-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EOMq6k702LLqmucDr8nkKzl8+wc2qgZ2h/n12izhwzGBkV3FHM5ldvQy899VSWLy +uxcg+sWwH9YENdNsaKi0w== 0000898430-01-502332.txt : 20010911 0000898430-01-502332.hdr.sgml : 20010911 ACCESSION NUMBER: 0000898430-01-502332 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010910 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPLAY ENTERTAINMENT CORP CENTRAL INDEX KEY: 0001057232 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330102707 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-59088 FILM NUMBER: 1735056 BUSINESS ADDRESS: STREET 1: 16815 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92606 BUSINESS PHONE: 9495536655 MAIL ADDRESS: STREET 1: 16815 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92606 S-3/A 1 ds3a.txt AMENDMENT 2 TO FORM S-3 As Filed With the Securities and Exchange Commission on September 10, 2001 Registration No. 333-59088 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 2 to FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 __________ INTERPLAY ENTERTAINMENT CORP. (Exact name of registrant as specified in its charter) Delaware 33-0102707 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 16815 Von Karman Avenue, Irvine, California 92606 (949) 553-6655 (Address, including zip code, and telephone number, including area code of registrant's principal executive offices) __________ Brian Fargo Interplay Entertainment Corp. 16815 Von Karman Avenue Irvine, California 92606 (949) 553-6655 (Name, address, including zip code, and telephone number, including area code of agent for service) Copy to: K.C. Schaaf, Esq. Daniel P. Murphy, Esq. Stradling Yocca Carlson & Rauth, A Professional Corporation 660 Newport Center Drive Newport Beach, California 92660 Approximate date of commencement of proposed sale to 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, 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
- --------------------------------------------------------------------------------------------------------------------- Proposed maximum Proposed maximum Title of securities to Amount to offering price per aggregate offering Amount of be registered be registered share (1) price registration fee - --------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 8,126,770 $1.33 $10,808,604 $2,702 par value shares - --------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 8,126,770 $1.33 $10,808,604 $2,702 par value, issuable shares upon exercise of Warrants - --------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 500,000 $0.54 $ 270,000 $ 68(2) par value, issuable shares upon exercise of Warrants - --------------------------------------------------------------------------------------------------------------------- Totals 16,753,540 shares $1.33 $21,887,208 $5,472(3) - ---------------------------------------------------------------------------------------------------------------------
(1) The offering price is estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) using the average of the high and low prices reported by the Nasdaq National Market for the Common Stock on April 11, 2001, which was approximately $1.33 per share. (2) The offering price is estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) using the average of the high and low prices reported by the Nasdaq National Market for the Common Stock on September 5, 2001, which was approximately $0.54 per share. (3) $5,404 of the registration fee previously paid, $68 of the registration fee being paid concurrently herewith. PROSPECTUS INTERPLAY ENTERTAINMENT CORP. 16,753,540 Shares of Common Stock ($0.001 par value) _________ This prospectus relates to the offer and sale from time to time of up to shares of our Common Stock that are held by the stockholders named in the 16,753,540 "Selling Stockholders" section of this prospectus. The shares of our Common Stock offered pursuant to this prospectus were originally issued to the selling stockholders in connection with private placements of our shares and pursuant to the exercise of common stock purchase warrants issued to the selling stockholders in connection with such private placements. See the Form of Warrant previously filed as Exhibit 4.2 to this prospectus for more information about the warrants. See also the Form of Warrant for Roth Capital Partners, filed as Exhibit 4.4 to this prospectus. The prices at which such stockholders may sell the shares in this offering will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive any of the proceeds from the sale of the shares. We will bear all expenses of registration incurred in connection with this offering. The stockholders whose shares are being registered hereby will bear all selling and other expenses. Concurrent with the filing of the registration statement of which this prospectus is a part, we have filed Amendment No. 2 to our registration statement on Form S-3 (File No. 333-60272) relating to the offer and sale of up to 24,511,432 shares of our Common Stock. We previously filed Amendment No. 2 to our registration statement on Form S-3 (File No. 333-50252) relating to the offer and sale of up to 11,256,511 shares of our Common Stock. The aggregate number of shares being offered, assuming the effectiveness of each of our registration statements, is 52,521,483. The completion of this offering and the concurrent offerings do not depend on each other. Our Common Stock is traded on the Nasdaq National Market under the symbol "IPLY." On September 7, 2001, the last reported sale price of our Common Stock was $0.48 per share. See "Risk Factors" beginning on page 2 to read about the risks you should consider carefully before buying shares of our Common Stock. _________ The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement containing this prospectus, which has been filed with the Securities and Exchange Commission, is declared 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. _________ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. _________ The date of this Prospectus is September 10, 2001. TABLE OF CONTENTS Page About Interplay............................................................ 1 Risk Factors............................................................... 2 Where You Can Find Additional Information.................................. 20 Use of Proceeds............................................................ 21 Selling Stockholders....................................................... 22 Plan of Distribution....................................................... 26 Legal Matters.............................................................. 27 Experts.................................................................... 27 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. SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF "FORWARD-LOOKING" TERMINOLOGY, SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," "CONTINUE" OR OTHER SIMILAR WORDS. THESE STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THE STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" ON PAGE 2. ABOUT INTERPLAY Interplay Entertainment Corp. is a leading developer, publisher and distributor of interactive entertainment software for both core gamers and the mass market. We were incorporated in the State of California in 1982 and reincorporated in the State of Delaware in May 1998. We are most widely known for our titles in the action/arcade, adventure/role-playing games and strategy/puzzle categories. We have produced titles for many of the most popular interactive entertainment software platforms, and currently balance our development efforts by publishing interactive entertainment software for PCs and video game consoles such as the Sony PlayStation. We release products through Shiny Entertainment, Digital Mayhem, Black Isle Studios, East, our distribution partners and our wholly owned subsidiary Interplay OEM, Inc. We seek to publish interactive entertainment software titles that are, or have the potential to become, franchise software titles that can be leveraged across several releases and/or platforms, and we have published many such successful franchise titles to date. In addition, we secure licenses to use popular intellectual properties, such as Star Trek, Caesars Palace and Advanced Dungeons & Dragons, for incorporation into certain of our products. Our executive offices are located at 16815 Von Karman Avenue, Irvine, California 92606, and our telephone number is (949) 553-6655. RISK FACTORS In evaluating an investment in our common stock, you should carefully consider the following risk factors and other information contained in or incorporated by reference into this prospectus. Some information in this prospectus may contain "forward-looking" statements that discuss future expectations of our financial condition and results of operations. We currently have a number of obligations that we are unable to meet without generating additional revenues or raising additional capital. If we cannot generate additional revenues or raise additional capital in the near future, we may become insolvent and our stock would become illiquid or worthless. As of June 30, 2001, our cash balance was approximately $677,000 and our outstanding accounts payable totaled approximately $14.8 million. If we do not receive sufficient financing we may (i) liquidate assets, (ii) seek or be forced into bankruptcy and/or (iii) continue operations, but incur material harm to our business, operations or financial condition. In addition, because we have not yet registered the shares issued in our April 2001 private placement of common stock, we have, as of August 1, 2001, an accrued obligation to pay the private placement investors an aggregate amount of $508,000 in cash payable on demand. This obligation will continue to accrue at approximately $250,000 each month that we do not register the shares. There is no cap on the penalty due to our failure to register such shares. Because of our financial condition, our Board of Directors has a duty to our creditors that may conflict with the interests of our stockholders. If we cannot obtain additional capital, the Board may make decisions that favor the interests of creditors at the expense of our stockholders. We depend, in part, on external financing to fund our capital needs. If we are unable to obtain sufficient financing on favorable terms, we may not be able to continue to operate our business. Historically, our business has not generated revenues sufficient to create operating profits. To supplement our revenues, we have funded our capital requirements with debt and equity financing. Our ability to obtain additional equity and debt financing depends on a number of factors including: . the progress and timely completion of our product development programs; . our products' commercial success; . our ability to license intellectual property on favorable terms; . the introduction and acceptance of new hardware platforms by third parties; and . our compliance with the financial covenants of our existing line of credit. If we cannot raise additional capital on favorable terms, we will have to reduce our costs by selling or consolidating our operations, and by delaying, canceling, suspending or scaling back product development and marketing programs. These measures could materially limit our ability to publish successful titles and may not decrease our costs enough to restore our operations to profitability. Our failure to comply with the covenants in our existing credit agreement could result in the termination of the agreement and a substantial reduction in the cash available to finance our operations. Pursuant to our credit agreement with LaSalle Business Credit Inc., or LaSalle, entered into in April 2001, we agreed: . to safeguard, maintain and insure substantially all of our property, which property is collateral for any loans made under the credit agreement; . not to incur additional debt, except for trade payables and similar transactions, or to make loans; . not to enter into any significant corporate transaction, such as a merger or sale of substantially all of our assets without the knowledge and consent of LaSalle; . to maintain an agreed-upon tangible consolidated net worth, to be set by the parties for periods subsequent to April 2001; . to maintain a ratio of earnings before interest, taxes, depreciation and amortization, or EBITDA, to interest expense of at least 1.25 to 1.00; . not to make capital expenditures in an aggregate amount of more than $2.5 million in any fiscal year without the consent of LaSalle; and . to maintain EBITDA of at least the following amounts for the following periods: - negative $7.2 million for the six month period from January 1, 2001 through June 30, 2001; - negative $3.5 million for the nine month period from January 1, 2001 through September 30, 2001; and - $7.7 million during any consecutive twelve-month period from and after January 1, 2001. We are not in compliance with the financial covenants pertaining to net worth and minimum EBITDA. If LaSalle does not waive compliance with these covenants, or if we breach other covenants or if there are other events of default in effect under the credit agreement and LaSalle does not waive compliance with them, LaSalle would be able to terminate the credit agreement and all outstanding amounts owed to LaSalle would immediately become due and payable. Because we depend on our credit agreement to fund our operations, LaSalle's termination of the credit agreement could cause material harm to our business. A change of control may cause the termination of several of our material contracts with our licensors and distributors. Our development and distribution agreements contain provisions that allow termination upon a change in control. Titus recently appointed a majority of our Board of Directors, and converted a portion of their preferred stock into common stock such that Titus has at least 48% of our total voting power. These events may constitute a change in control, and therefore some of our third-party developers and licensors may attempt to terminate existing development and distribution agreements with us. In particular, our license for "the Matrix" allows for the licensor to terminate the license if there is a change of control without their approval. The loss of the Matrix license would materially harm our projected operating results and financial condition. The unpredictability of our quarterly results may cause our stock price to decline. Our operating results have fluctuated in the past and may fluctuate in the future due to several factors, some of which are beyond our control. These factors include: . demand for our products and our competitors' products; . the size and rate of growth of the market for interactive entertainment software; . changes in personal computer and video game console platforms; . the timing of announcements of new products by us and our competitors and the number of new products and product enhancements released by us and our competitors; . changes in our product mix; . the number of our products that are returned; and . the level of our international and original equipment manufacturer royalty and licensing net revenues. Many factors make it difficult to accurately predict the quarter in which we will ship our products. Some of these factors include: . the uncertainties associated with the interactive entertainment