EXHIBIT 10.1
                                                               EXECUTION VERSION
 
                              EMPLOYMENT AGREEMENT
 
      THIS AGREEMENT (the "Agreement") is entered into on July 1, 2004, and
effective as of April 1, 2004 (the "Effective Date"), by and between ATARI, INC.
(the "Company") and BRUNO BONNELL, the undersigned individual ("Executive").
 
      IN CONSIDERATION of the mutual covenants and agreements hereinafter set
forth, the Company and Executive agree as follows:
 
      1. Employment: As of the Effective Date, the Company employs Executive to
render his services as Chairman of the Board, Chief Executive Officer, and Chief
Creative Officer of the Company, reporting directly to the Company's Board of
Directors (hereinafter "the Board"), and Executive agrees to perform such
services, on the terms and conditions hereinafter set forth. During the Term, as
hereinafter defined, Executive shall have the duties, responsibilities and
authority commensurate with his position and such other duties commensurate with
his position as assigned to him by the Board, and Executive shall devote a
significant portion of (and at least a majority of) his full business time,
skill and efforts to the business and affairs of the Company and its
subsidiaries, including entities managed by the Company.
 
      2. Term: The term of this Agreement shall commence on the Effective Date
and continue for a period of five (5) years (the "Initial Period"). Unless
Executive's employment has otherwise been terminated in accordance with this
Agreement, following the Initial Period this Agreement shall be extended
automatically for up to two (2) additional one (1) year periods (each a "Renewal
Term"), unless either party gives written notice in the manner specified herein
at least six (6) months prior to the expiration of the Initial Period or any
Renewal Term of such party's decision not to renew this Agreement, in which
event the Term shall end at the conclusion of the then-current year of the
Initial Period or Renewal Term. The "Term" of this Agreement shall be the
Initial Period plus any Renewal Terms. Upon any such expiration of the Term, on
termination of Executive's employment at such time or thereafter, Executive
shall receive Accrued Amounts, any amounts or benefits due under any benefit or
payroll plan or program and, subject to Section 4(b) hereof, a Pro Rata Bonus
(as defined in Section 10(a) below) and have at least one (1) year thereafter to
exercise any vested stock options or, if less, the remainder of the Term of the
grant, provided that if such expiration is the result of the Executive giving
notice of nonrenewal, such expiration shall be treated as a resignation other
than for Good Reason by the Executive. Any employment of Executive after
expiration of the Term shall be at will employment terminable by either party at
any time with or without Cause or with or without Good Reason, except as may
otherwise be specifically provided in a written agreement.
 
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      3. Other Business Activity and Conflicts of Interest:
 
         (a) During the Term, subject to the provisions of this Agreement,
Executive shall abide by the Company's written policies with respect to
conflicts of interest. Without limiting the generality of the foregoing, except
as provided in (b) below, Executive shall not engage in any activity which
conflicts or interferes with the performance of Executive's duties hereunder,
except that Executive shall be entitled to attend to personal and family affairs
and investments, be involved in not for profit, charitable and professional
activities, be involved in other business and creative endeavors (not involving
video games) and with the prior consent of the Board, serve on public for profit
boards, provided that the foregoing does not, in the aggregate, materially
interfere with Executive's responsibilities hereunder, and except as otherwise
approved in advance in writing by the Board. The Board hereby approves
Executive's service on the boards of directors set forth in Exhibit A hereto.
 
         (b) Without limiting the generality of the foregoing, the parties
acknowledge and agree that during at least a portion of the Term hereof,
Executive shall be rendering his services to Infogrames Entertainment, SA
("IESA") as its Chairman of the Board and Chief Executive Officer (the "Other
Position"), and that, provided Executive complies with the relevant provisions
of this Agreement with respect to such Other Position, such rendering of
services (and receipt of compensation and benefits therefrom) shall not be
considered a conflict of interest and/or a breach of this Agreement, it being
understood that in the event either Executive or either of the Boards of
Directors of the Company or IESA reasonably determines that Executive's vote as
a member of either Board of Directors on a particular topic might constitute a
conflict of interest to the detriment of the Company or IESA, and so notifies
Executive in writing, except a writing shall not be necessary if the conflict
arises during a Director's meeting, prior to the vote, Executive shall recuse
himself from discussion and voting in connection with such issue. The foregoing
does not affect Executive's ability to vote, or take other actions on any issue
as a Shareholder. Furthermore, Executive may be involved, from time to time, in
other business and creative enterprises other than primarily involving creation
and distribution of video games, provided that such activities shall be subject
to Section 8 hereof and further provided that the foregoing activities and those
under Section 3(a) hereof do not, in the aggregate, materially interfere with
Executive's responsibilities hereunder. Executive shall keep the Board informed
of any such business or creative enterprise at such time as they become material
and concrete. If the manner of exploitation of any such activity or enterprise
involves (i) video games or is, at the time such manner of exploitation is
determined, otherwise directly competitive with any other business that the
Company is then actively in or is actively contemplating entering into in the
following six (6) months (any of the foregoing being the "Competitive Activity")
and (ii) does not involve rights already owned by another person or entity (in
which Executive or his immediate family does not own at such time more than ten
percent (10%) of the equity in such entity) at the time Executive becomes
involved in the project, the Executive shall use reasonable business efforts to
cause the Company to be given a right of first offer on the Competitive Activity
rights of such project in accordance with the provisions of Exhibit C if at the
time such
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exploitation is to be commenced or the product for such exploitation
is to be developed Executive is employed by the Company.
 
      4. Compensation:
 
         (a) Base Salary: For all of Executive's services to the Company and its
subsidiaries, the Company shall pay to Executive a base salary at the rate of
Five Hundred Thousand Euros (euro 500,000) per annum, payable in equal
installments in accordance with the Company's customary payroll practice for its
employees in effect at the time, but no less frequently than monthly.
Executive's base salary may be reviewed annually for increase. Any such
increases shall be in the sole discretion of the Company's Compensation
Committee and subject to the approval of the Board. Executive understands and
agrees that neither the Compensation Committee nor the Board is obligated to
increase Executive's salary and any decision not to increase Executive's salary
will not be deemed a breach of this Agreement.
 
            (b) Annual Incentive Payments:
 
                  (i) Executive shall be eligible for an aggregate annual
discretionary incentive payment (the "Incentive Bonus") of up to a target of
100% of Executive's then-current annual base salary. The Incentive Bonus shall
be structured as follows: (a) the Board, in it sole and unreviewable discretion,
may award Executive annual incentive compensation of up to 30% of Executive's
then-current annual base salary based upon the creative performance of the
Company's business; and (b) the Board shall award Executive additional annual
incentive compensation of up to 70% of Executive's then-current annual base
salary based on the overall financial performance of the Company, in each case
applying criteria and objectives similar to those it considers when determining
incentive compensation for other similar senior executives of the Company for
the same period of the Term. Upon expiration of the Term, the pro rata bonus for
the fiscal year in which expiration occurs shall be based on actual financial
results for the fiscal year for the full 100% of the bonus instead of only 70%
of the bonus.
 
               (ii) In addition to the foregoing, the Board shall have sole and
unreviewable discretion to award Executive additional incentive compensation at
any time for significant product successes.
 
            (c) Direct Deposit of Monies: Provided Executive provides the
Company with appropriate written authorization, all payments made under
subsections (a) and (b) of this Paragraph 4 shall be deposited in Euros directly
into an account maintained by Executive in France, which Executive shall
designate as his "direct deposit" account, except that the Company shall deduct
from such payments prior to their deposit any required federal, state and local
United States tax and other payroll withholdings (including, to the extent
required or elected, Social Security) and any other deductions or charges
authorized by Executive. All conversions between Euros and dollars shall be in
compliance with the requirements of the Internal Revenue Code.
 
