ACCLAIM ENTERTAINMENT INC
S-3, 1999-01-26
PREPACKAGED SOFTWARE
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<PAGE>

      As filed with the Securities and Exchange Commission on January 26, 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)
                       ---------------------------------
                                   Copy to:
                             Eric M. Lerner, 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       Amount to be    aggregate price per    aggregate offering
security to be registered    registered(1)   unit (1)               price (1)             Amount of registration fee
<S>                          <C>             <C>                    <C>                   <C> 
Common Stock, par value
$0.02 per share,
underlying certain   
warrants...............         216,014          $10.03                 $2,167,268                   $603
</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 the
    warrants including an estimated exercise price per share for the shares
    underlying the warrants determined in accordance with the Stipulation and
    Agreement of Compromise and Settlement, dated April 15, 1998, between
    Acclaim and the participants in such settlement. Pursuant to such
    agreement, the exercise price and the number of shares of Common Stock
    underlying the warrants to be issued by the Company cannot be calculated
    at this time and have been estimated. The Company will file a
    pre-effective amendment setting forth the actual number of shares of
    Common Stock underlying the warrants issued and the exercise price per
    share, and 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 JANUARY 26, 1999

                          ACCLAIM ENTERTAINMENT, INC.

                        216,014 SHARES OF COMMON STOCK

The 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

The shares offered by this prospectus are issuable upon exercise of certain
common stock purchase warrants we will issue in connection with the settlement
of a previously pending class action lawsuit. The warrants will be issued by
us without compliance with the registration and prospectus requirements of
Section 5 of the Securities Act of 1933 in accordance with the exemption
provided under Section 3(a)(10) thereof. The warrants will have an aggregate
value of $750,000 computed in accordance with a formula agreed upon in
connection with the settlement of the lawsuit.

The common stock purchase warrants may be exercised at any time for a period
of three years after the date this prospectus becomes effective (March ___,
1999). The warrants entitle the holder to purchase from us one share of our
common stock for each warrant, at a purchase price calculated in accordance
with the settlement agreement. The proceeds, if any, from the exercise of the
warrants will be added to our working capital.

This prospectus covers the offer and sale by Acclaim to the warrant holders of
up to that number of shares of its common stock sufficient to permit the
exercise in full of all outstanding warrants 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 sold with
this prospectus.

Our common stock is traded on The Nasdaq Stock Market National Market System
under the symbol "AKLM." On January 25, 1999, the last reported sale price of
the common stock was $10.50 per share. Acclaim intends to list the warrants on
the "over-the-counter" market. The proposed trading symbol is _____.

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
<PAGE>

                               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

                           -------------------------

                                 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 April 15, 1998, between Acclaim and the participants in
such settlement.

                           -------------------------
<PAGE>


                          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 us with the SEC pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference:

         o  Annual Report on Form 10-K for the fiscal year ended August 31, 1998
            filed on November 6, 1998 (File No. 0-16986);

         o  Quarterly Report on Form 10-Q for the period ended November 30, 1998
            filed on January 14, 1999 (File No. 0-16986); and

         o  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 us 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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<PAGE>


                      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, as amended (the "Securities Act") covering
the 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.

                                      3
<PAGE>


                                  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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<PAGE>

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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<PAGE>

                                 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 incurred a net loss of
$221.4 million in fiscal 1996, a net loss of $159.2 million in fiscal 1997 and
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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<PAGE>

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 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 

                                      7
<PAGE>

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:

o  the introduction of Platforms incorporating more advanced processors and
   operating systems;
o  the impact of technological changes embodied in PCs;
o  the development of electronic and wireless delivery systems; and the
o  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.

                                      8
<PAGE>

         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, 

                                      9
<PAGE>

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,
respectively, derived from sales of software for the indicated Platforms:

<TABLE>
<CAPTION>
                                Fiscal Year ended August 31,         Quarter ended November 30,
                             --------------------------------        --------------------------
Title                        1996          1997         1998            1997            1998
- -----                        ----          ----         ----            ----            ----
<S>                          <C>           <C>          <C>             <C>             <C>
Nintendo-compatible          29%           41%          60%              75%            62%
Sega-compatible              36%           12%          1%               *              *
Sony-compatible              19%           28%          30%              15%            31%
</TABLE>

- ---------------------
* 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 12 

                                      10
<PAGE>

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 

                                      11
<PAGE>

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 continue to 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:

o  quality of titles;

o  the publisher's access to retail shelf space; 

o  product features;

o  the success of the Platform for which the software is written;

o  price of titles;

o  the number of titles available for the Platform for which the software 
   is written; and

o  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.