software development process; . approvals required from content and technology licensors; and . the timing of the release and market penetration of new game hardware platforms. It is likely that in some future periods our operating results will not meet the expectations of the public or of public market analysts. Any unanticipated change in revenues or operating results is likely to cause our stock price to fluctuate since such changes reflect new information available to investors and analysts. New information may cause securities analysts and investors to revalue our stock and this may cause fluctuations in our stock price. There are high fixed costs to developing our products. If our revenues decline because of delays in the introduction of our products, or if there are significant defects or dissatisfaction with our products, our business could be harmed. We have incurred significant net losses in recent periods, including a net loss of $20.8 million in the six months ended June 30, 2001, $12.1 million during 2000 and $41.7 million during 1999. Our losses stem partly from the significant costs we incur to develop our entertainment software products. Moreover, a significant portion of our operating expenses are relatively fixed, with planned expenditures based largely on sales forecasts. At the same time, most of our products have a relatively short life cycle and sell for a limited period of time after their initial release, usually less than one year. Relatively fixed costs and short windows in which to earn revenues mean that sales of new products are important in enabling us to recover our development costs, to fund operations and to replace declining net revenues from older products. Our failure to accurately assess the commercial success of our new products, and our delays in releasing new products, could reduce our net revenues and our ability to recoup development and operational costs. In the past, revenues have been reduced by: . delays in the introduction of new software products; . delays in the introduction, manufacture or distribution of the platform for which a software product was developed; . a higher than expected level of product returns and markdowns on products released during the year; . the cost of restructuring our operations, including international distribution arrangements; and . lower than expected worldwide sales of entertainment software releases. Similar problems may occur in the future. Any reductions in our net revenues could harm our business and financial results. Our growing dependence on revenues from game console software products increases our exposure to seasonal fluctuations in the purchases of game consoles. The interactive entertainment software industry is highly seasonal, with the highest levels of consumer demand occurring during the year-end holiday buying season. As a result, our net revenues, gross profits and operating income have historically been highest during the second half of the year. The impact of this seasonality will increase as we rely more heavily on game console net revenues in the future. Moreover, delays in game console software products largely depend on the timeliness of introduction of game console platforms by the manufacturers of those platforms, such as Sega and Nintendo. The introduction by a manufacturer of a new game platform too late in the holiday buying season could result in a substantial loss of revenues by us. Seasonal fluctuations in revenues from game console products may cause material harm to our business and financial results. If our products do not achieve broad market acceptance, our business could be harmed significantly. Consumer preferences for interactive entertainment software are always changing and are extremely difficult to predict. Historically, few interactive entertainment software products have achieved continued market acceptance. Instead, a limited number of releases have become "hits" and have accounted for a substantial portion of revenues in our industry. Further, publishers with a history of producing hit titles have enjoyed a significant marketing advantage because of their heightened brand recognition and consumer loyalty. We expect the importance of introducing hit titles to increase in the future. We cannot assure you that our new products will achieve significant market acceptance, or that we will be able to sustain this acceptance for a significant length of time if we achieve it. We believe that our future revenue will continue to depend on the successful production of hit titles on a continuous basis. Because we introduce a relatively limited number of new products in a given period, the failure of one or more of these products to achieve market acceptance could cause material harm to our business. Further, if our products do not achieve market acceptance, we could be forced to accept substantial product returns or grant significant pricing concessions to maintain our relationship with retailers and our access to distribution channels. If we are forced to accept significant product returns or grant significant pricing concessions, our business and financial results could suffer material harm. Our largest stockholder, Titus Interactive SA, may implement or block corporate actions in ways that are not in the best interests of our stockholders as a whole. Titus currently owns approximately 43.3% of our common stock, and, in connection with their ownership of our Series A Preferred Stock, controls approximately 48% of the total voting power of our stock. Upon conversion of the Series A Preferred Stock held by Titus as of September 7, 2001, Titus could own up to approximately 12.6 million additional shares of our common stock, bringing its total ownership to approximately 56.7%, of our common stock. Titus may continue to convert each share of their Series A Preferred Stock, to the extent not previously redeemed by us, into a number of shares of our Common Stock determined by dividing $27.80 by the lesser of (i) $2.78 or (ii) 85 percent of the average closing price per share as reported by Nasdaq for the twenty trading days preceding the date of conversion. Pursuant to the terms of our Series A Preferred Stock, Titus also has the ability to block approval of a merger or change in control that the holders of a majority of our common stock may deem beneficial. In connection with its investment, Titus has elected its Chief Executive Officer and its President to serve as members of our Board of Directors and Titus' Chief Executive Officer serves as our President. Titus also has appointed a majority of our Board of Directors. As a consequence of its stock ownership and Board and management representation, Titus exerts significant influence over corporate policy and potentially may implement or block corporate actions in a manner that is not in the interests of Interplay and its stockholders as a whole. For example, Titus could compel us to enter into agreements with Titus or its subsidiaries on terms more favorable than those we would agree to with a third party or to forego enforcement of our rights against Titus or its subsidiaries. Titus could also use its veto over mergers to prevent a merger that may be in the best interests of our stockholders as a whole or to try to negotiate more favorable merger consideration for itself. Our stock price may decline significantly if we are delisted from the Nasdaq National Market. Our common stock currently is quoted on the Nasdaq National Market System. For continued inclusion on the Nasdaq National Market, we must meet certain tests, including a minimum bid price of $1.00 and net tangible assets of at least $4 million. We currently are not in compliance with either requirement. In addition, during the second quarter of fiscal 2000 we were subject to a hearing before a Nasdaq Listing Qualifications Panel, which determined to continue the listing of our common stock on the Nasdaq National Market subject to certain conditions, all of which were fulfilled. However, if we continue to fail to satisfy the listing standards on a continuous basis, Nasdaq may delist our common stock from its National Market System. The variable conversion price of our Series A Preferred Stock increases our risk of being delisted in several ways: Bid Price. The substantial number of shares that are potentially issuable upon conversion of the Series A Preferred Stock and the short selling that may occur as a result of the future priced nature of those shares increases the risk that our stock price will stay below Nasdaq's minimum bid price requirement and could, as noted above, result in our being delisted. See our risk factors "Substantial sales of our common stock by our existing stockholders may reduce the price of our stock and dilute existing stockholders" and "The holder of our Series A Preferred Stock could engage in short selling..." Public Interest Concerns. If the returns on our Series A Preferred Stock are deemed "excessive" compared with those of public investors in our common stock, Nasdaq may deny inclusion or apply more stringent criteria to the continued listing of our common stock. In making this analysis, Nasdaq considers: . the amount raised in the transaction relative to our capital structure at the time of issuance; . the dilutive effect of the transaction on our existing holders of common stock; . the risk undertaken by Titus in purchasing our Series A Preferred Stock; . the relationship between the Titus and us; . whether the transaction was preceded by other similar transactions; and . whether the transaction is consistent with the just and equitable principles of trade. Nasdaq also considers, as mitigating factors in its analysis, incentives that encourage Titus to hold the Series A Preferred Stock for a longer time period and limit the number of shares into which the Series A Preferred Stock may be converted. Such features may limit the dilutive effect of the transaction and increase the risk undertaken by Titus in relationship to the reward available. Change of Control and Change of Financial Structure. As of September 7, 2001, the Series A Preferred Stock was convertible into 12.6 million shares of our common stock. The exercise of these conversion rights could increase Titus' percentage ownership of our capital stock such that Nasdaq may determine that (i) a merger or consolidation that results in a change of control or (ii) a change in financial structure has occurred. If Nasdaq determines that the conversion of our Series A Preferred Stock constitutes a change in control and a change in financial structure, we would need to satisfy all initial listing requirements as of that time. We currently do not satisfy those initial listing requirements. If our common stock were delisted from the Nasdaq National Market, trading of our common stock, if any, may be conducted on the Nasdaq Small Cap Market, in the over-the-counter market on the "pink sheets" or, if available, the NASD's "Electronic Bulletin Board." In any of those cases, investors could find it more difficult to buy or sell, or to obtain accurate quotations as to the value of our common stock. The trading price per share of our common stock likely would be reduced as a result. A significant percentage of our international sales depend on our distribution agreement with Virgin and Virgin's diligent sales efforts and timely payments pursuant to that agreement. In connection with our acquisition in February 1999 of a 43.9% limited liability company membership interest in VIE Acquisition Group, LLC, or VIE, the parent entity of Virgin Interactive Entertainment Limited, or Virgin, we signed an international distribution agreement with Virgin. Under this agreement, we appointed Virgin as exclusive distributor for most of our products in Europe, the Commonwealth of Independent States, Africa and the Middle East, for a seven-year period. During the course of the last two years, due to a dispute regarding the amount of overhead fees and commissions we owed Virgin, Virgin withheld material amounts of proceeds from us from their distribution of our products. In April 2001, we entered into a settlement agreement with Virgin in which: . each party entered into a general release from claims against the other party; . Virgin paid us $3.1 million in settlement of amounts due us under the distribution agreement; . we paid Virgin $330,000 for marketing overhead related to sales of our products; . VIE redeemed our membership interest in VIE in full in exchange for the performance of our obligations under the settlement agreement; . pursuant to the concurrent third amendment to our distribution agreement with Virgin, the overhead fees owed to Virgin going forward were immediately reduced and will be eliminated by July 2002; and . we no longer have an equity interest in Virgin. Virgin is a wholly-owned subsidiary of, and is controlled by, Titus. Virgin remains our exclusive distributor throughout much of the world, therefore our revenues could fall significantly and our business and financial results could suffer material harm if: . further disputes arise over amounts payable by us to Virgin; . Virgin fails to deliver to the full proceeds owed us from distribution of our products; . fails to effectively distribute our products abroad; or . otherwise fails to perform under the distribution agreement. Some of our directors and officers have substantial, conflicting interests in our most significant distributor, Virgin Interactive Entertainment, Limited. All of the equity interests of VIE are owned by Titus, a significant stockholder of Interplay, which is controlled by two of our directors, Messrs. Herve Caen and Eric Caen. Herve Caen is the Chief Executive Officer of Titus and Eric Caen is the President of Titus. Herve Caen also serves as our President. Moreover, Michel Henri Vulpillat serves as a director of Titus as well as being one of our directors, and another of our directors, Nathan Peck, serves as a director of and consultant to Virgin. Due to their respective positions with us, Virgin and Titus, these directors and officers could influence or induce us to enter into agreements or business arrangements with VIE, or Virgin, on terms less favorable to us than we would negotiate with an unaffiliated third party in an arm's length transaction. Our long-term exclusive distribution agreement with Virgin may discourage potential acquirors from acquiring us. Pursuant to the settlement agreement we entered into with Titus, Virgin and VIE on April 11, 2001, during the seven-year term of our February 1999 distribution agreement with Virgin, we agreed not to sell, license our publishing rights, or enter into any agreement to either sell or license our publishing rights with respect to any products covered by the distribution agreement in the territory covered by the distribution agreement, with the exception of two qualified sales each year. The restrictions on sales and licensing of publishing rights until 2006 may discourage potential acquirors from entering into an acquisition transaction with us, or may cause potential acquirors to demand terms that are less favorable to our stockholders. In addition, the settlement agreement contains termination penalties of a minimum of $10 million, subject to substantial increases pursuant to the terms of the settlement agreement, which also may discourage potential acquirors that already have their own distribution