EXHIBIT

EX-1 2 exhibit.htm FORM OF STIPULATION OF SETTLEMENT EXHIBIT

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

SPECIAL SITUATIONS FUND III, L.P.; SPECIAL SITUATIONS CAYMAN FUND, L.P.; SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.; and SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.,	Index No. 604285-02
Plaintiffs,	STIPULATION OF SETTLEMENT
-v-
INTERPLAY ENTERTAINMENT CORP.,
Defendant.

WHEREAS, Plaintiffs Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., and Special Situations Technology Fund, L.P. (collectively "Plaintiffs") entered into a settlement agreement with Defendant Interplay Entertainment Corp. ("Interplay") on or about December 5, 2003 (the "December 5, 2003 Settlement Agreement") pursuant to which Interplay agreed to pay Plaintiffs $1,350,000.00 over the course of eight installments; and

WHEREAS, the parties entered into a Stipulation of Discontinuance without prejudice on or about December 8, 2003, subsequent to the execution of the December 5, 2003 Settlement Agreement and an initial payment of $500,000.00; and

WHEREAS, on or about July 27, 2004, Interplay defaulted on the December 5, 2003 Settlement Agreement by failing to timely cure its non-payment of a $250,000 installment due and owing to Plaintiffs; and

WHEREAS, on August 5, 2004, Plaintiffs filed an Order to Show Cause seeking to restore the above-captioned action against Interplay before this Court and for summary judgment against Interplay for liquidated damages in the amount of $850,000.00 and reasonable attorneys fees pursuant to the explicit terms of the December 5, 2003 Settlement Agreement; and

WHEREAS, on or about August 24, 2004, the Plaintiffs and Interplay entered into a Stipulation of Settlement ("August 24, 2004 Stipulation of Settlement") to which Interplay later defaulted; and

WHEREAS, on January 12, 2005 judgment in the amount of $775,505.00 was entered by the Clerk of the Supreme Court of the State of New York for New York County ("January 12, 2005 Judgment"); and

WHEREAS, on or about February 4, 2005, a judgment reflecting the January 12, 2005 Judgment was entered by the Clerk of the California Superior Court of the State of California for Orange County ("February 4, 2005 Judgment") by virtue of Plaintiffs' Application for Entry of Judgment on Sister-State Judgment; and

WHEREAS, Plaintiffs have failed to satisfy both the January 12, 2005 Judgment and February 4, 2005 Judgment (collectively "the Judgments"); and

WHEREAS, the parties are all represented by counsel and wish to resolve their differences amicably and without further litigation;

IT IS HEREBY STIPULATED AND AGREED as follows:

1. Binding Nature of the Agreement. Interplay reaffirms and admits to the binding nature of the December 8, 2003 Settlement Agreement and August 24, 2004 Stipulation of Settlement.

2. Settlement Amount.

a. Interplay will provide $239,464.45 to Plaintiffs and their designees' duly authorized representative simultaneously with the execution of this Stipulation of Settlement;

b. Interplay will issue or transfer the ownership of ten million (10,0000,000) shares of unregistered common stock in Interplay (the "Shares") to Plaintiffs and their designees prior to the entry of the Satisfactions of Judgments (referenced herein in paragraph 3). The Shares will be divided as follows:

i. Special Situations Fund III QP, L.P., 4,960,000 shares of unregistered Interplay common stock; and

ii. Special Situations Fund III, L.P., 430,000 shares of unregistered Interplay common stock; and

iii. Special Situations Cayman Fund, L.P., 1,800,000 shares of unregistered Interplay common stock; and

iv. Special Situations Private Equity Fund, L.P., 2,500,000 shares of unregistered Interplay common stock; and

v. Special Situations Technology Fund II, L.P., 260,000 shares of unregistered Interplay common stock; and

vi. Special Situations Technology Fund, L.P., 50,000 shares of unregistered Interplay common stock;

c. Plaintiffs and their designees will execute the Representations and Warranties on or prior to the date of the issuance or transfer of the Shares, attached hereto as Exhibit A.