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            (d) Long-Term Incentive:
 
            (i) On July 1, 2004, the Company shall grant Executive 2,000,000
Company stock options at fair market value on such date. The stock options will
be subject to the following vesting schedule: (A) 25% of the options (i.e.
500,000 options) will vest on March 31, 2005; and (B) the remaining options
(i.e. 1,500,000 options) will vest in accordance with the vesting schedule
contained in the Company's 2000 Stock Option Plan (the "Plan") (i.e., 6.25% per
calendar quarter, commencing with the July, 2005, calendar quarter).
Notwithstanding the foregoing, the grant of the last 800,000 stock options that
shall vest pursuant to the prior sentence shall be conditioned on the approval
by the shareholders of the Company of an amendment to the Plan increasing the
number of options that can be granted on July 1, 2004 to a sufficient number
such that the grant of such 800,000 stock options to the Executive on July 1,
2004 shall not violate the limit on individual grant of stock options during a
specified period under the Plan. The Company represents and warrants that the
Board has approved such an amendment and the Company will seek approval of such
amendment by the shareholders of the Company at the Company's next annual
meeting.
 
               (ii) In addition to the above stock option grant, the Board shall
have sole and unreviewable discretion to grant Executive additional stock
options.
 
            (e) Expenses: Upon submission of itemized expense statements in the
manner reasonably specified by the Company, Executive shall be entitled to
reimbursement for reasonable business-related travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for executives of the same level
and responsibility as Executive. Executive shall have the use of a Company
credit card and be entitled to business-related air travel in business class, or
if not available, first class. Since Executive will also be providing services
to IESA for which he will have to be in France, the Company shall pay at least
70% of Executive's expenses for travel between France and the United States,
other than for personal travel (provided that travel between the United States
and France to work for IESA or the Company shall not be considered personal
travel) (and to the extent such payments are taxable to the Executive, gross up
such amounts, such that Executive has no after tax cost therefor). Without
limiting the generality of the foregoing, the Company hereby agrees to pay the
legal fees incurred in connection with the preparation and negotiation of this
agreement and to the extent taxable to the Executive provide a gross up such
that Executive has no after tax cost therefor.
 
      5. Benefits:
 
         (a) During the Term, and subject to the terms and provisions of such
plans, Executive shall be entitled to participate in the benefit plans and
programs, and receive the benefits and perquisites, generally provided to the
Company's executives of the same level and
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responsibility as Executive to the extent Executive is otherwise eligible under
the terms thereof. Nothing in this Agreement shall preclude the Company from
terminating or amending from time to time any employee benefit plan or program.
In addition, Executive shall be compensated for the cost of tax and financial
advice and preparation on the same terms as typically provided to other
expatriate senior executives of the Company, including for preparation of French
and United States tax returns by the international accounting firm which has
contracted with the Company to prepare returns for specific international
executives. This advice and preparation shall be provided also for the year of
expiration of the Agreement and the year of any termination other then a
termination for Cause or voluntary without Good Reason. Said payments shall be
grossed up as necessary to account for any applicable income or other taxes for
which Executive may be responsible in connection therewith (including for the
gross up payment).
 
 
            (b) During the Term, in addition to the benefits under (a) above,
the Company shall provide Executive with, or pay the premium on, term life
insurance on Executive's life in the amount of his Base Salary. Executive shall
be entitled to name the beneficiary of such policy and such policy shall be
portable. In the event Executive is not insurable by an amount equal to the cost
at standard rates, the amount of insurance shall be that purchasable at standard
rates.
 
      6. Relocation and Housing Allowance: The Company shall provide Executive
with a relocation and housing allowance for the period commencing April 1, 2004
through December 31, 2005, which shall include reimbursement for Executive's
actual and documented rent, security deposit, and broker commissions or fees;
provided, however, that rent reimbursement will be capped at $7,600 per month
through December 31, 2004 (the "2004 Cap") and $8,360 per month in 2005 (the
"2005 Cap"). The Company shall also cover similar expenses incurred from January
1, 2004 through the Effective Date, subject to the 2004 Cap. The Company hereby
agrees to execute any rent payment guarantees reasonably required by any third
party as a result of Executive's international status in connection with
Executive's living accommodations. All relocation and housing allowances made
under this Paragraph shall be grossed up as necessary to account for any
applicable income or other taxes for which Executive may be responsible in
connection therewith, including as a result of the gross up. If Executive's
employment hereunder is terminated prior to December 31, 2005 by the Company
without Cause or as a result of Disability, as a result of the Executive's death
or by the Executive for Good Reason, the Company will assume all of Executive's
obligations with respect to his housing through December 31, 2005, subject to
the 2004 Cap and the 2005 Cap.
 
      7. Place of Employment: Executive's services hereunder shall be rendered
primarily at the Company's office in New York City, New York. The Company may,
however, from time to time require Executive to travel to and render services
elsewhere, as the Company may reasonably deem necessary.
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      8. Restrictive Covenants:
 
         (a) Confidential Information; Non-Solicitation:
 
               (i) Existence of Confidential Information. The Company owns and
has developed and compiled, and will develop and compile, certain proprietary
techniques and confidential information which have great value to its business
(referred to in this Agreement, collectively, as "Confidential Information").
Confidential Information includes not only information disclosed by the Company
to Executive, but also information developed or learned by Executive during the
course or as a result of employment with the Company, which information shall be
the property of the Company. Confidential Information includes all information
that has or could have commercial value or other utility in the business in
which the Company is engaged or contemplates engaging, and all information of
which the unauthorized disclosure could be detrimental to the interests of the
Company, whether or not such information is specifically labeled as Confidential
Information by the Company. By way of example and without limitation,
Confidential Information includes any and all information developed, obtained,
licensed by or to or owned by the Company concerning trade secrets, techniques,
know-how (including designs, plans, procedures, merchandising, marketing,
distribution and warehousing know-how, processes, and research records),
software, computer programs, and any other intellectual property created, used
or sold (through a license or otherwise) by the Company, Electronic Data
Information know-how and processes, innovations, discoveries, improvements,
research, development, test results, reports, specifications, data, formats,
marketing data and plans, business plans, strategies, forecasts, unpublished
financial information, orders, agreements and other forms of documents, price
and cost information, merchandising opportunities, expansion plans, store plans,
budgets, projections, customer, supplier, licensee, licensor and subcontractor
identities, characteristics, agreements and operating procedures, and salary,
staffing and employment information. Notwithstanding the foregoing, Confidential
Information shall not include information which (A) is or becomes generally
available to the public or is, at the time in question, in the public domain
other than as a result of a disclosure by Executive, (B) was available to
Executive on a non-confidential basis prior to the date of this Agreement, (C)
becomes available to Executive from a source other than the Company, its agents
or representatives (or former agents or representatives), or (D) is required to
be disclosed pursuant to law; provided, that Executive shall provide the Company
with prompt notice of such required disclosure, and Executive shall reasonably
cooperate with the Company (at Company expense) to enable the Company to seek a
protective order; provided, further, that in the case of (C) above, the source
of such information was not bound by a confidentiality agreement with the
Company.
 