capabilities in these territories. Our reliance on third party software developers subjects us to the risks that these developers will not supply us in a timely manner with high quality products or on acceptable terms. Third party interactive entertainment software developers, such as Bioware Corp. and Planet Moon Studios develop many of our software products. Since we depend on these developers in the aggregate, we remain subject to the following risks: . continuing strong demand for the developers' products may cause developers who developed products for us in the past to instead work for our competitors in the future; . the inability for us to control whether developers complete products on a timely basis or within acceptable quality standards, or at all; . limited financial resources may force developers out of business prior to their completion of projects for us or require us to fund additional costs; and . the possibility that developers could demand that we renegotiate our arrangements with them to include new terms less favorable to us. Increased competition for skilled third party software developers also has compelled us to agree to make advance payments on royalties and to guarantee minimum royalty payments to intellectual property licensors and game developers. If the products subject to these arrangements do not generate sufficient sales volumes to recover these royalty advances and guaranteed payments, we would have to write-off unrecovered portions of these payments, which could cause material harm to our business and financial results. If we fail to anticipate changes in video game platforms and technology, our business may be harmed. The interactive entertainment software industry is subject to rapid technological change. New technologies could render our current products or products in development obsolete or unmarketable. Some of these new technologies include: . operating systems such as Microsoft Windows 2000; . technologies that support games with multi-player and online features; . new media formats such as online delivery and digital video disks, or DVDs; and . recent releases or planned releases in the near future of new video game consoles such as the Sony Playstation 2, the Nintendo Gamecube and the Microsoft Xbox. We must continually anticipate and assess the emergence of, and market acceptance of, new interactive entertainment software platforms well in advance of the time the platform is introduced to consumers. Because product development cycles are difficult to predict, we must make substantial product development and other investments in a particular platform well in advance of introduction of the platform. If the platforms for which we develop new software products or modify existing products are not released on a timely basis or do not attain significant market penetration, or if we develop products for a delayed or unsuccessful platform, our business and financial results could suffer material harm. New interactive entertainment software platforms and technologies also may undermine demand for products based on older technologies. Our success will depend in part on our ability to adapt our products to those emerging game platforms which gain widespread consumer acceptance. Our business and financial results may suffer material harm if we fail to: . anticipate future technologies and platforms and the rate of market penetration of those technologies and platforms; . obtain licenses to develop products for those platforms on favorable terms; or . create software for those new platforms on a timely basis. We compete with a number of companies that have substantially greater financial, marketing and product development resources than we do. The interactive entertainment software industry is intensely competitive and new interactive entertainment software programs and platforms are regularly introduced. The greater resources of our competitors permit them to undertake more extensive marketing campaigns, adopt more aggressive pricing policies, and pay higher fees than we can to licensors of desirable motion picture, television, sports and character properties and to third party software developers. We believe that the main competitive factors in the interactive entertainment software industry include: . product features; . brand name recognition, . access to distribution channels; . quality; . ease of use, price, marketing support and quality of customer service; and . ability to obtain licenses to popular motion picture, television, sports and character properties and to third party software developers. We compete primarily with other publishers of personal computer and video game console interactive entertainment software. Significant competitors include: . Electronic Arts Inc. . Activision, Inc. . Infogrames Entertainment . Microsoft Corporation . LucasArts Entertainment Company . Midway Games Inc. . Acclaim Entertainment, Inc. . Vivendi Universal Interactive Publishing . Ubi Soft Entertainment Publishing . The 3DO Company . Take Two Interactive Software, Inc. . Eidos PLC . THQ Inc. Many of these competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we do. Competitors with more extensive customer bases, broader customer relationships and broader industry alliances may be able to use such resources to their advantage in competitive situations, including establishing relationships with many of our current and potential customers. In addition, integrated video game console hardware/software companies such as Sony Computer Entertainment, Nintendo, Microsoft Corporation and Sega compete directly with us in the development of software titles for their respective platforms and they have generally discretionary approval authority over the products we develop for their platforms. Large diversified entertainment companies, such as The Walt Disney Company, many of which own substantial libraries of available content and have substantially greater financial resources, may decide to compete directly with us or to enter into exclusive relationships with our competitors. We also believe that the overall growth in the use of the Internet and online services by consumers may pose a competitive threat if customers and potential customers spend less of their available home personal computing time using interactive entertainment software and more time using the Internet and online services. We may face difficulty obtaining access to retailers necessary to market and sell our products effectively. Retailers typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer software producers, and in particular producers of interactive entertainment software products, for high quality retail shelf space and promotional support from retailers. To the extent that the number of consumer software products and computer platforms increases, competition for shelf space may intensify and require us to increase our marketing expenditures. Due to increased competition for limited shelf space, retailers and distributors are in an improving position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. Our products constitute a relatively small percentage of any retailer's sale volume, and we cannot assure you that retailers will continue to purchase our products or to provide our products with adequate levels of shelf space and promotional support. A prolonged failure in this regard may cause material harm to our business. Because we sell a substantial portion of our products on a purchase order basis, our sales may decline substantially without warning and in a brief period of time. We currently sell our products through our sales force to mass merchants, warehouse club stores, large computer and software specialty chains and through catalogs in the United States and Canada, as well as to certain distributors. Outside North America, we generally sell products to third party distributors. We make our sales primarily on a purchase order basis, without long-term agreements. The loss of, or significant reduction in sales to, any of our principal retail customers or distributors could cause material harm to our business. If we are compelled to sell a larger proportion of our products to distributors, our gross profit may decline. Mass merchants are the most important distribution channel for retail sales of interactive entertainment software. A number of these mass merchants have entered into exclusive buying arrangements with software developers or other distributors, which arrangements could prevent us from selling some or all of our products directly to that mass merchant. If the number of mass merchants entering into exclusive buying arrangements with our competitors were to increase, our ability to sell to such merchants would be restricted to selling through the exclusive distributor. Because sales to distributors typically have a lower gross profit than sales to retailers, this would lower our gross profit. This trend could cause material harm to our business. If our distributors or retailers cannot honor their credit arrangements with us, we may be burdened with payment defaults and uncollectible accounts. We typically sell to distributors and retailers on unsecured credit, with terms that vary depending upon the customer and the nature of the product. We confront the risk of non-payment from our customers due to their financial inability to pay us, or otherwise. In addition, while we maintain a reserve for uncollectible receivables, the reserve may not be sufficient in every circumstance. As a result, a payment default by a significant customer could cause material harm to our business. Our customers have the ability to return our products or to receive pricing concessions and such returns and concessions could reduce our net revenues and results of operations. We are exposed to the risk of product returns and pricing concessions with respect to our distributors and retailers. We allow distributors and retailers to return defective, shelf-worn and damaged products in accordance with negotiated terms, and also offer a 90-day limited warranty to our end users that our products will be free from manufacturing defects. In addition, we provide pricing concessions to our customers to manage our customers' inventory levels in the distribution channel. We could be forced to accept substantial product returns and provide pricing concessions to maintain our relationships with retailers and our access to distribution channels. Product return and pricing concessions that exceed our reserves have caused material harm to our results of operations in the recent past and may do so again in the future. Substantial sales of our common stock by our existing stockholders may reduce the price of our stock and dilute existing stockholders. We have filed registration statements covering a total of approximately 49.5 million shares of our common stock for the benefit of the holders we describe below. Assuming the effectiveness of these registration statements, these shares would be eligible for immediate resale in the public market. . Universal Studios, Inc. holds approximately 10.4%, of our outstanding common stock, all of which are being registered pursuant to registration statement number 333-59088, filed on April 17, 2001. . Titus currently holds approximately 43.3% of our outstanding common stock and upon conversion of all its shares of Series A Preferred Stock, may own up to approximately 56.7% of our common stock. All of the shares of common stock issuable to Titus upon the conversion of the preferred stock or the exercise of the warrants are being registered in our pending registration statements. . Pursuant to registration statement 333-60272, filed on April 17, 2001, we intend to register shares equal to approximately 54% of our outstanding common stock, held by a number of our investors as set forth in that registration statement. . Employees and directors hold options and warrants to purchase 10.8% of our common stock, most of which are eligible for immediate resale. We may issue options to purchase up to an additional 2.0% of our common stock to employees and directors, which we anticipate will be freely tradable when issued. Although the holders described above are subject to restrictions on the transfer of our common stock, future sales by such holders could decrease the trading price of our common stock and, therefore, the price at which you could resell your shares. A lower market price for our shares also might impair our ability to raise additional capital through the sale of our equity securities. Any future sales of our stock would also dilute existing stockholders. We depend upon third party licenses of content for many of our products. Many of our current and planned products, such as our Star Trek, Advanced Dungeons and Dragons, Matrix and Caesars Palace titles, are lines based on original ideas or intellectual properties licensed from other parties. From time to time we may not be in compliance with certain terms of these license agreements. We may not be able to obtain new licenses, or maintain or renew existing licenses, on commercially reasonable terms, if at all. For example, Viacom Consumer Products, Inc. has granted the Star Trek license to another party upon the expiration of our rights in 2002. If we are unable to obtain licenses for the underlying content that we believe offers the greatest consumer appeal, we would either have to seek alternative, potentially less appealing licenses, or release the products without the desired underlying content, either of which could limit our commercial success and cause material harm to our business. We may fail to obtain new licenses from hardware companies on acceptable terms or to obtain renewals of existing or future licenses from licensors. We are required to obtain a license to develop and distribute software for each of the video game console platforms for which we develop products, including a separate license for each of North America, Japan and Europe. We have obtained licenses to develop software for the Sony PlayStation and PlayStation 2, as well as video game platforms from Nintendo and Microsoft. In addition, each of these companies has the right to approve the technical functionality and content of our products for their platforms prior to distribution. Due to the competitive nature of the approval process, we must make significant product development expenditures on a particular product prior to the time we seek these approvals. Our inability to obtain these approvals could cause material harm to our business. Our sales volume and the success of our products depends in part upon the number of product titles distributed by hardware companies for use with their video game platforms. Even after we have obtained licenses to develop and distribute software, we depend upon hardware companies such as Sony Computer Entertainment, Nintendo and Microsoft to manufacture the CD-ROM or DVD-ROM media discs that contain our software. These discs are then run on the companies' video game consoles. This process subjects us to the following risks: . we are required to submit and pay for minimum numbers of discs we want produced containing our software, regardless of whether these discs are sold, shifting onto us the financial risk associated with poor sales of the software developed by us; and . reorders of discs are expensive, reducing the gross margin we receive from software