-----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, FNkcglH8llem1jkTiA/J1c7BS/9O4fBvKr82dg7ftBalrM1oNr/tSwq00yqKwOfS N0Aeobcj3U/+sQAElLD1qg== 0001017062-01-500049.txt : 20010418 0001017062-01-500049.hdr.sgml : 20010418 ACCESSION NUMBER: 0001017062-01-500049 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010417 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 SEC ACT: SEC FILE NUMBER: 333-59088 FILM NUMBER: 1604646 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 1 ds3.txt FORM S-3 As Filed With the Securities and Exchange Commission on April 17, 2001 Registration No. 333-_______ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________ 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. Jeffrey B. Coyne, 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 - --------------------------------------------------------------------------------------------------------------------- Totals 16,253,540 shares $1.33 $21,617,208 $5,404 - ---------------------------------------------------------------------------------------------------------------------
(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 price reported by the Nasdaq National Market for the Common Stock on April 11, 2000, which was approximately $1.33 per share. PROSPECTUS INTERPLAY ENTERTAINMENT CORP. 16,253,540 Shares of Common Stock ($0.001 par value) _________ This prospectus relates to the offer and sale from time to time of up to 16,253,540 shares of our Common Stock that are held by certain of our current stockholders named in this prospectus for their own benefit or by donees, transferees, pledgees or other successors in interest of such stockholders that receive such shares as a gift or other non-sale related transfer. Certain of 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 to those stockholders pursuant to a common stock subscription agreement we entered into with those stockholders, and certain shares are issuable to the Selling Stockholders pursuant to the exercise of common stock purchase warrants issued to the Selling Stockholders in connection with such private placements. 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. Our Common Stock is traded on the Nasdaq National Market under the symbol "IPLY." On April 12, 2001, the last reported sale price of our Common Stock was $1.33 per share. See "Risk Factors" beginning on page 3 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 April 17, 2001. TABLE OF CONTENTS Page About Interplay............................................................ 1 Risk Factors............................................................... 2 Where You Can Find Additional Information.................................. 16 Use of Proceeds............................................................ 17 Selling Stockholders....................................................... 17 Plan of Distribution....................................................... 18 Legal Matters.............................................................. 19 Experts.................................................................... 19 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 3. ABOUT INTERPLAY Interplay Entertainment Corp. (sometimes referred to in this prospectus as the "Company") 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 Interplay, Shiny Entertainment, Digital Mayhem, Black Isle Studios, 14 degrees 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. The risk factors noted in this section and other factors could cause our actual results to differ materially from those contained in any forward-looking statements. We may need to raise additional capital in the future. We used net cash in operations of $23.2 million and $26.4 million during the years ended December 31, 2000 and 1999, respectively. At December 31, 2000, our working capital was $123,000. We cannot assure you that we will ever generate positive cash flow from operations. Our ability to fund our capital requirements out of our available cash, bank line of credit and cash generated from our operations depends on a number of factors. Some of these factors include the progress of our product development programs, the rate of growth of our business, and our products' commercial success. If we issue additional equity securities, our existing stockholders could suffer a large amount of dilution in their ownership. In the event we have to raise additional working capital from other sources, we cannot assure you that we will be able to raise additional working capital on acceptable terms, if at all. In the event we cannot raise additional working capital, we would have to take additional actions to continue to reduce our costs, including selling or consolidating certain operations, delaying, canceling or scaling back product development and marketing programs and other actions. These measures could materially and adversely affect our ability to publish successful titles, and these measures may not be enough to generate operating profits. We might have to get the approval of other parties, including our new senior lender and/or Titus, for some of these measures, and we cannot assure you that we would be able to obtain those approvals. In addition, there is a risk that our Common Stock may be delisted from the Nasdaq National Market (see "Continued Listing on the Nasdaq National Market," below). If such delisting were to occur, our ability to raise equity capital could be significantly impaired. Our business is highly seasonal, and our operating results may fluctuate significantly in future periods. Our operating results have fluctuated a great deal in the past and will probably continue to fluctuate significantly in the future, both on a quarterly and an annual basis. Many factors may cause or contribute to these fluctuations, and many of these factors are beyond our control. Some of these factors include the following: . delays in shipping our products . demand for our products . demand for our competitors' products . the size and rate of growth of the market for interactive entertainment software . changes in PC and video game console platforms . 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 . the timing of orders placed by our distributors and dealers . the timing of our development and marketing expenditures . price competition . the level of our international and OEM, 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 . long manufacturing lead times for Nintendo-compatible products 2 . possible production delays . the approval process for products compatible with video game consoles such as those from Sony Computer Entertainment, Nintendo, Sega and Microsoft . approvals required from content and technology licensors . the timing of the release and market penetration of new game hardware platforms. Because of the limited number of products we introduce in any particular quarter, a delay in the introduction of a product may materially and adversely affect our operating results for that quarter, and may not be recaptured in later quarters. Such delays have had a significant adverse effect on our operating results in certain past quarters. A significant portion of our operating expenses is relatively fixed, and planned expenditures are based largely on sales forecasts. If net revenues do not meet our expectations in any given quarter, operating results may be materially adversely affected. 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. Revenues are also materially affected by new product releases. Our failure or inability to introduce products on a timely basis to meet these seasonal increases in demand may have a material adverse effect on our business, operating results and financial condition. We may over time become increasingly affected by the industry's seasonal patterns. Although we seek to reduce the effect of such seasonal patterns on our business by distributing our product release dates more evenly throughout the year, we cannot assure you that these efforts will be successful. We cannot assure you that we will be profitable in any particular period given the uncertainties associated with software development, manufacturing, distribution and the impact of the industry's seasonal patterns on our net revenues. As a result of the foregoing factors it is possible that our operating results in one or more future periods will fail to meet or exceed the expectations of securities analysts or investors. In that event, the trading price of our Common Stock would likely be materially adversely affected. We have incurred significant losses in recent periods, which may continue in the future. We have experienced significant net losses in recent periods, including losses of $12.1 million and $41.7 million for the years ended December 31, 2000 and 1999, respectively. The 1999 losses resulted largely from delays in the completion of certain products, a higher than expected level of product returns and markdowns on products released during the year, and the cost of restructuring our operations, including international distribution arrangements. The 2000 losses resulted from lower than expected worldwide sales of certain releases, as well as from operating expense levels that were high relative to our revenue level. We may experience similar problems in current or future periods and we may not be able to generate sufficient net revenues or adequate working capital, or bring our costs into line with revenues, so as to attain or sustain profitability in the future. If we fail to introduce new products on a timely basis, or if our products contain defects, our business could be harmed significantly. Our products typically have short life cycles, and we depend on the timely introduction of successful new products to generate net revenues, to fund operations and to replace declining net revenues from older products. These new products include enhancements of or sequels to our existing products and conversions of previously released products to additional platforms. If in the future, for any reason, net revenues from new products fail to replace declining net revenues from existing products, our business, operating results and financial condition could be materially adversely affected. The timing and success of new interactive entertainment software product 3 releases remains unpredictable due to the complexity of product development, including the uncertainty associated with new technology. The development cycle of new products is difficult to predict but typically ranges from 12 to 24 months with six to 12 months for adapting a product to a different technology platform. The success of any particular software product can also be negatively impacted by delays in the introduction, manufacture or distribution of the platform for which the product was developed (see "Rapidly Changing Technology; Platform Risks"). In the past, we have frequently experienced significant delays in the introduction of new products, including certain products currently under development. Because net revenues associated with the initial shipments of a new product generally constitute a high percentage of the total net revenues associated with a product, any delay in the introduction of, or the presence of a defect in, one or more new products expected in a period could have a material adverse effect on the ultimate success of these products and on our business, operating results and financial condition. The cost of developing and marketing new interactive entertainment software has increased in recent years due to such factors as the increasing complexity and content of interactive entertainment software, the increasing sophistication of hardware technology and consumer tastes and the increasing costs of obtaining licenses for intellectual properties. We expect this trend to continue. We cannot assure you that our new products will be introduced on schedule, if at all, or that, if introduced, these products will achieve significant market acceptance or generate significant net revenues for us. In addition, software products as complex as the ones we offer may contain undetected errors when first introduced or when new versions are released. We cannot assure you that, despite testing prior to release, errors will not be found in new products or releases after shipment, resulting in loss of or delay in market acceptance. This loss or delay could have a material adverse effect on our business, operating results and financial condition. 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 also cannot assure you that product life cycles will be sufficient to permit us to recover product development and other associated costs. 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. We believe that these trends will continue in our industry and that our future revenue will continue to be dependent 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 have a material adverse effect on our business, operating results and financial condition. Further, if we do not achieve market acceptance, we could be forced to accept substantial product returns or grant significant markdown allowances to maintain our relationship with retailers and our access to distribution channels. For example, we had significantly higher than expected product returns and markdowns during the year ended December 31, 1999 and we cannot assure you that higher than expected product returns and markdowns will not continue in the future. In the event that we are forced to accept significant product returns or grant significant markdown allowances, our business, operating results and financial condition could be materially adversely affected. 4 Titus Interactive SA may exert a high degree of control over our management. Titus currently owns 12,817,255 shares, or approximately 33.5 percent, of our outstanding Common Stock, and 719,424 shares of our Series A Preferred Stock that currently have voting power equivalent to up to 7,619,047 shares of Common Stock. As such, Titus currently holds approximately 44.5% of the total voting power of our stock. Commencing June 1, 2001, Titus may convert each such share, 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 (a) $2.78 and (b) eighty-five percent (85%) of the average closing price per share as reported by Nasdaq for the twenty (20) trading days preceding the date of conversion. Based on the closing price of our Common Stock on April 11, 2001, the Series A Preferred Stock would be convertible into an aggregate of approximately 17.7 million shares of our Common Stock. Titus also holds warrants for up to 460,000 shares of our Common Stock, exercisable at $3.79 per share, expiring in April 2010. In connection with Titus' investment, Herve Caen, Titus' chairman and chief executive officer, serves as our president and as a member of our Board of Directors, and Herve Caen's brother Eric Caen, who is president and a director of Titus, also serves on our Board of Directors. As a consequence, Titus holds significant voting power with respect to the election of our Board of Directors and the right of approval of certain significant corporate actions, and Herve Caen and Eric Caen have substantial authority over our operations. Titus may, under certain circumstances, be able to elect as many as four of the seven members of the Board of Directors. As such, Titus may be able to exercise a high degree of control over our management. This control could prevent or hinder a sale of the Company on terms that are not acceptable to Titus. Moreover, Titus holds interests that may vary from those of the Company and its other stockholders, and Titus may exercise its control of the Company in the furtherance of such outside interests. If we are unable to maintain our listing on the Nasdaq National Market, our stock price could be harmed significantly. Our Common Stock is currently quoted on the Nasdaq National Market under the symbol "IPLY." For continued inclusion on the Nasdaq National Market, a company must meet certain tests, including a minimum bid price of $1.00 and net tangible assets of at least $4 million. As of December 31, 1999, we were not in compliance with the minimum net tangible assets requirement, and did not return to compliance with that requirement until April 14, 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 we have fulfilled. If we fail to satisfy the listing standards on a continuous basis, our Common Stock may be removed from listing on the Nasdaq National Market. If our Common Stock were delisted from the Nasdaq National Market, trading of our Common Stock, if any, would be conducted on the Nasdaq Small Cap Market, in the over-the-counter market on the so-called "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 would most likely be reduced as a result. In addition, Nasdaq requires two independent directors on a company's Board of Directors, and beginning June 14, 2001 will require three. We currently do not comply with this requirement. As such, we will have to identify and secure the services of additional suitable independent candidates in order to maintain Compliance with this listing requirement. Any failure to do so could lead to our Common Stock being delisted from the Nasdaq National Market. 