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As filed with the Securities and Exchange Commission on February 17, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM S-3
Registration Statement
Under
The Securities Act of 1933
---------------------------------
ACCLAIM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
---------------------------------
Delaware 38-2698904
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
---------------------------------
One Acclaim Plaza
Glen Cove, New York 11542
(516) 656-5000
(Address and telephone number of registrant's principal executive offices)
---------------------------------
Gregory E. Fischbach
Chief Executive Officer
Acclaim Entertainment, Inc.
One Acclaim Plaza
Glen Cove, New York 11542
(516) 656-5000
(Name, address and telephone number of agent for service)
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Copy to:
Jayshree Parthasarathy, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Telephone: (212) 940-8800
---------------------------------
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this Registration
Statement.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. / /
If any of the securities being registered on this form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. /X/
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. / /
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed maximum Proposed maximum
Title of each class of aggregate price per aggregate offering
security to be registered Amount to be registered(1) share(1) price(1) Amount of registration fee
<S> <C> <C> <C> <C>
Common Stock, par value
$0.02 per share,
underlying certain
warrants............... 700,000 $9.908 $6,935,600 $1,930
</TABLE>
(1) Estimated, pursuant to Rule 457(o) under the Securities Act of 1933, solely
for the purpose of determining the registration fee, based on the estimated
pro forma value of the shares underlying warrants, including an estimated
exercise price per share for such shares, determined in accordance with the
Stipulation and Agreement of Compromise and Settlement, dated February 25,
1998, between the registrant and the participants in such settlement.
Pursuant to such agreement, the exercise price and the number of shares
underlying the warrants to be issued by the Company cannot be calculated at
this time and have been estimated. The Company will file an amendment or a
<PAGE>
supplement setting forth the actual number of shares underlying the
warrants issued or to be issued and the exercise price per share. If the
maximum dollar value being registered increases, an additional filing fee
will be paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY __, 1999
ACCLAIM ENTERTAINMENT, INC.
700,000 SHARES OF COMMON STOCK
Business
Acclaim Entertainment, Inc. is a worldwide developer, publisher and
mass marketer of interactive entertainment software for use with
dedicated interactive entertainment hardware platforms and multimedia
personal computer systems. We own and operate four software development
studios located in the U.S. and the U.K., and publish and distribute
our software directly in North America, the U.K., Germany, France and
Australia.
Common Stock Offered
The shares offered by this prospectus are issuable upon exercise of
certain common stock purchase warrants to be issued in connection with
the settlement of a previously pending class action lawsuit. We will
not register the issuance of the warrants by us under the Securities
Act of 1933; the warrants are being issued in reliance on the exemption
provided under Section 3(a)(10) of the Securities Act of 1933. The
warrants will have an aggregate value of $2,550,000 computed in
accordance with a formula agreed upon in connection with the settlement
of the lawsuit.
The warrants may be exercised at any time for a period of three years
from the date of their issuance, unless extended in accordance with the
terms of the warrants. The warrants entitle the holder to purchase one
share of Acclaim's common stock for each warrant, at an exercise price
calculated in accordance with the settlement agreement. The proceeds,
if any, from the exercise of the warrants will be added to Acclaim's
working capital.
This prospectus covers the offer and sale by Acclaim to the warrant
holders of up to such number of shares of its common stock as shall be
sufficient to permit the exercise in full of all warrants issued in
accordance with the settlement agreement.
See "Risk Factors" beginning on page 6 for a discussion of certain
factors that you should consider before you invest in the common stock
being offered and/or sold under this prospectus.
Acclaim's common stock is traded on The Nasdaq Stock Market National
Market System under the symbol "AKLM." On February 12, 1999, the last
reported sale price of the common stock was $9.25 per share.
The offering is subject to withdrawal and cancellation at any time,
without notice.
Neither the Securities and Exchange Commission (SEC) nor any state
securities commission has approved or disapproved these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
March ___, 1999
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TABLE OF CONTENTS
Page No.
The Company 4
Risk Factors 6
Use of Proceeds 16
Determination of Offering Price 16
Plan of Distribution 16
Legal Proceedings 17
Legal Matters 17
Experts 17
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DEFINED TERMS
As used in this prospectus, (a) "Acclaim" or "we" means
Acclaim Entertainment, Inc., (b) "Common Stock" means Acclaim's common
stock, par value $0.02 per share, (c) "Warrants" mean the common stock
purchase warrants to be issued by Acclaim in connection with the
settlement of a class action lawsuit, and (d) "Stipulation" means that
certain Stipulation and Agreement of Compromise and Settlement, dated
February 25, 1998, between Acclaim and the participants in such
settlement.
-------------------------
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Forward-Looking Statements
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements, including those risks and uncertainties discussed in the "Risk
Factors" section of this prospectus. In light of the significant risks and
uncertainties inherent in the forward-looking statements included in this
prospectus, the inclusion of such statements should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
Incorporation of Certain Documents by Reference
The following documents filed by Acclaim with the SEC pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act") are incorporated herein by
reference:
. Annual Report on Form 10-K for the fiscal year ended August
31, 1998 filed on November 6, 1998 (File No. 0-16986);
. Quarterly Report on Form 10-Q for the period ended November
30, 1998 filed on January 14, 1999 (File No. 0-16986); and
. The information in respect of the Common Stock under the
caption "Description of Registrant's Securities to be
Registered" contained in the Registration Statement on Form
8-A, filed on June 8, 1988 (File No. 0-16986), as amended by
the Current Report on Form 8-K, filed on August 25, 1989 (File
No. 33-9460-C), relating to the one-for-two reverse stock
split effected by Acclaim.
In addition, all documents filed by Acclaim with the SEC pursuant to
Sections 13(a), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference into this prospectus. In addition, if we revise or
update a document included in this prospectus or incorporate a document by
reference into this prospectus, then the document contained herein (or
incorporated by reference herein) shall be considered revised or updated upon
our filing of such updated or revised document.
We will provide, without charge, to each person, including any
beneficial owner, to whom this prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the documents
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference herein). Requests for
such documents should be directed to the Secretary of Acclaim Entertainment,
Inc., One Acclaim Plaza, Glen Cove, New York 11542. Telephone requests for
such copies should be directed to the Secretary at (516) 656-5000.
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Where You Can Find More Information
Acclaim has filed with the SEC a registration statement on Form S-3
under the Securities Act of 1933 (the "Securities Act") covering the shares of
Common Stock underlying the Warrants to be issued in this offering. This
prospectus does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the registration statement.
You should read the exhibit for a more complete understanding of the document or
matter involved. Each statement regarding a document is qualified in its
entirety by reference to the actual document.
Acclaim is required to file periodic reports and other information with
the SEC under the Exchange Act. You may read and copy the registration
statement, including the attached exhibits, and any reports, statements or other
information that we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Acclaim's SEC filings are also available to the public on the SEC
Internet site (http://www.sec.gov).
You should rely only on the information provided in this prospectus or
that to which we have referred you. No person has been authorized to provide you
with different information.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
The information in this prospectus is accurate as of the date on the
front cover. You should not assume that the information contained in this
prospectus is accurate as of any other date.
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The Company
Acclaim is a worldwide developer, publisher and mass marketer of
interactive entertainment software for use with dedicated interactive
entertainment hardware platforms ("Platforms") and multimedia personal computer
systems ("PCs"). Acclaim owns and operates four software development studios
located in the U.S. and the U.K., and publishes and distributes its software
directly in North America, the U.K., Germany, France and Australia.
Acclaim's operating strategy is to develop and maintain a core of key
brands and franchises (e.g., Turok, NFL Quarterback Club and All Star Baseball)
to support the various Platforms and PCs that dominate the interactive
entertainment market at a given time or which it perceives as having the
potential for achieving mass market acceptance. Acclaim emphasizes sports
simulation and arcade-style software for Platforms, and fantasy/role-playing,
real-time simulation, adventure and sports simulation software for PCs.
Acclaim also engages, to a lesser extent, in the distribution of
software developed by third-party software publishers and the development and
publication of comic book magazines and strategy guides relating to its
software.
The software industry is driven by the size of the installed base of
Platforms (such as those manufactured by Nintendo Co., Ltd. (Japan) (Nintendo
Co., Ltd. and its subsidiary, Nintendo of America, Inc., are collectively
referred to as "Nintendo"), Sony Corporation (Sony Corporation and its
affiliate, Sony Computer Entertainment America, are collectively referred to as
"Sony") and Sega Enterprises Ltd. ("Sega")), and PCs dedicated for home use. The
industry is characterized by rapid technological change, as evidenced by the
successive introductions of hardware systems from Nintendo, Sega and Sony (e.g.,
the 8-bit cartridge system from Nintendo in 1985; 16-bit cartridge systems from
Sega in 1990 and Nintendo in 1991; 32-bit CD systems from Sega and Sony in 1995;
the 64-bit cartridge system from Nintendo in 1996; and the introduction by Sega
in November 1998 of Dreamcast, a new 64-bit CD system, in Japan). These
successive introductions have resulted in Platform and related software product
cycles. To date, no single Platform or system has achieved long-term dominance
in the interactive entertainment market. Accordingly, Acclaim must continually
anticipate and adapt its software to emerging Platforms.
Based on information available in 1994 and based on its historical
experience with respect to the transition from 8- to 16-bit Platforms, Acclaim
believed that software sales for 16-bit Platforms would, although continuing to
decrease overall, remain substantial through the 1996 holiday season.
Accordingly, it anticipated that sales of its 32-bit and PC software in fiscal
1996 would grow as compared to fiscal 1995 but that the majority of its revenues
in fiscal 1996 would still be derived from 16-bit software sales. However, the
16-bit software market matured much more rapidly than anticipated by Acclaim,
its Christmas 1995 16-bit software sales were substantially lower than
anticipated and, by April 1996, Acclaim derived minimal profits from software
sales and made the decision to exit the 16-bit and portable software markets.
In connection with the decision to exit the 16-bit and portable
software markets in April 1996, Acclaim recorded a special cartridge video
charge of approximately $48.9 million in the second quarter of fiscal 1996,
consisting of provisions of approximately $28.8 million (reflected in net
revenues), and approximately $20.1 million (reflected in cost of revenues) to
adjust accounts receivable and inventories at February 29, 1996 to their
estimated net realizable values.
Acclaim recorded a loss from operations of $274.5 million and a net
loss (on an after-tax basis) of $221.4 million for fiscal 1996. The net loss for
the year reflected (1) write-offs of receivables, (2) the establishment of
additional receivables and inventory reserves, (3) severance charges incurred in
connection with a company downsizing, (4) the reduction of certain deferred
costs, and (5) an operating
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loss for the year resulting primarily from price protection and similar
concessions granted to retailers at greater than anticipated levels in
connection with its 16- and 32-bit software.
Acclaim recorded a loss from operations of $150.9 million and a net
loss (on an after-tax basis) of $159.2 million for fiscal 1997. The net loss for
the year reflected, among other things, (1) a charge for certain claims and
litigations for which the settlement obligation was probable and estimable of
$23.6 million, (2) a write-down of goodwill of $25.2 million to reduce the
carrying value of the goodwill associated with its subsidiary, Acclaim Comics,
Inc., to its estimated undiscounted cash flows and (3) downsizing charges of $10
million.
As a result of the acquisitions of the development studios in 1995 (two
of which were completed in fiscal 1996), Acclaim's fixed costs relating to the
development of software and its general and administrative expenses
substantially increased in fiscal 1996. These expenses in the aggregate had a
negative impact on Acclaim's liquidity and profitability in fiscal 1996 and
fiscal 1997.
The rapid technological advances in game systems have significantly
changed the look and feel of software as well as the software development
process. According to our estimates, the average development cost for a title
for Platforms approximately three years ago was approximately $300,000 to
$400,000, while the average development cost for a title for Platforms and PCs
is currently between $1 million and $2 million. Approximately 75% of our gross
revenues in the first quarter of fiscal 1999 was derived from software developed
by our studios. The process of developing software is extremely complex and is
expected to become more complex and expensive in the future as new platforms and
technologies are introduced.
Acclaim recorded earnings from operations of $24.7 million and net
earnings (on an after-tax basis) of $20.7 million for fiscal 1998. The improved
results for fiscal 1998 primarily resulted from increased sales in the U.S. of
its 64-bit and, to a lesser extent, 32-bit software. They also reflect
significantly reduced operating expenses, resulting primarily from (1) a
reduction in personnel, (2) the sale or discontinuance of certain non-profitable
businesses, (3) the consolidation of certain of the development studio
operations to reduce overhead expenses and (4) various other cost reductions.
Acclaim recorded net earnings of $8.0 million and $10.3 million in the
first quarter of fiscal 1998 and 1999, respectively. The fiscal 1999 period
results primarily reflect increased sales in the United States of Acclaim's 32-
and 64-bit software. Although revenues from the sale of N64 and PlayStation
software are anticipated to continue to grow in the second quarter of fiscal
1999 and for fiscal 1999 as a whole, we do not anticipate that, for fiscal 1999
as a whole, we will achieve our fiscal 1998 growth rate. No assurance can be
given as to the future growth of the installed base of 32- and 64-bit Platforms,
the future growth of the software market therefor or of our results of
operations and profitability in future periods. The results for the first
quarter of fiscal 1998 and 1999 also reflect our significantly reduced operating
expenses as compared to prior periods. See "Risk Factors."