               (ii) Protection of Confidential Information. Executive
acknowledges and agrees that in the performance of duties hereunder the Company
discloses to and entrusts Executive with Confidential Information which is the
exclusive property of the Company and which Executive may possess or use only in
the performance of duties for the Company. Executive also acknowledges that he
is aware that the unauthorized disclosure of Confidential Information, among
other things, may be prejudicial to the Company's interests, an invasion of
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privacy and an improper disclosure of trade secrets. Executive shall not,
without the prior written consent of the Board, directly or indirectly, use,
make available, sell, disclose or otherwise communicate to any corporation,
partnership, individual or other third party, other than in the course of
Executive's responsibilities and, as he deems in good faith, for the benefit of
the Company, any Confidential Information, either during the Term or thereafter,
provided that the Company acknowledges that IESA is a majority shareholder of
Atari and, accordingly, disclosure of Confidential Information to IESA shall not
be deemed a violation of this provision. In the event Executive desires to
publish the results of Executive's work for or experiences with the Company
through literature, interviews or speeches, Executive will submit requests for
such interviews or such literature or speeches to the Board at least fourteen
(14) days before any anticipated dissemination of such information for a
determination of whether such disclosure is in the best interests of the
Company, including whether such disclosure may impair trade secret status or
constitute an invasion of privacy. Executive agrees not to publish, disclose or
otherwise disseminate such information without the prior written approval of the
Board.
 
               (iii) Proprietary Information. Executive will hold in strictest
confidence and will not disclose, use, or publish, any of the Company's
Proprietary Information (defined below), except as such disclosure, use or
publication may be required in connection with Executive's work for the Company
or unless an officer of the Company expressly authorizes such in writing,
provided that the foregoing shall not apply to disclosure of confidential
Proprietary Information to IESA. Subject to Section 9 of this Agreement,
Executive hereby assigns to the Company any rights Executive may have or acquire
in such Proprietary Information and recognizes that all Proprietary Information
shall be the sole property of the Company and its assigns, and that the Company
and its assigns shall be the sole owner of all title, patent rights, copyrights,
trade secret rights, moral rights, and all other rights throughout the world
(collectively, "Proprietary Rights") in connection therewith.
 
               For purposes of this Agreement, "Proprietary Information" is
information that was or will be developed, created, or discovered by or on
behalf of the Company, including without limitation, by Executive in the course
of his work for the Company, or which became or will become known by, or was or
is conveyed to the Company, which has commercial value in the Company's business
and is subject to Section 9 of this Agreement.. By way of illustration, but not
limitation, "Proprietary Information" includes (a) inventions (whether
patentable or not), mask works, trade secrets, ideas, processes, formulas,
source and object codes, data, programs, other works of authorship, consumer
preference algorithms, strategic alliances, application or other developments,
know-how, technology, improvement, discoveries, designs and techniques
(collectively referred to herein as "inventions"), and (b) information regarding
plans for research, development, new products, marketing and selling, business
plans, budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers; and information regarding the skills and compensation
of other employees of or consultants to the Company.
 
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               (iv) Enforcement of Proprietary Rights. Executive will assist the
Company in every proper way to obtain and from time to time enforce United
States and foreign Proprietary Rights relating to Company Inventions (as defined
in Section 9(c) of this Agreement) in any and all countries, including without
limitation, executing, verifying and delivering such documents and performing
such other acts (including, at Company expense, appearances as a witness) as the
Company may reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such Proprietary Rights and the assignment
thereof. In addition, Executive will execute, verify and deliver assignments of
such Proprietary Rights to the Company or its designee. To that end Executive
will execute, verify, and deliver such documents and perform such other acts
(including, at Company expense, appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining, and enforcing such Proprietary Rights and the assignment thereof. In
addition, Executive will execute, verify, and deliver assignments of such
Proprietary Rights to the Company or its designee. Executive's obligation to
assist the Company with respect to Proprietary Rights relating to Company
Inventions in any and all countries shall continue beyond the termination of
this Agreement, provided that the Company shall compensate Executive at a
reasonable rate for the time actually spent by Executive at the Company's
request, if any, on such assistance after termination of Executive's employment.
In the event the Company is unable for any reason, after reasonable effort, to
secure Executive's signature on any document needed in connection with the
actions specified in this paragraph, Executive hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Executive's
agent and attorney in fact, to act for and in Executive's behalf to execute,
verify, and file any such documents and to do all other lawfully permitted acts
to further the purposes of the preceding paragraph thereon with the same legal
force and effect as if executed by Executive. Executive hereby waives and
quitclaims to the Company any and all claims, of any nature whatsoever, which
Executive now or may hereafter have for infringement of any Proprietary Rights
owned by the Company pursuant to this Agreement.
 
               (v) Third Party Information. Executive will hold confidential or
proprietary information that the Company has received and in the future may
receive from third parties ("Third Party Information"), subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes, in the strictest confidence and will not
disclose (to anyone other than Company or IESA personnel who need to know such
information in connection with their work for the Company), use, or publish
except in connection with Executive's work for the Company, such Third Party
Information unless expressly authorized by an officer of the Company in writing
or in compliance with legal process or governmental inquiry.
 
               (vi) Deliverer of Records, Etc. In the event Executive's
employment with the Company ceases for any reason, Executive will not remove
from the Company's premises without its prior written consent any records,
files, drawings, documents, equipment, materials and writings belonging to the
Company, including those which relate to or contain Confidential Information, or
any copies thereof (other than Executive's rolodex and similar
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address books, provided that they only contain names, addresses, telephone
numbers, and similar contact information, and further provided that the
Executive, upon written request, shall furnish the Company with a copy of such
rolodex and similar address books). Upon request or when employment with the
Company ends, Executive will immediately deliver the same to the Company.
 
               (vii) Non-Solicitation/Non-Hire. Executive acknowledges and
agrees that any attempt to interfere with the Company's existing employment
relationships would result in significant harm to the Company's interests.
Accordingly, Executive agrees that during his employment with the Company
(whether under this Agreement or otherwise) and for a period of twenty-four (24)
months after such employment ends (regardless of reason), Executive will not,
except in the good faith performance of his duties while employed by the
Company, in any way, directly or indirectly, solicit any employee of the Company
to terminate his or her employment with the Company, or hire any person who is
then an employee of the Company and, if after termination of employment, was an
employee of the Company on the date of termination, provided that the foregoing
shall not apply to general advertising not specifically targeted at employees of
the Company.
 
            (b) Non-Competition: Executive hereby agrees and covenants that, for
the greater period of either: (i) six (6) months after Executive's employment
with the Company ends (regardless of reason); or (ii) the number of months for
which Executive will receive severance payments under Paragraph 10 of this
Agreement, Executive will not render services to the eight entities set forth on
a list provided by the Company to the Executive simultaneously herewith (the
"Listed Entities"), provided that the foregoing shall not apply to continuation
of matters permitted and done in accordance with Section 3 hereof which were
commenced at a time when an entity was not a Listed Entity. The Listed Entities
named herein may be amended from time to time in the Company's sole discretion
by written notice to Executive, provided that the Listed Entities will, at no
time, include more than eight entities, all such entities shall be competitive
with the business of the Company, and any such amendment shall be effective only
if written notice thereof shall have been given to Executive at least 90 days
prior to the effective date of Executive's termination of employment. Nothing in
this Paragraph 8(b) shall prohibit Executive from being employed, or providing
services, in a non-competitive position with a large conglomerate that owns one
of the foregoing. In the event the length of Executive's non-compete obligation
under this Paragraph 8(b) exceeds twelve (12) months, at any time after the end
of the initial twelve (12) months, Executive may elect to forfeit the right to
future severance pay in exchange for termination of this non-compete provision
upon written notice to the Company. If Executive voluntarily resigns without
Good Reason and begins to render services to one of the Listed Entities within
six (6) months of his termination of employment in violation of the obligations
under this paragraph, the Executive shall repay the Company, in cash, within
five business days after demand is made therefore by the Company, the total
amount of the "Award Gain" (as defined herein) realized by the Executive upon
any exercise of Company stock options that occurred on or after the date that is
six (6) months prior to the date the Executive began to render services to the
Listed Entity in violation of the obligations under this paragraph.
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The term "Award Gain" shall mean the product of: (x) the fair market value per
share of stock on the date of such exercise (without regard to any subsequent
change in the market price of shares) minus the exercise price, times (y) the
number of shares as to which the option was exercised at that date.
 
