0000950136-01-501434.txt : 20011009 0000950136-01-501434.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950136-01-501434 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20010926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCLAIM ENTERTAINMENT INC CENTRAL INDEX KEY: 0000804888 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 382698904 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-70226 FILM NUMBER: 1745397 BUSINESS ADDRESS: STREET 1: ONE ACCLAIM PLAZA CITY: GLEN COVE STATE: NY ZIP: 11542 BUSINESS PHONE: 5166565000 MAIL ADDRESS: STREET 1: OEN ACCLAIM PALZA CITY: GLEN COVEY STATE: NY ZIP: 11542 FORMER COMPANY: FORMER CONFORMED NAME: GAMMA CAPITAL CORP DATE OF NAME CHANGE: 19880608 S-3 1 file001.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on September 26, 2001 Registration No. 333-_____ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ACCLAIM ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) Delaware 38-2698904 ------------------------------- ----------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Acclaim Plaza Glen Cove, New York 11542 (516) 656-5000 ------------------------------------------------------------------------------- (Address and telephone number of registrant's principal executive offices) Gregory E. Fischbach Chief Executive Officer Acclaim Entertainment, Inc. One Acclaim Plaza Glen Cove, New York 11542 (516) 656-5000 ---------------------------------------------------------------- (Name, address and telephone number of agent for service) Copy to: Eric M. Lerner, Esq. Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Telephone: (212) 940-8800 --------------------------------- Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------------- Title of each class of Proposed maximum Proposed maximum Amount of security to be registered Amount to be registered aggregate price per unit aggregate offering price registration fee --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.02 per share............... 9,898,106(1) $2.36 $23,359,530 $5,840 ---------------------------------------------------------------------------------------------------------------------------------
(1) To be offered from time to time by selling stockholders based upon prevailing market prices. (2) The proposed maximum aggregate price per unit was estimated pursuant to Rule 457(c) promulgated under the Securities Act of 1933, solely for the purpose of determining the registration fee, based on the average of high and low prices of the registrant's common stock as quoted on The Nasdaq Small Cap Market System on September 21, 2001. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION DATED SEPTEMBER 26, 2001 PROSPECTUS -------------------------------- ACCLAIM ENTERTAINMENT, INC. 9,898,106 SHARES OF COMMON STOCK This prospectus covers the resale of 9,898,106 shares of Acclaim's common stock by the selling stockholders named in this prospectus. Acclaim will not receive any proceeds from the sale of any shares by the selling stockholders. See "Selling Stockholders" and "Plan of Distribution." SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF INVESTMENT RISK FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK OFFERED AND SOLD BY THIS PROSPECTUS. Our common stock is traded on The Nasdaq Small Cap Market System under the symbol "AKLM." On September 25, 2001, the last reported sale price of the common stock was $2.75 per share. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ________ __, 2001 TABLE OF CONTENTS Page Number RISK FACTORS...................................................................3 INFORMATION ABOUT ACCLAIM.....................................................14 RECENT DEVELOPMENTS...........................................................19 USE OF PROCEEDS...............................................................19 SELLING STOCKHOLDERS..........................................................20 PLAN OF DISTRIBUTION..........................................................25 LEGAL PROCEEDINGS.............................................................27 LEGAL MATTERS.................................................................28 EXPERTS.......................................................................28 FORWARD-LOOKING STATEMENTS....................................................28 WHERE YOU CAN FIND MORE INFORMATION...........................................29 INFORMATION NOT REQUIRED IN PROSPECTUS........................................31 i RISK FACTORS Our future operating results depend upon many factors and are subject to various risks and uncertainties. The known material risks and uncertainties which may cause our operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows: LIQUIDITY AND MEETING CASH REQUIREMENTS ARE DEPENDENT ON ACHIEVING TIMELY PRODUCT RELEASES AND SALES OBJECTIVES If we do not substantially achieve the overall projected revenue levels for fiscal 2002 as reflected in our business operating plans and do not receive the ongoing support of our primary lender and our vendors, we will have insufficient liquidity in fiscal 2002, and we either will require additional financing to fund operations or we will need to make further significant expense reductions, including, without limitation, the sale of assets or the consolidation of operations, staff reductions, and/or the delay, cancellation or reduction of certain product development and marketing programs. Some of these measures will require third-party consents or approvals, including that of our primary lender, and there can be no such assurance that such consents or approvals can be obtained. Based on the fiscal third quarter $9.5 million advance from our primary lender following the March 2001 junior participation, the $10.0 million interim funding provided by our primary lender, the retirement of $20.5 million of our 10% convertible notes due March 2002, the $33.6 million in gross proceeds from the sale of common stock in July 2001, proceeds from the exercise of stock options and the ongoing support of our vendors, together with anticipated positive cash flow from operations, we expect to meet our currently projected cash and operating requirements for the next 12 months, including the repayment of the remaining notes ($29.2 million principal amount, plus interest) at maturity, assuming we meet our sales forecast by successfully achieving our planned product release schedule, and continue to realize the savings from implemented expense reductions. However, if we do not achieve our product release schedule, sales assumptions, continue to realize the savings from implemented expense reductions and do not continue to receive the support of our primary lender and our vendors, there can be no assurance that we will be able to arrange additional financing on satisfactory terms, if at all. Additionally, we cannot assure our investors that our future operating cash flows will be sufficient to meet our operating requirements, our debt service requirements or to repay our indebtedness at maturity, including, without limitation, repayment of the 10% convertible notes. If this were to occur, and our primary lender determined not to provide further interim support and/or to seek available remedies, our operations and liquidity would be materially adversely affected and we could be forced to cease operations. Although the actions we have taken have contributed in returning our annual operations to profitability we cannot assure our shareholders and investors that we will achieve profitability or the sales necessary to avoid further expense reductions in fiscal 2002. See "Industry Trends, Console Transitions and Technological Change May Adversely Affect Our Revenues and Profitability" below. GOING CONCERN CONSIDERATION At August 31, 2000, our independent auditors' report, as prepared by KPMG LLP and dated November 29, 2000, which appears in our 2000 Form 10-K, includes an explanatory paragraph relating to substantial doubt as to our ability to continue as a going concern due to our significant loss from operations in fiscal 2000 and our working capital and stockholders' deficiencies. The unaudited financial statements for the nine months ended June 2, 2001 contained in our Form 10-Q filed with the SEC on July 17, 2001 have been prepared under the assumption that we will continue as a going concern and report that we had net earnings for the first nine months of fiscal 2001 of $18.7 million or $0.32 per diluted share. Although annual operations returned to profitability in 2001, we cannot assure our stockholders and investors that we will continue to achieve profitability in fiscal 2002. IF CASH FLOWS FROM OPERATIONS ARE NOT SUFFICIENT TO MEET OUR NEEDS, WE MAY BE FORCED TO SELL ASSETS, REFINANCE DEBT, OR FURTHER DOWNSIZE OR CEASE OPERATIONS If we do not substantially achieve the overall projected revenue levels for fiscal 2002 as reflected in our business operating plans and do not receive the ongoing support of our primary lender and our vendors, we will have insufficient liquidity in fiscal 2002, and we either will require additional financing to fund operations or we will need to make further significant expense reductions, including, without limitation, the sale of assets or the consolidation of operations, staff reductions, and/or the delay, cancellation or reduction of certain product development and marketing programs. We believe the expense reductions initiated by us in the fourth quarter of fiscal 2000 which continued throughout fiscal 2001 have contributed in returning our annual operations to profitability. However, we cannot assure our shareholders and investors that we will achieve profitability or the sales necessary to avoid further reductions in fiscal 2002. See "Industry Trends, Platform Transitions and Technological Change May Adversely Affect Our Revenues and Profitability" below. ABILITY TO SERVICE DEBT AND PRIOR RIGHTS OF CREDITORS MAY ADVERSELY AFFECT HOLDERS OF COMMON STOCK If our cash and projected cash flow from operations in fiscal 2002 is insufficient to make interest and principal payments when due, we may have to restructure our indebtedness. We cannot guarantee that we will be able to restructure or refinance our debt on satisfactory terms, or obtain permission to do so under the terms of our existing indebtedness. We cannot assure investors that our future operating cash flows will be sufficient to meet our debt service requirements or to repay our indebtedness at maturity. Our failure to meet these obligations could result in defaults being declared by our primary lender, and the lender seeking its remedies, including immediate repayment of the debt and/or foreclosure on collateral, which could cause us to become insolvent or cease operations. In order to meet our debt service obligations, from time to time we also depend on dividends, advances and transfers of funds from our subsidiaries. State and foreign law regulate the payment of dividends by these subsidiaries, which is also subject to the terms of the credit agreement with our primary lender and the indenture governing the notes. A significant portion of our assets, operations, trade payables and indebtedness is located among these foreign 4 subsidiaries. The creditors of the subsidiaries would generally recover from these assets on the obligations owed to them by the subsidiaries before any recovery by our creditors and before any assets are distributed to stockholders. A VIOLATION OF OUR FINANCING ARRANGEMENTS COULD RESULT IN THE LENDER DECLARING DEFAULT AND SEEKING REMEDIES If we violate the financial or other covenants contained in the credit agreement with our primary lender or in the indenture governing the 10% convertible notes, we will be in default under the credit agreement and/or the indenture. If a default occurs and is not timely cured or waived by our primary lender, the lender could seek remedies against us, including: (1) penalty rates of interest; (2) immediate repayment of the debt; and/or (3) the foreclosure on any assets securing the debt. Pursuant to the terms of the agreement with our primary lender, we are required to maintain specified levels of working capital and tangible net worth, among other covenants. While we were not in compliance with some of the financial covenants contained in the credit agreement as of June 2, 2001, we received waivers regarding this non-compliance from our primary lender. While we anticipate that we will not be in compliance with all of the financial covenants in the credit agreement in the near term, and anticipate being able to obtain necessary waivers as we have in the past, we cannot make any assurances that we will be able to obtain waivers of any future covenant violations. If we become insolvent, are liquidated or reorganized, after payment to the creditors, there are likely to be insufficient assets remaining for any distribution to our stockholders. REVENUES AND LIQUIDITY ARE DEPENDENT ON TIMELY INTRODUCTION OF NEW TITLES The timely shipment of a new title depends on various factors, including the development process, debugging, approval by hardware licensors, and approval by third- party licensors. It is likely that some of our titles will not be released in accordance with our operating plans. A significant delay in the introduction of one or more new titles could negatively affect sales and have a negative impact on our financial condition, liquidity and results of operations, as was the case in fiscal 2000 and 2001, including the third quarter of fiscal 2001. We cannot assure stockholders that our new titles will be released in a timely fashion. The life cycle of a new title generally ranges from less than three months to upwards of 12 months, with the majority of sales occurring in the first 30 to 120 days after release. Factors such as competition for access to retail shelf space, consumer preferences and seasonality could result in the shortening of the life cycle for older titles and increase the importance of our ability to release new titles on a timely basis. Therefore, we are constantly required to introduce new titles in order to generate revenues and/or to replace declining revenues from older titles. In the past, we experienced delays in the introduction of new titles, which have had a negative impact on our results of operations. The complexity of next-generation systems has resulted in higher development expenses, longer development cycles, and the need to carefully monitor and plan the product development process. If we do not introduce titles in accordance with our operating plans for a period, our results of operations, liquidity and profitability in that period could be negatively affected. 5 INDUSTRY TRENDS, CONSOLE TRANSITIONS AND TECHNOLOGICAL CHANGE MAY ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY The life cycle of existing game consoles and the market acceptance and popularity of new game consoles significantly affects the success of our products. We cannot guarantee that we will be able to predict accurately the life cycle or popularity of each game console. If we (1) do not develop software for games consoles that achieve significant market acceptance; (2) discontinue development of software for a game console that has a longer-than-expected life cycle; (3) develop software for a game console that does not achieve a significant installed base; or (4) continue development of software for a game console that has a shorter-than-expected life cycle, we will experience losses from operations. In addition, the cyclical nature of the video and computer games industry requires us to continually adapt software development efforts to emerging hardware systems. The industry is currently in the midst of a hardware transition from 32-bit and 64-bit to 128-bit game consoles such as Sony's PlayStation 2, Nintendo's GameCube and Microsoft's Xbox. In early 2001, Sega announced its plans to exit the hardware business, cease distribution and sales of its Dreamcast console and re-deploy its resources to develop software for multiple consoles. No assurance can be given that these new game consoles will achieve commercial success similar to and/or installed bases comparable to that of the 32-bit PlayStation or 64-bit N64, nor can any assurances be made as to the timing of their success. In addition, we cannot guarantee that we will be successful in developing and publishing software for these new game consoles nor can we guarantee that Microsoft or Nintendo will release their new platforms in accordance with their announced November 2001 release dates. OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO RELEASE "HIT" TITLES The market for software is "hits" driven. Therefore, our future success depends on developing, publishing and distributing "hit" titles for game consoles with significant installed bases. If we do not publish "hit" titles in the future, our financial condition, results of operations and profitability could be negatively affected, as has occurred in the past. It is difficult to predict consumer preferences for titles, and few titles achieve sustained market acceptance. We cannot assure stockholders that we will be able to publish "hit" titles in the future. IF PRODUCT RETURNS, PRICE PROTECTION AND ADJUSTMENTS EXCEED ALLOWANCES, WE MAY INCUR LOSSES In the past, during platform transitions, we have had to provide greater price protection and adjustments. Coupled with more competitive pricing, if our allowances for returns, exchanges and price adjustments are exceeded, our financial condition and results of operations will be negatively impacted, as has occurred in the past. We are not contractually obligated to accept returns except for defective product. We may permit customers to return or exchange products and may provide price protection or concessions on products unsold by the customer. We believe that at June 2, 2001, our allowances for future returns, exchanges and price protection and adjustments are adequate, but we cannot guarantee the adequacy of our current or future allowances. 