<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Interactive Entertainment Limited
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] $125 per Exchange Act Rules 0-11 (c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
845 Crossover Lane, Suite D-215
Memphis, Tennessee 38117
September 15, 1997
To Our Shareholders:
You are cordially invited to attend the 1997 Annual General Meeting of
Shareholders of Interactive Entertainment Limited, a Bermuda exempted company
(the "Company"), which will be held at 9:00 a.m., local time, on October 17,
1997, at the Adam's Mark Hotel, 939 Ridge Lake Boulevard, Memphis, Tennessee
(the "Annual General Meeting").
At the Annual General Meeting, Shareholders will vote (i) to elect seven
persons to the Board of Directors; (ii) to approve and ratify the Company's
Management Incentive Plan; (iii) to appoint Ernst & Young LLP as the Company's
independent public accountants; (iv) to receive and consider the report of the
directors to the shareholders and the financial statements of the Company
together with the auditor's report thereon for the financial year ended February
28, 1997; and (v) to transact such other business as may properly come before
the Annual General Meeting. Further information concerning the meeting and the
nominees for director can be found in the accompanying Notice and Proxy
Statement.
I hope that you can attend the Annual General Meeting and assist the Board
by voting for the election of directors, the ratification of the Management
Incentive Plan and the ratification of the appointment of the auditors. Whether
or not you plan to attend the Annual General Meeting, please be sure to date,
sign and return the proxy card in the enclosed, postage-paid envelope as
promptly as possible so that your shares may be represented at the meeting and
voted in accordance with your wishes.
If you attend the meeting, you may vote in person, even if you have
previously submitted a proxy card.
Sincerely,
Laurence S. Geller
Chairman of the Board
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
845 Crossover Lane, Suite D-215
Memphis, Tennessee 38117
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON October 17, 1997
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Shareholders
("Annual General Meeting") of INTERACTIVE ENTERTAINMENT LIMITED, a Bermuda
exempted company (the "Company"), will be held at the Adam's Mark Hotel, 939
Ridge Lake Boulevard, Memphis, Tennessee on October 17, 1997, at the hour of
9:00 o'clock in the morning, local time, for the following purposes:
1. to elect seven persons to the Board of Directors;
2. to approve and ratify the Company's Management Incentive Plan;
3. to appoint Ernst & Young LLP as the Company's independent public
accountants;
4. to receive and consider the report of the directors to the
shareholders and the financial statements of the Company together with
the auditor's report thereon for the financial year ended February 28,
1997; and
5. to transact such other business as may properly come before the Annual
General Meeting.
The foregoing matters are described more fully in the accompanying Proxy
Statement. While this Notice and Proxy Statement and the enclosed form of proxy
are being sent only to shareholders of record and beneficial owners of whom the
Company is aware as of August 26, 1997, all shareholders of the Company of
record on the date of the meeting are entitled to attend and to vote at the
Annual General Meeting. The Company's Annual Report for the year ended February
28, 1997, including audited financial statements, was mailed to the shareholders
of the Company on or about the time of the mailing of this Notice and Proxy
Statement.
We hope you will be represented at the Annual General Meeting by signing,
dating and returning the enclosed proxy card in the accompanying envelope as
promptly as possible, whether or not you expect to be present in person. Your
vote is important -- as is the vote of every shareholder -- and the Board
appreciates the cooperation of shareholders in directing proxies to vote at the
meeting.
Your proxy may be revoked at any time by following the procedures set forth
in the accompanying Proxy Statement, and the giving of your proxy will not
affect your right to vote in person if you attend the Annual General Meeting.
DATED: September 15, 1997.
By Order of the Board of Directors
David Lamm
Secretary
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
845 Crossover Lane, Suite D-215
Memphis, TN 38117
PROXY STATEMENT
For the Annual General Meeting of Shareholders
October 17, 1997
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of INTERACTIVE ENTERTAINMENT
LIMITED, a Bermuda exempted company ("the Company" or "IEL"), for use at the
annual general meeting of the Company to be held at the Adam's Mark Hotel, 939
Ridge Lake Boulevard, Memphis, Tennessee on October 17, 1997 at 9:00 o'clock in
the morning, local time, and at any adjournments or postponements thereof (the
"Annual General Meeting"). Unless the context otherwise requires, references to
the Company include IEL and its subsidiaries. The proxy is revocable by (i)
filing a written revocation with the Secretary of the Company prior to the
voting of such proxy, (ii) giving a later dated proxy, or (iii) attending the
Annual General Meeting and voting in person. Shares represented by all properly
executed proxies received prior to the Annual General Meeting will be voted at
the meeting in the manner specified by the holders thereof. Proxies that do not
contain voting instructions will be voted (i) FOR the election of the nominees
approved by the Board; (ii) FOR the ratification of the Company's Management
Incentive Plan; (iii) FOR the appointment of Ernst & Young LLP as the Company's
independent public accountants; and (iv) if any other matters properly come
before the Annual General Meeting, in accordance with the best judgement of
persons designated as proxies.
The Board has established August 26, 1997 as the date used to determine
those record holders and beneficial owners of Common Stock to whom notice of the
Annual General Meeting will be sent (the "Record Date"). However, under Bermuda
law, regardless of whether this Notice and Proxy Statement were received, all of
the shareholders of record of the Company are entitled to be present and vote at
the Annual General Meeting. On the Record Date, there were 21,761,590 shares of
common stock, par value U.S. $.01 per share, (the "Common Stock") outstanding.
The holders of the Common Stock are entitled to one vote for each share of
Common Stock held. All matters presented at the Annual General Meeting require
approval by a simple majority of votes cast at the meeting. The presence, in
person or by proxy, at the Annual General Meeting of at least two shareholders
entitled to vote is necessary to constitute a quorum at the Annual General
Meeting. This Notice, Proxy Statement and enclosed form of proxy are first being
mailed on or about September 15, 1997.
ELECTION OF DIRECTORS
(PROPOSAL 1)
In accordance with the Company's Bye-Laws, seven directors are to be
elected at this Annual General Meeting. The Board recommends the election to the
Board of the seven nominees whose names appear below. Directors of the Company
are elected at each annual general meeting and hold office until the next annual
general meeting or until their successors are nominated and elected. All of the
nominees are presently directors of the Company with the exception of Messrs.