Acclaim's ability to generate sales growth and profitability will be
materially dependent on (1) the growth of the software market for 32- and 64-bit
Platforms and PCs and (2) the ability to identify, develop and publish "hit"
software for Platforms with significant installed bases.
A Delaware corporation, Acclaim was founded in 1987. Acclaim's
principal executive offices are located at One Acclaim Plaza, Glen Cove, New
York 11542, and its telephone number is (516) 656-5000. Its Internet site is:
"http://www.acclaim.net."
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RISK FACTORS
Our future operating results depend upon many factors and are subject
to various risks and uncertainties. Some of the risks and uncertainties which
may cause our operating results to vary from anticipated results or which may
materially and adversely affect our operating results are as follows:
Recent Operating Results
Our net revenues increased from $161.9 million in fiscal 1996 to $165.4
million in fiscal 1997 and to $326.6 million in fiscal 1998 and increased from
$92.3 million for the quarter ended November 30, 1997 to $104.8 million for the
quarter ended November 30, 1998. We had a net loss of $221.4 million in fiscal
1996, a net loss of $159.2 million in fiscal 1997, net earnings of $20.7 million
in fiscal 1998, and net earnings of $8.0 million and $10.3 million in the
quarters ended November 30, 1997 and 1998, respectively. For the most part, the
increase in revenues and earnings in fiscal 1998 and the fiscal 1999 period
reflects increased sales in the U.S. of our software for Nintendo's N64 and
Sony's PlayStation Platforms. Charges for litigation settlements and other
claims of $23.6 million, a writedown of the goodwill associated with our
subsidiary, Acclaim Comics, Inc., of $25.2 million and downsizing charges of $10
million are included in the loss for fiscal 1997. Special charges relating to
our exit from the 16-bit and portable software business aggregating
approximately $114 million are included in the loss for fiscal 1996.
Our revenues and operating results in fiscal 1996 and 1997 were
affected principally by the industry transition from 16-bit to 32- and 64-bit
Platforms. We had anticipated that sales of software for the older Platforms
would dominate Christmas 1995 sales and would be material in Christmas 1996.
Therefore, we focused our development efforts on 16-bit software for fiscal 1996
and 1997. However, sales of 16-bit software decreased much more rapidly than we
anticipated in calendar 1996, which resulted in reduced revenues and net losses
in fiscal 1996 and 1997.
In 1998, the interactive entertainment hardware market was
characterized by the growth of the installed base of N64 and PlayStation units
worldwide. This growth had a positive impact on our operating results for fiscal
1998 and in the first quarter of fiscal 1999. Although N64 and PlayStation have
achieved significant market acceptance worldwide and we anticipate that the
installed base of N64 and PlayStation units will continue to grow in the short
term, we cannot assure investors that the installed base of either or both will
grow at the present rate, if at all. Also, there is no assurance that revenues
from sales of software for these Platforms will increase as the installed base
increases.
In fiscal 1997 and 1998, we took various actions to reduce our
operating expenses. See "--Liquidity and Bank Relationships" below for a
description of these actions. As a result, operating expenses in fiscal 1997 and
1998 were substantially lower than in prior comparable periods. Although we
anticipate that operating expenses will increase in dollar terms in fiscal 1999,
we intend to monitor our operating expenses closely and do not anticipate they
will increase materially as a percentage of net revenues. However, we cannot
assure stockholders that operating expenses will not increase as a percentage of
net revenues in the remainder of fiscal 1999 and beyond. Any such increase could
negatively impact our profits in fiscal 1999 and beyond.
Liquidity and Bank Relationships
We generally experienced negative cash flow from operations in fiscal
1996 and 1997 which, for the most part, was a result of net losses in these
periods. We used net cash in operations of approximately $38.3 million in fiscal
1996 and approximately $29.2 million in fiscal 1997 and derived net cash from
operations of approximately $23.3 million in fiscal 1998. We derived net cash
from operations of
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approximately $7.1 million and $11.4 million in the first quarter of fiscal 1998
and 1999, respectively. A tax refund of approximately $54.0 million had a
positive impact on net cash from operating activities in fiscal 1997.
We believe that the cash flows from operations in fiscal 1999 will be
sufficient to cover our operating expenses and those current obligations that we
must pay in the remainder of fiscal 1999. Our belief is based on the anticipated
continued growth of the installed base of 32- and 64- bit Platforms, the
anticipated success of our software for those Platforms and the resulting
continued growth of our net revenues. However, we cannot assure investors that
our operating expenses and current obligations will be significantly less than
the cash flows available from operations in fiscal 1999 or in the future. Our
long-term liquidity depends mainly on our publishing "hit" software for the
dominant Platforms.
In order to provide liquidity, in fiscal 1997 and 1998, we took a
number of actions including (1) significantly reducing the number of our
employees, (2) consolidating our development studio operations and (3)
eliminating certain operations, such as the coin-operated video game subsidiary.
In addition, in February 1997, we completed an offering of $50 million of 10%
Convertible Subordinated Notes (the "Notes"). Of the net proceeds of the
offering, we used approximately $16 million to retire a term loan from Midland
Bank plc and $2 million to pay down a portion of a mortgage loan from Fleet
Bank. In March 1997, we sold substantially all of the assets and certain
liabilities of Acclaim Redemption Games, Inc. (formerly, Lazer-Tron Corporation)
for $6 million in cash.
Due to our financial performance in the first three quarters of fiscal
1998, we were unable to comply with financial covenants under our revolving
credit facility with BNY Financial Corporation ("BNY"), our lead institutional
lender. BNY waived the resulting defaults at the end of each of the first three
quarters of fiscal 1998. We have negotiated new financial covenants as of and
for the period ended August 31, 1998 and future periods. We were in compliance
with the new financial covenants at November 30, 1998. Although we expect to
continue to comply with these new covenants, we cannot make any guarantee of
compliance. In addition, factors beyond our control may result in future
covenant defaults or a payment default. We may not be able to obtain waivers of
any future default(s). If such defaults occur and are not waived by the lender,
the lender could accelerate the loan or exercise other remedies. Such actions
would have a negative impact on our liquidity and operations.
Substantial Leverage and Ability to Service Debt
Our debt level could have important consequences to our stockholders
because a portion of cash flow from operations must be set aside to pay down
debt, including the outstanding Notes, and existing bank obligations. Therefore,
these funds are not available for other purposes. Additionally, a high debt
level limits our ability to obtain additional debt financing in the future, or
to pursue possible expansion of our business or acquisitions. Also, high debt
levels could limit our flexibility in reacting to changes in the interactive
entertainment industry and economic conditions generally. These limitations make
us more vulnerable to adverse economic conditions and restrict our ability to
withstand competitive pressures or take advantage of business opportunities.
Some of our competitors currently have a lower debt level, and are likely to
have significantly greater operating and financing flexibility, than us.
Based upon current levels of operations, we believe we can meet our
interest obligations on the Notes, and interest and principal obligations under
bank agreements, when due. However, if cash flow from operations is not enough
to meet our debt obligations when due, we may have to restructure our
indebtedness. We cannot guarantee that we will be able to restructure or
refinance our debt on satisfactory terms. In addition, restructuring or
refinancing may not be permitted by the terms of the indenture governing the
Notes (the "Indenture") or existing indebtedness. We cannot assure stockholders
that our operating cash flows will be sufficient to meet debt service
requirements. Also, we cannot
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guarantee stockholders that future operating cash flows will be sufficient to
repay the Notes, or that we will be able to refinance the Notes or other
indebtedness at maturity. See "--Prior Rights of Creditors" below.
Prior Rights of Creditors
We have outstanding long-term debt (including current portions) of
$52.2 million at November 30, 1998. Certain of the indebtedness is secured by
liens on substantially all of our assets. If we do not timely pay interest or
principal on indebtedness when due, we will be in default under loan agreements
and the Indenture.
In addition, the Indenture provides that, upon the occurrence of
certain events, we may be obligated to repurchase all or a portion of the
outstanding Notes. If such a repurchase event occurs and we do not have, or are
unable to obtain, sufficient financial resources to repurchase the Notes, we
would be in default under the Indenture. In addition, the occurrence of certain
repurchase events would constitute a default under some of our current loan
agreements.
Further, we depend on dividends and other advances and transfers of
funds from our subsidiaries to meet some debt service obligations. State and
foreign law regulate the payment of dividends by our subsidiaries, which is also
subject to the terms of existing bank agreements and the Indenture. A
significant portion of assets, operations, trade payables and other indebtedness
is located at our subsidiaries. The creditors of the subsidiaries would
generally recover from these assets on the obligations owed to them by the
subsidiaries before any recovery by our creditors and before any assets are
distributed to our stockholders.
If we are unable to meet current bank obligations, a default would
occur under existing bank agreements. Such default, if not waived, could result
in acceleration of our obligations under the bank agreements. Moreover, default
could result in a demand by the lenders for immediate repayment and would
entitle any secured creditor in respect of such debt to proceed against the
collateral securing the defaulted loan. Additionally, an event of default under
the Indenture may result in actions by IBJ Schroder Bank & Trust Company, as
trustee, on behalf of the holders of the Notes. In the event of such
acceleration by creditors or action by the trustee, holders of indebtedness
would be entitled to payment out of our assets. If we become insolvent, are
liquidated or reorganized, it is possible that there would be insufficient
assets remaining after payment to the creditors for any distribution to our
stockholders.
Industry Trends; Platform Transition; Technological Change
The interactive entertainment industry is characterized by rapid
technological change due in large part to:
. the introduction of Platforms incorporating more advanced
processors and operating systems;
. the impact of technological changes embodied in PCs;
. the development of electronic and wireless delivery systems;
and
. the entry and participation of new companies in the
industry.
These factors, among others, have resulted in Platform and software
life cycles.
No single Platform has achieved long-term dominance. Accordingly, we
must continually anticipate and adapt our software to emerging Platforms and
systems. The process of developing software is extremely complex and is expected
to become more complex and expensive in the future as new platforms and
technologies are introduced.
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Development of software currently requires substantial investment in
research and development in the areas of graphics, sound, digitized speech,
music and video. We cannot guarantee that we will be successful in developing
and marketing software for new platforms.
Substantially all of our revenues in fiscal 1998 and the first quarter
of fiscal 1999 were derived from the sale of software designed for N64,
PlayStation and PCs. In the past, we expended significant development and
marketing resources on product development for Platforms that have not achieved
the results we anticipated. If we (1) do not develop software for Platforms that
achieve significant market acceptance, (2) discontinue development of software
for a Platform that has a longer than expected life cycle, (3) develop software
for a Platform that does not achieve a significant installed base or (4)
continue development of software for a Platform that has a shorter than expected
life cycle, we may experience losses from operations. We cannot guarantee that
we will be able to predict accurately such matters, and failure to do so would
negatively affect us.
Results of operations and cash flows were negatively affected during
fiscal 1996 and 1997 by the significant decline in sales of 16-bit software and
the transition to the new Platforms. Because (1) there were a significant number
of titles competing for limited shelf space and (2) the new Platforms had not
achieved market penetration similar to that of the 16-bit Platforms in prior
years, the number of units of each title sold for the newer Platforms was
significantly less than the number of units of a title generally sold in prior
years for 16-bit Platforms. In fiscal 1998, the interactive entertainment
hardware market was characterized by the worldwide growth of the installed base
of N64 and PlayStation units and related software. Although we anticipate that
the installed base of these Platforms will continue to grow in the short term
and that the market for software for these Platforms will also continue to grow,
we cannot guarantee that the hardware or software market will continue to grow
at the current rate.
Revenue and Earnings Fluctuations; Seasonality
Historically, we have derived substantially all of our revenues from
the publication and distribution of software for the then dominant Platforms.
Revenues are subject to fluctuation during transition periods, as in fiscal 1996
and 1997, when new Platforms have been introduced but none has achieved
mass-market penetration. In addition, the timing of release of new titles
impacts earnings in any given period. Earnings also may be materially impacted
by other factors including (1) the level and timing of market acceptance of
titles, (2) increases or decreases in development and/or promotion expenses for
new titles, and (3) the timing of orders from major customers.
A significant portion of revenues in any quarter is generally derived
from sales of new titles introduced in that quarter or in the immediately
preceding quarter. If we are unable to begin volume shipments of a significant
new title during the scheduled quarter, revenues and earnings will be negatively
affected in that quarter. In addition, because a majority of the unit sales for
a title typically occur in the first 90 to 120 days following the introduction
of the title, earnings may increase significantly in a period in which a major
title is introduced and may decline in the following period or in periods in
which there are no major title introductions. Also, certain operating expenses
are fixed and do not vary directly in relation to revenue. Consequently, if net
revenue is below expectations, operating results are likely to be negatively
affected.