6 Management makes significant estimates and assumptions regarding allowances for estimated product returns, price protection and adjustments in preparing our financial statements. We established allowances at the time of product shipment, taking into account the potential for product returns, price protection and adjustments based primarily on: (1) market acceptance of products in retail and distributor inventories; (2) level of retail inventories; (3) seasonality; and (4) historical return and price adjustment rates. IF WE ARE UNABLE TO OBTAIN OR RENEW LICENSES FROM HARDWARE DEVELOPERS, WE WILL NOT BE ABLE TO RELEASE SOFTWARE FOR GAME CONSOLES We are substantially dependent on each hardware developer (1) as the sole licensor of the specifications needed to develop software for its game consoles; (2) as the sole manufacturer (Nintendo and Sony software) of the software developed by us for its game consoles; (3) to protect the intellectual property rights to their game consoles and technology and (4) to discourage unauthorized persons from producing software for its game consoles. Substantially all of our revenues have historically been derived from sales of software for game consoles. For the nine months ended June 2, 2001 and May 31, 2000, we derived: o 15% and 40%, respectively, of gross revenues from the sale of Nintendo-compatible software; o 49% and 33%, respectively, of gross revenues from the sale of Sony PlayStation software; o 20% and 0%, respectively, of gross revenues from the sale of Sony PlayStation 2 software; o 11% and 20%, respectively, of gross revenues from the sale of Sega-compatible software; and o 5% and 7%, respectively, of gross revenue from the sale of PC and other software. If we cannot obtain licenses to develop software from developers of new game consoles or if any of our existing license agreements are terminated, we will not be able to release software for those game consoles, which would have a negative impact on our results of operations and profitability. Although we cannot assure our stockholders that, at the end of their current terms, we will be able to obtain extensions or that we will be successful in negotiating definitive license agreements with developers of new game consoles, to date we have always obtained extensions or new agreements with the hardware companies. Our revenue growth may also be dependent on the hardware companies. If new license agreements contain product quantity limitations, our revenue and profitability may be negatively impacted. 7 PROFITABILITY IS AFFECTED BY RESEARCH AND DEVELOPMENT EXPENSE FLUCTUATIONS DUE TO CONSOLE TRANSITIONS AND DEVELOPMENT FOR MULTIPLE CONSOLES Our research and development expenses decreased ($10.0) million to $6.5 million, or (61%), for the quarter ended June 2, 2001 from $16.5 million for the quarter ended May 31, 2000 and decreased ($16.2) million to $29.5 million, or (36%), for the nine months ended June 2, 2001 from $45.7 million for the same period one year ago. Although fiscal 2001 product development expenses were lower than in fiscal 2000 due to our focus on fewer, better games our product development expenses may increase thereafter as a result of releasing more games across multiple platforms and the complexity of developing games for the new 128-bit game consoles. We anticipate that our profitability will continue to be impacted by the levels of research and development expenses relative to revenues, and by fluctuations relating to the timing of development in anticipation of the next-generation platforms. During fiscal 2000, we focused our development efforts and costs on N64, PlayStation 1, PlayStation 2, Xbox and Dreamcast, while incurring incremental costs in the development of tools and engines necessary for the new platforms. Our current release schedule commencing in the second quarter of fiscal 2001 is developed around PlayStation 2, Xbox, Game Boy Advance and Game Cube. In addition, we will continue to support PlayStation 1 and Game Boy Color on a limited basis through a select group of independent software developers, thus permitting us to reduce in part our internal development costs. INABILITY TO PROCURE COMMERCIALLY VALUABLE INTELLECTUAL PROPERTY LICENSES MAY PREVENT PRODUCT RELEASES OR RESULT IN REDUCED PRODUCT SALES Our titles often embody trademarks, trade names, logos, or copyrights licensed by third parties, such as the NBA, the NFL and MLB or their respective players' associations. We may not be successful in acquiring or renewing licenses to property rights with significant commercial value. The loss of one or more of these licenses could prevent our release of a title or limit its economic success. Based on our product release strategy, financial resources and the economic viability of such products, licenses relating to WWF, South Park and ECW software were not renewed or were terminated. For example, our license for the WWF properties expired in November 1999 and was not renewed. Sales of titles using WWF properties aggregated 0% of gross revenues for the nine months ended June 2, 2001 as compared to 14% for the nine months ended May 31, 2000. Our license for the South Park properties was terminated in September 2000. See "Legal Proceedings." Sales of titles using South Park properties aggregated 0.5% and 9% of gross revenues in the first nine months of fiscal 2001 and 2000, respectively. Accordingly, we cannot assure stockholders that our licenses will be extended on reasonable terms or at all. License agreements relating to these rights generally extend for a term of two to three years. The agreements are terminable upon the occurrence of a number of factors, including our (1) material breach of the agreement; (2) failure to pay amounts due to the licensor in a timely manner; or (3) bankruptcy or insolvency. 8 COMPETITION FOR MARKET ACCEPTANCE AND RETAIL SHELF SPACE, PRICING COMPETITION, AND COMPETITION WITH THE HARDWARE MANUFACTURERS, AFFECTS OUR REVENUE AND PROFITABILITY The video and computer games market is highly competitive. Only a small percentage of titles introduced in the market achieve any degree of sustained market acceptance. If our titles are not successful, our operations and profitability will be negatively impacted. We cannot guarantee that our titles will compete successfully. Competition in the video and computer games industry is based primarily upon: o the quality of titles; o reviews received for a title from independent reviewers who publish reviews in magazines, websites, newspapers and other industry publications; o publisher's access to retail shelf space; o the success of the game console for which the title is written; o the price of each title; o the number of titles then available for the system for which each title is published; and o the marketing campaign supporting a title at launch and through its life. Our chief competitors are the developers of games consoles, to whom we pay royalties and/or manufacturing charges, as well as a number of independent software publishers licensed by the hardware developers. The hardware developers have a price, marketing and distribution advantage with respect to software marketed by them. Our competitors vary in size from very small companies with limited resources to very large corporations with greater financial, marketing and product development resources than us, such as Nintendo, Sega, Microsoft, and Sony. As each hardware cycle matures, significant price competition and reduced profit margins result as we experienced in fiscal 2000. In addition, competition from new technologies may reduce demand in markets in which we have traditionally competed. As a result of prolonged price competition and reduced demand as a result of competing technologies, our operations and liquidity have been, and in the future could continue to be, negatively impacted. REVENUES VARY DUE TO THE SEASONAL NATURE OF VIDEO AND COMPUTER GAMES SOFTWARE PURCHASES The video and computer games industry is highly seasonal. Typically, net revenues are highest in the last calendar quarter, decline in the first calendar quarter, are lower in the second calendar quarter and increase in the third calendar quarter. The seasonal pattern is due primarily to the increased demand for software during the year-end holiday selling season and the reduced demand for software during the summer months. Our earnings vary significantly and are materially affected by releases of "hit" titles and, accordingly, may not necessarily reflect the seasonal patterns of the industry as a whole. We expect that operating results will continue to fluctuate significantly in the future. See "Fluctuations in Quarterly Operating Results Lead to Unpredictability of Revenues and Income" below. 9 FLUCTUATIONS IN QUARTERLY OPERATING RESULTS LEAD TO UNPREDICTABILITY OF REVENUES AND INCOME The timing of release of new titles can cause material quarterly revenues and earning fluctuations. A significant portion of revenues in any quarter is often derived from sales of new titles introduced in that quarter or in the immediately preceding quarter. If we are unable to begin volume shipments of a significant new title during the scheduled quarter, as has been the case in the past (including the third quarter of fiscal 2001), our revenues and earnings will be negatively affected in that period. In addition, because a majority of the unit sales for a title typically occur in the first 30 to 120 days following its introduction, revenues and earnings may increase significantly in a period in which a major title is introduced and may decline in the following period or in which there are no major title introductions. Quarterly operating results also may be materially impacted by factors including (1) the level of market acceptance or demand for titles and (2) the level of development and/or promotion expenses for a title. Consequently, if net revenues in a period are below expectations, our operating results and financial position in that period are likely to be negatively affected, as has occurred in the past. STOCK PRICE IS VOLATILE AND STOCKHOLDERS MAY NOT BE ABLE TO RECOUP THEIR INVESTMENT There is a history of significant volatility in the market prices of companies engaged in the software industry, including Acclaim. Movements in the market price of our common stock from time to time have negatively affected stockholders' ability to recoup their investment in the stock. The price of our common stock is likely to continue to be highly volatile, and stockholders may not be able to recoup their investment. If our future revenues, profitability or product releases do not meet expectations, the price of our common stock may be negatively affected. IF OUR SECURITIES WERE DELISTED FROM THE NASDAQ SMALL CAP MARKET, IT MAY NEGATIVELY IMPACT THE LIQUIDITY OF OUR COMMON STOCK In the fourth quarter of fiscal 2000, our securities were delisted from quotation on The Nasdaq National Market. Our common stock is currently trading on The Nasdaq Small Cap Market. Although we meet the current listing criteria for The Nasdaq Small Cap Market, no assurance can be given as to our ongoing ability to meet The Nasdaq Small Cap Market maintenance requirements. In order to obtain relisting of our common stock on The Nasdaq National Market, we must satisfy certain quantitative designation criteria. No assurance can be given that we will be able to meet such relisting criteria for The Nasdaq National Market in the near future. If our common stock was to be delisted from trading on The Nasdaq Small Cap Market, trading, if any in the common stock may continue to be conducted on the OTC Bulletin Board or in the non-Nasdaq over-the-counter market. Delisting of the common stock would result in limited release of the market price of the common stock and limited news coverage of us and could restrict investors' interest in the common stock as well as materially adversely affect the trading market and prices for the common stock and our ability to issue additional securities or to secure additional financing. 10 "Penny stocks" generally are equity securities with a price of less than $5.00 per share, which are not registered on certain national securities exchanges or quoted on the Nasdaq system. If our common stock was delisted from The Nasdaq Small Cap Market, it could become subject to the SEC's penny stock rules. These rules, among other things, require broker-dealers to satisfy special sales practice requirements, including making individualized written suitability determinations and receiving a purchaser's written consent prior to any transaction. In addition, under the penny stock rules, additional disclosure in connection with trades in the common stock would be required, including the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. Such requirements could severely limit the liquidity of the common stock. PREVALENCE OF ILLEGAL COPYING OF SOFTWARE COULD ADVERSELY AFFECT SALES In order to protect our software and proprietary rights, we rely mainly on a combination of copyrights, trade secret laws, patent and trademark laws, and nondisclosure agreements. Existing U.S. and international laws afford only limited protection. An unauthorized person may be able to copy our software or otherwise obtain and use our proprietary information. If a significant amount of illegal copying of software published or distributed by us occurs, our product sales could be adversely impacted. Policing illegal use of software is extremely difficult and software piracy is expected to persist. In addition, the laws of some foreign countries in which our software is distributed do not protect us and our intellectual property rights to the same extent as the laws of the U.S. We cannot guarantee that our attempts to protect our proprietary rights will be adequate. INFRINGEMENT COULD LEAD TO COSTLY LITIGATION AND/OR THE NEED TO ENTER INTO LICENSE AGREEMENTS, WHICH MAY RESULT IN INCREASED OPERATING EXPENSES Existing or future infringement claims by or against us may result in costly litigation or require us to license the proprietary rights of third parties, which could have a negative impact on the our results of operations, liquidity and profitability. We believe that our proprietary rights do not infringe on the proprietary rights of others. As the number of titles in the industry increases, we believe that claims and lawsuits with respect to software infringement will also increase. From time to time, third parties have asserted that some of our titles infringed their proprietary rights. We have also asserted that third parties have likewise infringed our proprietary rights. These infringement claims have sometimes resulted in litigation by and against us. To date, none of these claims has negatively impacted our ability to develop, publish or distribute our software. We cannot guarantee that future infringement claims will not occur or that they will not negatively impact our ability to develop, publish or distribute our software. 11 FACTORS SPECIFIC TO INTERNATIONAL SALES MAY RESULT IN REDUCED REVENUES AND/OR INCREASED COSTS International sales have historically represented material portions of our revenues and we expect that international sales will continue to account for a significant portion of our revenues in future periods. Sales in foreign countries may involve expenses incurred to customize titles to comply with local laws. In addition, titles that are successful in the domestic market may not be successful in foreign markets due to different consumer preferences. International sales are also subject to fluctuating exchange rates and may be affected by the recent adoption of a single currency in much of Europe. These and other factors specific to international sales may result in reduced revenues and/or increased costs. CHARTER AND ANTI-TAKEOVER PROVISIONS COULD NEGATIVELY AFFECT RIGHTS OF HOLDERS OF COMMON STOCK Our Board of Directors has the authority to issue shares of preferred stock and to determine their characteristics without stockholder approval. In this regard, in June 2000, the board of directors approved a stockholder rights plan. If the Series B junior participating preferred stock is issued it would be more difficult for a third party to acquire a majority of our voting stock. In addition to the Series B preferred stock, the board of directors may issue additional preferred stock and, if this is done, the rights of common stockholders may be additionally negatively affected by the rights of those preferred stockholders. We are also subject to anti-takeover provisions of Delaware corporate law, which may impede a tender offer, change in control or takeover attempt that is opposed by the Board. In addition, employment arrangements with some members of management provide for severance payments upon termination of their employment if there is a change in control. SHARES ELIGIBLE FOR FUTURE SALE As of September 21, 2001 we had 76,727,569 shares of common stock issued and outstanding, of which 28,262,042 are "restricted" securities within the meaning of Rule 144 under the Securities Act. Generally, under Rule 144, a person who has held restricted shares for one year may sell such shares, subject to certain volume limitations and other restrictions, without registration under the Securities Act. As of the date of this prospectus, 4,493,938 shares of common stock are covered by effective registration statements under the Securities Act for resale on a delayed or continuous basis by certain of our security holders, of which 843,637 shares of common stock are issuable upon the exercise of warrants issued in settlement of litigation. In connection with the April 2001 retirement of $7.2 million in principal amount of notes, we are required to issue to a certain investor up to an additional 1,328,000 shares of common stock if the average closing price of our common stock is less than $0.90 per share for a 20-day period prior to the effective date of the registration statement in which the investor is included as 12 a selling stockholder. As of September 25, 2001, the 20-day average closing price of our common stock was $3.79. As of September 21, 2001, the outstanding principal amount of our notes was $29.2 million, which are convertible into approximately 5,641,892 shares of common stock. Such shares, if issued pursuant to the terms of the indenture and the notes, would be generally eligible for resale pursuant to Rule 144. In addition to the warrants described above, a total of 3,783,383 shares of common stock are issuable upon the exercise of warrants, the resale of 3,550,000 of which is covered by a separate pending registration statement currently on file with the Securities and Exchange Commission. We have also registered on Form S-8 a total of 14,236,000 shares of common stock (issuable upon the exercise of options) under our 1988 Stock Option Plan and our 1998 Stock Incentive Plan, and a total of 2,448,425 shares of common stock under our 1995 Restricted Stock Plan. As of August 31, 2001, options to purchase a total of 10,200,922 shares of common stock were outstanding under the 1988 Stock Option Plan and our 1998 Stock Incentive Plan, of which 7,024,115 were exercisable. In addition, we have agreed to issue to the Company's lender a five-year warrant to purchase 100,000 shares of common stock at an initial exercise price equal to the market price per share on the date of issuance. In connection with such issuance, we have agreed to register the underlying shares. In connection with licensing and distribution arrangements, acquisitions of other companies, the repurchase of notes and financing arrangements, we have issued and may continue to issue common stock or securities convertible into common stock. Any such issuance or future issuance of substantial amounts of common stock or convertible securities could adversely affect prevailing market prices for the common stock and could adversely affect our ability to raise capital. 