement, dated as of February 28, 1999, by and among the Company and the persons and entities listed on Schedule 1 thereto (as amended, restated, supplemented or otherwise modified, the "Registration Rights Agreement"); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: 36236E109 Page 21 of 80 Pages ARTICLE 1. Defined Terms SECTION 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person or any of its Subsidiaries. The term "control" means (a) the power to vote ten percent (10%) or more of the securities or other equity interests of a Person having ordinary voting power, or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" shall mean any Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York City are authorized by law, regulation or executive order to close. "Cashless Exercise Ratio" means a fraction, the numerator of which is the excess of the Current Market Value per share of Common Stock on the date of exercise over the Exercise Price per share and the denominator of which is the Current Market Value per share of the Common Stock on the date of exercise. "Combination" means an event or series of events in which the Company consolidates with, merges with or into, or sells all or substantially all its property and assets to, another Person or Persons. "Common Stock" means the common stock, $0.01 par value, of the Company together with any other equity securities that may be issued by the Company in substitution therefor. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expiration Date" means the fifth anniversary of the date hereof. "Governmental Authority" means any nation, province, state or political subdivision thereof, and any government or any Person exercising executive, legislative, regulatory or administrative functions of or pertaining to government, and any corporation or 36236E109 Page 22 of 80 Pages other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Holder" means any holder of a Warrant under the terms of this Warrant Agreement. "Officer" means any of the following: the chief executive officer, chief operating officer, chief financial officer or vice president of the Company. "Person" means an individual, corporation, limited liability company, partnership, association, trust, business trust, joint venture, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity or group thereof. "Rule 144" means Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation hereinafter adopted by the SEC. "SEC" means the Securities and Exchange Commission (or any successor thereto). "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity is at the time, directly or indirectly, owned by or the management is otherwise controlled by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency). "Transfer Restricted Securities" means the Warrants and the Warrant Shares issued to Holders upon exercise of the Warrants, whether or not such exercise has been effected. Each such security shall cease to be a Transfer Restricted Security when the legend set forth in Section 2.5 is, or may be, removed pursuant to Section 2.4(b)(v). "Voting Stock" of a corporation means all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Warrant Certificates" means the certificates evidencing the Warrants to be delivered pursuant to this Agreement, substantially in the form of Exhibit A hereto. 36236E109 Page 23 of 80 Pages "Warrant Shares" means the shares of Common Stock of the Company to be issued and received, or issued and received, as the case may be, upon exercise of the Warrants. SECTION 1.2 Other Definitions. Term Defined in Section ---- ------------------ "Agreement".......................................... Preamble "Cashless Exercise".................................. 3.4 "Certificate Register"............................... 2.3 "Company"............................................ Preamble "Credit Agreement"................................... Recitals "Current Market Value"............................... 4.8 "Exercise Price"..................................... 3.1 "Fair Value"......................................... 4.2 "Registration Rights Agreement"...................... Recitals "Required Holders"................................... 5.5 "Successor Company".................................. 4.5 "Time of Determination".............................. 4.8 "Transfer Agent"..................................... 3.5 "Warrants"........................................... Recitals SECTION 1.3 Rules of Construction. Unless the text otherwise requires. (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (c) "or" is not exclusive; (d) "including" means including, without limitation; and (e) words in the singular include the plural and words in the plural include the singular. 36236E109 Page 24 of 80 Pages ARTICLE 2. Warrant Certificates SECTION 2.1 Issuance and Dating. The Warrants shall initially be issued on the date hereof. The Warrants shall be evidenced by Warrant Certificates substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Agreement. The Warrant Certificates may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company) and shall bear the legend required by Section 2.5. Each Warrant shall be dated the date of its execution by the Company. The terms of the Warrants set forth in Exhibit A are part of the terms of this Agreement. SECTION 2.2 Execution. (a) With respect to the Warrants to be issued on the date hereof, one or more Warrant Certificates representing the Warrants shall be executed on behalf of the Company by manual or facsimile signature by one Officer and attested by its Secretary or an Assistant Secretary under its corporate seal which may be impressed, affixed, imprinted or reproduced on such Warrant Certificates or may be in facsimile form. (b) With respect to all other Warrants, the Warrant Certificates therefor shall be executed on behalf of the Company by one Officer and attested by its Secretary or an Assistant Secretary under its corporate seal. Such signature may be manual or facsimile signature. The Company' seal shall be impressed, affixed, imprinted or reproduced on the Warrant Certificates and may be in facsimile form. (c) Upon written order from any Holder, the Company shall execute and deliver to such Holder Warrant Certificates registered in the name or names and for such number of Warrants as shall be specified by such Holder in such order in exchange for Warrant Certificate(s) then held by such Holder for a like number of Warrants. SECTION 2.3 Certificate Register. The Company shall keep a register ("Certificate Register") of the Warrant Certificates and of their transfer and exchange. The Certificate Register shall show the names and addresses of the respective Holders and the date and number of Warrants evidenced on the face of each of the Warrant Certificates. SECTION 2.4 Transfer and Exchange. (a) When Warrants are presented to the Company with a request to register the transfer of such Warrants or to exchange such Warrants for an equal number of Warrants of other authorized denominations, the Company shall register the transfer or make the exchange as requested; provided, however, that the Warrant Certificates representing such Warrants surrendered for transfer or exchange: 36236E109 Page 25 of 80 Pages (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) in the case of Warrants that are Transfer Restricted Securities, shall be accompanied by the following additional information and documents: (A) a certificate from such Holder in substantially the form of Exhibit C hereto certifying that: (1) such securities are being delivered for registration in the name of such Holder without transfer; (2) such securities are being transferred to the Company; (3) such securities are being transferred pursuant to an effective registration statement under the Securities Act; or (4) such securities are being transferred (w) to a "qualified institutional buyer" ("QIB") as defined in Rule 144A under the Securities Act pursuant to such Rule 144A, if available, (x) in an offshore transaction in accordance with Rule 904 under the Securities Act, (y) in a transaction meeting the requirements of Rule 144 under the Securities Act or (z) pursuant to another available exemption from the registration requirements of the Securities Act; and (B) in the case of any transfer described under clause (a)(ii)(A)(4)(x), (y) or (z) of this Section 2.4, evidence reasonably satisfactory to the Company (which may include an opinion of counsel) as to compliance with the restrictions set forth in the legend in Section 2.5. (b) (i) To permit registrations of transfers and exchanges, the Company shall execute Warrant Certificates as required pursuant to the provisions of this Section 2.4. (ii) All Warrant Certificates issued upon any registration of transfer or exchange of Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Agreement, as the Warrant Certificates surrendered upon such registration of transfer or exchange. (iii) Prior to due presentment for registration of transfer of any Warrant, the Company may deem and treat the Person in whose name any Warrant is registered as the absolute owner of such Warrant and the Company shall not be affected by notice to the contrary. 36236E109 Page 26 of 80 Pages (iv) No service charge shall be made to a Holder for any registration of transfer or exchange upon surrender of any Warrant Certificate. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Warrant Certificates. (v) Upon any sale or transfer of Warrants pursuant to an effective registration statement under the Securities Act, pursuant to Rule 144(k) under the Securities Act or pursuant to an opinion of counsel reasonably satisfactory to the Company that no legend is required, the Company shall permit the Holder thereof to exchange such Warrants for Warrants represented by Warrant Certificates that do not bear the legend set forth in Section 2.5 and rescind any restriction on the transfer of such Warrants. SECTION 2.5 Legends. Except for Warrant Certificates delivered pursuant to Section 2.4(b)(v) of this Agreement, each Warrant Certificate evidencing the Warrants (and all Warrant Certificates issued in exchange therefor or substitution thereof) and each certificate representing the Warrant Shares (unless such Warrant Shares are not Transfer Restricted Securities) shall bear a legend in substantially the following form (with any appropriate modification for the Warrant Shares): "THE WARRANTS AND THE COMMON STOCK (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AND SUBJECT TO COMPLIANCE WITH OTHER APPLICABLE LAWS. THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; (D) PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING WITH REGULATION S UNDER THE SECURITIES ACT; OR (E) PURSUANT TO ANOTHER AVAILABLE 36236E109 Page 27 of 80 Pages EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT." SECTION 2.6 Replacement Certificates. If a mutilated Warrant Certificate is surrendered to the Company or if the Holder of a Warrant Certificate claims that the Warrant Certificate has been lost, destroyed or wrongfully taken, the Company shall issue a replacement Warrant Certificate if the requirements of Section 8-405 of the Uniform Commercial Code as in effect in the State of New York are met. If required by the Company, such Holder shall furnish an indemnity sufficient in the reasonable judgment of the Company to protect the Company from any loss which it may suffer if a Warrant Certificate is replaced. The Company may charge the Holder for its reasonable expenses in replacing a Warrant Certificate. Every replacement Warrant Certificate is an additional obligation of the Company. SECTION 2.7 Cancellation. (a) In the event the Company shall purchase or otherwise acquire Warrants, the Warrant Certificates in respect thereof shall thereupon be delivered to the Company for cancellation. (b) The Company shall cancel and destroy all Warrant Certificates surrendered for transfer, exchange, replacement, exercise or cancellation. The Company may not issue new Warrant Certificates to replace Warrant Certificates to the extent they evidence Warrants which have been exercised or Warrants which the Company has purchased or otherwise acquired. SECTION 2.8 Issuance of Additional Warrants. Upon the occurrence of each of the events set forth on Schedule 1 hereto, on the applicable date with respect to such event, the number of Warrants shall automatically be increased by the number of additional Warrants set forth opposite such event on Schedule 1. ARTICLE 3. Exercise Terms SECTION 3.1 Exercise Price. Each Warrant shall entitle the Holder thereof to purchase one share of Common Stock for a per share exercise price of $0.01 (the "Exercise Price"). SECTION 3.2 Limitations on Exercise. Except as otherwise provided in the relevant Warrant Certificate with respect to Warrants which are not exercisable prior to the occurrence of certain events as set forth therein, each Warrant may be exercised at any time in the discretion of the Holder thereof, provided, that no Warrant shall be exercisable after the Expiration Date. 36236E109 Page 28 of 80 Pages SECTION 3.3 Expiration. A Warrant shall terminate and become void as of the earlier of (a) the close of business on the Expiration Date and (b) the time and date such Warrant is exercised. The Warrants shall terminate and become void after the Expiration Date. SECTION 3.4 Manner of Exercise. Warrants may be exercised upon (a) surrender to the Company of the Warrant Certificates, together with the form of election to purchase Common Stock attached as Exhibit B hereto duly filled in and signed by the Holder thereof and (b) payment to the Company of the Exercise Price for the number of Warrant Shares in respect of which such Warrant is then exercised. Such payment shall be made (i) in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose or (ii) by the surrender (which surrender shall be evidenced by cancellation of the number of Warrants represented by any Warrant Certificate presented in connection with a Cashless Exercise) of a Warrant or Warrants (represented by one or more relevant Warrant Certificates), and without the payment of the Exercise Price in cash, in exchange for the issuance of such number of shares of Common Stock equal to the product of (1) the number of shares of Common Stock for which such Warrant would otherwise then be nominally exercised if payment of the Exercise Price as of the date of exercise were being made in cash and (2) the Cashless Exercise Ratio. An exercise of a Warrant in accordance with clause (ii) of the immediately preceding sentence is herein called a "Cashless Exercise". All provisions of this Agreement shall be applicable with respect to an exercise of Warrant Certificates pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. Subject to Section 3.2, the rights represented by the Warrants shall be exercisable at the election of the Holders thereof either in full at any time or from time to time in part and in the event that a Warrant Certificate is surrendered for exercise in respect of less than all the Warrant Shares purchasable on such exercise at any time prior to the Expiration Date a new Warrant Certificate exercisable for the remaining Warrant Shares will be issued. The Company shall execute and deliver to the relevant Holders the required new Warrant Certificates. SECTION 3.5 Issuance of Warrant Shares. Subject to Section 2.6, upon the surrender of Warrant Certificates and payment of the per share Exercise Price, as set forth in Section 3.4, the Company shall issue (and, if applicable, cause any transfer agent for the Common Stock (the "Transfer Agent") to countersign) and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.6 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price. 36236E109 Page 29 of 80 Pages SECTION 3.6 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.6, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value for one Warrant Share on the Business Day immediately preceding the date the Warrant is exercised, multiplied by such fraction, computed to the nearest whole cent. SECTION 3.7 Reservation of Warrant Shares. The Company shall at all times keep reserved out of its authorized shares of Common Stock a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Warrants. Any registrar for the Common Stock shall at all times until the Expiration Date, or the time at which all Warrants have been exercised or canceled, reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with any Transfer Agent. All Warrant Shares which may be issued upon exercise of Warrants shall, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company will supply any Transfer Agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.6. The Company will furnish to any Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each Holder. SECTION 3.8 Compliance with Law. If any shares of Common Stock required to be reserved for purposes of exercise of Warrants require, under any other Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any Governmental Authority, or listing on any such national securities exchange before such shares may be issued upon exercise, the Company will cause such shares to be duly registered or approved by such Governmental Authority or listed on the relevant national securities exchange; provided that the Company shall not have any obligation to register the Warrant Shares under the Securities Act except pursuant to the Registration Rights Agreement. SECTION 3.9 Registration Rights. The holders of the Warrants and the Warrant Shares shall be entitled to the registration rights in respect of the Warrant Shares set forth in the Registration Rights Agreement. 36236E109 Page 30 of 80 Pages ARTICLE 4. Antidilution Provisions SECTION 4.1 Changes in Common Stock. In the event that at any time or from time to time after the date hereof the Company shall (a) pay a dividend or make a distribution on its Common Stock in shares of its Common Stock or other shares of capital stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (d) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock purchasable upon exercise of each Warrant immediately after the happening of such event shall be adjusted so that, after giving affect to such adjustment, the Holder of each Warrant shall be entitled to receive the number of shares of Common Stock upon exercise that such holder would have owned or have been entitled to receive had such Warrants been exercised immediately prior to the happening of the events described above (or, in the case of a dividend or distribution of Common Stock, immediately prior to the record date therefor). An adjustment made pursuant to this Section 4.1 shall become effective immediately after the effective date, retroactive to the record date therefor in the case of a dividend or distribution in shares of Common Stock, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. SECTION 4.2 Cash Dividends and Other Distributions. In the event that at any time or from time to time after the date hereof the Company shall distribute to holders of Common Stock (a) any dividend or other distribution of cash, evidences of its indebtedness, shares of its capital stock or any other properties or securities or (b) any options, warrants or other rights to subscribe for or purchase any of the foregoing (other than, in each case set forth in (a) and (b), (i) any dividend or distribution described in Section 4.1 or (ii) any rights, options, warrants or securities described in Section 4.3) then the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Warrant immediately prior to the record date for any such dividend or distribution by a fraction, the numerator of which shall be the Current Market Value per share of Common Stock on the record