Document:

Exhibit
10.3

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

Amended and Restated
Employment Agreement, dated as of December 1, 2007 (the “Effective Date”), by
and between ACTIVISION, INC., a Delaware corporation with its principal offices
at 3100 Ocean Park Boulevard, Santa Monica, CA 90405 (the “Company”), and ROBERT
A. KOTICK (the “Executive”).

 

RECITALS:

 

WHEREAS, the Company and
the Executive are parties to an employment agreement dated May 22, 2000 as
amended on December 29, 2006 (the “Original Agreement”);

 

WHEREAS, the Company,
Vivendi, S.A., a Societe Anonyme organized under the laws of France (“Vivendi”), Vivendi
Games Acquisition Company LLC, a limited liability company organized under the
laws of the State of Delaware (“Vivendi LLC”), Vivendi Games, Inc., a Delaware
corporation (“Games”),
and Sego Merger Corporation, a Delaware corporation (“Merger Sub”), have
proposed to enter into a Business Combination Agreement (“BCA”) in order to
combine the respective businesses of Games and the Company, pursuant to which,
among other things, (i) Vivendi shall purchase (the “Share Purchase”) from
the Company a number of newly issued shares of common stock, par value
$0.000001 per share, of the Company (“Company Common Stock”) and (ii) Merger Sub
shall be merged with and into Games (the “Merger” and, together with the Share
Purchase, the “Combination
Transactions”) pursuant to which (x) each share of common stock,
par value $0.01 per share, of Games shall be converted into the right to
receive a number of shares of Company Common Stock equal to the Exchange Ratio
(as defined in the BCA) and (y) Games shall become a wholly-owned subsidiary of
the Company;

 

WHEREAS, concurrently
with the execution of the BCA, in order to induce Vivendi, Vivendi LLC and
Games to enter into the BCA, the Executive has agreed to enter into this
Amended and Restated Employment Agreement (this “Agreement”), between the Executive and
the Company, effective on the Effective Date and subject to the provisions
hereof;

 

WHEREAS, the Board of
Directors of the Company (the “Board”) has determined that it is in the best interests
of the Company and its stockholders to enter into this Agreement and the
Executive is willing to serve as an employee of the Company subject to the
terms and conditions of this Agreement;

 

WHEREAS, the Compensation
Committee (the “Compensation
Committee”) of the Board approved the execution and delivery of
this Agreement by the Company at a meeting of the Compensation Committee held
on December 1, 2007;

 

WHEREAS, this Agreement
has been provided to and reviewed by the Board of Directors of Vivendi;

 

WHEREAS, the Company,
Vivendi and the Executive agree that it is a condition of the Combination
Transactions that the Executive executes the Agreement;

 

 

WHEREAS, the Company and
the Executive agree that this Agreement will amend and supersede the Original
Agreement in its entirety; and

 

WHEREAS, in consideration
for this Agreement, the Executive has waived his rights to certain payments and
benefits under the Original Agreement.

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:

 

1.                                      Position
and Duties

 

(a)                                  The
Company agrees to continue to employ the Executive, and the Executive agrees to
be employed, as President and Chief Executive Officer of the Company reporting
only to the Board. The Executive shall be the senior-most employee of the
Company, and all employees of the Company shall report, directly or indirectly,
to the Executive. The Executive shall have such powers, duties, authorities and
responsibilities as are consistent with Executive’s position and title and as
are in effect immediately prior to the Effective Date; provided that following
the consummation of the Combination Transactions (the “Consummation Date”),
the Executive’s powers, duties, authorities and responsibilities shall be
consistent with the provisions of the Company’s amended and restated By-Laws
(the “By-Laws”).
At all times during the Employment Period (as defined in Section 2 below),
the Executive shall, unless he otherwise elects, be nominated for election by
the shareholders of the Company to the Board.

 

(b)                                 During
the Employment Period and excluding any periods of vacation, the Executive
agrees to devote such time, attention and efforts to the business and affairs
of the Company as may be necessary to discharge the duties and responsibilities
assigned to the Executive hereunder and to use the Executive’s reasonable best
efforts to perform faithfully and efficiently such duties and responsibilities.

 

(c)                                  It
shall not be a violation of this Agreement for the Executive to engage in any
activity which is, in the good faith opinion of the Executive, not inconsistent
with the Company’s interests and prospects, including, without limitation,
(a) serving on civic or charitable boards or committees; (b) serving
as a director of any company that is not in a Competitive Business (as defined
in Section 13(b) below); (c) delivering lectures, fulfilling speaking
engagements or teaching at educational institutions; (d) managing personal
investments; (e) serving as an officer or director of entities formed to manage
family or personal investments; and (f) attending conferences conducted by
business organizations; provided, however, that such activity
does not significantly interfere with the performance of Executive’s duties and
responsibilities hereunder. It is expressly understood and agreed that to the
extent that any activity has been conducted by the Executive prior to the
Effective Date, the continued conduct of such activity (or the conduct of an
activity similar in nature and scope thereto) during the Employment Period shall
be deemed not to interfere with the performance of the Executive’s duties and
responsibilities to the Company and shall not constitute a violation of this
Agreement.

 

(d)                                 Except
for periodic travel assignments, the Executive shall not, without his consent,
be required to perform services for the Company at any place other than the
principal

 

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place of the Company’s business which shall at all times, unless the
Executive otherwise consents, be within a 20 mile radius of the Company’s
current principal place of business. Notwithstanding anything herein to the
contrary, the Executive may, at his sole discretion and upon prior written
notice to the Board, relocate at any time to New York, New York in connection
with the establishment by the Company of executive offices in such city.

 

2.                                      Effectiveness;
Employment Period

 

The employment of the Executive under the terms of
this Agreement (the “Employment
Period”) shall commence on the Effective Date and terminate on
December 31, 2012 (the “Expiration
Date”). Notwithstanding anything contained herein to the
contrary, the Executive’s employment pursuant to the terms of this Agreement is
subject to termination pursuant to Section 7 below.

 

3.                                      Compensation

 

The Executive shall receive the following compensation
(the ”Compensation”)
for his services hereunder:

 

(a)                                  Base Salary. The Company shall pay to the
Executive a base salary (“Base
Salary”) in respect of each calendar year of the Company or
portion thereof during the Employment Period. Commencing on the Effective Date,
the annual Base Salary shall be $950,000; provided, however, that
the Base Salary shall be increased as of each January 1st during the Employment
Period by a percentage equal to the average percentage increase approved by the
Compensation Committee in the base salaries of the members of the Company’s
executive leadership team most recently implemented with respect to the fiscal
year in which such January 1st occurs excluding for these purposes (i) increases
that are required or guaranteed by contract and (ii) increases in base salaries
in connection with a promotion or other significant modification in an
executive’s duties. The Base Salary shall be paid in accordance with the
customary payroll practices of the Company at regular intervals, but in no
event less frequently than every month, as the Company may establish from time
to time for senior executive employees of the Company. The Base Salary shall be
prorated with respect to any partial calendar years during the Employment
Period.

 

(b)                                 Annual Bonus. The Executive shall be
entitled to receive an annual bonus for each fiscal year of the Company during
the Employment Period (the “Annual Bonus”), based upon the Company achieving
financial and business objectives for the fiscal year with respect to which the
Annual Bonus accrues. The financial and business objectives for each fiscal
year shall be determined by the Compensation Committee in its sole discretion,
after consultation with the Executive, within the timeframes set forth in
Section 9(a) of the Company’s 2007 Incentive Plan (the “2007 Plan”), or a
similar section of any successor Company incentive plan. The target Annual
Bonus for each fiscal year shall be no less than two hundred percent (200%) of
the Base Salary in effect on the first day of such fiscal year. The Annual
Bonus shall be paid in the form determined by the Compensation Committee in its
sole discretion, including, without limitation, cash, shares of Company Common
Stock, stock options or other equity-based awards. The Company shall pay each
Annual Bonus to the Executive no later than two and a half (21/2)
months after the end of the fiscal year for which the Annual Bonus is awarded
provided that,

 

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except as otherwise provided in this Agreement, the Executive remains
continuously employed by the Company or its subsidiaries and affiliates (the “Company Group”)
through the date on which the Annual Bonus is paid. Along with the payment of each
Annual Bonus, the Company shall also deliver to the Executive a written
statement setting forth the basis of its calculation of such Annual Bonus. The
Executive and the Executive’s representatives shall have the right, at the
Executive’s cost, to inspect the records of the Company with respect to the
calculation of any such Annual Bonus, to make copies of said records utilizing
the Company’s facilities without charge, and to have free and full access
thereto upon reasonable notice during the normal business hours of the Company.
The Annual Bonus shall be prorated to the extent it is calculated for a period
of less than a full fiscal year. The Annual Bonus is intended to qualify as
annual incentive compensation under Section 9 of the 2007 Plan, or a similar
section of any successor Company incentive plan, and shall be subject to the
conditions and limitations of such section.

 

(c)                                  Performance Bonus. The Compensation
Committee, in its sole discretion, may award to the Executive a performance
bonus at any time in such amount and in such form as the Compensation Committee
may determine, including, without limitation, in the form of cash, shares of
Company Common Stock, stock options or other equity-based awards, as the case
may be (the “Performance
Bonus”), after taking into consideration other compensation paid
or payable to the Executive under this Agreement, as well as the financial and
non-financial progress of the business of the Company and the contributions of
the Executive toward that progress. Any Performance Bonus shall be prorated to
the extent it is calculated for a period of less than a full fiscal year.

 

4.                                      Other
Benefits

 

(a)                                  Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to participate in all
health, welfare, retirement, pension, life insurance, disability and similar
plans, programs and arrangements generally available to the U.S.-based senior
executive group of the Company in accordance with the terms and conditions of
such plans, programs and arrangements, as amended from time to time. In
addition, during the Employment Period the Executive shall be entitled to
participate in all perquisite programs available to the U.S.-based senior
executive group of the Company on the terms and conditions then prevailing
under such programs, as amended from time to time.

 

(b)                                 Expenses. During the Employment Period, the
Executive shall be reimbursed by the Company for all reasonable travel,
entertainment, conference expenses, organization dues and other business
expenses incurred by the Executive in connection with the performance of the
Executive’s services under this Agreement, subject to the Company’s policies in
effect from time to time with respect to such expenses, including the
requirements with respect to reporting and documentation of such expenses.

 

(c)                                  Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, including personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company at any time during the
ninety (90) day period immediately preceding the Effective Date, or, if more
favorable to the Executive, as

 

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provided at any time after the Effective Date to the Executive or any
other senior executive officers of the Company.

 

(d)                                 Vacation. The Executive shall be entitled
to four (4) weeks paid vacation, or such greater number of weeks as are
provided in the Company’s vacation policy, each fiscal year during the
Employment Period, in addition to regular paid holidays provided to all
full-time employees of the Company in the United States; provided, however,
that unused vacation time shall not be carried over to any subsequent year. Vacation
time shall be taken as determined by the Executive in his reasonable and good
faith discretion; provided, however, that such time taken is
mutually convenient to the Company and not disruptive to the Company’s
activities or the Executive’s responsibilities.

 

(e)                                  Life Insurance. The Company shall continue
for a period of ten (10) years commencing on the Effective Date to maintain a
renewable term insurance policy or policies covering the life of the Executive
in an amount equal to three (3) times the sum of the Executive’s Base Salary
and target Annual Bonus as of the Effective Date, naming the Executive’s estate
or any other person designated by the Executive as beneficiary of such policy
or policies. The Executive has the right to require the Company at any time to
prepay all of the premiums associated with such policy or policies so as to
ensure such policies remain in force for the full ten (10)-year period.

 

5.                                      Stock
Options

 

(a)                                  Grant. In addition to the Compensation, on
the third (3rd) business day following the Effective Date, the
Company shall grant the Executive one million eight hundred and fifty thousand
(1,850,000) non-qualified options to purchase the Company Common Stock (the “New Options”). The
New Options shall be granted pursuant to the 2007 Plan.

 

(b)                                 Exercise Price of New Options. The exercise
price of the New Options shall be the closing price of the Company Common Stock
as quoted on the Nasdaq National Market on the third (3rd) business
day following the Effective Date.

 

(c)                                  Vesting. The New Options each shall vest in
sixty (60) equal monthly installments on the first day of each month within the
Employment Period, commencing with the month immediately following the
Effective Date; provided that, except as otherwise provided in this Agreement,
the Executive is continuously employed by the Company Group through the
applicable vesting date.

 

(d)                                 Term of New Options. The term of the New
Options shall be ten (10) years from the Effective Date unless cancelled prior
to such date in accordance with the provisions of this Agreement.

 

6.                                      Performance
Shares

 

(a)                                  Grant. On the Consummation Date, the
Company shall grant the Executive one million two hundred and fifty thousand
(1,250,000) performance shares (the “Performance Shares”) pursuant to the 2007
Plan. Each Performance Share represents the right to receive one share of the
Company Common Stock upon satisfaction of, and in accordance with, the

 

5

 

provisions of this Agreement. The Executive shall have no entitlement
to the Performance Shares if the Combination Transactions are not consummated
on or prior to December 31, 2008.