13 INFORMATION ABOUT ACCLAIM A Delaware corporation, Acclaim was founded in 1987. Our principal executive offices are located at One Acclaim Plaza, Glen Cove, New York 11542, and our main telephone number is (516) 656-5000. Our Internet website is: http://www.acclaim.com. Information contained on our website should not be deemed part of this prospectus. We develop, publish, market and distribute video and computer games for use with game consoles, both dedicated and portable, and PCs on a worldwide basis. We own and operate four software development studios located in the U.S. and U.K. where we develop our own software, and also a motion capture studio and a recording studio in the U.S. We also contract with independent software developers to create software for us. We publish, or release to the public under our brand names, software developed by us as well as by third-party developers. We distribute our software directly to retailers in North America, U.K., Germany, France, Spain and Australia. We also distribute software developed and published by third parties, develop and publish strategy guides in support of our software and issue "special edition" comic book magazines from time to time to support our time-valued brands, Turok and Shadowman. The video and computer games industry is characterized by rapid technological changes, which have resulted in successive introductions of increasingly advanced game consoles and PCs. As a result of the rapid technological shifts, no single game console or PC system has achieved long-term dominance in the video and computer games market. Therefore, we must continually anticipate game console cycles and our research and development group must develop programming tools and engines necessary for the development of software for emerging hardware systems. Our revenues have traditionally been derived from sales of software for the then-popular game consoles. Accordingly, our performance has been, and is expected in the future to be, materially adversely affected by platform transitions. As a result of the industry transition to 32-bit and 64-bit game consoles, which commenced in 1995, our software sales during fiscal 1996, 1997 and 1998 were significantly lower than in fiscal 1994 and 1995. Our inability to predict accurately the timing of such transition resulted in material losses in fiscal 1996 and 1997. In fiscal 2000, the video and computer games industry began experiencing another platform transition from 32-bit and 64-bit to 128-bit game consoles and related software. We believe that sales of 32-bit and 64-bit game consoles peaked in 2000 and will continue to decrease substantially in future periods. This transition during fiscal 2000 resulted in increased competition, fewer hit titles capable of achieving significant sales levels and increased price weakness for non-hit titles. The software transition has also resulted in industry-wide software pricing weakness which impacted our operating results during fiscal 2000 and 2001, as the market shifts to the next-generation systems that were launched by Sony in fiscal 2001, and which are anticipated to be launched in North America by Nintendo and Microsoft in the Fall of 2001. We will continue to support PlayStation and Game Boy Color on a limited basis; we currently publish PlayStation 2 titles and will begin to publish titles for Game Boy Advance, which was launched in June 2001. We did not release any new N64 titles in fiscal 2001. We expect our portfolio of titles for fiscal 2002 to be dominated by PlayStation 2, Game Cube, Xbox and Game Boy Advance. In early 2001, Sega announced its 14 plan to exit the hardware business, cease distribution and sales of its Dreamcast console and re-deploy its resources to develop software for multiple platforms and accordingly we have not released any additional titles for the Dreamcast console after the second quarter of fiscal 2001. Although we do not believe that the installed base of next-generation platforms in 2001 will support software sales at the levels achieved in fiscal 1999 (before the current platform transition), when the transition is complete we anticipate that the eventual installed base of 128-bit systems will provide a larger market for our software, with improved gross margins (based on the predominance of CD-based product rather than cartridge-based product) as compared to fiscal 1999. There can be no assurance that the newly announced next-generation game consoles (e.g., Nintendo's Game Cube and Microsoft's Xbox) will achieve commercial success similar to that of the 32-bit PlayStation or 64-bit N64, nor can there be any assurances made as to the timing of such success. See "Risk Factors: Industry Trends, Console Transitions and Technological Change May Adversely Affect our Revenues and Profitability." The rapid technological advances in game consoles have significantly changed the look and feel of software as well as the software development process. Currently, the process of developing software is extremely complex and we expect it to become more complex and expensive in the future with the advent of the more powerful next-generation game consoles. According to our estimates, the average development time for a title for dedicated game consoles is between 12 and 36 months and the average development cost for a title is between $1 million and $6 million. The average development time for our software for portable systems is currently between six and nine months and the average development cost for a title is between $100,000 and $300,000. Our revenues in any period are generally driven by the titles released by us in that period. We have experienced delays in the introduction of new titles, which has had a negative impact on our results of operations. It is likely that some of our future titles will not be released in accordance with our operating plans, in which event our results of operations and profitability in that period would be negatively affected. See "Risk Factors: Revenues and Liquidity Are Dependent on Timely Introduction of New Titles." Revenues from our 32-bit and 64-bit software in fiscal 2000 were significantly below our expectations, even as we moved to implement our strategy to transition our operating model to focus on CD-based product. Although we anticipated the softening of the market for these two maturing gaming consoles we were not able to precisely gauge the depth of the impact on our sales. We attributed the significant revenue decrease to three primary factors: (1) lower than expected retail sell-through on certain titles, which accounted for approximately 335,000 less units being sold; (2) delays in the introduction of new titles, which delays impacted fiscal 2000 revenue by approximately $131 million; and (3) the decline of the N64 market and our prior emphasis on the N64 gaming console. With respect to (3), during fiscal 1999, the N64 gaming console accounted for approximately 59% of our total revenue. For fiscal 2000, we anticipated the impending decline and planned a decrease of 13% from the prior year. In fact, our fiscal 2000 N64 business decreased 55% from fiscal 1999 and only accounted for 31% of total revenue in fiscal 2000. We also assessed the impact of these factors on shipments of new 32-bit and 64-bit product during the last half of fiscal 2000 by providing higher sales allowances as a percentage of gross revenues at the time these products were shipped. 15 Revenues from the our 64-bit software and certain 128-bit software in fiscal 2001 were affected by (1) the decline of the market for N64 software and our prior emphasis on the N64 platform, (2) the decline of the market for Dreamcast software and Sega's exit from the hardware market, (3) the declining rate of growth of the installed base of 64-bit game consoles, and (4) the limited distribution of PlayStation 2 consoles. During fiscal 2000 we substantially increased our sales allowances to address the effects on us of increased competition and industry-wide weakness in cartridge-based software sales and slower-than-expected sales of certain products. The decline in fiscal 2000 sales was partially offset by revenues from software for Sega's Dreamcast 128-bit CD game console, but sales for this console were lower in the first nine months of fiscal 2001 than the comparable period of the prior year based predominantly on Sega's announced hardware product discontinuation. The decline in sales for the first nine months of fiscal 2001 was partially offset by an increase in Sony PlayStation and Nintendo Game Boy revenue. We recorded net earnings of $7.4 million, or $0.12 per fully diluted share, for the three months ended June 2, 2001 compared to a net loss of $(49.7) million, or $(0.88) per fully diluted share, for the three months ended May 31, 2000. For the nine months ended June 2, 2001, we reported net earnings of $18.7 million, or $0.32 per fully diluted share, compared to a net loss of $(68.2) million, or $(1.21) per fully diluted share, for the nine months ended May 31, 2000. During the quarter ended June 2, 2001, our early retirement of certain of the notes resulted in an extraordinary gain of $7.1 million, or approximately $0.12 per fully diluted share. Because we were required to issue additional shares of common stock to certain investors due to delayed effectiveness of a registration statement filed by Acclaim on their behalf, the issuance of the additional shares of common stock in the fourth quarter of fiscal 2001 reduced the reported third quarter extraordinary gain of $7.1 million by approximately $4.0 million. In addition, in June 2001, we retired $6.6 million in principal amount of notes in exchange for 2,021,882 shares of our common stock which resulted in a non-cash loss on early extinguishment of debt of approximately $0.4 million in the fourth quarter of fiscal 2001. In addition, earnings from operations increased due to a significant reduction in operating expenses of $15.9 million or (39%) in the third quarter of fiscal 2001 when compared to the same period in fiscal 2000. In the second half of fiscal 2000 and continuing into the first nine months of fiscal 2001, we implemented expense reduction initiatives, which have reduced operating expenses commencing with the fourth quarter of fiscal 2000 and continuing into fiscal 2001. The plan reduced fixed and variable expenses company-wide, eliminated certain marginal titles under development, reduced staff and lowered marketing expenses, and featured the following efforts: o Reduction of Marketing and Selling Expenses - we successfully implemented our plan to substantially reduce selling and marketing expenses. For the first nine months of fiscal 2001 our selling and marketing expenses of $24.8 million were $32.3 million or 57% below the same period of the prior year, primarily the result of a reduction in TV and print media advertising as compared to the prior year. o Reduction of Overhead and Other Operating Expenses - Through a series of targeted headcount and other operating expense reductions, we successfully executed our cost reduction plan, which for the first nine months of fiscal 2001 reduced overhead and other operating expenses by $29.5 million, or 33%, to $59.4 million from $88.9 million for the same period of the prior year. 16 For the third quarter of fiscal 2001 and 2000, approximately 65% and 17%, respectively, and for the first nine months of fiscal 2001 and fiscal 2000, approximately 21% and 60%, respectively, of our gross revenue was derived from software developed by our studios. Third quarter revenue for fiscal 2001 was primarily driven by All-Star Baseball 2002 and Crazy Taxi, which accounted for an aggregate of approximately 62% of total revenues and were developed by our internal studios. We have implemented our two-tier strategy to rationalize our product development efforts by first ensuring that the development of software for the next-generation game consoles was performed by our own studios (i.e. All Star Baseball, Crazy Taxi, Quarterback Club). Internal development will permit us to better control variable expenses and help ensure the timely release and quality of our titles scheduled for release in fiscal 2002. At the same time, our product development efforts for the first half of fiscal 2001 emphasized the licensing of software development to third parties predominantly for already-released platforms. Research and development expenses declined $16.2 million or 36% because we reduced the overall number of titles being developed, reduced the development of software for the older consoles and concentrated our software development expenditures predominantly on next-generation platforms. Because of the focus on fewer and better games for the next-generation consoles, and the fact that a significant amount of the research and development work for developing the next-generation game engines is completed, we believe that we are well positioned to compete in the future. However, we generally expect research and development expenses to increase in the future as we develop titles and sequels across all platforms. See "Risk Factors: Profitability is Affected By Research and Development Expense Fluctuations due to Console Transitions and Development for Multiple Consoles." Significant operating expense reductions in the first nine months of fiscal 2001 of $61.8 million, or 42%, were realized as compared to the same period in fiscal 2000. We believe the expense reductions initiated by us in the fourth quarter of fiscal 2000 which continued throughout fiscal 2001 have contributed in returning our annual operations to profitability. However, we cannot assure our shareholders and investors that we will achieve profitability or the sales necessary to avoid further reductions in fiscal 2002. See "Risk Factors: Industry Trends, Platform Transitions and Technological Change May Adversely Affect Our Revenues and Profitability". Gross profit is primarily impacted by the percentage of sales of CD-based software as compared to the percentage of sales of cartridge-based software. Gross profit may also be significantly impacted from time to time by the level of returns and price protection and concessions to retailers and distributors to which we provide discounts and allowances. The percentage of foreign sales and the percentage of foreign sales to third party distributors may impact gross margins as well. Our margins on foreign software sales to third party distributors are approximately one-third lower than those on sales that we make directly to foreign retailers. As we continue to manage through the current game console transition and prepare to compete in the software market for next-generation game consoles, it is necessary that we meet our product release schedule, sales projections, manage our operational expenditures at the planned levels and continue to receive the support of our primary lender and our vendors in order to generate sufficient liquidity to fund our operations and repay the remaining note holders at maturity. 17 Our results of operations in the future will be dependent in large part on (1) the timing and rate of growth of the software market for 128-bit and other emerging game consoles and (2) our ability to identify, develop and timely publish, in accordance with our product release schedule software that performs well in the marketplace. --------------------- You should not use historical trends or factors affecting our operating results and financial condition to anticipate results or trends in future periods. See "Risk Factors" above. Also, you should not consider historic financial performance as a reliable indicator of future performance. --------------------- 18 RECENT DEVELOPMENTS July Private Placement In July 2001, we issued a total of 9,335,334 shares of our common stock to certain qualified institutional buyers and accredited investors at a price of $3.60 per share, for an aggregate gross purchase price of $33,607,201. This prospectus covers the offer and sale by the selling stockholders named in this prospectus of the 9,335,334 shares issued in the July private placement. The per share price represented an approximate 10% discount to the then-public trading price of the common stock. The proceeds of the private placement are intended to be used for ongoing product development for the next generation video game platforms, strategic acquisitions of additional properties, holiday season marketing and advertising campaigns, and the reduction of outstanding liabilities. The private placement was effected under the exemption from registration provided under section 4(2) of the Securities Act of 1933. We agreed to use our best efforts to register with the SEC all the common stock sold in the offering within 60 days following the closing. If the registration statement (of which this prospectus forms a part) is not effective on or before September 28, 2001, we must pay a penalty to each investor equal to 1% of the purchase price paid for the stock purchased by that investor. Thereafter, for every 30 days that pass without the registration statement being declared effective, we will be required to pay to each investor an additional amount equal to 1% of the purchase price paid for the stock purchased by that investor. Reduction in Extraordinary Gain Because we were required to issue additional shares of common stock to certain investors due to delayed effectiveness of a registration statement, the issuance of the additional shares of common stock in the fourth quarter of fiscal 2001 reduced the related reported third quarter extraordinary gain of $7.1 million by approximately $4.0 million. In addition, in June 2001, we retired $6.6 million in principal amount of notes in exchange for 2,021,882 shares of our common stock which resulted in a non-cash loss on early extinguishment of debt of approximately $0.4 million in the fourth quarter of fiscal 2001. USE OF PROCEEDS Acclaim will not receive any proceeds from the sale of any of the shares of its common stock by the selling stockholders. 19 SELLING STOCKHOLDERS Beneficial Ownership and Other Information The following table sets forth information with respect to the shares of common stock beneficially held by the selling stockholders:
Shares Percent Percent Beneficial Beneficially Owned Owned Ownership Prior Shares Being Owned After the Before After Name to an Offering** Offered Offering(1)** Offering Offering ---- ---------------- ------- ------------- -------- -------- Alexandra Global Investment Fund I, Ltd.(2) 5,181,882(2) 1,000,000 4,181,882 6.75% 5.45% Cumber Int'l S.A.(3) 72,000 72,000 0 * 0% Cumberland Benchmarked Partners, L.P.(3) 166,000 166,000 0 * 0% Cumberland Partners(3) 622,000 622,000 0 * 0% LongView Partners(3) 140,000 140,000 0 * 0% Hartford MF Small Company Fund(4) 1,142,200 710,000 432,200 1.49% * Hartford VA Small Company Fund(4) 3,163,000 1,962,000 1,201,000 4.12% 1.57% John D. and Catherine T. MacArthur Foundation(4) 152,800 95,000 57,800 * * Quissett Partners, L.P.(4) 581,500 570,000 11,500 * * Quissett Investors (Bermuda) L.P.(4) 525,100 515,500 9,600 * * Raytheon Master Pension Trust(4) 1,163,522 1,136,722 26,800 1.52% * WTC-CIF Emerging Growth Portfolio(4) 16,778 10,778 6,000 * *
20
Shares Percent Percent Beneficial Beneficially Owned Owned Ownership Prior Shares Being Owned After the Before After Name to an Offering** Offered Offering(1)** Offering Offering ---- ---------------- ------- ------------- -------- -------- n-Space, Inc.(5) 120,608 120,608 0 * 0% Pequot Scout Fund, L.P.(6) 1,326,400 695,000 631,400 1.73% * Pequot Navigator Offshore Fund, Inc.(6) 586,100 305,000 281,100 * * Potomac Capital Partners L.P.(7) 380,000 350,000 30,000 * * RLR Partners, L.P.(8) 592,000 417,000 175,000 * * TGT Capital Partners LP(9) 268,334 268,334 0 * 0% UBS Warburg LLC(10) 236,896 233,383 3,513 * * Z-Axis, Ltd.(11) 208,781 208,781 0 * 0% Zeke L.P.(12) 1,441,930 300,000 1,141,930 1.86% 1.47%
------------------ * Less than one percent. ** Beneficial ownership calculated as of September 21, 2001 in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 and is based on 76,727,569 shares of common stock outstanding. (1) Assumes that all of the shares covered by this prospectus are sold by the selling stockholders pursuant to this prospectus. The selling stockholders may choose to dispose of none or only a portion of the shares held by them pursuant to this prospectus. (2) We have been advised that Mikhail Filimonov and Dimitri Sogoloff are the principals of Alexandra Investment Management, LLC, the investment adviser of Alexandra Global Investment Fund I, Ltd. Alexandra Global beneficially holds a total of 5,181,882 shares of Acclaim's common stock, 4,181,882 of which is covered by a separate pending registration statement filed with the SEC. (3) We have been advised that Dipak M. Patel has voting and dispositive control over the following entities: Cumberland Associates, LLC, the investment adviser to Cumber Int'l S.A.; Cumberland GP LLC, the general partner of Cumberland Benchmarked Partners, L.P; LongView GP LLC, the 21 general partner of LongView Partners; and Cumberland GP LLC, the general partner of Cumberland Partners. (4) We have been advised that Wellington Management Company, LLP, serves as investment manager, investment adviser or investment sub-adviser to: Hartford MF Small Company Fund, Hartford VA Small Company Fund, Quissett Partners, L.P., Quissett Investors (Bermuda) L.P., Raytheon Master Pension Trust and WTC-CIF Emerging Growth Portfolio. Wellington Management Company is an investment adviser registered under the Investment Advisers Act of 1940. We have been advised that Wellington Management Company has shared voting and shared dispositive control over the securities in the accounts managed by it for these selling stockholders. Wellington Management Company, in its capacity as investment manager, investment adviser and investment sub-adviser, may be deemed to have shared beneficial ownership of a total of 8,392,910 shares of Acclaim's common stock, which shares are owned by numerous clients of Wellington Management. (5) We have been advised that Eric Dyke, Sean Purcell and Dan O'Leary are the shareholders of n-Space, Inc. (6) We have been advised that Pequot Capital is the Investment Manager to Pequot Navigator Offshore Fund, Inc. and Pequot Scout Fund, L.P. The executive officers of Pequot Capital are Messrs. Arthur J. Samberg, Daniel C. Benton and Kevin E. O'Brien, the directors of Pequot Capital are Messrs. Samberg, Benton and O'Brien, and the controlling shareholders are Messrs. Samberg and Benton. 22 (7) We have been advised that Paul J. Solit, Managing Member of Potomac Capital Management LLC (which is the management company for the selling stockholder) is the natural person who has voting or dispositive control over Potomac Capital Partners, L.P. (8) We have been advised that Ronald Rotter is the General Partner of RLR Partners, L.P. (9) We have been advised that Todd Turchetta has voting and dispositive control over TGT Capital Partners, L.P. (10) We have been advised that UBS Warburg LLC is owned by UBS AG, a company listed on the New York Stock Exchange. (11) We have been advised that David Luntz is the controlling stockholder of Z-Axis Ltd. (12) We have been advised that Ed Antoian is the General Partner of Zeke L.P. Zeke L.P. holds a total of 1,441,930 shares of Acclaim's common stock, 500,000 of which shares beneficially owned by Zeke L.P. are issuable upon the exercise of warrants received in connection with a junior participation transaction and which are covered by a separate pending registration statement filed with the SEC. July Private Placement In July 2001, we issued a total of 9,335,334 shares of our common stock to certain of the selling stockholders at a price of $3.60 per share, for an aggregate gross purchase price of $33,607,201. This prospectus covers the offer and sale by the selling stockholders named herein of the 9,335,334 shares issued in the July private placement. The per share price represented an approximate 10% discount to the then-public trading price of the common stock. The proceeds of the private placement are intended to be used for ongoing product development for the next generation video game platforms, strategic acquisitions of additional properties, holiday season marketing and advertising campaigns, and the reduction of outstanding liabilities. The private placement was effected under the exemption from registration provided under section 4(2) of the Securities Act of 1933. If the registration statement (of which this prospectus forms a part) is not effective on or before September 28, 2001, we must pay a penalty to each investor equal to 1% of the purchase price paid for the stock purchased by that investor. Thereafter, for every 30 days that pass without the registration statement being declared effective, we will be required to pay to each investor an additional amount equal to 1% of the purchase price paid for the stock purchased by that investor. This prospectus also covers the offer and sale by UBS Warburg LLC of the 233,388 shares issuable to UBS upon exercise of a warrant issued to UBS on July 30, 2001, in connection with a portion of its placement agent fee with respect to the July private placement. The shares are issuable at any time from time to time upon the exercise of the warrant by UBS at an exercise price of $3.60 per share and, if not exercised in full prior to July 30, 2004, expire on that date. This warrant (and the underlying shares issuable upon exercise) was originally issued in July 2001 by Acclaim to UBS pursuant to the exemption from registration provided under section 4(2) of the Securities Act of 1933. 23 Consultants Of the shares covered by this prospectus, 329,389 were issued to software developers. Acclaim entered into separate agreements with n-Space and Z-Axis under which each of n-Space and Z-Axis develops software for Acclaim. In June 2001, in consideration for development services rendered under these agreements, Acclaim issued 208,781 shares of common stock to n-Space and 120,608 shares of common stock to Z-Axis, both in separately privately-negotiated transactions pursuant to the exemption from registration provided under Section 4(2) of the Securities Act. The shares issued to each of the selling stockholders are restricted securities within the meaning of the Securities Act and cannot be offered for sale without an effective registration statement covering such offer and sale or pursuant to an applicable exemption from the registration requirements of the Securities Act. Pursuant to the terms of the various agreements, Acclaim filed the registration statement (of which this prospectus is a part) and will use its best efforts to keep the registration statement effective until all of the shares issued to the selling stockholders are disposed of by them. Except for the placement agent services provided by UBS to Acclaim and the software development services provided by n-Space and Z-Axis to Acclaim, neither Acclaim nor any of its affiliates has had any material relationship with any of the selling stockholders within the past three years. 24 PLAN OF DISTRIBUTION The selling stockholders have not employed an underwriter for the sale of shares by the selling stockholders. The selling stockholders may offer shares directly or through pledgees, donees, transferees or other successors in interest at various times: o on The Nasdaq Small Cap Market or in any other securities market on which Acclaim's common stock is then listed or traded, o in negotiated transactions, o in a combination of any of the above transactions, or o through any other available market transaction. The selling stockholders may offer shares at (1) fixed prices which may be changed, (2) prices prevailing at the time of sale, (3) prices related to such prevailing market prices, or (4) at negotiated prices. Sales on or through The Nasdaq Small Cap Market will be effected at such prices as may be obtainable and as may be satisfactory to the selling stockholders. No sales or distributions other than as disclosed in this prospectus will be effected until after this prospectus shall have been appropriately amended or supplemented, if required, to set forth the terms of the sale or distribution. The shares held by the selling stockholders may be sold directly or through brokers or dealers, or in a distribution by one or more underwriters on a firm commitment or best efforts basis. The method by which the selling stockholders' shares may be sold include: o a block trade (which may involve crosses) in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker or dealer as principal and resale by that broker or dealer for its account under this prospectus; o exchange distributions and/or secondary distributions in accordance with the rules of The Nasdaq Small Cap Market; o ordinary brokerage transactions in which the broker solicits purchasers; and o privately negotiated transactions. In addition, any shares of common stock that qualify for sale under Rule 144 or Rule 144A under the Securities Act may be sold under any such rules rather than under this prospectus. Brokers or dealers may receive commission or discounts from the selling stockholders in amounts to be negotiated immediately prior to the sale. Commission expenses and brokerage fees will be paid by the selling stockholders. The selling stockholders and any underwriters, dealers or agents that participate in the distribution of its shares of Acclaim's common stock may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit on the resale of those shares by them or any 25 discounts, commissions or adjustments received by any such underwriters, dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act. Acclaim has agreed to indemnify the selling stockholders, their officers, directors, shareholders, employees, agents, counsel, and each person who controls each selling stockholder, as determined under applicable securities laws, against certain kinds of liability relating to this offering. Types of liability include liability arising from any untrue statement or alleged untrue statement in this prospectus or the registration statement of which it is a part, any omission or alleged omission to state a material fact within this prospectus or the registration statement of which it is a part, and any violation under the Securities Act or any federal or state securities law or regulation. The selling stockholders have also agreed to indemnify Acclaim and its officers, directors, shareholders, partners, employees, agents, counsel, and each person who controls Acclaim, as determined under applicable securities laws, against certain kinds of liability relating to this offering. Types of liability include liability arising from any untrue statement or alleged untrue statement in this prospectus or the registration statement of which it is a part, any omission or alleged omission to state a material fact within this prospectus or the registration statement of which it is a part, and any violation under the Securities Act or any federal or state securities law or regulation, to the extent any of the violations occur in connection with written information furnished by a selling stockholder in connection with this prospectus or the registration statement of which it is a part. However, the total amount payable in indemnity by any selling stockholder shall not exceed net proceeds received by the selling stockholder in the registered offering out of which the violation arises. The parties have also agreed to make contribution in respect of any claims or damages for which indemnification is unavailable. Expenses of this offering related to this registration statement, estimated at $45,000, will be borne in full by Acclaim. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 26 LEGAL PROCEEDINGS We and other companies in the entertainment industry were sued in an action entitled James, et al. v. Meow Media, et al. filed in April 1999 in the U.S. District Court for the Western District of Kentucky, Paducah Division, Civil Action No. 5:99 CV96-J. The plaintiffs alleged that the defendants negligently caused injury to the plaintiffs as a result of, in the case of Acclaim, its distribution of unidentified "violent" video games, which induced a minor to harm his high school classmates, thereby causing damages to plaintiffs, the parents of the deceased individuals. The plaintiffs seek damages in the amount of approximately $110,000,000. The U.S. District Court for the Western District of Kentucky dismissed this action; however, it is currently on appeal to the U.S. Court of Appeals for the Sixth Circuit. We intend to defend this action vigorously. We and other companies in the entertainment industry were sued in an action entitled Sanders et al. v. Meow Media et al., filed in April 2001 in the U.S. District Court for the District of Colorado, Civil Action No. 01-0728. The complaint purports to be a class action brought on behalf of all persons killed or injured by the shootings which occurred at Columbine High School on April 20, 1999. We are a named defendant in the action along with more than ten other publishers of computer and video games. The complaint alleges that the video game defendants negligently caused injury to the plaintiffs as a result of their distribution of unidentified "violent" video games, which induced two minors to kill a teacher related to the plaintiff and to kill or harm their high school classmates, thereby causing damages to plaintiffs. The complaint seeks: compensatory damages in an amount not less than $15,000 for each plaintiff in the class, but up to $20,000,000 for some of the members of the class; punitive damages in the amount of $5,000,000,000; statutory damages against certain other defendants in the action; and equitable relief to address the marketing and distribution of "violent" video games to children. We believe the plaintiffs' claims are substantially similar to those dismissed by the U.S. District Court, and are on appeal, in the James case discussed above. We filed a motion to dismiss this action on July 9, 2001. We intend to defend this action vigorously. We received a demand for indemnification from the defendant Lazer-Tron Corporation in a matter entitled J. Richard Oltmann v. Steve Simon, No. 98 C1759 and Steve Simon v. J. Richard Oltmann, J Richard Oltmann Enterprises, Inc., d/b/a Haunted Trails Amusement Parks, and RLT Acquisitions, Inc., d/b/a Lazer-Tron, No. A 98CA 426, consolidated as U.S. District Court Northern District of Illinois Case No. 99 C 1055. The Lazer-Tron action involves the assertion by plaintiff Simon that defendants Oltmann, Haunted Trails and Lazer-Tron misappropriated plaintiff's trade secrets. Plaintiff alleges claims for Lanham Act violations, unfair competition, misappropriation of trade secrets, conspiracy, and fraud against all defendants, and seeks damages in unspecified amounts, including treble damages for Lanham Act claims, and an accounting. Pursuant to an asset purchase agreement made as of March 5, 1997, we sold Lazer-Tron to RLT Acquisitions, Inc. Under the asset purchase agreement, we assumed and excluded specific liabilities, and agreed to indemnify RLT for certain losses, as specified in the asset purchase agreement. In an August 1, 2000 letter, counsel for Lazer-Tron in the Lazer-Tron action asserted that our indemnification obligations in the asset purchase agreement applied to the Lazer-Tron action, and demanded that we indemnify Lazer-Tron for any losses which may be incurred in the Lazer-Tron action. In an August 22, 2000 response, we asserted that any losses which may result from the Lazer-Tron action are not assumed liabilities 27 under the asset purchase agreement for which we must indemnify Lazer-Tron. In a November 20, 2000 letter, Lazer-Tron responded to Acclaim's August 22 letter and reiterated its position that we must indemnify Lazer-Tron with respect to the Lazer-Tron action. No other action with respect to this matter has been taken to date. On November 27, 2000, we were sued in the U.S. District Court for the Southern District of New York, in an action entitled Comedy Partners vs. Acclaim Entertainment, Inc. (00 Civ. 9051 (S.D.N.Y.) (AKH.) In addition, on or about December 15, 2000, an action was commenced against us entitled Comedy Partners v. Acclaim Entertainment, Inc., Index No. 605476/00 (Supreme Court, New York County). On March 9, 2001, we reached an agreement with Comedy Partners to settle all claims between the parties for $900,000 which amount was included in accrued royalties payable at August 31, 2000 and March 3, 2001. Such amount was paid in full in installments by Acclaim in the third and fourth quarters of fiscal 2001. We are also party to various litigations arising in the ordinary course of our business, the resolution of none of which, we believe, will have a material adverse effect on our liquidity or results of operations. LEGAL MATTERS Rosenman & Colin LLP, 575 Madison Avenue, New York, New York 10022 will pass upon the validity of the shares offered by this prospectus for Acclaim. EXPERTS The consolidated financial statements of Acclaim Entertainment, Inc. and subsidiaries as of August 31, 2000 and 1999 and for each of the years in the three-year period ended August 31, 2000 have been incorporated by reference in this prospectus and in the registration statement of which it forms a part in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of that firm as experts in accounting and auditing. The report of KPMG LLP, dated November 29, 2000, contains an explanatory paragraph that states that Acclaim has incurred losses from operations, and has a working capital and stockholders' deficiency that raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. FORWARD-LOOKING STATEMENTS This prospectus includes discussions of future expectations and contains projections of results of operations or financial condition or other "forward-looking" information. Those statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by the statements. For a discussion of important factors that could cause actual results to differ materially from the forward-looking statements, see "Risk Factors." Given the significant risks and uncertainties inherent in the forward-looking statements included in this prospectus, the inclusion of these statements is not a representation by us or any other person that our objectives and plans will be achieved. 