5 Our Distribution Agreement with Virgin subjects us to certain risks. In connection with our acquisition of a 43.9 percent membership interest in Virgin Interactive Entertainment Limited's ("Virgin") parent entity in February 1999, we signed an International Distribution Agreement with Virgin. Under this Agreement, we appointed Virgin as our exclusive distributor for substantially all of our products in Europe, the CIS, Africa and the Middle East, subject to certain reserved rights, for a seven-year period. We pay Virgin a distribution fee for marketing and distributing our products, as well as certain direct costs and expenses. Virgin has been inconsistent in meeting its obligations to deliver to us the proceeds obtained from their distribution of our products. Because of the exclusive nature of the Agreement, if Virgin were to continue to be inconsistent in meeting its obligations to deliver to us proceeds from distribution, or were to experience problems with its business, or otherwise to fail to perform under the Agreement, our business, operating results and financial condition could be materially and adversely affected. In May 2000, we amended the International Distribution Agreement with Virgin to, among other things, eliminate the overhead fees and minimum commissions payable by us. Virgin disputed the validity of this amendment, and claimed that we were obligated, among other things, to pay a contribution to their overhead of up to approximately $9.3 million annually, subject to decrease by the amount of commissions earned by Virgin on its distribution of our products. As part of the April 2001 settlement between Virgin and the Company, VIE Acquisition Group LLC ("VIE"), the parent entity of Virgin, redeemed the Company's membership interest in VIE. In addition, Virgin paid the Company $3.1 million, dismissed its claim for past overhead fees, reduced the minimum monthly overhead fee payable to Virgin to $111,000 per month for the nine month period beginning April 2001, and $83,000 per month for the six month period beginning January 2002, and eliminated the minimum overhead commitment commencing July 2002 and for the remaining term of the International Distribution Agreement. We are dependent on Third Party Software Developers, which subjects us to certain risks. We rely on third party interactive entertainment software developers for the development of a significant number of our interactive entertainment software products. As there continues to be high demand for reputable and competent third party developers, we cannot assure you that third party software developers that have developed products for us in the past will continue to be available to develop products for us in the future. Many third party software developers have limited financial resources, which could expose us to the risk that such developers may go out of business prior to completing a project. In addition, due to our limited control over third party software developers, we cannot assure you that such developers will complete products for us on a timely basis or within acceptable quality standards, if at all. Due to increased competition for skilled third party software developers, we have had to agree to make advance payments on royalties and guaranteed minimum royalty payments to intellectual property licensors and game developers, and we expect to continue to enter into these kinds of arrangements. If the products subject to these arrangements do not have sufficient sales volumes to recover these royalty advances and guaranteed payments, we would have to write-off unrecovered portions of these payments, which could have a material adverse effect on our business, operating results and financial condition. Further, we cannot assure you that third party developers will not demand renegotiation of their arrangements with us. If we fail to anticipate changes in video game platforms and technology, our business will be harmed. The interactive entertainment software industry is subject to rapid technological change. New technologies, including operating systems such as Microsoft Windows 2000, technologies that support multi-player games, new media formats such as on-line delivery and digital video disks 6 ("DVDs") and recent releases or planned releases in the near future of new video game platforms such as the Sony Playstation 2, the Nintendo Gamecube and the Microsoft Xbox could render our current products or products in development obsolete or unmarketable. 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 software are not released on a timely basis or do not attain significant market penetration, our business, operating results and financial condition could be materially adversely affected. Alternatively, if we fail to develop products for a platform that does achieve significant market penetration, then our business, operating results and financial condition could also be materially adversely affected. The emergence of new interactive entertainment software platforms and technologies and the increased popularity of new products and technologies may materially and adversely affect the demand for products based on older technologies. The broad range of competing and incompatible emerging technologies may lead consumers to postpone buying decisions with respect to products until one or more emerging technologies gain widespread acceptance. This postponement could have a material adverse effect on our business, operating results and financial condition. We are currently developing products for Microsoft Windows, Sony PlayStation 2 and new platforms expected to be introduced in 2001 by Microsoft and Nintendo. Our success will depend in part on our ability to anticipate technological changes and to adapt our products to emerging game platforms. We cannot assure you that we will be able to anticipate future technological changes, to obtain licenses to develop products for those platforms on favorable terms or to create software for those new platforms. Any failure to do so could have a material adverse effect on our business, operating results and financial condition. Our industry is intensely competitive. The interactive entertainment software industry is intensely competitive and new interactive entertainment software programs and software platforms are regularly introduced. Our competitors vary in size from small companies to very large corporations with significantly greater financial, marketing and product development resources than we have. Due to these greater resources, certain of our competitors can undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees to licensors of desirable motion picture, television, sports and character properties and pay more to third party software developers than we can. 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. We compete primarily with other publishers of PC and video game console interactive entertainment software. Significant competitors include: . Electronic Arts Inc. . Activision, Inc. 7 . Infogrames Entertainment . Microsoft Corporation . LucasArts Entertainment Company . Midway Games Inc. . Acclaim Entertainment, Inc. . Vivendi Universal Interactive . Ubi Soft Entertainment Publishing . The 3DO Company . Take Two Interactive Software, Inc. . Eidos PLC . THQ Inc. 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. 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 on-line services by consumers may pose a competitive threat if customers and potential customers spend less of their available home PC time using interactive entertainment software and more using the Internet and on-line services. Retailers of our products typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer software producers, and in particular 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 may require us to increase our marketing expenditures. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better 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 have a material adverse effect on our business, operating results and financial condition. Our dependence on our distribution channels exposes us to certain risks. We currently sell our products directly through our own sales force to mass merchants, warehouse club stores, large computer and software specialty chains and through catalogs in the U.S. and Canada, as well as to certain distributors. Outside North America, we generally sell products to third party distributors. Our sales are made 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 materially adversely affect our business, operating results and financial condition. The distribution channels through which publishers sell consumer software products evolve continuously through a variety of means, including consolidation, financial difficulties of certain distributors and retailers, and the emergence of new distributors and new retailers such as warehouse chains, mass merchants and computer superstores. As more consumers own PCs, the distribution channels for interactive entertainment software will likely continue to change. Mass merchants have 8 become the most important distribution channels for retail sales of interactive entertainment software. A number of these mass merchants have entered into exclusive buying arrangements with other software developers or distributors, which arrangements could prevent us from selling certain 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 have the effect of lowering our gross profit. This trend could have a material adverse impact on our business, operating results and financial condition. In addition, emerging methods of distribution, such as the Internet and on-line services, may become more important in the future, and it will be important for us to maintain access to these channels of distribution. We cannot assure you that we will maintain access or that our access will allow us to maintain our historical sales volume levels. Distributors and retailers in the computer industry have from time to time experienced significant fluctuations in their businesses, and a number have failed. The insolvency or business failure of any significant distributor or retailer of our products could have a material adverse effect on our business, operating results and financial condition. We typically make sales to distributors and retailers on unsecured credit, with terms that vary depending upon the customer and the nature of the product. Although we have insolvency risk insurance to protect against our customers' bankruptcy, insolvency or liquidation, this insurance contains a significant deductible and a co-payment obligation, and the policy does not cover all instances of non-payment. 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 have a material adverse effect on our business, operating results and financial condition. We are exposed to the risk of product returns and markdown allowances 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 markdown allowances to our customers to manage our customers' inventory levels in the distribution channel. Although we maintain a reserve for returns and markdown allowances, and although our agreements with certain of our customers place certain limits on product returns and markdown allowances, we could be forced to accept substantial product returns and provide markdown allowances to maintain our relationships with retailers and our access to distribution channels. Product return and markdown allowances that exceed our reserves could have a material adverse effect on our business, operating results and financial condition. In this regard, our results of operations for the year ended December 31, 1999 were adversely affected by a higher than expected level of product returns and markdown allowances, which reduced our net revenues. We could continue to experience such high levels of product returns and markdown allowances in future periods, which could have a material adverse effect on our business, operating results and financial condition. Sales of our common stock by our existing stockholders may harm the market for our stock. Universal Studios, Inc. currently holds 4,658,216 shares, or 12.2%, of our outstanding Common Stock. We have agreed to file a registration statement covering the resale of such shares by Universal Studios, Inc., and expect that such registration statement will be filed in April 2001. In 1999, we entered into two Stock Purchase Agreements with Titus, pursuant to which Titus purchased 10,795,455 shares of our Common Stock from us for an aggregate purchase price of $35 million. As part of the agreements, Titus' chairman and chief executive officer became our president, and our chairman and chief executive officer exchanged 2 million of his personal shares of our Common Stock for an agreed upon number of Titus shares. As a result of these transactions, Titus 9 currently owns approximately 33.5% of our outstanding Common Stock. We have filed a registration statement under the Securities Act of 1933, as amended, covering the resale of all of the shares of our Common Stock that we have sold and issued to Titus. In addition, Titus purchased 719,424 shares of Series A Preferred Stock from us in April 2000. The Preferred Stock is convertible by Titus, redeemable by us at the purchase price under certain circumstances, and accrues a six percent dividend per year. Commencing June 1, 2001, Titus may convert each such share, 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 (a) $2.78 and (b) eighty-five percent (85%) of the average closing price per share as reported by Nasdaq for the twenty (20) trading days preceding the date of conversion. Based on the closing price of our Common Stock on April 11, 2001, the Series A Preferred Stock would be convertible into an aggregate of approximately 17.7 million shares of our Common Stock. Titus also holds warrants to purchase up to 460,000 shares of our Common Stock. We have also agreed to register the shares of Common Stock issuable upon conversion of the Preferred Stock. In addition, in April 2001 we completed a private placement of 8,126,770 shares of our Common Stock for an aggregate purchase price of $12.7 million. In connection with such transaction, we issued to each investor a warrant to purchase one share of our Common Stock at a price of $1.75 per share for each share purchased. Pursuant to such transactions, we have agreed to file a registration statement covering the resale of the shares purchased and the shares issuable upon exercise of such warrants (an aggregate of up to 16,253,540 shares of Common Stock) by April 16, 2001, and to cause such registration statement to be declared effective by May 31, 2001. In addition, employees and directors (who are not deemed affiliates) hold options to buy 3,545,128 shares of Common Stock and warrants to buy 1,000,000 shares of Common Stock. Any shares registered will be eligible for resale. If these shares are not sold or not included in the Registration Statement, they may be included in certain registration statements to be filed by us in the future. We may issue options to purchase up to an additional 1,280,027 shares of Common Stock under our stock option plans, which we anticipate will be fully saleable when issued. Sales of substantial amounts of Common Stock into the public market could lower the market price of the Common Stock. Titus, our largest stockholder and the holder of Series A Preferred Stock, and Company officers and directors may under certain circumstances hold more than 50% of our outstanding Common Stock. Although such persons are subject to certain restrictions on the transfer of their Interplay stock, future sales by them could depress the market price of the Common Stock. We are subject to certain risks associated with the potential introduction of a majority of Titus' common stock into the market. We have filed a registration statement covering the resale of 10,795,445 shares of Common Stock held by Titus, which will give Titus the ability to sell such shares on the public market. This number of shares represents approximately 36% of the outstanding shares of our Common Stock. In addition, we have agreed to register for resale all of the shares of Common Stock issuable to Titus upon conversion of the Series A Preferred Stock. In the event Titus sells these shares in the public market, such sales could lead to a significant decrease in the public trading price of shares of our Common Stock. Such a decrease in value would affect the price at which you could resell your shares. Such an offering by Titus could also negatively affect our ability to raise capital through the sale of our equity securities, and could increase the dilution to our stockholders resulting from any such sale. Further, because any such sale would be made by our largest single stockholder, such sale might create a negative perception of us and our securities. This perception may heighten any negative effect on the trading price of our Common Stock and our ability to raise capital through the sale of our equity securities. 10 We are dependent 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 based on original ideas or intellectual properties licensed from other parties. We cannot assure you that we will be able to obtain new licenses, 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 have a material adverse effect on our business, operating results and financial condition. We cannot assure you that acquired properties will enhance the market acceptance of our products based on those properties. We also cannot assure you that our new product offerings will generate net revenues in excess of their costs of development and marketing or minimum royalty obligations, or that net revenues from new product sales will meet or exceed net revenues from existing product sales. We are dependent on licenses from and manufacturing by hardware companies. 