date for such distribution, and the denominator of which shall be such Current Market Value per share of Common Stock less the sum of (x) any cash distributed per share of Common Stock and (y) the fair value (the "Fair Value") (as determined in good faith by the Board, whose determination shall be evidenced by a Board resolution delivered to each Holder) of the portion, if any, of the distribution applicable to one share of Common Stock consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription of purchase rights (notwithstanding the foregoing, if the Fair Value per share of Common Stock in the above formula equals or exceeds the Current Market Value per share of Common Stock in the 36236E109 Page 31 of 80 Pages above formula, then the Current Market Value per share of Common Stock shall be equal to the Fair Value per share of the Common Stock on the record date as determined in good faith by the Board and described in a Board resolution delivered to each Holder). Such adjustments shall be made whenever any distribution is made and shall become effective as of the date of distribution, retroactive to the record date for any such distribution; provided, however, that the Company is not required to make an adjustment pursuant to this Section 4.2 if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable (whether or not currently exercisable). SECTION 4.3 Rights Issue. In the event that at any time or from time to time after the date hereof the Company shall issue, sell, distribute or otherwise grant any rights to subscribe for or to purchase, or any options or warrants for the purchase of, or any securities convertible or exchangeable into, Common Stock, entitling such holders to subscribe for or purchase shares of Common Stock or stock or securities convertible into Common Stock, whether or not immediately exercisable, convertible or exchangeable, as the case may be, and the price per share of Common Stock issuable upon exercise, conversion or exchange thereof is lower at the record date for such issuance than the then Current Market Value per share of Common Stock, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Warrant immediately prior to the date of issuance of such rights, options, warrants or securities by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the number of additional shares of Common Stock offered for subscription or purchase or into or for which such securities are convertible or exchangeable, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the total number of shares of Common Stock which could be purchased at the Current Market Value with the aggregate consideration received through issuance of such rights, warrants, options, or convertible securities. Such adjustment shall be made whenever such rights, options or warrants are issued and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options, warrants or securities. Notwithstanding any other provision of this Section 4.3, the number of shares of Common Stock purchasable upon exercise of any Warrant shall not be adjusted pursuant to this Section 4.3 in connection with the issuance or grant of Common Stock upon the exercise of rights or options to the Company's employees under bona fide employee benefit plans adopted prior to the date of this Agreement by the Board and approved by the holders of Common Stock when required by law, if the number of shares of Common Stock underlying such rights and options do not exceed 5% of the Common Stock outstanding on the date of this Agreement. 36236E109 Page 32 of 80 Pages If the Company at any time shall issue two or more securities as a unit and one or more of such securities shall be rights, options or warrants for or securities convertible or exchangeable into, Common Stock subject to this Section 4.3, the consideration allocated to each such security shall be determined in good faith by the Board. SECTION 4.4 Issuance of Additional Shares of Common Stock. In the event that at any time or from time to time after the date hereof the Company shall issue or sell any additional shares of Common Stock for consideration in an amount per additional share of Common Stock less than the Current Market Value, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such issue or sale by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, and the denominator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale, and (ii) the number of shares of Common Stock which could be purchased at the Current Market Value with the aggregate consideration received from the issuance or sale of the additional shares of Common Stock. For the purposes of this Section 4.4, the date as of which the Current Market Value per share of Common Stock shall be computed shall be the earlier of (x) the date on which the Company shall enter into a firm contract for the issuance of such additional shares of Common Stock or (y) the date of actual issuance of such additional shares of Common Stock. Notwithstanding any other provision of this Section 4.4, the number of shares of Common Stock purchasable upon exercise of any Warrant shall not be adjusted pursuant to this Section 4.4 as a result of the issuance or sale of Common Stock in connection with: (a) a bona fide firm commitment underwritten public offering of Common Stock of the Company, (b) a transaction to which Section 4.1, 4.2 or 4.3 is applicable, (c) the exercise of the Warrants, the exercise of any other warrants issued by the Company prior to the date of this Agreement or the exercise of any warrants issued in connection with the Second Amendment, (d) a private placement of Common Stock of the Company sold for a cash purchase price not more than 10% below the Current Market Value of the Common Stock so sold in such private placement and (e) the exercise of rights or options issued to the Company's employees under bona fide employee benefit plans adopted by the Board and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this Section 4.4. SECTION 4.5 Combination; Liquidation. (a) Except as provided in Section 4.5(b), in the event of any Combination, capital reorganization, reclassification or spin-off by the Company of another Person (each, a "Transaction"), each Warrant shall be automatically converted into the right to receive (in the case of a Transaction other than a spin-off) or shall also be exercisable for (in the case of a Transaction that is a spin-off) such number of shares of capital stock or other securities or property upon or as a result of such Transaction that a Holder of such Warrant would have been entitled to receive had such Warrants been exercised immediately prior to such event. 36236E109 Page 33 of 80 Pages (b) In the event of (i) a Transaction where consideration to holders of Common Stock in exchange for their shares is payable solely in cash, or (ii) the dissolution, liquidation or winding-up of the Company, then the Holders of the Warrants will be entitled to receive distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such event, less the Exercise Price. In case of any Transaction described in this Section 4.5(b), the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company shall make payment to each Holder by delivering a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by such Holder surrendering such Warrants. SECTION 4.6 Tender Offers: Exchange Offers. In the event that the Company or any subsidiary of the Company shall purchase shares of Common Stock pursuant to a tender offer or an exchange offer for a price per share of Common Stock that is greater than the then Current Market Value per share of Common Stock in effect at the end of the trading day immediately following the day on which such tender offer or exchange offer expires, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Warrant immediately prior to such purchase by a fraction the numerator of which shall be the sum of (x) the fair market value of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer or exchange offer) of all shares of Common Stock validly tendered or exchanged and not withdrawn as of the expiration time of such tender offer or exchange offer (the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less the Purchased Shares) at the expiration time of such offer or exchange offer and the first reported sales price of the Common Stock on the trading day immediately following the day on which such tender offer or exchange offer expires and the denominator of which shall be the number of shares of Common Stock outstanding (including any Purchased Shares) at the expiration time of such tender offer or exchange offer multiplied by the first reported sales price of the Common Stock on the trading day immediately following the day on which such tender offer or exchange offer expires, such increase to become effective immediately prior to the opening of business on the day immediately following the day on which such tender offer or exchange offer expires. SECTION 4.7 Other Events. If any event occurs as to which the foregoing provisions of this Article 4 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then such Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such Board, to protect such purchase rights as aforesaid, but in no event shall any 36236E109 Page 34 of 80 Pages such adjustment have the effect of decreasing the number of shares of Common Stock subject to purchase upon exercise of this Warrant. SECTION 4.8 Current Market Value. For the purpose of any computation of Current Market Value under this Article 4 and Section 3.6, the "Current Market Value" per share of Common Stock at any date shall be (a) for purposes of Section 3.6, the closing price on the Business Day immediately prior to the date of the exercise of the applicable Warrant pursuant to Article 3 and (b) in all other cases, the average of the daily closing prices for the 20 consecutive trading days ending on the last