28 WHERE YOU CAN FIND MORE INFORMATION Acclaim is required to file periodic reports, proxy and information statements and other information with the SEC. You may read any materials filed by us at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. You may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Acclaim's SEC filings are also available to the public on the SEC's Internet website located at http://www.sec.gov. Acclaim has filed with the SEC a registration statement on Form S-3 under the Securities Act covering the issuance of the common stock. This prospectus is part of that registration statement. As allowed by SEC rules, this prospectus does not contain all of the information included in the registration statement or in the exhibits to the registration statement. For further information with respect to Acclaim and the securities offered by this prospectus, you should read the registration statement and the exhibits filed with the registration statement. You may obtain copies of the registration statement and exhibits from the SEC upon payment of a fee prescribed by the SEC or examine the documents, free of charge, at the public reference facilities referred to above. A summary in this prospectus of any document filed as an exhibit to the registration statement, although materially complete, does not summarize all of the information in that document. You should read the exhibit for a more complete understanding of the document or matter involved. Acclaim has also filed the following documents with the SEC under the Securities Exchange Act and they are incorporated into this document by reference: (1) Acclaim's Annual Report on Form 10-K for the fiscal year ended August 31, 2000 filed on November 29, 2000 (File No. 0-16986); (2) Acclaim's Quarterly Report on Form 10-Q for the period ended December 2, 2000 filed on January 16, 2001 (File No. 0-16986); (3) Acclaim's Quarterly Report on Form 10-Q for the period ended March 3, 2001 filed on April 16, 2001 (File No. 0-16986); (4) Acclaim's Quarterly Report on Form 10-Q for the period ended June 2, 2001 filed on July 17, 2001 (File No. 0-16986); (5) Current Report on Form 8-K, filed on March 22, 2001 (File No. 0-16986); (6) Current Report on Form 8-K, filed on April 13, 2001 (File No. 0-16986); (7) Current Report on Form 8-K, filed on July 3, 2001 (File No. 0-16986); (8) Current Report on Form 8-K, filed on August 2, 2001 (File No. 0-16986); (9) Current Report on Form 8-K, filed on August 14, 2001 (File No. 0-16986); and 29 (10) The information regarding Acclaim's common stock contained in the Registration Statement on Form 8-A, filed on June 8, 1988 (File No. 0-16986), as amended by the Current Report on Form 8-K, filed on August 25, 1989 (File No. 33-9460-C), relating to the one-for-two reverse stock split effected by Acclaim. Any document Acclaim files with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before the termination of this offering will be deemed to be incorporated by reference into this prospectus and to be a part of this prospectus from the date it is filed. Acclaim will provide to each person to whom this prospectus is delivered and who makes a written or oral request, free of charge, a copy of any document referred to above which has been incorporated into this prospectus by reference, except exhibits to the document. Requests for these documents should be sent to the Secretary, Acclaim Entertainment, Inc., One Acclaim Plaza, Glen Cove, New York 11542. Telephone requests for copies should be made to the Secretary at (516) 656-5000. You should rely only on the information provided in this prospectus or incorporated by reference into this prospectus. No person has been authorized to provide you with different information and you should not rely on any information you receive or representations made that are not contained in, or incorporated by reference into, this prospectus. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The information in this prospectus is accurate as of the date on the front cover. You should not assume that the information contained in this prospectus is accurate after the date on the cover page. 30 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. Acclaim will bear all expenses in connection with the preparation and filing of this registration statement. Brokers or dealers may receive commission or discounts from the selling stockholders in amounts to be negotiated immediately prior to the sale; commission expenses and brokerage fees will be paid by the selling stockholders. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under Article VII of Acclaim's by-laws, which are incorporated herein by reference, Acclaim agrees to hold harmless and indemnify any of its officers, directors, employees and agents from and against any judgments, fines, liabilities, or amounts paid in settlement as a result of or in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. Such action, suit, or proceeding must have been initiated against the indemnified party in his or her capacity as an officer, director, employee or agent of Acclaim. However, indemnification will only be paid if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Acclaim and, in the case of a criminal proceeding, had no reasonable cause to believe such conduct was unlawful. No indemnification shall be payable under this provision if a court having jurisdiction in the matter shall determine that such indemnification is not lawful. II-1 ITEM 16. EXHIBITS Exhibit Number Description ------ ----------- 4.1 -- Indenture dated as of February 26, 1997 between the Company and IBJ Schroder Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K, filed on March 14, 1997 (File No. 0-16986)) 4.2 -- Specimen form of the Registrant's common stock certificate (incorporated by reference to Exhibit 4 to the Registrant's Annual Report on Form 10-K for the year ended August 31, 1989, as amended (File No. 0-16986)) *4.3 -- Form of Share Purchase Agreement between the Registrant and the Purchasers listed on Schedule 1 attached thereto *4.4 -- Form of Registration Rights Agreement between the Registrant and the Purchasers listed on Schedule 1 attached thereto *5 -- Form of Opinion of Rosenman & Colin LLP **23.1 -- Consent of KPMG LLP *23.3 -- Consent of Rosenman & Colin LLP (included in Exhibit 5) *24.1 -- Power of Attorney (included on page II-5) --------- * FILED HEREWITH ** To be filed with a subsequent amendment. II-2 ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes 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 this registration statement or any material change to such information in this registration statement. The undersigned registrant hereby undertakes 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 herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering hereof. The undersigned registrant hereby undertakes 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. 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 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. 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 meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Nassau and State of New York on September 24, 2001. ACCLAIM ENTERTAINMENT, INC. By /s/ --------------------------------- Gregory E. Fischbach Chief Executive Officer II-4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gregory E. Fischbach and James R. Scoroposki, and each or either of them, his true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, and to file the same, with all the exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Co-Chairman of the Board; Chief ----------------------- Executive Officer; President; September 24, 2001 Gregory E. Fischbach Director /s/ Co-Chairman of the Board; Senior ----------------------- Executive Vice President; September 24, 2001 James R. Scoroposki Treasurer; Secretary; Director /s/ Chief Financial Officer and ----------------------- Executive Vice President (Chief September 24, 2001 Gerard F. Agoglia Financial and Accounting Officer) /s/ Director September 24, 2001 ----------------------- Kenneth L. Coleman /s/ Director September 24, 2001 ----------------------- Bernard J. Fischbach /s/ Director September 24, 2001 ----------------------- Robert H. Groman /s/ Director September 24, 2001 ----------------------- James Scibelli /s/ Director September 24, 2001 ----------------------- Michael Tannen II-5 EX-4.3 3 file002.txt SHARE PURCHASE AGREEMENT SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT, dated as of July 27, 2001 (this "Agreement"), is entered into by and between ACCLAIM ENTERTAINMENT INC., a Delaware corporation (the "Company"), and those persons named on Schedule 1 hereto (together, the "Purchasers"). W I T N E S S E T H: WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemptions from registration provided by Regulation D ("Regulation D") promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; WHEREAS, the Purchasers wish to purchase, and the Company wishes to issue and sell, for an aggregate purchase price of $___________ (the "Purchase Price"), upon the terms and conditions of this Agreement, a total of __________ shares (the "Shares") of the Company's Common Stock, par value $.02 per share (the "Common Stock"); and NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO PURCHASE; CLOSING (A) PURCHASE OF SHARES. Subject to the terms and conditions set forth herein, the Company hereby agrees to issue and sell to each of the Purchasers, and each Purchaser hereby agrees to purchase from the Company, such number of Shares at the Closing (as such term is defined in Section 1(b) hereof) as is listed opposite the name of such Purchaser on Schedule 1 hereto, at a purchase price of $3.60 per share, for an aggregate purchase price of $_____________. (B) CLOSING. The closing (the "Closing") of the purchase and sale of the Shares will take place at the offices of Rosenman & Colin LLP, 575 Madison Avenue, New York, New York 10022 on July ___, 2001, or at such other place and time as mutually agreed by the Purchasers and the Company. The date of the Closing is referred to herein as a "Closing Date." At the Closing, the Company will deliver to the Purchasers the applicable Shares purchased as set forth in Schedule 1, against payment of the Purchase Price by wire transfer of immediately available funds payable to the Company. The Shares shall be registered in each Purchaser's name or the name of its nominee(s) in such denominations as the Purchasers shall request pursuant to instructions delivered to the Company not less than three business days prior to the Closing Date. 2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION Each of the Purchasers severally represents and warrants to, and covenants and agrees with, the Company as follows: (a) The Purchaser is: (i) experienced in making investments of the kind contemplated by this Agreement; (ii) able, by reason of the business and financial experience of its management, to protect its own interests in connection with the transactions contemplated by this Agreement; (iii) able to afford the entire loss of its investment in the Shares; (iv) an "accredited investor" as that term is defined in Rule 501(a) of Regulation D; and (v) not a broker-dealer or an affiliate of a broker-dealer as such terms are defined in the Securities Exchange Act of 1934. (b) The Purchaser is acquiring the Shares for its own account for investment only and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered under the Securities Act. The Purchaser has not been organized for the purpose of investing in securities of the Company, although such investment is consistent with its purposes. (c) All subsequent offers and sales of the Shares by the Purchasers shall be made pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from such registration. (d) The Purchaser understands that the Shares are being offered and sold to it in reliance upon exemptions from the registration requirements of the United States federal securities laws, and that the Company is relying upon the truth and accuracy of the Purchaser's representations and warranties, and the Purchaser's compliance with its agreements, each as set forth herein, in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Shares. (e) The Purchaser: (i) has been provided with information with respect to the business of the Company, including, without limitation, the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 2, 2001 (the "Quarterly Report") and Annual Report on Form 10-K for the period ended August 31, 2000 (the "Annual Report"); and (ii) has had access to management of the Company and the opportunity to ask questions of the management of the Company. (f) The Purchaser has the requisite corporate power and authority to enter into this Agreement and the registration rights agreement in the form attached hereto as Exhibit A (the "Registration Rights Agreement") between the Company and the Purchasers relating to the Registrable Securities (as defined therein). 2 (g) This Agreement, the Registration Rights Agreement and the transactions contemplated hereby and thereby have been duly and validly authorized by the Purchaser and such agreements, when executed and delivered by each of the other parties thereto will each be a valid and binding agreement of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, except to the extent that enforcement of such agreements may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. 3. REPRESENTATIONS OF THE COMPANY The Company represents and warrants to each of the Purchasers that: (a) ORGANIZATION. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. Each of the Company's subsidiaries is a corporation duly organized and validly existing under the laws of its respective jurisdiction of incorporation. Each of the Company and its subsidiaries is duly qualified as a foreign corporation in all jurisdictions in which the failure to so qualify would have a Material Adverse Effect on the Company (as hereinafter defined). Schedule 3(a) lists all subsidiaries of the Company and, except as noted therein, all of the outstanding capital stock of all such subsidiaries is owned of record and beneficially by the Company. The Company and its subsidiaries have all requisite corporate power and authority, and hold all licenses, permits and other required authorizations from governmental authorities, necessary to conduct their business as it is now being conducted or proposed to be conducted and to own or lease their properties and assets as they are now owned or held under lease. (b) CAPITALIZATION. On the date hereof, the authorized capital of the Company consists of 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, par value $.02 per share ("Preferred Stock"). As of July 16, 2001, 64,333,912 shares of Common Stock are issued and outstanding and no shares of Preferred Stock are issued or outstanding. Schedule 3(b) sets forth all of the options, warrants and convertible securities of the Company, and any other rights to acquire securities of the Company (collectively, the "Derivative Securities") which are outstanding on the date hereof, including in each case: (i) the name and class of such Derivative Securities; and (ii) the number of shares of Common Stock into which such Derivative Securities are convertible as of the date hereof. All outstanding securities of the Company are validly issued, fully paid and nonassessable. No stockholder of the Company is entitled to any preemptive rights with respect to the purchase of or sale of any securities by the Company. Except as set forth on Schedule 3(b) and as contemplated herein, none of the shares of capital stock of the Company is reserved for any purpose, and the Company is neither subject to any obligation (contingent or otherwise), nor has any option, to repurchase or otherwise acquire or retire any shares of its capital stock. (c) CONCERNING THE SHARES. The Shares, when issued, will be duly and validly issued, fully paid and non-assessable, will be free and clear of any liens imposed by or through the 3 Company, will not be subject to preemptive rights and will not subject the holder thereof to personal liability by reason of being such a holder. There are currently no preemptive rights of any stockholder of the Company to acquire the Shares. (d) REPORTING COMPANY STATUS. The Common Stock is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company files reports with the Commission pursuant to Section 12 and/or 15(d) of the Exchange Act. To the knowledge of the Company, the Company has duly filed all materials and documents required to be filed pursuant to all reporting obligations under either Section 13(a) or 15(d) of the Exchange Act, other than certain hardware and software licenses which the Commission is considering requesting the Company to file as exhibits. The Common Stock is listed and traded on The Nasdaq SmallCap Stock Market ("Nasdaq") and the Company is not aware of any pending or contemplated action or proceeding of any kind to suspend the trading of the Common Stock. (e) LEGALITY. The Company has the requisite corporate power and authority to enter into this Agreement and the Registration Rights Agreement and to issue and deliver the Shares. (f) TRANSACTION AGREEMENTS. This Agreement and the Registration Rights Agreement (collectively, the "Primary Documents") and the transactions contemplated hereby and thereby have been duly and validly authorized by the Company; this Agreement and the other Primary Documents have been duly executed and delivered by the Company and are each the legal, valid and binding agreement of the Company, enforceable in accordance with their respective terms, except to the extent that enforcement of each agreement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. (g) NON-CONTRAVENTION. The execution and delivery of this Agreement and the other Primary Document, and the consummation by the Company of the transactions contemplated by this Agreement and the other Primary Document, does not (i) result in a violation of the Articles of Incorporation or By-laws of the Company or its subsidiaries, or (ii) constitute a default under (or an event which with notice or lapse of time or both could become a default) or give to others any rights of termination, amendment or cancellation of, any material agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (foreign or domestic and including federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected other than any of the foregoing which would not have a Material Adverse Effect (as hereinafter defined). Neither the filing of the registration statement required to be filed by the Company pursuant to the Registration Rights Agreement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied on or prior to the date hereof, for or relating to the registration of any shares of the Common Stock. (h) APPROVALS. Except as set forth on Schedule 3(h), no authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, stock 4 exchange or market or the stockholders of the Company is required to be obtained by the Company for the entry into or the performance of this Agreement and the other Primary Documents. (i) SEC DOCUMENTS, FINANCIAL STATEMENTS. Since September 1, 2000, the Company has filed all reports, schedules, forms and statements required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act (the "SEC Documents"), other than certain hardware and software licenses which the Commission is considering requesting the Company to file as exhibits. As of their respective dates, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents were prepared in accordance with U.S. generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries and results of their operations and cash flows for the periods covered thereby (subject, in the case of unaudited statements, to normal year-end audit adjustments). (j) UNDISCLOSED LIABILITIES. The Company has no material obligation or liability (whether accrued, absolute, contingent, unliquidated, or otherwise, whether due or to become due) arising out of transactions entered into at or prior to the Closing of this Agreement, or any action or inaction at or prior to the Closing of this Agreement, or any state of facts existing at or prior to the Closing of this Agreement, except (a) liabilities reflected on the latest balance sheet included in the SEC Documents (the "Company Balance Sheet"), (b) liabilities incurred in the ordinary course of business since the date of the Company Balance Sheet (none of which is a liability for breach of contract, breach of warranty, torts, infringements, claims or lawsuits) and (c) liabilities or obligations disclosed on Schedule 3(j) hereto. (k) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC Documents, since June 2, 2001, there has been no material adverse change nor any material adverse development in the business, properties, operations, financial condition, outstanding securities, employee relations, customer relations or results of operations of the Company or its subsidiaries, taken as a whole (each, a "Material Adverse Effect"). (l) TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company and its subsidiaries have good and marketable title to all of their material properties and assets, both real and personal, and have good title to all their leasehold interests, in each case subject only to (x) mortgages, pledges, liens, security interests, conditional sale agreements, encumbrances or charges created in the ordinary course of business and (y) the lien of the Company's lending institution. (m) PROPRIETARY RIGHTS. The Company and its subsidiaries have sufficient title and 5 ownership of all trademarks, service marks, trade names, internet domain names, copyrights, trade secrets, information, proprietary rights and processes necessary for the conduct of their business as now conducted and as proposed to be conducted, and, to the knowledge of the Company, such business does not conflict with or constitute an infringement on the rights of others. (n) GOVERNMENTAL PERMITS. The Company and its subsidiaries have all governmental franchises, permits, licenses and any similar governmental authority necessary for the conduct of their business as now conducted, the lack of which could result in a Material Adverse Effect. The Company and its subsidiaries are not in default in any respect under any of such governmental franchises, permits, licenses or similar authority. (o) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents or on Schedule 3(o), there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, in which an unfavorable decision, ruling or finding could have a Material Adverse Effect or adversely affect the transactions contemplated by the Primary Documents or the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, the Primary Documents. (p) EMPLOYMENT MATTERS. The Company and its subsidiaries are in material compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. There are no pending investigations involving the Company or any of its subsidiaries by the U.S. Department of Labor or any other governmental agency responsible for the enforcement of such federal, state, local or foreign laws and regulations. There is no unfair labor practice charge or complaint against the Company or any of its subsidiaries pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving the Company or any of its subsidiaries. No representation question exists respecting the employees of the Company or any of its subsidiaries and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any of its subsidiaries. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or any of its subsidiaries. No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent. (q) ERISA MATTERS. Neither the Company nor any ERISA Affiliate of the Company (as defined below) maintains, administers, contributes to or is obligated to contribute to any employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), including, without limitation, any multiemployer plan as defined in Section 3(37) of ERISA; employee welfare benefit plan (as defined in Section 3(1) of ERISA); or bonus, deferred compensation, stock purchase, stock option, severance plan, salary continuation, vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar arrangement with respect to any employees of the Company or any of its subsidiaries. For these 6 purposes, "ERISA Affiliate" means all members of a controlled group of corporations and all trades and businesses (whether or not incorporated) under common control and all other entities which, together with the Company, are treated as a single employer under any or all of section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "Code") on either the date of this Agreement or the Closing Date. (r) INSURANCE. The Company and its subsidiaries maintain property and casualty, general liability, personal injury and other similar types of insurance that are reasonably adequate, consistent with industry standards and their historical claims experience. The Company and its subsidiaries have not received notice from, and have no knowledge of any threat by, any insurer (that has issued any insurance policy to the Company or its subsidiaries) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy covering the Company or any of its subsidiaries presently in force. (s) TAXES. All applicable U.S. federal, state and local income and franchise tax returns ("Tax Returns") required to be filed by the Company and each of its subsidiaries have been prepared and filed in compliance with all applicable laws and were true, correct and complete in all material respects when filed, or if not yet filed have been granted extensions of the filing dates which extensions have not expired, and all taxes, assessments, fees and other governmental charges upon the Company, its subsidiaries, or upon any of their respective properties, income or franchises, required to be paid by the Company or its subsidiaries to be due and payable have been paid, or adequate reserves therefor have been set up if any of such taxes are being contested in good faith; or if any of such Tax Returns have not been filed or if any such taxes have not been paid or so reserved for, the failure to so file or to pay would not in the aggregate have a Material Adverse Effect. All amounts required to be withheld by the Company or any of its subsidiaries from employees for income, social security and other payroll taxes have been collected and withheld and have either been paid to the appropriate agency, set aside in accounts for such purpose or accrued and reserved upon the books and records of the Company or the appropriate subsidiary. There were no tax liens on any of the Company's or its subsidiaries' assets that arose in connection with the failure, or alleged failure, to pay any taxes except for liens for taxes not yet due and payable. No taxing authority is asserting or threatening to assert against the Company or any of its subsidiaries any deficiency or claim for additional taxes and no Tax Return of Company or any of its subsidiaries is currently under audit by any tax authority. The provision for taxes on the Company Balance Sheet adequately reflects all tax liabilities in accordance with U.S. generally accepted accounting principles. (t) COMPLIANCE WITH LAW. To the best of their knowledge, the Company and its subsidiaries have complied in all material respects with all applicable statutes and regulations of the United States and of all states, municipalities and applicable agencies and foreign jurisdictions or bodies in respect of the conduct of its business and operations, and the failure, if any, by the Company or its subsidiaries to have fully complied with any such statute or regulation has not and will not result in a Material Adverse Effect. (u) INVESTMENT COMPANY ACT. The Company and its subsidiaries are not conducting, 7 and will not conduct, their business in a manner which would cause any of them to become an "investment company," as defined in Section 3(a) of the Investment Company Act of 1940, as amended. (v) BROKERAGE FEES. Except as set forth on Schedule 3(v), the Company and its subsidiaries have not incurred any liability for any consulting fees or agent's commissions in connection with the offer and sale of the Shares and the transactions contemplated by this Agreement. (w) PRIVATE OFFERING. Subject to the accuracy of the Purchasers' representations and warranties set forth in Section 2 hereof, the offer, sale and issuance of the Shares, as contemplated by this Agreement, are exempt from the registration requirements of the Securities Act. Prior to the effectiveness of the registration statement contemplated by the Registration Rights Agreement, the Company agrees that neither the Company nor anyone acting on its behalf will offer any of the Shares, or any similar securities, for issuance or sale, or solicit any offer to acquire any of the same from anyone so as to render the issuance and sale of such securities subject to the registration requirements of the Securities Act. The Company has not offered or sold the Shares by any form of general solicitation or general advertising, as such terms are used in Rule 502(c) under the Securities Act. (x) FULL DISCLOSURE. Neither this Agreement, the Primary Documents nor any of the schedules, exhibits, written statements, documents or certificates prepared or supplied by the Company with respect to the transactions contemplated hereby contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which made. Except as disclosed in the SEC Documents and except for matters affecting the industry of the Company as a whole, there exists no fact or circumstance which, to the knowledge of the Company upon due inquiry, could reasonably be anticipated to have a Material Adverse Effect or could adversely affect the ability of the Company to perform its obligations set forth in the Primary Documents. 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS (a) TRANSFER RESTRICTIONS. Each of the Purchasers acknowledges that, except as provided in the Registration Rights Agreement, (i) none of the Shares have been, or are being, registered under the Securities Act, and such securities may not be transferred unless (A) subsequently registered thereunder or (B) they are transferred pursuant to an exemption from such registration; and (ii) any sale of the Shares made in reliance upon Rule 144 under the Securities Act may be made only in accordance with the terms of said Rule. The provisions of Section 4(a) and 4(b) hereof, together with the rights and obligations of the Purchasers under this Agreement and the other Primary Documents, shall be binding upon any subsequent transferees of the Shares. (b) RESTRICTIVE LEGEND. Each of the Purchasers acknowledges and agrees that, until such time as the Shares shall have been registered under the Securities Act or such Purchaser 8 demonstrates to the reasonable satisfaction of the Company that such registration shall no longer be required, such Shares shall bear a restrictive legend in substantially the following form: THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO LONGER BE REQUIRED. (c) FILINGS. The Company undertakes and agrees that it will make all required filings in connection with the sale of the Shares to the Purchasers as required by United States laws and regulations, or by any domestic securities exchange or trading market, and if applicable, the filing of a notice on Form D (at such time and in such manner as required by the Rules and Regulations of the Commission), and to provide copies thereof to the Purchasers promptly after such filing or filings. (d) NASDAQ LISTING. The Company shall use its best efforts to promptly secure the listing of the Shares upon each national securities exchange or automated quotation system, if any, upon which the Common Stock is then listed. The Company further agrees and covenants that it will not seek to have the trading of its Common Stock on Nasdaq suspended or terminated, will use its best efforts to maintain its eligibility for trading on Nasdaq and, if such trading of its Common Stock is suspended or terminated, will use its best efforts to requalify its Common Stock or otherwise cause such trading to resume. (e) REPORTING STATUS. The Company shall timely file all reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act and shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. (f) STATE SECURITIES FILINGS. The Company shall from time to time promptly take such action as either the Purchasers or any of their representatives, if applicable, may request to qualify the Shares for offering and sale under the securities laws (other than United States federal securities laws) of the jurisdictions in the United States as shall be so identified to the Company, and to comply with such laws so as to permit the continuance of sales therein, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subsection (f) be obligated to be so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction. (g) USE OF PROCEEDS. The Company will use all of the net proceeds from the sale of the 9 Shares for the Company's working capital, and the retirement of a portion of the Company's 10% Convertible Notes due March 2002. (h) REGISTRATION RIGHTS. The Company acknowledges that in order to induce the Purchasers to enter into this Agreement, it has provided them with certain registration rights under the Securities Act as set forth in the Registration Rights Agreement. In this regard, the Company has agreed that if the Registration Statement (as defined in the Registration Rights Agreement) is not declared effective by the Effectiveness Deadline (as defined in the Registration Rights Agreement), the Company shall pay to each Purchaser an amount equal to one percent (1%) of the purchase price paid for the Shares purchased by each Purchaser. Thereafter, for every 30 days that pass without the Registration Statement being declared effective after the Effectiveness Deadline, the Company shall pay to each Purchaser an additional amount equal to one percent (1%) of the purchase price paid for the Shares purchased by each Purchaser. 