            (c) Non-Disparagement: During the Term and thereafter, Executive and
the Company each agree that he or it will take no unnecessary action which is
intended, or would reasonably be expected, to harm the other's reputation or
which would reasonably be expected to lead to unwanted or unfavorable publicity
to the other. Nothing in this Paragraph 8(c) shall preclude Executive from
making non-defamatory statements regarding the Company and taking other actions
in the course of engaging in legitimate competitive activities.
 
      9. Rights to Results of Services:
 
            (a) Subject to the remainder of this paragraph, in addition to
Executive's services, the Company shall own, and Executive hereby sells, grants,
assigns, transfers and sets over to the Company, all rights of every kind in and
to all results and proceeds of Executive's services hereunder, including,
without limitation, all documents prepared or compiled by Executive in
connection with such services. Executive's creative services hereunder relate
only to video games and derivatives of video games created for the Company,
which shall be all video games except as provided below. The Company shall have
no right of any kind hereunder in any intellectual properties created by
Executive for IESA with regard to, or derived from, video games and other
intellectual properties currently owned by IESA or with regard to developments
of video games done by IESA for the Company or any other entity pursuant to a
developmental contract. In addition, the Company shall have no right hereunder
to any intellectual property created by Executive, including, but not limited
to, movies, books, DVDs, television programs and designs (and video games based
on the foregoing if the video games are derivatives of the foregoing as opposed
to the foregoing being derivatives of the video games) other than video games
and derivatives thereof as provided above. In the event an agreement is entered
into pursuant to Exhibit C hereto, the Company shall have such rights as
provided therein. At all times, Executive shall own his name and image and the
Company shall have no right in it, except it may identify the Executive as the
creator of products.
 
            (b) Notwithstanding any other provision of this Agreement to the
contrary, this Agreement does not obligate Executive to assign or offer to
assign to the Company any of Executive's rights in an invention for which no
equipment, supplies, facilities or trade secret information of the Company was
used and which was developed entirely on Executive's own time, unless (1) the
invention resulted from work performed by Executive for the Company, (2) the
invention relates to the business of the Company, or (3) the invention relates
to the Company's actual or demonstrably anticipated research or development
provided however, that any work Executive expends in connection with such
excluded inventions shall be done on Executive's own time, during non-working
hours, and not interfere with Executive's full and faithful performance of
Executive's duties as an employee or consultant of the Company, and in
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any event, there shall be no obligation or offer to assign any invention not
covered by the grant in (a) above.
 
            (c) Inventions assigned to or otherwise held by the Company pursuant
to paragraph (b) above are hereinafter referred to as "Company Inventions."
 
            (d) Executive expressly assigns any rights that Executive may have
to control the content or appearance of any Company Invention, to seek credit as
its author/inventor or to seek compensation for such Company Invention. To the
extent that assignment of these rights is not permitted under applicable law and
to the extent the law permits a waiver of those rights, Executive hereby waives
any of Executive's rights in any Company Invention.
 
            (e) Inventions, if any, patented or unpatented, which Executive made
prior to the commencement of Executive's employment relationship with the
Company and to which Executive claims ownership ("Pre-existing Inventions") are
excluded from the scope of this Agreement; provided, however, that Executive
shall maintain appropriate documentation to establish the existence and scope of
any Pre-existing Inventions.
 
      10. Termination:
 
            (a) Death of Executive: Executive's employment shall terminate
automatically upon Executive's death. If Executive's employment under this
Agreement is terminated by reason of Executive's death, the Company shall pay to
Executive's designated beneficiary or estate, as appropriate: (i) any accrued
amounts, including any salary that Executive has earned but that remains unpaid
as of the date of such termination, any accrued but unused vacation, any
unreimbursed business expenses and any bonus due for any completed fiscal year
("Accrued Amounts"); and (ii) a pro rata portion of Executive's annual incentive
for the year of Executive's death based on actual results and the relative
period of such year through which Executive was employed (the "Pro Rata Bonus").
Further, all stock options previously granted to Executive by the Company shall
vest immediately upon Executive's death and be exercisable for a period of one
(1) year thereafter or, if less, the remainder of the term of the grant. Nothing
in this Paragraph 10(a) shall affect any entitlement of Executive's heirs to the
benefits of any life insurance plan or other applicable benefits, including but
not limited to as provided in Sections 5 and 6 hereof.
 
            (b) Disability of the Executive: The Company may, at its option,
terminate Executive's employment by written notice given to the Executive while
he remains incapacitated if Executive shall fail, by virtue of or by reason of
some physical or mental impairment, to perform Executive's duties hereunder for
a period of six (6) consecutive months or more. In the event of such
termination, Executive shall remain eligible for such short-term and long-term
disability benefits as the Company provides to its senior executives generally
at that time to the extent Executive is eligible for those benefits under the
provisions of those plans as amended from time to time. In that regard,
following such termination of this Agreement, Executive shall
<PAGE>
 
                                       12
 
 
be considered an employee solely for the purpose of applying for and receiving
disability payments (both temporary and long-term) in accordance with the terms
and conditions of such disability plans in effect at the time. During any period
that Executive fails to perform his duties hereunder as a result of incapacity
due to physical or mental injury or illness, Executive shall continue to receive
the compensation and benefits provided by Paragraphs 4, 5 and 6 hereof until
Executive's employment hereunder is terminated; provided, however, that the
amount of compensation and benefits received by Executive during said period
shall be reduced by the aggregate amounts, if any, payable to Executive under
the Company's disability benefit plans and programs or under the Social Security
disability insurance program covering the same period of time. In the event of
termination for disability under this Paragraph 10(b), the Company will pay
Executive his Accrued Amounts, the Pro Rata Bonus and any amounts or rights due
under any benefit plan or program, including but not limited to as provided in
Sections 5 and 6 hereof. Further, all stock options previously granted to
Executive by the Company shall vest immediately upon Executive's termination for
disability under this Paragraph 10(b) and be exercisable by Executive for a
period of one (1) year thereafter or, if less, the remainder of the term of the
grant.
 
            (c) Voluntary Quit: The Executive may voluntarily resign at any time
with or without Good Reason. If Executive resigns voluntarily for any reason
(other than for "Good Reason" as defined herein), the Company will pay Executive
his Accrued Amounts and any amounts or rights due under any benefit plan or
program, and shall have no further obligations under this Agreement, except as
provided herein with regard to indemnification and director and officer
liability insurance All of Executive's unvested stock options will terminate
immediately upon Executive's notice of resignation or Executive's actual
resignation, whichever occurs first. Any vested stock options will be
exercisable for a period of thirty (30) days following Executive's actual
resignation date.
 
            (d) Termination for Cause: The Company shall have the right to
terminate the Executive's services for "Cause" during the Term. For purposes of
this agreement, "Cause" shall be defined as:
 
               (i) Willful and material breach of any of the restrictive
covenants set forth in Paragraph 8 of this Agreement;
 
               (ii) Willful failure or refusal to attempt to perform any of
Executive's material duties, responsibilities, or obligations under this
Agreement, provided that Executive has received written notice from the Company
setting forth the manner in which Executive has failed or refused to attempt to
perform his duties, responsibilities or obligations, has been given an
opportunity to cure within ten (10) days;
 
               (iii) Any willful act involving material fraud, theft,
misappropriation of funds, embezzlement or dishonesty with regard to the
Company;
<PAGE>
 
                                       13
 
 
               (iv) Conviction of a felony or plea of nolo contender involving a
felony, whether or not involving the Company (excluding cases based solely on
Executive's vicarious liability for the conduct of the Company or others, and
cases involving traffic violations); or
 
               (v) Gross neglect or willful misconduct in carrying out
Executive's duties, responsibilities, or obligations under this Agreement, which
has a materially adverse effect on the Company.
 