Deeson, Shiboleth and Stevenson. In the absence of instructions to the contrary,
the enclosed proxy will be voted FOR the nominees herein listed.
Pursuant to the Bye-Laws of the Company, the Board is comprised of 10
members. Three directors are to be appointed by Harrah's Interactive Investment
Company, a Nevada Corporation, ("HIIC", and together with its affiliates, the
"HIIC Entities"), pursuant to Bye-Law 54B which provides that during such time
as the HIIC Entities own 10% or more of the outstanding voting securities, or
their equivalents, of the Company, on a fully-diluted basis, the HIIC Entities
will have the ability to appoint a percentage of directors (rounded to the
nearest 10%) which has the same proportion to the size of the entire Board as
the number of such voting securities held by the HIIC Entities bears to the
total number of such securities, on a fully-diluted basis. The HIIC Entities
will also be entitled to such proportionate representation on the Executive,
Compensation and Audit Committees of the Board. On the Record Date, the HIIC
Entities owned approximately 6,886,915 of the outstanding voting securities, or
their equivalents, of the Company. The directors appointed by the HIIC Entities
are in addition to the seven remaining members of the
<PAGE>
Board to be elected at the Annual General Meeting. The directors appointed by
the HIIC Entities currently serving on the Board are listed below.
CHARLES L. ATWOOD, age 49, has been a director of the Company since June
17, 1997. Mr. Atwood is Vice President and treasurer of Harrah's Entertainment,
Inc., which position he has held since 1996. From 1992 to 1996, Mr. Atwood was
corporate director of Harrah's Entertainment, Inc. Mr. Atwood joined Holiday
Inns, Inc. in 1979, where he worked on the acquisition of Harrah's by Holiday
Inns, Inc. Mr. Atwood handled investor relations from 1980 through the
transition of the company from Holiday Inns, Inc. to Holiday Corporation, the
sale of the Holiday Inn brand, the spin-off of the Promus Companies, and the
spin-off of the Company's hotel brands to Promus Hotel Corporation. Mr. Atwood
is also a director for the Perkins Family Restaurants, L.P., a public company.
JOHN M. BOUSHY, age 43, has been a director of the Company since June 17,
1997. He also served as a director of the company's operating subsidiary from
December 1994 until June 17, 1997. Mr. Boushy served as President of the
Company's operating subsidiary from December, 1996 until November 1996. Mr.
Boushy is Senior Vice President for Information Technology, and Marketing
Services, for Harrah's Entertainment, Inc., where he has been employed since
1979.
With respect to the nominees for the seven members of the Board to be
elected by the shareholders of the Company at the Annual General Meeting, the
following sets forth the name of each nominee and, for each, the period during
which the nominee has served as a director, information relating to the
nominee's age, principal occupation and business experience during the past five
years, any other directorships held by the nominee in publicly held companies
and certain other information. Information with respect to the ages of
directors is as of August 27, 1997, and information as to their ownership of
shares of common Stock as of that date is provided under the caption "Security
Ownership By Directors, Officers and Five Persons (or More) Shareholders."
MALCOLM P. BURKE, age 55, has been a director of the Company since November
of 1990. Mr. Burke was also a director of IEL (Singapore) Pte. Ltd., the
Company's Singapore subsidiary, from December of 1995 through July of 1997. Mr.
Burke served as CEO of the Company from November 30, 1992 until September 30,
1996 and served as President of the Company from November 29, 1990 until June
17, 1997. Mr. Burke also served as an officer and director of the Company's
operating subsidiary prior to its amalgamation with the Company on June 17,
1997. Mr. Burke was previously associated with Royal LePage Ltd. as a
stockholder and investment broker. Mr. Burke is a director of JPY Holdings LTD.,
a public company traded on the Vancouver Stock Exchange.
ANTHONY P. CLEMENTS, age 51, has been a director of the Company since March
of 1992. Mr. Clements is an investment banker with T. Hoare & Co., based in
London, England, where he has worked since 1994. Mr. Clements also served as a
director of the Company's operating subsidiary from August 10, 1995 until its
amalgamation with the Company on June 17, 1997. Prior to 1994, Mr. Clements was
an investment banker for Rickets & Co., also based in London. Mr. Clements has
also managed the North American portfolio of Postel Investment Management
(pension fund managers for both the Post Office and British Telecom) from 1973
until 1987, and has worked in areas of corporate finance since 1987.
BRIAN DEESON, age 51, is the President and Chief Executive Officer of
Century International Hotels as well as Lai Sun Hotels International. He is
responsible for the overall corporate management of Century Hotels & Resorts
Asia-Pacific and Lai Sun Hotel's other hotel interests and investments. From
1987 to 1989, Mr. Deeson was responsible for the expansion of Radisson Hotels
Pty. Ltd. in Australasia. In 1989, Mr. Deeson established Century International
Hotels in Hong Kong, where he remains today. Mr. Deeson is on the board of
directors of Lai Sun Hotels International Limited, a company listed on the Hong
Kong Stock Exchange.
LAURENCE S. GELLER, age 49, has been a Director of the Company since
September 30, 1996. Mr. Geller has also served as the Company's Chairman since
September 30, 1996 and as the Company's CEO from September 30, 1996 to June 17,
1997. Mr. Geller also served as a director of the Company's operating
subsidiary
2
<PAGE>
from November 4, 1996 until its amalgamation with the Company on June 17, 1997.
Mr. Geller currently is President and CEO of Strategic Hotel Capital
Incorporated, a Chicago based hospitality finance and investment firm. Mr.
Geller is also Chairman and CEO of Geller & Co., a Chicago based hospitality,
finance and consulting firm, which Mr. Geller formed in 1989. Prior to forming
Geller & Co. in 1989, Mr. Geller was chief operating officer of Hyatt
Development Corporation.
PHILLIP GORDON, age 54, has been a director of the Company since December
6, 1996. Mr. Gordon is a partner in the Chicago law firm of Altheimer & Gray,
where he has practiced law for 25 years. Altheimer & Gray has acted as lead
corporate and securities counsel to the Company since March 1996. Mr. Gordon is
admitted to practice law in New York and Illinois.