 

(b)                                 Vesting. Subject to the provisions of this
Agreement, the Performance Shares shall vest in five (5) twenty percent (20%)
increments on each of the first, second, third and fourth anniversaries of the
Consummation Date, and on the Expiration Date (each such anniversary and the
Expiration Date, a “Performance
Vesting Date”), in each case subject to the Company achieving or
exceeding the Compound Annual Total Shareholder Return targets (the “Performance Targets”)
at the end of the applicable performance period shown in the following schedule
(each, a “Performance
Period”):  

 

	
  Performance Period

  For the Performance Period

  Beginning on the

  Consummation Date and

  Ending on the:

  	
   

  	
  Performance Target

  Compound Annual

  Total Shareholder

  Return to be attained

  at the End of

  Performance Period*

  	
   

  	
  Number of

  Performance Shares

  to Vest Upon

  Attainment of

  Performance Target

  	
   

  
	
  1st anniversary of the Consummation Date

  	
   

  	
  0

  	
  %

  	
  250,000

  	
   

  
	
  2nd anniversary of the Consummation Date

  	
   

  	
  5

  	
  %

  	
  250,000

  	
   

  
	
  3rd anniversary of the Consummation Date

  	
   

  	
  7.5

  	
  %

  	
  250,000

  	
   

  
	
  4th anniversary of the Consummation Date

  	
   

  	
  15

  	
  %

  	
  250,000

  	
   

  
	
  Expiration Date

  	
   

  	
  18

  	
  %

  	
  250,000

  	
   

  

 

*Subject to termination
of employment provisions below.

 

; provided, however,
that if the Company fails to achieve a Performance Target as of the last day of
an applicable Performance Period (each such Performance Period, a “Missed Performance Period”),
but achieves the Performance Target required to be attained for a subsequent
Performance Period, then, on the applicable subsequent Performance Vesting
Date, the Executive shall vest in all Performance Shares for the applicable
Performance Period and all prior Missed Performance Periods to the extent not
already vested.

 

Subject to Sections 6(c)
and 10(b), vesting of the Performance Shares is also subject to the Executive
remaining continuously employed by the Company Group through the end of the
applicable Performance Period. The shares of Company Common Stock subject to
the Performance Shares shall be delivered, to the extent vested in accordance
with the provisions hereof, thirty (30) days following each Performance Vesting
Date (or such other vesting date which occurs in accordance with Section 6(c)
or 10(b), if any). The Company’s compound annual total shareholder return shall
be as reported by Bloomberg L.P. (or such other comparable reporting service
that the Compensation Committee may designate from time to time).

 

6

 

(c)                                  Termination of Employment. To the extent
not previously vested under Section 6(b) as of the Date of Termination, upon a
termination of employment with the Company Group pursuant to Section 7(a),
7(b), 7(c) or 7(f) (other than a termination following a Change of Control (as
defined in Section 10)), the Executive shall vest in a number of the
Performance Shares determined as follows:

 

(i)                                     If
the Date of Termination occurs during the Performance Period ending on the
first anniversary of the Consummation Date (the “First Performance Period”), (A) the
Executive shall vest in one hundred (100%) percent of the Performance Shares
applicable to the First Performance Period and (B) all Performance Periods
following the First Performance Period shall be treated as Remaining
Performance Periods (as defined below) pursuant to Section 6(c)(iv)).

 

(ii)                                  If
the Date of Termination occurs during the Performance Period ending on the
second anniversary of the Consummation Date (the “Second Performance Period”):

 

(A)                              If
the  Compound Annual Total
Shareholder Return through the day immediately preceding the Date of
Termination (as defined in Section 8) equals or exceeds the Performance Target
that is required to be achieved for the Second Performance Period, then all of
the Performance Shares that would have vested had the Executive remained
employed through the last day of the Second Performance Period shall vest on
the Date of Termination;

 

(B)                                If
the  Compound Annual Total
Shareholder Return through the day immediately preceding the Date of
Termination is less than the Performance Target that is required to be achieved
for the Second Performance Period, but the Compound Annual Total Shareholder
Return through the end of the Second Performance Period (determined at the end
of the Second Performance Period) equals or exceeds the Performance Target for
the Second Performance Period, then all of the Performance Shares that would
have vested had the Executive remained employed through the last day of the
Second Performance Period shall vest on the last day of the Second Performance
Period; and

 

(C)                                If
the  Compound Annual Total
Shareholder Return through the day immediately preceding the Date of
Termination equals or exceeds the Performance Target that is required to be
achieved for the Performance Period ending on the third anniversary of the
Consummation Date (the “Third
Performance Period”), the Performance Shares that would have
vested had the Executive remained employed through the end of the Third
Performance Period shall vest on the Date of Termination.

 

7

 

(iii)                               If
the Termination Date occurs during any of the Performance Periods ending on the
third or fourth anniversary of the Consummation Date or the Expiration Date
(each, a “Termination
Performance Period”):

 

(A)                              If
the Compound Annual Total Shareholder Return through the day immediately
preceding the Date of Termination equals or exceeds the Performance Target that
is required to be achieved for the Termination Performance Period in which the
Date of Termination occurred, then all of the Performance Shares that would
have vested had the Executive remained employed through the last day of such
Termination Performance Period shall vest on the Date of Termination;

 

(B)                                If
the  Compound Annual Total
Shareholder Return through the day immediately preceding the Date of
Termination is less than the Performance Target that is required to be achieved
for the Termination Performance Period in which the Date of Termination
occurred, but the Compound Annual Total Shareholder Return through the end of
such Termination Performance Period (determined at the end of such Termination
Performance Period) equals or exceeds the Performance Target for such
Termination Performance Period, then all of the Performance Shares that would
have vested had the Executive remained employed through the last day of such
Termination Performance Period shall vest on the last day of such Termination
Performance Period;

 

(C)                                If
the  Compound Annual Total
Shareholder Return through the day immediately preceding the Date of
Termination equals or exceeds the Performance Target that is required to be
achieved for the Performance Period immediately following the Termination
Performance Period in which the Date of Termination occurred, if any (the “Subsequent Performance Period”),
the Performance Shares that would have vested had the Executive remained
employed through the end of the Subsequent Performance Period shall vest on the
Date of Termination; and

 

(D)                               If
the  Compound Annual Total
Shareholder Return through the day immediately preceding the Date of
Termination is less than the Performance Target that is required to be achieved
for the Subsequent Performance Period, but the Compound Annual Total
Shareholder Return through the end of the Termination Performance Period
(determined at the end of the Termination Performance Period) equals or exceeds
the Performance Target for the Subsequent Performance Period, then all of the
Performance Shares that would have vested had the Executive remained employed
through the last day of the Subsequent Performance

 

8

 

Period shall vest on the last day of the Termination
Performance Period.

 

(iv)                              To
the extent vesting did not occur pursuant to Sections 6(c)(i), 6(c)(ii), or
6(c)(iii), if the Company attains or exceeds the Performance Targets
(determined at the end of the applicable Performance Period) for any
Performance Periods following the Performance Period in which the Date of
Termination occurs, if any (each, a “Remaining Performance Period”), then a
Prorated Portion (as defined below) of the Performance Shares that would have
vested had the Executive remained employed through the last day of such
Remaining Performance Period(s) shall vest on such date. The “Prorated Portion”
shall be determined using a fraction, the numerator of which is the number of
days beginning on the Consummation Date and ending on the Date of Termination
and the denominator of which is the number of days beginning on the
Consummation Date and ending on the Expiration Date.

 

(v)                                 The
shares of Company Common Stock underlying the Performance Shares shall be
delivered thirty (30) days following vesting pursuant to this Section 6(c).

 

7.                                      Termination

 

The employment by the
Company Group of the Executive shall be terminated as provided in this Section
7:

 

(a)           Death.
Upon the Executive’s death (“Death”).

 

(b)                                 Disability.

 

(i)                                     The
Company or the Executive, upon not less than thirty (30) days written
notice to the other party (“Disability Notice”), may terminate the employment by the
Company of the Executive if the Executive has been unable, by reason of
physical or mental disability, to render, for 120 successive days or for
shorter periods aggregating 210 days or more in any twelve (12) month
period, services of the character contemplated by this Agreement and will be
unable to resume providing such services within a reasonable period of time by
reason of such disability (such circumstances being referred to as “Disability”).

 

(ii)                                  The
determination of whether the Executive has become Disabled within the meaning
of this Section 7(b) shall be made (A) in the case of a termination
of employment by the Company, by a medical doctor selected by the Company, or
(B) in the case of a termination of employment by the Executive, by
Executive’s medical doctor. In the event the Company gives a notice of
termination of employment under this Section 7(b), the Executive or his
representative may at any time prior to the effective date of termination
contest the termination and cause a determination of

 

9

 

Disability to be made by Executive’s medical doctor. In
the event the Executive gives a notice of termination of employment under this
Section 7(b), the Company may at any time prior to the effective date of
termination contest the termination and cause a determination of Disability to
be made by a medical doctor selected by the Company. In either case, if such
medical doctors do not agree with regard to the determination of Disability,
they shall mutually choose a third medical doctor to examine the Executive, and
the Disability determination of such third medical doctor shall be binding upon
both the Company and the Executive.

 

(c)                                  Without Cause. By the Company, for any
reason other than Death, Cause or Disability, but only upon a vote of a
majority of the entire Board (or such other vote required pursuant to the
By-Laws) at a meeting duly called and held at which Executive shall have the
right to be present and be heard.

 

(d)                                 Cause. By the Company, for Cause, but only
upon a vote of a majority of the entire Board (or such other vote required pursuant
to the By-Laws) at a meeting duly called and held at which Executive shall have
the right to be present and be heard. The term “Cause” means (i) any act of fraud
or embezzlement in respect of the Company or its funds, properties or assets;
(ii) conviction of a felony relating to the Executive’s actions as an
executive of the Company under the laws of the United States or any state
thereof (provided that all rights of appeal have been exercised or have lapsed)
unless such acts were committed in the reasonable, good faith belief that his
actions were in the best interests of the Company and its stockholders and
would not violate criminal law; (iii) willful misconduct or gross
negligence by the Executive in connection with the performance of his duties that
has caused or is highly likely to cause severe harm to the Company; or
(iv) intentional dishonesty by the Executive in the performance of his
duties hereunder which has a material adverse effect on the Company.

 

In the case of any termination for Cause, the Company
shall provide the Executive with a Notice of Termination (as defined in Section
8) giving the Executive at least thirty (30) days written notice of its intent
to terminate this Agreement and his employment. The Notice of Termination shall
specify (x) the effective date of his termination and (y) the particular acts
or circumstances that constitute Cause for such termination. The Executive
shall be given the opportunity within fifteen (15) days after receiving the
notice to explain why Cause does not exist or to cure any basis for Cause. Within
fifteen (15) days after any such explanation or cure, the Company will make its
final determination regarding whether Cause exists and deliver such
determination to the Executive in writing. If the final decision is that Cause
exists and no cure has occurred, the Executive’s employment with the Company
shall be terminated for Cause as of the Date of Termination (as defined in
Section 8) specified in the Notice of Termination. If the final decision is
that Cause does not exist or a cure has occurred, the Executive’s employment
with the Company shall not be terminated for Cause at that time.

 

(e)                                  Resignation. By the Executive, other than
for Good Reason (“Resignation”).

 

(f)                                    Good Reason. By the Executive, for Good
Reason. As used herein, the term “Good Reason” means that, without the
Executive’s prior written consent, there shall have occurred: (i) a
reduction in the Executive’s Base Salary; (ii) a material reduction in the

 

10

 

Executive’s benefits as set forth in Section 4(a), 4(d) or 4(e); (iii)
the assignment to the Executive of any duties inconsistent with the Executive’s
position, duties, responsibilities, authority or status with the Company or a
change in Executive’s reporting responsibilities, titles or offices as in
effect prior to such assignment or change; (iv) the Company’s material
breach or failure to perform, when due, any of its obligations under this
Agreement; (v) any purported termination of Executive’s employment which
is not effected pursuant to a Notice of Termination satisfying the applicable
requirements with respect to Section 8 of this Agreement; (vi) a
determination by the Executive, made in good faith, that the Executive is not
able to discharge his duties effectively by reason of directives from the Board
requiring the Executive to perform duties not directly related to the
operations of the Company; or (vii) the purported termination of the Executive’s
employment by the Company in violation of the By-Laws (which purported
termination shall be ineffective). For avoidance of doubt, the failure to pay
the Executive an Annual Bonus or the payment of an Annual Bonus that is less
than the Executive’s target Annual Bonus, in each case as a result of the
Company failing to achieve the financial and business objectives established by
the Compensation Committee for the fiscal year to which the Annual Bonus
relates, shall not constitute Good Reason hereunder.

 

In the case of any
termination for Good Reason, the Executive shall provide the Company with a
Notice of Termination giving the Company at least thirty (30) days written
notice of his intent to terminate this Agreement and his employment. The Notice
of Termination shall specify (x) the effective date of his termination and (y)
the particular acts or circumstances that constitute Good Reason for such
termination. The Company shall be given the opportunity within fifteen (15)
days after receiving the Notice of Termination to cure any basis for Good
Reason. If no cure is effected, the Executive’s resignation shall be effective
as of the Date of Termination (as defined in Section 8) specified in the Notice
of Termination. If a cure is effected, the Executive’s resignation shall not be
effective at that time.

