Exhibit
10.5


 


July 18,
2002


 


Sean Spector


14376 Millbrook Dr.


Sherman Oaks, CA 91423


 


Dear Sean:


 


On behalf of GameFly, Inc.
(the “Company”), I am pleased to
offer you the full time position of President, Chief Operating Officer, Chief
Financial Officer and Vice President, Business Development of the Company.


 


The terms of your new
position with the Company are as set forth below:


 


1.             Position.


 


a.       You will become the
President, Chief Operating Officer, Chief Financial Officer and Vice President,
Business Development of the Company, working out of the Company’s headquarters
office in Santa Monica, California. You will report to the Company’s Chief
Executive Officer.


 


b.      You agree to the best of
your ability and experience that you will at all times loyally and
conscientiously perform all of the duties and obligations required of and from
you pursuant to the express and implicit terms hereof, and to the reasonable
satisfaction of the Company. During the term of your employment, you further
agree that you will devote all of your business time and attention to the
business of the Company, the Company will be entitled to all of the benefits
and profits arising from or incident to all such work services and advice, you
will not render commercial or professional services of any nature to any person
or organization, whether or not for compensation, without the prior written
consent of the Company’s Board of Directors, and you will not directly or
indirectly engage or participate in any business that is competitive in any
manner with the business of the Company. Nothing in this letter agreement will
prevent you from accepting speaking or presentation engagements in exchange for
honoraria or from serving on boards of charitable organizations, or from owning
no more than one percent (1%) of the outstanding equity securities of a
corporation whose stock is listed on a national stock exchange.


 


2.             Start Date. Subject to fulfillment of any conditions imposed by this letter agreement,
you will commence this new position with the Company as of July 18, 2002.


 


3.             Proof of
Right to Work. For purposes of federal
immigration law, you will be required to provide to the Company documentary
evidence of your identity and eligibility for employment in the United States.
Such documentation must be provided to us within three (3) business days
of your date of hire, or our employment relationship with you may be
terminated.


 

















 


4.             Compensation. You will be
paid a monthly salary of $5,000 which is equivalent to $60,000 on an annualized
basis; provided, however, upon the initial closing of the
Company’s next equity financing following the Company’s Series A financing
that involves the issuance and sale of the Company’s equity securities in a
single transaction or a series of related transactions yielding gross proceeds
to the Company of at least $2,000,000 in the aggregate, you will be paid a
monthly salary of $10,000 which is equivalent to $120,000 on an annualized
basis. Your salary will be payable pursuant to the Company’s regular payroll policy
(or in the same manner as other similarly situated employees of the Company).
Your base salary will be reviewed annually as part of the Company’s normal
salary review process.


 


5.             Stock
Purchase Right. In connection
with the commencement of your employment, the Company will recommend that the
Board of Directors offer you the right to purchase 1,625,000 shares of the
Company’s Common Stock (the “Shares”) at a per share purchase price
equal to the fair market value on the date of grant. 237,250 of the Shares will
be fully vested on your Vesting Commencement Date (as defined in the your
Common Stock Purchase Agreement) and the remaining shares will vest monthly
thereafter at the rate of 1/48 of the total number of Shares at the end of each
full month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The Shares will be subject to the terms of a
Common Stock Purchase Agreement between you and the Company. In the event you
are involuntarily terminated without Cause (as defined below) or you
voluntarily terminate your own employment with the Company for Good Reason (as
defined below), then 25% of the total Shares shall immediately vest on such
termination date. In the event you are involuntarily terminated without Cause (as
defined below) in connection with or following a Change in Control (as defined
below), or you voluntarily terminate your own employment with the Company for
Good Reason (as defined below) in connection with or following a Change in
Control, then 50% of the total Shares shall immediately vest on such
termination date.