full trading day on the exchange or market specified in the second succeeding sentence prior to such date. The closing price for any day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case (1) on the principal national securities exchange on which the shares of Common Stock are listed or to which such shares are admitted to trading or (2) if the Common Stock is not listed or admitted to trading on a national securities exchange, in the over-the-counter market as reported by the Nasdaq National Market or any comparable system or (3) if the Common Stock is not listed on the Nasdaq National Market or a comparable system, as furnished by two members of the NASD selected from time to time in good faith by the Board for that purpose. In the absence of all of the foregoing, or if for any other reason the Current Market Value per share cannot be determined pursuant to the foregoing provisions of this Section 4.8, the Current Market Value per share shall be the (x) the fair market value thereof determined in good faith in the most recently completed arm's-length transaction between the Company and a person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the three months preceding such date or (y) if no transaction shall have occurred on such date or within such three-month period, the fair market value thereof as determined by an investment bank of nationally recognized standing selected by the Company and acceptable to the Required Holders. The Company shall pay the fees and expenses of any investment bank involved in the determination of Current Market Value. SECTION 4.9 Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges which resulted in the adjustments pursuant to this Article 4, if any thereof shall not have been exercised, the number of Warrant Shares purchasable upon the exercise of each Warrant shall be readjusted as if (a) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges whether or not exercised; provided, however, that no such readjustment shall (except by reason of an intervening adjustment under Section 4.1) have the effect of decreasing the number of Warrant Shares purchasable 36236E109 Page 35 of 80 Pages upon the exercise of each Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. SECTION 4.10 Minimum Adjustment. The adjustments required by the preceding Sections of this Article 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the number of shares of Common Stock purchasable upon exercise of Warrants that would otherwise be required shall be made (except in the case of a subdivision or combination of shares of Common Stock, as provided for in Section 4.1) unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% the number of shares of Common Stock purchasable upon exercise of Warrants immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Article 4 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Article 4, fractional interests in Common Stock shall be taken into account to the nearest one-hundredth of a share. SECTION 4.11 Notice of Adjustment. Whenever the number of shares of Common Stock and other property, if any, purchasable upon exercise of Warrants is adjusted, as herein provided, the Company shall deliver to each Holder a certificate of a firm of independent accountants (who may be the regular accountants employed by the Company) setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board determined the fair market value of any evidences of indebtedness, other securities or property or warrants or other subscription or purchase rights), and specifying the number of shares of Common Stock purchasable upon exercise of Warrants after giving effect to such adjustment. SECTION 4.12 Notice of Certain Transactions. In the event that the Company shall propose (a) to pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other distribution to the holders of its Common Stock, (b) to offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any reclassification of its Common Stock, spin-off, capital reorganization or Combination or (d) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or in the event of a tender offer or exchange offer described in Section 4.6, the Company shall within five Business Days send to each Holder a notice, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, 36236E109 Page 36 of 80 Pages if any such date is to be fixed, and shall briefly indicate the effect of such action on the Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, purchasable upon exercise of each Warrant after giving effect to any adjustment which will be required as a result of such action. Such notice shall be given by the Company as promptly as possible and, in the case of any action covered by clause (a) or (b) above, at least ten days prior to the record date for determining holders of the Common Stock for purposes of such action and, in the case of any other such action, at least 15 Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. SECTION 4.13 Adjustment to Warrant Certificate. The form of Warrant Certificate need not be changed because of any adjustment made pursuant to this Article 4, and Warrant Certificates issued after such adjustment may state the same number of shares of Common Stock as are stated in any Warrant Certificates issued prior to the adjustment. The Company, however, may at any time in its sole discretion make any change in the form of Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant Certificate, and any Warrant Certificate thereafter issued, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. ARTICLE 5. Miscellaneous SECTION 5.1 Representations and Warranties. The Company hereby represents and warrants to each Holder that (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, (b) the Company has the corporate power and authority to execute and deliver this Warrant Agreement and the Warrant Certificates, to issue Warrants and Warrant Shares and to perform its obligations under this Warrant Agreement and the Warrant Certificates, (c) the execution, delivery and performance by the Company of this Warrant Agreement and the Warrant Certificates, the issuance of the Warrants and the issuance of the Warrant Shares upon exercise of the Warrants have been duly authorized by all necessary corporate action and do not and will not violate, or result in a breach of, or constitute a default under, or require any consent under, or result in the creation of any lien upon the Company's assets pursuant to, any law, rule, regulation or contractual obligation binding upon the Company, (d) this Warrant Agreement has been duly executed and delivered by the Company and constitutes a legal, valid, binding and enforceable obligation of the Company, (e) when the Warrants and Warrant Certificates have been issued by the Company as contemplated hereby, such Warrants and Warrant Certificates will constitute legal, valid, binding and enforceable obligations of the Company and (f) the Warrant Shares, when issued by the Company upon 36236E109 Page 37 of 80 Pages exercise of the related Warrants in accordance with the terms hereof, will be duly authorized, validly issued, fully paid and nonassessable shares of the Common Stock of the Company with no personal liability attaching to the ownership thereof. SECTION 5.2 Reports; Rule 144A. (a) The Company shall provide the Holders with such financial statements and reports as are distributed to holders of Common Stock generally. (b) The Company hereby agrees to make available upon request, for so long as any Warrants or Warrant Shares remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to any Holder or beneficial owner of Warrants or Warrant Shares in connection with any sale thereof and any prospective purchaser thereof from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales pursuant to Rule 144A. SECTION 5.3 Persons Benefitting. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than the Company and the Holders any right, remedy or claim under or by reason of this agreement or any part hereof. SECTION 5.4 Rights of Holders. Except as otherwise specifically required herein, holders of unexercised Warrants are not entitled (a) to receive dividends or other distributions, (b) to receive notice of or vote at any meeting of the stockholders, (c) to consent to any action of the stockholders, (d) to receive notice of any other proceedings of the Company or (e) to exercise any other rights as stockholders of the Company. SECTION 5.5 Amendment. Any amendment or supplement to this Agreement (including any Exhibit hereto) shall require the written consent of the Holders of a majority of the outstanding Warrants (the "Required Holders"). The consent of each Holder directly affected shall be required for any amendment pursuant to which the exercisability of any Warrant would be delayed, the Exercise Price would be increased or the number of Warrant Shares purchasable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided herein). In determining whether the Holders of the required number of Warrants have concurred in any direction, waiver or consent, Warrants owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding. SECTION 5.6 Notices. (a) All notices and communications hereunder shall be in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be 36236E109 Page 38 of 80 Pages received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service and (iii) on the third Business Day following the date sent by certified mail, return receipt requested. (b) Notices to any party shall be sent to it at the following addresses, or any other address as to which the Company or the Holders, as the case may be, are notified in writing. If to the Company: GT Interactive Software Corp. 417 Fifth Avenue, 8th Floor New York, New York 10016 Attention: Director of Legal Services Telephone No.: (212) 726-6572 Telecopy No.: (212) 726-6590 If to any Holder: To the Address set forth in the Certificate Register SECTION 5.7 GOVERNING LAW. THIS AGREEMENT AND THE WARRANT CERTIFICATES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 5.8 Successors. All agreements of the Company in this Agreement and the Warrant Certificates shall bind its successors. SECTION 5.9 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 5.10 Headings. The headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 5.11 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect 36236E109 Page 39 of 80 Pages such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. 