 

8.                                      Notice
and Date of Termination

 

Any termination of the
Executive’s employment with the Company Group under Section 7, other than
by reason of Death, shall be communicated by written Notice of Termination from
the terminating party to the other party hereto. For purposes of this
Agreement, a “Notice of
Termination” shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so
indicated. The effective date of any termination of the Executive’s employment
(the “Date of
Termination”) shall be:

 

(i)                                     if
the Executive’s employment is terminated by Death, the date of the Executive’s
death;

 

(ii)                                  if
the Executive’s employment is terminated without Cause or by the Executive for
Good Reason, the later of (A) thirty (30) days after Notice of Termination is
given and (B) the expiration of any applicable cure period;

 

11

 

(iii)                               if
the Executive’s employment is terminated by reason of Disability,
(i) thirty (30) days after the Disability Notice or (ii) upon a final
determination, pursuant to Section 7(b) above, as the case may be,
whichever is later; provided that the Executive shall not have returned to the
full-time performance of his duties during such period; and

 

(iv)                              if
the Executive’s employment is terminated on account of Cause or Resignation,
the date specified in the Notice of Termination, which shall be no less than
ten (10) nor more than thirty (30) days after such Notice of
Termination is given.

 

9.                                      Compensation
Upon Termination. Upon the termination of the Executive’s employment
with the Company Group pursuant to Section 7, the Executive’s rights and the
Company’s obligations under this Agreement shall immediately terminate and,
except as provided in Section 19(m) of this Agreement, the Executive (or his
heirs or estate, as applicable) shall be entitled to receive the amounts or
benefits set forth below. The payments and benefits provided pursuant to this
Section 9 are (x) provided in lieu of any severance or income continuation
protection under any plan of the Company Group that may now or hereafter exist,
(y) provided in addition to any payments the Executive (or his beneficiaries or
estate, as applicable) may be entitled to receive pursuant to any pension or
employee benefit plan or disability or life insurance policy maintained by the
Company Group, and (z) except as provided in Section 19(m) of this Agreement,
deemed to satisfy and be in full and final settlement of all obligations of the
Company Group to the Executive under this Agreement. The Executive shall have
no further right to receive any other compensation or benefits following the
Date of Termination for any reason except as set forth in this Section 9.

 

(a)                                  Compensation Upon Death. In the event of a
termination of the Executive’s employment with the Company Group upon Death,
the Executive’s heirs, successors or legal representatives shall be entitled to
receive:

 

(i)                                     the
Base Salary through the Date of Termination, any unpaid Annual Bonus and
Performance Bonus for any prior fiscal year, and any reimbursement due to
Executive pursuant to Section 4(b) (the “Accrued Obligations”);

 

(ii)                                  an
amount equal to the Annual Bonus the Executive earned for the fiscal year
immediately preceding the fiscal year in which the Date of Termination occurs,
multiplied by a fraction, the numerator of which is the number of days worked
during the fiscal year in which the Date of Termination occurs and the
denominator of which is 365 (the “Pro Rata Annual Bonus”);

 

(iii)                               the
Executive and his then current spouse and minor children, if any, shall receive
the same level of health/medical insurance or coverage provided immediately
prior to the Date of Termination on a non-taxable basis for two (2) years, with
the cost of such continued insurance or coverage being borne by the Company;

 

12

 

(iv)                              all
outstanding options to purchase Company Common Stock granted to the Executive
at any time prior to January 1, 2007 (the “Prior  Options”) shall, to the extent not already
vested, immediately vest, and all vested Prior Options (including the Prior
Options that vest in accordance with this Section 9(a)) will remain exercisable
until the earlier of their original expiration date or the fifth (5th)
anniversary of the Date of Termination;

 

(v)                                 all
outstanding options to purchase Company Common Stock granted to the Executive
on June 15, 2007 (the “June
Options”) shall, to the extent not already vested, immediately
vest, and all vested June Options (including the June Options that vest in
accordance with this Section 9(a)) will remain exercisable until the original
expiration date of the June Options;

 

(vi)                              the
Executive shall immediately vest in the number of additional New Options equal
to the lesser of (A) forty (40%) percent of the New Options or (B) the
remaining number of unvested New Options as of the Date of Termination, and all
unvested New Options shall be cancelled immediately. Vested New Options
(including the New Options that vest in accordance with this Section 9(a)) will
remain exercisable until the original expiration date of the New Options; and

 

(vii)                           the
Executive shall be entitled to settlement of all outstanding Performance Shares
that were earned and vested prior to the Date of Termination in accordance with
Section 6; otherwise, the Performance Shares shall be treated in accordance
with Section 6(c) hereof.

 

(b)                                 Compensation Upon Disability. In the event
of termination of the Executive’s employment with the Company Group for
Disability,

 

(i)                                     the
Executive shall be entitled to receive the Accrued Obligations;

 

(ii)                                  the
Executive shall be entitled to receive the Pro Rata Annual Bonus;

 

(iii)                               the
Executive shall be entitled to receive an amount equal to one (1) times his
Base Salary;

 

(iv)                              the
Executive and his then current spouse and minor children, if any, shall receive
the same level of health/medical insurance or coverage provided immediately
prior to the Date of Termination on a non-taxable basis for two (2) years, with
the cost of such continued insurance or coverage being borne by the Company;

 

(v)                                 the
Prior Options shall, to the extent not already vested, immediately vest, and
all vested Prior Options (including the Prior Options that vest in accordance
with this Section 9(b)) will remain exercisable until the earlier of their
original expiration date or the fifth (5th) anniversary of the Date of
Termination;

 

13

 

(vi)                              the
June Options shall, to the extent not already vested, immediately vest, and all
vested June Options (including the June Options that vest in accordance with
this Section 9(b)) will remain exercisable until the original expiration date
of the June Options;

 

(vii)                           the
Executive shall vest in the number of additional New Options equal to the
lesser of (A) forty (40%) percent of the New Options or (B) the remaining
number of unvested New Options as of the Date of Termination, and all unvested
New Options shall be cancelled immediately; provided, however,
that this Section 9(b)(vii) shall not apply upon a termination of employment
following a Change of Control. Vested New Options (including the New Options
that vest in accordance with this Section 9(b)) will remain exercisable until
the original expiration date of the New Options; and

 

(viii)                        the
Executive shall be entitled to settlement of all outstanding Performance Shares
that were earned and vested prior to the Date of Termination in accordance with
Section 6; otherwise, the Performance Shares shall be treated in accordance
with Section 6(c)hereof.

 

Payment of the Pro Rata Annual Bonus, the severance
amount described in Section 9(b)(iii) and the accelerated vesting of the
options and Performance Shares described in clauses (v) through (viii) of this
Section 9(b) are expressly conditioned upon the Executive’s execution of a
waiver and release agreement in the form attached as Exhibit A to this
Agreement (the “Release”)
and the Release becoming effective and irrevocable in its entirety within
ninety (90) days after the Executive’s Date of Termination (the “Release Period”).

 

Notwithstanding
the above, if the Executive’s Disability is not such that the Executive is “disabled”
for purposes of Section 409A(a)(2)(C) of the Internal Revenue Code of 1986, as
amended (the “Code”),
the payments and benefits described in this Section 9(b) shall be subject to
Section 19(c).

 

(c)                                  Compensation Upon Resignation Or Termination For Cause. In
the event of termination of the Executive’s employment with the Company Group
upon Resignation or termination for Cause:

 

(i)                                     the
Executive shall be entitled to receive the Accrued Obligations;

 

(ii)                                  upon
a Resignation, the Executive shall be entitled to settlement of all outstanding
Performance Shares that were earned and vested prior to the Date of Termination
in accordance with Section 6;

 

(iii)                               all
other unvested Performance Shares shall expire on the Date of Termination;

 

(iv)                              all
unvested options shall expire on the Date of Termination;

 

14

 

(v)                                 upon
a termination for Cause, all vested options shall expire on the Date of
Termination; and

 

(vi)                              upon
a Resignation, all vested options will expire on the earlier of (I) their
original expiration date or (II) the later of (A) thirty (30) days following
the Date of Termination and (B) the first date on which the Executive may sell
shares of Company Common Stock over the primary exchange on which such Common
Stock is listed for trading in accordance with applicable law and any
applicable Company policy.

 

(d)                                 Compensation Upon Termination By Executive For Good Reason Or By The
Company Without Cause. In the event the Executive’s employment with
the Company Group is terminated by the Executive for Good Reason or by the
Company without Cause other than a termination during the twelve (12) month
period following the effective date of a Change of Control:

 

(i)                                     the
Executive shall be entitled to receive the Accrued Obligations;

 

(ii)                                  the
Executive shall be entitled to receive the Pro Rata Annual Bonus;

 

(iii)                               the
Executive shall be entitled to receive an amount equal to two (2) multiplied by
the sum of (x) the Base Salary in effect on the Date of Termination and (y) the
target Annual Bonus for the fiscal year in which the Date of Termination
occurs;

 

(iv)                              the
Executive and his then current spouse and minor children, if any, shall receive
the same level of health/medical insurance or coverage provided immediately
prior to the Date of Termination on a non-taxable basis for two (2) years, with
the cost of such continued insurance or coverage being borne by the Company;

 

(v)                                 the
Prior Options shall, to the extent not already vested, immediately vest, and
all vested Prior Options (including the Prior Options that vest in accordance
with this Section 9(d)) will remain exercisable until the earlier of their
original expiration date or the fifth (5th) anniversary of the Date of
Termination;

 

(vi)                              the
June Options shall, to the extent not already vested, immediately vest, and all
vested June Options (including the June Options that vest in accordance with
this Section 9(d)) will remain exercisable until the original expiration date
of the June Options;

 

(vii)                           the
Executive shall vest in the number of additional New Options equal to the
lesser of (A) forty (40%) percent of the New Options or (B) the remaining
number of unvested New Options as of the Date of Termination, and any unvested
New Options shall be cancelled immediately; provided, however,
that this Section 9(d)(vii) shall not apply upon a termination of employment
following a Change of Control. Vested

 

15

 

New Options (including the New Options that
vest in accordance with this Section 9(d)) will remain exercisable until the
original expiration date of the New Options; and

 

(viii)                        the
Executive shall be entitled to settlement of all outstanding Performance Shares
that were earned and vested prior to the Date of Termination in accordance with
Section 6; otherwise, the Performance Shares shall be treated in accordance
with Section 6(c) hereof.

 

Payment of the
Pro Rata Annual Bonus, the severance amount described in Section 9(d)(iii) and
the accelerated vesting of the options and Performance Shares described in
clauses (v) through (viii) of this Section 9(d) are expressly conditioned upon
the Executive’s execution of a Release and such Release becoming effective and
irrevocable in its entirety on or prior to the last day of the Release Period.

 

Notwithstanding
the above, the payments and benefits described in this Section 9(d) shall be
subject to Section 19(c).

 

(e)                                  No Mitigation. The Executive shall not be required to mitigate
the amount of any payment provided for in this Section 9 or in Section 10
by seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Section 9 or in Section 10 be reduced by
any compensation earned by him as the result of employment by another employer
or by retirement benefits after the Date of Termination or otherwise, except as
specifically provided in this Section 9 or in Section 10.

 

(f)                                    Time and Form of Payment of Severance Amounts. Subject to
Section 19(c), (i) the Pro Rata Annual Bonus shall be paid to the Executive on
the first (1st) business day following the Release Period; (ii) the
Accrued Obligations will be paid to the Executive in a lump sum not later than
the tenth (10th) business day following the Date of Termination and
(iii) the amounts payable pursuant to Sections 9(b)(iii), 9(d)(iii) and 10(d)
will be paid in equal installments over the twelve (12) month period commencing
on the Date of Termination in accordance with the Company’s payroll practices
as in effect from time to time; provided, however, that payment
of such severance amounts shall immediately cease, and the Executive shall have
no further rights with respect to such amounts, if the Executive has violated
any of the provisions set forth in Sections 12, 13 or 14.

 

10.                               Change
of Control

 

(a)                                  For
purposes of this Agreement, a “Change
of Control” shall be deemed to occur upon the occurrence of any
of the following events:

 

(i)                                     any
“person” or “group” (as such
terms are used in Section 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange
Act”) and the rules and regulations promulgated thereunder) is
or becomes the “beneficial
owner” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of more than 25% of the total
outstanding voting stock of the Company, provided, that no Change of
Control shall be deemed to have occurred under this clause (i) if the

 

16

 

person or group acquiring 25% or more of the
total outstanding stock of the Company (A) beneficially owns fewer shares than
Vivendi and its affiliates in the aggregate, and (B) does not have, by virtue
of such beneficial ownership or by contract the right to elect a majority of
the Board;

 

(ii)                                  the
individuals who constitute the Board as of the Effective Date (or, in the event
that the Combined Transactions are consummated, as of the Consummation Date)
(the “Incumbent Board”)
cease to constitute a majority of the Board, for any reason(s) other than
(A) the voluntary resignation of one or more Board members; or
(B) the removal of one or more directors by the Company’s shareholders for
good cause; provided, however (1) that if the nomination or
election of any new director of the Company was approved by a majority of the
Incumbent Board, such new director shall be deemed a member of the Incumbent
Board and (2) that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened “Election
Contest” (as described in Rule 14a-11 promulgated under the
Exchange Act) or as a result of a solicitation of proxies or consents by or on
behalf of any “person”
or “group” identified
in clause (a)(i) above; or

 

(iii)                               the
Company consolidates with, or merges with or into another person or entity or
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any person or entity, or any person or entity consolidates with
or merges with or into the Company; provided, however that any
such transaction shall not constitute a Change of Control if the shareholders
of the Company immediately before such transaction own, directly or indirectly,
immediately following such transaction in excess of sixty-five percent (65%) of
the combined voting power of the outstanding voting securities of the
corporation or other person or entity resulting from such transaction in
substantially the same proportion as their ownership of the voting securities
of the Company immediately before such transaction.