                                      12
<PAGE>

         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:

o  copyrights;

o  trade secret laws;

o  patent and trademark laws;

o  nondisclosure agreements; and

o  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.

                                      13
<PAGE>

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:

o  unexpected changes in regulatory requirements; 

o  tariffs and other economic barriers; 

o  fluctuating exchange rates; 

o  difficulties in staffing and managing foreign operations; and

o  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."

                                      14
<PAGE>

Anti-Takeover Provisions

         The 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:

o  timing and market acceptance of product introductions by us;

o  the introduction of products by our competitors;

o  loss of any key personnel;

o  variations in quarterly operating results; or

o  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 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.

         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 

                                      15
<PAGE>

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. 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
was 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 in accordance with a warrant
agreement between Acclaim and American Securities Transfer & Trust, Inc.

         Acclaim will agree 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 

                                      16
<PAGE>

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 and for the years ended 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.

                                      17
<PAGE>

                                    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................................        $   603
         Legal fees and expenses.............................         10,000
         Accounting expenses.................................         10,000
         Miscellaneous.......................................          4,397
                                                                     -------
                   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.

                                     II-1
<PAGE>

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 
  
                                     II-2
<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.

                                     II-3
<PAGE>

                                  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
January 26, 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        January 26, 1999
- ----------------------------------------        Officer; President; Director
Gregory E. Fischbach                            

/s/                                             Co-Chairman of the Board; Senior Executive       January 26, 1999
- ----------------------------------------        Vice President; Treasurer; Secretary;
James R. Scoroposki                             Acting Chief Financial and Accounting
                                                Officer; Director

/s/                                             Director                                         January 26, 1999
- ----------------------------------------
Kenneth L. Coleman

/s/                                             Director                                         January 26, 1999
- ----------------------------------------
Bernard J. Fischbach

/s/                                             Director                                         January 26, 1999
- ----------------------------------------
Robert H. Groman

/s/                                             Director                                         January 26, 1999
- ----------------------------------------
James Scibelli

/s/                                             Director                                         January 26, 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 March 22, 1999


===============================================================================



<PAGE>


                               WARRANT AGREEMENT

                  WARRANT AGREEMENT dated as of March 22, 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 $0.02 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 Federal District Court in the Eastern District of
New York in accordance with a Stipulation and Agreement of Compromise and
Settlement dated April 15, 1998 (the "Stipulation") between the Company and
the participants in such settlement, following the Effective Date (as defined
in the Stipulation) and following effectiveness of the registration statement
referred 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 to so 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 Warrant
Shares is to be 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 and the certificates representing the Warrants
and the respective rights and obligations thereunder of the Company, the
registered holders of the Warrants and the Warrants 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 identification

<PAGE>


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 Warrants
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrants 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
Second Valuation Date (as defined in the Stipulation), 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. These
Warrant Certificates, shall initially be registered in the names of those
persons who are finally entitled as Authorized Claimants (as defined in the
Stipulation) to receive Warrant Certificates (the "Authorized Warrant
Holders"). Each such Warrant Certificate shall have imprinted on its face the
date of March 22, 1999 (the "Commencement Date"). On or prior to the 10th
business day following the Second Valuation 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.

     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


                                      2
<PAGE>

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 for any exercise of Warrants, which charge will be borne by the Company.
The Warrant Agent may also impose a reasonable service charge for any exchange
or registration of transfer of Warrant Certificates, which charge will be
borne by the Holders. 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 [______________ Dollars] ([$___________])
per share (the "Exercise Price"), calculated pursuant to the terms of Section
II.D. 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 and Registration of Warrant
Shares.

     (a) Each Warrant may be exercised at any time after (i) the Commencement
Date provided that at such time the Warrant Shares have been effectively
registered under the Securities Act of 1933, as amended (the "Securities Act")
pursuant to a Registration Statement (as hereinafter defined) filed with and
declared effective by the SEC, as provided in Section 2.3 hereof, and 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, 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 



                                      3
<PAGE>



Securities Act or otherwise, the effectiveness 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 (i) 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) forty-five (45) day Blackout Periods in any
calendar year, nor may it call a Blackout Period forty-five (45) 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.

     Section 2.3 Registration of Warrant Shares.