releases that have stronger sales than initially anticipated and that require the production of additional discs. As a result, Sony, Nintendo and Microsoft can shift onto us the risk that if actual retailer and consumer demand for our interactive entertainment software differs from our forecasts, we must either the bear the loss from overproduction or the lesser revenues associated with producing additional discs. Either situation could lead to material reductions in our net revenues. We have a limited number of key personnel. The loss of any single key person or the failure to hire and integrate capable new key personnel could harm our business. Our interactive entertainment software requires extensive time and creative effort to produce and market. The production of this software is closely tied to the continued service of our key product design, development, sales, marketing and management personnel, and in particular on the leadership, strategic vision and industry reputation of our founder and Chief Executive Officer, Brian Fargo. Our future success also will depend upon our ability to attract, motivate and retain qualified employees and contractors, particularly software design and development personnel. Competition for highly skilled employees is intense, and we may fail to attract and retain such personnel. Alternatively, we may incur increased costs in order to attract and retain skilled employees. Our failure to retain the services of Brian Fargo or other key personnel, including competent executive management, or to attract and retain additional qualified employees could cause material harm to our business. Titus recently gained control of our board of directors, which could result in a significant change in management and operations. Titus appointed a majority of our Board of Directors. It is possible that this change in control could result in a change in our management and operations. Significant changes in the composition of our executive management team may hinder our ability to address the other challenges we face, and may cause material harm to our business or financial condition. Our international sales expose us to risks of unstable foreign economies, difficulties in collection of revenues, increased costs of administering international business transactions and fluctuations in exchange rates. Our net revenues from international sales accounted for approximately 17 percent of our total net revenues for the six months ended June 30, 2001 and approximately 28 percent for the six months ended June 30, 2000. Most of these revenues come from our distribution relationship with Virgin, pursuant to which Virgin became the exclusive distributor for most of our products in Europe, the Commonwealth of Independent States, Africa and the Middle East. To the extent our resources allow, we intend to continue to expand our direct and indirect sales, marketing and product localization activities worldwide. Our international sales and operations are subject to a number of inherent risks, including the following: . recessions in foreign economies may reduce purchases of our products; . translating and localizing products for international markets is time- consuming and expensive; . accounts receivable are more difficult to collect and when they are collectible, they may take longer to collect; . regulatory requirements may change unexpectedly; . it is difficult and costly to staff and manage foreign operations; . fluctuations in foreign currency exchange rates; . political and economic instability; . we depend on Virgin as our exclusive distributor in Europe, the Commonwealth of Independent States, Africa and the Middle East; and . delays in market penetration of new platforms in foreign territories. These factors may cause material declines in our future international net revenues and, consequently, could cause material harm to our business. A significant, continuing risk we face from our international sales and operations stems from exchange rate fluctuations. Because we do not engage in currency hedging activities, fluctuations in currency exchange rates have caused significant reductions in our net revenues from international sales and licensing due to the loss in value upon conversion into U.S. Dollars. We may suffer similar losses in the future. Inadequate intellectual property protections could prevent us from enforcing or defending our proprietary technology. We regard our software as proprietary and rely on a combination of patent, copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and other methods to protect our proprietary rights. We own or license various copyrights and trademarks, and hold the rights to one patent application related to one of our titles. While we provide "shrinkwrap" license agreements or limitations on use with our software, it is uncertain to what extent these agreements and limitations are enforceable. We are aware that some unauthorized copying occurs within the computer software industry, and if a significantly greater amount of unauthorized copying of our interactive entertainment software products were to occur, it could cause material harm to our business and financial results. Policing unauthorized use of our products is difficult, and software piracy can be a persistent problem, especially in some international markets. Further, the laws of some countries where our products are or may be distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States, or are weakly enforced. Legal protection of our rights may be ineffective in such countries, and as we leverage our software products using emerging technologies such as the Internet and online services, our ability to protect our intellectual property rights and to avoid infringing others' intellectual property rights may diminish. We cannot assure you that existing intellectual property laws will provide adequate protection for our products in connection with these emerging technologies. We may unintentionally infringe on the intellectual property rights of others which could expose us to substantial damages or restrict our operations. As the number of interactive entertainment software products increases and the features and content of these products continue to overlap, software developers increasingly may become subject to infringement claims. Although we believe that we make reasonable efforts to ensure that our products do not violate the intellectual property rights of others, it is possible that third parties still may claim infringement. From time to time, we receive communications from third parties regarding such claims. Existing or future infringement claims against us, whether valid or not, may be time consuming and expensive to defend. Intellectual property litigation or claims could force us to do one or more of the following: . cease selling, incorporating or using products or services that incorporate the challenged intellectual property; . obtain a license from the holder of the infringed intellectual property, which license, if available at all, may not be available on commercially favorable terms; or . redesign our interactive entertainment software products, possibly in a manner that reduces their commercial appeal. Any of these actions may cause material harm to our business and financial results. Our software may be subject to governmental restrictions or rating systems. Legislation is periodically introduced at the state and federal levels in the United States and in foreign countries to establish a system for providing consumers with information about graphic violence and sexually explicit material contained in interactive entertainment software products. In addition, many foreign countries have laws that permit governmental entities to censor the content of interactive entertainment software. We believe that mandatory government-run rating systems eventually will be adopted in many countries that are significant markets or potential markets for our products. We may be required to modify our products to comply with new regulations, which could delay the release of our products in those countries. Due to the uncertainties regarding such rating systems, confusion in the marketplace may occur, and we are unable to predict what effect, if any, such rating systems would have on our business. In addition to such regulations, certain retailers have in the past declined to stock some of our products because they believed that the content of the packaging artwork or the products would be offensive to the retailer's customer base. While to date these actions have not caused material harm to our business, we cannot assure you that similar actions by our distributors or retailers in the future would not cause material harm to our business. Our directors and officers control a large percentage of our voting stock and may use this control to compel corporate actions that are not in the best interests of our stockholders as a whole. Including Titus, our directors and executive officers beneficially own approximately 69% of our aggregate common stock. In the event Titus converts all of its shares of Series A Preferred Stock into common stock, the additional shares could increase Titus' ownership to approximately 56.7%. These stockholders can control substantially all matters requiring stockholder approval, including the election of directors, subject to our stockholders' cumulative voting rights, and the approval of mergers or other business combination transactions. This concentration of voting power could discourage or prevent a change in control that otherwise could result in a premium in the price of our common stock. Moreover, since Titus owns 100% of VIE and only up to approximately 56.7% of Interplay, Titus will recognize more revenue on a consolidated basis to the extent it is able to divert revenues to the Virgin entities at the expense of Interplay. Therefore, Titus has an incentive to compel Interplay to enter into transactions with the Virgin entities on terms less favorable than might prevail in a transaction with an unaffiliated third party. We may fail to implement Internet-based product offerings successfully. We seek to establish an online presence by creating and supporting sites on the Internet and by offering our products through these sites. Our ability to establish an online presence and to offer online products successfully depends on: . increases in the Internet's data transmission capability; . growth in an online market sizeable enough to make commercial transactions profitable. Because global commerce and the exchange of information on the Internet and other open networks are relatively new and evolving, a viable commercial marketplace on the Internet may not emerge and complementary products for providing and carrying Internet traffic and commerce may not be developed. Even with the proper infrastructure, we may fail to develop a profitable online presence or to generate any significant revenue from online product offerings in the near future, or at all. If the Internet does not become a viable commercial marketplace, or if this development occurs but is insufficient to meet our needs or if such development is delayed beyond the point where we plan to have established an online service, our business and financial condition could suffer material harm. Some provisions of our charter documents may make takeover attempts difficult, which could depress the price of our stock and inhibit our ability to receive a premium price for your shares. Our Board of Directors has the authority, without any action by the stockholders, to issue up to 4,616,646 shares of preferred stock and to fix the rights and preferences of such shares. In addition, our certificate of incorporation and bylaws contain provisions that: . eliminate the ability of stockholders to act by written consent and to call a special meeting of stockholders; and . require stockholders to give advance notice if they wish to nominate directors or submit proposals for stockholder approval. These provisions may have the effect of delaying, deferring or preventing a change in control, may discourage bids for our common stock at a premium over its market price and may adversely affect the market price, and the voting and other rights of the holders, of our common stock. The holder of our Series A Preferred Stock could engage in short selling to increase the number of shares of common stock issuable upon conversion of our Series A Preferred Stock. If this occurs, the market price of our common stock and the value of your investment may decline. Titus, the sole holder of shares of our Series A Preferred Stock, may convert those shares into shares of our common stock. The shares of our Series A Preferred Stock generally are convertible into a number of shares of common stock determined by dividing $27.80 by the lesser of (a) $2.78 and (b) 85 percent of the average of the closing prices per share as reported by the Nasdaq National Market for the twenty trading days preceding the date of conversion. Based on the above formula, the number of shares of our common stock that are issuable upon conversion of the Series A Preferred Stock increases as the price of our common stock decreases. Increases in the number of shares of our common stock which are publicly traded could put downward pressure on the market price of our common stock. Depending on the trading volume of our stock, the sale of a relatively limited number of shares could cause a significant decrease in price. Therefore, Titus could sell short our common stock prior to conversion of the Series A Preferred Stock, potentially causing the market price to decline and a greater number of shares to become issuable upon conversion of the Series A Preferred Stock. Titus could then convert its Series A Preferred Stock and use the shares of common stock received upon conversion to cover its short positions. Titus could thereby profit by the decline in the market price of our common stock caused by its short selling. See also the risk factor entitled "Substantial sales of our common stock by our existing stockholders may reduce the price of our stock and dilute existing stockholders." Our stock price is volatile. The trading price of our common stock has previously and could continue to fluctuate in response to factors that are largely beyond our control, and which may not be directly related to the actual operating performance of our business, including: . general conditions in the computer, software, entertainment, media or electronics industries; . changes in earnings estimates or buy/sell recommendations by analysts; . investor perceptions and expectations regarding our products, plans and strategic position and those of our competitors and customers; and . price and trading volume volatility of the broader public markets, particularly the high technology sections of the market. We do not pay dividends on our common stock. We have not paid any cash dividends on our common stock and do not anticipate paying dividends in the foreseeable future. Increases in interest rates will increase the cost of our debt. Our working capital line of credit bears interest at either the bank's prime rate or LIBOR, at our option both of which are variable rates. As such, if interest rates increase, we will have to use more cash to service our debt, which could impede our ability to meet other expenses as they become due and could cause material harm to our business and financial condition. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed a registration statement on Form S-3 with the SEC with respect to the Common Stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules that are part of the registration statement. You may read and copy any document we file at the SEC's public reference rooms in Washington D.C. We refer you to the registration statement and the exhibits and schedules thereto for further information with respect to us and our Common Stock. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC's website at www.sec.gov. We are subject to the information and periodic reporting requirements of the Securities Exchange Act and, in accordance with those requirements, will continue to file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the SEC's website referred to above. The SEC allows us to "incorporate by reference" the information we file with the SEC, which means that we can disclose important information to you by referring to those documents. We incorporate by reference the documents listed below and any additional documents filed by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of securities is terminated. The information we incorporate by reference is an important part of this prospectus, and any information that we file later with the SEC will automatically update and supersede this information. The documents we incorporate by reference are: 1. Our Annual Report on Form 10-K for the year ended December 31, 2000; 20 2. Amendment No. 1 to our Annual Report on Form 10-K as filed on April 30, 2001; 3. Amendment No. 2 to our Annual Report on Form 10-K as filed on August 31, 2001; 4. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001; 5. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001; 6. The description of our capital stock contained in our Registration Statement on Form 8-A; and 7. All other reports filed by us pursuant to Section 13(a) or 15(d) of the SEC Exchange Act since December 31, 2000. You may request a copy of these filings, at no cost, by writing or calling us at Interplay Entertainment Corp., 16815 Von Karman Avenue, Irvine, California 92606, telephone number (949) 553-6655, Attention: Victor Sze. You should rely only on the information contained in this prospectus or any supplement and in the documents incorporated by reference above. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus or any supplement or in the documents incorporated by reference is accurate on any date other than the date on the front of those documents. USE OF PROCEEDS The proceeds from the sale of each selling stockholder's Common Stock will belong to that selling stockholder. We will not receive any proceeds from such sales. 21 SELLING STOCKHOLDERS Pursuant to a Common Stock Subscription Agreement dated March 29, 2001 entered into by and among us and certain investors (the "Subscription Agreement"), we sold and issued an aggregate of 8,126,770 shares of our Common Stock to such investors. In connection with such transaction, we issued to each such investor a warrant to purchase one share of our Common Stock at an exercise price of $1.75 per share, with a five year term. Fifty percent (50%) of such warrants were exercisable immediately, and the remaining fifty percent (50%) became exercisable on June 28, 2001 because the closing price per share of our Common Stock as reported on the Nasdaq National Market did not exceed $2.75 for twenty (20) consecutive trading days during the ninety (90) day period following the issuance of the warrant. Pursuant to the Subscription Agreement, we agreed to file the registration statement of which this prospectus is a part with the SEC to register for resale the shares of our Common Stock we issued to those stockholders and the shares issuable upon exercise of such warrants (the "Warrants"), and to keep the registration statement effective until the shares registered hereunder are sold. We engaged Roth Capital Partners, Inc. to assist in the sale of our Common Stock issued to investors pursuant to the Subscription Agreement. Pursuant to an agreement between Roth and us, we issued Roth a Warrant to purchase up to a maximum of 500,000 shares of our Common Stock at an exercise price of $1.5625 per share. The following table sets forth: (1) the name of each of the stockholders for whom we are registering shares under this registration statement; (2) the number of shares of our Common Stock beneficially owned by each such stockholder prior to this offering (including all shares of Common Stock issuable upon the exercise of the Warrants or the Roth Warrant as described above, whether or not exercisable within 60 days of the date hereof); (3) the number of shares of our Common Stock offered by such stockholder pursuant to this prospectus; and (4) the number of shares, and (if one percent or more) the percentage of the total of the outstanding shares, of our Common Stock to be beneficially owned by each such stockholder after this offering, assuming that all of the shares of our Common Stock beneficially owned by each such stockholder are sold and that such stockholders acquire no additional shares of our Common Stock prior to the completion of this offering. Such data is based upon information provided by each Selling Stockholder.
Percentage of Common Stock Common Stock Common Stock Common Stock Being Offered Owned Upon Owned Upon Owned Prior to Pursuant to this Completion of Completion of Name the Offering Prospectus this Offering this Offering ---- -------------- ---------------- ------------- ------------- SS Technology Fund (1) 1,096,400 600,000 496,400 * SS Private Equity Fund (2) 1,600,000 1,600,000 0 * SS Fund III (3) 3,819,500 3,450,000 369,500 * SS Cayman Fund (4) 1,270,290 1,150,000 120,290 * Fidelity Advisor Series I (5) 2,702,530 2,701,540 990 * Endeavor Asset Management, L.P. (6) 512,000 512,000 0 * Stevan Allen Birnbaum 128,000 128,000 0 * Oxcal Venture Fund (7) 128,000 128,000 0 * Edward Kitchen 64,000 64,000 0 * Managed Risk Trading, L.P. (8) 300,000 300,000 0 * Ram Capital Resources, LLC (9) 36,000 36,000 0 * Redwood Partners, LLC (10) 240,000 240,000 0 * Pat Allen 128,000 128,000 0 * RLR Partners, L.P. (11) 200,000 200,000 0 * Watson Small-Cap Partners, I, L.P. (12) 311,808 311,808 0 * Watson Small-Cap Partners II, L.P. (13) 100,576 100,576 0 * Watson Small-Cap Fund, Ltd. (14) 1,827,616 1,827,616 0 * Watson Investment Partners, L.P. (15) 124,576 124,576 0 * Watson Investment Partners II, L.P. (16) 18,016 18,016 0 * Watson Offshore Fund, Ltd. (17) 177,408 177,408 0 * Lagunitas Partners L.P. (18) 700,000 700,000 0 * Gruber & McBaine International (19) 240,000 240,000 0 * Jon D. Gruber 200,000 200,000 0 * J Patterson McBaine 60,000 60,000 0 * Johnson Capital Group, Inc. (20) 128,000 128,000 0 * Peter Hitch 128,000 128,000 0 * Spinner Global Technology Fund, Ltd. (21) 1,000,000 1,000,000 0 * Roth Capital Partners, Inc. (22) 500,000 500,000 0 *
____________________ * less than 1% We had no material relationship with any selling stockholder during the three years preceding the date of this prospect us. (1) Marcs Greenhouse and David Greenhouse exercise shared voting and investment authority over 1,096,400 shares held of record by SS Technology Fund. Each disclaims beneficial ownership of such shares. SS Technology Fund's address is 153 East 53rd Street, 55th Floor, New York, New York 10022. (2) Marcs Greenhouse and David Greenhouse exercise shared voting and investment authority over 1,600,000 shares held of record by SS Private Equity Fund. Each disclaims beneficial ownership of such shares. SS Private Equity Fund's address is 153 East 53rd Street, 55th Floor, New York, New York 10022. (3) Marcs Greenhouse and David Greenhouse exercise shared voting and investment authority over 3,819,500 shares held of record by SS Fund III. Each disclaims beneficial ownership of such shares. SS Fund III's address is 153 East 53rd Street, 55th Floor, New York, New York 10022. (4) Marcs Greenhouse and David Greenhouse exercise shared voting and investment authority over 1,270,290 shares held of record by SS Cayman Fund. Each disclaims beneficial ownership of such shares. SS Cayman Fund's address is 153 East 53rd Street, 55th Floor, New York, New York 10022. (5) Fidelity Management & Research Company ("Fidelity"), 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp., and an investment advisor registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner 2,702,530 shares held of record by Fidelity Advisor Series I: Fidelity Advisor Value Strategies Fund (the "Fund") as a result of acting as investment adviser to the Fund. Edward C. Johnson 3d, Chairman of FMR Corp., and FMR Corp., each through its control of Fidelity, has sole power to dispose of the shares owned directly by the Fund. Neither FMR Corp nor Edward C. Johnson 3d has the sole power to vote or direct the voting of the shares owned directly by the Fund, which power resides with the Fund's Board of Trustees (the "Board"). Fidelity carries out the voting of the shares held by the Fund under written guidelines established by the Board. Fidelity Advisor Series I's address is 3 Hanover Street, Ground Floor, New York, New York 10005. (6) Patrick Tully, Mark Fain, and Chad Comiteau exercise shared voting and investment authority over 512,000 shares held of record by Endeavor Asset Management, L.P. Each disclaims beneficial ownership of such shares. Endeavor Asset Management, L.P.'s address is 17 Battery Place, Suite 709, New York, New York 10004. (7) Stevan Allen Birnbaum and Glover Wickersham exercise shared voting and investment authority over 128,000 shares held of record by Oxcal Venture Fund. Each disclaims beneficial ownership of such shares. Oxcal Venture Fund's address is 17308 Avenida De La Herradura, Pacific Palisades, California 90272. (8) Andrew Burton exercises sole voting and investment authority over 300,000 shares held of record by Managed Risk Trading, L.P. He disclaims beneficial ownership of such shares. Managed Risk Trading, L.P. is a registered broker-dealer and may engage in short sales of the Company's stock. Managed Risk Trading, L.P.'s address is 120 Broadway, Suite 1050 New York, New York 10271. (9) Michael Fein exercises sole voting and investment authority over 36,000 shares held of record by Ram Capital Resources, LLC. He disclaims beneficial ownership of such shares. Ram Capital Resources, LLC may engage in short sales of the Company's Stock. Ram Capital Resources, LLC's address is 45 Rockefellar Plaza, Suite 2038, New York, New York 10111. (10) Michael Schwartz exercises sole voting and investment authority over 240,000 shares held of record by Redwood Partners, LLC. He disclaims beneficial ownership of such shares. Redwood Partners, LLC is a registered broker-dealer and may engage in short sales of the Company's stock. Redwood Partners, LLC's address is 111 Broadway, 2nd Floor, New York, New York 10006. (11) Ronald Rotter exercises sole voting and investment authority over 200,000 shares held of record by RLR Partners, L.P. He disclaims beneficial ownership of such shares. RLR Partners, L.P.'s address is 120 Broadway, Suite 1050 New York, New York 10271. (12) Stephen Watson exercises sole voting and investment authority over 311,808 shares held of record by Watson Small-Cap Partners I, L.P. He disclaims beneficial ownership of such shares. Watson Small-Cap Partners I, L.P.'s address is 237 Park Avenue, Suite 801, New York, New York 10017. (13) Stephen Watson exercises sole voting and investment authority over 100,576 shares held of record by Watson Small-Cap Partners II, L.P. He disclaims beneficial ownership of such shares. Watson Small-Cap Partners II, L.P.'s address is 237 Park Avenue, Suite 801, New York, New York 10017. (14) Stephen Watson exercises sole voting and investment authority over 1,827,616 shares held of record by Watson Small-Cap Fund, Ltd. He disclaims beneficial ownership of such shares. Watson Small-Cap Fund, Ltd.'s address is 237 Park Avenue, Suite 801, New York, New York 10017. (15) Stephen Watson exercises sole voting and investment authority over 124,576 shares held of record by Watson Investment Partners, L.P. He disclaims beneficial ownership of such shares. Watson Investment Partners, L.P.'s address is 237 Park Avenue, Suite 801, New York, New York 10017. (16) Stephen Watson exercises sole voting and investment authority over 18,016 shares held of record by Watson Investment Partners II, L.P. He disclaims beneficial ownership of such shares. Watson Investment Partners II, L.P.'s address is 237 Park Avenue, Suite 801, New York, New York 10017. (17) Stephen Watson exercises sole voting and investment authority over 177,408 shares held of record by Watson Offshore Fund, Ltd. He disclaims beneficial ownership of such shares. Watson Offshore Fund, Ltd.'s address is 237 Park Avenue, Suite 801, New York, New York 10017. (18) Jon D. Gruber, J. Patterson McBaine, Thomas O. Lloyd-Butler and Eric B. Swergold exercise shared voting and investment authority over 700,000 shares held of record by Lagunitas Partners, L.P. Each disclaims beneficial ownership of such shares. Lagunitas Partners, L.P.'s address is 50 Osgood Place, San Francisco, California 94133. (19) Jon D. Gruber, J. Patterson McBaine, Thomas O. Lloyd-Butler and Eric B. Swergold exercise shared voting and investment authority over 240,000 shares held of record by Gruber & McBaine International. Each disclaims beneficial ownership of such shares. Gruber & McBaine International's address is 50 Osgood Place, San Francisco, California 94133. (20) Guy K. Johnson exercises sole voting and investment authority over 128,000 shares held of record by Johnson Capital Group, Inc. Each disclaims beneficial ownership of such shares. Johnson Capital Group's address is 18500 Von Karman Avenue, Suite 500, Irvine, California 92612. (21) Arthur C. Spinner exercises sole voting and investment authority over 1,000,000 shares held of record by Spinner Global Technology Fund, Ltd. He disclaims beneficial ownership of such shares. Spinner Global Technology Fund, Ltd.'s address is 450 Park Avenue, Suite 2102, New York, New York 10022. (22) Gordon Roth exercises sole voting and investment authority over 500,000 shares held of record by Roth Capital Partners, Inc. He disclaims beneficial ownership of such shares. Roth Capital Partners, Inc.'s address is 24 Corporate Plaza Drive, Newport Beach, California 92660. PLAN OF DISTRIBUTION The shares of our Common Stock offered pursuant to this prospectus may be offered and sold from time to time by the selling stockholders listed in the preceding section, or their donees, transferees, pledgees or other successors in interest that receive such shares as a gift or other non-sale related transfer. These selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. All or a portion of the Common Stock offered by this prospectus may be offered for sale from time to time on the Nasdaq National Market or on one or more exchanges, or otherwise at prices and terms then obtainable, or in negotiated transactions. The distribution of these securities may be effected in one or more transactions that may take place on the over-the-counter market, including, among others, ordinary brokerage transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The selling stockholders may also offer to sell and sell the Common Stock offered by this prospectus in options transactions. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the selling stockholders. The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The selling stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker- dealers regarding the sale of their shares other than ordinary course brokerage arrangements, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling stockholders. We will not receive any part of the proceeds from the sale of Common Stock. The selling stockholders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act, in which event commissions received by such intermediary may be deemed to be underwriting commissions under the Securities Act. We will pay all expenses of the registration of securities covered by this prospectus. The selling stockholders will pay any applicable underwriters' commissions and expenses, brokerage fees or transfer taxes. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed on by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. EXPERTS The financial statements and schedule incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. Reference is made to said report, which includes an explanatory paragraph with respect to the uncertainty regarding the Company's ability to continue as a going concern as discussed in Note 15 to the financial statements. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT Item 14. Other Expenses of Issuance and Distribution - ------- ------------------------------------------- The following sets forth the costs and expenses, all of which shall be borne by the Registrant, in connection with the offering of the shares of Common Stock pursuant to this Registration Statement: Securities and Exchange Commission Fee..................... $ 5,584 Accounting Fees and Expenses*.............................. $ 5,000 Legal Fees and Expenses*................................... $10,000 Printing Costs*............................................ $ 2,000 Miscellaneous Expenses*.................................... $ 2,000 ------- Total................................................. $24,584 =======
_______________ * Estimated Item 15. Indemnification of Directors and Officers. - ------- ----------------------------------------- (a) As permitted by the Delaware law, the Registrant's amended and restated certificate of incorporation eliminates the liability of directors to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent otherwise required by Delaware law. The Registrant also carries directors and officers liability insurance. (b) The Registrant's amended and restated certificate of incorporation provides that the Registrant will indemnify each person who was or is made a party to any proceeding by reason of the fact that such person is or was its director or officer against all expense, liability and loss reasonably incurred or suffered by such person in connection therewith to the maximum extent authorized by Delaware law. The Registrant's bylaws provide for a similar indemnity to its directors and officers to the fullest extent authorized by Delaware law. (c) The Registrant has entered into indemnification agreements with each of its directors and officers providing for the indemnification of its directors and officers against any and all expenses, judgments, fines, penalties and amounts paid in settlement, to the fullest extent permitted by law. Item 16. Exhibits. - ------- -------- 4.1 Common Stock Subscription Agreement dated March 29, 2001 between the Company and the investors thereto.* 4.2 Form of Warrant to Purchase Common Stock issued pursuant to the Common Stock Subscription Agreement.* 4.3 Form of Warrant to Purchase Common Stock issued to Roth Capital Partners, Inc. 5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation.* 23.1 Consent of Arthur Andersen LLP, independent public accountants. II-1 23.2 Consent of Stradling Yocca Carlson & Rauth, a Professional Corporation (included in Exhibit 5.1). 24.1 Power of Attorney (incorporated herein by reference to the previously filed signature page of the registration statement in Form S-3 filed on April 17, 2001 (File No. 333-59088) on page II-4). * Previously Filed. Item 17. Undertakings. - ------- ------------ The undersigned Registrant hereby undertakes: (a) (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement 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 of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, 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. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by 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 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 Act and will be governed by the final adjudication of such issue. (d) (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-2 (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it has met all of the requirements for filing on Form S-3 and has caused this Amendment No. 2 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California, on the 10th day of September, 2001. INTERPLAY ENTERTAINMENT CORP. By: /s/ Brian Fargo ------------------------------------------ Brian Fargo, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Brian Fargo Chairman of the Board and Chief September 10, 2001 - --------------------------------- Executive Officer Brian Fargo (Principal Executive Officer) /s/ Manuel Marrero Chief Financial Officer and Chief September 10, 2001 - --------------------------------- Operating Officer (Principal Financial Manuel Marrero Officer and Principal Accounting Officer) * Director September 10, 2001 - --------------------------------- R. Stanley Roach * Director September 10, 2001 - --------------------------------- Richard S.F. Lehrberg Director ____ - --------------------------------- Herve Caen Director ____ - --------------------------------- Eric Caen
By: /s/ Manuel Marrero ----------------------------- Manuel Marrero Attorney-in-Fact II-4 EXHIBIT INDEX Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 4.1 Common Stock Subscription Agreement dated March 29, 2001 between the Company and the investors thereto.* 4.2 Form of Warrant to Purchase Common Stock issued pursuant to the Common Stock Subscription Agreement.* 4.3 Form of Warrant to Purchase Common Stock issued to Roth Capital, Partners, Inc. 5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation.* 23.1 Consent of Arthur Andersen LLP, independent public accountants. 23.2 Consent of Stradling Yocca Carlson & Rauth, a Professional Corporation (included in Exhibit 5.1). 24.1 Power of Attorney (incorporated herein by reference to the previously filed signature page of the registration statement in Form S-3 filed on April 17, 2001 (File No. 333-59088) on page II-4). * Previously Filed. EX-4.3 3 dex43.txt FORM OF WARRANT TO PURCHASE COMMON STOCK EXHIBIT 4.3 Interplay Entertainment Corp. ______________ Irvine, California 92606 REPRESENTATIVE'S WARRANT Date of Issuance: As of May 22, 2001 Right to Purchase 100,000 shares FOR VALUE RECEIVED, Interplay Entertainment Corp., a Delaware corporation (the "Company"), promises to issue in the name of, and sell and deliver to, Roth Capital Partners, Inc. (the "Holder"), a certificate or certificates for an aggregate of 100,000 shares (the "Warrant Shares") of the Company's common stock, $0.001 par value per share (the "Common Stock"), upon payment by the Holder of the exercise price of $1.5625 per share for the Warrant Shares (the "Exercise Price") in lawful funds of the United States of America, with the Exercise Price being subject to adjustment in the circumstances set forth hereinbelow. This Warrant expires in its entirety at 5:00 p.m. Eastern Time on May 22, 2006 (the "Expiration Date"). This Warrant is issued pursuant to and in full satisfaction of the Company's obligations under the Private Placement Engagement Agreement dated as of January 31, 2001 between the Company and Roth Capital Partners, Inc. (the "Representative"). SECTION 1. Certain Definitions ------------------- As used in this Warrant, the following terms have the meanings set forth below: "Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Section 4 of this Warrant. "Date of Issuance" is the date set forth on the front page of this Warrant, and the terms "date hereof," "date of this Warrant," and similar expressions shall be deemed to refer to the Date of Issuance, as specified in Section 11 of this Warrant. "Effective Date" means the date the Company's Registration Statement (as defined below) is declared effective by the U.S. Securities and Exchange Commission (the "Commission"). "Exercise Period" means the period of time commencing at 12:01 A.M., Eastern Time, on the first anniversary of the Effective Date and ending at 5:00 p.m., Eastern Time, on the fifth anniversary of the Effective Date. "Market Price" means, as to any security, the greater of (i) the closing sale price or (ii) the average of the closing prices of such security's sales on the principal domestic securities exchange on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices listed on the NNM as of the close of trading in New York City on such day, or, if on any day such security is not listed on the NNM, the average of the high and low bid and asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 5 consecutive business days consisting of the business day immediately preceding the day as of which "Market Price" is being determined and the 4 consecutive business days prior to such day; provided that if such -------- security is listed on any domestic securities exchange or listed on the NNM, the term "business day" or "business days" as used in this sentence means a day or days, as applicable, on which such exchange or the NNM is open for trading or quotation, as the case may be. If at any time such security is not listed on any domestic securities exchange or quoted on the NNM or the domestic over-the- counter market, the "Market Price" will be the fair value thereof determined jointly by the Company and the Holders of Warrants representing at least 50% of the Common Stock purchasable upon the exercise of all the Warrants then outstanding; provided that if such parties are unable to reach agreement, such -------- fair value will be determined by an appraiser jointly selected by the Company and the Holders of Warrants representing at least 25% of the Common Stock purchasable upon the exercise of all the Warrants then outstanding. "NNM" means the Nasdaq National Market(R) or such other similar quotation system as may in the future be used generally by members of The Nasdaq Stock Market, Inc. for transactions in securities. "Person" means an individual, a partnership, a corporation, a limited liability company, a trust, a joint venture, an unincorporated organization, or a government or any department or agency thereof. "Registration Statement" shall bear the definition ascribed in Section 13.1 hereto. "Warrants" mean this Warrant and all other Warrants issued in exchange or substitution for this Warrant or any such other Warrants issued pursuant to the terms hereof or thereof, as the case may be. SECTION 2. Exercise of Warrant ------------------- 2.1 Exercise Period. The Holder may exercise this Warrant, in whole or in --------------- part(but not as to a fractional share), at any time and from time to time, during the Exercise Period. 2.2 Exercise Procedure. ------------------ (a) This Warrant will be deemed to have been exercised at such time as the Company has received all of the following items (the "Exercise Date"): (i) a completed Exercise Agreement, in the form set forth as Exhibit I hereto, executed by the Person exercising all or part of the purchase rights represented by this Warrant (the "Purchaser"); (ii) this Warrant (subject to delivery by the Company of a new Warrant with respect to any unexercised portion, as provided in Subsection 2.2(b)); 2 (iii) if this Warrant is not registered in the name of the Purchaser, an Assignment or Assignments in the form set forth as Exhibit II hereto, evidencing the assignment of this Warrant to the Purchaser; and (iv) a cashier's or official bank check or other immediately available funds payable to the Company in an amount equal to the sum of the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise. Notwithstanding anything contained herein to the contrary, the Exercise Price for the Warrant may be satisfied by the delivery of an unexercised portion of this Warrant to the Company or the Transfer Agent for cancellation having a value, as determined by the spread as of the date of surrender equal to the difference between the then applicable Exercise Price and the Market Price of the shares of Common Stock underlying this Warrant, equal to the aggregate Exercise Price of the portion of this Warrant desired to be then exercised. (b) Certificates for Warrant Shares purchased upon exercise of this Warrant will be delivered by the Company to the Purchaser within five calendar days after the Exercise Date. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company will prepare a new Warrant representing the rights formerly represented by this Warrant that have not expired or been exercised. The Company will, within such five-day period, deliver such new Warrant to the Person designated for delivery in the Exercise Agreement. (c) The Warrant Shares issuable upon the exercise of this Warrant will be deemed to have been transferred to the Purchaser on the Exercise Date, and the Purchaser will be deemed for all purposes to have become the record holder of such Common Stock on the Exercise Date. (d) The issuance of certificates for Warrant Shares upon exercise of this Warrant will be made without charge to the Holder or the Purchaser for any issuance tax in respect thereof or any other cost incurred by the Company in connection with such exercise and the related transfer; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate or instrument in a name other than that of the Holder of this Warrant, and the Company shall not be required to issue or deliver any such certificate or instrument unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (e) The Company will not close its books for the transfer of this Warrant or of any of the Warrant Shares in any manner that interferes with the timely exercise of this Warrant. The Company will from time to time take all such action as may be necessary to assure that the par value per share of the unissued Common Stock acquirable upon exercise of this Warrant is at all times equal to or less than the Warrant Share Exercise Price then in effect. 2.3 Exercise Agreement. The Exercise Agreement will be substantially ------------------ in the form set forth as Exhibit I hereto, except that if the Warrant Shares are not to be issued in the name of the Holder of this Warrant, the Exercise Agreement will also state the name of the Person to 3 whom the certificates or instrument for the Warrant Shares are to be issued, and if the number of Warrant Shares purchasable does not include all of such securities purchasable hereunder, it will also state the name of the Person to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. 