The interactive entertainment industry is highly seasonal. Typically,
net revenues are highest during the last calendar quarter (which includes the
holiday selling season), decline in the first calendar quarter, are lower in the
second calendar quarter and increase in the third calendar quarter. The seasonal
pattern is due primarily to the increased demand for software during the
year-end holiday selling season. However, earnings vary significantly and are
largely dependent on releases of major new titles and,
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accordingly, may not necessarily reflect the seasonal patterns of the industry
as a whole. We expect that operating results will continue to fluctuate
significantly in the future.
Dependence on Entertainment Platform Manufacturers; Need for License Renewals
The following table shows the percent of gross revenues for fiscal
1996, 1997 and 1998 and for the quarters ended November 30, 1997 and 1998
derived from sales of software for the indicated Platforms:
<TABLE>
<CAPTION>
Fiscal Year ended August 31, Quarter ended November 30,
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Title
Nintendo-compatible 29% 41% 60% 75% 62%
Sega-compatible 36% 12% 1% * *
Sony-compatible 19% 28% 30% 15% 31%
</TABLE>
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* represents less than 1%
We are substantially dependent on the entertainment platform
manufacturers as the sole manufacturers of the Platforms marketed by them, as
the sole licensors of the proprietary information and technology needed to
develop software for those Platforms and, in the case of Nintendo and Sony, as
the sole manufacturers of the software developed by us for the compatible
Platform. The entertainment platform manufacturers have in the past and may in
the future limit the number of titles we can release in any year, which may
limit any future growth in sales.
In the past, we have been able to renew and/or negotiate extensions of
our software license agreements with the entertainment platform developers.
However, we cannot assure stockholders that, at the end of their current terms,
we will be able to obtain extensions or that we will be successful in
negotiating definitive license agreements with developers of new Platforms.
If we cannot obtain licenses from developers of new Platforms or if our
existing license agreements are terminated, our financial position and results
of operations will be materially adversely affected. In addition, the
termination of any one of the license agreements or other arrangements could
negatively affect our financial position and results of operations.
In addition to licensing arrangements, we depend on the entertainment
platform manufacturers for the protection of the intellectual property rights to
their respective Platforms and technology and their ability to discourage
unauthorized persons from producing software for the Platforms developed by each
of them. We also rely upon the entertainment platform manufacturers for the
manufacture of certain cartridge and CD-based read-only memory ("ROM") software.
Reliance on New Titles; Product Delays
Our ability to maintain favorable relations with retailers and to
receive the maximum advantage from advertising expenditures depends on our
ability to provide retailers with a timely and continuous flow of product. The
life cycle of a title generally ranges from less than three months to upwards of
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10
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months, with the majority of sales occurring in the first 90 to 120 days after
release. We actively market our current releases while simultaneously supporting
our back catalogue with pricing and sales incentives. We are constantly required
to develop, introduce and sell new titles in order to generate revenue and/or to
replace declining revenues from previously released titles. In addition, it is
difficult to predict consumer preferences for titles, and few titles achieve
sustained market acceptance. We cannot assure stockholders that our new titles
will be released in a timely fashion, will achieve any significant degree of
market acceptance, or that such acceptance will be sustained for any meaningful
period. Competition for retail shelf space, consumer preferences and other
factors could result in the shortening of the life cycle for older titles and
increase the importance of our ability to release titles on a timely basis.
The timely shipment of a title depends on various factors, including
quality assurance testing by us and the manufacturers. We generally submit new
titles to the entertainment platform manufacturers and other intellectual
property licensors for approval prior to development and/or manufacture. Since
we are required to engage Nintendo or Sony, as the case may be, to manufacture
titles developed by us for the Platforms marketed by them, our ability to
control our supply of Nintendo or Sony titles and the timing of their delivery
is limited.
If the title is rejected by the manufacturer as a result of bugs in
software or if there is a substantial delay in the approval of a product by an
entertainment platform manufacturer or licensor, our financial condition and
results of operations could be negatively impacted. In the past, we have
experienced significant delays in the introduction of certain new titles and
such delays may occur in the future. Moreover, it is likely that in the future
certain new titles will not be released in accordance with our internal
development schedule or the expectations of public market analysts and
investors. A significant delay in the introduction of, or the presence of a
defect in, one or more new titles could negatively affect the ultimate success
of our titles. If we do not develop, introduce and sell new competitive titles
on a timely basis, results of operations and profitability will be negatively
affected.
Reliance on "Hit" Titles
The market for software is "hits" driven. Therefore, our future success
depends on developing and marketing "hit" titles for Platforms with significant
installed bases. Sales of our top four titles accounted for approximately 53% of
gross revenues for fiscal 1998 and sales of our top title accounted for
approximately 33% of gross revenues for fiscal 1997. Sales of our top three
titles accounted for approximately 69% of gross revenues for the first quarter
of fiscal 1999 and sales of our top three titles accounted for approximately 71%
of gross revenues for the first quarter of fiscal 1998. We cannot assure
stockholders that we will be able to publish "hit" titles in the future. If we
do not publish "hit" titles in the future, our financial condition, results of
operations and profitability could be negatively affected, as they were in
fiscal 1996 and 1997.
Inventory Management; Risk of Product Returns
Generally, we are not contractually obligated to accept returns, except
for defective product. However, we may permit customers to return or exchange
product and may provide price protection or other concessions on products unsold
by the customer. Accordingly, management must make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements. Also,
management must make estimates and assumptions that affect the reported amounts
of revenues and expenses during the reporting periods.
Among the more significant of such estimates are allowances for
estimated returns, price concessions and other discounts. At the time of
shipment, we establish reserves in respect of such estimates taking into account
the potential for product returns and other discounts based on historical
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return rates, seasonality, level of retail inventories, market acceptance of
products in retail inventories and other factors. In fiscal 1996, price
allowances, returns and exchanges were significantly higher than reserves. This
shortfall had a negative impact on results of operations and liquidity in fiscal
1996. We believe that, at November 30, 1998, we have established adequate
reserves for future price protection, returns, exchanges and other concessions.
However, we cannot guarantee the adequacy of our reserves. If the reserves are
exceeded, our financial condition and results of operations will be negatively
impacted.
In addition, we offer stock-balancing programs for our PC software. We
have established reserves for such programs, which have not been material to
date. Future stock-balancing programs may become material and/or exceed reserves
for such programs. If so exceeded, results of operations and financial condition
could be negatively impacted.
Increased Product Development Costs
As a result of the calendar 1995 acquisitions of the development
studios, beginning in fiscal 1996, our fixed software development and overhead
costs were significantly higher as compared to historical levels. These costs
negatively impacted results of operations and profitability in fiscal 1996 and
1997. In fiscal 1998, we consolidated our development studio operations to
reduce overhead expenses. Due to our planned release of a higher number of
software titles and increasing software development costs, we anticipate that
our future research and development expenses will increase as a percentage of
net revenues as compared to fiscal 1998.
Competition
The market for software is highly competitive. Only a small percentage
of titles introduced in the software market achieve any degree of sustained
market acceptance. Competition is based primarily upon:
. quality of titles;
. the publisher's access to retail shelf space;
. product features;
. the success of the Platform for which the software is written;
. price of titles;
. the number of titles available for the Platform for which the software is
written; and
. marketing support.
We compete with a variety of companies that offer products that compete
directly with one or more of our titles. Typically, the chief competitor on a
Platform is the developer of that Platform, to whom we pay royalties and, in
some cases, manufacturing charges. Accordingly, the developers have a price,
marketing and distribution advantage with respect to software marketed by them.
This advantage is particularly important in a mature or declining market which
supports fewer full-priced titles and is characterized by customers who make
purchasing decisions on titles based primarily on price, unlike developing
markets with limited titles, when price has been a less important factor in
software sales. Our competitors vary in size from very small companies with
limited resources to very large corporations with greater financial, marketing
and product development resources than us, such as Nintendo, Sega and Sony. Our
competitors also include a number of independent software publishers licensed by
the hardware developers.
Additionally, the entry and participation of new companies, including
diversified entertainment companies, in markets in which we compete may
adversely impact our performance in these markets.
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The availability of significant financial resources has become a major
competitive factor in the software industry, primarily as a result of the costs
associated with developing and marketing software. As competition increases,
significant price competition and reduced profit margins may result. In
addition, competition from new technologies may reduce demand in markets in
which we have traditionally competed. Prolonged price competition or reduced
demand as a result of competing technologies would negatively impact our
business. We may not be able to compete successfully.
Intellectual Property Licenses and Proprietary Rights
Some of our software embodies trademarks, tradenames, logos or
copyrights licensed to us by third parties (such as the NBA, the NFL or their
respective players' associations), the loss of which could prevent the release
of a title or limit its economic success. License agreements generally extend
for a term of two to three years and are terminable in the event of our material
breach (including our failure to pay amounts due to the licensor in a timely
manner) or our bankruptcy or insolvency and certain other events. Since
competition is intense, we may not be successful in the future in acquiring
intellectual property rights with significant commercial value. In addition, we
cannot assure stockholders that these licenses will be available on reasonable
terms or at all.
In order to protect our titles and proprietary rights, we rely mainly
on a combination of:
. copyrights;
. trade secret laws;
. patent and trademark laws;
. nondisclosure agreements; and
. other copy protection methods.
It is our policy that all employees and third-party developers sign
nondisclosure agreements. These measures may not be sufficient to protect our
intellectual property rights against infringement. Additionally, we have
"shrinkwrap" license agreements with the end users of our PC titles, but rely on
the copyright laws to prevent unauthorized distribution of other software.
Existing copyright laws afford only limited protection. Notwithstanding
our rights to our software, it may be possible for third parties to copy
illegally our titles or to reverse engineer or otherwise obtain and use our
proprietary information. Illegal copying occurs within the software industry,
and if a significant amount of illegal copying of our published titles or titles
distributed by us occurs, our business could be adversely impacted. Policing
illegal use of our titles is difficult, and software piracy is expected to
persist. Further, the laws of certain countries in which our titles are
distributed do not protect us and our intellectual property rights to the same
extent as the laws of the U.S.
We believe that our titles, trademarks and other proprietary rights do
not infringe on the proprietary rights of others. However, as the number of
titles in the industry increases, we believe that claims and lawsuits with
respect to software infringement will also increase. From time to time, third
parties have asserted that features or content of certain of our titles may
infringe upon intellectual property rights of such parties. We have asserted
that third parties have likewise infringed our proprietary rights. Some of these
claims have resulted in litigation by and against us. To date, no such claims
have had a negative effect on our ability to develop, market or sell our titles.
Existing or future infringement claims by or against us may result in costly
litigation or require us to license the intellectual property rights of third
parties.
The owners of intellectual property licensed by us generally reserve
the right to protect such intellectual property against infringement.
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International Sales
International sales represented approximately 41% of net revenues in
fiscal 1996, 50% of net revenues in fiscal 1997, 34% of net revenues in fiscal
1998 and 41% and 30% of net revenues in the first quarter of 1998 and 1999,
respectively. We expect that international sales will continue to account for a
significant portion of net revenues in future periods. International sales are
subject to the following inherent risks:
. unexpected changes in regulatory requirements;
. tariffs and other economic barriers;
. fluctuating exchange rates;
. difficulties in staffing and managing foreign operations; and
. the possibility of difficulty in accounts receivable collection.
Because we believe that exposure to foreign currency losses is not
currently material, we do not hedge against foreign currency risks.
In some markets, localization of our titles is essential to achieve
market penetration. As a result of the inherent risks, we may incur incremental
costs and experience delays in localizing our titles. These risk factors or
other factors could have a negative effect on future international sales and,
consequently, on our business.
Dependence on Key Personnel and Employees
The software industry is characterized by a high level of employee
mobility and aggressive recruiting among competitors for personnel with
technical, marketing, sales, product development and management skills.
Successful operations depend on our ability to identify, hire and retain such
personnel. We may not be able to attract and retain such personnel or may incur
significant costs in order to do so.
In particular, we are highly dependent upon the management services of
Gregory Fischbach, Co-Chairman of the Board and Chief Executive Officer, and
James Scoroposki, Co-Chairman of the Board and Senior Executive Vice President.
The loss of the services of either of these two could have a negative impact on
our business. Although we have employment agreements with Messrs. Fischbach and
Scoroposki, they may leave or compete with us in the future. If we are unable to
attract additional qualified employees or retain the services of key personnel,
our business could be negatively impacted.
Litigation
In conjunction with then pending class actions and other litigations
and claims for which the settlement obligation was then probable and estimable,
we recorded a charge of $23.6 million during the year ended August 31, 1997.
During fiscal 1998, we settled substantially all such litigations and claims for
amounts approximating the accrued liabilities.
We are also party to various litigations arising in the course of our
business and certain other litigations. We may be required to record additional
material charges in future periods in conjunction with litigations to which we
are or become a party. If we have to record additional charges to earnings from
an adverse result in such litigations or from settlements which exceed the
related accrued liabilities, we may experience a negative effect on our
financial condition and results of operations. For a discussion of the various
claims and litigations to which we are currently a party, see "Legal
Proceedings."