 


For purposes of this letter
agreement, “Cause” shall mean: (i) your willful failure
substantially to perform your duties and responsibilities to the Company or
deliberate violation of a Company policy; (ii) your commission of any act
of fraud, embezzlement, dishonesty or any other willful misconduct that has
caused or is reasonably expected to result in material injury to the Company; (iii) unauthorized
use or disclosure by you of any proprietary information or trade secrets of the
Company or any other party to whom the you owe an obligation of nondisclosure
as a result of your relationship with the Company; or (iv) your willful
breach of any of your obligations under any written agreement or covenant with
the Company.


 


For purposes of this letter
agreement, “Good Reason” for your resignation will exist if you resign
in writing within 60 days after the occurrence of any of the following without
your written consent: (i) any material reduction in your cash
compensation; or (ii) any material reduction in your benefits; or (iii) any
material breach of any of the provisions of your Common Stock Purchase
Agreement; or (iv) a material reduction in your duties and
responsibilities with respect to the Company; or (v) relocation of your
place of employment to a place that is more than fifty miles from the previous
Company location.


 


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For purposes of this letter
agreement, “Change of Control” means a sale of all or
substantially all of the Company’s assets, or any merger or consolidation of
the Company with or into another corporation other than a merger or
consolidation in which the holders of more than 50% of the shares of capital
stock of the Company outstanding immediately prior to such transaction continue
to hold (either by the voting securities remaining outstanding or by their
being converted into voting securities of the surviving entity) more than 50%
of the total voting power represented by the voting securities of the Company,
or such surviving entity, outstanding immediately after such transaction.


 


6.             Stock Options. Subject to the discretion of the Company’s Board of
Directors, you may be eligible to receive grants of stock options or purchase
rights from time to time in the future, on such terms and subject to such
conditions as the Board of Directors shall determine as of the date of any such
grant.


 


7.             Benefits.


 


a.                Insurance Benefits. The Company will provide you with the opportunity
to participate in the standard benefits plans currently available to other
similarly situated employees subject to any eligibility requirements imposed by
such plans.


 


b.                Vacation; Sick Leave. You will be entitled to 15 days paid
vacation per year, pro-rated for the remainder of this calendar year. Vacation
accrues according to the Company’s regular vacation accrual policy available to
other similarly situated employees. Vacation may not be taken before it is
accrued. In addition, you will be entitled to take up to 5 sick days per
calendar year.


 


8.             Severance Benefit. You will be entitled to receive benefits upon
termination of your employment with the Company as described below. Your
entitlement to these severance benefits will be conditioned upon your execution
and delivery to the Company of (i) a general release of all claims, and (ii) a
resignation from all of your positions with the Company.


 


If your employment is
involuntarily terminated by the Company for any reason other than Cause or if
you resign your employment for Good Reason, you will be entitled to receive a
severance benefit equal to 6 months of your then-current base salary. This
severance benefit will be paid over the 6-month period following your
termination date on the Company’s normal payroll dates. In addition, during the
severance period, the Company will reimburse you for the expenses you incur in
continuing your medical coverage under COBRA, provided that you make a timely
election for such continued coverage.


 


9.             Confidential Information and Invention Assignment Agreement. Your acceptance of this offer and
commencement of employment with the Company is contingent upon the execution,
and delivery to an officer of the Company, of the Company’s Confidential
Information and Invention Assignment Agreement, a copy of which is enclosed for
your review and execution (the “Confidentiality
Agreement”), prior to or on your Start Date.


 


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10.           At-Will
Employment. Your employment with the
Company will be on an “at will” basis, meaning that either you or the Company
may terminate your employment at any time for any reason or no reason, without
further obligation or liability.


 


[Signature Page Follows]


 


4

















 


To
indicate your acceptance of the Company’s offer, please sign and date this
letter in the space provided below and return it to me, along with a signed and
dated copy of the Confidentiality Agreement. This letter, together with the
Confidentiality Agreement, set forth the terms of your employment with the
Company and supersede any prior representations or agreements, whether written
or oral. This letter may not be modified or amended except by a written
agreement, signed by the Company and by you.