AMNON SHIBOLETH, age 54, is a nominee for director. Mr. Shiboleth is a
partner at Shiboleth, Yisraeli, Roberts & Zisman, LLP, a New York and Israeli
based law firm, where Mr. Shiboleth has practiced international and corporate
law for 10 years. Mr. Shiboleth is admitted to practice law in New York and
Israel.
GORDON STEVENSON, age 51, has been CEO and President of the Company since
June 17, 1997. Mr. Stevenson served as Managing Director of the Company's
principal operating subsidiary from June 9, 1995 until November 4, 1996 when he
became president of the operating subsidiary. Mr. Stevenson also served as a
director of the Company's operating subsidiary from August 10, 1995 until its
amalgamation with the Company on June 17, 1997. From 1991 to 1993, Mr.
Stevenson was president of Intrico, a joint venture between Marriott, Hilton,
AMR Corporation and Budget Car Rental. Between 1993 and June 9, 1995, Mr.
Stevenson operated his own management consulting group, assisting international
travel and leisure companies with strategic business planning. Prior to his
work at Intrico, Mr. Stevenson served as vice president of Sales and Marketing
for Hyatt International Corporation and Director of Sales and Marketing for
Europe and the Middle East for Holiday Inns.
The Company is not aware of any arrangements or understandings between any
of the individuals named above and any other person pursuant to which any of the
individuals named above were selected as a director and/or executive officer.
The Company is not aware of any family relationship among the officers and
directors of the Company or its subsidiaries. The only arrangement with respect
to members of the Board of which the Company is aware is the right of the HIIC
Entities to appoint directors to the Board pursuant to Bye-Law 54B of the
Company's Bye-laws.
OTHER INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Meetings; Compensation
There were three meetings of the Board held during the fiscal year ended
February 28, 1997. None of the directors attended less than 75% of the
aggregate number of meetings of the Board or the committees on which they
served. Pursuant to the Company's Bye-Laws, the Board consists of 10 directors.
Upon the election of the nominees proposed herein, one director will be a
salaried employee of the Company and one director will be principal of a
consulting firm, Geller & Co., which is compensated by the Company for services
rendered to the Company. As discussed above, the HIIC Entities currently have
the right to appoint three of the 10 directors. See "Election of Directors."
At the December 6, 1996 meeting of the Board, the Board adopted an option
plan covering 500,000 shares of Common Stock for members of the Board (the
"Director Option Plan"). Pursuant to the Director Option Plan, all directors
holding office at December 10th of each year automatically will be granted
options for the purchase of 10,000 shares of Common Stock at the trading price
on such day. Options granted pursuant to the Director Option Plan have a 10
year term. On December 10, 1996, each of the directors of the Company were
awarded options for the purchase of 10,000 shares, at an exercise price of
$4.125 and an expiration date of December 10, 2006. All of
3
<PAGE>
the directors of the Company are reimbursed for out-of-pocket expenses. The
directors of the Company receive no other compensation.
Executive Committee
The Executive Committee of the Board consists of Messrs. Boushy, Geller and
Gordon. The principal functions of the Executive Committee are to exercise the
power of the Board in the management of the business and affairs of the Company
with certain exceptions. The executive committee did not hold any meetings
during the fiscal year ended February 28, 1997 since the Board fulfilled the
functions of the Executive Committee for that period.
Audit Committee
The principal functions of the Audit Committee are to make recommendations
to the Board regarding its independent auditors to be nominated for election by
the shareholders and to review the independence of such auditors, to approve the
scope of the annual audit activities of the independent auditors, to approve the
audit fee payable to the independent auditors and to review such audit results.
Currently, there are no members of the Audit Committee. Pending appointment of
a new committee following the Annual General Meeting, the Board and the
Executive Committee have been fulfilling the functions of the Audit Committee.
Compensation Committee
The Compensation Committee is currently comprised of Messrs. Boushy and
Gordon. The Compensation Committee did not hold any meetings during the fiscal
year ended February 28, 1997. For information on the duties and actions of the
Compensation Committee, see "Report on Compensation".
SECURITY OWNERSHIP BY DIRECTORS, OFFICERS AND FIVE PERCENT (OR MORE)
SHAREHOLDERS
As of August 26, 1997, based on information supplied to the Company, IEL's
directors and executive officers as a group may be deemed to own beneficially
(including shares purchasable upon exercise of stock options, exercisable within
60 days) 10.0% of the outstanding shares of Common Stock. To the knowledge of
the directors and officers of the Company, the following directors and officers
of the Company and owners of five percent (or more) of the outstanding Common
Stock beneficially own the shares of Common Stock set forth below.
<TABLE>
<CAPTION>
Amount
And Nature Of Percent
Name Beneficial Ownership Of Class/1/
-------- -------------------- -----------
<S> <C> <C>
Gordon Stevenson -- *
Laurence S. Geller/2/ 410,000 2.1%
Malcolm P. Burke/3/ 420,000 2.2%
James Grymyr/4/ 908,504 4.7%
Anthony P. Clements/5/ 110,000 *
Deborah Fortescue 212,500 1.1%
Merrin/6/
Phillip Gordon/7/ 15,000 *
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Amount
And Nature Of Percent
Name Beneficial Ownership Of Class/1/
-------- -------------------- -----------
<S> <C> <C>
Amnon Shiboleth -- *
John M. Boushy/8/ -- *
Charles L. Atwood/9/ -- *
Brian Deeson -- *
Directors and Officers as 2,010,004 10.3%
a Group (10 individuals)
Harrah's Interactive 6,886,915 35.5%
Investment Company/10/
</TABLE>
- ----------------
* Less than 1%
/1/ Percent of class is determined by dividing the number of shares
beneficially owned by the outstanding number of shares of the Company
decreased by the 3,525,000 shares held in escrow which are subject to an
irrevocable proxy and an agreement not to vote the shares, and increased by
options for 1,190,000 shares which are currently exercisable.
/2/ The 200,000 shares of Common Stock beneficially owned by Mr. Geller were
issued to Geller & Co., of which Mr. Geller is Chief Executive Officer, in
connection with Geller & Co.'s services to the Company as consultant.