2.4 Fractional Shares. If a fractional share of Common Stock would, but ----------------- for the provisions of Subsection 2.1, be issuable upon exercise of the rights represented by this Warrant, the Company will, within 20 days after the Exercise Date, deliver to the Purchaser a check payable to the Purchaser, in lieu of such fractional share, in an amount equal to the Market Price of such fractional share as of the close of business on the Exercise Date. Section 3. Exercise Price -------------- 3.1 General. The Holder of this Warrant shall be entitled to purchase ------- such numbers of Warrant Shares at the Exercise Price as are specified on the cover page. 3.2 Subdivision or Combination of Common Stock and Stock Dividends. If -------------------------------------------------------------- the Company shall at any time after the date hereof (a) issue any shares of Common Stock or Convertible Securities, or any rights to purchase Common Stock or Convertible Securities, as a dividend upon Common Stock, (b) issue any shares of Common S tock, in subdivision of outstanding shares of Common Stock by reclassification or otherwise, or (c) combine outstanding shares of Common Stock, by reclassification or otherwise, then the Exercise Price that would apply if purchase rights hereunder were being exercised immediately prior to such action by the Company shall be adjusted by multiplying it by a fraction, the numerator of which shall be the number of shares of Common Stock Deemed Outstanding immediately prior to such dividend, subdivision, or combination and the denominator of which shall be the number of shares of Common Stock Deemed Outstanding immediately after such dividend, subdivision, or combination. 3.3 Certain Dividends or Distributions. If the Company shall declare a ---------------------------------- dividend or distribution upon the Common Stock payable otherwise than out of earnings or earned surplus and otherwise than in Common Stock, Rights or Convertible Securities, the Exercise Price that would apply if purchase rights hereunder were being exercised immediately prior to the declaration of such dividend or distribution shall be reduced by an amount equal, in the case of a dividend or distribution in cash, to the amount thereof payable per share of the Common Stock or, in the case of any other dividend or distribution, to the fair value of such dividend or distribution per share of the Common Stock as determined in good faith by the Board of Directors of the Company. For purposes of the foregoing, a dividend or distribution other than in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to the fair value of such dividend or distribution as determined in good faith by the Board of Directors of the Company. Such reductions shall take effect as of the date on which a record is taken for the purpose of such dividend or distribution or, if a record is not taken, the date as of which the holders of Common Stock of record entitled to such dividend or distribution are to be determined. 3.4 No De Minimis Adjustments. No adjustment of the Exercise Price ------------------------- shall be made if the amount of such adjustment would be less than one cent per share, but in such case any adjustment that otherwise would be required to be made shall be carried forward and shall be 4 made at the time and together with the next subsequent adjustment that, together with any adjustment or adjustments so carried forward, shall amount to not less than one cent per share. Section 4. Adjustment of Number of Shares Issuable upon Exercise ----------------------------------------------------- Upon each adjustment of the Exercise Price pursuant to Section 3, the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, (i) at the adjusted Exercise Price in effect on the date purchase rights for Warrant Shares under this Warrant are exercised, the number of Warrant Shares, calculated to the nearest whole number, determined by (a) multiplying the number of Warrant Shares purchasable hereunder immediately prior to the adjustment of the Exercise Price by the Exercise Price in effect immediately prior to such adjustment, and (b) dividing the product so obtained by the adjusted Exercise Price in effect on the date of such exercise. The provisions of Subsection 2.4 shall apply, however, so that no fractional Warrant Share shall be issued upon exercise of this Warrant. Section 5. Effect of Reorganization, Reclassification, Consolidation, Merger, or --------------------------------------------------------------------- Sale ---- If at any time while this Warrant is outstanding there shall be any reorganization or reclassification of the capital stock of the Company (other than a subdivision or combination of shares provided for in Subsection 3.3 hereof), any consolidation or merger of the Company with another corporation (other than a consolidation or merger in which the Company is the surviving entity and which does not result in any change in the Common Stock), or any sale or other disposition by the Company of all or substantially all of its assets to any other corporation, then the Holder of this Warrant shall thereafter upon exercise of this Warrant be entitled to receive the number of Warrant Shares or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, as the case may be, to which the Holders of the Warrant Shares (and any other securities and property) of the Company, deliverable upon the exercise of this Warrant, would have been entitled upon such reorganization, reclassification of capital stock, consolidation, merger, sale, or other disposition if this Warrant had been exercised immediately prior to such reorganization, reclassification of capital stock, consolidation, merger, sale, or other disposition. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant with respect to the rights and interests thereafter of the Holder of this Warrant to the end that the provisions set forth in this Warrant (including those relating to adjustments of the Exercise Price and the number of Warrant Shares issuable upon the exercise of this Warrant) shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise hereof as if this Warrant had been exercised immediately prior to such reorganization, reclassification of capital stock, consolidation, merger, sale, or other disposition and the Holder hereof had carried out the terms of the exchange as provided for by such reorganization, reclassification of capital stock, consolidation, or merger. The Company shall not effect any such reorganization, consolidation, or merger unless, upon or prior to the consummation thereof, the successor corporation shall assume by written instrument the obligation to deliver to the Holder hereof such shares of stock or other securities, cash, or property as such Holder shall be entitled to purchase in accordance with the foregoing provisions. Notwithstanding any other provisions of this Warrant, in the event of sale or other disposition 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 the 5 Warrant shall terminate upon the earlier of the expiration of the Exercise Period and 60 days after the Company gives written notice to the Holder of this Warrant that such sale or other disposition has been consummated. Section 6. Additional Adjustment of Number of Shares ------------------------------------------ The number of shares of common stock purchasable hereunder shall automatically be increased to 500,000 shares (as such number may be adjusted pursuant to Sections 3, 4 and 5 of this Warrant) if, and only if, the Company has entered into an amendment of Investor Warrants (as defined below) covering 85% of the aggregate number of shares covered by all Investor Warrants, which amendment shall provide that any right to exercise such Investor Warrants for additional shares pursuant to Section 5(e) of the Investor Warrants shall terminate upon a sale of the Company at a price of more than $2.75 per share. The warrant price and other terms of this warrant shall be unaffected by any such increase. "Investor Warrants" means the Warrants issued to investors pursuant to the Subscription Agreement dated March 29, 2001 between the Company and such investors (the "Investor Warrants"). Section 7. Notice of Adjustment -------------------- Immediately upon any adjustment of the Exercise Price or increase or decrease in the number of Warrant Shares, the Company will send written notice thereof to all Holders, stating the adjusted Exercise Price, and the increased or decreased number of Warrant Shares and setting forth in reasonable detail the method of calculation for such adjustment and increase or decrease. When appropriate, such notice may be given in advance and included as part of any notice required to be given pursuant to Section 8 below. Notwithstanding anything herein to the contrary, if any adjustment under this Warrant of the Exercise Price or the number of shares of Common Stock issuable upon exercise of this Warrant, shall be determined by NASD Regulation, Inc. (the "NASD") to violate the Rules of Fair Practice of the NASD, and such determination shall not be subject to further appeal or review, the violative provisions shall be deemed to be amended to the minimum extent necessary to cause each such provision to comply with the applicable violated section of the NASD Rules of Fair Practice. SECTION 8. Prior Notice of Certain Events ------------------------------ If at any time: (a) the Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than cash dividends) to the holders of its Common Stock; (b) the Company shall offer for subscription pro rata to the holders --- ---- of its Common Stock any additional shares of stock of any class or any other rights; (c) there shall be any reorganization or reclassification of the capital stock of the Company, any consolidation or merger of the Company with another corporation, or a sale or disposition of all or substantially all its assets; or (d) there shall be a voluntary or involuntary dissolution, liquidation, or winding up of the Company, 6 then, in each such case, the Company shall give prior written notice, by hand delivery, by overnight delivery or by certified mail, postage prepaid, addressed to the Holder of this Warrant at the address of such holder as shown on the books of the Company, of the date on which (i) the books of the Company shall close or a record shall be taken for such stock dividend, distribution, or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up shall take place, as the case may be. A copy of each such notice shall be sent simultaneously to each transfer agent of the Company's Common Stock. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in said dividend, distribution, or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least 30 days prior to the record date or the effective date, whichever is earlier, of the subject action or other event. If any other event (not listed above) would require adjustment to the Exercise Price, then the Company shall give prior written notice thereof (in substance as set forth above) to the Holders, at their addresses and in the manner provided in Subsection 14.3. Notwithstanding the foregoing, the Company shall not be required to give prior written notice where it is not reasonably possible. Section 9. Reservation of Common Stock --------------------------- The Company will at all times reserve and keep available such number of shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. Upon exercise of this Warrant, the Holder will acquire fully paid and non-assessable ownership rights of the Common Stock, free and clear of any liens, claims or encumbrances. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted on NNM or Nasdaq SmallCap Market. Section 10. No Shareholder Rights or Obligation ----------------------------------- This Warrant will not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. Until the shares of Common Stock issuable upon exercise of this Warrant are recorded as issued on the books and records of the Company's transfer agent, the Holder shall not be entitled to any voting rights or other rights as a shareholder; provided, however, the Company uses its best efforts to ensure that, upon receipt of an Exercise Agreement, the appropriate documentation necessary to effectuate the exercise of the Warrant and issuance of the Common Stock is accomplished as expeditiously as possible. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Common Stock, and no enumeration in this Warrant of the rights or privileges of the Holder, will give rise to any obligation of such Holder for the Exercise Price of the Warrant Shares acquirable by exercise hereof or as a shareholder of the Company. 7 Section 11. Exchangeable for Different Denominations ---------------------------------------- This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants, as set forth on the front page hereof, will represent such portion of such rights as is designated by the Holder at the time of such surrender. The date the Company initially issued this Warrant, which is set forth on the front page hereof, will be deemed to be the "Date of Issuance" of this Warrant and any purchase warrant exchanged or substituted herefor, regardless of the number of times (and dates on which) new certificates representing the unexpired and unexercised rights formerly represented by this Warrant are issued. Section 12. Transferability --------------- Subject to the transfer conditions referred to in Section 2 or in the remaining provisions or this Section 12, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder, upon surrender of this Warrant with a properly executed Assignment (in the form of Exhibit II hereto) at the principal office of the Company. This Warrant and the Warrant Shares may not be offered, sold, or transferred except in compliance with the Securities Act of 1933, as amended (the "Act"), and any applicable state securities laws; and then only against receipt of an agreement of the Person to whom such offer or sale is made to comply with the provisions of this Section 12 with respect to any resale or other disposition of such securities; provided that no such agreement shall be required from any Person purchasing this Warrant or any Warrant Shares pursuant to a registration statement effective under the Act. The Holder of this Warrant agrees that, prior to the disposition of any security purchased on the exercise hereof under circumstances that might require registration of such security under the Act, or any similar statute then in effect, the Holder shall give written notice to the Company, expressing his intention as to such disposition. Promptly upon receiving such notice, the Company shall present a copy thereof to its securities counsel. If, in the opinion of such counsel, the proposed disposition does not require registration of such security under the Act, or any similar statute then in effect, the Company shall, as promptly as practicable, notify the Holder of such opinion, whereupon the Holder shall be entitled to dispose of such security in accordance with the terms of the notice delivered by the Holder to the Company. The above agreement by the Holder of this Warrant shall not be deemed to limit or restrict in any respect the exercise of rights set forth in Section 13 hereof. Section 13. Registration Rights ------------------- 13.1 Registration Rights. The Company will use its best efforts file a Registration Statement with the SEC for the resale of the Warrant Shares (as defined below) within 14 days after the Date of Issuance, and the Company will further use its best efforts to assure that such Registration Statement is effective within 60 days after the Date of Issuance. For the purposes of this Warrant: (A) "Registrable Shares" means the Warrant Shares (and including any shares issued in connection with any split or dividend in respect of any such shares); provided, however, that any such Share will cease to be a Registrable Share when (1) a Registration Statement covering a Registrable Share has been declared effective by the SEC and such Share has been disposed of by the Holder(s) pursuant to such effective Registration Statement, (2) such share (after initial issuance) is held by the Company or otherwise ceases to be outstanding, or (3) 8 such share may be traded without restriction pursuant to paragraph (k) of Rule 144, if applicable; and (B) "Registration Statement" means any registration statement or comparable document under the Act through which a public sale or disposition of the Registrable Shares may be registered, including the prospectus, amendments and supplements to such registration statement, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 13.2 Suspension Of Effectiveness. The Company's obligations under Section 13.1 above shall not restrict its ability to suspend the effectiveness of, or direct the Holder(s) not to offer or sell securities under, any Registration Statement, at any time, for such reasonable period of time which the Company believes is necessary to prevent the premature disclosure of any events or information having a material effect on the Company. In addition, the Company shall not be required to keep any Registration Statement effective, or may, without suspending such effectiveness, instruct the Holder(s) not to sell such securities, during any period during which the Company is instructed, directed, ordered or otherwise requested by any governmental agency or self-regulatory organization to stop or suspend such trading or sales. 