 


	
  Very truly yours,

  	
   

  	
  ACCEPTED AND AGREED:

  
	
   

  	
   

  	
   

  
	
  GAMEFLY, INC.

  	
   

  	
  SEAN SPECTOR

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Edward Lenk

  	
   

  	
  /s/ Sean Spector

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  CEO

  	
   

  	
  July 18, 2002

  
	
   

  	
   

  	
  Date

  



 


Attachment A: Confidential Information and
Invention Assignment Agreement


 


5






 










 


Attachment A

Confidential Information and Invention Assignment Agreement


 

















 


ADDENDUM TO LETTER AGREEMENT


 


The following shall
constitute an Addendum to the Letter Agreement between Sean Spector and
GameFly, Inc. (the “Company”) and is dated July 23, 2002.


 


RECITALS


 


A.                                   The Company and
Mr. Spector entered that certain Letter Agreement, dated July 18, 2002, a
copy of which is attached hereto as Exhibit A.


 


NOW, THEREFORE, in
consideration of the mutual promises, covenants and conditions hereinafter set
forth, the parties hereto mutually agree as follows:


 


1.                                       Amendment of
Letter Agreement. Effective as of the date hereof, Section 5 of
the Letter Agreement shall be amended to read in its entirety as follows:


 


“5.                                 Stock Purchase Right.  In connection with the commencement of your
employment, the Company will recommend that the Board of Directors offer you
the right to purchase 1,625,000 shares of the Company’s Common Stock (the “Shares”)
at a per share purchase price equal to the fair market value on the date of
grant. 237,250 of the Shares will be fully vested on your Vesting Commencement
Date (as defined in the your Common Stock Purchase Agreement) and the remaining
shares will vest monthly thereafter at the rate of 1/48 of the total number of
Shares at the end of each full month thereafter. Vesting will, of course,
depend on your continued employment with the Company. The Shares will be
subject to the terms of a Common Stock Purchase Agreement between you and the
Company. In the event you are involuntarily terminated without Cause (as
defined below) or you voluntarily terminate your own employment with the
Company for Good Reason (as defined below), then 25% of the total Shares shall
immediately vest on such termination date. In the event you are involuntarily terminated
without Cause (as defined below) in connection with or within 18 months
following a Change in Control (as defined below), or you voluntarily terminate
your own employment with the Company for Good Reason (as defined below) in
connection with or within 18 months following a Change in Control, then 50% of
the total Shares shall immediately vest on such termination date.


 


For
purposes of this letter agreement, “Cause” shall mean: (i) your
willful failure substantially to perform your duties and responsibilities to
the Company or deliberate violation of a Company policy; (ii) your
commission of any act of fraud, embezzlement, dishonesty or any other willful
misconduct that has caused or is reasonably expected to result in material
injury to the Company; (iii) unauthorized use or disclosure by you of any
proprietary information or trade secrets of the Company or any other party to
whom the you owe an obligation of


 

















 


nondisclosure as a result of
your relationship with the Company; or (iv) your willful breach of any of
your obligations under any written agreement or covenant with the Company.


 


For
purposes of this letter agreement, “Good Reason” for your
resignation will exist if you resign in writing within 60 days after the
occurrence of any of the following without your written consent: (i) a
reduction in your cash compensation by more than 20% (other than a reduction
that is applicable to all other executive officers of the Company); or
(ii) a material reduction in your duties and responsibilities with respect
to the Company; or (iii) relocation of your place of employment to a place
that is more than fifty miles from the previous Company location.


 


For
purposes of this letter agreement, “Change of Control” means a sale
of all or substantially all of the Company’s assets, or any merger or
consolidation of the Company with or into another corporation other than a
merger or consolidation in which the holders of more than 50% of the shares of
capital stock of the Company outstanding immediately prior to such transaction
continue to hold (either by the voting securities remaining outstanding or by
their being converted into voting securities of the surviving entity) more than
50% of the total voting power represented by the voting securities of the
Company, or such surviving entity, outstanding immediately after such
transaction.”