Includes options for the purchase of 200,000 shares of Common Stock held by
Geller & Co. which are currently which exercisable incudes options for the
purchase of 10,000 shares of Common Stock held by Mr. Geller which are
currently exercisable and which were issued to Mr. Geller as compensation
as a director of the Company pursuant to the Director Option Plan. Does
not include options for 1,000,000 shares issued to Geller & Co., Mr. Geller
is principal, which were not exercisable as of August 26, 1997.
/3/ Includes 500 shares of Common Stock owned by Mr. Burke's wife and 40,000
shares of Common Stock over which Mr. Burke has shared voting and
investment power. Also includes options to purchase 300,000 shares of
Common Stock held by Sopo Investments, Ltd., a British Columbia
corporation, which is wholly owned by Mr. Burke ("Sopo") which are
currently exercisable. Also includes options for 10,000 shares of Common
Stock, which are currently exercisable, held by Mr. Burke which were issued
to Mr. Burke as a director of the Company pursuant to the Director Option
Plan.
/4/ Does not include 2,000,000 of the shares of Common Stock owned of record by
Sky Games International Inc., a Nevada corporation ("SGII"), which are
subject to an irrevocable proxy in favor of First Tennessee Bank and an
agreement by First Tennessee Bank not to vote such shares under any
circumstances. Mr. Grymyr owns 100% of SGII. Includes options to purchase
150,000 shares of Common Stock which are currently exercisable. Also
includes options to purchase 10,000 shares of Common Stock, which are
currently exercisable, and which were issued to Mr. Grymyr as a director of
the Company pursuant to the Director Option Plan.
/5/ Does not include 1,000,000 of the shares of Common Stock owned of record by
Mr. Clements which are subject to an irrevocable proxy in favor of First
Tennessee Bank and an agreement by First Tennessee Bank not to vote such
shares under any circumstances. Includes options to purchase 100,000
shares of Common Stock held by Mr. Clements, which are currently
exercisable. Also includes options to purchase 10,000 shares of Common
Stock, which are currently exercisable, and which were issued to Mr.
Clements as a director of the Company pursuant to the Directors Option
Plan. Does not include 333,333 shares of Common Stock which are held in
trust, for which Mr. Clements is neither trustee nor beneficiary, and as to
which Mr. Clements disclaims beneficial ownership.
/6/ Also includes options to purchase 10,000 shares of Common Stock, which are
currently exercisable, and which were issued to Ms. FortescueMerrin as a
director of the Company pursuant to the Director Option Plan.
5
<PAGE>
/7/ Includes options to purchase 10,000 shares of Common Stock, which are
currently exercisable, and which were issued to Mr. Gordon as compensation
as a director of the Company pursuant to the Director Option Plan.
/8/ Does not include 6,886,915 shares of Common Stock held by HIIC, which is a
wholly owned subsidiary of Harrah's Entertainment Inc., a Nevada
corporation ("HEI"). Mr. Boushy is Vice President of HIIC and is Senior
Vice President of HEI. Mr. Boushy serves on the Board as a designee by the
HIIC Entities pursuant to the Company's Bye-laws.
/9/ Does not include 6,886,915 shares of Common Stock held by HIIC a wholly
owned subsidiary of HEI. Mr. Atwood is Vice President and Treasurer of HEI.
/10/ Harrah's Interactive Investment Company's address is 1023 Cherry Road,
Memphis, Tennessee 38117.
EXECUTIVE COMPENSATION
The following table sets forth all compensation for services in all
capacities to the Company for the three most recently completed fiscal years in
respect of each of the individuals who were, as at February 28, 1997, the Chief
Executive Officer and the executive officers of the Company whose individual
total compensation for the most recently completed financial year exceeded
$100,000 ("the Named Executive Officers") including any individual who would
have qualified as a Named Executive Officer but for the fact that individual was
not serving as such an Officer at the end of the most recently completed
financial year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation Awards
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities
Fiscal Other Annual Restricted Underlying
Name and Year Salary Bonus Compensation Stock Options
Principal Position Ended ($) ($) ($) Awards (#)
- ------------------ ------ ------- ----- ------------ ---------- ----------
Laurence S. 1997 0 0 60,000/2/ 200,000/3/ 200,000
Geller 1996 0 0 5,000
CEO and
Chairman/1/
Malcolm Burke 1997 $85,000 7,500 0 0 300,000
President and 1996 $60,000 0 0 0 0
CEO 1995 $30,000 0 0 0 207,500/4/
- ----------------------------
</TABLE>
/1/ Mr. Burke served as CEO of the Company from November 30, 1992 to September
30, 1996. Mr. Geller served as CEO of the Company from September 30, 1996
to June 17, 1997.
/2/ Includes monthly cash retainer of $5,000 paid by the Company to Geller &
Co., of which Mr. Geller is principal.
/3/ Pursuant to the Company's retainer agreement with Geller & Co., of which
Mr. Geller is principal, Mr. Geller received a restricted stock award for
100,000 shares of Common Stock to vest in three equal tranches each six
months. Also, pursuant to its retainer agreement, Geller & Co. received a
grant award of 100,000 shares of Common Stock which was to vest upon the
completion of a major financing. Subsequent to the year end, the Board
determined that the Company's merger with a direct and indirect subsidiary
constituted a major financing and that, as of June 17, 1992, all 200,000
shares of Common Stock would vest.
6
<PAGE>
At the last fiscal year end, Geller & Co. held restricted stock holdings of
200,000, subject to vesting as described.
/4/ These 207,500 options were canceled as of March 1, 1996. See "Option
Repricings."
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Percent of
Number of Total
Securities Options Potential Realizable Value
Underlying Granted to Exercise At Assumed Annual Rates
Option Employees or Base of
Granted in Fiscal Price Expiration Stock Price Appreciation
Name (#) Year ($/sh) Date 5% 10%
- ------------ ------------ ----------- -------- ---------- -------------------------
Laurence 200,000/1/ 34.48% $ 3.00 February $377,337 $ 956,245
S. Geller 28, 2006
Laurence 10,000/3/ 1.7% $4.125 December $ 25,942 $ 65,742
S. Geller 10, 2006
Malcolm 300,000/1-2/ 51.7% $ 3.00 February $566,005 $1,434,368
P. Burke 28, 2001
Malcolm 10,000/3/ 1.7% $4.125 December $ 25,942 $ $65,742
P. Burke 10, 2006
</TABLE>
- ------------------
/1/ Option granted to Geller & Co. under the Company's stock program approved
by the Board on March 1, 1996 and approved by the shareholders of the
Company on August 27, 1996 (the "1996 Stock Program") to/ / Geller & Co.,
of which Laurence Geller is Chief Executive Officer.