            Prior to termination for Cause, Executive shall be entitled to
receive written notice from the Company stating the grounds therefor, and shall
have an opportunity to be heard with counsel at a special Board meeting. No act
shall be deemed willful, if taken in good faith and with a reasonable belief
that it was in the best interests of the Company.
 
            In the event the Company terminates the Executive for Cause he shall
receive his Accrued Amounts (other than any prior year bonus) and as provided
under any benefit or equity plan or program. In such event all unexercised stock
options, whether or not vested, shall immediately cease to be exercisable and
shall be forfeited.
 
            (e) Termination Without Cause or for "Good Reason" by Executive
Prior to a "Change in Control": In the event the Company terminates the
Executive's employment under this Agreement during the Term and prior to a
"Change in Control" (as defined herein), other than as provided in (g) below,
for any reason other than death, disability, or for Cause, or if Executive
voluntarily resigns for "Good Reason" (as defined herein) prior to a Change in
Control:
 
               (i) The Company will pay Executive his then-current annual base
salary for a period of twelve (12) months;
 
               (ii) The Company will pay Executive an amount equal to the target
Incentive Bonus for the fiscal year of termination when annual bonuses would
otherwise be received;
 
               (iii) The Company will continue to provide Executive with any
medical, health and life insurance that Executive elected during his employment,
and continue to pay the Company's portion of the premiums therefor, for a period
of twelve (12) months following Executive's termination or until Executive is
eligible to receive such benefits coverage from a new employer, whichever comes
first;
 
               (iv) All of Executive's stock options shall immediately vest upon
Executive's termination under this Paragraph 10(e), and all vested options shall
remain exercisable for a period of one (1) year thereafter or, if less, the
remainder of the term of the grant;(v) The Company will pay Executive the
Accrued Amounts and the Pro Rata Bonus; and
<PAGE>
 
                                       14
 
 
               (v) The Executive shall be entitled to any amounts or rights
under any benefit plan or program, including but not limited to as provided in
Sections 5 and 6 hereof.
 
      All payments and benefits under this Paragraph 10(e) are subject to
Executive's ongoing compliance with the non-compete provision in paragraph 8(b)
of this Agreement, and are conditioned on Executive executing a waiver and
release of all known and unknown claims against the Company, in substantially
the form annexed hereto as Exhibit B.
 
            (f) Termination Without Cause or for "Good Reason" by Executive
Within 24 Months After a "Change in Control": In the event that the Company
terminates Executive's employment under this Agreement during the Term and
within twenty-four (24) months after the occurrence of a Change in Control or as
provided in (g) below for any reason other than for death, disability, or for
Cause, or if Executive voluntarily resigns for Good Reason within twenty-four
(24) months after the occurrence of a Change in Control or as provided in (g)
below:
 
               (i) The Company will pay Executive an amount equal to two (2)
times the sum of (x) his then current annual base salary and (y) the Incentive
Bonus payment Executive received from the Company for the immediately preceding
bonus year (or if higher, the Incentive Bonus payment made to the Executive with
respect to the full fiscal year immediately preceding the Change in Control) in
twenty-four (24) equal monthly installments commencing with the first day of the
month after such termination;
 
               (ii) The Company will continue to provide Executive with any
medical, health and life insurance that Executive elected during his employment,
and continue to pay the Company's portion of the premiums therefor, for a period
of twenty-four (24) months following Executive's termination or until Executive
is eligible to receive such benefits coverage from a new employer, whichever
comes first;
 
               (iii) All of Executive's stock options shall immediately vest
upon Executive's termination under this Paragraph 10(f), and all vested options
shall remain exercisable for a period of one (1) year thereafter or, if less,
the remainder of the term of the grant;
 
               (iv) The Company will pay Executive the Accrued Amounts and the
Pro Rata Bonus; and
 
               (v) The Executive shall be entitled to any amounts or rights
under any benefit plans or program, including but not limited to as provided in
Sections 5 and 6 hereof.
 
            All payments and benefits under this Paragraph 10(f) are subject to
Executive's ongoing compliance with the non-compete provision in Section 8(b) of
this Agreement, and are conditioned on Executive executing a waiver and release
of all known and unknown claims against the Company, substantially in the form
annexed hereto as Exhibit B.
<PAGE>
 
                                       15
 
 
            (g) For purposes of the Agreement, if the Executive's employment
with the Company is terminated without Cause or the Executive terminates with
Good Reason prior to the date on which the Change in Control occurs, but the
Executive reasonably demonstrates that the termination (i) was at the request of
a third party who had taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in connection with or in anticipation of a
Change in Control which has been threatened or proposed, such termination shall
be deemed to have occurred after a Change in Control for purposes of this
Agreement provided a Change in Control shall actually have occurred.
 
            (h) Payment of Excise Taxes:
 
               (i) If any payment or payments to Executive under this Paragraph
10 or under any other plan, program, arrangement, or agreement of the Company or
any other person in connection with the Company is subject to excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended from time to
time (the "Code"), or any successor or similar provision of the Code, the
Company shall pay Executive an additional amount (the "Gross Up") such that the
net amount retained by Executive after deduction of any such excise tax and any
income or employment tax, social security tax, excise tax, or interest or
penalties imposed on amounts paid under this Paragraph 10(h) shall be equal to
the full amount of the intended payment.
 
               (ii) For purposes of determining the Gross Up, Executive shall be
deemed to pay federal, state, and local income tax at the highest marginal rate
of applicable taxation in the calendar year in which the payment is made. The
determination of whether excise tax is payable, including whether any exception
may apply, and if so the amount thereof shall be made upon the opinion of tax
counsel (delivered to the Company and Executive) selected by the Company and
reasonably acceptable to Executive, applying the following rules: (A) all
payments shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject to excise tax
unless in the opinion of counsel such payments do not constitute parachute
payments or such excess parachute payments represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the "base amount" within the meaning of Section 280G(b)(3) of the
Code or are otherwise not subject to excise tax; and (B) the value of any
non-cash or deferred payments or benefits shall be determined by an independent
accounting firm selected by the Company and reasonably acceptable to Executive
in accordance with the principles of Section 280G(d)(3) and (4) of the Code. All
fees, costs, and expenses of tax counsel and any accounting firm or other
advisor retained in accordance with this paragraph shall be borne solely by the
Company.
 
               (iii) The Gross Up, if any, shall be paid to Executive in cash
and in a lump sum within thirty (30) days after the date on which the amount
thereof has been determined or is reasonably determinable by tax counsel, and in
any event not later than forty-five (45) days
<PAGE>
 
                                       16
 
 
following termination of Executive's employment; provided, however, that if the
amount of the Gross Up cannot be finally determined at or before such time, the
amount paid shall be the estimated full amount of the Gross Up as reasonably
determined by tax counsel in good faith and in accordance with the principles of
the preceding paragraph. If such an estimated Gross Up is paid, or if the
opinion of tax counsel is not finally accepted by the Internal Revenue Service,
then appropriate adjustments shall be computed (with additional Gross Up, if
necessary) by tax counsel based upon the final amount of excise tax, and any
additional amount due to Executive as a result of such adjustment (including any
interest or penalties owed by Executive by reason of any underpayment) shall be
paid in cash and in a lump sum within thirty (30) days of such computation. Any
amount due the Company as a result of such an adjustment shall be paid by
Executive in cash in a lump sum within thirty (30) days of such computation.
 
               (iv) The gross up shall be recalculated and a further payment
made to Executive if: (x) the Internal Revenue Service disagrees with the
position of the tax counsel, (y) under applicable law, the excess parachute
payments are required to be recalculated, or (z) permissive recalculation of the
excess parachute payment is permitted and the Company elects to do so.
 