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Anti-Takeover Provisions
Acclaim's Board of Directors has the authority (subject to certain
limitations imposed by the Indenture) to issue shares of preferred stock and to
determine their characteristics without stockholders' approval. If preferred
stock is issued, the rights of common stockholders are subject to, and may be
negatively affected by, the rights of preferred stockholders. If preferred stock
is issued, it will provide flexibility in connection with possible acquisitions
and other corporate actions; however, it could make it more difficult for a
third party to acquire a majority of our outstanding voting stock. In addition,
we are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which may make it more difficult or more expensive or
discourage a tender offer, change in control or takeover attempt that is opposed
by the Board. In addition, employment arrangements with certain members of
management provide for severance payments upon termination of their employment
if there is a change in control.
Volatility of Stock Price
There is a history of significant volatility in the market prices of
companies engaged in the software industry, including Acclaim. The market price
of our Common Stock is likely to continue to be highly volatile. The following
factors may have a significant impact on the market price of the Common Stock:
. timing and market acceptance of product introductions by us;
. the introduction of products by our competitors;
. loss of any key personnel;
. variations in quarterly operating results; or
. changes in market conditions in the software industry generally.
In the past, we have experienced significant fluctuations in operating
results and, if our future revenues or operating results or product releases do
not meet expectations, the price of our Common Stock may be negatively affected.
Year 2000 Issue
Until recently, computer programs were generally written using two
digits rather than four to define the applicable year. Accordingly, such
programs may be unable to distinguish properly between the year 1900 and the
year 2000. In fiscal 1997, we commenced a Year 2000 date conversion project to
address necessary code changes, testing and implementation in respect of our
internal computer systems. Project completion is planned for the middle of
calendar 1999. We anticipate that our Year 2000 date conversion project as it
relates to internal systems will be completed on a timely basis. Our software
for N64, PlayStation and PCs is Year 2000 compliant. We believe the costs to
become Year 2000 compliant will not significantly impact our results of
operations. We are currently seeking information regarding Year 2000 compliance
from vendors, customers, manufacturers, outside developers, and financial
institutions associated with us. Project completion for this phase is planned
for the middle of calendar 1999. However, given the reliance on third-party
information as it relates to their compliance programs and the difficulty of
determining potential errors on the part of external service suppliers, we
cannot guarantee that our information systems or operations will not be affected
by mistakes, if any, of third parties or third-party failures to complete the
Year 2000 project on a timely basis. There can be no assurance that the systems
of other companies on which our systems rely will be timely converted or that
any such failure to convert by another company would not have a material adverse
effect on our systems.
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The cost of the Year 2000 project and the date on which we believe we
will complete the necessary modifications are based on our estimates which were
derived utilizing numerous assumptions of future events, including the continued
availability of resources, third-party modification plans and other factors. We
presently believe that the Year 2000 issue will not pose significant operational
problems for our internal information systems and products. However, if the
anticipated modifications and conversions are not completed on a timely basis,
or if the systems of other companies on which our systems and operations rely
are not converted on a timely basis, the Year 2000 issue could have a material
adverse effect on results of operations.
We do not currently have any contingency plans in place to address the
failure of timely conversion of our and/or third-party systems in respect of the
Year 2000 issue. Any failure by us to address any unforseen Year 2000 issues
could materially adversely affect results of operations.
Euro Conversion
The January 1, 1999 adoption of the Euro has created a single-currency
market in much of Europe. For a transition period from January 1, 1999 to June
30, 2002, the existing local currencies will remain legal tender as
denominations of the Euro. Acclaim does not anticipate that its systems will be
materially adversely affected by the conversion to the Euro. Acclaim has
analyzed the impact of conversion to the Euro on its existing systems and is
implementing modifications to its current systems to handle Euro invoicing for
transactions. Acclaim anticipates that the cost of such modifications will not
have a material adverse effect on its results of operations or liquidity in
fiscal 1999. However, due to numerous uncertainties, we cannot reasonably
estimate the effect that the conversion to the Euro will have on our pricing or
market strategies, and the impact, if any, that such conversion will have on our
financial condition or results of operations.
------------------
Stockholders should not use historical trends or other factors
affecting our operating results and financial condition to anticipate results or
trends in future periods because of the risk factors disclosed above. Also,
stockholders should not consider historic financial performance as a reliable
indicator of future performance.
USE OF PROCEEDS
The proceeds, if any, from the exercise of the Warrants will be added
to Acclaim's working capital.
DETERMINATION OF OFFERING PRICE
The aggregate value and the per share exercise price of the Warrants
were determined by arms-length negotiations between Acclaim and counsel for the
plaintiffs in the class action lawsuit.
PLAN OF DISTRIBUTION
The shares of Common Stock issuable upon the exercise of the Warrants
will be offered solely by Acclaim; no underwriters are participating in this
offering. The Warrants will be exercisable pursuant to the terms of the Warrants
and a warrant agreement between Acclaim and American Securities Transfer &
Trust, Inc. relating to the Warrants.
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Acclaim has agreed to indemnify the holders of the Warrants, their
respective officers, directors, partners, employees, agents, counsel,
Plaintiffs' Lead Counsel (as defined in the Stipulation) and each person, if
any, who controls each holder of Warrants within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act against certain
liabilities, including liabilities under the Securities Act.
LEGAL PROCEEDINGS
Acclaim, Iguana Entertainment, Inc. and Gregory E. Fischbach were sued
in an action entitled Jeffery Spangenberg vs. Acclaim Entertainment, Inc.,
Iguana Entertainment, Inc., and Gregory Fischbach filed in August 1998 in the
District Court of Travis County, Texas (Cause No. 98-09418). The plaintiff
alleges that the defendants (i) breached their employment obligations to the
plaintiff, (ii) breached a Texas statute covering wage payment obligations based
on their alleged failure to pay bonuses to the plaintiff; and (iii) made
fraudulent misrepresentations to the plaintiff in connection with the
plaintiff's employment relationship with Acclaim, and accordingly, seeks
unspecified damages. Acclaim intends to defend this action vigorously.
The SEC has issued orders directing a private investigation relating
to, among other things, Acclaim's earnings estimate for fiscal 1995 and its
decision in the second quarter of fiscal 1996 to exit the 16-bit portable and
cartridge markets. Acclaim has provided documents to the SEC, and the SEC has
taken testimony from company representatives. Acclaim intends fully to cooperate
with the SEC in its investigation. No assurance can be given as to whether such
investigation will result in any litigation or, if so, as to the outcome of this
matter.
In conjunction with then pending class actions and other litigations
and claims for which the settlement obligation was then probable and estimable,
Acclaim recorded a charge of $23.6 million during the year ended August 31,
1997. During fiscal 1998, Acclaim settled substantially all of its outstanding
litigations and claims for amounts approximating the accrued liabilities.
Acclaim is also party to various litigations arising in the ordinary
course of business, the resolution of none of which, Acclaim believes, will have
a material adverse effect on its liquidity or results of operations.
LEGAL MATTERS
Certain legal matters in respect of the shares offered hereby will be
passed upon for Acclaim by Rosenman & Colin LLP, 575 Madison Avenue, New York,
New York 10022.
EXPERTS
The consolidated financial statements and schedule of Acclaim and its
subsidiaries as of August 31, 1998 and 1997 and for each of the years in the
three-year period ended August 31, 1998 have been incorporated by reference in
this prospectus and in the registration statement of which it forms a part in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses of issuance and distribution of the shares of Common Stock
underlying the Warrants are to be paid by the Registrant. The following itemized
list is an estimate of the expenses:
SEC registration fee.................... $ 1,930
Legal fees and expenses................. 10,000
Accounting expenses..................... 7,000
Miscellaneous........................... 6,070
-----
Total................................... $25,000
Item 15. Indemnification of Directors and Officers
The Certificate of Incorporation of the Registrant provides that any
person may be indemnified against all expenses and liabilities to the fullest
extent permitted by the General Corporation Law of the State of Delaware (the
"GCL").
Section 145 of the GCL, the law of the state in which the Registrant is
incorporated, empowers a corporation, within certain limitations, to indemnify
any person against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any suit or proceeding to which he is a party by reason of the fact that he
is or was a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, as long as he acted in
good faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the corporation. With respect to any criminal
proceeding, he must have had no reasonable cause to believe his conduct was
unlawful.
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Item 16. Exhibits
Exhibit
Number Description
3.1 -- Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, filed on
April 21, 1989, as amended (Registration No. 33-28274) (the
"1989 S-1").
3.2 -- Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.2 to the
1989 S-1).
3.3 -- Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 4(d) to
the Registrant's Registration Statement on Form S-8, filed
on May 19, 1995 (Registration No. 33-59483) (the "1995
S-8").
3.4 -- Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 4(e) to the 1995
S-8).
4.1 -- Specimen form of the Registrant's common stock
certificate (incorporated by reference to Exhibit 4.1 to
the Registrant's Annual Report on Form 10-K for the year
ended August 31, 1989, as amended (File No. 0-16986).
*4.2 -- Form of Warrant Agreement between the Registrant and
American Securities Transfer & Trust, Inc., as warrant
agent, relating to the Warrants.
*4.3 -- Form of Warrant Certificate relating to the Warrants.
*5 -- Opinion of Rosenman & Colin LLP
*23.1 -- Consent of KPMG LLP
*23.3 -- Consent of Rosenman & Colin LLP (included in Exhibit 5)
*24.1 -- Power of Attorney (included on Signature Page)
- ----------
* Filed herewith.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
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<PAGE>
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act, and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Nassau and State of New York on February 16, 1999.
ACCLAIM ENTERTAINMENT, INC.
By /s/
--------------------------------
Gregory E. Fischbach
Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gregory E. Fischbach and James R.
Scoroposki, and each or either of them, his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all the exhibits thereto, and other
documents in connection therewith, with the SEC, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises as fully, to all intents and purposes, as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Co-Chairman of the Board; Chief Executive February 16, 1999
- ---------------------------------------- Officer; President; Director
Gregory E. Fischbach
/s/ Co-Chairman of the Board; Senior Executive February 16, 1999
- ---------------------------------------- Vice President; Treasurer; Secretary;
James R. Scoroposki Acting Chief Financial and Accounting
Officer; Director
Director
- ----------------------------------------
Kenneth L. Coleman
/s/ Director February 16, 1999
- ----------------------------------------
Bernard J. Fischbach
/s/ Director February 16, 1999
- ----------------------------------------
Robert H. Groman
/s/ Director February 16, 1999
- ----------------------------------------
James Scibelli
/s/ Director February 16, 1999
- ----------------------------------------
Michael Tannen
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3.1 -- Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, filed on
April 21, 1989, as amended (Registration No. 33-28274) (the
"1989 S-1").
3.2 -- Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.2 to the
1989 S-1).
3.3 -- Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 4(d) to
the Registrant's Registration Statement on Form S-8, filed
on May 19, 1995 (Registration No. 33-59483) (the "1995
S-8").
3.4 -- Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 4(e) to the 1995
S-8).
4.1 -- Specimen form of the Registrant's common stock
certificate (incorporated by reference to Exhibit 4.1 to
the Registrant's Annual Report on Form 10-K for the year
ended August 31, 1989, as amended (File No. 0-16986).
*4.2 -- Form of Warrant Agreement between the Registrant and
American Securities Transfer & Trust, Inc., as warrant
agent, relating to the Warrants.
*4.3 -- Form of Warrant Certificate relating to the Warrants.
*5 -- Opinion of Rosenman & Colin LLP
*23.1 -- Consent of KPMG LLP
*23.3 -- Consent of Rosenman & Colin LLP (included in Exhibit 5)
*24.1 -- Power of Attorney (included on Signature Page)
- ----------
* Filed herewith.
<PAGE>
EXHIBIT 4.2
ACCLAIM ENTERTAINMENT, INC.
and
American Securities Transfer & Trust, Inc.
Warrant Agent
WARRANT AGREEMENT
Dated as of ______, 1999
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of _________________ ___, 1999,
between ACCLAIM ENTERTAINMENT, INC., a Delaware corporation (the "Company"), and
AMERICAN SECURITIES TRANSFER & TRUST, INC. (the "Warrant Agent").
WHEREAS, the Company proposes to issue [ ] ([ ]) common stock
purchase warrants (the "Warrants"), each to purchase one share of its common
stock, par value $.02 per share (the "Common Stock") (the shares of Common Stock
issuable on exercise of the Warrants being referred to herein as the "Warrant
Shares"), in connection with the settlement of a class action lawsuit (the
"Action") previously pending against the Company and certain officers of the
Company, in the Federal District Court in the Eastern District of New York (the
"Court") in accordance with a Stipulation of Settlement dated February 25, 1998
(the "Stipulation") between the Company and the participants in such settlement,
following the Effective Date (as defined in the Stipulation) and concurrently
with the effectiveness of the Company's registration statement referred to in
Section 2.3 hereof;
WHEREAS, the Company proposes to issue certificates evidencing
the Warrants (the "Warrant Certificates");
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, registration, division, transfer, exchange, redemption and
surrender of the Warrants, the issuance of certificates representing the
Warrants, the exercise of the Warrants, and the rights of the registered holders
thereof;
WHEREAS, a registration statement covering the issuance of the
Warrant Shares has been filed by the Company with the United States Securities
and Exchange Commission (the "SEC") pursuant to Section 2.3 hereof.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained and for the purpose of defining the terms and
provisions of the Warrants, the Warrant Certificates and the respective rights
and obligations thereunder of the Company, the registered holders of the
Warrants and the Warrant Agent, the parties hereto hereby agree as follows:
Article I
DISTRIBUTION OF WARRANT CERTIFICATES
Section 1.1 Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act on behalf of the Company in accordance with
the instructions hereinafter set forth, and the Warrant Agent hereby accepts
such appointment.