 

(iv)                              For
purposes of this subsection, the term “Affiliate”
means, with respect to any individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind (each a “Person”), any other Person that directly or
indirectly controls or is controlled by or under common control with such
Person. For the purposes of this definition, “Control,” when used with respect to any
Person, means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of “Affiliated,”
“Controlling” and “Controlled” have
meanings correlative to the foregoing

 

17

 

; provided,
however, that in no event shall the Combination Transactions constitute
a Change of Control under this Agreement; and provided, further,
that no Change of Control shall be deemed to have occurred upon the acquisition
of additional control of the Company by Vivendi or by any one person or more
than one person acting as a group that beneficially owns, directly or
indirectly, more than 50% of the total outstanding voting stock of the Company.

 

(b)                                 In
the event that the Executive is an employee of the Company at the moment
immediately prior to a Change of Control:

 

(i)                                     upon
the consummation of the Change of Control, all Prior Options shall immediately
vest and remain exercisable until their original expiration date, without
regard to Executive’s continued employment with the Company pursuant to this
Agreement and without regard to the terms of any option agreement or option
certificate applicable to any Prior Options;

 

(ii)                                  the
Executive shall immediately vest, upon the consummation of the Change of
Control, in the number of additional June Options equal to twenty (20%) percent
of the June Options, and all vested June Options (including the June Options
that vest in accordance with this Section 10(b)) will remain exercisable until
the original expiration date of the June Options;

 

(iii)                               the
Executive will immediately vest, upon the consummation of the Change of
Control, in an additional number of the New Options and Performance Shares as
follows:

 

	
  If the Change of Control Occurs During the Period:

  	
   

  	
  Percentage of Equity

  Awards In Addition to

  Equity Awards Already

  Vested

  	
   

  
	
  Commencing on
  the Effective Date and ending on December 31, 2008

  	
   

  	
  60

  	
  %

  
	
  Commencing on
  January 1, 2009 and ending on December 31, 2009

  	
   

  	
  40

  	
  %

  
	
  Commencing on
  January 1, 2010 and ending on December 31, 2010

  	
   

  	
  20

  	
  %

  
	
  Commencing on
  January 1, 2011 and ending on the Expiration Date

  	
   

  	
  To a total of 100

  	
  %

  

 

; provided, however,
that if the Change of Control occurs on or prior to December 31, 2010, then the
amount of any severance payment made in accordance with Sections 9(b)(iii),
9(d)(iii) or 10(d) shall be reduced by one dollar for each dollar by which the
aggregate value, determined as of the date of the occurrence of the

 

18

 

Change of Control, of the
New Options and the Performance Shares accelerated in accordance with this
Section 10(b)(iii), exceeds twenty five million dollars ($25,000,000). For this
purpose, the value of the accelerated New Options shall be the excess, if any,
of the fair market value of the shares of Company Common Stock underlying such
New Options over the aggregate exercise price in respect of the shares of
Company Common Stock underlying such New Options.

 

(iv)                              The
New Options that vest in accordance with Section 10(b)(iii) will remain
exercisable until the earlier of (A) the tenth (10th) anniversary of the date
of the Change of Control or (B) their original expiration date, without regard
to Executive’s continued employment with the Company pursuant to this Agreement
and without regard to the terms of any option agreement or option certificate
applicable to the New Options.

 

(v)                                 The
Performance Shares that vest in accordance with Section 10(b)(iii) will be
settled on the effective date of the Change of Control; provided, however,
that if the Change of Control does not also constitute a Change of Control for
purposes of Section 409A (as defined in Section 19(c)), settlement shall occur
on the applicable Performance Vesting Dates.

 

(c)                                  With
respect to each Outstanding Option (as defined below) as of the date of the
Change of Control, in the event that the Closing Share Value (as defined below)
is greater than the exercise price of any such Outstanding Option, then the
Executive shall have the right, separately with respect to each of the
Outstanding Options, to either (A) retain the Outstanding Options, (B) exercise
the Outstanding Options, or (C) forfeit the Outstanding Options and receive, in
exchange therefor, a cash payment equal to the number of shares of Company
Common Stock underlying the Outstanding Options multiplied by the amount that
the Closing Share Value exceeds the exercise price of the Outstanding Options. For
purposes of this Section 10(c):

 

(i)                                     “Closing Share Value”
shall mean the Closing Price of the shares of the Company Common Stock on the
date of the Change of Control;

 

(ii)                                  the
“Closing Price” of
a share of Company Common Stock on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such date, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
such shares are listed or admitted to trading or, if such shares are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the highest bid and lowest ask
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer used, the principal other automated quotation system that may then be in
use or, if such shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker

 

19

 

making market in the shares as such person is
selected from time to time by the Board or, if there are no professional market
makers making a market in the shares, then the value as determined in good
faith judgment of the Board; and

 

(iii)                               the
term “Outstanding Options”
with reference to a particular date shall mean all vested options to purchase
Company Common Stock held by the Executive as at such date, including options
which vest and become exercisable pursuant to Section 10(b).

 

(d)                                 Termination Following a Change of Control. In the event the
Executive’s employment is terminated by the Executive for Good Reason or by the
Company without Cause at any time during the twelve (12) month period following
the effective date of a Change of Control, the Executive shall be entitled to
the benefits set forth in Sections 9(d)(i), 9(d)(ii), 9(d)(iii) and 9(d)(iv); provided,
however, that references to the clause “two (2)” in Section 9(d)(iii)
shall be changed to “three (3)”; and provided, further, that if,
following a Change of Control, the Executive is granted additional equity
awards, nothing in this Section 10(d) will prohibit the Executive from vesting
in such equity awards upon a subsequent termination of employment for Good
Reason or without Cause.

 

11.                               Gross-Up
Payment

 

(a)                                  If,
during the Employment Period, there is a change in ownership or control of the
Company that causes any payment, benefit or distribution by the Company to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 11) (a “Payment”)
to be subject to the excise tax (the “Excise
Tax”) imposed by Section 4999 of the Code, then the
Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”)
in an amount such that after payment by the Executive of all taxes, including
any income taxes and Excise Tax imposed upon the Gross-Up Payment, the
Executive will retain an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

 

(b)                                 Determination
of the Gross-Up Payment. Subject to the provisions of this Section 11,
all determinations required to be made under this Section 11, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a certified public accounting firm designated by the Executive
and reasonably acceptable to the Company (the “Accounting Firm”), which shall provide
detailed supporting calculations both to the Company and the Executive within
fifteen (15) business days of the receipt of notice from the Executive
that there has been a Payment with respect to which the Executive in good faith
believes a Gross-Up Payment may be due under this Section 11, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 11, shall be paid by the Company to
the Executive within five (5) days of the later of (A) the due date for
the payment of any Excise Tax and (B) the receipt of the Accounting Firm’s
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of

 

20

 

the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (the “Underpayment”),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to this Section 11 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to the
Executive or for the Executive’s benefit. The previous sentence shall apply mutatis  mutandis
to any overpayment of a Gross-Up Payment.

 

(c)                                  Procedures.
The Executive shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty (30)
day period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect
to such claim is due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest such claim, the
Executive shall:

 

(i)                                     give
the Company any information reasonably requested by the Company relating to
such claim;

 

(ii)                                  take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company;

 

(iii)                               cooperate
with the Company in good faith in order effectively to contest such claim; and

 

(iv)                              permit
the Company to participate in any proceedings relating to such claim;

 

provided, however, that the Company shall
bear and pay directly all costs and expenses incurred in connection with such
contest (including payment as incurred of the fees and expenses of counsel
selected by the Executive to represent him personally in connection with such
contest) and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax imposed as a result of such
representation and payment of costs and expenses. Without limiting the
foregoing provisions of this Section 11, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall

 

21

 

determine; provided,
however, that if the Company directs the Executive to pay such claim and
sue for a refund, to the extent permitted by law, the Company shall advance the
amount of such payment to the Executive on an interest-free basis (which shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid) and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and provided
further that any extension of the statute of limitations relating to
payment of taxes for the Executive’s taxable year with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.

 

(d)                                 Refund.
If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 11(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the Executive receives an
amount advanced by the Company pursuant to Section 11(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid.

 

(e)                                  Timing
of Payment. Notwithstanding anything in this Section 11, any Gross-Up
Payment or reimbursement by the Company of expenses incurred by the Executive
in connection with a litigation proceeding relating to the Excise Tax, as
provided for in this Section 11, shall be paid no later than the last day of
the calendar year following the calendar year in which the Executive remitted
the Excise Tax or, if no Excise Tax is paid, the end of the calendar year
following the calendar year in which there is a final and nonappealable
settlement or other resolution of the litigation.

 

12.                               Non-Solicitation

 

During the Employment
Period and for two (2) years thereafter (the “Restricted Period”), the Executive
covenants and agrees that he shall not directly interfere with or attempt
to interfere with the relationship between the Company Group and any person who
is, or was during the then most recent six (6)-month period, an officer or
employee of the Company Group or solicit, induce, hire or attempt to solicit,
induce or hire any of them to leave the employ of any member of the Company
Group or violate the terms of their respective contracts, or any employment
arrangements, with such entities.

 

13.                               Non-Competition

 

(a)                                  During
the Employment Period, the Executive shall not engage (including, without
limitation, as an officer, director, shareholder, owner, partner, joint
venturer, member or in a managerial capacity, or as an employee, independent
contractor, consultant, advisor or sales representative) in any Competitive
Business (as

 

22

 

hereinafter
defined). For purposes of determining whether the Executive is permitted to be
a shareholder of a corporation engaged in a Competitive Business, the
Executive’s ownership of less than 5% of the issued and outstanding securities
of a company whose securities are publicly-traded in any U.S. or non-U.S.
securities exchanges or quotation system shall be permitted.

 

(b)                                 As
used herein, the term “Competitive
Business” shall mean any business engaged in publishing,
distributing, programming, designing and marketing video games and
entertainment software for personal computers.

 

(c)                                  As
used herein, the term “Territory”
shall mean:

 

(i)                                     The
following counties in the State of California: Alameda, Alpine, Amador, Butte,
Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt,
Imperial, Inyo, Kern, Kings, Lake, Lassen, Los Angeles, Madera, Marin,
Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange,
Placer, Plumas, Riverside, Sacramento, San Benito, San Bernardino, San Diego,
San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa
Cruz, Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama,
Trinity, Tulare, Tuolumne, Ventura, Yolo, and Yuba;

 

(ii)                                  Each
and every county or other political or geographical subdivision in the balance
of the United States of America and the dependent territories of the United
States of America; and

 

(iii)                               Each
and every county or other political or geographical subdivision in the world.

 

14.                               Confidential
Information

 

(a)                                  The
Executive has executed or, if not previously executed, agrees to execute and be
bound by the terms and conditions of the Company’s Employee Proprietary Information
Agreement (“Proprietary Information
Agreement”), attached hereto as Exhibit B.

 

(b)                                 During
the Restricted Period, the Executive shall not use the confidential, trade
secret information of the Company Group or any other unlawful means to directly
or indirectly solicit, induce or entice any employee, client, customer,
contractor, licensor, agent, partner or other business relationship of the
Company Group to terminate, discontinue, renegotiate or otherwise cease or
modify its relationship with the Company Group.

 

15.                               Unenforceability

 

If any of the rights or
restrictions contained or provided for in this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable by reason of the extent,
duration or geographical scope, the parties hereto contemplate that the court
shall reduce such extent, duration, geographical scope and enforce this
Agreement in its reduced form for all purposes in the manner contemplated
hereby. Should any of the provisions of this Agreement require

 

23

 

judicial interpretation,
it is agreed that the court interpreting or construing this Agreement shall not
apply a presumption that any provision shall be more strictly construed against
one party by reason of the rule of construction that a document is to be
construed more strictly against the party who itself or through its agents
prepared the same, it being agreed that both parties and their respective
agents have participated in the preparation of this Agreement.

 

16.                               Injunctive
Relief

 

The Executive agrees that
the restrictions and covenants contained in Sections 12, 13 and 14 and in the
Proprietary Information Agreement are necessary for the protection of the
Company and any breach thereof will cause the Company irreparable damages for
which there is no adequate remedy at law. The Executive further agrees that, in
the event of a breach by the Executive of any of Executive’s obligations under
this Agreement, the Company shall have the absolute right, in addition to any
other remedy that might be available to it, to obtain from any court having
jurisdiction, such equitable relief as might be appropriate, including
temporary, interlocutory, preliminary and permanent decrees or injunctions
enjoining any further breach of such provisions.