      11. Good Reason:
 
          (a) For purposes of this Agreement, except as expressly specified in
the last sentence paragraph (b) below, "Good Reason" shall be defined as any of
the following: (i) a change in Executive's direct reporting relationship to the
Board; (ii) a diminution in Executive's job title (other than temporarily while
Executive is incapacitated); (iii) a material diminution or adverse change
(other than temporarily while Executive is incapacitated) in Executive's
position, office or duties (including, but not limited to, Executive's removal
from or non-re-election to the Board); (iv) the assignment of duties
inconsistent with Executive's position; (v) a decrease in Executive's base
salary or target annual incentive compensation opportunity; (vi) a material
breach of this Agreement by the Company, which remains uncured, if curable,
after more than ten (10) days after the giving of written notice by the
Executive; or (vii) the failure to secure and deliver to Executive, a written
assumption of the Company's obligations under this Agreement from any successor.
 
            (b) Notwithstanding anything to the contrary expressed or implied in
paragraph 11(a) above, the parties acknowledge and agree that during the Term,
Executive and the Board may agree that an additional senior executive (an
"Additional Executive") should be appointed as Chief Executive Officer of the
Company to assume some of the day-to-day duties theretofore undertaken by
Executive hereunder, in order to enable the Executive to devote substantially
and comparatively more of his time to his creative role for the Company. In such
case, this event shall not be considered "Good Reason" for the purposes of this
Agreement so long as Executive approves, in writing, the change and the person
appointed to such position.
<PAGE>
 
                                       17
 
 
      12. Change in Control:
 
          (a) For purposes of this Agreement, a "Change in Control" shall mean
any of the following occurrences:
 
               (i) Any "person" (as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934 ("Exchange Act")), other than IESA, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 35% or
more of the combined voting power of the Company's then outstanding securities
(other than as a result of a merger or consolidation covered by clause 12(c)
below in connection with a merger involving the Company which would result in
voting securities of the Company outstanding immediately prior thereto
continuing to represent more than 65% of the combined voting power of the voting
securities of the Company or the surviving entity (or its parent) outstanding
immediately after such merger or consolidation);
 
               (ii) During any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of the Company, and any new
director (other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clause (i),
(iii) or (iv) of this definition) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
 
               (iii) The consummation of a merger or consolidation of the
Company with any other entity, other than (x) a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 65% of
the combined voting power of the voting securities of the Company or such
surviving entity (or its parent) outstanding immediately after such merger or
consolidation, or (y) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as hereinabove defined, but not including IESA) acquires more than 35% of the
combined voting power of the Company's then outstanding securities; or
 
               (iv) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
<PAGE>
 
                                       18
 
 
 
      13. Applicable Law; Arbitrations, Etc.:
 
          (a) THIS AGREEMENT WAS NEGOTIATED AND ENTERED INTO WITHIN THE STATE OF
NEW YORK. ALL MATTERS PERTAINING TO THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE WHOLLY PERFORMED
THEREIN (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS PRINCIPLES UNDER NEW YORK
LAW).
 
          (b) Subject to the provisions of Paragraph 13(c) of this Agreement,
any and all controversies or claims arising out of or relating to this
Agreement, its performance, construction, interpretation or breach, or otherwise
relating to or arising from Executive's employment or the termination thereof
(including claims for employment discrimination), shall be resolved by final and
binding arbitration, to the greatest extent allowed by law, which arbitration
will be conducted in New York County in accordance with the rules of the
American Arbitration Association then in effect, and any award that may be
rendered by the arbitrator or arbitrators may be enforced in any court of
competent jurisdiction. The arbitrator shall have no authority to change or
modify any provision of this Agreement. With respect to any dispute arising
prior to a Change in Control and not during the Protected Pre Change in Control
Period, the prevailing party in any such arbitration, as determined by the
arbitrator, shall be entitled to reimbursement by the other party for its
reasonable attorneys' fees incurred in connection with the dispute; provided,
however, no award of attorneys' fees shall be made against Executive unless it
is found by the arbitrator that his overall position was frivolous or taken in
bad faith. With respect to any dispute arising after a Change in Control or
during the Protected Pre Change in Control Period, Executive shall be entitled
to reimbursement for reasonable attorneys' fees in all instances unless it is
determined by the arbitrator that Executive's overall position is frivolous or
that Executive brought it in bad faith and the Company shall not be entitled to
reimbursement even if it prevails except if Executive's overall position is
found by the arbitrator to have been frivolous or taken in bad faith.
 
          (c) Notwithstanding the provisions of Paragraph 13(b) of this
Agreement, either party may bring a court action in equity for an injunction or
other equitable relief or for interim relief pending a decision by the
arbitrator with regard to Section 8 hereof. Any court action under this section
may be brought in state or federal court within New York County, and the parties
each agree to waive any objection they may have to the in personam jurisdiction
or venue of any such court.
 
          (d) Nothing in this Agreement shall be construed to require the
commission of any act contrary to law, and wherever there is any conflict
between any provision of this agreement and any material present or future
statute, law, governmental regulation or ordinance as a result of which the
parties have no legal right to contract or perform, the latter shall prevail,
but in such event the provision(s) of this Agreement affected shall be curtailed
and limited only to the extent necessary to bring it or them within the legal
requirements.
 
<PAGE>
 
                                       19
 
 
      14. Assignment and Transfer:
 
          (a) The Company: This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, and only to, any
purchaser of all or substantially all of the Company's business or assets, any
successor to the Company or any assignee thereof (whether direct or indirect, by
purchase, merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place in a writing delivered to the Executive.
 
          (b) Executive: Executive's rights and obligations under this Agreement
shall not be transferable by Executive by assignment or otherwise, and any
purported assignment, transfer or delegation thereof shall be void; provided,
however, that if Executive shall die, all amounts then payable to Executive
hereunder shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there be no such designee,
to Executive's estate.
 
      15. Miscellaneous:
 
            (a) Other Obligations: Executive represents and warrants that
neither his employment with the Company nor his performance of his obligations
hereunder will conflict with or violate or otherwise are inconsistent with any
other obligations, legal or otherwise, which Executive may have, except that the
Company is aware of Executive's fiduciary obligation to IESA.
 
            (b) Cooperation: Following termination of employment with the
Company, Executive shall cooperate with the Company, as reasonably requested by
the Company and at the Company's expense for Executive's out-of-pocket expenses,
to effect a transition of Executive's responsibilities and to ensure that the
Company is aware of all material matters being handled by Executive.
 
            (c) Entire Agreement: This Agreement contains the entire agreement
and understanding between the parties hereto in respect of the subject matter
hereof and supersedes, cancels and annuls any prior or contemporaneous written
or oral agreements, understandings, commitments and practices between them
respecting the subject matter hereof, including all prior employment agreements,
if any, between the Company and Executive, which agreement(s) hereby are
terminated and shall be of no further force or effect.
 
<PAGE>
 
                                       20
 
 
 
            (d) Amendment: This Agreement may be amended or terminated only by a
writing which makes express reference to this Agreement as the subject of such
amendment or termination and which is signed by Executive and, on behalf of the
Company, by its duly authorized officer.
 
            (e) Severability: If any term, provision, covenant or condition of
this Agreement or part thereof, or the application thereof to any person, place
or circumstance, shall be held to be invalid, unenforceable or void, the
remainder of this Agreement and such term, provision, covenant or condition
shall remain in full force and effect, and any such invalid, unenforceable or
void term, provision, covenant or condition shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this regard, Executive acknowledges that the
provisions of Paragraphs 8(a) and 8(b) of this Agreement are reasonable and
necessary for the protection of the Company.
 