36236E109 Page 40 of 80 Pages IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. GT INTERACTIVE SOFTWARE CORP. By: /s/ Thomas Heymann ------------------ Name: Thomas Heymann Title: Chairman and Chief Executive Officer HOLDERS: GENERAL ATLANTIC PARTNERS 54, L.P. By: General Atlantic Partners, LLC, its general partner By: /s/ William E. Ford ------------------- Name: William E. Ford Title: A Managing Member GAP COINVESTMENT PARTNERS II, L.P. By: /s/ William E. Ford ------------------- Name: William E. Ford Title: A General Partner /s/ Joseph J. Cayre ------------------- Joseph J. Cayre /s/ Kenneth Cayre ----------------- Kenneth Cayre /s/ Stanley Cayre ----------------- Stanley Cayre 36236E109 Page 41 of 80 Pages EXHIBIT A TO WARRANT AGREEMENT [FORM OF FACE OF WARRANT CERTIFICATE] THE WARRANTS AND THE COMMON STOCK (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AND SUBJECT TO COMPLIANCE WITH OTHER APPLICABLE LAWS. THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; (D) PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING WITH REGULATION S UNDER THE SECURITIES ACT; OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. No. __ Certificate for ___ Warrants WARRANTS TO PURCHASE COMMON STOCK OF GT INTERACTIVE SOFTWARE CORP. THIS CERTIFIES THAT ____________, or its registered assigns, is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant 36236E109 Page 42 of 80 Pages entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from GT Interactive Software Corp., a Delaware corporation (the "Company"), one share of Common Stock, $0.01 par value, of the Company (the "Common Stock") at the per share exercise price of $0.01 (the "Exercise Price"), or by Cashless Exercise referred to below. This Warrant Certificate shall terminate and become void as of the close of business on June 29, 2004 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The number of shares purchasable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of June 29, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Warrant Agreement"), among the Company and the Holders referred to therein, and is subject to the terms and provisions contained in the Warrant Agreement. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part (i) by surrender of this Warrant Certificate with the form of election to purchase Warrant Shares attached hereto duly executed and with the simultaneous payment of the Exercise Price in cash (subject to adjustment) to the Company or (ii) by Cashless Exercise. Payment of the Exercise Price in cash shall be made in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose. Payment by Cashless Exercise shall be made by the surrender of a Warrant or Warrants represented by one or more Warrant Certificates and without payment of the Exercise Price in cash, in exchange for the issuance of such number of shares of Common Stock equal to the product of (1) the number of shares of Common Stock for which such Warrant would otherwise then be nominally exercised if payment of the Exercise Price were being made in cash and (2) the Cashless Exercise Ratio. The Warrants shall be exercisable from time to time in the discretion of the Holder on or after June 29, 1999, provided, that in no event shall the Warrants be exercisable after the Expiration Date. Upon the occurrence of each of the events set forth on Schedule 1 hereto, on the applicable date with respect to such event, the number of Warrants shall automatically be increased by the number of additional Warrants set forth opposite such event on Schedule 1. In the event the Company enters into a Combination, capital reorganization or reclassification or the spin-off by the Company of another Person (each, a "Transaction"), 36236E109 Page 43 of 80 Pages each Warrant evidenced by this Warrant Certificate will be automatically converted into the right to receive (in the case of a Transaction other than a spin-off) or shall also be exercisable for (in the case of a Transaction that is a spin-off) the shares of capital stock or other securities or other property of such surviving entity upon or as the result of such Transaction that a Holder of such Warrant would have been entitled to receive had such Warrant been exercised immediately prior to such Transaction; provided, that in the event that, in connection with such Transaction, consideration to holders of Common Stock in exchange for their shares is payable solely in cash or in the event of the dissolution, liquidation or winding-up of the Company, the Holder hereof will be entitled to receive distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such events, less the Exercise Price. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 2.4 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. Upon any partial exercise of the Warrants, there shall be issued to the Holder hereof a new Warrant Certificate in respect of the shares of Common Stock as to which the Warrants shall not have been exercised. This Warrant Certificate may be exchanged by presenting this Warrant Certificate to the Company properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Current Market Value for one Warrant Share on the date the Warrant is exercised, multiplied by such fraction, computed to the nearest whole cent. 36236E109 Page 44 of 80 Pages The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issuance, be duly and validly issued and fully paid and non-assessable. GT INTERACTIVE SOFTWARE CORP. By: Title: [SEAL] Attest: ___________________________ Secretary DATED: 36236E109 Page 45 of 80 Pages EXHIBIT B TO WARRANT AGREEMENT FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) The undersigned hereby irrevocably elects to exercise [ ] Warrants at an exercise price per Warrant (subject to adjustment) of $.01 to acquire an equal number of shares of Common Stock of GT Interactive Software Corp., on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to GT Interactive Software Corp., and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: ________________, ____ ---------------------------------- (Signature of Owner) ---------------------------------- (Street Address) ---------------------------------- (City) (State) (Zip Code) Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: 36236E109 Page 46 of 80 Pages Any unexercised Warrants evidenced by the within Warrant Certificate to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: 36236E109 Page 47 of 80 Pages EXHIBIT C TO WARRANT AGREEMENT CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Stock (the "Warrants") of GT Interactive Software Corp. (the "Company") This Certificate relates to __________ Warrants held in definitive form by _______________ (the "Transferor"). The Transferor has requested the Company by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to the above captioned Warrants and that the transfer of this Warrant does not require registration under the Securities Act of 1933 (the "Securities Act"), because1: o Such Warrant is being acquired for the Transferor's own account without transfer. o Such Warrant is being transferred to the Company. o Such Warrant is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. o Such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A. o Such Warrant is being transferred pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act. o Such Warrant is being transferred pursuant to another available exemption from the registration requirements under the Securities Act. 36236E109 Page 48 of 80 Pages The Company is entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. [INSERT NAME OF TRANSFEROR] By________________________ Title: Date: 36236E109 Page 49 of 80 Pages Schedule 1 Upon the occurrence of each of the Events set forth below, the Company shall issue to each Holder on the applicable Trigger Date additional Warrants in the numbers set forth opposite such Event: Number of Event Trigger Date Additional Warrants - ----- ------------ ------------------- A Holder makes any Subordinated July 30, 1999 The product of (a) Loans pursuant to the Commitment 1,500,000 multiplied Letter. by (b) a fraction, the numerator of which is the amount of the Subordinated Loans made by such Holder to the Company pursuant to the Commitment Letter and the denominator of which is the aggregate amount of all Subordinated Loans made by all Holders pursuant to the Commitment Letter, subject to any agreement among the Holders. 36236E109 Page 50 of 80 Pages The Company has not executed on or November 1, 1999 The product of (a) prior to October 31, 1999 an 2,500,000 multiplied agreement relating to a by (b) a fraction, recapitalization, reorganization, the numerator of merger, sale (including, without which is the amount limitation, a sale of all or of the Subordinated substantially all of the assets of Loans made by such the Company (which shall include a Holder to the sale of the Humongous business)) Company pursuant to or other business combination the Commitment transaction after the consummation Letter and the of which the stockholders of denominator of the Company prior to such which is the transaction do not hold at least aggregate amount of a majority of the voting power all Subordinated of the surviving Person (the Loans made by all foregoing, "a Change of Control Holders pursuant Transaction"). to the Commitment Letter, subject to any agreement among the Holders. The Company executes on or date of termination The product of (a) prior to October 31, 1999 of Sale Agreement 2,500,000 multiplied an agreement relating to a by (b) a fraction, Change of Control Transaction the numerator of (a "Sale Agreement"), but such which is the amount agreement terminates for any of the Subordinated reason after such date. Loans made by such Holder to the Company pursuant to the Commitment Letter and the denominator of which is the aggregate amount of all Subordinated Loans made by all Holders pursuant to the Commitment Letter, subject to any agreement among the Holders. 