3. Filing of Satisfactions of the Judgments. Plaintiffs will execute and file the Satisfaction of Judgment in New York, attached hereto as Exhibit B, and Satisfaction of Judgment in California, in a form mutually agreeable to all parties, within ten (10) business days following Interplay's remittance of $239,464.45 to the authorized representative of the Plaintiffs and their designees and the issuance or transfer of ownership of the Shares to Plaintiffs and their designees.

4. Effect Of This Stipulation Of Settlement On The Judgments. If Interplay fails to provide the consideration as set forth above in paragraph 2, the attached Satisfactions of Judgments will not be executed or filed with the Courts in New York and California, respectively, and the Judgments will remain in full force and effect. If Interplay provides all consideration as set forth above in paragraph 2, Plaintiffs covenant and agree that they will not make, assert, or maintain any claim, demand, action or cause of action, in any forum, that is released herein against Interplay. Interplay covenants and agrees that Interplay will not make, assert or maintain any claim, demand, action or cause of action, in any forum, that is released herein against Plaintiffs.

5. Mutual Release By Both Parties. Except as to the obligations set forth herein, the parties mutually release and discharge one another, their respective directors, officers, shareholders, partners, successors, assigns, agents, representatives and employees from any and all claims, actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions and demands of any kind, known or unknown, asserted or unasserted, whether in law or equity, directly or indirectly arising from or in connection with the breach or non-performance of the December 5, 2003 Settlement Agreement and/or August 24, 2004 Stipulation of Settlement that the parties or any of their affiliates, successors in interest or assigns had, now have or thereafter can have against one another from the beginning of the world until the date of this Stipulation of Settlement. Further, both parties recognize the binding nature of the mutual general release in Section 1.3 of the December 5, 2003 Settlement Agreement.

6. Each Party Will Pay For Its Own Costs And Expenses. Each party will be responsible for any and all of its own respective costs and expenses incurred, including without limitation, legal fees and disbursements, in any way connected with or arising out of this Stipulation of Settlement, the December 5, 2003 Settlement Agreement, and/or the August 24, 2004 Stipulation of Settlement.

7. Payment of Obligations. Paragraphs 2(a) and (b) of this Stipulation of Settlement represent the entirety of Interplay's obligations to the Plaintiffs and their designees and include all penalties, interest, fees, costs and all other charges and expenses which have accrued or which may accrue.

8. No Restrictions On The Disclosure Of This Agreement. The parties understand and recognize that the disclosure of this Stipulation of Settlement is not restricted or limited in any way.

9. Entire Agreement. The parties agree that this Stipulation of Settlement constitutes their full and complete understanding with respect to the matters herein. In entering into this Stipulation of Settlement, the parties are not relying on any agreement, promises, or representations not specifically referenced herein. The parties agree that they have each had an opportunity to comment upon the terms of this Stipulation of Settlement, and the parties, therefore, acknowledge and agree that this Stipulation of Settlement shall not be deemed prepared or drafted by one party or another and will be construed accordingly.

10. No Prior Assignment. Each party warrants and represents that he or it has not assigned, conveyed, or transferred any of the claims released herein. Each party shall indemnify and hold harmless all other parties from all costs and expenditures, including attorneys' fees, resulting from such party's breach of this representation and warranty.

11. Authority. Each party represents that he or it has the authority to enter into this Stipulation of Settlement and that the individual executing this Stipulation of Settlement is authorized to do so on behalf of the party.

12. Jurisdiction, Venue and Choice of Law. Any action to enforce this Stipulation of Settlement may only be brought in the Supreme Court of New York for New York County. The parties further agree that this Stipulation of Settlement shall be governed by and interpreted in accordance with the laws of the State of New York.

13. Counterparts. This Stipulation of Settlement may be executed in counterparts, which, taken together, shall constitute the entire agreement among the parties. Copies and facsimile signatures shall be deemed to have the same force and effect as originals.

Dated: New York, New York

May 3, 2006

LOWENSTEIN SANDLER PC

Attorneys for Plaintiffs

1251 Avenue of the Americas

New York, New York 10020