            (f) Construction: The headings and captions of this Agreement are
provided for convenience only and are intended to have no effect in construing
or interpreting this Agreement. The language in all parts of this Agreement
shall be in all cases construed according to its fair meaning and not strictly
for or against the Company or Executive. The use herein of the word "including,"
when following any general provision, sentence, clause, statement, term or
matter, shall be deemed to mean "including, without limitation". As used herein,
"Company" shall mean the Company and its parents and subsidiaries and any
purchaser of, successor to or assignee (whether direct or indirect, by purchase,
merger, consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement, or otherwise, and the parent, if any, thereof. As used herein,
the words "day" or "days" shall mean a calendar day or days.
 
            (g) Non-waiver: Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
 
            (h) Remedies for Breach: The parties hereto agree that (i) Executive
is obligated under this Agreement to render personal services during the Term of
a special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement peculiar value, and (ii) in the event of a breach or
threatened breach by either party of any covenant in Section 8 hereof, the
injury or imminent injury to the value and the goodwill of the Company's
business or to the Executive could not be reasonably or adequately compensated
in damages in an action at law. Accordingly, each party expressly acknowledges
that the other party shall be entitled to specific performance, injunctive
relief or any other equitable remedy against the breaching party, without the
posting of a bond and without limitation as to any other remedy, in the event of
any breach or
 
<PAGE>
 
                                       21
 
 
threatened breach of any provision of Section 8 of this Agreement.
The rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.
 
            (i) Notices: Any notice, request, consent or approval required or
permitted to be given under this Agreement shall be sufficient if in writing,
and if and when sent by certified or registered mail, return receipt requested,
with postage prepaid, to Executive's residence (as reflected in the Company's
records or as otherwise designated by Executive on thirty (30) days prior
written notice to the Company), with a similar copy to Executive's residence in
France or to the Company's principal executive office, attention: General
Counsel, as the case may be. All such notices, requests, consents and approvals
so sent shall be effective upon being deposited in the United States mail.
However, the time period in which a response thereto must be given shall
commence to run from the date of receipt on the return receipt of the notice,
request, consent or approval by the addressee thereof. Rejection or other
refusal to accept, or the inability to deliver because of changed address of
which no notice was given as provided herein, shall be deemed to be receipt of
the notice, request, consent or approval sent.
 
            (j) Assistance in Proceedings, Etc.: Executive shall, without
additional compensation, but at Company expense, during the Term, upon
reasonable notice and at reasonable times, and after the Term, as reasonably
requested considering Executive's other commitments, furnish such information
and proper assistance to the Company as may reasonably be required by the
Company in connection with any legal or quasi-legal proceeding, including any
external or internal investigation, involving the Company or any of its
affiliates or in which any of them is, or may become, a party, and, in all
cases, which relate to activities in which Executive was involved during the
Term and in which Executive's interests are not adverse to those of the Company.
 
            (k) Insurance and Indemnification:
 
                  (i) Executive shall be covered under any director and officer
insurance policy obtained by the Company, if any, and shall be entitled to
benefit from any officer indemnification arrangements adopted by the Company, if
any, to the same extent as other directors or senior executive officers of the
Company (including the right to such coverage or benefit following Executive's
employment to the extent liability continues to exist); provided, however that
Executive acknowledges and agrees that the Company shall not be obligated, in
any way, except as provided in (ii) below, to obtain such insurance coverage or
to adopt any such indemnification arrangements for such officers.
 
<PAGE>
                  (ii) The Company shall indemnify the Executive to the fullest
extent permitted by law against any claim or suits arising out of any act or
inaction in connection with his positions.
 
            (l) Survival: This Agreement and the respective obligations, rights
and benefits of the Company and the Executive as set forth herein shall survive
the cessation or termination of Executive's employment with the Company and the
termination of the Term in accordance with the terms set forth herein.
 
            (m) Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement. Facsimile signatures of
any party will have the same force and effect as original signatures.
 
                                        ATARI, INC.
 
                                        By: /s/ Harry Z. Glantz
                                            -------------------
 
                                        By: Sr. V.P. Human Resources
                                            ------------------------
 
ACCEPTED AND AGREED TO:
 
/s/ Bruno Bonnell
-----------------
Bruno Bonnell
 
<PAGE>
 
EXHIBIT A
 
                         PRE-APPROVED BOARD MEMBERSHIPS
 
IESA and any subsidiaries
DANONE S.A
EURAZEO S.A
SCPS
SAOS OL
PATHE
 
<PAGE>
 
EXHIBIT B
 
                    TERMINATION AND GENERAL RELEASE AGREEMENT
 
                                   ATARI, INC.
                                417 Fifth Avenue
                            New York, New York 10016
 
                                                                        <<Date>>
 
<<Gender>> <<EMP_First_Name>> <<EMP_Last_Name>>
<<Address>>
<<City>>, <<State>> <<Zip>>
 
Dear <<EMP_First_Name>>
 
      PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL CLAIMS AND
A WAIVER OF ALL RIGHTS TO MAKE A CLAIM AGAINST ATARI. DO NOT SIGN THIS AGREEMENT
IMMEDIATELY. YOU HAVE TWENTY-ONE (21) DAYS FROM THE DATE YOU RECEIVE THIS
AGREEMENT TO DECIDE WHETHER OR NOT YOU WISH TO SIGN IT. YOU SHOULD CONSULT WITH
AN ATTORNEY BEFORE SIGNING THIS AGREEMENT. IF YOU DO SIGN THIS AGREEMENT, YOU
HAVE SEVEN (7) DAYS TO CHANGE YOUR MIND AND TERMINATE THIS AGREEMENT, THEREBY
RELEASING ALL PARTIES FROM ANY OBLIGATIONS SET FORTH IN THIS AGREEMENT.
 
      You and Atari, Inc. ("Employer") hereby agree as follows:
 
      1. TERMINATION. The termination of your employment with Employer shall be
effective as of the end of the day on <<TERMINATION_DATE>> (the "Termination
Date").
 
      2. TERMINATION OF SALARY AND BENEFITS.
 
            (a) (i) As full and final consideration for the promises and terms
set forth herein, and in lieu of any and all severance or other payment to which
you might otherwise be entitled with respect to the termination of your
employment with Employer, and as full and final settlement of any and all
outstanding and remaining obligations of Employer to you which have, may have,
or otherwise would have accrued had your employment with Employer continued,
during the period (the "Severance Period") commencing <<Severance_Begin_Date>>
and Employer shall pay you [as provided in Section 10 of the Employment
Agreement].
 
<PAGE>
 
                                       2
 
               (ii) In addition, during the Severance Period, if you so elect,
Employer will continue your medical/dental/vision benefits under COBRA, to the
same extent as during your employment with your premiums deducted through
payroll. Flexible spending account benefits may be continued through COBRA on a
post-tax basis. If you wish to decline this benefit, you must notify your Human
Resources Representative in writing. However, if you wish to continue your
medical/dental/vision benefits after the Severance Period, you will be
responsible for the entire COBRA premium. All COBRA related information will be
sent directly to you by Employer's COBRA administrator, ARC. All ancillary
benefits, such as 401K, Life, AD&D, STD, LTD Insurance will cease on the
Termination Date.
 
               (iii) It is expressly understood and agreed that neither holiday
pay, vacation time, nor sick days accrue during the Severance Period. Without
limiting the generality of the foregoing, promptly following the Termination
Date, you will be paid out for all unused, earned vacation, subject to customary
wage related withholding.
 
               (iv) Any of your stock options that remain unvested on the
Termination Date shall expire on such date. With respect to any stock options
that have vested as of the Termination Date, however, you are afforded a period
within which to exercise such vested stock options, as provided in your
Employment Agreement and/or the applicable plan and grant.
 
               (v) Your eligibility to participate in the Employee Stock
Purchase Program shall cease on the Termination Date. Accordingly, if the
Termination Date falls within any offering period in which you were a
participant in the Employee Stock Purchase Plan, Employer shall promptly refund
to you all contributions made by you for that offering period.
 