 


2.                                       Entire
Agreement. Section 5 of the Letter Agreement is
modified in its entirety by the provisions of this Addendum. Except as so
modified, the Letter Agreement shall remain in full force and effect. In the
event of any conflict between this Addendum and the Letter Agreement, this
Addendum shall govern. This Addendum and the Letter Agreement, with the
exhibits attached thereto, constitute the entire agreement between Mr. Spector
and the Company regarding the terms and conditions of the Letter Agreement.
This Addendum supersedes all prior negotiations, representations or agreements
between Mr. Spector and the Company, whether written or oral, concerning
the modifications in the Letter Agreement.


 


[SIGNATURE PAGES FOLLOW]


 


2

















 


IN
WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed as of the day and year written below.


 


	
   

  	
  GameFly, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Edward C. Lenk

  
	
   

  	
   

  	
  Edward
  C. Lenk

  
	
   

  	
   

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
  Date:
  July 23, 2002

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sean
  Spector

  
	
   

  	
   

  
	
   

  	
  /s/ Sean Spector

  
	
   

  	
  Sean
  Spector

  
	
   

  	
   

  
	
   

  	
  Date:
  July 23, 2002

  



 


SIGNATURE PAGE TO ADDENDUM TO

LETTER AGREEMENT


 














 


EXHIBIT
A


 


LETTER
AGREEMENT


 

















 


December 9,
2008


 


Sean Spector


17117 Strawberry Drive


Encino, CA 91436


 


Re:                     OFFER LETTER  


 


Dear Sean:


 


You and GameFly, Inc. (the “Company”)
signed an offer letter, dated July 18, 2002, as amended by an addendum,
dated July 23, 2002 (collectively, the “Offer Letter”). This letter
agreement amends the Offer Letter in order for the cash severance payments
under the Offer Letter to be exempt from or comply with Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”) and to
reflect your current position with the Company as Senior Vice President of
Business Development and Content. Except as otherwise amended in this letter
agreement, the Offer Letter remains in full force and effect.


 


Specifically, this letter agreement amends
and restates Section 8 of the Offer Letter to read in its entirety as
follows:


 


8.                                       Severance
Benefit. If you experience an Involuntary Termination (as defined below),
provided that you satisfy the Conditions (as defined below) within the Deadline
(as defined below), you will receive continued payment of your base salary at
the rate then in effect and the Company will reimburse your COBRA premiums for
a period of six (6) months. As a condition to receiving such salary
continuation payments and reimbursement of COBRA premiums described in this
paragraph, you will be required to execute a general release of all claims in
the form prescribed by the Company (the “Release”) and return all
Company property (collectively, the “Conditions”), in each case within
thirty (30) days following the Separation (the “Deadline”). The salary
continuation payments will be paid in accordance with the Company’s regular
payroll schedule at the same payment rate as was in effect on the Separation
(as defined below) date, commencing on the Company’s first regular payroll date
following the last day of the Deadline. The Company’s reimbursement of your
COBRA premiums will apply retroactively to the first date on which you lost
health care coverage as an employee of the Company.


 


For all purposes under this
letter agreement, “Involuntary Termination” means that you experience an
involuntary separation, as defined in Treasury Regulation 1.409A-1(h) (“Separation”),
by the Company for a reason that is other than for Cause, death or Permanent
Disability (as defined below) or by you for Good Reason (as defined below).


 


For all purposes under this
letter agreement, “Permanent Disability” means your inability to perform
the essential functions of your position with or without reasonable


 

















 


accommodation for a period
of one hundred twenty (120) consecutive days because of your physical or mental
impairment.