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, Microsoft and Sega. We cannot assure you that we will be able to obtain new licenses from hardware companies on acceptable terms or that any existing or future licenses will be renewed by the licensors. In addition, Sony Computer Entertainment, Nintendo, Microsoft and Sega each have the right to approve the technical functionality and content of our products for their respective platforms prior to distribution. Due to the 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 have a material adverse effect on our business, operating results and financial condition. Hardware companies such as Sony Computer Entertainment, Nintendo, Sega and Microsoft may impose upon their licensees a restrictive selection and product approval process, such that those licensees are restricted in the number of titles that will be approved for distribution on the particular platform. While we have prepared our future product release plans taking this competitive approval process into consideration, if we incorrectly predict its impact or otherwise fail to obtain approvals for all products in our development plans, this failure could have a material adverse effect on our business, operating results and financial condition. We depend upon Sony Computer Entertainment, Nintendo, Microsoft and Sega for the manufacture of our products that are compatible with their respective video game consoles. As a result, Sony Computer Entertainment, Nintendo, Sega and Microsoft have the ability to raise prices for supplying these products at any time and effectively control the timing of our release of new titles for those platforms. Playstation and Dreamcast products consist of CD-ROMs and are typically delivered by Sony Computer Entertainment and Sega, respectively, within a relatively short lead time. Other media may entail longer lead times depending on the manufacturer. If we experience unanticipated delays in the delivery of video game console products from Sony Computer Entertainment, Sega, Nintendo or Microsoft, or if actual retailer and consumer demand for our interactive entertainment software differs from our forecast, our business, operating results and financial condition could be materially adversely affected. 11 We depend on our key personnel Our success depends to a significant extent on 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 will also depend upon our ability to continue to attract, motivate and retain highly qualified employees and contractors, particularly key software design and development personnel. Competition for highly skilled employees is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. Specifically, we may experience increased costs in order to attract and retain skilled employees. Our failure to retain the services of Brian Fargo or other key personnel or to attract and retain additional qualified employees could have a material adverse effect on our business, operating results and financial condition. Our significant international sales expose us to certain risks. Our international net revenues accounted for 34%, 30% and 28% of our total net revenues for the years ended December 31, 2000, 1999 and 1998, respectively. In February 1999, we entered into an International Distribution Agreement with Virgin for the exclusive distribution of our products in selected international territories. We intend to continue to expand our direct and indirect sales, marketing and product localization activities worldwide. This expansion will require a great deal of management time and attention and financial resources in order to develop improved international sales and support channels. We cannot assure you, however, that we will be able to maintain or increase international market demand for our products. Our international sales and operations are subject to a number of inherent risks, including the following: . the impact of recessions in foreign economies . the time and financial costs associated with translating and localizing products for international markets . longer accounts receivable collection periods . greater difficulty in accounts receivable collection . unexpected changes in regulatory requirements . difficulties and costs of staffing and managing foreign operations . foreign currency exchange rate fluctuations . political and economic instability . dependence on Virgin as an exclusive distributor for Europe. These factors may have a material adverse effect on our future international net revenues and, consequently, on our business, operating results and financial condition. We currently do not engage in currency hedging activities and for the year ended December 31, 2000, our results were negatively impacted by $935,000 due to fluctuations in currency exchange rates. We cannot assure you that fluctuations in currency exchange rates in the future will not have a material adverse effect on net revenues from international sales and licensing, and thus on our business, operating results and financial condition. In addition, on January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing sovereign currencies and a new European currency, the euro. These eleven countries adopted the euro as the common legal currency on that date. We make 12 a significant portion of our sales to these countries. Consequently, we anticipate that the euro conversion will, among other things, create technical challenges to adapt information technology and other systems to accommodate euro-denominated transactions. The euro conversion may also limit our ability to charge different prices for our products in different markets. While we anticipate that the conversion will not cause major disruption of our business, the conversion may have a material effect on our business or financial condition. We may not be able to protect our proprietary rights. 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 the software engine for 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, our operating results could be materially adversely affected. While we use copy protection on some of our products, we do not provide source code to third parties unless they have signed nondisclosure agreements with respect to that source code. We rely on existing copyright laws to prevent unauthorized distribution of our software. Existing copyright laws afford only limited protection. Policing unauthorized use of our products is difficult, and software piracy can be a persistent problem, especially in certain international markets. Further, the laws of certain 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 U.S. 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 on-line services, our ability to protect our intellectual property rights and to avoid infringing others' intellectual property rights may be diminished. We cannot assure you that existing intellectual property laws will provide adequate protection for our products in connection with these emerging technologies. As the number of interactive entertainment software products in the industry increases and the features and content of these products continues to overlap, software developers may increasingly become subject to infringement claims. Although we make reasonable efforts to ensure that our products do not violate the intellectual property rights of others, we cannot assure you that claims of infringement will not be made. Any such claims, with or without merit, can be time consuming and expensive to defend. From time to time, we receive communications from third parties regarding such claims. We cannot assure you that existing or future infringement claims against us will not result in costly litigation or require us to license the intellectual property rights of third parties, either of which could have a material adverse effect on our business, operating results and financial condition. Our software may be subject to governmental restrictions or rating systems. Legislation is periodically introduced at the state and federal levels in the U.S. 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. Such a system would include procedures for interactive entertainment software publishers to identify particular 13 products within defined rating categories and communicate these ratings to consumers through appropriate package labeling and through advertising and marketing presentations. In addition, many foreign countries have laws that permit governmental entities to censor the content of certain works, including interactive entertainment software. In certain instances, we may be required to modify our products to comply with the requirements of these governmental entities, which could delay the release of those products in those countries. Those delays could have a material adverse effect on our business, operating results and financial condition. While we currently voluntarily submit our products to industry-created review boards and publish their ratings on our game packaging, we believe that mandatory government-run interactive entertainment software products rating systems eventually will be adopted in many countries that represent significant markets or potential markets for our products. Due to the uncertainties inherent in the implementation of 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 certain 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 had a material adverse effect on our business, operating results or financial condition, we cannot assure you that similar actions by our distributors or retailers in the future would not have a material adverse effect on our business, operating results and financial condition. Our directors and officers control a high percentage of our voting stock. Including Titus, our directors and executive officers beneficially own voting stock with a total of approximately 45 percent of the aggregate Common Stock voting power in the Company. In addition, Titus holds Preferred Stock currently entitled to 7,619,047 votes, or approximately 20 percent of overall voting power, and in the event Titus converts such shares into Common Stock, the resulting shares could substantially increase Titus' voting power. These stockholders can control substantially all matters requiring our stockholders' 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. We may not be able to successfully implement Internet-based product offerings. We seek to establish an on-line presence by creating and supporting sites on the Internet. Our future plans envision conducting and supporting on-line product offerings through these sites or others. Our ability to successfully establish an on-line presence and to offer online products will depend on several factors outside our control. These factors include the emergence of a robust online industry and infrastructure and the development and implementation of technological advancements to the Internet to increase bandwidth to the point that will allow us to conduct and support on-line product offerings. Because global commerce and the exchange of information on the Internet and other similar open, wide area networks are relatively new and evolving, we cannot assure you that a viable commercial marketplace on the Internet will emerge from the developing industry infrastructure or that the appropriate complementary products for providing and carrying Internet traffic and commerce will be developed. We also cannot assure you that we will be able to create or develop a sustainable or profitable on-line presence or that we will be able to generate any significant revenue from on-line product offerings in the near future, if 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 on-line service, our business, operating results and financial condition could be materially adversely affected. 14 Acquisitions may adversely affect our business. As part of our strategy to enhance distribution and product development capabilities, we intend to review potential acquisitions of complementary businesses, products and technologies. Some of these acquisitions could be material in size and scope. While we will continue to search for appropriate acquisition opportunities, we cannot assure you that the Company will be successful in identifying suitable acquisition opportunities. If we do identify any potential acquisition opportunity, we cannot assure you that we will consummate the acquisition, and if the acquisition does occur, we cannot assure you that it will be successful in enhancing our business or will increase our earnings. As the interactive entertainment software industry continues to consolidate, we may face increased competition for acquisition opportunities, which may inhibit our ability to complete suitable transactions or may increase their cost. Future acquisitions could also divert substantial management time, result in short term reductions in earnings or special transactions or other charges and may be difficult to integrate with existing operations or assets. We may, in the future, issue additional shares of Common Stock in connection with one or more acquisitions, which may dilute our stockholders. Additionally, with respect to future acquisitions, our stockholders may not have an opportunity to review the financial statements of the entity being acquired or to vote on these acquisitions. Provisions of our charter documents and Delaware law may prevent a change in control. Our Certificate of Incorporation and Bylaws, as well as Delaware corporate law, contain certain provisions that could delay, defer or prevent a change in control and could materially adversely affect the prevailing market price of our Common Stock. Certain of these provisions impose various procedural and other requirements that could make it more difficult for stockholders to take certain corporate actions. Our stock price is highly volatile. The trading price of our Common Stock has been and could continue to be subject to wide fluctuations in response to certain factors, including: . quarter to quarter variations in results of operations . our announcements of new products . our competitors' announcements of new products . our product development or release schedule . 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 . other events or factors In addition, the public stock markets experience extreme price and trading volume volatility, particularly in high technology sectors of the market. This volatility has significantly affected the market prices of securities of many technology companies for reasons often unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our Common Stock. 15 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 near future. We are subject to interest rate and foreign currency risks. Our working capital line of credit bears interest at either the bank's prime rate or LIBOR, at our option. We have no fixed rate debt. As such, if interest rates increase in the future, our operating results and cash flows could be materially and adversely affected. Our earnings are affected by fluctuations in the value of our foreign subsidiary's functional currency, and by fluctuations in the value of the functional currency of our foreign receivables, primarily from Virgin. We recognized losses of $935,000, $125,000 and $288,000 during the years ended December 31, 2000, 1999 and 1998, respectively, primarily in connection with foreign exchange fluctuations in the timing of payments received on accounts receivable from Virgin. 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; 16 2. the description of our capital stock contained in our Registration Statement on Form 8-A; and 3. 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. SELLING STOCKHOLDERS Pursuant to a Common Stock Subscription Agreement dated March 29, 2001 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 are exercisable immediately, and the remaining fifty percent (50%) will become exercisable in the event that the closing price per share of our Common Stock as reported on the Nasdaq National Market does 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. 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 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. 17
Percentage of Common Stock Common Stock Common Stock Common Stock Being Offered Owned Upon Owned Upon Owned Prior to Pursuant to Completion of Completion of Name the Offering this Prospectus this Offering this Offering - ---------------------------------- -------------- --------------- ------------- ------------- SS Technology Fund 1,096,400 600,000 496,400 * SS Private Equity Fund 1,600,000 1,600,000 0 * SS Fund III 3,819,500 3,450,000 369,500 * SS Cayman Fund 1,270,290 1,150,000 120,290 * Fidelity Advisor Series I 2,702,530 2,701,540 990 * Endeavor Asset Management, L.P. 512,000 512,000 0 * Stevan Allen Birnbaum 128,000 128,000 0 * Oxcal Venture Fund 128,000 128,000 0 * Edward Kitchen 64,000 64,000 0 * Managed Risk Trading, L.P. 300,000 300,000 0 * Ram Capital Resources, LLC 36,000 36,000 0 * Redwood Partners, LLC 240,000 240,000 0 * Pat Allen 128,000 128,000 0 * RLR Partners, L.P. 200,000 200,000 0 * Watson Small-Cap Partners, I, L.P. 311,808 311,808 0 * Watson Small-Cap Partners II, L.P. 100,576 100,576 0 * Watson Small-Cap Fund, Ltd. 1,827,616 1,827,616 0 * Watson Investment Partners, L.P. 124,576 124,576 0 * Watson Investment Partners II, L.P. 18,016 18,016 0 * Watson Offshore Fund, Ltd. 177,408 177,408 0 * Lagunitas Partners LP 700,000 700,000 0 * Gruber & McBaine International 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. 128,000 128,000 0 * Peter Hitch 128,000 128,000 0 * Spinner Global Technology Fund, Ltd. 1,000,000 1,000,000 0 *