/2/ Option issued to Sopo, a corporation wholly owned by Mr. Burke. The option
replaced a previous option for 207,800 shares of Common Stock priced at
$5.53 per share. See "Option Repricings."
/3/ Options granted to each director of the Company pursuant to the Director
Option Plan on December 10, 1996 at the closing market price on that day.
See "Option Repricings."
FISCAL YEAR-END OPTION VALUES
No options were exercised by the named executive officers during the fiscal
year ended February 28, 1997.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money Options at
Options at FY-End (#) FY-End
Name Exercisable ($) Exercisable
- ---------------------- --------------------- --------------------------------------------
<S> <C> <C>
Laurence S. Geller/1/ 200,000 $ 400,000
Laurence S. Geller/2/ 10,000 $ $8,750
Malcolm P. Burke/3/ 300,000 $ 600,000
Malcolm P. Burke/4/ 10,000 $ 8,750
</TABLE>
7
<PAGE>
- ---------------------
/1/ Option to purchase 200,000 shares of Common Stock issued to Geller & Co.
pursuant to the 1996 Stock Program and Geller & Co.'s retainer agreement
with the Company.
/2/ Option to purchase 10,000 shares of Common Stock issued to Mr. Geller
pursuant to the Director Option Program.
/3/ Option to purchase 300,000 shares of Common Stock issued to Sopo pursuant
to the 1996 Stock Program.
/4/ Option to purchase 10,000 shares of Common Stock issued to Mr. Burke
pursuant to the Director Option Plan.
OPTION REPRICINGS
During the fiscal year ended February 28, 1997, the Company adopted the
1996 Stock Program providing for grants and awards of options for 1.5 million
shares of the Common Stock of the Company. At the time of the adoption of the
program, all outstanding options were canceled, and the holders of the canceled
options received new options, at a lower price than the canceled options. The
purpose of the repricing of options was to provide a compensation scheme to
directors and significant employees of the Company that would better align the
interests of directors and management with that of the Company's shareholders,
and to provide compensation to directors and significant employees, which was
not possible on a cash basis. The following table sets forth information
regarding such repricing for each of the Named Executive Officers.
<TABLE>
<CAPTION>
Length Of
Number Of Market Price Original
Securities Of Stock At Exercise Price Option Term
Underlying Time Of At Time Of New Remaining At
Options Repricing Or Repricing Or Exercise Date Of
Repriced or Amendment Amendment Price Repricing Or
Name Date Amended ($) ($) ($) Amendment
- ------------ -------- ----------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm P. March 1, 207,800/1/ $3.25 $5.53 $3.00 2 years
Burke 1996 2 months
</TABLE>
/1/Mr. Burke received a total of 300,000 options for the purchase of Common
Stock at a price per share of $3.00 per share on March 1, 1996.
THE MEMBERS OF THE BOARD OF DIRECTORS DURING THE FISCAL YEAR
ENDED FEBRUARY 28, 1997
Malcolm P. Burke
Anthony P. Clements
Deborah Fortescue-Merrin
Laurence S. Geller
Phillip Gordon
James P. Grymyr
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended February 28, 1997, Malcolm P. Burke and
Laurence S. Geller participated in deliberations of the Board concerning
executive officer compensation. Each removed themselves from any deliberations
or votes affecting their direct or indirect compensation. For a discussion of
transactions between the aforementioned executive officers and the Company, see
"Certain Relationships and Related Transactions."
8
<PAGE>
REPORT ON COMPENSATION
Compensation of Malcolm P. Burke
During the fiscal year ended February 28, 1997, Malcolm P. Burke
served as Chairman and Chief Executive Officer until September 30, 1996, after
which time he served as President of the Company. During his tenure as Chairman
and Chief Executive Officer and during his tenure as President, Mr. Burke was
compensated for his services to the Company, by Sopo, a corporation wholly owned
by Mr. Burke. Sopo received management fees as compensation from the Company for
providing the services of Mr. Burke. Sopo was paid a bonus in the amount of
$7,500, in the last fiscal year for additional services which were required in
connection with additional, unanticipated efforts required by Mr. Burke required
by the financing of the Company and the merger of the Company with its operating
subsidiary, which occurred June 17, 1997. The compensation received by Sopo, and
Mr. Burke indirectly in the fiscal year ended February 28, 1997, was intended
by the Board to be comparable to that provided to similarly situated executive
officers at similarly situated companies in the industry.
In addition to cash compensation, pursuant to the 1996 Stock Program,
Sopo was granted options for the purchase of 300,000 shares of Common Stock at
$3.00 per share on March 1, 1997. The option grant replaced options for 207,800
shares of Common Stock at an exercise price of $5.53 per share. The options for
207,800 shares were issued to Sopo Investments, Inc. under a stock plan adopted
by the Company prior to the last fiscal year. The options for 207,800 shares
issued to Sopo have been canceled. See "Option Repricings."
Compensation of Laurence S. Geller
During the fiscal year ended February 28, 1997, Laurence S. Geller
served as Chairman and Chief Executive Officer of the Company from September 30,
1996 through the end of the fiscal year. During the entire fiscal year ended
February 28, 1997, Geller & Co., a consultancy firm of which Mr. Geller is Chief
Executive Officer, served as a consultant to the Company. Mr. Geller's only
compensation for his services to the Company as Chairman and Chief Executive
Officer were made pursuant to the Company's retainer agreement with Geller & Co.
for consulting services. Pursuant to the retainer agreement, Geller & Co.
received a cash retainer of $5,000 per month. Geller & Co. also received options
for the purchase of 200,000 shares of Common Stock at $3.00 per share pursuant
to the 1996 Stock Program. The retainer agreement also provided for two stock
grants of 100,000 each shares of common stock. Pursuant to Geller & Co.'s
retainer agreement, 100,000 shares of Common Stock were to vest in three equal
tranches each six months, provided Geller & Co. was not terminated for cause.