     (a) The Company has, as contemplated by Section IV.A. of the Stipulation,
at the Company's sole cost and expense (other than the fees and disbursements
of counsel for the Holders and the underwriting discounts, if any) prepared
and filed with the SEC a registration statement on Form S-3 (the "Registration
Statement"), to be declared effective by the SEC on March 22, 1999,
registering the Warrant Shares and will use its best efforts through its
officers, directors, auditors and counsel to cause such Registration Statement
to remain effective until the earlier of the date referenced in the last
sentence of Section 2.2(a) hereof.


                                      4
<PAGE>


     (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' Settlement Counsel (as that term is
defined in the Stipulation) 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 (i) 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, it
being acknowledged by the Company that the only such written information
furnished consists of the names and/or descriptions of the Holders set forth
under the heading "Selling Securityholders" in the Registration Statement and
the information set forth under the heading "Plan of Distribution" in the
Registration Statement (the "Holder Information"), 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 or counsel, 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 shall have reasonably concluded that
there may be one or more legal defenses 



                                      5
<PAGE>

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' Settlement 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, it being acknowledged by the Company that the only such
furnished information consists of the Holder Information. 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 (i) 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 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 



                                      6
<PAGE>

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 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 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 Signature Guaranteed under certain circumstances as
set forth in the purchase

                                      7
<PAGE>

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 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 the last quoted price, or if not so quoted, the average of the high bid
and low asked price in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization, for each of the days on which the Common Stock is actually
traded, 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.



                                      8
<PAGE>


     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 or receipt of good same day funds by Federal funds wire
transfer, 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 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 ten (10) 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 Company's 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 Company's 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 



                                      9
<PAGE>

will 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 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 (i) 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 five (5) 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 



                                      10
<PAGE>


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 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 or concurrently with the closing of any such transaction will
terminate immediately upon the closing. 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 twenty (20) 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 



                                      11
<PAGE>

twenty (20) 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 ten (10) 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, 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 ten (10) 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 



                                      12
<PAGE>


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 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.



                                      13
<PAGE>


     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.


                                  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 



                                      14
<PAGE>


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
Company's 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.

     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 



                                      15
<PAGE>

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 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.



                                      16
<PAGE>


     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.

     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 



                                      17
<PAGE>


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, 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 6.19 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 6.20 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 6.21 Conflict 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 6.22 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.


                                      18
<PAGE>


         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:
                                           -------------------------------

                                    Title:
                                           -------------------------------

[Corporate Seal]

Attest:
        -------------------------------

Name:
        -------------------------------

Title:
        -------------------------------


                                    AMERICAN SECURITIES TRANSFER & TRUST, INC.

                                    By:
                                           -------------------------------

                                    Name:
                                           -------------------------------

                                    Title:
                                           -------------------------------

[Corporate Seal]

Attest:
        -------------------------------

Name:
        -------------------------------

Title:
        -------------------------------




<PAGE>


                                                                   EXHIBIT 4.3


                         [FORM OF WARRANT CERTIFICATE]

                    EXERCISABLE ON OR AFTER MARCH 22, 1999

                   VOID AFTER 5:00 P.M., NEW YORK CITY TIME

                               ON MARCH 21, 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 $0.02 per share, of
the Company (the "Common Stock"). The Warrants may be exercised at any time or
from time to time on or after March 22, 1999, (the "Commencement Date") and
must be exercised before 5:00 P.M., New York City time, on March 21, 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. Upon 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 


<PAGE>


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.

                  The Exercise Price 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.

                  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.


<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:
      -------------------------





[Reverse Side]


<PAGE>



                  This Warrant Certificate is subject to all of the terms and
conditions of the Warrant Agreement, dated as of the Commencement Date (the
"Warrant Agreement") between the Company and the Warrant Agent and to all of
the terms and conditions the registered holder of the Warrant consents 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 


<PAGE>


                  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.

                  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>
                                                        UNIF GIFT MIN ACT =

       TEN COM =  as tenants in common
       TEN ENT =  as tenants by the entireties          ____________ Custodian ___________
        JT TEN =  as joint tenants with right           (Custodian)              (Minor)
                  of survivorship and                    
                  not as tenants in common
      COM PROP =  as community property                 under Uniform Gifts to Minors Act

                                                        ___________________________________
                                                        (State)
</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

January  26, 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 April 15, 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 and the warrant agreement
relating to the Warrants (the "Warrant Agreement") has been duly executed and
delivered 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 Annual Report on Form 10-K, for August 31, 1998 and 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
January 25, 1999




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