____________________ * less than 1% 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 18 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. 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. 19 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..................... $ 5,404 Accounting Fees and Expenses*.............................. $ 5,000 Legal Fees and Expenses*................................... $ 5,000 Printing Costs*............................................ $ 2,000 Miscellaneous Expenses*.................................... $ 2,000 ------- Total................................................. $19,404 =======
_______________ * 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. 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 (included on page II-4). 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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California, on the 16th day of April, 2001. INTERPLAY ENTERTAINMENT CORP. By: /s/ Brian Fargo ------------------------------------------ Brian Fargo, Chairman and Chief Executive Officer We, the undersigned officers and directors of Interplay Entertainment Corp., do hereby constitute and appoint Brian Fargo and Manuel Marrero, and each of them, our true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Brian Fargo Chairman of the Board and Chief April 16, 2001 - --------------------------------- Executive Officer Brian Fargo (Principal Executive Officer) /s/ Manuel Marrero Chief Financial Officer and Chief April 16, 2001 - --------------------------------- Operating Officer (Principal Financial Manuel Marrero Officer and Principal Accounting Officer) /s/ R. Stanley Roach Director April 16, 2001 - --------------------------------- R. Stanley Roach /s/ Richard S.F. Lehrberg Director April 16, 2001 - --------------------------------- Richard S.F. Lehrberg Director April __, 2001 - --------------------------------- Herve Caen Director April __, 2001 - --------------------------------- Eric Caen
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. 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 the Opinion filed as Exhibit 5.1). 24.1 Power of Attorney (included on page II-4). EX-4.1 2 dex41.txt COMMON STOCK SUBSCRIPTION AGREEMENT EXHIBIT 4.1 INTERPLAY ENTERTAINMENT CORP. COMMON STOCK SUBSCRIPTION AGREEMENT To Each of the Investors Who Are Signatories Hereto March 29, 2001 Ladies and Gentlemen: Interplay Entertainment Corp., a Delaware corporation (the "Company") hereby agrees with each of you as follows: 1. AUTHORIZATION OF SALE OF THE SECURITIES. The Company has authorized the sale and issuance of up to 12,800,000 shares of its common stock, par value $.001 per share (the "Common Stock"), as described in the Private Placement Memorandum dated February 2001 (the "Memorandum"). The shares of Common Stock sold hereunder shall be referred to herein as the "Shares." 2. AGREEMENT TO SELL AND PURCHASE THE SHARES. 2.1 Sale of Shares. Subject to the terms of this Common Stock Subscription Agreement (this "Subscription Agreement"), at the Closing (as defined in Section 3.1 hereof), the Company agrees to sell to each purchaser of Shares who has executed a counterpart execution page to this Subscription Agreement (each an "Investor"), and each Investor agrees to purchase from the Company, the aggregate number of Shares set forth above such Investor's signature on the counterpart execution page hereof, at a purchase price of $1.5625 per Share. 2.2 Separate Agreement. Each Investor shall severally, and not jointly, be liable for only the purchase of the Shares that appears above such Investor's signature and that relates to such Investor. The Company's agreement with each of the Investors is a separate agreement, and the sale of Shares to each of the Investors is a separate sale. The obligations of each Investor hereunder are expressly not conditioned on the purchase by any or all of the other Investors of the Shares such other Investors have agreed to purchase. 2.3 Acceptance of Proposed Purchase of Shares. Each Investor understands and agrees that the Company, in its sole discretion, reserves the right to accept or reject, in whole or in part, any proposed purchase of Shares. The Company shall have no obligation hereunder with respect to any Investor until the Company shall execute and deliver to such Investor an executed copy of this Subscription Agreement. If this Subscription Agreement is not executed and delivered by the Company or the offering is terminated, this Subscription Agreement shall be of no further force and effect. 2.4 Warrant. At the Closing, the Company shall issue to each Investor a warrant, in substantially the form of Appendix I hereto (the "Warrant"), to purchase a number of shares of Common Stock equal to fifty percent (50%) of the number of Shares purchased by such Investor hereunder, at an exercise price of $1.75 per share, exercisable for a period of five (5) years following the Closing (each, a "Warrant" and collectively, "Warrants"). In the event that the closing price per share of the Common Stock does not equal or exceed $2.75 per share on at least twenty (20) consecutive trading days during the ninety (90) day period following the Closing Date, the Warrant shall become exercisable for a number of shares of Common Stock equal to the number of Shares purchased hereunder. Investor agrees that, in the event the closing price per share of the Common Stock as reported on Nasdaq exceeds Three Dollars ($3.00) per share for any twenty (20) consecutive trading day period following the date hereof, each Investor shall, upon written notice from the Company, exercise its Warrant for such number of shares of Common Stock subject thereto as the Company may specify in such notice, provided that, as of the date of such notice, the shares of Common Stock issuable upon exercise of the Warrants have been registered for resale pursuant to an effective registration statement under the Securities Act. The payment of the exercise price for such shares, and delivery of stock certificates therefor, shall occur on a date mutually acceptable to the Company and the Investor within thirty (30) days following the date of the Company's notice. 3. CLOSING AND DELIVERY. 3.1 Closing. The closing of the purchase and sale of the Shares pursuant to this Subscription Agreement (the "Closing") shall be held as soon as practicable after the satisfaction or waiver of all other conditions to Closing set forth in Sections 6 and 7 hereof, at 10:00 a.m. (Pacific Time) at the offices of Stradling Yocca Carlson & Rauth, located at 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660, or on such other date and place as may be agreed to by the Company and the Investors. Prior to the Closing, each Investor shall execute any related agreements or other documents required to be executed hereunder. 3.2 Delivery of the Shares at the Closing. At the Closing, the Company shall deliver to each Investor (a) stock certificates representing the Shares to be purchased by such Investor at the Closing as set forth in the Schedule of Investors and (b) a Warrant as provided in Section 2.4 above, registered in the name of such Investor, or in such nominee name(s) as designated by such Investor, against payment of the purchase price therefor. The name(s) in which the stock certificates and Warrant are to be issued to each Investor are set forth in the Investor's counterpart execution page hereto, as completed by each Investor. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. Except as disclosed on the Schedule of Exceptions attached hereto as Schedule A, the Company hereby represents and warrants as of the date hereof to, and covenants with, the Investors as follows: 4.1 Organization and Standing. The Company and each of its subsidiaries is duly incorporated and validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full corporate power and corporate authority to own, lease and operate its properties and conduct its current business as described in the Memorandum; the Company is duly qualified to do business as a foreign corporation and in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing is not reasonably likely to have a material adverse effect on the condition (financial or otherwise), operations, business or business prospects of the Company (hereinafter, a "Material Adverse Effect"); no proceeding has been 2 instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification; except as described in the Memorandum, the Company is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from federal, state and other regulatory authorities except where the failure to possess or be in compliance with any of the foregoing is not reasonably likely to have a Material Adverse Effect, all of which are valid and in full force and effect. The Company does not own or control, directly or indirectly, any corporation, association or other entity. 4.2 Corporate Power; Authorization. The Company has full legal right, power and authority to enter into this Subscription Agreement and to perform the transactions contemplated hereby and thereby. This Subscription Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by each of the other parties hereto and thereto, are valid and binding agreements on the part of the Company, enforceable in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. The making, execution and performance of this Subscription Agreement by the Company and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any bond, debenture, note or other evidence of indebtedness, or under any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company is a party or by which its properties may be bound, (ii) the Certificate of Incorporation or bylaws of the Company or (iii) any law, order, rule, regulation, writ, injunction, judgment or decree of any court, administrative agency, regulatory body, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or its properties, except (in any such case) for any conflict, breach, violation or default which is not reasonably likely to have a Material Adverse Effect. 4.3 Memorandum; Financial Statements. The Company has not distributed any offering material in connection with the offering of the Shares other than the Memorandum. The Company has filed in a timely manner all documents that the Company was required to file with the Securities and Exchange Commission ("SEC") under Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the twelve (12) months preceding the date of this Subscription Agreement (collectively, the "SEC Filings"). As of their respective filing dates (or, if amended, when amended), the documents filed by the Company with the SEC referenced in the Memorandum complied with the requirements of the Exchange Act. The Company satisfies the registrant requirements for the use of Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") in connection with secondary offerings of its common stock by its stockholders. The Memorandum did not contain any untrue statement of a material fact or omit to state material facts required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in the documents filed by the Company with the SEC and referenced in the Memorandum (the "Financial Statements") comply in all respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP") and fairly present the financial position of the Company at the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, recurring adjustments and the absence of complete footnotes). Except as and to the extent reflected in the Financial Statements, the Company did not have, as of the date of the Financial Statements, any liabilities or obligations (other 3 than obligations of continued performance under contracts and other commitments and arrangements entered into in the ordinary course of business) which GAAP would require the Company to reflect in the Financial Statements. Except as otherwise disclosed in the Memorandum, there have not been any changes in the assets, liabilities, financial condition or operations of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not had a Material Adverse Effect. 4.4 Properties. Except as set forth in the Memorandum, and except as would not have a Material Adverse Effect, (i) the Company has good title to all properties and assets described in the Memorandum as owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, (ii) the agreements to which the Company is a party described in the Memorandum are valid agreements, enforceable by the Company, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles and, to the Company's knowledge, the other contracting party or parties thereto are not in material breach or material default under any of such agreements, and (iii) the Company has valid and enforceable leases for all properties described in the Memorandum as leased by it, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. Except as set forth in the Memorandum, the Company owns or leases all such properties as are necessary to the Company's operations as now conducted. 4.5 Capitalization. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable, have been issued in compliance with all applicable federal and state securities laws, and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities. The Company has an authorized, issued and outstanding capitalization as set forth in the Memorandum under the caption "Capitalization". The capital stock of the Company conforms to the description thereof contained in the Memorandum. The Shares, and the shares of Common Stock issuable upon the exercise of the Warrants (the "Warrant Shares") have been duly authorized for issuance and sale to the Investors pursuant to this Subscription Agreement, and, when issued and delivered by the Company against payment therefor in accordance with the terms of this Subscription Agreement or the Warrants, as applicable, will be duly and validly issued and fully paid and nonassessable, and will be sold free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. The Company has duly and validly reserved the Warrant Shares for issuance upon the exercise of the Warrants. Except as disclosed in the Memorandum, no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Shares or the Warrant Shares or the issuance and sale thereof other than those that have been satisfied or expressly waived prior to the date hereof. No further approval or authorization of any shareholder or the Board of Directors of the Company is required for the issuance and sale or transfer of the Shares, the Warrants or the Warrant Shares. Except as disclosed in the Memorandum, the SEC Filings and the Financial Statements, and the related notes thereto, and subject to the applicable anti-dilution provisions of securities described in the Memorandum and/or the SEC Filings, the Company has no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. 4.6 Litigation. There is not pending or, to the Company's knowledge, threatened, any action, suit, claim or proceeding against the Company or any of its respective officers, properties, 4 assets or rights before any court, administrative agency, regulatory body, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of its respective officers, properties, or otherwise which (i) is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect or is reasonably likely to materially and adversely affect the Company's properties, assets or rights or (ii) is reasonably likely to prevent consummation of the transactions contemplated hereby and is not so disclosed in the Memorandum or the SEC Filings. Neither the Company nor any of its subsidiaries is a party or subject to the provisions of any injunction, judgment, decree or order of any court, regulatory body, administrative agency, government or governmental agency or body domestic or foreign, that could reasonably be expected to have a Material Adverse Effect. The Company and each of its subsidiaries has conducted and is conducting its business in compliance with all applicable federal, state, local and foreign statutes, laws, rules, regulations, ordinances, codes, decisions, decrees, directives and orders, except where the failure to do so would not reasonably be likely, singly or in the aggregate, to have a Material Adverse Effect. 4.7 Listed Shares. The Common Stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are approved for quotation on The Nasdaq National Market (the "NNM"). The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NNM. 4.8 Intellectual Property. The Company owns or possesses rights to use all patents, patent rights, inventions, trademarks, service marks, trade names and copyrights and possesses all of the trade secrets and know-how which are material and necessary to conduct its business as now conducted and as described in the Memorandum. Except as disclosed in the Memorandum, the Company has not received any written notice of, nor has it any actual knowledge of, any infringement of or conflict with asserted rights of the Company by others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights that are reasonably likely to have a Material Adverse Effect that would prevent the Company from carrying out its business substantially as described in the Memorandum. Except as disclosed in the Memorandum, the Company has not received any written notice of, nor has it any knowledge of, any infringement of or conflict with asserted rights of others with respect to any patent, patent rights, inventions, trade secrets, know-how, trademarks, service marks, trade names or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, is reasonably likely to have a Material Adverse Effect that would prevent the Company from carrying out its business substantially as described in the Memorandum. 4.9 No Change. Subsequent to the respective dates as of which information is given in the Memorandum, there has not been (i) any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company (not including reductions in the cash position of the Company in the ordinary course consistent with past practices since the date of the Memorandum), (ii) any transaction that is material to the Company, (iii) any obligation, direct or contingent, incurred by the Company, except obligations incurred in the ordinary course of business, (iv) any change in the capital stock or outstanding indebtedness of the Company, except the incurrence of trade debt and obligations incurred in the ordinary course consistent with past practices, (v) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company, (vi) any default in the payment of principal of or interest on any outstanding debt obligations, or (vii) any loss or damage (whether or not insured) to the property of the Company which has been sustained or will have been sustained which has a Material Adverse Effect. 5 4.10 No Defaults. The Company is not (a) in violation of its Certificate of Incorporation or bylaws or (b) in default (upon notice or lapse of time or both) in the performance or observance of any obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness, or in any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which it is a party or by which its properties may be bound, or (c) in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or its properties except in the case of (b) or (c) for any default or violation not reasonably likely to have a Material Adverse Effect. 