13.3 Registration Procedures. Except as otherwise expressly provided herein, in connection with any registration of Registrable Shares pursuant to this Warrant, the Company shall: (a) in accordance with the terms of Section 13.1, prepare and file with the SEC a Registration Statement with respect to such Registrable Shares and use its best efforts to cause such Registration Statement to become effective as soon as practicable, and thereafter keep such Registration Statement effective for one (1) year subsequent to the Expiration Date or, if earlier, until the distribution contemplated in the Registration Statement has been completed; and before filing a Registration Statement or prospectus or any amendments or supplements thereto, furnish to the Holder(s) copies of such Registration Statement and such other documents as proposed to be filed (including copies of any document to be incorporated by reference therein), and thereafter furnish to the Holder(s) such number of copies as may be reasonably requested in writing by the Holder(s) of such Registration Statement, each amendment and supplement thereto (including copies of any document to be incorporated by reference therein), including all exhibits thereto, the prospectus included in such Registration Statement (including each preliminary prospectus), and, promptly after the effectiveness of a Registration Statement, the definitive final prospectus filed with the SEC; (b) notify the Holder(s), at any time when a prospectus relating thereto is required to be delivered under the Act, of the occurrence of any event as a result of which the prospectus included in such Registration Statement (including any document to be incorporated by reference therein) contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading and, at the request of the Holder(s), the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus will not contain an 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 promptly make available to the Holder(s) any such supplement or amendment; 9 (C) notify the Holder(s) and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (i) when the Registration Statement, the prospectus or any prospectus supplement or post- effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose and the Company shall promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued and (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Shares for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose. The Company may require the Holder(s) to furnish to the Company such information regarding themselves and the distribution of such Registrable Shares as the Company may from time to time reasonably request in writing and such other information as may be legally required in connection with such registration. The Holder(s) agree, by their acquisition of Registrable Shares and their acceptance of the benefits provided to it hereunder, to furnish promptly to the Company all information required to be disclosed in order to make any previously furnished information not materially misleading. All Holder(s) proposing to distribute their Registrable Shares through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters selected by the Company for such underwriting and shall provide to such underwriter or underwriters any opinions and certificates, and any indemnification with respect to such Holder as reasonably required by such underwriter or underwriters. The Holder(s) agree that upon receipt of any notice from the Company of the happening of any event of the kind described herein requiring the cessation of the distribution of a prospectus or the distribution of a supplemented or amended prospectus, the Holder(s) will forthwith discontinue disposition of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until the Holder(s)' receipt of the copies of the supplemented or amended prospectus contemplated by this Warrant, or until it is advised in writing by the Company that the use of the prospectus may be resumed, and, if so directed by the Company, the Holder(s) will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Holder(s)' possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the filing of the Registration Statement or the effectiveness thereof. The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public 10 offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities law or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as such Holder or underwriter shall reasonably request. 12.4 Registration Expenses. All expenses incident to the Company's performance of or compliance with the registration of shares pursuant to this Warrant, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel of the Company and counsel for the underwriters in connection with "blue sky" qualifications of the Registrable Shares), fees and expenses associated with filings required to be made with the National Association of Securities Dealers, Inc., and with listing on any national securities exchange or exchanges in which listing may be sought, printing expenses, messenger and delivery expenses, fees and expenses of any counsel, accountants, or other persons retained or employed by the Holder(s) or underwriters, fees and expenses of counsel for the Company and its independent certified public accountants, securities acts liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration, and fees and expenses of other persons retained by the Company (all such expenses being herein called "Registration Expenses") will be borne by the Company; provided that in no event shall Registration Expenses payable by the Company include any (i) underwriting discounts, commissions, or fees attributable to the sale of Registrable Shares, or (ii) transfer taxes, if any. 12.5 Indemnification. (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners or officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the Exchange Act or any state securities laws, insofar as 11 such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Act, the Exchange Act or any state securities laws; and the Company will reimburse each such Holder, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 13.5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) To the extent permitted by law, each Holder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, each other Holder selling Shares in the Registration Statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the Exchange Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with the Registration Statement; and each such Holder will reimburse any person intended to be indemnified pursuant to this subsection 13.5(b), for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 13.5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), provided that in no event shall any indemnity under this subsection 13.5(b) exceed the gross proceeds from the offering received by such Holder. 12 (c) Promptly after receipt by an indemnified party under this Section 13.5 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 13.5, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 13.5, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 13.5. (d) If the indemnification provided for in this Section 13.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company and Holder(s) under this Section 13.5 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Section 1, and otherwise. SECTION 14. Miscellaneous -------------- 14.1 Original Issue Taxes. The Company will pay all United States, state -------------------- and local (but not foreign) original issue taxes, if any, upon the issuance of this Warrant and the Warrant Shares. 14.2 Amendment and Waiver. Except as otherwise provided herein, the -------------------- provisions of this Warrant may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holders of the Warrants representing at least 50% of the shares of 13 Common Stock obtainable upon the exercise of the Warrants outstanding at the time of such consent. 14.3 Notices. Any notices required to be sent to a Holder of this Warrant ------- or of any Warrant Shares purchased upon the exercise hereof will be delivered to the address of such Holder shown on the books of the Company. All notices referred to herein will be delivered in person or sent by registered or certified mail, postage prepaid, and will be deemed to have been given when so delivered in person or on the third business day following the date so sent by mail. If to the Holder: Roth Capital Partners, Inc. 24 Corporate Plaza Newport Beach, CA 92660 Attention: Syndicate Department With a copy to: Jeffer, Mangels, Butler & Marmaro LLP 2121 Avenue of the Stars, 10/th/ Floor Los Angeles, CA 90067-5010 Attention: Robert M. Steinberg, Esq. If to the Company: Interplay Entertainment Corp. 16815 Von Karman Ave. Irvine, CA 92606 Attention: Brian Fargo, Chief Executive Officer With a copy to: Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660-6441 Attention: K.C. Schaaf, Esq. 14.4 Descriptive Headings. The descriptive headings of the sections and -------------------- paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 14.5 Governing Law; Arbitration. This Warrant is governed by, interpreted -------------------------- under and construed in all respects in accordance with the substantive laws of the State of Delaware, without regard to the conflicts of law provisions thereof, and irrespective of the place of domicile or residence of the party. In the event of a controversy arising out of the interpretation, construction, performance or breach of this Warrant, the parties hereby agree and consent to the jurisdiction and venue of the courts of California; and further agree and consent that personal service of process in any such action or proceeding outside the State of California shall be tantamount to service in person in California. 14 IN WITNESS WHEREOF, the parties have each caused this Warrant to be executed by its duly authorized officer. INTERPLAY ENTERTAINMENT CORP., a Delaware corporation By:________________________________________ Brian Fargo, Chief Executive Officer ROTH CAPITAL PARNTERS, INC. By:________________________________________ Its:_______________________________________ 15 EXHIBIT I --------- EXERCISE AGREEMENT ------------------ To: Dated: The undersigned Record Holder, pursuant to the provisions set forth in the within Warrant, hereby subscribes for and purchases _____ Warrant Shares covered by such Warrant and herewith makes full cash payment of $__________________ for such Warrant Shares at the Exercise Price provided by such Warrant. ________________________________________________ (Signature) ________________________________________________ (Print or type name) ________________________________________________ (Address) ________________________________________________ ________________________________________________ NOTICE: The signature on this Exercise Agreement must correspond with the name as written upon the face of the within Warrant, or upon the Assignment thereof if applicable, in every particular, without alteration, enlargement, or any change whatsoever, and must be medallion guaranteed by a bank, other than a saving bank, having an office or correspondent in New York, New York, or by a firm having membership on a registered national securities exchange and an office in New York, New York. MEDALLION SIGNATURE GUARANTEE Authorized Signature:__________________________________________________________ Name of Bank or Firm:__________________________________________________________ Dated:_________________________________________________________________________ EXHIBIT II ---------- ASSIGNMENT ---------- FOR VALUE RECEIVED,___________________, the undersigned Holder hereby sells, assigns, and transfers all of the rights of the undersigned under the within Warrant with respect to the number of Warrant Shares covered thereby set forth below, unto the Assignee identified below, and does hereby irrevocably constitute and appoint ___________ to effect such transfer of rights on the books of the Company, with full power of substitution: Name of Assignee Address of Assignee No. of Warrant Shares - ---------------- ------------------- --------------------- Dated:___________________________ _________________________________________ (Signature of Holder) _________________________________________ (Print or type name) NOTICE: The signature on this Assignment must correspond with the name as written upon the face of the within Warrant, in every particular, without alteration, enlargement, or any change whatsoever, and must be medallion guaranteed by a bank, other than a savings bank, having an office or correspondent in New York, New York, or by a firm having membership on a registered national securities exchange and an office in New York, New York. MEDALLION SIGNATURE GUARANTEE Authorized Signature:__________________________________________________________ Name of Bank or Firm:__________________________________________________________ Dated:_________________________________________________________________________ EX-23.1 4 dex231.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference in this registration statement on Form S-3 (No. 333-59088) of our report dated April 16, 2001 (except with respect to Note 15 as to which the date is August 23, 2001) included in Interplay Entertainment Corp.'s Form 10-K/A for the year ended December 31, 2000, and to all other references to our Firm included in this registration statement. /S/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Orange County, California September 6, 2001 -----END PRIVACY-ENHANCED MESSAGE-----