Section 1.2 Form of Warrant Certificates. The Warrant
Certificates shall be issued in registered form only and, together with the
forms of election to purchase Warrant Shares and of assignment to be printed on
the reverse thereof, shall be substantially in the form of Exhibit A attached
hereto and, in addition, may have such letters, numbers or other marks of
<PAGE>
identification or designation and such legends, summaries, or endorsements
stamped, printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as, in any particular case, may be required in the opinion of counsel for the
Company, to comply with any law or with any rule or regulation of any securities
exchange, regulatory authority or agency, or to conform to customary usage. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates) and shall be numbered serially with the letter
"W".
Section 1.3 Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by its Chairman or
President or any Executive Vice President and attested to by its Secretary or
Assistant Secretary, either manually or by facsimile signature printed thereon.
The Warrant Certificates shall be manually countersigned and (except as set
forth in Sections 1.4 and 2.2 hereof) dated the date of countersignature by the
Warrant Agent and shall not be valid for any purpose unless so countersigned and
dated. In case any authorized officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer of the Company either
before or after delivery thereof by the Company to the Warrant Agent, the
signature of such person on such Warrant Certificates, nevertheless, shall be
valid and such Warrant Certificates may be countersigned by the Warrant Agent,
and issued and delivered to those persons entitled to receive the Warrants
represented thereby with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
Section 1.4 Registration. Prior to the 10th business day
following the delivery of directions relating to the Warrants by Plaintiffs'
Lead Counsel (as that term is defined in the Court order dated June 6, 1996
relating to the Action) or the settlement administrator to the Company, the
Company shall deliver to the Warrant Agent an adequate supply of Warrant
Certificates executed on behalf of the Company as described in Section 1.3
hereof. The Warrant Certificates shall initially be registered in the names of
those persons who are finally entitled as Authorized Claimants (as defined in
the Stipulation) and plaintiffs' counsel in the Action, as directed by the Court
to receive Warrant Certificates (the "Authorized Warrant Holders"). Each such
Warrant Certificate shall have imprinted on its face the commencement date (the
"Commencement Date"), which date shall be the 10th business day following the
date of delivery of directions by Plaintiffs' Lead Counsel or the settlement
administrator to the Company of a list containing the names of the Authorized
Warrant Holders and the number of Warrants to be issued to each. On or prior to
the Commencement Date, the Warrant Agent shall have mailed or caused to have
been mailed such Warrant Certificates to the Authorized Warrant Holders.
The Warrant Agent shall maintain books for the transfer and
registration of the Warrant Certificates in accordance with its regular
practice. The Warrant Certificates shall be registered in a Warrant Register as
they are issued. The Company and the Warrant Agent shall be entitled to treat
the registered owner(s) of the Warrant Certificates (the "Holder(s)") as the
owner(s) in fact thereof (notwithstanding any notation of ownership or other
writing on the Warrant Certificates made by anyone other than the Company or the
Warrant Agent), for the purpose of any exercise thereof and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
2
<PAGE>
Section 1.5 Transfer of Warrants. The Warrant Certificates
shall be transferable only on the books of the Company maintained at the office
of the Warrant Agent designated for such purpose upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer, which endorsement shall be guaranteed by a member firm of a national
securities exchange, a commercial bank (not a savings bank or a savings and loan
association) or trust company located in the United States or a member of the
National Association of Securities Dealers, Inc. (hereafter, "Signatures
Guaranteed"). In all cases of transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly certified, shall be deposited
and remain with the Warrant Agent. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Warrant Agent in its discretion.
A reasonable service charge may be imposed by the Warrant
Agent upon the Holder for any exchange or registration of transfer of Warrant
Certificates. The Company may require payment by a Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
Article II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 Exercise Price. Each Warrant Certificate shall, when signed and
countersigned as provided in Section 1.3, entitle the Holder thereof to purchase
from the Company one share of Common Stock for each Warrant evidenced thereby,
at the purchase price of [ ] ([$ ]) per share (the "Exercise Price"), calculated
pursuant to the terms of Article I, Section 27 of the Stipulation. Except as the
context otherwise requires, the term "Exercise Price" as used in this Agreement
shall mean the purchase price of one share of Common Stock, reflecting all
appropriate adjustments made in accordance with the provisions of Article III
hereof.
Section 2.2 Exercisability of Warrants.
(a) Each Warrant may be exercised at any time after the
Commencement Date, provided that, at such time, such other action as may be
required by Federal or state law relating to the issuance or distribution of
securities shall have been taken, until 5:00 p.m., New York City time, on the
third anniversary of the Commencement Date (the "Exercise Deadline") unless
extended as provided herein. If the Warrants are not exercisable on the
Commencement Date by reason of any action required by Federal or state law, the
Exercise Deadline shall be extended for such period of time as shall be
necessary to permit the Warrants to be exercisable for a full three year period.
After the Exercise Deadline, any unexercised Warrants will be void and all
rights of Holders shall cease. Each Warrant Certificate shall have the Exercise
Deadline imprinted on its face. Subject to Section 2.3 hereof, the Company shall
use reasonable good faith efforts to keep available for delivery upon the
exercise of Warrants a prospectus that meets the requirements of Section 10 of
the Securities Act of 1933, as amended (the "Securities Act"), until the earlier
of the date by which all Warrants are exercised or the Exercise Deadline, unless
the Company determines that, by virtue of an amendment of the Securities Act or
otherwise, the effectiveness
3
<PAGE>
of such registration or the delivery of such prospectus is not required at the
time Warrant Shares are to be issued.
(b) In the event that, in the reasonable, good faith judgment
of the Company, it is advisable to suspend use of the prospectus described in
this Section 2.2, due to any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to a registration statement
or related prospectus or for additional information; (ii) the issuance by the
SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of a registration statement or the initiation or
threat of any proceedings for that purpose; (iii) the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Common Stock for sale in any
jurisdiction or the initiation or threat of any proceeding for such purpose;
(iv) the existence of any fact or the happening of any event which makes any
statement of a material fact in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which would require the making of any changes in the
registration statement or prospectus in order that, in the case of the
registration statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; (v) the Company's
determination that a post-effective amendment to a registration statement would
be appropriate; or (vi) pending material corporate developments or similar
material events that have not yet been publicly disclosed and as to which the
Company believes public disclosure will be prejudicial to the Company, the
Company shall give written notice to the Warrant Agent to the effect of the
foregoing and to the effect that the Warrants may not be exercised during such
time period (the "Blackout Period"). In the event that a Holder seeks to
exercise a Warrant during the Blackout Period, the Warrant Agent will notify the
Holder, in accordance with Section 6.15 hereof, that a Blackout Period is in
effect. In no event shall the Company call more than two (2) sixty (60) day
Blackout Periods in any calendar year, nor may it call a Blackout Period sixty
(60) days prior to the Exercise Deadline. If the Company exercises its right to
call one or more Blackout Periods in accordance with this Section 2.2(b), the
Exercise Deadline shall be extended for a period of time equal to the aggregate
number of days in all such Blackout Periods so that the Warrants shall be
exercisable for a full three year period.
(c) If the Exercise Deadline shall be extended pursuant to
Section 2.2(a) or (b) above, notice of such extension shall be provided to the
Holders not later than 15 days prior to the Exercise Deadline appearing on the
face of the Warrants.
Section 2.3 Registration of Warrant Shares.
(a) The Company, at its sole cost and expense (other than the
fees and disbursements of counsel for the Holders and the underwriting
discounts, if any), has prepared and filed with the SEC a registration statement
on Form S-3 or any other available form approved by the SEC and available for
use by the Company (the "Registration Statement") registering the issuance by
the Company of the Warrant Shares. The Registration Statement was declared
effective by the SEC on ________ __, 1999. The Company shall use its reasonable
efforts through its officers, directors, auditors and counsel to cause the
Registration Statement to
4
<PAGE>
remain effective until the earlier of the date by which all Warrants are
exercised or the Exercise Deadline, unless the Company determines that, by
virtue of an amendment of the Securities Act or otherwise, the effectiveness of
the Registration Statement is not required at the time Warrant Shares are to be
issued.
(b) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Holders, its officers, directors,
partners, employees, agents, counsel, Plaintiffs' Lead Counsel and each person,
if any, who controls any such person within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all loss, liability,
charge, claim, damage and expense whatsoever (which shall include, for all
purposes of this Section 2.3, but not be limited to, attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation) as and when incurred, arising out of, based upon or in connection
with any untrue statement or alleged untrue statement of a material fact
contained (A) in any Registration Statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented) or any amendment or
supplement thereto, relating to the sale of any of the Warrant Shares or (B) in
any application or other document or communication (in this Section 2.3
collectively called an "application") executed by or on behalf of a Holder or
based upon written information furnished by or on behalf of a Holder filed in
any jurisdiction in order to register or qualify any of the Warrant Shares under
the securities or blue sky laws thereof or filed with the SEC or any securities
exchange; or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements made therein not
misleading, unless (x) such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
a Holder by or on behalf of such Holder expressly for inclusion in any
Registration Statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(y) such loss, liability, charge, claim, damage or expense arises out of a
Holder's failure to comply with the terms and provisions of this Agreement, or
(ii) any breach of any representation, warranty, covenant or agreement of a
Holder contained in this Agreement. The foregoing agreement to indemnify shall
be in addition to any remedy a Holder may otherwise have, including remedies
arising under this Agreement.
If any action is brought against a Holder or any of its
officers, directors, partners, employees, agents, counsel or Plaintiffs' Lead
Counsel (as that term is defined in the Stipulation), if any, or any controlling
persons of such person (an "Indemnified Party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
Indemnified Party or Parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 2.3(b)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such Indemnified Party or
Parties) provided that the Indemnified Party shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such Indemnified Party or
Parties to have charge of the defense of such action or such Indemnified Party
or Parties
5
<PAGE>
shall have reasonably concluded that there may be one or more legal defenses
available to it or them or to other Indemnified Parties which are different from
or in addition to those available to the Company, in any of which events such
fees and expenses shall be borne by the Company and the Company shall not have
the right to direct the defense of such action on behalf of the Indemnified
Party or Parties. Anything in this Section 2.3 to the contrary notwithstanding,
the Company shall not be liable for any settlement of any such claim or action
effected without its written consent. The Company shall not, without the prior
written consent of each Indemnified Party that is not released as described in
this sentence, settle or compromise any action, or permit a default or consent
to the entry of judgment in or otherwise seek to terminate any pending or
threatened action, in respect of which indemnity may be sought hereunder
(whether or not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Party from all liability in respect of such action. The
Company agrees to notify the Holders promptly of the commencement of any
litigation or proceedings against the Company or any of it officers or directors
in connection with the sale of any Warrant Shares or any preliminary prospectus,
final prospectus, Registration Statement, or amendment or supplement thereto, or
any application relating to any sale of any Warrant Shares.
(c) The Holders agree to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any Registration Statement covering the Warrant Shares held by the
Holders, each other person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and its
or their respective counsel and Plaintiffs' Co-Lead Counsel (as that term is
defined in the Stipulation), to the same extent as the foregoing indemnity from
the Company to the Holders in Section 2.3(b) hereof but only with respect to
statements or omissions, if any, made in any Registration Statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto or in any application, in reliance upon
and in conformity with written information furnished to the Company with respect
to the Holders by or on behalf of a Holder, expressly for inclusion in any such
Registration Statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto or in any application, as the case may be. If
any action shall be brought against the Company or any other person to be so
indemnified based on any such Registration Statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto or in any application,
and in respect of which indemnity may be sought against a Holder pursuant to
this Section 2.3(c), a Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the Indemnified Parties, by the provisions of Section
2.3(b).
(d) To provide for just and equitable contribution, if an
Indemnified Party makes a claim for indemnification pursuant to Section 2.3(b)
or 2.3(c) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Agreement expressly provides
for indemnification in such case, or (ii) any Indemnified Party or indemnifying
party seeks contribution under the Securities Act, the Exchange Act or
otherwise, then the Company (including for this purpose any contribution made by
or on behalf of any director of the Company, any officer of the Company who
signed any such Registration Statement, any controlling person of the Company,
and its or their respective counsel) as one entity, and the Holders (including
for this purpose any contribution by or on behalf of an Indemnified Party) as
6
<PAGE>
a second entity, shall contribute to the losses, liabilities, claims, damages
and expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Holders and
the Company in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses. The relative fault, in the case of an
untrue statement, alleged untrue statement, omission or alleged omission shall
be determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by a Holder or the
Company, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged statement, omission or
alleged omission. Each Holder and the Company agree that it would be unjust and
inequitable if the respective obligations of the Holders and the Company for
contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses (even if the Holders
and the other Indemnified Parties were treated as one entity for such purpose)
or by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 2.3(d). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section
2.3(d), each person, if any, who controls a Holder within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent and counsel of a Holder or control person
shall have the same rights to contribution as the Company or control person and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed any such Registration Statement, each director of
the Company, and its or their respective counsel shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 2.3(d). Anything in this Section 2.3(d) to the contrary notwithstanding,
no party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 2.3(d) is
intended to supersede any right to contribution under the Securities Act, the
Exchange Act or otherwise.