 

17.                               Indemnification
and Attorneys’ Fees

 

During the Employment
Period and thereafter, the Company shall indemnify, hold harmless and defend
the Executive to the fullest extent permitted by Delaware law and the Company’s
articles of incorporation and by-laws in effect from time to time from all
damages, claims, losses, and costs and expenses (including reasonable
attorney’s fees) arising out of, in connection with, or relating to all acts or
omissions taken or not taken by the Executive in good faith while performing
services for the Company, and shall further promptly reimburse the Executive
for all expenses (including attorney’s fees) incurred in (i) enforcing this
Agreement and (ii) to a maximum of $60,000, in negotiating and drafting this
Agreement. The Company shall use its best efforts to continue to maintain an
insurance policy covering the officers and directors of the Company against
claims and/or lawsuits, at least as favorable as such policy that is currently
in effect, and shall cause the Executive to be covered under such policy upon
the same terms and conditions as other similarly situated officers and
directors during the Employment Period and for a period of at least
six (6) years thereafter.

 

18.                               Waiver

 

The Executive hereby
waives any and all rights and payments under the Original Agreement or
otherwise that arise or become due to the Executive by virtue of the
Combination Transactions; provided, however, that upon the
Consummation Date, all Prior Options shall immediately vest in full; and provided,
further, that such waiver shall not apply to payments or other benefits
that may hereafter become due to the Executive upon a Change of Control
following the Consummation Date pursuant to the terms and conditions contained
herein.

 

19.                               Miscellaneous

 

(a)                                  Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under existing or future laws effective
during the Employment Period, such provisions shall be fully severable, the
Agreement shall be construed and enforced as if such

 

24

 

illegal,
invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal and enforceable.

 

(b)                                 Withholding. The Company may withhold from any payments made
under the Agreement all federal, state, city or other applicable taxes as shall
be required pursuant to any law, governmental regulation or ruling.

 

(c)                                  Section 409A.

 

(i)                                     If
any amounts that become due under Sections 9 or 10 of this Agreement constitute
“nonqualified deferred compensation” within the meaning of Section 409A of the
Code and the regulations promulgated thereunder (“Section 409A”), payment of such amounts shall
not commence until the Executive incurs a “Separation from Service” (as
defined below) if and only if necessary to avoid accelerated taxation or tax
penalties in respect of such amounts.

 

(ii)                                  Notwithstanding
anything herein to the contrary, if the Executive is a “Specified Employee,”
for purposes of Section 409A, on the date on which he incurs a Separation from
Service, any payment hereunder that provides for the “deferral of compensation”
within the meaning of Section 409A shall be paid on the first (1st) business
day after the date that is six (6) months following the Executive’s “Separation
from Service” (the “409A
Delayed Payment Date”); provided, however, that
such delay shall apply if and only if necessary to avoid accelerated taxation
or tax penalties in respect of such amounts; provided, further,
that a payment delayed pursuant to the preceding clause shall commence earlier
than the 409A Delayed Payment Date in the event of the Executive’s Death prior
to the end of the six (6) month period. On the 409A Delayed Payment Date, the
Executive shall be paid a lump sum payment in cash equal to any payments
delayed because of the preceding sentence (the “Catch-Up Amount”), plus interest on the
Catch-Up Amount equal to the short term federal rate applicable under Section
7872(f)(2)(A) of the Code for the month in which occurs the Executive’s
Separation from Service. Such interest shall be paid at the same time that the
Catch-up Amount is paid. Thereafter, the Executive shall receive any
remaining benefits as if there had not been an earlier delay.

 

(iii)                               For
purposes of this Agreement, “Separation
from Service” shall have the meaning set forth in Section
409A(a)(2)(A)(i) of the Code and determined in accordance with the default
rules under Section 409A. “Specified
Employee” shall have the meaning set forth in
Section 409A(a)(2)(B)(i) of

 

25

 

the Code, as determined in accordance with
the uniform methodology and procedures adopted by the Company and then in
effect.

 

(iv)                              Anything
in this Agreement to the contrary notwithstanding, no reimbursement payable to
the Executive pursuant to any provisions of this Agreement or pursuant to any
plan or arrangement of the Company Group covered by this Agreement shall be
paid later than the last day of the calendar year following the calendar year
in which the related expense was incurred, except to the extent that the right
to reimbursement does not provide for a “deferral of compensation” within the
meaning of Section 409A. No amount reimbursed during any calendar year shall
affect the amounts eligible for reimbursement in any other calendar year.

 

(d)                                 Notices. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when (i) delivered personally;
(ii) sent by facsimile or other similar electronic device and confirmed;
(iii) delivered by courier or overnight express; or (iv) three (3)
business days after being sent by registered or certified mail, postage
prepaid, addressed as follows:

 

	
   

  	
  If to the Company:

  	
  Activision, Inc.

  3100 Ocean Park Boulevard

  Santa Monica, CA 90405

  Attention: General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
  Shearman & Sterling
  LLP

  599 Lexington Avenue

  New York, NY 10022

  Attention: Linda E. Rappaport

  
	
   

  	
   

  	
   

  
	
   

  	
  If to the Executive:

  	
  Robert A. Kotick

  c/o Activision, Inc.

  100 Ocean Park Boulevard

  Santa Monica, CA 90405

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
  Wachtell, Lipton, Rosen
  & Katz

  51 West 52nd St.

  New York, NY 10019

  Attention: Michael J. Segal

  

 

or to such other address
as a party may furnish to the other party in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.

 

(e)                                  No Waiver. No waiver by either party hereto of any breach of
any provision of this Agreement shall be deemed a waiver of any preceding or
succeeding breach of such provision or any other provision herein contained.

 

26

 

(f)                                    Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to the conflict of law principles thereof; provided, however,
that Sections 12, 13 and 14 of this Agreement shall be governed by, and
construed in accordance with, the laws of the state in which the Executive has
his principal office.

 

(g)                                 Entire Agreement. This Agreement and the Proprietary Information
Agreement set forth the entire agreement of the parties hereto with respect to
the subject matter hereof, and are intended to supersede all prior or
contemporaneous employment negotiations, understandings and agreements (whether
written or oral), including the Original Agreement. No provision of this
Agreement may be waived or changed, except by a writing signed by the party to
be charged with such waiver or change.

 

(h)                                 Successors; Binding Agreement. Neither of the parties hereto
shall have the right to assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other party; provided,
however, that this Agreement shall inure to the benefit or and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company’s assets, or upon any merger or consolidation
of the Company with or into any other corporation, all as though such
successors and assigns of the Company and their respective successors and
assigns were the Company. Insofar as the Executive is concerned, this
Agreement, being personal, cannot be assigned; provided, however,
that this Agreement shall be binding upon and inure to the benefit of the
Executive and his executors, administrators and legal representatives.

 

(i)                                     Expiration. This Agreement does not constitute a commitment
of the Company with regard to the Executive’s employment, express or implied,
other than to the extent expressly provided for herein. Upon the Expiration
Date, or, if earlier, the termination of the Executive’s employment under this
Agreement pursuant to Section 7, neither the Company nor the Executive shall
have any obligation to the other with respect to the Executive’s continued
employment.

 

(j)                                     Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but together shall constitute
one and the same instrument.

 

(k)                                  Headings. The headings and captions set forth in this
Agreement are for ease of reference only and shall not be deemed to constitute
a part of the agreement formed hereby or be relevant to the interpretation of
any provisions of this Agreement.

 

(l)                                     Saturdays, Sundays and Holidays. Whenever any determination
is to be made or action to be taken on a date specified in this Agreement, if
such date shall fall upon a Saturday, Sunday or a legal holiday in the State of
California, the date for such determination or action shall be extended to the
first (1st) business day immediately thereafter.

 

(m)                               Survivability. The provisions of Sections 6, 9, 10, 11, 12,
13, 14, 15, 16, 17 and 19(c) shall survive the termination or expiration of
this Agreement.

 

(n)                                 Legal Counsel; Right to Negotiate. The Executive
acknowledges that he has been given the opportunity to consult with legal
counsel or any other advisor of his own choosing regarding this Agreement. The
Executive understands and agrees that any attorney

 

27

 

retained by
the Company or any member of management who has discussed any term or condition
of this Agreement with him is only acting on behalf of the Company and not on
the Executive’s behalf. The Executive hereby acknowledges that he has been
given the opportunity to participate in the negotiation of the terms of this
Agreement. The Executive acknowledges and confirms that he has read this
Agreement and fully understands its terms and contents.

 

[SIGNATURE PAGES
BEGIN ON THE FOLLOWING PAGE]

 

28

 

IN WITNESS WHEREOF, the
parties hereto have executed this Agreement as of the date first above written.

 

	
   

  	
  ACTIVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Morgado

  	
   

  
	
   

  	
   

  	
  Name:  Robert Morgado 

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Robert A. Kotick  

  	
   

  
	
   

  	
   

  	
  Robert A. Kotick

  
					

 

 

Exhibit A

 

Release

 

 

Exhibit B

 

Proprietary
Information AgreementExhibit 10.4

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

Amended and Restated Employment Agreement, dated as of
December 1, 2007 (the “Effective Date”),
by and between ACTIVISION, INC., a Delaware corporation with its principal
offices at 3100 Ocean Park Boulevard, Santa Monica, CA 90405 (the “Company”), and BRIAN G. KELLY (the “Executive”).

 

RECITALS:

 

WHEREAS, the Company and the Executive are parties to
an employment agreement dated May 22, 2000 as amended on December 29, 2006 (the
“Original Agreement”);

 

WHEREAS, the
Company, Vivendi, S.A., a Societe Anonyme organized under the laws of France (“Vivendi”), Vivendi
Games Acquisition Company LLC, a limited liability company organized under the
laws of the State of Delaware (“Vivendi LLC”), Vivendi Games, Inc., a Delaware
corporation (“Games”),
and Sego Merger Corporation, a Delaware corporation (“Merger Sub”), have
proposed to enter into a Business Combination Agreement (“BCA”) in order to
combine the respective businesses of Games and the Company, pursuant to which,
among other things, (i) Vivendi shall purchase (the “Share Purchase”) from
the Company a number of newly issued shares of common stock, par value
$0.000001 per share, of the Company (“Company Common Stock”) and (ii) Merger Sub
shall be merged with and into Games (the “Merger” and, together with the Share
Purchase, the “Combination
Transactions”) pursuant to which (x) each share of common stock,
par value $0.01 per share, of Games shall be converted into the right to
receive a number of shares of Company Common Stock equal to the Exchange Ratio
(as defined in the BCA) and (y) Games shall become a wholly-owned subsidiary of
the Company;

 

WHEREAS, concurrently
with the execution of the BCA, in order to induce Vivendi, Vivendi LLC and
Games to enter into the BCA, the Executive has agreed to enter into this
Amended and Restated Employment Agreement (this “Agreement”),
between the Executive and the Company, effective on the Effective Date and
subject to the provisions hereof;

 

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in
the best interests of the Company and its stockholders to enter into this
Agreement and the Executive is willing to serve as an employee of the Company
subject to the terms and conditions of this Agreement;

 

WHEREAS, the Compensation Committee (the “Compensation Committee”) of the
Board approved the execution and delivery of this Agreement by the Company at a
meeting of the Compensation Committee held on December 1, 2007;

 

WHEREAS, this Agreement has been provided to and
reviewed by the Board of Directors of Vivendi;

 

WHEREAS, the Company, Vivendi and the Executive agree
that it is a condition of the Combination Transactions that the Executive
executes the Agreement;

 

 

WHEREAS, the Company and the Executive agree that this
Agreement will amend and supersede the Original Agreement in its entirety; and

 

WHEREAS, in consideration for this Agreement, the
Executive has waived his rights to certain payments and benefits under the
Original Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:

 

1.                                      Position
and Duties

 

(a)           The Company agrees
to continue to employ the Executive, and the Executive agrees to be employed,
as Co-Chairman of the Company reporting only to the Board. The Executive shall
have such powers, duties, authorities and responsibilities as are consistent
with Executive’s position and title, including acting as co-chairman of any
meeting of the Board and, as requested by the Chairman, coordinating and
supervising Board meetings. The Executive shall assist and advise the Company’s
Chief Executive Officer in connection with strategic initiatives (including
acquisitions), corporate governance, organizational structure, compensation
policies, succession planning, financing and other matters mutually agreed upon
by the Executive and the Board. At all times during the Employment Period (as
defined in Section 2 below), the Executive shall, unless he otherwise elects,
be nominated for election by the shareholders of the Company to the Board.

 

(b)           During the
Employment Period the Executive agrees to devote such time, attention and
efforts to the business and affairs of the Company as may be necessary to
discharge the duties and responsibilities reasonably assigned to the Executive
hereunder and to use the Executive’s reasonable best efforts to perform faithfully
and efficiently such duties and responsibilities. Notwithstanding the forgoing,
during the Employment Period the Executive shall be permitted to work on family
and investment businesses and other business activities that are not
Competitive Businesses (as defined in Section 11(b) below) and do not conflict with
the Executive’s obligations to the Company.

 

(c)           It shall not be a
violation of this Agreement for the Executive to engage in any activity which
is, in the good faith opinion of the Executive, not inconsistent with the
Company’s interests and prospects, including, without limitation, (a) serving
on civic or charitable boards or committees; (b) serving as a director of any
company that is not in a Competitive Business; (c) delivering lectures,
fulfilling speaking engagements or teaching at educational institutions; (d)
managing personal investments; (e) serving as an officer or director of (i) entities
formed to manage family or personal investments that are not in a Competitive
Business or (ii) closely-held private companies that are not in a Competitive
Business; and (f) attending conferences conducted by business organizations; provided,
however, that such activity does not significantly interfere with the
performance of Executive’s duties and responsibilities hereunder. It is
expressly understood and agreed that to the extent that any activity has been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activity (or the conduct of an activity similar in nature and scope
thereto) during the Employment Period shall be deemed 

 

2

 

not to
interfere with the performance of the Executive’s duties and responsibilities
to the Company and shall not constitute a violation of this Agreement.