5. TRANSFER AGENT INSTRUCTIONS The Company warrants that no instruction, other than the instructions referred to in this Section 5, prior to the registration and sale under the Securities Act of the Common Stock will be given by the Company to its transfer agent and that the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement and applicable law. Nothing in this Section shall affect in any way the Purchasers' obligations and agreement to comply with all applicable securities laws upon resale of the Shares. If a Purchaser provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Purchaser of any of the Shares in accordance with Section 4(a) of this Agreement is not required under the Securities Act, the Company shall permit the transfer of the Shares and promptly instruct the Company's transfer agent to issue one or more certificates for Common Stock without legend in such names and in such denominations as specified by the Purchaser. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SHARES Each Purchaser understands that the Company's obligation to issue the Shares on the Closing Date to the Purchasers pursuant to this Agreement is conditioned upon the satisfaction or waiver by the Company of each of the following conditions: (a) The accuracy on the Closing Date of the representations and warranties of the Purchasers contained in this Agreement as if made on the Closing Date and the performance by the Purchasers on or before the Closing Date of all covenants and agreements of the Purchasers required to be performed on or before the Closing Date. (b) The absence or inapplicability of any and all laws, rules or regulations prohibiting 10 or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained. (c) The Purchasers shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company. (d) The Purchasers shall have delivered the full Purchase Price in accordance with Section 1(a) above. 7. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE THE SHARES The Company understands that the Purchasers' obligation to purchase the Shares on the Closing Date is conditioned upon the satisfaction or waiver by the Purchasers of each of the following conditions: (a) The accuracy on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date, and the performance by the Company on or before the Closing Date of all covenants and agreements of the Company required to be performed on or before the Closing Date. (b) The Company shall have executed this Agreement and the Registration Rights Agreement and delivered same to the Company. (c) On the Closing Date, the Purchasers shall have received an opinion of counsel for the Company, dated the Closing Date, in the form attached as Exhibit B hereto. (d) On the Closing Date, the Purchasers shall have received a certificate executed by the President or the Chief Executive Officer of the Company and by the Chief Financial Officer of the Company, stating that all of the representations and warranties of the Company set forth in this Agreement and the other Primary Documents are accurate as of the Closing Date and that the Company has performed all of its covenants and agreements required to be performed under this Agreement and the other Primary Documents on or before the Closing Date. (e) The Purchasers shall have received an incumbency certificate, dated the Closing Date, for the officers of the Company executing this Agreement, and any other documents or instruments delivered in connection with this Agreement at the Closing. (f) The Purchasers shall have received a certificate of the Secretary or Assistant Secretary of the Company, dated the Closing Date, as to the continued and valid existence of the Company, certifying the attached copy of the By-laws of the Company, the authorization of the execution, delivery and performance of the Primary Documents, and the resolutions adopted by the Board of Directors of the Company authorizing the actions to be taken by the Company contemplated by he Primary Documents. 11 (g) The Purchasers shall have received a certified copy of the Articles of Incorporation of the Company as filed with the Secretary of State of the State of Delaware and any amendments thereto through the Closing Date. (h) The Purchasers shall have received from the Company such other certificates and documents as they or their representatives, if applicable, shall reasonably request, and all proceedings taken by the Company in connection with the Primary Documents contemplated by this Agreement and the other Primary Documents and all documents and papers relating to such Primary Documents shall be satisfactory to the Purchasers. (i) No injunction, order, investigation, claim, action or proceeding before any court or governmental body shall be pending or threatened wherein an unfavorable judgment, decree or order would restrain, impair or prevent the carrying out of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause any such transaction to be rescinded. (j) The Company shall have obtained in writing or made all consents, waivers, approvals, orders, permits, licenses and authorizations of, any registrations, declarations, notices to and filings and applications with, any governmental authority or any other person or entity (including, without limitation, securityholders and creditors of the Company) required to be obtained or made in order to enable the Company to observe and comply with all its obligations under this Agreement and to consummate the transactions contemplated hereby. 8. INDEMNIFICATION (A) Indemnification of Purchasers by the Company. The Company hereby agrees to indemnify and hold harmless each of the Purchasers, their affiliates and their respective officers, managers, members, directors, partners, shareholders, employees and members (collectively, the "Buyer Indemnitees"), from and against any and all losses, claims, damages, judgments, penalties, liabilities and deficiencies (collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel), in each case promptly as incurred by the Buyer Indemnitees and to the extent arising out of or in connection with: (i) any misrepresentation, omission of fact or breach of any of the Company's representations, warranties or covenants contained in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company pursuant to this Agreement; or (ii) any failure by the Company to perform any of its covenants, agreements, undertakings or obligations set forth in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company 12 pursuant to this Agreement. (B) Indemnification of the Company by Purchasers. Each of the Purchasers hereby severally agrees to indemnify and hold harmless the Company, its affiliates and their respective officers, directors, partners and members (collectively, the "Company Indemnitees"), from and against any and all Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses (including the fees and expenses of legal counsel), to the extent arising out of or in connection with any breach of any of such Purchaser's representations, warranties or covenants contained in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by such Purchaser pursuant to this Agreement; provided, however, that the total amount payable in respect thereto by each Purchaser under this Section 8(B) shall not exceed the purchase price paid by such Purchaser. (C) Third Party Claims. Promptly after receipt by either party hereto seeking indemnification pursuant to this Section 8 (an "Indemnified Party") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "Claim"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Section 8 is being sought (the "Indemnifying Party") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall have concluded that representation of the Indemnified Party by the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying 13 Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of legal counsel for the Indemnified Party (together with appropriate local counsel). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which consent shall not unreasonably be withheld) settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnified Party from all liabilities with respect to such Claim or judgment. 9. EXPENSES The Company covenants and agrees with the Purchasers that the Company shall pay or cause to be paid the following: (i) all expenses in connection with registration or qualification of the Shares for offering and sale under federal securities laws, and state securities laws as provided in Section 4(f) hereof; and (ii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section, including the fees and disbursements of the Company's counsel, accountants and other professional advisors, if any. 10. SURVIVAL The agreements, covenants, representations and warranties of the Company and the Purchasers, including indemnification obligations under Section 8, shall survive the execution and delivery of this Agreement and the delivery of the Shares hereunder until the Company has satisfied in full its obligations under the terms of the Registration Rights Agreement. 11. MISCELLANEOUS (a) GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of New York. Each of the parties submits to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement or any of the transactions contemplated hereby, and hereby waives, to the maximum extent permitted by law, any objection, including any objections based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. (b) COUNTERPARTS. This Agreement may be signed in two or more counterparts, each of which shall be deemed an original. (c) HEADINGS. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement. 14 (d) INTERPRETATION. This Agreement and each of the Primary Documents have been entered into freely by each of the parties, following consultation with their respective counsel, and shall be interpreted fairly in accordance with its respective terms, without any construction in favor of or against either party. (e) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or unenforceability of this Agreement in any other jurisdiction. (f) SUCCESSORS. This Agreement shall inure to the benefit of, and be binding upon the successors and assigns of each of the parties hereto. (g) AMENDMENTS. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. (h) MERGER. This Agreement, together with the other Primary Documents, supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (i) EQUITABLE RELIEF. The Company and the Purchasers each recognize that in the event that any party fails to perform, observe, or discharge any or all of its obligations under this Agreement or the other Primary Documents, any remedy at law may prove to be inadequate relief to the aggrieved party. The Company and the Purchasers therefore agree that an aggrieved party under this Agreement or the other Primary Documents, if such party so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. (j) NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by five days advance written notice to each of the other parties hereto. COMPANY: Acclaim Entertainment, Inc. One Acclaim Plaza Glen Cove, New York 11542 ATTENTION: Gerald Agoglia Chief Financial Officer Tel.: (516) 656-5000 Fax: (516) 656-2039 with a copy to: 15 Rosenman & Colin LLP 575 Madison Avenue New York, NY 10022 ATTENTION: Eric M. Lerner, Esq. Tel.: (212) 940-8800 Fax: (212) 940-8776 PURCHASERS: At the addresses set forth on the signature pages hereto. 12. NON-DISCLOSURE. The Purchasers acknowledge that the Company is a publicly-listed company and, as such, is subject to strict regulation governing the disclosure of information relating to corporate transactions. Except as required by law, without the prior written consent of the Company, the Purchasers will not directly or indirectly, make any public comment, statement or communication to any individual or entity with respect to, or otherwise disclose the existence of discussions regarding a possible transaction between the parties or any of the terms, conditions, or other aspects of this Agreement until such time as the transaction is completed, or any confidential information provided by the Company to the Purchasers. Further, the Purchasers acknowledge that they may not trade in the securities of the Company when they are in possession of material, non-public information and that they agree that they will not do so. The Purchasers will not use any confidential information provided by Company to the Purchasers for any purpose other than evaluating an investment by the Purchasers in the Shares. Confidential Information shall include all non-public information provided by the Company to the Purchasers, but shall not include information that (a) is now or subsequently becomes generally available to the public through no wrongful act or omission of the Purchasers, (b) the Purchasers can demonstrate to have had rightfully in their possession prior to disclosure to the Purchasers by the Company, and (c) the Purchasers rightfully obtain from a third party who has the right to transfer or disclose it. If the Purchasers are required by law to make any such disclosure, they shall first provide to the Company the content of the proposed disclosure, the reasons that such disclosure is required by law, and the time and place that the disclosure will be made. 16 IN WITNESS WHEREOF, this Share Purchase Agreement has been duly executed by each of the undersigned. Dated: July 27, 2001 COMPANY: ACCLAIM ENTERTAINMENT, INC. By: ------------------------------------------------- Name: Gregory E. Fischbach Title: President and Chief Executive Officer PURCHASERS: [PURCHASER] By:_______________ Name: Title: Address: EXHIBIT INDEX EXHIBIT A FORM OF REGISTRATION RIGHTS AGREEMENT EXHIBIT B FORM OF OPINION OF COUNSEL SCHEDULE 1 EX-4.4 4 file003.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of July ___, 2001 (this "Agreement"), is made by and between ACCLAIM ENTERTAINMENT, INC., a Delaware corporation (the "Company"), and those persons named in Schedule 1 (together, the "Purchasers"). W I T N E S S E T H: WHEREAS, pursuant to a Share Purchase Agreement, dated as of the date hereof, between the Company and the Purchasers (the "Share Purchase Agreement"), the Company has agreed to issue and sell to the Purchasers, a total of ___________ shares (the "Shares" or the "Registrable Securities") of the Company's common stock, par value $.02 per share (the "Common Stock"); WHEREAS, to induce the Purchasers to execute and deliver the Share Purchase Agreement, the Company has agreed to provide to the Purchasers and their permitted assigns certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: (a) "Holder" or "Holders" mean a holder or holders of Registrable Securities or securities convertible into or exercisable for Registrable Securities. (b) "Registration Statement" means a registration statement or registration statements of the Company filed under the Securities Act covering Registrable Securities. (c) "Register," "Registered" and "Registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such registration statement by the United States Securities and Exchange Commission (the "Commission"). Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Share Purchase Agreement. 2. MANDATORY REGISTRATION. (i) The Company shall, as soon as practicable, prepare and file with the Commission a Registration Statement or Registration Statements (as necessary) on Form S-3 covering the resale of all of the Registrable Securities. In the event that Form S-3 is unavailable and/or inappropriate for such a registration, the Company shall use such other form as is available and appropriate for such a registration. Any Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the Shares. The Company shall use its best efforts to cause the Registration Statement to be declared effective not later than 60 days following the Closing Date (the "Effectiveness Deadline"). If the Registration Statement is not declared effective by the Effectiveness Deadline, the Company shall pay to each Purchaser an amount equal to one percent (1%) of the purchase price paid for the Shares purchased by each Purchaser. Thereafter, for every 30 days that pass without the Registration Statement being declared effective after the Effectiveness Deadline, the Company shall pay to each Purchaser an additional amount equal to one percent (1%) of the purchase price paid for the Shares purchased by each Purchaser. (ii) The Company shall use its best efforts to keep each Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which the Registrable Securities (in the opinion of counsel to the Purchasers) may be immediately sold without restriction (including without limitation as to volume by each holder thereof) without registration under the Securities Act (the "Registration Period"). (iii) If any offering pursuant to a Registration Statement pursuant to Section 2 hereof involves an underwritten offering (which may only be with the consent of the Company), the Purchasers shall have the right to select legal counsel and an investment banker or bankers and manager or managers to administer the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company. (iv) Notwithstanding the foregoing, if the Company shall furnish to the Purchasers a certificate signed by the President or Chief Executive Officer of the Company (a "Demand Deferral Notice") stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Registration Statement to be filed and it is therefore essential to defer the filing of such Registration Statement, then the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the request of the Purchasers; provided, however, that the Company may not utilize this right more than once in any twelve-month period. (v) If Registrable Securities are registered for sale under the Securities Act, the Purchasers shall cease any distribution of such shares under the Registration Statement not more than twice in any 12-month period, for up to 90 days each, upon the request of the 2 Company if: (x) such distribution would require the public disclosure of material non-public information concerning any transaction or negotiations involving the Company or any of its affiliates that, in the good faith judgment of the Company's Board of Directors, would materially interfere with such transaction or negotiations, (y) such distribution would otherwise require premature disclosure of information that, in the good faith judgment of the Company's Board of Directors, would adversely affect or otherwise be detrimental to the Company or (z) the Company proposes to file a registration statement under the Securities Act for the offering and sale of securities for its own account in an underwritten offering and the managing underwriter therefor shall advise the Company in writing that in its opinion the continued distribution of the Registrable Securities would adversely affect the success of the offering of the securities proposed to be registered for the account of the Company. The Company shall promptly notify the Purchasers at such time as (i) such transactions or negotiations have been otherwise publicly disclosed or terminated, (ii) such non-public information has been publicly disclosed or counsel to the Company has determined that such disclosure is not required due to subsequent events or (iii) the completion of such underwritten offering. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall do each of the following: (a) Prepare and file with the Commission the Registration Statements required by Section 2 of this Agreement and such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectuses used in connection with the Registration Statements, each in such form as to which the Purchasers and their counsel shall not have objected, as may be necessary to keep the Registration current at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statements; (b) Furnish to the Purchasers, if the Registrable Securities of the Purchasers are included in the Registration Statement, and their legal counsel identified to the Company, promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, a copy of the Registration Statement, each preliminary prospectus, each final prospectus, and all amendments and supplements thereto and such other documents, as the Purchasers may reasonably request in order to facilitate the disposition of their Registrable Securities; (c) As soon as practicable, furnish to the Purchasers and their counsel copies of any correspondence between the Company and the Commission with respect to any registration statement or amendment or supplement thereto filed pursuant to this Agreement; (d) Use all best efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Purchasers may request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and 3 qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period and (iv) take all other actions necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subsection (d) be obligated to be so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) List such securities on The Nasdaq SmallCap Market and all the other national securities exchanges on which any securities of the Company are then listed, and file any filings required by The Nasdaq SmallCap Market and/or such other exchanges; (f) Notify each Purchaser and (if requested by the Purchaser) confirm such advice in writing, (i) when or if 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 any request by the Commission for amendments or supplements to the Registration Statement or the prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) If any fact contemplated by clause (v) of paragraph (f), above, shall exist, prepare a supplement or post-effective amendment to the Registration Statement or the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchaser of the Registrable Securities the prospectus will not contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) If the Company has consented to an underwritten offering and such offering is underwritten, at the request of a Purchaser, to furnish on the date that Registrable Securities are delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to any Purchaser selling Registrable Securities in connection with such underwriting, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act and (B) the registration statement, the 4 related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements or other financial data contained therein) and (ii) a letter dated such date from the Company's independent public accountants addressed to the underwriters and to such Purchasers, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters may reasonably request; (i) Cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and to enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Purchasers may reasonably request, and registered in such names as the Purchasers may request; and, within three business days after a Registration Statement which includes Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Purchasers) an appropriate instruction and opinion of such counsel; (j) Enter into customary agreements (including, in the case of an underwritten offering, underwriting agreements in customary form, and including provisions with respect to indemnification and contribution in customary form and consistent with the provisions relating to indemnification and contribution contained herein) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in connection therewith: (i) make such representations and warranties to the Purchasers and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings; (ii) to the extent requested and customary for the relevant transaction, enter into a securities sales agreement with the Purchasers and such representative of the Purchasers as the Purchasers covered by any Registration Statement shall select relating to the Registration and providing for, among other things, the appointment of such representative as agent for the selling Purchasers for the purpose of soliciting purchases of Registrable Securities, which agreement shall be customary in form, substance and scope and shall contain customary representations, warranties and covenants; and (iii) deliver such customary documents and certificates as may be reasonably requested by the Purchasers whose Registrable Securities are being sold or by the managing underwriters, if any. 5 The above shall be done (i) at the effectiveness of such Registration Statement (and each post-effective amendment thereto) in connection with any registration, and (ii) at each closing under any underwriting or similar agreement as and to the extent required thereunder; (k) The Company shall, at the request of the Purchasers, make generally available to its security holders as soon as practicable, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a 12 month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of a Registration Statement; (l) The Company shall make available for inspection by (i) any Purchaser, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Purchasers, and (iv) one firm of attorneys retained by all such underwriters (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collective, the "Records"), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to the Inspectors) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a material misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(l). Each Purchaser agrees that upon learning that the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, it shall give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein shall be deemed to limit the Purchasers' ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations; and (m) The Company shall hold in confidence and not make any disclosure of information concerning a Purchaser provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other 6 agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning a Purchaser is sought in or by a court or governmental body of competent jurisdiction or though other means, give prompt notice to such Purchaser prior to making such disclosure, and allow the Purchaser, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. 4. OBLIGATIONS OF THE PURCHASERS TO PROVIDE INFORMATION. In connection with the registration of the Registrable Securities, each Purchaser shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities, and each Purchaser shall execute such documents in connection with such registration as the Company may reasonably request. At least ten days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Purchasers of the information the Company included in the Registration Statement. 5. EXPENSES OF REGISTRATION. All expenses, other than underwriting discounts and commissions and other fees and expenses of investment bankers and other than brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualification fees, printing and accounting fees, and the fees and disbursements of counsel for the Company, and the fees of one counsel to the Purchasers with respect to each Registration Statement filed pursuant hereto, shall be borne by the Company provided, that the expenses of such Purchasers' counsel shall not exceed $[15,000]. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) The Company will indemnify and hold harmless each Purchaser, each of its officers, directors, partners and shareholders, and each person, if any, who controls each Purchaser within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the Commission) or the omission to state therein any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state or foreign securities law or any rule or regulation under the Securities 7 Act, the Exchange Act or any state or foreign securities law (the matters in foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall, subject to the provisions of Section 6(b) below, reimburse each Purchaser, promptly as such expenses are incurred and are due and payable, for any legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise, including without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with litigation in which the Purchaser is a party), incurred by it in connection with the investigation or defense of any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) shall not (i) apply to any Claim arising out of or based upon a modification which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) with respect to any preliminary prospectus, inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the final prospectus, as then amended or supplemented, if such final prospectus was timely made available by the Company pursuant to Section 3(b) hereof; (iii) be available to the extent that such Claim is based upon a failure of the Purchaser to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof; or (iv) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Purchaser pursuant to Section 9. Each Purchaser will indemnify the Company and its officers and directors against any Claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of the Purchaser, expressly for use in connection with the preparation of the Registration Statement (including any modifications, amendments or supplements thereto), subject to such limitations and conditions as are applicable to the Indemnification provided by the Company in this Section 6; provided, however, that in no event shall any indemnity by any Purchaser under this Section 6 exceed the amount of the net proceeds received by such Purchaser in connection with the offering effected through such Registration Statement. (b) Promptly after receipt by an Indemnified Person under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, 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 that the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person, provided, however, that an Indemnified 8 Person shall have the right to retain its own counsel with the reasonable fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. In such event, the Company shall pay for only one separate legal counsel for the Purchasers, and such legal counsel shall be selected by the Purchasers. The failure to deliver written notice to an indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person under this Section 6, except to the extent that the indemnifying party is materially prejudiced in its ability to such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. (c) No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of an unconditional and irrevocable release from all liability in respect of such claim or litigation. (d) Notwithstanding the foregoing, to the extent that any provisions relating to indemnification or contribution contained in the underwriting agreements entered into among the Company, the underwriters and the Purchasers in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in such underwriting agreements shall be controlling as to the Registrable Securities included in the public offering; provided, however, that if, as a result of this Section 6(d), a Purchaser, its officers, directors, partners, shareholders or any person controlling the Purchaser is or are held liable with respect to any Claim for which they would be entitled to indemnification hereunder but for this Section 6(d) in an amount which exceeds the aggregate proceeds received by the Purchaser from the sale of Registrable Securities included in a registration pursuant to such underwriting agreement (the "Excess Liability"), the Company shall reimburse the Purchasers for such Excess Liability. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited under applicable law, the indemnifying party agrees to contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the Indemnified Person on the other hand in connection with the statements or omissions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the Indemnified Person shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact on which such Claim is based relates to information supplied by the indemnifying party or by the Indemnified Person, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the forgoing, (a) no contribution shall be made under circumstances where the payor would not have been liable for indemnification under the fault 9 standards set forth in Section 6, (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net proceeds received by such seller from the sale of such Registrable Securities. The Company and the Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Purchasers and any other party were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section. 8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the Purchasers the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Purchasers to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144; (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to each Purchaser so long as such Purchaser owns Shares promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or periodic report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Purchaser to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by a Purchaser to any transferee of the Shares held by such Purchaser if: (a) such Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee; (c) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (d) the transfer of the relevant Shares complies with the restrictions set forth in Section 4 of the Share Purchase Agreement. 10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Purchasers holding two thirds (2/3) of the outstanding Registrable Securities. Any amendment or 10 waiver effected in accordance with this Section 10 shall be binding upon the Purchasers and the Company. 11. MISCELLANEOUS. (a) A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. (b) Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days advance written notice to each of the other parties hereto. COMPANY: Acclaim Entertainment, Inc. One Acclaim Plaza Glen Cove, New York 11542 Attention: Mr. Gerard Agoglia Chief Financial Officer Tel.: (516) 656-5000 Fax: (516) 656-2039 WITH COPIES TO: Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Attention: Eric M. Lerner, Esq. Tel.: (212) 940-8800 Fax: (212) 940-8776 PURCHASERS: to the addresses set forth on the signatures pages hereto. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. Each of the parties agrees to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this 11 Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. This Agreement may be signed in two or more counterparts, each of which shall be deemed an original. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such validity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. Subject to the provisions of Section 10 hereof, this Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. (e) This Agreement, together with the Share Purchase Agreement, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (f) Subject to the requirements of Section 9 hereof, this Agreement shall inure for the benefit of and be binding upon the successors and assigns of each of the parties hereto. (g) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (h) The Company acknowledges that any failure by the Company to perform its obligations under Section 2, or any delay in such performance could result in direct and indirect damages to the Purchasers, and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or delay, the Company shall be liable for all direct and consequential damages caused by any such failure or delay. Nothing herein shall limit the Purchasers' right to pursue any claim seeking such direct or consequential damages. [Signature page follows] 12 IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned. Dated: July ___, 2001 "COMPANY" ACCLAIM ENTERTAINMENT, INC. By: --------------------------------- Name: Title: "PURCHASERS" ------------------------------------ By: --------------------------------- Name: Title: Address: ------------------------------------ By: --------------------------------- Name: Title: Address: ------------------------------------ By: --------------------------------- Name: Title: Address: ------------------------------------ 13 By: --------------------------------- Name: Title: Address 14 SCHEDULE 1 Purchasers EX-5 5 file004.txt OPINION OF ROSENMAN & COLIN LLP EXHIBIT 5 Form of Opinion _______ __, 2001 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Gentlemen: We have been requested by Acclaim Entertainment, Inc. (the "Company"), a Delaware corporation, to furnish our opinion in connection with the Company's Registration Statement (the "Registration Statement") on Form S-3 (Registration No. ____________) covering an aggregate of 9,898,106 shares (the "Shares") of common stock, par value $0.02 per share, of the Company to be offered and sold by the selling stockholders named therein. In connection with the foregoing, we have made such examination as we have deemed necessary for the purpose of rendering this opinion. Based upon such examination, it is our opinion that the Shares have been duly authorized and, to the extent issued as of the date hereof, are validly issued, fully paid and non-assessable, and when issued in accordance with the terms of the warrant described in the Registration Statement will be fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to our name under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, Rosenman & Colin LLP By -------------------------- A Partner