Also pursuant to Geller & Co.'s retainer agreement, 100,000 share of Common
Stock were to vest upon the occurrence of a major financing. Prior to June 17,
1997, the Board determined the Company's merger with its operating subsidiary
subsequent to the fiscal year end on June 17, 1997 constituted a major financing
and that the entire 200,000 share grant would vest upon the consummation of such
merger. See "Certain Relationships and Related Transactions -- Geller & Co.
Consulting Agreement."
Compensation of Other Officers
The Company's Secretary and Chief Financial Officer during the last
fiscal year, Patrick J. Lawless, was paid on an hourly basis as an independent
contractor to the Company. Mr. Lawless was also paid a performance bonus of
$5,000, based on a discretionary evaluation of his performance by the Company.
In addition to cash compensation, Mr. Lawless was granted options for 30,000
shares of Common Stock at $3.00 per share, pursuant to the 1996 Stock Program.
9
<PAGE>
The Members of The Board of Directors During The Fiscal Year Ended February 28,
1997
Malcolm P. Burke
Anthony P. Clements
Deborah Fortescue-Merrin
Laurence S. Geller
Phillip Gordon
James P. Grymyr
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Shareholder Return on Common Shares
----------------------------------------------------------------------------
of the Corporation and the Nasdaq National Market Stock Index
-------------------------------------------------------------
based on a $100 Investment assuming reinvestment of Dividends
-------------------------------------------------------------
<TABLE>
[GRAPH APPEARS HERE]
<CAPTION>
NASDAQ
INTERACTIVE NATIONAL
Measurement Period ENTERTAINMENT MARKET
(Fiscal Year Covered) LIMITED STOCK INDEX
- ------------------- ------------- -----------
<S> <C> <C>
Measurement Pt-
2/28/92 $100 $100
FYE 2/28/93 $ 85 $106
FYE 2/28/94 $156 $125
FYE 2/28/95 $ 99 $125
FYE 2/28/96 $ 74 $174
FYE 2/28/97 $110 $207
</TABLE>
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Geller & Co. Consulting Arrangement. Geller & Co., of which Laurence
Geller was Chairman and CEO, performed consulting services for the Company
throughout 1996 and 1997 pursuant to a retainer agreement. The retainer
agreement with the Company is for 18 months and commenced February 14, 1996. The
retainer agreement provides for a monthly cash retainer of $5,000. The retainer
agreement, as amended, also provides for a grant of 200,000 shares of Common
Stock to vest upon the closing of a major financing. The Board has determined
that the consummation of the amalgamation of one of the Company's wholly-owned
subsidiaries and its 80% owned subsidiary with and into the Company, which
occurred effective June 17, 1997, constituted a major financing, and,
consequently, the 200,000 share success fee has vested. Pursuant to Geller &
Co.'s retainer agreement, a grant of options for 200,000 shares of Common Stock
with a share price of $3.00 per share and a term of 10 years also made to Geller
& Co. as compensation for the consulting services under the retainer agreement.
Laurence Geller Compensation. Subsequent to year end, the Company
agreed to pay to Geller & Co. $100,000 per year as compensation for Mr. Geller's
services as Chairman of the Company. The Company and Geller & Co. agreed that
such payments could be deferred until such time as the Company was generating
sufficient revenues to have adequate cash flows to pay the cash amounts. In
addition, in consideration of Geller & Co.'s providing Mr. Geller's continuing
service as non-executive Chairman of the Board, the Company has granted to
Geller & Co. options for the purchase of 1,000,000 shares of Common Stock,
pursuant to the Management Incentive Plan (the "MIP"). The cash and stock option
arrangements with Geller & Co. were entered into to assure that the interests of
Geller & Co. continue to be aligned with the interests of the Company. It was
the judgment of the Compensation Committee of the Board of Directors that Mr.
Geller's relationships in the travel and lodging industry would be extremely
valuable to the Company in expanding its relationships with airlines and other
transportation companies. The options for the purchase of 1,000,000 share vest,
on an accelerated basis, in four tranches, contingent upon the stock price
reaching certain targets. 10% of the shares granted vest on the 20th consecutive
day on which the fair market value of the common Stock is at or above $5.00 per
share. 20% of the shares granted vest on the 20th consecutive day on which the
fair market value is at or above $7.00 per share. 30% of the shares granted vest
on the 20th consecutive day on which the Fair Market Value of the Common Stock
is at or above $9.00 per share. 40% of the shares granted vest on the 20th
consecutive day on which the fair market value of the Common Stock is at or
above $12.00 per share. All shares under the option grant vest on the ninth
anniversary of the grant, in all cases.
Retention of Altheimer & Gray. Altheimer & Gray, a Chicago-based
international law firm, was retained by the Company as lead corporate and
securities counsel in March of 1996. Phillip Gordon, a director of the Company
and a nominee for director to be elected at the Annual General Meeting, is a
partner of Altheimer & Gray. Amounts paid to Altheimer & Gray constitute less
than one percent of the firm's annual revenues.
Redemption Agreement. As of April 30, 1997, pursuant to Redemption
Agreements (the "Redemption Agreements"), the Company issued to Dr. Rex E.
Fortescue, formerly a director of the Company, and Anthony P. Clements, a
director of the Company, 175,000 and 333,000 shares of Common Stock,
respectively, as consideration for Messrs. Fortescue's and Clement's agreement
to tender for cancellation by the Company 1,525,000 shares of Common Stock (of
which 525,000 are owned by Dr. Fortescue and 1,000,000 are owned by Mr.
Clements) which are held in an escrow pursuant to a performance earn-out
provision, only if such shares are released from the escrow for any reason
whatsoever.
Redemption and Cancellation Agreement. Also following the fiscal year
end, pursuant to a Redemption and Cancellation Agreement (the "Redemption and
Cancellation Agreement") between the Company and Sky Games International Inc., a
Nevada corporation ("SGII"), the Company forgave the outstanding balance of a
note made by SGII (87% of the outstanding stock of which is owned by James P.
Grymyr, a director of the Company, and his wife) to the Company in the
approximate amount of $549,651, and issued to SGII 80,590 shares of Common
Stock, as consideration for SGII's agreement to tender 2,000,000 shares of
Common Stock it owns which are held in an escrow
11
<PAGE>
pursuant to a performance earn-out provision for cancellation by the Company and
only if such shares are released from the escrow for any reason whatsoever.