(e) Notwithstanding the foregoing provisions of this
Section 2.3, in the event the Stipulation shall be the subject of appeal by
members of the Class (as defined in the Stipulation) or other persons, the
Company may in its sole discretion, cease its efforts to file, or to cause the
declaration of effectiveness of, the Registration Statement and/or cause the
withdrawal of such Registration Statement. Upon resolution of such appeal, the
Company shall forthwith use its reasonable best efforts to file or cause the
declaration of effectiveness of the Registration Statement.
Section 2.4 Procedure for Exercise of Warrants. (a) During the
period specified in and subject to the provisions and limitations set forth in
Section 2.2 hereof, Warrants may be exercised by surrendering the Warrant
Certificates representing such Warrants to the Warrant Agent at 938 Quail
Street, Suite 101, Lakewood, Colorado 80215 attention: Trust Department (the
"Principal Office") or at such other location as the Warrant Agent may specify
in writing to the Holders with the election to purchase form set forth on the
reverse side of the Warrant Certificate duly completed and executed, with
Signatures Guaranteed under certain circumstances as set forth in the purchase
form, accompanied by payment in full to the Warrant Agent for the account of the
Company of the Exercise Price in effect at the time of such exercise, together
with such taxes as are specified in Section 6.1 hereof, for each share of Common
Stock with respect to which such Warrants are being exercised. Such Exercise
Price and taxes shall be
7
<PAGE>
paid in full by certified or official bank check, or by United States Postal
Service money order, payable in United States currency to the order of the
Warrant Agent for the account of the Company.
(b) In lieu of any cash payment to be made by a Holder of the
Exercise Price pursuant to the preceding paragraph, during the period specified
in and subject to the provisions and limitations set forth in Section 2.2
hereof, the Holder may, at its option, exchange his Warrant, in whole or in part
(a "Warrant Exchange"), into the number of Warrant Shares determined in
accordance with this paragraph, by surrendering the Warrant to the Warrant Agent
accompanied by a notice stating such Holder's intent to effect such exchange,
the number of Warrant Shares to be exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the Common Stock issuable upon
such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing
the balance of the Warrant Shares remaining subject to such Warrant, shall be
issued as of the Exchange Date and delivered to the Holder within seven (7) days
following the Exchange Date. In connection with any Warrant Exchange, a Warrant
shall represent the right to subscribe for and acquire the number of Warrant
Shares (rounded to the next highest integer) equal to (i) the number of Warrant
Shares specified by the Holder in its Notice of Exchange (the "Total Number")
less (ii) the number of Warrant Shares equal to the quotient obtained by
dividing (A) the product of the Total Number times the existing Exercise Price
by (B) the then Market Price of a share of Common Stock. As used in this
Agreement, the term "Market Price" shall mean the average closing price of the
Company's Common Stock on the Nasdaq National Market System or the Nasdaq
SmallCap Market, or, if the Company's Common Stock is not so listed on the
Nasdaq National Market or the Nasdaq SmallCap Market, then on the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, during the twenty (20)
consecutive business days (as such term is used on the Nasdaq National Market
System or a domestic over-the-counter market, as the case may be) ending three
days prior to the date of the "Notice of Exchange" or if later the "Exchange
Date" (as such terms are defined in Section 2.4 hereof). Upon request of the
Warrant Agent, the Company shall provide to the Warrant Agent a written
presentation of the Market Price for the period requested by the Warrant Agent.
(c) The date on which a Warrant is exercised in accordance
with this Section 2.4 is sometimes referred to herein as the "Date of Exercise"
of such Warrant. In the event that a Blackout Period, as described in Section
2.2 hereof is in effect, the Warrant Agent will notify the Holder, in accordance
with Section 6.15 hereof, that a Blackout Period is in effect and that the
Warrants surrendered may not be exercised during the Blackout Period. In this
event, the date that the Company notifies the Warrant Agent that the Blackout
Period has ended will be the Date of Exercise unless the Holder notifies the
Warrant Agent, in writing, prior to the end of the Blackout Period that he
withdraws his surrender of the Warrant Certificates.
Section 2.5 Issuance of Warrant Shares. As soon as practicable
after the Date of Exercise of any Warrant, the Warrant Agent shall deposit the
proceeds received, if any, from the exercise of the Warrants, and promptly,
after clearance of checks received in payment of the Exercise Price pursuant to
such Warrants, shall issue a certificate or certificates for the number of full
Warrant Shares to which the Holder thereof is entitled, registered in accordance
with the
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instructions set forth in the election to purchase. The Company covenants that
the Warrant Shares which shall be issuable upon exercise of the Warrants and
payment, if any, of the Exercise Price in compliance with this Agreement and the
Warrant Certificate shall, pursuant to and in accordance with the terms of this
Agreement, be validly authorized and issued, fully paid and nonassessable, and
free from all taxes, liens and charges created by the Company in respect of the
issue thereof. Certificates representing such Warrant Shares shall be delivered
by the Warrant Agent in such names and denominations as are required for
delivery to, or in accordance with the instructions of, the Holder. Each person
in whose name any such certificate for Warrant Shares issued shall for all
purposes be deemed to have become the holder of record of the Warrant Shares
represented thereby on the Date of Exercise of the Warrants resulting in the
issuance of such Warrant Shares, irrespective of the date of issuance or
delivery of such certificate for Warrant Shares; provided, however, that if, at
the date of the surrender of such Warrants and payment of the Exercise Price,
the transfer books for the Warrant Shares purchasable upon the exercise of such
Warrants shall be closed, the certificates for the Warrant Shares in respect of
which such Warrants are then exercised shall be issuable as of the date on which
such books shall next be opened (whether before or after the Exercise Deadline)
and until such date the Warrant Agent shall be under no duty to deliver any
certificate for such Warrant Shares; provided, further, that the transfer books
of record, unless otherwise required by law, shall not be closed at any one time
for a period longer than twenty (20) days.
Section 2.6 Certificates for Unexercised Warrants. Subject to Section 2.4(b)
hereof, if less than all of the Warrants represented by a Warrant Certificate
are exercised, the Warrant Agent shall execute and mail, by first-class mail,
within thirty (30) days of the Date of Exercise, to the Holder of such Warrant
Certificate, or such other person as shall be designated in the election to
purchase, a new Warrant Certificate representing the number of Warrants not
exercised. In no event shall a fraction of a Warrant be exercised, and the
Warrant Agent shall distribute no Warrant Certificates representing fractions of
Warrants under this or any other Section of this Agreement.
Section 2.7 Reservation of Shares. The Company shall at all
times reserve and keep available for issuance upon the exercise of Warrants a
number of its authorized but unissued shares or treasury shares, or both, of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants. The transfer agent for the Common Stock and every
subsequent transfer agent for the Company's capital stock issuable upon the
exercise of Warrants, will be irrevocably authorized and directed at all times
to reserve a number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the transfer agent
for the Common Stock and with every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of the Warrants. The
Warrant Agent is hereby irrevocably authorized to requisition from time to time
from such transfer agent the stock certificates required to honor outstanding
Warrants upon exercise thereof in accordance with the terms of this Agreement.
The Company shall supply such transfer agent with duly executed stock
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 3.9 hereof. All Warrant
Certificates surrendered in the exercise of the rights thereby evidenced shall
be canceled by the Warrant Agent and retained by the Warrant Agent pursuant to
Section 5.2 hereof.
Section 2.8 Disposition of Proceeds. Upon the exercise of any
Warrant, the Warrant Agent shall promptly deposit all funds received by it for
the purchase of Warrant Shares
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into a non-interest-bearing escrow account as directed in writing by the
Company. All funds deposited in the escrow account shall be disbursed on a
weekly basis to the Company, or as otherwise requested by the Company in
writing. A detailed accounting statement relating to the number of Warrants
exercised, names of Holders of such exercised Warrants and the net amount of
funds remitted will be given to the Company with each such disbursement.
Article III
ADJUSTMENTS AND NOTICE PROVISIONS
Section 3.1 Adjustment of Exercise Price. Subject to the
provisions of this Article III, the Exercise Price in effect from time to time
shall be subject to adjustment, as follows:
(a) In case the Company shall declare a dividend payable in
stock or make some other distribution on the outstanding shares of its Common
Stock in shares of its Common Stock, (ii) subdivide or reclassify the
outstanding shares of its Common Stock into a greater number of shares or (iii)
combine or reclassify the outstanding shares of its Common Stock into a smaller
number of shares, the Exercise Price, in effect immediately after the record
date for such dividend or distribution or the effective date of such division,
reclassification or combination shall be proportionately adjusted by multiplying
the then Exercise Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Exercise Price then in effect. Such adjustment shall be made
successively whenever any event specified above shall occur.
(b) All calculations under this Section 3.1 shall be made to
the nearest thousandth of a cent.
Section 3.2 No Adjustments to Exercise Price. No adjustment
in the Exercise Price in accordance with the provisions of paragraph (a) of
Section 3.1 hereof need be made if such adjustment would amount to a change in
such Exercise Price of less than ten cents; provided, however, that the amount
by which any adjustment is not made by reason of the provision of this Section
3.2 shall be carried forward and taken into account at the time of any
subsequent adjustment in the Exercise Price.
Section 3.3 Adjustment to Number of Shares. Upon each
adjustment of the Exercise Price pursuant to Paragraph (a) of Section 3.1, each
Warrant shall thereupon evidence the right to purchase that number of shares of
Common Stock (calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of Common Stock purchasable immediately prior
to such adjustment upon exercise of the Warrant by the Exercise Price in effect
immediately prior to such adjustment and dividing the product so obtained by the
Exercise Price in effect immediately after such adjustment.
Section 3.4 Reorganizations. In case of any capital
reorganization, consolidation or merger of the Company (other than in the cases
referred to in Section 3.1 hereof, and other than the consolidation or merger of
the Company with or into another corporation in which the
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Company is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock or the conversion of
such outstanding shares of Common Stock into shares of other stock or other
securities or property) or the sale of all or substantially all of the Company's
stock or property (any of the foregoing events hereinafter referred to as a
"Reorganization"), all outstanding Warrants which have not been exercised prior
to the closing of any such transaction shall be deemed to have been exercised
and converted concurrently with the closing and the holders shall be entitled to
receive the kind and amount of consideration receivable by holders of Common
Stock less the Exercise Price of the Warrants deemed exercised. Additionally, in
the event of sale or conveyance or other transfer of all or substantially all of
the assets of the Company as a part of a plan for liquidation of the Company,
all rights to exercise any Warrant shall terminate thirty (30) days after the
Company gives written notice to each Holder that such sale or conveyance or
other transfer has been consummated in the manner specified in Section 6.15
hereof.
Section 3.5 Exercise Price Not Less Than Par Value. In no
event shall the Exercise Price be adjusted below the par value per share of the
Common Stock.
Section 3.6 Notice of Certain Action. In the event the Company
shall:
(a) declare any dividend payable in stock to the holders of
its Common Stock or make any other distribution in property other than cash to
the holders of its Common Stock; or
(b) offer to the holders of its Common Stock as such rights to
subscribe for or purchase any shares of any class of stock or any other rights
or opinions; or
(c) effect any reclassification of its Common Stock (other
than a reclassification involving merely the subdivision or combination of
outstanding shares of Common Stock), Reorganization or the liquidation,
dissolution or winding up of the Company;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the Warrant Agent. Such notice shall specify the date on which
the books of the Company shall close, or a record be taken, for determining
holders of Common Stock entitled to receive such stock dividend or other
distribution or such rights or options, or the date on which such
reclassification, Reorganization, liquidation, dissolution or winding up shall
take place or commence, as the case may be, and the date as of which it is
expected that holders shall be entitled to receive securities or other property
deliverable upon such action, if any such date has been fixed. The Company shall
also cause copies of such notice to be mailed to each Holder of a Warrant
Certificate in the manner specified in Section 6.15 hereof. Such notice shall be
mailed, in the case of any action covered by Subsection 3.6(a) or 3.6(b) above,
at least ten (10) days prior to the record date for determining holders of the
Common Stock for purposes of receiving such payment or offer, and in the case of
any action covered by Subsection 3.6(c) above, at least ten (10) days prior to
the earlier of the date upon which such action is to take place or any record
date to determine holders of Common Stock entitled to receive such securities or
other property.
Section 3.7 Notice of Adjustments. Whenever any adjustment is
made pursuant to this Article III, the Company shall cause notice of such
adjustment to be mailed to the Warrant Agent within fifteen (15) days
thereafter, such notice to include in reasonable detail (i) the events
precipitating the adjustment, (ii) the computation of any adjustments and (iii)
the Exercise Price,
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the number of shares or the securities or other property purchasable upon
exercise of each Warrant after giving effect to such adjustment. The Warrant
Agent shall be entitled to rely on such notice and any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such notice. The Warrant Agent shall
within fifteen (15) days after receipt of such notice from the Company cause a
similar notice to be mailed to each Holder.