4.11 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Subscription Agreement ("Consents") except for (a) such Consents which are not material, (b) compliance with the securities and Blue Sky laws in the states and other jurisdictions in which Shares are offered and/or sold, which compliance will be effected in accordance with such laws and (c) Consents and/or filings required by the NNM and the SEC. The Company has not been advised, and has no reason to believe, that either it or any of its subsidiaries is not conducting business in compliance in all material respects with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including but not limited to, all applicable federal, state and local environmental laws and regulations, except for any failure to comply which is not reasonably likely to have a Material Adverse Effect. 4.12 Labor; Employees. (a) No labor disturbance by the employees of the Company exists or, to the Company's knowledge, is imminent. The Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, subcontractors, authorized dealers or international distributors that is reasonably likely to result in a Material Adverse Effect. No collective bargaining agreement exists with any of the Company's employees and, to the Company's knowledge, no such agreement is imminent. (b) If any employee of the Company has entered into any non- competition, non-disclosure, confidentiality or other similar agreement with any party other than the Company of which the Company is aware, to the Company's knowledge, such employee is neither in violation thereof nor is expected to be in violation thereof as a result of the business conducted or expected to be conducted by the Company as described in the Memorandum or such person's performance of his obligations to the Company. To the Company's knowledge, no consultant or scientific advisor of the Company is in violation of any noncompetition, non-disclosure, confidentiality or similar agreement between such consultant or scientific advisor and any party other than the Company. To the Company's knowledge, every consultant and scientific advisor (collectively, "Consultants") engaged by or on behalf of the Company to render services for the Company has entered into an agreement with the Company providing for terms and conditions of non-disclosure, non-competition and confidentiality in connection with such services ("Consulting Agreements"). Assuming due authorization, execution and delivery of the Consulting Agreements, the Consulting Agreements are legal, valid, binding and enforceable instruments of the Consultants. 4.13 Taxes. The Company has timely filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes shown thereon as due, and there is no tax deficiency 6 that has been or, to the Company's knowledge, that might be asserted against the Company that is reasonably likely to have a Material Adverse Effect. All tax liabilities are adequately provided for on the books of the Company. 4.14 Insurance. The Company maintains insurance with insurers of recognized financial responsibility of the types and in the amounts generally deemed prudent for its business and consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company or its subsidiaries against theft, damage, destruction, acts of vandalism, products liability, errors and omissions, and all other risks customarily insured against, all of which insurance is in full force and effect. The Company has not been refused any insurance coverage sought or applied for; and the Company does not have any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. 4.15 Investment Company Act. The Company has been advised concerning the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and is not, and intends in the future to conduct its and its subsidiaries' affairs in such a manner as to ensure that it is not and will not become, an "investment company" or a company "controlled" by an "investment company" within the meaning of the 1940 Act and such rules and regulations. 4.16 No Illegal Contributions. The Company has not at any time during the last five (5) years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof. 4.17 No Manipulation. The Company has not taken and the Company will not take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. 4.18 Transactions with Affiliates. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of its subsidiaries or any shareholder who owns beneficially more than five percent (5%) of the Common Stock of the Company or any of the members of the families of any of them, except as disclosed in the Memorandum. 4.19 Environmental Matters. (i) The Company is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("Environmental Laws") which are applicable to its business, except where the failure to comply would not reasonably be likely to have a Material Adverse Effect, (ii) the Company has not received any written notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim would be required to be disclosed in its filings with SEC under the Exchange Act, (iii) to the Company's knowledge, the Company will not be required to make future material capital expenditures to comply with Environmental Laws and (iv) no property which is, or has been, owned, leased or occupied by the Company has, to the 7 Company's knowledge, been designated as a Superfund site pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980, as amended, or otherwise designated as a contaminated site under applicable state or local law. 4.20 Future Sales of Common Stock. The Company agrees that, during the sixty (60) day period immediately following the Closing, it will not sell additional shares of its Common Stock in financing transactions for consideration per share less than the purchase price set forth in Section 2.1 above, without the consent of Investors purchasing a majority of the Shares sold hereunder. 4.21 Credit Facility Approval. The Company has received a letter from counsel to LaSalle Business Credit, Inc. indicating that LaSalle has approved the credit facility described on Schedule 4.21 to this Agreement. In the event the Company sells at least $8,000,000 of Common Stock hereunder, such funds, together with other funds available to the Company, shall be sufficient to satisfy the funding condition imposed by LaSalle. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTORS. 5.1 Investment Representations. Each Investor, severally and not jointly, represents and warrants to and covenants with the Company that: (a) Investor is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Shares and the Warrant, including investments in securities issued by the Company, and has requested, received, reviewed and considered all information Investor deems relevant (including the Memorandum and the documents filed by the Company with the SEC) in making an informed decision to purchase the Shares and the Warrant. (b) Investor is purchasing the Shares and the Warrant in the ordinary course of its business for its own account for investment only and with no present intention of distributing the Shares or the Warrant or any arrangement or understanding with any other persons regarding the distribution of the Shares or the Warrant. (c) Investor shall not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the securities purchased hereunder except in compliance with the Securities Act, applicable Blue Sky laws, and the rules and regulations promulgated thereunder. (d) Investor has completed or caused to be completed the information requested on the Investor's counterpart execution page and the Investors Questionnaire, and the answers thereto are true and correct as of the date hereof and will be true and correct as of the effective date of the Registration Statement (provided that Investor shall be entitled to update such information by providing notice thereof to the Company prior to the effective date of such Registration Statement). (e) Investor has, in connection with its decision to purchase the Shares and the Warrant, relied with respect to the Company and its affairs solely upon the Memorandum and the representations and warranties of the Company contained herein. (f) Investor is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. 8 (g) Investor has full right, power, authority and capacity to enter into this Subscription Agreement and to perform the transactions contemplated hereby and thereby. This Subscription Agreement has been duly authorized, executed and delivered by the Investor. Assuming due authorization, execution and delivery by each of the other parties hereto and thereto, this Subscription Agreement is a valid and binding obligation of Investor, enforceable in accordance with their terms. (h) Investor has read and understands the matters under the heading "Risk Factors" in the Memorandum, and understands that an investment in the Shares and Warrant is speculative and involves a high degree of risk of loss of all or part of Investor's investment therein. Investor understands that various statements contained in the Memorandum are "forward looking statements" that involve risk and uncertainty, and has read and understands the cautionary language with respect thereto set forth on pages v and 11 through 26 of the Memorandum. (i) Investor understands that the foregoing representations and warranties are to be relied upon by the Company as a basis for exemption of the sale of the Shares and the Warrant from the applicable registration or qualification requirements under the Securities Act, under the securities laws of all applicable states and for other purposes. In the event any of such representations and warranties become inaccurate or untrue prior to the Closing, the Investor will promptly notify the Company. 5.2 Ability to Bear Risk. Investor is able to bear the economic risk of holding the Shares and the Warrant for an indefinite period, including the loss of Investor's entire investment. The Shares and the Warrant were not offered or sold to Investor by any form of general solicitation or advertising. 5.3 Independent Advice. Investor understands that nothing in the Memorandum, this Subscription Agreement or any other materials presented to Investor in connection with the purchase and sale of the Shares and the Warrant constitutes legal, tax or investment advice and that no independent legal counsel retained by the Company has reviewed these documents and materials on Investor's behalf. Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Shares and the Warrant. 5.4 No Transferability. Investor understands that: (a) neither the Shares nor the Warrant shall be transferable in the absence of registration under the Securities Act or an exemption therefrom or in the absence of compliance with any term of this Subscription Agreement; (b) the Company shall provide stop transfer instructions to its transfer agent with respect to the Shares and the Warrant in order to enforce the restrictions contained in this Section 5.4; and (c) each certificate representing Shares shall be in the name of Investor and shall bear substantially the following legends (in addition to any legends required under applicable securities laws): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY JURISDICTION, AND MAY ONLY BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF BY AN INVESTOR IF SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE 9 SECURITIES LAWS, UNLESS EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS ARE AVAILABLE." The legend contained in this Section 5.4 may be removed from a stock certificate immediately upon receipt by the Company's transfer agent of a certificate substantially in the form of Appendix II attached hereto and such other documentation as the Company's transfer agent may routinely require, including, but not limited to, an opinion of counsel. Notwithstanding the foregoing, such Shares must be held in certificated form until such Shares have been sold in accordance with the provisions of Appendix II attached hereto. 6. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING. The Company's obligations to complete the sale and issuance of the Shares and the Warrant and to deliver the Shares and the Warrant to each Investor, individually, as set forth in the Schedule of Investors shall be subject to the following conditions (to the extent not waived by the Company): 6.1 Representations and Warranties Correct. The representations and warranties made by such Investor in Section 5 hereof shall be true and correct when made, and shall be true and correct on the Closing. 6.2 Delivery of Purchase Price. The purchase price for the Shares and the Warrant being purchased shall have been delivered by all of the Investors. 6.3 Nasdaq Rules. The Company shall not have been notified by Nasdaq that the issuance of the Shares would constitute a violation of Nasdaq rules. 6.4 Consents. The Company shall have received all consents, waivers and other approvals required to consummate the transactions contemplated by this Agreement. 7. CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING. Each Investor's obligation to accept delivery of the Shares and to pay for the Shares shall be subject to the following conditions (to the extent not waived by such Investor): 7.1 Representations and Warranties Correct. The representations and warranties made by the Company in Section 4 shall be true and correct in all material respects when made and as of the Closing and each Investor shall have received a certificate signed by the chief executive officer and chief financial officer of the Company, or such other officers of the Company as agreed upon by the parties hereto, that each of such representations and warranties, as appropriate, is true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made or given on and as of the Closing (except for any representations and warranties given as of a specified date), and that such party has performed and complied in all material respects with all of its obligations under this Subscription Agreement which are to be performed or complied with on or prior to the Closing. 7.2 Minimum funding amount. The Company shall have received subscriptions for a number of Shares having an aggregate purchase price of at least $8,000,000. 10 8. REGISTRATION RIGHTS. 8.1 Registration Rights. The Company will use its best efforts file a Registration Statement with the SEC for the resale of the Registrable Shares (as defined below) on or before April 16, 2001 (the "Filing Milestone"), and the Company will further use its best efforts to assure that such Registration Statement is effective within forty-five (45) days after the date the Registration Statement is initially filed (the "Effectiveness Milestone"). If the Company fails to file the Registration Statement by the Filing Milestone date, it shall reimburse each Investor two percent (2%) of such Investor's payment hereunder for every 30-day period following the Filing Milestone date that expires without the Company having filed the Registration Statement. Similarly, if the Registration Statement is not effective at the Effectiveness Milestone date, it shall reimburse each Investor two (2%) percent of such Investor's payment hereunder for every 30-day period following the Effectiveness Milestone date that expires without the Registration Statement being declared effective. These reimbursement obligations shall be cumulative and mutually exclusive of one another, and all payments due pursuant to such reimbursement obligation shall be payable on demand in cash provided that such reimbursement shall no longer accrue following the date on which all the Shares issued hereunder may be traded without restriction pursuant to paragraph (k) of Rule 144 promulgated under the Securities Act ("Rule 144(k)"). All rights, powers and remedies of the Investors with respect to these matters may be exercised separately or in combination. No single or partial exercise by an Investor of any of the rights, powers and remedies under this Agreement shall preclude any other or future exercise of any other right, power or remedy pursuant to this Agreement or at law, in equity or otherwise. No delay or omission by an Investor in exercising any right, power or remedy hereunder or otherwise shall operate as a waiver thereof of any other right, power or remedy. For the purposes of this Subscription Agreement: (A) "Registrable Shares" means the Shares issued and acquired pursuant to this Subscription Agreement, any shares issued pursuant to the reimbursement obligation set forth herein, the Warrant Shares, and the shares issuable upon the conversion of the Placement Agent's warrant (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 Investors pursuant to such effective Registration Statement, (2) the Registrable Share is transferred to another person, (3) such share (after initial issuance) is held by the Company or otherwise ceases to be outstanding, or (4) such share may be traded without restriction pursuant to Rule 144(k), if applicable; and (B) "Registration Statement" means any registration statement or comparable document under the Securities 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. 8.2 Suspension Of Effectiveness. The Company's obligations under Section 8.1 above shall not restrict its ability to suspend the effectiveness of, or direct the Investors not to offer or sell securities under, any Registration Statement, at any time, for such reasonable period of time which the Company reasonably believes is necessary to prevent the premature disclosure of any events or information having a material effect on the Company; provided, -------- however, that the Company may not exercise such right for more than sixty (60) - ------- days in any twelve-month period. In addition, the Company shall not be required to keep any Registration Statement effective, or may, without suspending such effectiveness, instruct the Investors 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. 