Grymyr Consulting. Additionally, as of April 30, 1997, the Company and
Mr. Grymyr entered into a consulting agreement (the "Consulting Agreement")
whereby Mr. Grymyr will provide consulting services to the Company as requested
by the Company from time to time. Under the terms of the Consulting Agreement,
the Company has issued to Mr. Grymyr 586,077 shares of Common Stock as
consideration for all such consulting past and future consulting services.
Amalgamations. Following the fiscal year end, the Company's then
wholly-owned subsidiary SGI Holding Corporation Limited, a Bermuda exempted
company ("SGIHC"), amalgamated with and into its 80% owned subsidiary, then
known as Interactive Entertainment Limited, a Bermuda exempted company
("Operating Sub") pursuant to a Plan and Agreement of Merger and Amalgamation,
dated as of May 13, 1997 (the "Amalgamation Agreement"), among the Company,
Operating Sub, SGIHC and HIIC, the owner of 20% of the outstanding stock of
Operating Sub. Pursuant to the Amalgamation Agreement, Operating Sub amalgamated
with and into SGIHC and thereafter SGIHC amalgamated with and into the Company
(the "Amalgamations"). As a result of the Amalgamation of Operating Sub and
SGIHC, the outstanding shares of Operating Sub common stock held by HIIC were
converted into 5,879,040 shares of Common Stock. Pursuant to the Amalgamation
Agreement, HIIC and its affiliates were provided, through certain amendments to
the Bye-laws of the Company, which were approved at the Special General Meeting
of Shareholders of the Company held June 16, 1997, with the right to appoint
persons (the "HIIC Appointees") to the Board and to specified committees in a
number generally proportionate to their share holdings. Additionally, the HIIC
Entities, as shareholders, and the HIIC Appointees were provided, pursuant to
the Amalgamation Agreement, with the right to approve specified significant
corporate actions by the Company for as long as the ownership of Common Stock by
the HIIC Entities is in excess of 20% (10% in some cases) of the outstanding
voting shares computed on a fully-diluted basis.
HIIC Funding Agreement. On May 13, 1997, the Company entered into a
Funding Agreement with HIIC (the "Funding Agreement"), which provided for a
revolving loan commitment by HIIC to IEL in a principal amount of up to
$1,000,000 (the "HIIC Loan"). The outstanding principal amounts and any accrued
and unpaid interest of the HIIC Loan was automatically converted into 1,007,875
shares of Common Stock at a conversion price of $1.00 per share upon
consummation of the Amalgamations. 1,000,000 shares of Common Stock were issued
to HIIC on June 17, 1997 and the 7,875 for accrued and unpaid interest were
issued to HIIC on July 21, 1997. In addition, pursuant to the Funding Agreement,
for 90 days following June 17, 1997, the Company had the right, under certain
circumstances, to request HIIC to purchase up to 650,000 shares of Common Stock
at a price of $1.00 per share (the "HIIC Equity Commitment") to provide working
capital for the Company. However, the Company has notified HIIC that it will not
exercise its rights with respect to the 650,000 shares in connection with the
HIIC Equity Commitment. The total number of shares owned by HIIC is 6,886,915.
HIIC Continuing Services. After February 28, 1997, and in connection
with the Amalgamations, the Company entered into a Continuing Services Agreement
with HIIC (the "Continuing Services Agreement"). Pursuant to the Continuing
Services Agreement, the Company receives administrative support services from
the HIIC Entities. Under the terms of the Continuing Services Agreement, the
Company is anticipated to pay to an affiliate of HIIC $93,000 for its fiscal
year which will end December 31, 1997, or approximately $15,000 per month.
Lease Arrangement with HIIC Affiliate. Subsequent to the fiscal year
end, the Company entered into an Agreement to lease office space from an
affiliate of HIIC (the "Office Lease"), and to purchase certain leasehold
improvements from such HIIC affiliate. The Company is anticipated to pay $75,000
to the lessor under such Office Lease in the current fiscal year which will end
December 31, 1997.
HIIC License Agreement. On June 17, 1997, in connection with the
Amalgamations, the Company also entered into a Software License Agreement with
HIIC (the "License Agreement"). The License Agreement is a fully-
12
<PAGE>
paid, perpetual world-wide license to the HIIC Entities to use the Company's
gaming technology in non-competitive uses in traditional casino venues which the
HIIC Entities own, operate or manage. The License Agreement includes source
codes for the Company's gaming software, and neither party to the License
Agreement has any obligation to share or provide any improvements or
modifications with the other party.
HIIC Registration and Preemptive Rights. Also on June 17, 1997 and in
connection with the Amalgamations, the Company entered into a Registration and
Preemptive Rights Agreement with HIIC (the "Registration Rights Agreement").
Under the Registration Rights Agreement, the HIIC Entities have two demand
registration rights to cause the Company to register the Common Stock owned by
the HIIC Entities. Prior to June 30, 1998, no such demand registration can be
brought for a number of shares in excess of one million shares unless the
Company receives the opinion of its investment banker that the trading price of
the Common Stock would not fall by more than 25% for more than 15 consecutive
trading days as a result of such sale, in which case a demand could be brought
with respect to up to such number of shares of Common Stock as would not cause
the market price to fall below such level. Each such offering is required to be
underwritten on a firm commitment basis by an underwriter chosen by the Company.
Pursuant to the Registration Rights Agreement, until the earlier of when the
HIIC Entities own less than 5% of the outstanding voting shares of the Company
on a fully-diluted basis, the HIIC Entities have customary piggy-back rights to
include their shares of Common Stock in registered offerings by the Company.