 

(d)           During the
Employment Period, the Executive shall be based at the Company’s offices in New
York, New York. Except for periodic travel assignments, the Executive shall
not, without his consent, be required to perform services for the Company at
any place other than the Company’s New York offices which shall at all times,
unless the Executive otherwise consents, be within a 20 mile radius of the
Company’s current New York offices. Notwithstanding the forgoing, (i) the
Executive acknowledges that he shall be required to travel to the Company’s
principal place of business in California from time to time, although not more
often than as was generally the case prior to the Effective Date and (ii) the
Executive shall be entitled to perform his services at any location he chooses.

 

2.                                      Effectiveness;
Employment Period

 

The employment of the
Executive under the terms of this Agreement (the “Employment Period”) shall commence on the Effective Date
and terminate on March 31, 2011 (the “Expiration
Date”). Notwithstanding anything contained herein to the
contrary, the Executive’s employment pursuant to the terms of this Agreement is
subject to termination pursuant to Section 5 below.

 

3.                                      Compensation

 

The Executive shall receive the following compensation
(the ”Compensation”) for his
services hereunder:

 

(a)           Base Salary. The Company shall pay to the
Executive a base salary (“Base
Salary”) in respect of each calendar year of the Company or
portion thereof during the Employment Period. Commencing on the Effective Date,
the Base Salary shall be $876,920 annually. Beginning on April 1, 2008, the
Base Salary shall be reduced to $450,000. On April 1st of each
year of the Employment Period, beginning on April 1, 2009, the Base Salary shall be reviewed and may be
increased, but not decreased, by an amount determined by the
Compensation Committee, in its sole and absolute discretion. The Base Salary
shall be paid in accordance with the customary payroll practices of the Company
at regular intervals, but in no event less frequently than every month, as the
Company may establish from time to time for senior executive employees of the
Company. The Base Salary shall be prorated with respect to any partial calendar
years during the Employment Period.

 

(b)           Annual Bonus. For fiscal year 2008, the
Executive shall be entitled to receive an annual bonus (the “Annual  Bonus”) based upon
the Company achieving financial and business objectives for fiscal year 2008,
in accordance with the Executive Bonus Plan previously approved by the
Compensation Committee. The Annual Bonus may be paid in cash, shares of Company
Common Stock, stock options or other equity-based awards or any combination
thereof as determined by the Compensation Committee in its sole discretion. The
Company shall pay the Annual Bonus to the Executive no later than two and a
half (2 1⁄2) months after the end of the fiscal year for which the Annual Bonus
is awarded provided that, except as otherwise provided in this Agreement, the
Executive remains continuously employed by the Company or 

 

3

 

its
subsidiaries and affiliates (the “Company Group”) through the date on which the
Annual Bonus is paid. With respect to any fiscal year during the Employment
Period subsequent to fiscal year 2008, the Executive shall not be entitled to any
annual or other bonus unless explicitly determined otherwise by the
Compensation Committee in its sole discretion.

 

4.                                      Other
Benefits

 

(a)           Benefits and Perquisites. During the
Employment Period, the Executive shall be entitled to participate in all
health, welfare, retirement, pension, life insurance, disability and similar
plans, programs and arrangements generally available to the U.S.-based senior
executive group of the Company in accordance with the terms and conditions of such
plans, programs and arrangements, as amended from time to time. In addition,
during the Employment Period the Executive shall be entitled to participate in
all perquisite programs available to the U.S.-based senior executive group of
the Company on the terms and conditions then prevailing under such programs, as
amended from time to time.

 

(b)           Expenses. During the Employment Period, the
Executive shall be reimbursed by the Company for all reasonable travel,
entertainment, conference expenses, organization dues and other business
expenses incurred by the Executive in connection with the performance of the
Executive’s services under this Agreement, subject to the Company’s policies in
effect from time to time with respect to such expenses, including the
requirements with respect to reporting and documentation of such expenses.

 

(c)           Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, including personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company at any time during the
ninety (90) day period immediately preceding the Effective Date, or, if more
favorable to the Executive, as provided at any time after the Effective Date to
the Executive or other U.S.-based senior executive officers. The Executive’s personal
assistant may perform non-Company duties so long as such activities do not
interfere with the assistant’s duties to the Company.

 

(d)           Vacation. During the Employment Period, the
Executive shall not require or be entitled to vacation time.

 

(e)           Life Insurance. During the Employment
Period, the Company shall continue to maintain a renewable term insurance
policy or policies covering the life of the Executive in the amount of six
million dollars ($6,000,000), naming the Executive’s estate or any other person
designated by the Executive as beneficiary of such policy or policies. The Executive
has the right to require the Company at any time to prepay all of the premiums
associated with such policy or policies so as to ensure such policies remain in
force for the entire Employment Period.

 

5.                                      Termination

 

The employment by the Company Group of the Executive
shall be terminated as provided in this Section 5:

 

(a)           Death. Upon the Executive’s death (“Death”).

 

4

 

(b)           Disability.

 

(i)                                     The
Company or the Executive, upon not less than thirty (30) days written
notice to the other party (“Disability
Notice”), may terminate the employment by the Company of the
Executive if the Executive has been unable, by reason of physical or mental
disability, to render, for 120 successive days or for shorter periods
aggregating 210 days or more in any twelve (12) month period, services of
the character contemplated by this Agreement and will be unable to resume
providing such services within a reasonable period of time by reason of such
disability (such circumstances being referred to as “Disability”).

 

(ii)                                  The
determination of whether the Executive has become Disabled within the meaning
of this Section 5(b) shall be made (A) in the case of a termination
of employment by the Company, by a medical doctor selected by the Company, or
(B) in the case of a termination of employment by the Executive, by
Executive’s medical doctor. In the event the Company gives a notice of
termination of employment under this Section 5, the Executive or his
representative may at any time prior to the effective date of termination
contest the termination and cause a determination of Disability to be made by
Executive’s medical doctor. In the event the Executive gives a notice of
termination of employment under this Section 5, the Company may at any
time prior to the effective date of termination contest the termination and
cause a determination of Disability to be made by a medical doctor selected by
the Company. In either case, if such medical doctors do not agree with regard
to the determination of Disability, they shall mutually choose a third medical
doctor to examine the Executive, and the Disability determination of such third
medical doctor shall be binding upon both the Company and the Executive.

 

(c)           Without Cause. By the Company, for any
reason other than Death, Cause or Disability, but only upon a vote of a
majority of the entire Board (or such other vote required pursuant to the Company’s
By-Laws in effect at the time of such vote (the “By-Laws”)) at a meeting duly called and
held at which Executive shall have the right to be present and be heard.

 

(d)           Cause. By the Company, for Cause, but only
upon a vote of a majority of the entire Board (or such other vote required
pursuant to the By-Laws) at a meeting duly called and held at which Executive shall have the right to be
present and be heard. The term “Cause” means (i) a determination
by a court of competent jurisdiction that the Executive has committed  any
act of fraud or embezzlement in respect of the Company or its funds, properties
or assets; (ii) conviction of a felony relating to the Executive’s actions
as an executive of the Company under the laws of the United States or
any state thereof (provided that all rights of appeal have been exercised or
have lapsed) unless such acts were committed in the reasonable, good faith
belief that his actions were in the best interests of the Company and its
stockholders and would not violate criminal law; (iii) willful misconduct
or gross negligence by the Executive in connection with the performance of his
duties that has caused or is highly likely to cause severe 

 

5

 

harm to the
Company; or (iv) intentional dishonesty by the Executive in the
performance of his duties hereunder which has a material adverse effect on the
Company.

 

In the case of any
termination for Cause, the Company shall provide the Executive with a Notice of
Termination (as defined in Section 6) giving the Executive at least thirty (30)
days written notice of its intent to terminate this Agreement and his
employment. The Notice of Termination shall specify (x) the effective date of
his termination and (y) the particular acts or circumstances that constitute
Cause for such termination. The Executive shall be given the opportunity within
fifteen (15) days after receiving the notice to explain why Cause does not
exist or to cure any basis for Cause. Within fifteen (15) days after any such
explanation or cure, the Company will make its final determination regarding
whether Cause exists and deliver such determination to the Executive in writing.
If the final decision is that Cause exists and no cure has occurred, the
Executive’s employment with the Company shall be terminated for Cause as of the
Date of Termination (as defined in Section 6) specified in the Notice of
Termination. If the final decision is that Cause does not exist or a cure has
occurred, the Executive’s employment with the Company shall not be terminated
for Cause at that time.

 

(e)           Resignation. By the Executive, other than
for Good Reason (“Resignation”).

 

(f)            Good Reason. By the Executive, for Good
Reason. As used herein, the term “Good Reason” means that, without the
Executive’s prior written consent, there shall have occurred: (i) a
reduction in the Executive’s Base Salary; (ii) a material reduction in the
Executive’s benefits as set forth in Section 4(a) or 4(e); (iii) the assignment
to the Executive of any duties inconsistent with the Executive’s position,
duties, responsibilities, authority or status with the Company or a change in
Executive’s reporting responsibilities, titles or offices as in effect prior to
such assignment or change; (iv) the Company’s material breach or failure
to perform, when due, any of its obligations under this Agreement; (v) any
purported termination of Executive’s employment which is not effected pursuant
to a Notice of Termination satisfying the applicable requirements with respect
to Section 6 of this Agreement; (vi) Robert A. Kotick ceasing to be
Chief Executive Officer of the Company; (vii) the removal of the Executive from
the Board; (viii) a determination by the Executive, made in good faith, that
the Executive is not able to discharge his duties effectively by reason of
directives from the Board requiring the Executive to perform duties not
directly related to the operations of the Company; or (ix) a failure by the Company to renew this Agreement at the conclusion of
the Employment Period on such terms and conditions as are similar to the terms
and conditions contained herein.

 

In the case of any
termination for Good Reason, the Executive shall provide the Company with a
Notice of Termination giving the Company at least thirty (30) days written
notice of his intent to terminate this Agreement and his employment. The Notice
of Termination shall specify (x) the effective date of his termination and (y)
the particular acts or circumstances that constitute Good Reason for such
termination. The Company shall be given the opportunity within fifteen (15)
days after receiving the Notice of Termination to cure any basis for Good
Reason. If no cure is effected, the Executive’s resignation shall be effective
as of the Date of Termination (as defined in Section 6) specified in the Notice
of Termination. If a cure is effected, the Executive’s resignation shall not be
effective at that time.

 

6

 

6.                                      Notice
and Date of Termination

 

Any termination of the Executive’s employment with the
Company Group under Section 5, other than by reason of Death, shall be
communicated by written Notice of Termination from the terminating party to the
other party hereto. For purposes of this Agreement, a “Notice
of Termination” shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so
indicated. The effective date of any termination of the Executive’s employment
(the “Date of Termination”) shall
be:

 

(i)                                     if
the Executive’s employment is terminated by Death, the date of the Executive’s
death;

 

(ii)                                  if
the Executive’s employment is terminated without Cause or by the Executive for
Good Reason, the later of (A) thirty (30) days after Notice of Termination is
given and (B) the expiration of any applicable cure period;

 

(iii)                               if
the Executive’s employment is terminated by reason of Disability,
(i) thirty (30) days after the Disability Notice or (ii) upon a final
determination, pursuant to Section 5(b) above, as the case may be,
whichever is later; provided that the Executive shall not have returned to the
full-time performance of his duties during such period; and

 

(iv)                              if
the Executive’s employment is terminated on account of Cause or Resignation,
the date specified in the Notice of Termination, which shall be no less than
ten (10) nor more than thirty (30) days after such Notice of
Termination is given.

 

7.                                      Compensation
Upon Termination

 

Upon the termination of the Executive’s employment with
the Company Group pursuant to Section 5, the Executive’s rights and the Company’s
obligations under this Agreement shall immediately terminate and, except as
provided in Section 17(m) of this Agreement, the Executive (or his heirs or estate,
as applicable) shall be entitled to receive the amounts or benefits set forth
below. The payments and benefits provided pursuant to this Section 7 are (x) provided
in lieu of any severance or income continuation protection under any plan of
the Company Group that may now or hereafter exist, (y) provided in addition to
any payments the Executive (or his beneficiaries or estate, as applicable) may
be entitled to receive pursuant to any pension or employee benefit plan or
disability or life insurance policy maintained by the Company Group, and (z)
except as provided in Section 17(m) of this Agreement, deemed to satisfy and be
in full and final settlement of all obligations of the Company Group to the
Executive under this Agreement. The Executive shall have no further right to
receive any other compensation or benefits following the Date of Termination
for any reason except as set forth in this Section 7.