11 8.3 Registration Procedures. Except as otherwise expressly provided herein, in connection with any registration of Registrable Shares pursuant to this Subscription Agreement, the Company shall, as expeditiously as possible: (a) in accordance with the terms of Section 8.1, 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 a period of two (2) years 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 Investors 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 Investors such number of copies as may be reasonably requested in writing by the Investors 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 Investors, at any time when a prospectus relating thereto is required to be delivered under the Securities 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 Investors, 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 Investors any such supplement or amendment; (c) notify the Investors 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 Investors 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 Investors 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 Investors proposing to distribute their Registrable Shares through such 12 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 Investor as reasonably required by such underwriter or underwriters. The Investors 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 Investors will forthwith discontinue disposition of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until the Investors' receipt of the copies of the supplemented or amended prospectus contemplated by this Subscription Agreement, 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 Investors will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Investors' possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. 8.4 Registration Expenses. All expenses incident to the Company's performance of or compliance with the registration of shares pursuant to this Subscription Agreement, 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 one counsel for all Investors participating in such registration (not to exceed $15,000), 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, all of which shall be borne pro rata by the Investors including Registrable Shares in such registration. 8.5 Indemnification. (a) To the extent permitted by law, the Company will indemnify and hold harmless each Investor, the partners or officers, directors and stockholders of each Investor, legal counsel and accountants for each Investor, any underwriter (as defined in the Securities Act) for such Investor and each person, if any, who controls such Investor or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or any state securities laws, insofar as 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 Securities Act, the 13 Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws; and the Company will reimburse each such Investor, 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 8.5(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 Investor, 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 Investor or underwriter, or any person controlling such Investor 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 Investor 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 Investor 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 Securities Act, legal counsel and accountants for the Company, any underwriter, each other Investor selling Shares in the Registration Statement and any controlling person of any such underwriter or other Investor, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities 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 Investor expressly for use in connection with the Registration Statement; and each such Investor will reimburse any person intended to be indemnified pursuant to this subsection 8.5(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 8.5(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 Investor (which consent shall not be unreasonably withheld), provided that in no event shall any indemnity under this subsection 8.5(b) exceed the gross proceeds from the offering received by such Investor. (c) Promptly after receipt by an indemnified party under this Section 8.5 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 8.5, 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 14 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 8.5, 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 8.5. (d) If the indemnification provided for in this Section 8.5 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 Investors under this Section 8.5 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Section 8, and otherwise. 9. MISCELLANEOUS. 9.1 Waivers and Amendments. Neither this Subscription Agreement nor any provision hereof may be changed, waived, discharged, terminated, modified or amended except upon the written consent of the Company and holders of at least a majority of the Shares, or, in the case of non-material or ministerial amendments, upon the written consent of the Company and the Placement Agent. 9.2 Headings. The headings of the various sections of this Subscription Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Subscription Agreement. 9.3 Broker's Fee. The Company and each Investor (severally and not jointly) hereby represent that, except for amounts to be paid to the Placement Agent by the Company, there are no brokers or finders entitled to compensation in connection with the sale of the Shares, and shall indemnify each other for any such fees for which they are responsible. 9.4 Severability. If any term or provision of this Agreement is held to be invalid or unenforceable, the remaining portions of this Agreement shall continue to be valid and will be performed, construed, and enforced to the fullest extent permitted by law, and the invalid or unenforceable term shall be deemed amended and limited in accordance with the intent of the parties as determined from the face of the Agreement, to the extent necessary to permit the maximum enforceability or validity of the term or provision. 15 9.5 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) upon receipt when sent by first-class registered or certified mail, return receipt requested, postage prepaid, or (d) upon receipt after deposit with a nationally recognized overnight express courier, postage prepaid, specifying next day delivery with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth below or at such other address as such party may designate by ten (10) days advance written notice to the Company. All communications shall be addressed as follows: (a) if to the Company, to: Interplay Entertainment Corp. 16815 Von Karman Ave. Irvine, California 92606 Telephone: (949) 553-6655 Facsimile: (949) 252-0667 Attention: Chief Executive Officer with a copy so mailed to: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite #1600 Newport Beach, CA 92660 Telephone: (949) 725-4000 Facsimile: (949) 725-4100 Attention: Jeffrey B. Coyne, Esq. (b) if to the Investors, at the address as set forth on the Counterpart Execution Page of this Subscription Agreement. 9.6 Governing Law. This Subscription Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles. 9.7 Counterparts. This Subscription Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 9.8 Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Subscription Agreement, all covenants, agreements, representations and warranties made by the Company and each Investor herein and in the certificates for the securities delivered pursuant hereto shall survive the execution of this Subscription Agreement, the delivery to the Investors of the Shares and the payment therefor until 90 days after the Closing. 16 9.9 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Neither the terms "successors" nor "assigns" as used herein shall include any entity or person who purchases Shares from any Investor after the Closing and is not an affiliate of an Investor. 9.10 Entire Agreement. This Subscription Agreement and other documents delivered pursuant hereto, including the exhibits, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 9.11 Payment of Fees and Expenses. Each of the Company and the Investors shall bear its own expenses and legal fees incurred on its behalf with respect to this Subscription Agreement and the transactions contemplated hereby (the "Offering"); provided, however, that the Company shall bear the costs in connection with the Registration Statement as described in Section 8.4 and shall reimburse the Placement Agent for certain fees and expenses incurred by the Placement Agent in connection with the Offering, as set forth in the engagement letter with the Placement Agent. Each Investor acknowledges that the Placement Agent will receive a commission in the amount described in the Memorandum and hereby authorizes the Placement Agent to deduct the amount of such commission from the gross proceeds payable to the Company from the sale of the Shares hereunder. If any action at law or in equity is necessary to enforce or interpret the terms of this Subscription Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 9.12 Confidentiality. Each Investor acknowledges and agrees that any information or data it has acquired from the Company, not otherwise properly in the public domain, was received in confidence. Except to the extent authorized by the Company and required by any federal or state law, rule or regulation or any decision or order of any court or regulatory authority, Investor agrees that it will refrain from disclosing any such information to any person other than to any agent, attorneys, accountants, employees, officers and directors of Investor who need to know such information in connection with Investors' purchase of the Shares, and who agree to be bound by the confidentiality provisions of this Subscription Agreement. In the event that Investor or its agents are required by federal or state or other law, rule or regulation or any decision or order of any court or regulatory authority to release such information, it shall give the Company sufficient prior notice so that the Company may seek a stay or other release or waiver from disclosing such information. Each Investor agrees not to use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information of the Company. 9.13 Knowledge. The phrases "knowledge," "to the Company's knowledge," "to our knowledge," "of which the Company is aware" and similar language as used herein shall mean the actual knowledge and current awareness, or knowledge which a reasonable person would have acquired following a reasonable investigation, of any executive officer or Director of the Company; provided, however, that the term "actual knowledge of the Company" shall mean the actual knowledge and current awareness of any executive officer or Director of the Company. 17 If this Subscription Agreement is satisfactory to you, please so indicate by signing the acceptance on a counterpart execution page to this Subscription Agreement and return such counterpart to the Company whereupon this Subscription Agreement will become binding between us in accordance with its terms. Interplay Entertainment Corp., a Delaware corporation By: /s/ Brian Fargo --------------------------------- Brian Fargo, Chief Executive Officer Date: March 29, 2001 18 Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 64,000 ---------------------------------------- INVESTOR: Stevan Birnbaum Trustee Stevan Birnbaum Trust UAD 11/23/92 ---------------------------------------- By: /s/ STEVAN BIRNBAUM ------------------------------------- Name: Stevan Birnbaum Title: Trustee Address: Facsimile: Please complete the following: 1. The exact name that your Shares are to be Stevan Birnbaum Trustee registered in (this is the name that will Stevan Birnbaum Trust appear on your Shares certificate(s)). UAD 11/23/92 You may use a nominee name if appropriate: ----------------------------- 2. The relationship between the purchaser of Trustee the Shares and the Registered Holder listed ----------------------------- in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to ----------------------------- item 1 above (if different from above): ----------------------------- Facsimile: ------------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ----------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 256,000 ---------------------------------------- INVESTOR: Endeavor Asset Management, L.P. By: /s/ CHAD COMITEAU ------------------------------------- Name: Chad Comiteau Title: General Partner Address: Facsimile: Date: March 29, 2001 Please complete the following: 1. The exact name that your Shares are to be Endeavor Asset Management, registered in (this is the name that will L.P. appear on your Shares certificate(s)). -------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed in response to item 1 above: 3. The mailing address and facsimile number of -------------------------- the Registered Holder listed in response to item 1 above (if different from above): -------------------------- Facsimile: ---------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number -------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 1,350,770 INVESTOR: Fidelity Advisor Series I: Fidelity Advisor Value Strategies Fund By: /s/ JOHN H. COSTELLO ------------------------------------- Name: John H. Costello Title: Assistant Treasurer Address: Facsimile: Date: March 30, 2001 Please complete the following: 1. The exact name that your Shares are to be Mag & Co. for the benefit registered in (this is the name that will of Fidelity Advisor Series appear on your Shares certificate(s)). 1: Fidelity Advisor Value You may use a nominee name if appropriate: Strategies Fund 2. The relationship between the purchaser of Custodian bank the Shares and the Registered Holder listed in response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 32,000 ---------------------------------------- INVESTOR: By: /s/ EDWARD KITCHEN ---------------------------------------- Name: Edward Kitchen Title: Address: Facsimile: Please complete the following: 1. The exact name that your Shares are to be Edward Kitchen registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to ------------------------ item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the ------------------------ response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: ---------------------------------------- INVESTOR: Managed Risk Trading L.P. ---------------------------------------- By: /s/ GREGORY I. PORGES ------------------------------------- Name: Gregory I. Porges Title: President of the General Partner Address: Facsimile: Date: March 28, 2001 Please complete the following: 1. The exact name that your Shares are to be registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of ------------------------ the Registered Holder listed in response to item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 64,000 ---------------------------------------- INVESTOR: Oxcal Venture Fund LP ---------------------------------------- Oxcal Venture Fund LP By Oxcal Venture Corp Its GP By Its Pres. By: /s/ Stevan Birnbaum ------------------------------------- Name: Title: Address: Facsimile: Please complete the following: 1. The exact name that your Shares are to be Oxcal Venture Fund, LP registered in (this is the name that will --------------------------- appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed --------------------------- in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to --------------------------- item 1 above (if different from above): --------------------------- Facsimile: ----------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number --------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 128,000 ---------------------------------------- INVESTOR: Redwood Partners, LLC ---------------------------------------- By: /s/ Lisa Duffe ------------------------------------- Name: Lisa Duffe Title: Member Manager Address: ------------------------------- Facsimile: ------------------------------ Date: March 28, 2001 Please complete the following: 1. The exact name that your Shares are to be Redwood Partners LLC registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of ------------------------ the Registered Holder listed in response to item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: ---------------------------------------- INVESTOR: RLR Partners LP ---------------------------------------- By: /s/ RONALD ROTTER ------------------------------------- Name: Ronald Rotter Title: Managing Partner Address: Facsimile: Date: March __, 2001 Please complete the following: 1. The exact name that your Shares are to be RLR Partners LP registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of ------------------------ the Registered Holder listed in response to item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 575,000 ---------------------------------------- INVESTOR: Special Situations Cayman Fund, L.P. ---------------------------------------- By: /s/ DAVID GREENHOUSE ------------------------------------- Name: David Greenhouse Title: MD Address: Facsimile: Date: March 29, 2001 Please complete the following: 1. The exact name that your Shares are to be Special Situations Cayman registered in (this is the name that will Fund, L.P. appear on your Shares certificate(s)). ------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to ------------------------ item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the ------------------------ response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 1,725,000 ---------------------------------------- INVESTOR: Special Situations Fund