 


For all purposes under this
letter agreement, “Good Reason” means: (i) any
material reduction of your base compensation from that which was in effect
immediately prior to the reduction (other than a reduction that is applicable
to all other executive officers of the Company), (ii) a material reduction
in your duties and responsibilities with respect to the Company, or (iii) the
relocation of your place of employment to a place that is more than fifty (50)
miles from the previous Company location. Notwithstanding the foregoing, the
conditions described in this paragraph will constitute “Good Reason” only if
(i) you give the Company written notice of one of the conditions described
in this paragraph within thirty (30) days after the condition comes into
existence; (ii) the Company fails to remedy such condition within fifteen
(15) days after receiving your written notice; and (iii) after the
Company’s failure to remedy such condition within the previously described
fifteen (15)-day period, you resign in writing from the Company within sixty
(60) days after such condition has come into existence without your consent.


 


For purposes of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), each
salary continuation payment that is paid as severance pay, as described above,
is hereby designated as a separate payment. Notwithstanding anything stated
herein to the contrary, each of the salary continuation payments provided in
connection with your Involuntary Termination is intended to be exempt from Code
Section 409A pursuant to Treasury Regulation
Section 1.409A-1(b)(9)(iii) and to the extent it is exempt pursuant to such
section, it will in any event be paid no later than the last day of your second
(2nd) taxable year following the taxable year in which your Involuntary
Termination has occurred; provided that, to the extent that any of such salary
continuation payments and any other payments paid to you in connection with
your Involuntary Termination does not qualify to be exempt from Code
Section 409A pursuant to Treasury Regulation
Section 1.409A-1(b)(9)(iii) or otherwise exceeds the limit set forth in
Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) or any similar
limit promulgated by the Treasury or the IRS, the portion of the salary
continuation payments that does not qualify or otherwise exceeds such limit, as
determined by the Company in its sole discretion, will be paid by no later than
the fifteenth (15th) day of the third (3rd) month following the end of your
first (1st) tax year in which your Involuntary Termination occurs, or, if
later, the fifteenth (15th) day of the third (3rd) month following the end of the
Company’s first (1st) tax year in which your Involuntary Termination occurs, as
provided in Treasury Regulation Section 1.409A-1(b)(4).


 


Notwithstanding the above,
if any of the salary continuation payments provided in connection with your
Involuntary Termination does not qualify for any reason to be exempt from Code
Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii) or
Treasury Regulation Section 1.409A-1(b)(4) and you are deemed by the
Company at the time of your Involuntary Termination to be a “specified
employee,” as defined in Code Section 409A, each such salary continuation
payment will not be made or commence until the date which is the first (1st)
day of the seventh (7th) month after your Involuntary Termination and the installments
that otherwise would have been paid during the first six (6) months after
your Involuntary Termination will be paid in a lump


 


2

















 


sum on the first (1st) day
of the seventh (7th) month after your Involuntary Termination. Such deferral
will only be effected to the extent required to avoid adverse tax treatment to
you, including (without limitation) the additional twenty percent (20%) federal
tax for which you would otherwise be liable under Section 409A(a)(1)(B) of
the Code in the absence of such deferral.


 


In addition, the definition of “Good Reason” set forth in
this letter agreement will only apply with respect to Section 8 of the
Offer Letter.


 


Lastly, to reflect your current position with
the Company, wherever your initial position of “President, Chief Operating
Officer, Chief Financial Officer and Vice President, Business Development”
appears in the Offer Letter, it shall be replaced by your current position of
“Senior Vice President of Business Development and Content”.


 


This amendment to the Offer Letter may be
executed in two or more counterparts, each of which will be deemed an original,
but all of which together will constitute one and the same instrument. To
indicate your acceptance of this amendment to the Offer Letter, please sign and
date this letter in the space provided below and return it to me.


 


	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAMEFLY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ David A. Hodess

  
	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name: David Hodess

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title: President and CEO

  
	
   

  	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Sean Spector

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Sean Spector

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  December 9, 2008

  	
   

  	
   

  
	
  Date

  	
   

  	
   

  



 


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