36236E109 Page 51 of 80 Pages The Company has not closed February 29, 2000 The product of (a) the transactions contemplated 3,000,000 multiplied by the Sale Agreement on or by (b) a fraction, prior to February 28, 2000 the numerator of and repaid in full to the Holders the which is the amount aggregate amount of the Subordinated of the Subordinated Loans made by the Holders pursuant Loans made by such to the Commitment Letter. Holder to the Company pursuant to the Commitment Letter and the denominator of which is the aggregate amount of all Subordinated Loans made by all Holders pursuant to the Commitment Letter, subject to any agreement among the Holders. On the last day of each fiscal June 30, 2000 and The product of (a) quarter of the Company, the last day of each 3,000,000 multiplied commencing with the fiscal fiscal quarter by (b) a fraction, quarter ending June 30, 2000 and thereafter until the the numerator of ending on the date that the Company date of repayment of which is the amount repays in full the aggregate amount the Subordinated of the Subordinated of the Subordinated Loans, if the Loans Loans made by such Company has not repaid in full to Holder to the the Holders the aggregate amount Company pursuant to of the Subordinated Loans made by the Commitment the Holders pursuant to the Letter and the Commitment Letter during such denominator of quarter. which is the aggregate amount of all Subordinated Loans made by all Holders pursuant to the Commitment Letter, subject to any agreement among the Holders. EX-2 3 EXHIBIT 2 36236E109 Page 52 of 80 Pages EXHIBIT 2 to AMENDMENT NO. 1 to SCHEDULE 13D June 29, 1999 Confidential - ------------ Joseph J. Cayre Kenneth Cayre Stanley Cayre c/o GT Interactive Software Corp. 16 East 40th Street New York, New York 10016 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 Joseph Cayre, Kenneth Cayre and Stanley Cayre (the "Cayre 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 Joseph J. Cayre, Kenneth Cayre and Stanley Cayre hereby severally agree with GAP LP and GAP Coinvestment as follows: 36236E109 Page 53 of 80 Pages 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 Joseph J. Cayre, Kenneth Cayre and Stanley Cayre 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 Joseph J. Cayre, Kenneth Cayre and Stanley Cayre shall be severally obligated to escrow his shares of common stock of the Borrower subject to the Original Options. Each of Joseph J. Cayre, Kenneth Cayre and Stanley Cayre 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. 36236E109 Page 54 of 80 Pages (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 36236E109 Page 55 of 80 Pages 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"). 36236E109 Page 56 of 80 Pages 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. 36236E109 Page 57 of 80 Pages 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/ William E. Ford ------------------- Name: William E. Ford Title: A Managing Member GAP Coinvestment Partners II, L.P. By: /s/ William E. Ford ------------------- Name: William E. Ford Title: A General Partner Accepted and Agreed: Allocable Percentage /s/ Joseph J. Cayre 50% - ------------------- Joseph J. Cayre /s/ Kenneth Cayre 25% - ----------------- Kenneth Cayre 36236E109 Page 58 of 80 Pages /s/ Stanley Cayre 25% - ----------------- Stanley Cayre Total 100% EX-3 4 EXHIBIT 3 36236E109 Page 59 of 80 Pages EXHIBIT 3 to AMENDMENT NO. 1 to SCHEDULE 13D [Form of Option Agreement] 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 REGISTRATION 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 OR PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR GT INTERACTIVE SOFTWARE CORP. (THE "COMPANY"), THAT SUCH REGISTRATION IS NOT REQUIRED. OPTION AGREEMENT OPTION AGREEMENT (this "Agreement"), dated as of July 30, 1999, among Joseph J. Cayre, Kenneth Cayre and Stanley Cayre (collectively, the "Cayre Family" or the "Optionors"), General Atlantic Partners 54, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a New York limited partnership ("GAP Coinvestment" and, together with GAP LP, the "Option Holders"), and Thomas J. Murphy (as "Escrowholder"). 1 Grant of Option. 1.1 Grant of Option; Exercise Price. Subject to the terms and conditions set forth herein, the Optionors grant to the Option Holders an option (the "Option") to purchase from the Optionors up to an aggregate of 1,333,333 shares (subject to adjustment as provided in Sections 2.1 and 2.2) of common stock, par value $.01 per share (the "Option Shares"), of 36236E109 Page 60 of 80 Pages GT Interactive Software Corp., a Delaware corporation (the "Company"), held by the Cayre Family, as allocated among the Cayre Family in accordance with the percentages set forth opposite each name on Schedule I hereto (the "Allocable Percentages"), represented by the stock certificates listed on Schedule II hereto (the "Stock Certificates"), at an exercise price of $.01 per share (the "Exercise Price"). The number of Option Shares that may be received upon exercise of the Option and the Exercise Price shall be subject to adjustment as provided herein. 1.2 Duration of Option. The Option may be exercised in whole or in part, at any time or from time to time after the date hereof, but on or prior to July 30, 2006; provided, however, that in the event of the sale or merger of the Company or other business combination transaction after the closing of which the holders of a majority of the voting power of the Company prior to such merger, sale or business combination transaction do not hold a majority of the voting power of the surviving person, then this Option shall be exercisable only until the closing of such merger, sale or business combination transaction (the "Termination Date"). 1.3 Exercise. Upon exercise of the Option in accordance with Section 1.4, the aggregate number of Option Shares for which the Option shall have been exercised shall be transferred to the Option Holders by each of the Optionors pro rata according to the Allocable Percentages. All rights of the Option Holders to purchase the Option Shares from the Optionors shall be deemed to be exercised pro rata in accordance with the Allocable Percentages. 36236E109 Page 61 of 80 Pages 1.4 Manner of Exercising Option. (a) The Option shall be exercisable by the Option Holders in whole or in part only by surrender of a completed and fully executed option exercise notice (in the form attached hereto as Exhibit A) (the "Option Exercise Notice") to the Escrowholder (as defined and named in the signature pages hereto), with a copy to the Optionors, not less than 10 days prior to the date specified in the Option Exercise Notice for the closing of the purchase and sale of the Option Shares pursuant to such Option Exercise Notice (the "Closing Date"). (b) On the Closing Date, the Option Holders shall deliver to each of the Optionors by wire transfer of immediately available funds, with notice of such payment to the Escrowholder, that portion of the aggregate Exercise Price for the number of Option Shares so purchased, against delivery by the Escrowholder to the Option Holders of a certificate or certificates representing such Option Shares, together with a duly exercised assignment or duly executed assignments in proper form to transfer such Option Shares to the Option Holders. The Option Shares delivered by the Escrowholder to the Option Holders shall be allocated between the Option Holders in accordance with the percentages set forth on Schedule III hereto. The aggregate Exercise Price for the Option Shares shall be allocated between each of the Optionors according to the Allocable Percentages. If the Option Holders exercise the Option for a number of Option Shares less than the aggregate number of Option Shares, then the remainder of the Option Shares shall remain available for exercise at one or more later times prior to the Termination Date in accordance with this Agreement. 36236E109 Page 62 of 80 Pages 1.5 Transfer of Option and Option Shares. The Option Holders shall not sell, give, assign, hypothecate, pledge, encumber, grant a security interest in or otherwise dispose of, whether by operation of law or otherwise (each a "Transfer") this Agreement, including the Option, or any right, title or interest therein or thereto, except to one or more affiliates of the Option Holders. The Option Holders may Transfer the Option Shares issued upon exercise of the Option subject to and in compliance with applicable securities laws. 2 Adjustment of Number of Shares; Substitute Shares. 