III, L.P. ---------------------------------------- By: /s/ DAVID GREENHOUSE ------------------------------------- Name: David Greenhouse Title: MD Address: Facsimile: Date: March 29, 2001 Please complete the following: 1. The exact name that your Shares are to be Special Situations Fund registered in (this is the name that will III, L.P. appear on your Shares certificate(s)). ------------------------ You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to ------------------------ item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the ------------------------ response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 800,000 ---------------------------------------- INVESTOR: Special Situations Private Equity Fund, L.P. By: /s/ David Greenhouse ------------------------------------- Name: David Greenhouse Title: MD Address: Facsimile: ----------------------------- Date: March 29, 2001 Please complete the following: 1. The exact name that your Shares are to be Special Situations Private registered in (this is the name that will Equity Fund, L.P. appear on your Shares certificate(s)). -------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed -------------------------- in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to -------------------------- item 1 above (if different from above): -------------------------- Facsimile: ---------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the -------------------------- response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 100,000 ---------------------------------------- INVESTOR: Special Situations Technology Fund, L.P. ---------------------------------------- By: /s/ DAVID GREENHOUSE ------------------------------------- Name: David Greenhouse Title: MD Address: Facsimile: Date: March 29, 2001 Please complete the following: 1. The exact name that your Shares are to be Special Situations Technology registered in (this is the name that will Fund, L.P. appear on your Shares certificate(s)). ----------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to ----------------------------- item 1 above (if different from above): ----------------------------- Facsimile: ------------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ----------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 88,704 ---------------------------------------- INVESTOR: Watson Offshore Fund, Ltd. ---------------------------------------- By: /s/ STEPHEN WATSON ------------------------------------- Name: Stephen Watson Title: Investment Manager Address: Facsimile: Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Watson Offshore Fund, Ltd. registered in (this is the name that will --------------------------- appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed --------------------------- in response to item 1 above: 3. The mailing address and facsimile number of Same the Registered Holder listed in response to --------------------------- item 1 above (if different from above): Same --------------------------- Facsimile: ----------------- 4. (For United States Investors:) The Social N/A Security Number or Tax Identification Number --------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 9,008 ---------------------------------------- INVESTOR: Watson Investment Partners II, L.P. ---------------------------------------- By: /s/ STEPHEN WATSON ------------------------------------- Name: Stephen Watson Title: Investment Manager Address: Facsimile: Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Watson Investment Partners registered in (this is the name that will II, L.P. appear on your Shares certificate(s)). ----------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ----------------------------- in response to item 1 above: 3. The mailing address and facsimile number of Same the Registered Holder listed in response to ----------------------------- item 1 above (if different from above): Same ----------------------------- Facsimile: ------------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the response to item 1 above: ----------------------------- Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 62,288 ---------------------------------------- INVESTOR: Watson Investment Partners, LP ---------------------------------------- By: /s/ STEPHEN WATSON ------------------------------------- Name: Stephen Watson Title: Investment Manager Address: Facsimile: Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Watson Investment Partners, registered in (this is the name that will L.P. appear on your Shares certificate(s)). --------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed --------------------------- in response to item 1 above: 3. The mailing address and facsimile number of Same the Registered Holder listed in response to --------------------------- item 1 above (if different from above): Same --------------------------- Facsimile: ----------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number --------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 913,808 ---------------------------------------- INVESTOR: Western Small-Cap Fund Ltd. ---------------------------------------- By: /s/ STEPHEN WATSON ------------------------------------- Name: Stephen Watson Title: Investment Manager Address: Facsimile: (212) 692-3644 Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Watson Small-Cap Fund, Ltd. registered in (this is the name that will --------------------------- appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed --------------------------- in response to item 1 above: 3. The mailing address and facsimile number of Same the Registered Holder listed in response to --------------------------- item 1 above (if different from above): Same --------------------------- Facsimile: ----------------- 4. (For United States Investors:) The Social N/A Security Number or Tax Identification Number --------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 50,288 ---------------------------------------- INVESTOR: Watson Small-Cap Partners II, L.P. By: /s/ STEPHEN WATSON ------------------------------------- Name: Stephen Watson Title: Investment Manager Address: Facsimile: Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Watson Small-Cap Partners registered in (this is the name that will II, L.P. appear on your Shares certificate(s)). ------------------------- You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ------------------------- in response to item 1 above: 3. The mailing address and facsimile number of Same the Registered Holder listed in response to ------------------------- item 1 above (if different from above): Facsimile: Same --------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 155,904 ---------------------------------------- INVESTOR: Watson Small-Cap Partners I, LP ---------------------------------------- By: /s/ STEPHEN WATSON ------------------------------------- Name: Stephen Watson Title: Investment Management Address: Facsimile: Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Watson Small-Cap registered in (this is the name that will Partners I, L.P. appear on your Shares certificate(s)). ------------------------ You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of Same the Registered Holder listed in response to ------------------------ item 1 above (if different from above): ------------------------ Facsimile: Same -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 200,000 ---------------------------------------- INVESTOR: Special Situations Technology Fund, L.P. ---------------------------------------- By: /s/ DAVID GREENHOUSE ------------------------------------- Name: David Greenhouse Title: MD Address: Facsimile: Date: April 4, 2001 Please complete the following: 1. The exact name that your Shares are to be Special Situations Technology registered in (this is the name that will Fund, L.P. appear on your Shares certificate(s)). ------------------------ You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of ------------------------ the Registered Holder listed in response to item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number of the Registered Holder listed in the response to item 1 above: ------------------------ Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 30,000 ---------------------------------------- INVESTOR: J. Patterson McBaine ---------------------------------------- By: /s/ J. PATTERSON MCBAINE ------------------------------------- Name: J. Patterson McBaine Title: Address: Facsimile: Date: April 5, 2001 Please complete the following: 1. The exact name that your Shares are to be J. Patterson McBaine registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Self the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to item 1 above (if different from above): ------------------------ ------------------------ ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 100,000 ---------------------------------------- INVESTOR: Jon D. Gruber ---------------------------------------- By: /s/ JON D. GRUBER ------------------------------------- Name: Jon D. Gruber Title: Address: Facsimile: Date: April 5, 2001 Please complete the following: 1. The exact name that your Shares are to be Jon D. Gruber registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Self the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to item 1 above (if different from above): ------------------------ ------------------------ ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 120,000 ---------------------------------------- INVESTOR: Gruber & McBaine International ---------------------------------------- By: /s/ JON D. GRUBER ------------------------------------- Name: Jon D. Gruber Title: Managing Member, GMCA Attorney in Fact Address: Facsimile: Date: April 5, 2001 Please complete the following: 1. The exact name that your Shares are to be Gruber & McBaine registered in (this is the name that will International appear on your Shares certificate(s)). ------------------------ You may use a nominee name if appropriate: 2. The relationship between the purchaser of Attorney-in-fact the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to item 1 above (if different from above): ------------------------ ------------------------ ------------------------ Phone: Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 350,000 ---------------------------------------- INVESTOR: Lagunitas Partners LP ---------------------------------------- By: /s/ JON D. GRUBER ------------------------------------- Name: Jon D. Gruber Title: Managing Member, GMCM, General partner, Lagunitas Partners LP Address: Facsimile: Date: April 5, 2001 Please complete the following: 1. The exact name that your Shares are to be Lagunitas Partners LP registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Managing Member, GMCM the Shares and the Registered Holder listed General Partner in response to item 1 above: ------------------------ 3. The mailing address and facsimile number of the Registered Holder listed in response to item 1 above (if different from above): ------------------------ ------------------------ ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 64,000 ---------------------------------------- INVESTOR: Patrick J. Allen ---------------------------------------- By: /s/ PATRICK J. ALLEN ------------------------------------- Name: Patrick J. Allen Title: President & COO Address: Facsimile: Date: March 29, 2001 Please complete the following: 1. The exact name that your Shares are to be Patrick J. Allen registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Same the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of the Registered Holder listed in response to ------------------------ item 1 above (if different from above): ------------------------ ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 64,000 ---------------------------------------- INVESTOR: Peter Hitch ---------------------------------------- By: /s/ PETER HITCH ------------------------------------- Name: Peter Hitch Title: Address: Facsimile: Date: March 11, 2001 Please complete the following: 1. The exact name that your Shares are to be Peter Hitch registered in (this is the name that will ------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of the Shares and the Registered Holder listed ------------------------ in response to item 1 above: 3. The mailing address and facsimile number of ------------------------ the Registered Holder listed in response to item 1 above (if different from above): ------------------------ Facsimile: -------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number ------------------------ of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 64,000 ---------------------------------------- INVESTOR: Johnson Capital Group, Inc. ---------------------------------------- By: /s/ GUY K. JOHNSON ------------------------------------- Name: Guy K. Johnson Title: President Address: Facsimile: Date: March 10, 2001 Please complete the following: 1. The exact name that your Shares are to be Johnson Capital Group, Inc. registered in (this is the name that will --------------------------- appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of Corporation the Shares and the Registered Holder listed --------------------------- in response to item 1 above: 3. The mailing address and facsimile number of --------------------------- the Registered Holder listed in response to item 1 above (if different from above): --------------------------- Facsimile: ----------------- 4. (For United States Investors:) The Social Security Number or Tax Identification Number --------------------------- of the Registered Holder listed in the response to item 1 above: Common Stock Subscription Agreement Signature Page Common Stock Subscription Agreement Counterpart Execution Page By signing below, the undersigned agrees to the terms of the Interplay Entertainment Corp. Common Stock Subscription Agreement and to purchase the number of Shares set forth below. Number of Shares being purchased: 500,000 ---------------------------------------- INVESTOR: Spinner Global Technology Fund, Ltd. ---------------------------------------- By: /s/ JOSEPH SPIEGEL ------------------------------------- Name: Joseph Spiegel Title: Vice President Address: Facsimile: Date: March 10, 2001
Please complete the following: 1. The exact name that your Shares are to be Spinner Global Technology Fund, Ltd. registered in (this is the name that will ------------------------------------ appear on your Shares certificate(s)). You may use a nominee name if appropriate: 2. The relationship between the purchaser of SAME the Shares and the Registered Holder listed ------------------------------------ in response to item 1 above: 3. The mailing address and facsimile number of ------------------------------------ the Registered Holder listed in response to item 1 above (if different from above): ------------------------------------ Facsimile: --------------------------
SCHEDULE A SCHEDULE OF EXCEPTIONS ---------------------- Omitted pursuant to Item 601 of Regulation S-K. 1 APPENDIX I FORM OF WARRANT --------------- See Exhibit 4.2. 2 APPENDIX II INTERPLAY ENTERTAINMENT CORP. INVESTORS' CERTIFICATE OF RESALE OF THE SHARES The undersigned, an officer of, or other person duly authorized by _________ [fill in _____________________________________________________ hereby certifies that institution official name of individual or institution] he/she [said institution] is the purchaser of the Shares evidenced by the attached stock certificate(s) and as such, sold such Shares on _________ in [date] accordance with registration statement number ______________ and the [fill in the number of or otherwise identify registration statement] requirement of delivering a current prospectus and current annual, quarterly and reports (Forms 10-K, 10-Q, and 8-K) by the Company has been complied with in connection with such sale. Print or Type: Name of Investor (Individual or Institution): _________________________________ Name of Individual representing Investor (if an Institution): _________________________________ Title of Individual representing Investor (if an Institution): _________________________________ Signature by: Individual Investor or Individual representing Investor: _________________________________ 3 EX-4.2 3 dex42.txt COMMON STOCK PURCHASE WARRANT EXHIBIT 4.2 COMMON STOCK PURCHASE WARRANT THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED. INTERPLAY ENTERTAINMENT CORP. WARRANT TO PURCHASE COMMON STOCK This certifies that, for value received, __________________. (the "Holder") is entitled to subscribe for and purchase up to _______________ shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock of Interplay Entertainment Corp., a Delaware corporation (the "Company"), at the price specified in Section 2 hereof, as such price may be adjusted from time to time pursuant to Section 5 hereof (the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Common Stock" shall mean the Company's presently authorized Common Stock, par value $.001 per share, and any stock into or for which such Common Stock may hereafter be converted or exchanged. 1. Term of Warrant. --------------- The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during a period beginning on the date hereof, and ending March 30, 2006. 2. Warrant Price. ------------- The Warrant Price is $1.75 per share, subject to adjustment from time to time pursuant to the provisions of Section 5 hereof. 