Section 3.8 Warrant Certificate Amendments. Irrespective of
any adjustments pursuant to this Article III, Warrant Certificates theretofore
or thereafter issued need not be amended or replaced, but certificates
thereafter issued shall bear an appropriate legend or other notice of any
adjustments.
Section 3.9 Fractional Shares. The Company shall not be
required upon the exercise of any Warrant to issue fractional shares of Common
Stock which may result from adjustments in accordance with this Article III to
the Exercise Price or number of shares of Common Stock purchasable under each
Warrant. If more than one Warrant is exercised at one time by the same Holder,
the number of full shares of Common Stock which shall be deliverable shall be
computed based on the number of shares deliverable in exchange for the aggregate
number of Warrants exercised. With respect to any final fraction of a share
called for upon the exercise of any Warrant or Warrants, the Company, at its
option, shall either (i) issue a full share of Common Stock to the Holder in
respect of such fraction or (ii) pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the market value of a share
of Common Stock, as determined by the Warrant Agent on the basis of the market
price per share of Common Stock on the business day next preceding the date of
such exercise. For the purposes of this Section 3.9, the market price per share
of Common Stock for such day shall mean (i) the average of the high and low bid
and ask prices of the Common Stock on the Nasdaq National Market System for such
day; or (ii) if the Common Stock is not then traded on such exchange, then the
last known price paid per share by a purchaser of such stock in an arm's-length
transaction.
Article IV
OTHER PROVISIONS RELATING TO RIGHTS
OF HOLDERS OF WARRANT CERTIFICATES
Section 4.1 Rights of Warrant Holders. No Warrant Certificate
shall entitle the registered holder thereof, as such, to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company.
Section 4.2 Lost, Stolen, Mutilated or Destroyed Warrant
Certificates. If any Warrant Certificate shall be mutilated, apparently lost,
stolen or destroyed, the Company in its discretion may direct the Warrant Agent
to execute and deliver, in exchange and substitution for and upon cancellation
of a mutilated Warrant Certificate, or in lieu of or in substitution for an
apparently lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate for the number of Warrants represented by the Warrant Certificate so
mutilated, apparently lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Warrant
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Certificate, and of the ownership thereof, and indemnity, if requested, all
satisfactory to the Company and the Warrant Agent. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges incidental thereto as the
Company or Warrant Agent may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly mutilated, lost or stolen or destroyed Warrant Certificate shall be at
any time enforceable by anyone.
Article V
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER
AND CANCELLATION OF WARRANT CERTIFICATES
Section 5.1 Split-Up, Combination, Exchange and Transfer of
Warrant Certificates. Prior to the Exercise Deadline, Warrant Certificates,
subject to the provisions of Section 5.2, may be split-up, combined or exchanged
for other Warrant Certificates representing a like aggregate number of Warrants
or may be transferred in whole or in part. Any Holder desiring to split-up,
combine or exchange a Warrant Certificate or Warrant Certificates shall make
such request in writing delivered to the Warrant Agent at its Principal Office
and shall surrender the Warrant Certificate or Warrant Certificates so to be
split-up, combined or exchanged at said office. Subject to any applicable laws,
rules or regulations restricting transferability, any restriction on
transferability that may appear on a Warrant Certificate in accordance with the
terms hereof, or any "stop-transfer" instructions the Company may give to the
Warrant Agent to implement any such restriction (which instructions the Company
is expressly authorized to give), transfer of outstanding Warrant Certificates
may be effected by the Warrant Agent from time to time upon the books of the
Company to be maintained by the Warrant Agent for that purpose, upon a surrender
of the Warrant Certificate to the Warrant Agent at its Principal Office, with
the assignment form set forth in the Warrant Certificate duly executed and with
Signature Guaranteed. Upon any such surrender for split-up, combination,
exchange or transfer, the Warrant Agent shall execute and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Warrant Agent shall not be required to effect any
split-up, combination, exchange or transfer which will result in the issuance of
a Warrant Certificate evidencing a fraction of a Warrant. The Warrant Agent may
require the holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination,
exchange or transfer of Warrant Certificates prior to the issuance of any new
Warrant Certificate.
Section 5.2 Cancellation of Warrant Certificates. Any Warrant
Certificate surrendered upon the exercise of Warrants or for split-up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be canceled and shall not be reissued by the Company; and, except
as provided in Section 2.6 in case of the exercise of less than all of the
Warrants evidenced by a Warrant Certificate or in Section 5.1 in case of a
split-up, combination, exchange or transfer, no Warrant Certificate shall be
issued hereunder in lieu of such canceled Warrant Certificates. Any Warrant
Certificate so canceled shall be held by the Warrant Agent (unless otherwise
directed by the Company) and destroyed not earlier than seven (7) years after
such cancellation. The Warrant Agent shall furnish to the Company written
confirmation of the destruction of the Warrant Certificates so canceled.
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Article VI
PROVISIONS CONCERNING THE
AGENT AND OTHER MATTERS
Section 6.1 Payment of Taxes and Charges. The Company will
from time to time promptly pay to the Warrant Agent, or make provisions
satisfactory to the Warrant Agent for the payment of, all taxes and charges that
may be imposed by the United States or any state upon the Company or the Warrant
Agent in connection with the issuance or delivery of any Warrant Shares, but any
transfer taxes in connection with the issuance of Warrant Certificates or
certificates for Warrant Shares in any name other than that of the Holder of the
Warrant Certificates surrendered shall be paid by such Holder; and, in such
case, the Company shall not be required to issue or deliver any Warrant
Certificate or certificate for Warrant Shares until such taxes shall have been
paid or it has been established to the Company's satisfaction that no tax is
due.
Section 6.2 Resignation or Removal of Warrant Agent. The
Warrant Agent may resign its duties and be discharged from all further duties
and liabilities hereunder after giving at least thirty (30) days' notice in
writing to the Company, except that such shorter notice may be given as the
Company shall, in writing, accept as sufficient. Upon comparable notice to the
Warrant Agent, the Company may remove the Warrant Agent; provided, however, that
in such event the Company shall appoint a new Warrant Agent, as hereinafter
provided, and the removal of the Warrant Agent shall not be effective until a
new Warrant Agent has been appointed and has accepted such appointment. If the
office of Warrant Agent becomes vacant by resignation or incapacity to act or
otherwise, the Company shall appoint in writing a new Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the Holder of any Warrant
Certificate, then the Holder of any Warrant Certificate may apply to any court
of competent jurisdiction for the appointment of a new Warrant Agent. Any new
Warrant Agent, whether appointed by the Company or by such a court, shall be a
bank which is a member of the Federal Reserve System. Any new Warrant Agent
appointed hereunder shall execute, acknowledge and deliver to the former Warrant
Agent last in office, and to the Company, an instrument accepting such
appointment under substantially the same terms and conditions as are contained
herein, and thereupon such new Warrant Agent without any further act or deed
shall become vested with the rights, powers, duties and responsibilities of the
Warrant Agent and the former Warrant Agent shall cease to be the Warrant Agent;
but if for any reason it becomes necessary or expedient to have the former
Warrant Agent execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the former Warrant Agent.
Section 6.3 Notice of Appointment. Not later than the
effective date of the appointment of a new Warrant Agent the Company shall cause
notice thereof to be mailed to the former Warrant Agent and the transfer agent
for the Common Stock, and shall forthwith cause a copy of such notice to be
mailed to each Holder of a Warrant Certificate. Failure to mail such notice, or
any defect contained therein, shall not affect the legality or validity of the
appointment of the successor Warrant Agent.
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Section 6.4 Merger of Warrant Agent. Any company into which
the Warrant Agent may be merged or with which it may be consolidated or any
company resulting from any merger or consolidation to which the Warrant Agent
shall be a party, or any company to which the Warrant Agent may transfer its
stockholder services business, shall be the successor Warrant Agent under this
Agreement without further act, provided that such company would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 6.2
hereof. Any such successor Warrant Agent may adopt the prior countersignature of
any predecessor Warrant Agent and distribute Warrant Certificates countersigned
but not distributed by such predecessor Warrant Agent, or may countersign the
Warrant Certificates in its own name.
Section 6.5 Company Responsibilities. The Company agrees that
it shall (i) pay the Warrant Agent the agreed upon remuneration for its services
as Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for
all expenses, advances, and expenditures that the Warrant Agent may reasonably
incur in the execution of its duties hereunder (including reasonable fees and
expenses of its counsel); (ii) provide the Warrant Agent, upon request, with
sufficient funds to pay any cash due pursuant to Section 3.9 upon exercise of
Warrants; and (iii) perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all further and other acts,
instruments and assurances as may reasonably be required by the Warrant Agent
for the carrying out or performing by the Warrant Agent of the provisions of
this Agreement.
Section 6.6 Purchase of Warrants by the Company. The Company
shall have the right, except as limited by law, other agreement or herein, to
purchase or otherwise acquire Warrants at such times, in such manner and for
such consideration as it may deem appropriate.
Section 6.7 Certification for the Benefit of Warrant Agent.
Whenever in the performance of its duties under this Agreement the Warrant Agent
shall deem it necessary or desirable that any matter be proved or established or
that any instructions with respect to the performance of its duties hereunder be
given by the Company prior to taking or suffering any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established, or such
instructions may be given, by a certificate or instrument signed by the Chairman
of the Board, the President, an Executive Vice President, the Secretary or the
Treasurer of the Company and delivered to the Warrant Agent. Such certificate or
instrument may be relied upon by the Warrant Agent for any action taken or
suffered in good faith by it under the provisions of this Agreement; but in its
discretion the Warrant Agent may in lieu thereof accept other evidence of such
matter or may require such further or additional evidence as it may deem
reasonable.
Section 6.8 Liability of Warrant Agent. The Warrant Agent
shall be liable hereunder solely for its own negligence or willful misconduct.
The Warrant Agent shall act hereunder solely as an agent in a ministerial
capacity for the Company and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Warrant Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only. The Warrant Agent will not incur any
liability or responsibility to the Company or to any Holder of any Warrant
Certificate for any action taken, or any failure to take action, in reliance on
any paper, document or instrument reasonably believed by the Warrant Agent to be
genuine and to
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have been signed, sent or presented by the proper party or parties. The Warrant
Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof by the Company or in respect of
the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate or the Stipulation; nor shall it be responsible for the
making of any adjustment required under the provisions of Article III hereof or
responsible for the manner, method or amount of any such adjustment or the facts
that would require any such adjustment; nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or other securities to be issued
pursuant to this Agreement or any Warrant Certificate or as to whether any
shares of Common Stock or other securities will when issued be validly
authorized and issued and fully paid and nonassessable.
Section 6.9 Use of Attorneys, Agents and Employees. The
Warrant Agent may execute and exercise any of the rights or powers hereby vested
in it or perform any duty hereunder either itself or by or through its
attorneys, agents or employees.
Section 6.10 Indemnification. The Company agrees to indemnify
the Warrant Agent and save it harmless against any and all losses, expenses or
liabilities, including judgments, costs and reasonable counsel fees arising out
of or in connection with its acceptance of its position hereunder and in
carrying out the terms hereof, except as a result of the negligence or willful
misconduct of the Warrant Agent.
Section 6.11 Acceptance of Agency. The Warrant Agent hereby
accepts the agency established by this Agreement and agrees to perform the same
upon the terms and conditions herein set forth.
Section 6.12 Instructions from the Company. The Warrant Agent
is hereby authorized and directed to accept instructions with respect to the
performance of its duties hereunder from the Chairman of the Board, the
President, an Executive Vice President, the Secretary or the Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and shall not be liable for any action taken or suffered to be
taken by it in good faith in accordance with instructions of any such officer or
officers.
Section 6.13 Changes to Agreement. The Warrant Agent may,
without the consent or concurrence of any Holder, by supplemental agreement or
otherwise, join with the Company in making any changes or corrections in this
Agreement that shall in the judgment of the Company (i) be required to cure any
ambiguity or to correct any defective or inconsistent provision or clerical
omission or mistake or manifest error herein contained, (ii) add to the
covenants and agreements of the Company or the Warrant Agent in this Agreement
such further covenants and agreements thereafter to be observed, or (iii) result
in the surrender of any right or power reserved to or conferred upon the Company
or the Warrant Agent in this Agreement, but which changes or corrections do not
or will not adversely affect, alter or change the rights, privileges or
immunities of the Holders of Warrant Certificates. The Warrant Agent shall be
entitled to rely on such Company counsel's written advice. Otherwise the
Agreement may be amended by the written consent of the Company and the
affirmative vote or written consent of Holders holding not less than two-thirds
of the then outstanding Warrants.
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Section 6.14 Assignment. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns.
Section 6.15 Notices. Any notice or demand required by this
Agreement to be given or made by the Warrant Agent or by the Holder to or on the
Company shall be sufficiently given or made if sent by first-class or registered
mail, postage prepaid, addressed (until another address is filed in writing by
the Company with the Warrant Agent) as follows:
Acclaim Entertainment, Inc.