2.1 Adjustment for Changes in Capital Structure. "Auxiliary Security" means any property receivable by the Optionors as owners of any Option Shares or as owners of any Auxiliary Securities other than cash dividends, including, but not limited to, noncash dividends, securities or other property, arising from or issued in connection with a reorganization, combination, recapitalization, stock split, spin-off, liquidation, issue of securities or sale or merger of the Company or the issuer of any security which is an Auxiliary Security, or other similar change in the capital structure of the Company, or as a result of any other disposition or conversion of the Option Shares or the proceeds therefrom. If Auxiliary Securities are issued with respect to the Option Shares: (a) (i) the number and type of shares transferable by the Optionors upon exercise of the Option by the Option Holders shall be equitably adjusted (but only to the extent such adjustment is made with respect to the shares underlying the Option), (ii) any Auxiliary Securities shall become a part of the Option Shares to which such Auxiliary Securities relate and (iii) upon exercise of the Option, such Auxiliary Securities shall be transferred to the Option Holders without extra cost; and 36236E109 Page 63 of 80 Pages (b) the certificates or other instruments evidencing title to such Auxiliary Securities, together with appropriate instruments of transfer, shall be delivered to the Escrowholder to be held in Escrow pursuant to Section 3 hereof. 2.2 Adjustment of Option Shares. The number of Option Shares subject to this Option Agreement shall be subject to adjustment as provided in the provisos to Section 3(b) through 3(e)(i) of the Letter Agreement dated June 29, 1999 among the parties, a copy of which is attached hereto as Exhibit C (the "Letter Agreement"). If the number of Option Shares is reduced pursuant to provisos to Section 3(b) through 3(e)(i) of the Letter Agreement, then such number of Option Shares no longer subject to this Option Agreement pursuant to such provisos shall be returned by the Escrowholder to the Optionors in accordance with the Allocable Percentages not more than five days after the occurrence of the particular event causing such reduction in the number of Option Shares. 3 Escrow. 3.1 Creation of Escrow. To ensure the Optionors' general ability to perform their obligations under this Agreement, the Optionors will, concurrently with the delivery of this Agreement, deliver to the Escrowholder the Stock Certificates together with a stock power (the "Stock Power") duly executed in blank, in the form attached hereto as Exhibit B, such documents to be held in escrow (the "Escrow") by the Escrowholder pursuant to the terms of this Section 3. 3.2 Duties Upon Exercise of Option. If, on or prior to the Termination Date, the Escrowholder receives an Option Exercise Notice, the Escrowholder shall on the Closing Date (i) date the Stock Power necessary for the transfer in question, (ii) fill in the number of 36236E109 Page 64 of 80 Pages Option Shares purchased from the Optionors by the Option Holders, and (iii) deliver to the Option Holders the Stock Power, together with a certificate or certificates representing the number of Option Shares and Auxiliary Securities, if any, purchased against delivery to the Optionors of the aggregate Exercise Price for such Option Shares so transferred; provided, however, that the Escrowholder's duties hereunder are subject to the cooperation of the Optionors, and the Company's transfer agent or counsel with respect to furnishing to the Escrowholder all necessary stock certificates, legal opinions, and other related instruments as appropriate. 3.3 Term of Escrow. The Escrow shall continue until the earlier of (i) fifteen (15) days following the Termination Date, provided that if the Option has been duly exercised prior to the Termination Date, the Escrow shall continue until the transfer of the Option Shares so exercised has been completed on the Closing Date, and (ii) such date as the Option Holders and the Optionors have certified to the Escrowholder that the Option has expired or has been exercised in full. 3.4 Attorney-In-Fact; Additional Stock Assignments. The Optionors hereby constitute and appoint the Escrowholder as the Optionors' attorney-in-fact and agent for the term of this Escrow, to execute, with respect to such securities or other property as are deposited with the Escrowholder hereunder, all documents necessary or appropriate to make such securities or other property negotiable, and to complete any transaction herein contemplated. The Optionors shall deliver to the Escrowholder from time to time such number of Stock Powers or other documents duly executed by the Optionors as may be reasonably requested by the Escrowholder. 36236E109 Page 65 of 80 Pages 3.5 Return of Property. If at the time of termination of the Escrow pursuant to Section 3.3, the Escrowholder still has in his or her possession any documents, securities, or other property belonging to the Optionors, including, without limitation, the Option Shares, Auxiliary Securities or the Stock Power specified in Section 3.1, then the Escrowholder shall deliver all of same to the Optionors and shall then be discharged of all further obligations hereunder. 3.6 Escrow Sole Source of Option Shares. The parties agree that the Stock Certificates, together with any other property deposited into the Escrow pursuant to Section 2.2, shall constitute the sole recourse for satisfaction of the Option Holders' rights upon exercise of the Option. 3.7 Duties; Modification of Duties. (a) The Escrowholder shall carry out the Escrowholder's duties hereunder to the best of his or her ability and the Escrowholder shall be liable only for gross negligence or willful misconduct. The Escrowholder's duties hereunder may be altered, amended, modified or revoked only by a written instrument signed by the Option Holders, the Optionors and the Escrowholder. (b) The Escrowholder shall be obligated only for the performance of such duties as are specifically set forth herein, and may rely upon, and shall be protected in acting or refraining from acting in reliance upon, any instrument reasonably believed by the Escrowholder to be genuine and to have been signed or presented by the proper party or parties. The Escrowholder shall not be personally liable for any action the Escrowholder may take or omit to take hereunder as Escrowholder or as attorney-in-fact for the Optionors 36236E109 Page 66 of 80 Pages while acting in good faith and in the exercise of the Escrowholder's own good judgment, and any action taken or omitted to be taken by the Escrowholder pursuant to the advice of the Escrowholder's or the Company's own attorneys shall be conclusive evidence of such good faith. (c) The Escrowholder is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of any court of law, but, notwithstanding the foregoing, is also hereby expressly authorized to comply with and obey orders, judgments or decrees of any court of law. In case the Escrowholder obeys or complies with any such order, judgment or decree of any court, the Escrowholder shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding that any such order, judgment or decree is subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (d) So long as the Escrowholder performs his or her duties in accordance with this Section 3.7, the Optionors and the Option Holders shall indemnify and hold harmless the Escrowholder from and against any losses, claims or written threats thereof, damages, expenses (including reasonable attorneys' fees) incurred by the Escrowholder in any action by and among the Escrowholder, the Optionors and the Option Holders (or any combination thereof), or between the Escrowholder and a third party, in either case resulting from or arising out of the performance of his or her duties as Escrowholder pursuant to this Agreement. 36236E109 Page 67 of 80 Pages 3.8 Authorization to Invest. Any cash distributions received by the Escrowholder pursuant to this Agreement and designated as Auxiliary Securities which are to be retained in escrow by the Escrowholder for more than fifteen (15) days shall be invested in an interest bearing savings account specified by the Option Holders, and the interest thereon shall be deemed to constitute a part of such Auxiliary Securities, as applicable. 3.9 Statute of Limitations. The Escrowholder shall not be liable for the lapse of any rights because of any statute of limitations applicable with respect to this Agreement or any documents deposited with the Escrowholder. 3.10 Legal Counsel. The Escrowholder shall be entitled to employ such legal counsel and other experts as the Escrowholder may reasonably deem necessary to advise the Escrowholder properly in connection with the Escrowholder's obligations, and may pay such counsel or experts reasonable compensation therefor, for which the Escrowholder shall be reimbursed by the Option Holders. 3.11 Termination of Duties; Successor. The Escrowholder's responsibilities as the Escrowholder hereunder shall terminate if (i) the Escrowholder shall resign by 30 days' written notice to the Optionors and the Option Holders, (ii) the Optionors and the Option Holders jointly agree to discharge the Escrowholder and to appoint the Escrowholder's successor or (iii) the Escrowholder dies. In the event of any Escrowholder's discharge as Escrowholder, by resignation, death or by otherwise becoming unable to perform his/her duties, his/her successor shall be the successor Secretary of the Company. Upon the Escrowholder's receipt of notice of any such appointment of the Escrowholder's successor, 36236E109 Page 68 of 80 Pages he/she shall deliver all documents, shares and other property then in the Escrowholder's possession pursuant to this Agreement to such successor. 3.12 Further Instruments. If the Escrowholder reasonably requires other or further instruments in connection with this Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 3.13 Conflicting Notices; Disputes. If the Escrowholder receives a notice from the Option Holders that the Option Holders are exercising any of their rights hereunder, then the Escrowholder shall first complete all action required with respect to such notice before taking action with respect to any subsequently received notice which in any way conflicts with the prior notice. It is understood and agreed that should any dispute arise with respect to the delivery, ownership or right to possession of the Option Shares, the Auxiliary Securities with respect thereto, and/or any other property held by the Escrowholder hereunder, the Escrowholder is authorized and directed to retain in his/her possession, without liability to anyone, all or any part of such securities and/or such other property until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected (with the understanding that the Escrowholder shall be under no duty whatsoever to institute or defend any such proceedings). 