3. Method of Exercise or Conversion; Payment; Issuance of New Warrant. ------------------------------------------------------------------ (a) Exercise. Subject to Section 1 hereof, the purchase right -------- represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit 1 duly executed) at the principal office of the Company and by ------- the payment to the Company, by cashier's check or wire transfer, of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the 1 Holder within 15 business days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder within such 15 business day period. (b) Net Exercise. Subject to Section 1 hereof, the Holder may convert ------------ this Warrant (the "Conversion Right"), in whole or in part, into the number of shares (less the number of shares which have been previously exercised or as to which the Conversion Right has been previously exercised) calculated pursuant to the following formula by surrendering this Warrant (with the notice of exercise form attached hereto as Exhibit 1 duly executed) at the principal office of the --------- Company specifying the number of shares the rights to purchase which the Holder desires to convert: Y (A - B) --------- X = A where: X = the number of shares of Common Stock to be issued to the Holder; Y = the number of shares of Common Stock subject to this Warrant for which the Conversion Right is being exercised; A = the Market Price of the Common Stock (as defined below) as of the trading day immediately preceding the date of exercise of this Warrant; and B = the Warrant Price For purposes hereof, the "Market Price of the Common Stock" shall be the closing price per share of the Common Stock of the Company on the principal national securities exchange on which the Common Stock of the Company is then listed or admitted to trading or, if not then listed or traded on any such exchange, on the NASDAQ National Market System, or if then not listed or traded on such system, the closing bid price per share on NASDAQ or other over-the-counter trading market. If at any time such quotations are not available, the market price of a share of Common Stock shall be the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the market price of a share of Common Stock shall be deemed to be the value received by the holders of the Company's Common Stock for each share of Common Stock pursuant to the Company's acquisition. The Company agrees that the shares so converted shall be deemed issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered as aforesaid. In the event of any conversion of this Warrant, certificates for the shares of stock so converted shall be delivered to the holder hereof within 15 business days thereafter and, unless this 2 Warrant has been fully converted or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been converted, shall also be issued to the holder hereof within such 15-day period. (c) Mandatory Exercise. In the event that the Market Price of the ------------------ Common Stock exceeds Three Dollars ($3.00) per share for any twenty (20) consecutive trading day period following the Original Issue Date, then the Holder shall, upon written notice from the Company, exercise this Warrant for such number of shares of Common Stock subject hereto as the Company may specify in such notice, provided that, as of the date of such notice, the shares of ------------- Common Stock issuable upon exercise of this Warrant have been registered for resale pursuant to an effective registration statement under the Act. The payment of the Warrant Price for such shares, and delivery of stock certificates therefor, shall occur on a date mutually acceptable to the Company and the Holder within thirty (30) days following the date of the Company's notice. 4. Stock Fully Paid; Reservation of Shares. --------------------------------------- All Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all United States taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized, and reserved for the purpose of the issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 5. Adjustment of Purchase Price and Number of Shares. ------------------------------------------------- The kind of securities purchasable upon the exercise of this Warrant, the Warrant Price and the number of shares purchasable upon exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of the following events: (a) Reclassification, Consolidation, or Merger. In case of any ------------------------------------------ reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation, other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant, the Company, or such successor, as the case may be, shall execute a new Warrant, providing that the Holder of this Warrant shall have the right to exercise such new Warrant and procure upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, or merger by a holder of one share of Common Stock; provided, however, that the Board of Directors of the Company -------- ------- may determine that, upon the occurrence of a stockholder approved dissolution or liquidation of the Company, this Warrant will, on such date of dissolution or liquidation and if unexercised, in whole or in part, by the Holder, will thereupon terminate. Any new Warrant shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5. The provisions of this subparagraph (a) shall similarly apply to successive reclassification, changes, consolidations, and mergers. 3 (b) Subdivision or Combination of Shares. If the Company at any time ------------------------------------ while this Warrant remains outstanding and unexpired shall subdivide or combine its common stock, or distribute dividends on its common stock payable in Common Stock, the Warrant Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination or dividend. (c) Price Anti-Dilution Adjustments. In the event the Company shall ------------------------------- issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 5(c)(iii) but excluding stock dividends, subdivisions or split-ups that are the subject of adjustment pursuant to Section 5(b)) without consideration or for a consideration per share less than the Warrant Price applicable on and immediately prior to such issue, then the Company shall, as soon as practicable, call a meeting of its stockholders for the purpose of approving the transactions contemplated by the Subscription Agreement and this Warrant. In the event such approval is received, the Warrant Price shall be reduced, effective as of the date of such approval, to a price (calculated to the nearest cent) determined by multiplying the Warrant Price in effect on the date of and immediately prior to such issue by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance, including without limitation any Common Stock issuable upon exercise of any then outstanding Options or the conversion or exchange of the then outstanding Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of the Convertible Securities issued pursuant thereto, plus the number of shares of Common Stock which the aggregate consideration actually received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the Warrant Price in effect on the date of and immediately prior to such issuance; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance, including without limitation any Common Stock issuable upon exercise of any then outstanding Options or the conversion or exchange of the then outstanding Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of the Convertible Securities issued pursuant thereto, plus the number of such Additional Shares of Common Stock so issued. (i) Special Definitions. For purposes of this Section 5(c), the ------------------- following definitions shall apply: (A) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (as hereinafter defined). (B) "Original Issue Date" shall mean the date on which this ------------------- Warrant was first issued. (C) "Convertible Securities" shall mean any evidences of ---------------------- indebtedness, shares or other securities convertible into or exchangeable for Common Stock, other than Options. (D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 5(c)(iii) below, deemed to be issued) by the Company after the Original Issue Date, other than shares of ----- ---- Common Stock issued (or, pursuant to Section 5(c)(iii) below, deemed to be issued) or issuable: 4 (1) pursuant to a transaction described in subsection 5(a), 5(b) or 5(e) hereof; (2) to employees, consultants, officers, directors or vendors (if in transactions with primarily non-financing purposes) of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (3) to a corporation, partnership or other entity with which the Company has a partnership, joint venture or other business relationship, provided that such issuances are for purposes other than primarily equity financing for the Company; (4) in connection with the acquisition by the Company of the stock or assets of another corporation, partnership or other entity; (5) in connection with any equipment lease financing or the incurrence by the Company of any indebtedness for money borrowed; and (6) upon the exercise of options or warrants outstanding as of the date hereof or upon conversion of the Series A Preferred Stock. (ii) No Adjustment of Warrant Price. No adjustment in the Warrant ------------------------------ Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Company is less than the Warrant Price in effect on the date of and immediately prior to such issue. (iii) Deemed Issue of Additional Shares of Common Stock. Except as ------------------------------------------------- provided in Section 5(c)(i)(D) (1) through (6), inclusive, above, in the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) no further adjustment in the Warrant Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities. (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Warrant Price computed upon the initial issue 5 thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and (C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Warrant Price computed upon the initial issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (1) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged plus the consideration actually received by the Company upon such conversion or exchange, if any, and (2) in the case of Options for Convertible Securities, only the Convertibl Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (D) no readjustment pursuant to clause (C)(1) or (C)(2) above shall have the effect of increasing the Warrant Price to an amount which exceeds the lower of (i) the Warrant Price on the original adjustment date, or (ii) the Warrant Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) Determination of Consideration. For purposes of this Section ------------------------------ 5(c), the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follow s: (A) Cash and Property. Such consideration shall: ----------------- (1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company; (2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and 6 (3) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per ---------------------------------- share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating to Options and Convertible Securities, shall be determined by dividing: (1) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (d) Adjustment of Number of Shares. Upon each adjustment in the ------------------------------ Warrant Price pursuant to any of subparagraphs (a) through (c) of this Section 5, the number of shares of Common Stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. (e) Additional Adjustment of Number of Shares. In the event that the ----------------------------------------- Market Price of the Common Stock does not exceed Two Dollars and Seventy-Five Cents ($2.75) per share on at least twenty (20) consecutive trading days within the ninety (90) day period following the Closing Date, then the number of shares of Common Stock purchasable hereunder shall automatically be increased to _________________ shares (as such number may be adjusted pursuant to subparagraphs (a) and/or (b) of this Section 5). The Warrant Price and other terms of this Warrant shall be unaffected by any such increase. 6. Notice of Adjustments. --------------------- Whenever any Warrant Price shall be adjusted pursuant to Section 5 hereof, the Company shall prepare a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, the Warrant Price after giving effect to such adjustment and the number of shares then purchasable upon exercise of this Warrant, and shall cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Holder of this Warrant at the address specified in Section 11(c) hereof, or at such other address as may be provided to the Company in writing by the Holder of this Warrant. 7 7. Fractional Shares. ----------------- No fractional shares of Common Stock will be issued in conjunction with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefore on the basis of the Warrant Price then in effect. 8. Compliance with Securities Act. ------------------------------ The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued on exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act"). This Warrant and all shares of Common Stock issued upon exercise of this Warrant shall be stamped and imprinted with a legend substantially in the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED." 9. Transfer and Exchange of Warrant. -------------------------------- This Warrant is not transferable or exchangeable without the consent of the Company (which is not to be unreasonably withheld) upon the Holder providing to Company (a) a written opinion by independent counsel satisfactory to the Company opining that the transfer or exchange will not violate any Federal or state securities laws, and (b) a written agreement of the transferee agreeing to be bound by the provisions of the last sentence of Section 2.4, and Section 8, of the Subscription Agreement. 10. Registration Rights. ------------------- The Holder shall be entitled to certain registration rights with respect to the shares of Common Stock issuable upon exercise of this Warrant, as set forth in the Common Stock Subscription Agreement by and among the Company, the Holder and certain additional investors in the Company (the "Subscription Agreement"), the Closing of which occurred as of even date herewith. 11. Miscellaneous. ------------- (a) No Rights as Shareholder. The Holder of this Warrant shall not be ------------------------ entitled to vote or receive dividends or be deemed the Holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder of this Warrant, as such, any of the rights of 8 a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. (b) Replacement. On receipt of evidence reasonably satisfactory to ----------- the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder's expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) Notice. Any notice given to either party under this Warrant shall ------ be in writing, and any notice hereunder shall be deemed to have been given upon the earlier of delivery thereof by hand delivery, by courier, or by standard form of telecommunication or three (3) business days after the mailing thereof in the U.S. mail if sent registered mail with postage prepaid, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) Governing Law. This Warrant shall be governed and construed under ------------- the laws of the State of New York. 9 This Warrant is executed as of this 30th day of March, 2001. INTERPLAY ENTERTAINMENT CORP., a Delaware corporation By:__________________________________ Brian Fargo, Chief Executive Officer 10 EXHIBIT 1 --------- NOTICE OF EXERCISE ------------------ TO: INTERPLAY ENTERTAINMENT CORP. 1. Check Box that Applies: [_] The undersigned hereby elects to purchase __________ shares of Common Stock of INTERPLAY ENTERTAINMENT CORP. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. [_] The undersigned hereby elects to convert the attached warrant into ________ shares of Common Stock of INTERPLAY ENTERTAINMENT CORP. pursuant to the terms of the attached Warrant. 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ____________________________________ (Name) ____________________________________ (Address) ____________________________________ 3. The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. _______________________________ Signature 1 EX-5.1 4 dex51.txt OPINION OF STRADLING YOCCA CARLSON & RAUTH EXHIBIT 5.1 [Stradling Yocca Carlson & Rauth Letterhead] April 16, 2001 Interplay Entertainment Corp. 16815 Von Karman Ave. Irvine, CA 92606 Re: Registration Statement on Form S-3 Ladies and Gentlemen: At your request, we have examined the form of the Registration Statement on Form S-3 (the "Registration Statement") being filed by Interplay Entertainment Corp., a Delaware corporation (the "Company"), with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 16,253,540 shares of the Company's Common Stock, $0.001 par value (the "Common Stock"), issued to certain persons (the "Selling Stockholders") pursuant to a Common Stock Subscription Agreement dated March 29, 2001 among the Company and such Selling Stockholders, and issuable pursuant to certain Common Stock Purchase Warrants issued by the Company to the Selling Stockholders. The shares of Common Stock may be offered for resale from time to time by and for the account of the Selling Stockholders of the Company named in the Registration Statement. We have reviewed the corporate actions of the Company in connection with this matter and have examined such documents, corporate records and other instruments as we have deemed necessary for the purposes of this opinion. Based on the foregoing, it is our opinion that (a) the 8,126,770 shares of Common Stock covered by the Registration Statement have been duly authorized and validly issued, and are fully paid and nonassessable, and (b) the 8,126,770 shares of Common Stock which are issuable upon exercise of the Warrants have been duly authorized, and when fully paid in accordance with the terms and conditions set forth therein, will be validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ STRADLING YOCCA CARLSON & RAUTH EX-23.1 5 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 of our report dated April 16, 2001 included in Interplay Entertainment Corp.'s Form 10-K 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 April 16, 2001 -----END PRIVACY-ENHANCED MESSAGE-----