            (b) Employer may make appropriate deductions from payments hereunder
of all applicable taxes and other usual charges (including Social Security) for
which you are responsible in respect of payments referred to herein.
 
            (c) Except as expressly stated in this paragraph 2, you shall not be
entitled to receive any payments from Employer with respect to any period after
the Termination Date. Without limiting the foregoing, it is understood that you
shall not be entitled to any bonus payments beyond what you have already
received.
 
            (d) Notwithstanding anything to the contrary expressed or implied
elsewhere in this agreement, Employer hereby agrees that it shall not oppose,
and/or otherwise provide any information adverse to, any application for
unemployment benefits that you may make with respect to the termination of your
employment with Atari.
 
      3. COMPANY PROPERTY/CONFIDENTIALITY; NONSOLICITATION/REMEDIES FOR BREACH.
Sections 8, 9 and 15(h) as provided in your Employment Agreement shall continue
to apply.
 
      4. ARBITRATION. Section 13(b) as provided in your Employment Agreement
shall continue to apply.
 
<PAGE>
 
                                       3
 
 
      5. RELEASE.
 
         (a) In consideration of the foregoing (but except with respect to any
ongoing obligations of Employer hereunder), you hereby release and discharge
Employer, its parent, subsidiary or affiliated companies, from any and all
claims, damages, liabilities, expenses, causes of action, whether now known or
unknown, arising out of or relating to your employment by or performance of
services for Employer, its parent, subsidiary or affiliated companies, and/or
the termination of such employment or services, including, without limitation,
any claims relating to a wrongful, premature or discriminatory termination of
your employment and/or any claims relating to rights under federal, state or
local laws prohibiting discrimination on the basis of race, color, creed,
ancestry, national origin, age, sex or other basis prohibited by law, and any
other applicable federal, state or local laws regulations, including, without
limitation: (1) the Age Discrimination in Employment Act, 29 U.S.C. Sections
621-634 (age discrimination in employment including discrimination against
individuals forty years of age or over); (2) Title VII of the Civil Rights Act
of 1964, 42 U.S.C. Sections 2000e et seq. (race, color, religion, sex and
national origin discrimination); (3) the Civil Rights Act of 1866, 42
U.S.C.Section 1981 (discrimination); (4) the Equal Pay Act of 1963, 29 U.S.C.
Section 206 (equal pay); (5) the Americans With Disabilities Act, 42 U.S.C.
Section 12101 et seq. (discrimination against individuals with disabilities);
(6) the Fair Labor Standards Act of 1939, 29 U.S.C.Section 201 et seq. (wage and
hour matters); (7) the Consolidated Omnibus Budget Reconciliation Act of 1985,
42 U.S.C. Section 1395(C) (insurance matters); (8) the Employee Retirement
Income Security Act, 29 U.S.C. Section 1001 et seq. (retirement matters); (9)
Executive Order 11246 (race, color, religion, sex and national origin
discrimination); (10) Executive Order 11141 (age discrimination); (11) Section
503 of the Rehabilitation Act of 1973, 29 U.S.C. Sections 701 et seq. (handicap
discrimination). This also includes, but is not limited to, a release of any
claims or rights you may have based upon contract, covenant, public policy or
tort. If, notwithstanding this Agreement, you bring an action against Employer,
based on any matter otherwise covered by this Agreement, you agree that you will
pay all costs and expenses incurred by Employer in defending against such suit,
including reasonable attorneys' fees; (12) the New York State Human Rights Law;
(13) the New York City Human Rights Law, and any other federal, state or local
laws or regulations, from the beginning of time through the date that this
Agreement becomes effective.
 
            (b) This Release shall not cover any rights or obligations with
regard to any parent or affiliated entity with which you were separately
employed, any rights of indemnification, any rights to directors and officer
liability insurance, any right as a shareholder or any right under Section 10(g)
of your Employment Agreement.
 
            (c) Atari, Inc., and its parent, subsidiary or affiliated companies,
hereby acknowledge and agree that on and after the Termination Date, each of
them will immediately be deemed to have and shall release and discharge you from
any and all claims, damages, liabilities, expenses, causes of action, whether
now known or unknown, arising out of arising out of or relating to your
employment by or performance of services for Atari, Inc. its parent, subsidiary
or affiliated companies, and/or the termination of such employment or services,
including, without limitation, any claims relating to violations of Atari,
Inc.'s policies and procedures.
 
      7. NOTICES; MISCELLANEOUS.
 
         (a) By entering into this Agreement, neither you nor the Employer or
any of the Employer's officers, agents or employees, admit any wrongdoing or
violation of law.
 
<PAGE>
 
                                       4
 
 
         (b) This agreement contains all the understandings and agreements
between the parties hereto with respect to the matters set forth herein, and
there are no others made either contemporaneously herewith or otherwise. This
agreement may not be changed or modified in any manner except in writing, signed
by a duly authorized officer of Employer and by you. THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
WHOLLY PERFORMED THEREIN (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS
PRINCIPLES UNDER NEW YORK LAW). If any section of this agreement is determined
to be void, voidable or unenforceable, it shall have no effect on the remainder
of this agreement, which shall remain in full force and effect.
 
         (c) You understand that should you violate any portion of this release
agreement, you will forfeit any right to receive the payments and, if the
Payment has already been paid, Employer shall have the right to demand that you
repay and you shall immediately repay any and all payments made by Employer to
you pursuant to this agreement.
 
         (d) This agreement shall be binding upon the parties hereto and upon
their heirs, administrators, representatives, executors, successors and assigns
and shall inure to the benefit of said parties and each of them and to their
heirs, administrators, representatives, executors, successors and assigns.
 
         (e) You hereby acknowledge that you have been afforded the opportunity
to consult with an attorney of your choice concerning this agreement.
 
      If the foregoing is in accordance with your understanding of our
agreement, please so indicate by signing in the place provided below.
 
                                               Very truly yours,
 
 
                                               ATARI, INC.
 
                                               By: ______________________
 
                                        Print Name: ______________________
 
ACCEPTED AND AGREED TO:
 
__________________________
 
Name:_____________________
 
SS#:______________________
 
Date:_____________________
 
<PAGE>
 
EXHIBIT C
 
                              RIGHT OF FIRST OFFER
 
Executive shall notify, in writing, the General Counsel of the Company and the
Chairman of the Audit Committee of the Board of the general outlines of the
proposed Competitive Activity project (the "Project"), with details of the terms
acceptable to the Executive and any other person or entity which has an interest
therein (the "Initial Term Sheet"). The Company will have thirty (30) days to
determine if it desires to commit to the Project on the terms specified. If the
Company decides it wants to commit to the Project and so notifies Executive in
writing within the thirty (30) day period, the Executive shall thereafter cause
to be tendered to the Company an agreement with regard to the proposed terms of
the Project based on the Initial Term Sheet. The Company shall then have thirty
(30) days to accept or reject the proposed agreement. Such acceptance shall be
evidenced by execution of the agreement and making of any initial payments
required thereunder. If the Company does not accept or rejects either the
Initial Term Sheet or the agreement, Executive may enter into a deal with
another party (including a related party) on terms no less favorable to him (or
it) in the aggregate, during the 180 days following such rejection or failure to
accept and the Company shall have no further rights with regard to the Project.
If the Executive does not enter into such a deal during this 180 day period, the
preceding procedures of this Exhibit C shall once again apply. Any changes in
the signed deal with another party thereafter which are done in good faith shall
not negate the deal with the other party or give the Company any new rights,
including but not limited to those of first offer.
 
                                        ATARI, INC.
 
                                        By: ______________________
 
                                        By: ______________________
 
ACCEPTED AND AGREED TO:
 
___________________________
Bruno Bonnell
 
</TEXT>
</DOCUMENT>