3.14 Voting of Shares. So long as the Option Shares and/or Auxiliary Securities and any other voting securities of the Company shall be held by the Escrowholder, the Optionors shall be entitled to vote the Option Shares and/or the Auxiliary Securities in all 36236E109 Page 69 of 80 Pages matters presented to the shareholders of the Company and shall be entitled to exercise all other rights as shareholders of the Company with respect to such securities. 4 Representations, Warranties and Covenants of the Optionors. 4.1 Ownership of Option Shares; No Conflicts. Each of the Optionors represents and warrants, severally and not jointly, as of the date hereof, and covenants, severally and not jointly, for the period beginning on the date hereof and ending on the Termination Date, that (i) such Optionor has the legal capacity to execute, deliver and perform his obligations under this Agreement; (ii) such Optionor owns beneficially and of record such Optionor's Option Shares, free and clear of any lien, claim, encumbrance or restriction of any type or nature whatsoever (other than restrictions on resale that may arise under applicable federal and securities laws) (collectively, "Liens"); (iii) such Optionor has and will have the right to enter into this Agreement and to Transfer to the Option Holders all or any part of such Optionor's Option Shares and Auxiliary Securities free and clear of any Liens; (iv) such Optionor's Option Shares and Auxiliary Securities are not and will not be subject to any right of first refusal, right of repurchase or any similar right granted to, or retained by, the Company, any shareholder of the Company or any other person; and (v) there is no provision of any existing agreement, nor will such Optionor enter into any agreement, by which such Optionor is or would be bound (or to which such Optionor is or would become subject) that conflicts or would conflict with this Agreement or the performance of such Optionor's obligations under this Agreement, other than any such conflicts that have been waived. 36236E109 Page 70 of 80 Pages 4.2 Further Assurances. Upon the reasonable request of the Escrowholder or the Option Holders, each of the Optionors will prepare, execute and deliver any further instruments and take any further action that may be necessary to carry out more effectively the purpose of this Agreement. 5. Representations and Covenants of the Option Holders. If the Company's counsel reasonably deems it necessary, the purchase of the Option Shares and the Auxiliary Securities, if any, upon exercise of the Option may be conditioned upon the Option Holders representing to the Company as follows: (a) The Option Shares and the Auxiliary Securities, if any, are being acquired (i) solely for the Option Holders' own account(s) (not for the account of any other person), and (ii) for investment purposes and not with a view to distribution or resale except in compliance with applicable federal and state laws; and (b) Such other representations and warranties as are required in the opinion of the Company's counsel to comply with applicable state and federal securities laws. 6 Miscellaneous. 6.1 Amendment. Except as provided in Section 3.7, this Agreement may only be amended by a writing signed by the Optionors and the Option Holders. 6.2 Entire Agreement; Controlling Document. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence and understandings between the parties with respect to the subject matter hereof, whether oral or in writing. 36236E109 Page 71 of 80 Pages 6.3 Notices. All notices and other communications under this Agreement shall be in writing, shall be effective when received, and shall in any event be deemed to have been received: on the date of delivery if delivered personally or by telecopier; on the second business day after the business day of deposit with the U.S. Postal Service for delivery by first class mail, registered or certified, postage prepaid; or on the first business day after the business day of deposit with a courier for overnight delivery, freight prepaid; in each such case, addressed as follows (until any such address is changed by notice duly given): (a) to the Optionors, to: Joseph J. Cayre Kenneth Cayre Stanley Cayre c/o Good Times Home Video 16 East 40th Street New York, New York 10016 Telecopy: (212) 696-4880 (b) to the Option Holders, to: General Atlantic Partners 54, L.P. GAP Coinvestment Partners II, L.P. c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 622-8818 Attention: William E. Ford (c) to the Escrowholder, to: General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, Connecticut 06830 Telecopy: (203) 618-9207 Attention: Thomas J. Murphy 36236E109 Page 72 of 80 Pages 6.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 Severability. If any provision of this Agreement shall be determined to be invalid or unenforceable, the remainder shall be valid and enforceable to the maximum extent possible. 6.6 Headings. The section headings used in this Agreement are intended principally for convenience and shall not by themselves determine the rights and obligations of the parties to this Agreement. 6.7 Delay and Waiver. No delay on the part of any party in exercising any right under this Agreement shall operate as a waiver of such right. The waiver by any party of any other term or condition of this Agreement shall not be construed as a waiver of a subsequent breach or failure of the same term or condition or a waiver of any other term or condition contained in this Agreement. 6.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED 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. 36236E109 Page 73 of 80 Pages IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. GENERAL ATLANTIC PARTNERS 54, L.P. By: General Atlantic Partners, LLC, Its general partner By: /s/ William E. Ford ------------------- Name: William E. Ford Title: A Managing Member GAP COINVESTMENT PARTNERS II, L.P. By: /s/ William E. Ford ------------------- Name: William E. Ford Title: A General Member 36236E109 Page 74 of 80 Pages /s/ Joseph J. Cayre ------------------- Joseph J. Cayre /s/ Kenneth Cayre ----------------- Kenneth Cayre /s/ Stanley Cayre ----------------- Stanley Cayre Escrowholder hereby acknowledges receipt of the subject matter of the escrow as described in the foregoing Agreement and hereby accepts same as Escrowholder hereunder, subject to the terms and conditions hereof. Dated as of this 30th day of July, 1999 /s/ Thomas J. Murphy -------------------- Thomas J. Murphy 36236E109 Page 75 of 80 Pages Schedule I Allocable Percentages The Optionors Percentage Option Shares - ------------- ---------- ------------- Joseph J. Cayre 50% 666,667 Kenneth Cayre 25% 333,333 Stanley Cayre 25% 333,333 Total 100% 1,333,333 36236E109 Page 76 of 80 Pages Schedule II [Stock Certificate Numbers] 36236E109 Page 77 of 80 Pages Schedule III Allocation of Option Shares Percentage Option Shares ---------- ------------- GAP LP 81.624% 1,088,320 GAP Coinvestment 18.376% 245,013 Total 100% 1,333,333 36236E109 Page 78 of 80 Pages Exhibit A Option Exercise Notice [Date] Joseph Cayre Kenneth Cayre Stanley Cayre c/o GT Interactive Software Corp. 16 East 40th Street New York, New York 10016 1 Exercise of Option. Effective as of the above date, the undersigned hereby exercises its option to purchase __________ shares of common stock, par value $0.01 per share, of GT Interactive Software Corp., a Delaware corporation, pursuant to the Option Agreement, dated as of July 30, 1999 (the "Agreement"), among Joseph J. Cayre, Kenneth Cayre, and Stanley Cayre (collectively, the "Cayre Family" and the "Optionors"), General Atlantic Partners 54, L.P., a Delaware limited partnership, and GAP Coinvestment Partners II, L.P., a New York limited partnership (collectively, the "Option Holders"), and Thomas J. Murphy, as Escrowholder. The exercise price per share is $.01 for an aggregate purchase price of $______________. 2 Delivery of Payment. The undersigned has wire transferred the above aggregate purchase price to the Optionors and attached is a confirmation of such transfer. 3 Delivery of Certificates. You are instructed to deliver the Certificates to the undersigned as required by the Agreement. Submitted by: Accepted by: Name: Name: Thomas J. Murphy Title: Title: Escrowholder 36236E109 Page 79 of 80 Pages Exhibit B STOCK POWER FOR VALUE RECEIVED and pursuant to the Option Agreement, dated as of July 30, 1999 (the "Option Agreement"), between the undersigned assignor, General Atlantic Partners 54, L.P., GAP Coinvestment Partners II, L.P., and Thomas J. Murphy, as Escrowholder, the undersigned hereby sells, assigns and transfers unto _______________ (_______) shares, par value $0.01 per share, of common stock of GT Interactive Software Corp., a Delaware corporation, standing in the undersigned's name on the books of said corporation represented by certificate number __________ delivered herewith, and does hereby irrevocably constitute and appoint __________ as attorney-in-fact, with full power of substitution, to transfer said stock on the books of said corporation. Dated: , 19__ [Optionor] By: (Signature) (Type or Print Name) Its This Stock Power was executed in conjunction with the terms of the Option Agreement, and may be utilized only in connection with the terms of such agreement. Instruction: Please do not fill in any blanks other than the signature line. Please check applicable box. 36236E109 Page 80 of 80 Pages -----END PRIVACY-ENHANCED MESSAGE-----