 

(a)           Compensation Upon Death. In the event of a
termination of the Executive’s employment with the Company Group upon Death,
the Executive’s heirs, successors or legal representatives shall be entitled to
receive:

 

7

 

(i)                                     the
Base Salary through the Date of Termination, any unpaid Annual Bonus for any
prior fiscal year, and any reimbursement due to Executive pursuant to Section 4(b)
(the “Accrued Obligations”);

 

(ii)                                  an
amount equal to the annual bonus the Executive earned for the fiscal year
immediately preceding the fiscal year in which the Date of Termination occurs,
multiplied by a fraction, the numerator of which is the number of days worked
during the fiscal year in which the Date of Termination occurs and the
denominator of which is 365 (the “Pro Rata
Annual Bonus”);

 

(iii)                               the Executive and his then current spouse and minor children, if any,
shall receive the same level of health/medical insurance or coverage provided
immediately prior to the Date of Termination on a non-taxable basis for two (2)
years, with the cost of such continued insurance or coverage being borne by the
Company;

 

(iv)                              all
outstanding options to purchase Company Common Stock granted to the Executive
at any time prior to January 1, 2007 (the “Prior  Options”)
shall, to the extent not already vested, immediately vest, and all vested Prior
Options (including the Prior Options that vest in accordance with this Section 7(a))
will remain exercisable until the earlier of their original expiration date or
the fifth (5th) anniversary of the Date of Termination; and

 

(v)                                 all
outstanding options to purchase Company Common Stock granted to the Executive
on June 15, 2007 (the “June
Options”) shall, to the extent not already vested, immediately
vest, and all vested June Options (including the June Options that vest in
accordance with this Section 7(a)) will remain exercisable until the original
expiration date of the June Options.

 

(b)           Compensation Upon Disability. In the event
of termination of the Executive’s employment with the Company Group for
Disability:

 

(i)                                     the
Executive shall be entitled to receive the Accrued Obligations;

 

(ii)                                  the
Executive shall be entitled to receive the Pro Rata Annual Bonus;

 

(iii)                               the
Executive shall be entitled to receive an amount equal to one (1) times the
average base salary paid to the Executive for the three (3) most recent fiscal
years immediately prior to the year in which the Date of Termination occurs;

 

(iv)                              the Executive and his then current spouse and minor children, if any,
shall receive the same level of health/medical insurance or coverage provided
immediately prior to the Date of Termination on a non-taxable basis for 

 

8

 

two (2) years, with the cost of such continued
insurance or coverage being borne by the Company;

 

(v)                                 the
Prior Options shall, to the extent not already vested, immediately vest, and
all vested Prior Options (including the Prior Options that vest in accordance
with this Section 7(b)) will remain exercisable until the earlier of their
original expiration date or the fifth (5th) anniversary of the Date of
Termination; and

 

(vi)                              the
June Options shall, to the extent not already vested, immediately vest, and all
vested June Options (including the June Options that vest in accordance with
this Section 7(b)) will remain exercisable until the original expiration date
of the June Options.

 

Payment of the Pro Rata
Annual Bonus, the severance amount described in Section 7(b)(iii) and the
accelerated vesting of the options described in clauses (v) and (vi) of this
Section 7(b) are expressly conditioned upon the Executive’s execution of a
waiver and release agreement in the form attached as Exhibit A to this
Agreement (the “Release”) and the Release
becoming effective and irrevocable in its entirety within ninety (90) days
after the Executive’s Date of Termination (the “Release
Period”).

 

Notwithstanding the above, if the Executive’s
Disability is not such that the Executive is “disabled” for purposes of Section
409A(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the “Code”), the payments and benefits
described in this Section 7(b) shall be subject to Section 17(c).

 

(c)           Compensation Upon Resignation Or Termination For Cause.
In the event of termination of the Executive’s employment with the Company
Group upon Resignation or termination for Cause:

 

(i)                                     the
Executive shall be entitled to receive the Accrued Obligations;

 

(ii)                                  all
unvested options shall expire on the Date of Termination;

 

(iii)                               upon
a termination for Cause, all vested options shall expire on the Date of
Termination; and

 

(iv)                              upon
a Resignation, all vested options will expire on the earlier of (I) their
original expiration date or (II) the later of (A) thirty (30) days following
the Date of Termination and (B) the first date on which the Executive may sell
shares of Company Common Stock over the primary exchange on which such Common
Stock is listed for trading in accordance with applicable law and any
applicable Company policy.

 

(d)           Compensation Upon Termination By Executive For Good
Reason Or By The Company Without Cause. In the event the Executive’s
employment with the Company Group is terminated by the Executive for Good
Reason or by the Company without Cause:

 

9

 

(i)            the
Executive shall be entitled to receive the Accrued Obligations;

 

(ii)           the
Executive shall be entitled to receive the Pro Rata Annual Bonus;

 

(iii)          the
Executive shall be entitled to receive an amount equal to three (3) multiplied
by the average of the sum of the Base Salary and annual bonus paid to the
Executive for the three (3) most recent fiscal years immediately prior to the
year in which the Date of Termination occurs; provided, however,
that in the event of a termination of employment pursuant to Section 5(f)(ix)
the multiple used for purposes of this Section 7(d)(iii) shall be two (2);

 

(iv)          the Executive and his then current spouse and minor children, if any,
shall receive the same level of health/medical insurance or coverage provided
immediately prior to the Date of Termination on a non-taxable basis for two (2)
years, with the cost of such continued insurance or coverage being borne by the
Company;

 

(v)           the
Prior Options shall, to the extent not already vested, immediately vest, and
all vested Prior Options (including the Prior Options that vest in accordance
with this Section 7(d)) will remain exercisable until the earlier of their
original expiration date or the fifth (5th) anniversary of the Date of
Termination; and

 

(vi)          the
June Options shall, to the extent not already vested, immediately vest, and all
vested June Options (including the June Options that vest in accordance with
this Section 7(d)) will remain exercisable until the original expiration date
of the June Options.

 

Payment of the Pro Rata Annual Bonus, the
severance amount described in Section 7(d)(iii) and the accelerated vesting of
the options described in clauses (v) and (vi) of this Section 7(d) are
expressly conditioned upon the Executive’s execution of a Release and such
Release becoming effective and irrevocable in its entirety on or prior to the
last day of the Release Period.

 

Notwithstanding the above, the payments and
benefits described in this Section 7(d) shall be subject to Section 17(c).

 

(e)           No Mitigation. The Executive shall not be
required to mitigate the amount of any payment provided for in this
Section 7 or in Section 8 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 7
or in Section 8 be reduced by any compensation earned by him as the result of
employment by another employer or by retirement benefits after the Date of
Termination or otherwise, except as specifically provided in this Section 7.

 

(f)            Time and Form of Payment of Severance Amounts.
Subject to Section 17(c), (i) the Pro Rata Annual Bonus shall be paid to the
Executive on the first (1st)
business day following the Release Period, (ii) the Accrued Obligations will be
paid to the Executive in a 

 

10

 

lump sum not
later than the tenth (10th) business day following the Date of
Termination, and (iii) the amounts payable pursuant to Sections 7(b)(iii) and 7(d)(iii)
will be paid in equal installments over the twelve (12) month period commencing
on the Date of Termination in accordance with the Company’s payroll practices
as in effect from time to time; provided, however, that payment
of such severance amounts shall immediately cease, and the Executive shall have
no further rights with respect to such amounts, if the Executive has violated
any of the provisions set forth in Sections 10, 11, or 12.

 

8.                                      Change
of Control

 

(a)           For purposes of this
Agreement, a “Change of
Control” shall be deemed to occur upon the occurrence of any of
the following events:

 

(i)                                     any
“person” or “group” (as such terms are
used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)
and the rules and regulations promulgated thereunder) is or becomes the “beneficial owner” (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly,
of more than 25% of the total outstanding voting stock of the Company;
provided, that no Change of Control shall be deemed to have occurred under this
clause (i) if the person or group acquiring 25% or more of the total
outstanding stock of the Company (A) beneficially owns fewer shares than Vivendi
and its affiliates in the aggregate, and (B) does not have, by virtue of such
beneficial ownership or by contract the right to elect a majority of the Board;

 

(ii)                                  the
individuals who constitute the Board as of the Effective Date (or, in the event
that the Combined Transactions are consummated, as of the date of such
consummation (the “Incumbent
Board”) cease to constitute a majority of the Board, for any
reason(s) other than (A) the voluntary resignation of one or more Board
members or (B) the removal of one or more directors by the Company’s
shareholders for good cause; provided, however (1) that if
the nomination or election of any new director of the Company was approved by a
majority of the Incumbent Board, such new director shall be deemed a member of
the Incumbent Board and (2) that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened “Election Contest” (as described in Rule 14a-11
promulgated under the Exchange Act) or as a result of a solicitation of proxies
or consents by or on behalf of any “person”
or “group” identified
in clause (a)(i) above; or

 

(iii)                               the
Company consolidates with, or merges with or into another person or entity or
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any person or entity, or any person or entity consolidates with
or merges with or into the Company; provided, however that any
such transaction shall not constitute a Change of Control if the 

 

11

 

shareholders of the Company immediately
before such transaction own, directly or indirectly, immediately following such
transaction in excess of sixty-five percent (65%) of the combined voting power
of the outstanding voting securities of the corporation or other person or
entity resulting from such transaction in substantially the same proportion as
their ownership of the voting securities of the Company immediately before such
transaction.

 

(iv)                              For
purposes of this subsection, the term “Affiliate”
means, with respect to any individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind (each a “Person”), any other Person that directly or indirectly
controls or is controlled by or under common control with such Person. For the
purposes of this definition, “Control,”
when used with respect to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of “Affiliated,”
“Controlling” and “Controlled” have meanings
correlative to the foregoing;

 

provided,
however, that in no event shall the Combination Transactions constitute
a Change of Control under this Agreement; and provided, further,
that no Change of Control shall be deemed to have occurred upon the acquisition
of additional control of the Company by Vivendi or by any one person or more
than one person acting as a group that beneficially owns, directly or
indirectly, more than 50% of the total outstanding voting stock of the Company.

 

(b)           In the event that
the Executive is an employee of the Company at the moment immediately prior to
a Change of Control:

 

(i)                                     upon
the consummation of the Change of Control, all Prior Options shall immediately
vest and remain exercisable until their original expiration date, without
regard to Executive’s continued employment with the Company pursuant to this
Agreement and without regard to the terms of any option agreement or option
certificate applicable to any Prior Options; and

 

(ii)                                  the
Executive shall immediately vest, upon the consummation of the Change of
Control, in the number of additional June Options equal to twenty (20%) percent
of the June Options, and all vested June Options (including the June Options
that vest in accordance with this Section 8(b)) will remain exercisable until
the original expiration date of the June Options.

 

(c)           With respect
to each Outstanding Option (as defined below) as of the date of the Change of
Control, in the event that the Closing Share Value (as defined below) is
greater than 

 

12

 

the exercise price of any such
Outstanding Option, then the Executive shall have the right, separately with
respect to each of the Outstanding Options, to either (A) retain the
Outstanding Options, (B) exercise the Outstanding Options, or (C) forfeit the
Outstanding Options and receive, in exchange therefore, a cash payment equal to
the number of shares of Company Common Stock underlying the Outstanding Options
multiplied by the amount that the Closing Share Value exceeds the exercise
price of the Outstanding Options. For purposes of this Section 8(c):

 

(i)                                     “Closing Share Value” shall
mean the Closing Price of the shares of the Company Common Stock on the date of
the Change of Control;

 

(ii)                                  the
“Closing Price” of
a share of Company Common Stock on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such date, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the such
shares are listed or admitted to trading or, if such shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the highest bid and lowest ask prices in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer used, the principal other automated quotation system that may then be in
use or, if such shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making market in the shares as such person is selected from time to time by the
Board or, if there are no professional market makers making a market in the
shares, then the value as determined in good faith judgment of the Board; and

 

(iii)                               the term “Outstanding Options” with
reference to a particular date shall mean all vested options to purchase
Company Common Stock held by the Executive as at such date, including options
which vest and become exercisable pursuant to Section 8(b).

 

9.                                      Gross-Up
Payment

 

(a)           If, during the
Employment Period, there is a change in ownership or control of the Company
that causes any payment, benefit or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a “Payment”)
to be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of
the Code, then the Executive shall be entitled to receive an additional payment
(a “Gross-Up Payment”)
in an amount such that after payment by the Executive of all taxes, including
any income taxes and Excise Tax imposed upon the Gross-Up Payment, the
Executive will retain an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

 

13

 

(b)           Determination of the Gross-Up Payment. Subject
to the provisions of this Section 9, all determinations required to be
made under this Section 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by a certified public
accounting firm designated by the Executive and reasonably acceptable to the Company
(the “Accounting Firm”),
which shall provide detailed supporting calculations both to the Company and
the Executive within fifteen (15) business days of the receipt of notice
from the Executive that there has been a Payment with respect to which the
Executive in good faith believes a Gross-Up Payment may be due under this
Section 9, or such earlier time as is requested by the Company. All fees
and expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 9, shall be paid
by the Company to the Executive within five (5) days of the later of
(A) the due date for the payment of any Excise Tax and (B) the
receipt of the Accounting Firm’s determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (the “Underpayment”), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to this Section 9 and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to the Executive or for the
Executive’s benefit. The previous sentence shall apply mutatis  mutandis
to any overpayment of a Gross-Up Payment.