One Acclaim Plaza
Glen Cove, New York 11542
Attention: Secretary
Any notice or demand required by this Agreement, to be given or made by the
registered Holder of any Warrant Certificate or by the Company to or on the
Warrant Agent shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing with the Company by the Warrant Agent), as follows:
American Securities Transfer & Trust, Inc.
938 Quail Street
Suite 101
Lakewood, Colorado 80215
Attention: Trust Department (Acclaim Entertainment, Inc.)
Any notice or demand required by this Agreement to be given or made by the
Company or the Warrant Agent to or on the Holder of any Warrant Certificate
shall be sufficiently given or made, whether or not such Holder receives the
notice, if sent by first-class or registered mail, postage prepaid, addressed to
such Holder at his last address as shown on the books of the Company maintained
by the Warrant Agent.
Section 6.16 Defects in Notice. Failure to file any
certificate or notice or to mail any notice, or any defect in any certificate or
notice pursuant to this Agreement shall not affect in any way the rights of any
Holder or the legality or validity of any adjustment made pursuant to Section
3.1 hereof, or any transaction giving rise to any such adjustment, or the
legality or validity of any action taken or to be taken by the Company.
Section 6.17 Governing Law. The validity, interpretation and
performance of this Agreement, of each Warrant Certificate issued hereunder and
of the respective terms and provisions thereof shall be governed by the internal
laws of the State of Delaware, without reference to principles of conflict of
laws.
Section 6.18 Standing. Nothing in this Agreement expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company, the Warrant Agent, and the Holders any right, remedy or claim
under or by reason of this Agreement or of any covenant, condition, stipulation,
promise or agreement contained herein; and all covenants, conditions,
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stipulations, promises and agreements contained in this Agreement shall be for
the sole and exclusive benefit of the Company and the Warrant Agent and their
successors, and the Holders.
Section 6.18 Headings. The descriptive headings of the
articles and sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
Section 6.19 Counterparts. This Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
Section 6.20 Conflicts of Interest. The Warrant Agent and any
stockholder, director, officer or employee of the Warrant Agent may buy, sell or
deal in any of the Warrant Certificates or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
Section 6.21 Availability of the Agreement. The Warrant Agent
shall keep copies of this Agreement available for inspection by holders of
Warrants during normal business hours at its stock transfer department. Copies
of this Agreement may be obtained upon written request addressed to the Company
at the address set forth in Section 6.15.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, and their corporate seals affixed and attested,
all as of the day and year first above written.
ACCLAIM ENTERTAINMENT, INC.
By: _____________________________________
Name: Gregory E. Fischbach
Title: Co-Chairman, Chief Executive Officer
and President
[Corporate Seal]
Attest:
__________________________________________
Name: James R. Scoroposki
Title: Co-Chairman, Senior Executive
Vice President; Acting Chief
Financial Officer; Secretary and
Treasurer
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AMERICAN SECURITIES TRANSFER & TRUST, INC.
By: ______________________________________
Name:
Title:
[Corporate Seal]
Attest:
__________________________
Name:
Title:
20
<PAGE>
EXHIBIT 4.3
WARRANT CERTIFICATE
VOID AFTER 5:00 P.M., NEW YORK CITY TIME
ON ____________, 2002
W________________ ____________ Warrants
ACCLAIM ENTERTAINMENT, INC.
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED CUSIP __________
_______________________, or his, her or its registered assigns, is the
registered holder of the number of Warrants (the "Warrants") set forth above.
Each Warrant entitles the holder thereof to purchase from Acclaim Entertainment,
Inc., a corporation incorporated under the laws of the State of Delaware (the
"Company"), subject to the terms and conditions set forth hereinafter and in the
Warrant Agreement hereinafter referred to, one fully paid and nonassessable
share of common stock, par value $.02 per share, of the Company (the "Common
Stock"). The Warrants may be exercised at any time or from time to time on or
after __________, 1999 (the "Commencement Date") and must be exercised before
5:00 P.M., New York City time, on __________, 2002 (the "Exercise Deadline"). In
accordance with the terms of the Warrant Agreement, the Exercise Deadline may be
extended, in which event notice of such extension shall be provided. After the
Exercise Deadline, all rights evidenced by the Warrants shall cease and the
Warrants shall become void, and the holders thereof shall have no rights
thereunder. Subject to the provisions of the Warrant Agreement, the holder of
each Warrant shall have the right to purchase from the Company until the
Exercise Deadline (and the Company shall issue and sell to such holder of a
Warrant) one fully paid and nonassessable share of Common Stock (a "Warrant
Share") at an exercise price per share (the "Exercise Price") of $_________ upon
surrender of this Warrant Certificate to the Company at the office of the
Warrant Agent (as defined in the Warrant Agreement) designated by the Warrant
Agent for such purpose with the form of election to purchase appearing on this
Warrant Certificate duly completed and signed, together with (i) payment of the
Exercise Price in cash or certified or official bank check payable to the order
of the Warrant Agent or (ii), in lieu of any cash payment to be made pursuant to
sub paragraph (i) hereof, an election made by the holder of this Warrant
Certificate to exchange his Warrant, in whole or in part (a "Warrant Exchange"),
into the number of Warrant Shares determined in accordance with this paragraph,
by surrendering this Warrant Certificate to the Warrant Agent stating such
holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Common Stock issuable upon such Warrant Exchange and, if applicable, a new
warrant of like tenor evidencing the balance of the Common Stock remaining
subject to such Warrant, shall be issued as of the Exchange Date and delivered
to the holder within seven (7) days following the Exchange Date. In connection
with any Warrant Exchange, a Warrant shall represent the right to subscribe for
and acquire the number of Warrant Shares (rounded to the next highest integer)
equal to (i) the number of Warrant Shares specified by the Holder in its Notice
of Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number times the
existing Exercise Price by (B) the then Market Price (as defined in the Warrant
Agreement) of a share of Common Stock.
<PAGE>
The Exercise Price and/or number of Warrant Shares for which
the Warrants are exercisable are subject to change or adjustment upon the
occurrence of certain events set forth in the Warrant Agreement. The Warrants
are transferable in accordance with the terms of the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT
CERTIFICATE SET FORTH ON THE REVERSE SIDE HEREOF, AND SUCH FURTHER PROVISIONS
SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE
FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed by its duly authorized officers.
ACCLAIM ENTERTAINMENT, INC.
Dated: _____________________________ By: _____________________________
Its: ___________________________
ATTEST:
By: _________________________
Countersigned:
AMERICAN SECURITIES TRANSFER & TRUST, INC., AS WARRANT
AGENT
By: _____________________________
Its: _____________________________
<PAGE>
[Reverse Side]
This Warrant Certificate is subject to all of the terms and
conditions of the Warrant Agreement, dated as of ______________ __, 1999 (the
"Warrant Agreement") between the Company and the Warrant Agent, and the
registered holder of the Warrant consents to all of such terms and conditions by
acceptance hereof. The Warrant Agreement is incorporated herein by reference and
made a part hereof and reference is made to the Warrant Agreement for a full
description of the rights, limitations of rights, obligations, duties and
immunities of the Warrant Agent, the Company and the registered holders of
Warrant Certificates. Copies of the Warrant Agreement are available for
inspection at the principal office of the Warrant Agent or may be obtained upon
written request addressed to the Warrant Agent at its principal stockholder
services office in 938 Quail Street, Suite 101, Lakewood, Colorado 80215 or may
be obtained upon written request addressed to the Company at One Acclaim Plaza,
Glen Cove, New York, 11542, Attn: Secretary.
The Company shall not be required upon the exercise of the
Warrants evidenced by this Warrant Certificate to issue fractional shares, but
shall make adjustment therefor in cash on the basis of the current market value
of any fractional interest as provided in the Warrant Agreement.
This Warrant Certificate may be exchanged or transferred, at
the option of the holder, upon presentation and surrender hereof to the Warrant
Agent, for other Warrant Certificates of different denominations, entitling the
holder hereof to purchase in the aggregate the same number of Warrant Shares. If
the Warrants evidenced by this Warrant Certificate shall be exercised in part,
the holder hereof shall be entitled to receive upon surrender hereof another
Warrant Certificate or Certificates evidencing the number of Warrants not so
exercised.
The holder of this Warrant Certificate shall not, by virtue
hereof, be entitled to any of the rights of a stockholder in the Company, either
at law or in equity, including, without limitation, the right to vote, to
receive dividends and other distributions, or to attend or receive any notice of
meetings of stockholders or any other proceedings of the Company, and the rights
of the holder are limited to those expressed in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise
within any period during which the transfer books for the Company's Common Stock
are closed for any purpose, the Company shall not be required to make delivery
of certificates for shares purchasable upon such transfer until the date of the
reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the
same, consents and agrees with the Company, the Warrant Agent and with every
other holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry
books of the Warrant Agent only upon the terms and conditions set forth in the
Warrant Agreement; and
(b) the Company and the Warrant Agent may deem and treat the
person in whose name this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or the Warrant Agent) for all purposes
whatever and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
This Warrant Certificate shall not be valid or enforceable for
any purpose until it shall have been countersigned by the Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be executed by its duly authorized officers.
ACCLAIM ENTERTAINMENT, INC.
Dated: _____________________
By: ____________________________
Its: ___________________________
ATTEST
By: _________________
Countersigned:
AMERICAN SECURITIES TRANSFER &
TRUST, INC. AS WARRANT AGENT
By: __________________________
Its: _________________________
<PAGE>
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM = as tenants in common UNIF GIFT MIN ACT= ___________ Custodian ___________
TEN ENT = as tenants by the entireties (Custodian) (Minor)
JT TEN = as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants in (State)
common
COM PROP = as community property
</TABLE>
Additional abbreviations may also be used though not in the above list.
<PAGE>
PURCHASE FORM
Dated: ________________, _____
The undersigned hereby irrevocably exercises this Warrant to
purchase __________ shares of Common Stock and herewith makes payment of
$__________ in payment of the Exercise Price thereof on the terms and conditions
specified in this Warrant Certificate, surrenders this Warrant Certificate and
all right, title and interest herein to the Company and directs that the Warrant
Shares deliverable upon the exercise of such Warrants be registered in the name
and at the address specified below and delivered thereto.
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
City, State and Zip Code: ______________________________________________________
Taxpayer Identification or Social Security Number: ____________________________
Signature: ____________________________________________________________________
If such number of Warrant Shares is less than the aggregate number of Warrant
Shares purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the balance of such Warrant Shares to be registered in
the name and at the address specified below and delivered thereto.
Name: _________________________________________________________________________
(Please Print)
Address: ______________________________________________________________________
City, State and Zip Code: _____________________________________________________
Taxpayer Identification or Social Security Number: ____________________________
Signature: ____________________________________________________________________
NOTE: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. If the
certificate representing the Warrant Shares or any Warrant
Certificate representing Warrants not exercised is to be registered
in a name other than that in which this Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
<PAGE>
Signature Guaranteed:
_________________________________________________
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS,
SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE
GUARANTEE MEDALLION
PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15
<PAGE>
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED
________________________________________ hereby sells, assigns and transfers to:
Name: _________________________________________________________________________
(Please Print)
Address: ______________________________________________________________________
City, State and Zip Code: _____________________________________________________
Taxpayer Identification or Social Security Number: ____________________________
the right to purchase up to _____________________ Warrant Shares represented by
this Warrant and does hereby irrevocably constitute and appoint
__________________________ Attorney-in-fact to transfer said Warrant on the
behalf of the Company, with full power of substitution in the premises.
Dated:___________________________ _________________________________________
Signature of registered holder
NOTE: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signatures Guaranteed:
_________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15
<PAGE>
EXHIBIT 5
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
February 16, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have been requested by Acclaim Entertainment, Inc. ("Acclaim"), a Delaware
corporation, to furnish our opinion in connection with Acclaim's registration
statement on Form S-3 covering the offer and sale of shares (the "Shares") of
Acclaim's common stock, par value $0.02 per share, underlying certain warrants
to be issued by Acclaim pursuant to that certain Stipulation and Agreement of
Compromise and Settlement, dated February 25, 1998, between Acclaim and the
participants in such settlement (the "Warrants").
In connection with the foregoing, we have made such examination as we have
deemed necessary for the purpose of rendering this opinion. Based upon such
examination, it is our opinion that when (i) the Registration Statement has
become effective under the Securities Act of 1933, the warrant agreement
relating to the Warrants (the "Warrant Agreement") has been duly executed and
delivered and the Warrants have been issued and (ii) the Shares have been duly
issued and paid for in accordance with the terms of the Warrant Agreement and as
contemplated by the Registration Statement, the Shares will be validly issued,
fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption "Legal Matters" in
the prospectus included in the Registration Statement.
Very truly yours,
ROSENMAN & COLIN LLP
By /s/______________________
A Partner
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
Board of Directors of Acclaim Entertainment, Inc.:
We consent to the use in this registration statement on Form S-3 of Acclaim
Entertainment, Inc. of our report dated October 22, 1998, which report is
included in Acclaim's 1998 Annual Report on Form 10-K, which is incorporated by
reference herein, and to the reference to our firm under the heading "Experts"
in the prospectus.
KPMG LLP
New York, New York
February 12, 1999