 

(c)           Procedures. The Executive shall notify
the Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
(10) business days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the thirty (30) day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:

 

(i)            give
the Company any information reasonably requested by the Company relating to
such claim;

 

(ii)           take
such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company;

 

(iii)          cooperate
with the Company in good faith in order effectively to contest such claim; and

 

14

 

(iv)                              permit
the Company to participate in any proceedings relating to such claim;

 

provided, however,
that the Company shall bear and pay directly all costs and expenses incurred in
connection with such contest (including payment as incurred of the fees and
expenses of counsel selected by the Executive to represent him personally in
connection with such contest) and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax imposed as a
result of such representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 9, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, to the extent permitted by
law, the Company shall advance the amount of such payment to the Executive on
an interest-free basis (which shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid) and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and provided  further that any extension
of the statute of limitations relating to payment of taxes for the Executive’s
taxable year with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company’s control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

 

(d)           Refund. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the Executive receives an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.

 

(e)           Timing of Payment. Notwithstanding anything in this Section 9, any
Gross-Up Payment or reimbursement by the Company of expenses incurred by the
Executive in connection with a litigation proceeding relating to the Excise
Tax, as provided for in this Section 9, shall be paid no later than the last day
of the calendar year following the calendar year in which the Executive
remitted the Excise Tax or, if no Excise Tax is paid, the end of the calendar
year following the calendar year in which there is a final and nonappealable
settlement or other resolution of the litigation.

 

15

 

10.                               Non-Solicitation

 

During the Employment
Period and for one (1) year thereafter (the “Restricted
Period”), the Executive covenants and agrees that he shall not
directly interfere with or attempt to interfere with the relationship
between the Company Group and any person who is, or was during the then most
recent six (6)-month period, an officer or employee of the Company Group or
solicit, induce, hire or attempt to solicit, induce or hire any of them to
leave the employ of any member of the Company Group or violate the terms of
their respective contracts, or any employment arrangements, with such entities.

 

11.                               Non-Competition

 

(a)           During the Restricted
Period, the Executive shall not engage (including, without limitation, as an
officer, director, shareholder, owner, partner, joint venturer, member or in a
managerial capacity, or as an employee, independent contractor, consultant,
advisor or sales representative) in any Competitive Business (as hereinafter
defined). For purposes of determining whether the Executive is permitted to be
a shareholder of a corporation engaged in a Competitive Business, the Executive’s
ownership of less than 5% of the issued and outstanding securities of a company
whose securities are publicly-traded in any U.S. or non-U.S. securities
exchanges or quotation system shall be permitted.

 

(b)           As used herein, the
term “Competitive
Business” shall mean any business engaged in publishing,
distributing, programming, designing and marketing video games and
entertainment software for personal computers.

 

12.                               Confidential
Information

 

(a)           The Executive has
executed or, if not previously executed, agrees to execute and be bound by the
terms and conditions of the Company’s Employee Proprietary Information
Agreement (“Proprietary
Information Agreement”), attached hereto as Exhibit B.

 

(b)           During the Restricted Period, the Executive shall not use the confidential,
trade secret information of the Company Group or any other unlawful means to
directly or indirectly solicit, induce or entice any employee, client,
customer, contractor, licensor, agent, partner or other business relationship
of the Company Group to terminate, discontinue, renegotiate or otherwise cease
or modify its relationship with the Company Group.

 

13.                               Unenforceability

 

If any of the rights or restrictions contained or
provided for in this Agreement shall be deemed by a court of competent jurisdiction
to be unenforceable by reason of the extent, duration or geographical scope,
the parties hereto contemplate that the court shall reduce such extent,
duration, geographical scope and enforce this Agreement in its reduced form for
all purposes in the manner contemplated hereby. Should any of the provisions of
this Agreement require judicial interpretation, it is agreed that the court
interpreting or construing this Agreement shall not apply a presumption that
any provision shall be more strictly construed against one party by reason of
the rule of construction that a document is to be construed more strictly
against the 

 

16

 

party who itself or through its agents prepared the
same, it being agreed that both parties and their respective agents have
participated in the preparation of this Agreement.

 

14.                               Injunctive
Relief

 

The Executive agrees that the restrictions and
covenants contained in Sections 10, 11, and 12 and in the Proprietary
Information Agreement are necessary for the protection of the Company and any
breach thereof will cause the Company irreparable damages for which there is no
adequate remedy at law. The Executive further agrees that, in the event of a
breach by the Executive of any of Executive’s obligations under this Agreement,
the Company shall have the absolute right, in addition to any other remedy that
might be available to it, to obtain from any court having jurisdiction, such
equitable relief as might be appropriate, including temporary, interlocutory,
preliminary and permanent decrees or injunctions enjoining any further breach
of such provisions.

 

15.                               Indemnification
and Attorneys’ Fees

 

During the Employment Period and thereafter, the
Company shall indemnify, hold harmless and defend the Executive to the fullest
extent permitted by Delaware law and the Company’s articles of incorporation
and by-laws in effect from time to time from all damages, claims, losses, and
costs and expenses (including reasonable attorney’s fees) arising out of, in
connection with, or relating to all acts or omissions taken or not taken by the
Executive in good faith while performing services for the Company, and shall
further promptly reimburse the Executive for all expenses (including attorney’s
fees) incurred in (i) enforcing this Agreement and (ii) to a maximum of
$15,000, in negotiating and drafting this Agreement. The Company shall use its
best efforts to continue to maintain an insurance policy covering the officers
and directors of the Company against claims and/or lawsuits, at least as
favorable as such policy that is currently in effect, and shall cause the
Executive to be covered under such policy upon the same terms and conditions as
other similarly situated officers and directors during the Employment Period
and for a period of at least six (6) years thereafter.

 

16.                               Waiver

 

The Executive hereby waives any and all rights and
payments under the Original Agreement or otherwise that arise or become due to
the Executive by virtue of the Combination Transactions; provided, however,
that upon consummation of the Combination Transactions, all Prior Options shall
immediately vest in full; and provided, further, that such waiver
shall not apply to payments or other benefits that may hereafter become due to
the Executive upon a Change of Control following the consummation of the
Combination Transactions pursuant to the terms and conditions contained herein.

 

17.                               Miscellaneous

 

(a)           Severability. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under existing or
future laws effective during the Employment Period, such provisions shall be
fully severable, the Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be 

 

17

 

affected by
the illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal and enforceable.

 

(b)           Withholding. The Company may withhold from
any payments made under the Agreement all federal, state, city or other
applicable taxes as shall be required pursuant to any law, governmental
regulation or ruling.

 

(c)           Section 409A.

 

(i)                                     If
any amounts that become due under Sections 7 or 8 of this Agreement constitute “nonqualified
deferred compensation” within the meaning of Section 409A of the Code and the
regulations promulgated thereunder (“Section
409A”), payment of such amounts shall not commence until the
Executive incurs a “Separation from Service” (as defined below) if and
only if necessary to avoid accelerated taxation or tax penalties in respect of
such amounts.

 

(ii)                                  Notwithstanding
anything herein to the contrary, if the Executive is a “Specified Employee,”
for purposes of Section 409A, on the date on which he incurs a Separation from
Service, any payment hereunder that provides for the “deferral of compensation”
within the meaning of Section 409A shall be paid on the first (1st)
business day after the date that is six (6) months following the Executive’s “Separation
from Service” (the “409A
Delayed Payment Date”); provided, however, that
such delay shall apply if and only if necessary to avoid accelerated taxation or
tax penalties in respect of such amounts; provided, further, that
a payment delayed pursuant to the preceding clause shall commence earlier than
the 409A Delayed Payment Date in the event of the Executive’s Death prior to
the end of the six (6) month period. On the 409A Delayed Payment Date, the
Executive shall be paid a lump sum payment in cash equal to any payments
delayed because of the preceding sentence (the “Catch-Up Amount”), plus interest on the Catch-Up Amount
equal to the short term federal rate applicable under Section 7872(f)(2)(A) of
the Code for the month in which occurs the Executive’s Separation from Service.
Such interest shall be paid at the same time that the Catch-up Amount is paid. Thereafter, the
Executive shall receive any remaining benefits as if there had not been an
earlier delay.

 

(iii)                               For
purposes of this Agreement, “Separation
from Service” shall have the meaning set forth in Section
409A(a)(2)(A)(i) of the Code and determined in accordance with the default
rules under Section 409A. “Specified
Employee” shall have the meaning set forth in
Section 409A(a)(2)(B)(i) of the Code, as determined in accordance with the
uniform methodology and procedures adopted by the Company and then in effect.

 

18

 

(iv)                              Anything
in this Agreement to the contrary notwithstanding, no reimbursement payable to
the Executive pursuant to any provisions of this Agreement or pursuant to any
plan or arrangement of the Company Group covered by this Agreement shall be
paid later than the last day of the calendar year following the calendar year
in which the related expense was incurred, except to the extent that the right
to reimbursement does not provide for a “deferral of compensation” within the
meaning of Section 409A. No amount reimbursed during any calendar year shall
affect the amounts eligible for reimbursement in any other calendar year.

 

(d)           Notices. For purposes of this Agreement,
notices and all other communications provided for herein shall be in writing
and shall be deemed to have been duly given when (i) delivered personally;
(ii) sent by facsimile or other similar electronic device and confirmed;
(iii) delivered by courier or overnight express; or (iv) three (3)
business days after being sent by registered or certified mail, postage
prepaid, addressed as follows:

 

	
   

  	
  If
  to the Company:

  	
  Activision,
  Inc.

  3100 Ocean Park Boulevard

  Santa Monica, CA 90405

  Attention: General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
  with
  a copy to:

  	
  Shearman
  & Sterling LLP

  599 Lexington Avenue

  New York, NY 10022

  Attention: Linda E. Rappaport

  
	
   

  	
   

  	
   

  
	
   

  	
  If
  to the Executive:

  	
  Brian
  G. Kelly

  c/o Activision, Inc.

  100 Ocean Park Boulevard

  Santa Monica, CA 90405

  
	
   

  	
   

  	
   

  
	
   

  	
  with
  a copy to:

  	
  Wachtell, Lipton, Rosen & Katz

  51 West 52nd St.

  New York, NY 10019
 Attention: Michael J. Segal

  

 

or to such other address as a party may furnish to the
other party in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.

 

(e)           No Waiver. No waiver by either party hereto
of any breach of any provision of this Agreement shall be deemed a waiver of
any preceding or succeeding breach of such provision or any other provision
herein contained.

 

(f)            Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to the conflict of law principles thereof.

 

19

 

(g)           Entire Agreement. This Agreement and the
Proprietary Information Agreement set forth the entire agreement of the parties
hereto with respect to the subject matter hereof, and are intended to supersede
all prior or contemporaneous employment negotiations, understandings and
agreements (whether written or oral), including the Original Agreement. No
provision of this Agreement may be waived or changed, except by a writing
signed by the party to be charged with such waiver or change.

 

(h)           Successors; Binding Agreement. Neither of
the parties hereto shall have the right to assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other party; provided,
however, that this Agreement shall inure to the benefit or and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company’s assets, or upon any merger or consolidation
of the Company with or into any other corporation, all as though such
successors and assigns of the Company and their respective successors and
assigns were the Company. Insofar as the Executive is concerned, this
Agreement, being personal, cannot be assigned; provided, however,
that this Agreement shall be binding upon and inure to the benefit of the
Executive and his executors, administrators and legal representatives.

 

(i)            Expiration. This Agreement does not
constitute a commitment of the Company with regard to the Executive’s
employment, express or implied, other than to the extent expressly provided for
herein. Upon the Expiration Date, or, if earlier, the termination of the
Executive’s employment under this Agreement pursuant to Section 5, neither the
Company nor the Executive shall have any obligation to the other with respect
to the Executive’s continued employment.

 

(j)            Counterparts. This Agreement may be
executed in counterparts, each of which shall be an original, but together
shall constitute one and the same instrument.

 

(k)           Headings. The headings and captions set
forth in this Agreement are for ease of reference only and shall not be deemed
to constitute a part of the agreement formed hereby or be relevant to the
interpretation of any provisions of this Agreement.

 

(l)            Saturdays, Sundays and Holidays. Whenever
any determination is to be made or action to be taken on a date specified in
this Agreement, if such date shall fall upon a Saturday, Sunday or a legal
holiday in the State of New York, the date for such determination or action
shall be extended to the first (1st) business day immediately thereafter.

 

(m)          Survivability. The provisions of Sections 7,
8, 9, 10, 11, 12, 13, 14, 15, 16, and 17(c) shall survive the termination or
expiration of this Agreement.

 

(n)           Legal Counsel; Right to Negotiate. The
Executive acknowledges that he has been given the opportunity to consult with
legal counsel or any other advisor of his own choosing regarding this Agreement.
The Executive understands and agrees that any attorney retained by the Company
or any member of management who has discussed any term or condition of this
Agreement with him is only acting on behalf of the Company and not on the
Executive’s behalf. The Executive hereby acknowledges that he has been given
the opportunity to participate in the negotiation of the terms of this
Agreement. The Executive acknowledges and confirms that he has read this
Agreement and fully understands its terms and contents.

 

20

 

[SIGNATURE PAGES BEGIN ON THE FOLLOWING PAGE]

 

21

 

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.

 

	
   

  	
  ACTIVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Morgado

  	
   

  
	
   

  	
   

  	
  Name: Robert Morgado 

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Brian G. Kelly 

  	
   

  
	
   

  	
   

  	
  Brian G. Kelly

  

 

 

Exhibit A

 

Release

 

 

Exhibit B

 

Proprietary
Information Agreement

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