Pursuant to the Registration Rights Agreement, the HIIC Entities have the right
to purchase securities offered by the Company for as long as the HIIC Entities
own 20% or more of the outstanding Common Stock on a fully-diluted basis at the
same price and terms such securities are otherwise being offered. The HIIC
Entities also have the right for as long as the HIIC Entities own 20% or more of
the outstanding voting shares on a fully-diluted basis to participate on a
proportionate basis in any non-pro rata stock repurchases or redemptions
conducted by the Company. Additionally, at any time that the HIIC Entities own
less than 10% of the outstanding voting shares, on a fully-diluted basis, the
Company has the right to cause the HIIC Entities to sell their voting shares
pursuant to a registered sale, and the HIIC Entities have the right to cause the
Company to file a registration statement to sell their voting shares in the
event of any change in or conduct of the business or proposed business of the
Company or any of its subsidiaries or any other action or inaction of the
Company or any of its subsidiaries which would jeopardize the HIIC Entities'
gaming and related licenses or the if Company does not redeem a "Disqualified
Holder" (as defined in and pursuant to the Company's Bye-Laws) of its
securities, in each case at the Company's expense without being subject to the
limitations on demand rights set forth above.
HIIC Shareholder Rights Agreement. Also on June 17, 1997, in
connection with the Amalgamations, the Company entered into a Shareholder Rights
Agreement (the "Shareholder Rights Agreement") with HIIC. Pursuant to the
Shareholder Rights Agreement, the Company has agreed that for so long as the
HIIC Entities own 20% or more of the outstanding voting shares on a fully-
diluted basis, any of the following actions by the Company require the approval
of the majority of the Board and HIIC Appointees: (i) the sale of all or any
material portion of the assets of the Company together with its subsidiaries;
(ii) the incurrence, renewal, prepayment or amendment of the terms of
indebtedness of the Company together with its subsidiaries in excess of $5
million in any one fiscal year; (iii) the Company or any of its subsidiaries
entering into any material joint venture or partnership arrangement outside of
its previously approved scope of business; (iv) any material acquisition of
assets by the Company or any of its subsidiaries, including by lease or
otherwise (other than by merger, consolidation or amalgamation) other than
pursuant to a previously approved budget or plan, or the acquisition by the
Company or any of its subsidiaries of the stock of another entity, in each case
involving an acquisition valued at $5 million or more; (v) any material change
in the nature of the business conducted by the Company or any of its
subsidiaries; (vi) any material amendments to the MIP for 12 months following
the Amalgamations; (vii) any material changes in accounting policies; (viii) the
adoption of any stock option plans for greater than 5% of the then outstanding
Common Stock of the Company on a fully-diluted basis, other than the MIP, in any
one fiscal year; and (ix) the creation or adoption of any shareholder rights
plan. For so long as the HIIC Entities own 10% or more of the outstanding voting
shares on a fully-diluted basis, as to (x) any change in or conduct of the
Company's business or proposed business, or (y) any action or inaction of or by
the Company or any of its subsidiaries' which the HIIC Entities determine in
their reasonable business judgment would result in, in the case of either (x) or
(y), any actual or threatened disciplinary action or any
13
<PAGE>
actual or threatened regulatory sanctions with respect to or affecting the loss
of, or the inability to obtain or failure to secure the reinstatement of, any
registration, certification, license or other regulatory approval held by the
HIIC Entities in any jurisdiction in which the HIIC Entities are actively
conducting business or as to which any of them has received final approval or
authorization to proceed, even on a preliminary basis, from its respective board
of directors (or any appropriate committee established by such board of
directors) of plans to conduct business (each such change, conduct, action or
inaction a "Disqualifying Action"); provided, the reasonable business judgment
to be exercised by the HIIC Entities in determining whether a Disqualifying
Action has occurred or would result need not involve any consideration of the
effect of the Disqualifying Action on the Company alone or together with its
subsidiaries because the purpose of the protections afforded by the
determination of a Disqualifying Action is for the benefit of the separate
businesses and investments of the HIIC Entities.
HIEC Management Agreement. During the fiscal year ended February 28,
1997 and continuing through June 17, 1997, the Company and the Company's
indirect operating subsidiary, Operating Sub, were party to a Management
Agreement (the "Management Agreement") with Harrah's Interactive Entertainment
Company, a Nevada corporation and an affiliate of HIIC ("HIEC"). Pursuant to the
Management Agreement, the Operating Sub was required to pay $120,000 in
management fees to HIEC, as well as $111,000 in additional charges, during the
last fiscal year ending February 28, 1997.
License Agreement. In June, 1996, Operating Sub entered into a
Sublicense Agreement with the HIIC Entities under which certain technologies
were licensed to Operating Sub. Payments to the HIIC Entities totaled $150,000
for the fiscal year ending February 27, 1997. Payments for the fiscal year
ending December 31, 1997 are expected to be $70,000.
MANAGEMENT INCENTIVE PLAN
(Proposal 2)
At the December 6, 1996 meeting of the Board, the Board adopted the
MIP pursuant to which options for 4,070,105 shares of Common Stock may be issued
to employees and consultants of the Company. The Company employs approximately
11 employees and 5 consultants. The maximum number of shares of Common Stock
with respect to which Options may be granted during any calendar year under the
MIP to any participant is 1,000,000 shares. For the purpose of this later
limitation, an Option which is cancelled will continue to be counted against the
maximum number of shares which may be granted during the calendar year, and an
Option will be treated as cancelled with the grant of a new Option, if the
exercise price of an option is reduced after grant.
The MIP is administered by either the Board or the Compensation
Committee. Subject to the limitations of the MIP, the Board and the Compensation
Committee have the authority: (i) to select from the regular, full-time
employees and consultants of the Company those who will participate in the MIP,
(ii) to make awards in such forms and amounts as it will determine, (iii) to
impose such limitations upon such awards as it may deem appropriate, (iv) to
interpret the MIP and to adopt, amend and rescind administrative guidelines,
rules and regulations, (v) to correct any defect or omission or to reconcile any
inconsistency in the MIP or in any award granted thereunder, and (vi) to make
all other determinations and to take all other actions necessary or advisable
for the implementation and administration of the MIP.
Awards under the MIP may be in the form of statutory stock options
("ISOs") and/or non-statutory stock options ("NSOs" and, collectively with
ISOs, "Options"). Under the MIP, ISOs may be granted only to employees of the
Company. The purchase price of Common Stock under each Option (the "Option
Price") will be: (a) for ISOs, not less than the fair market value of the Common
Stock on the date the Option is awarded, and (b) for all other Options, not less
than the par value of the Common Stock on the date the Option is awarded or may
be exercised. Each Option which is intended to qualify as an ISO pursuant to
Code Section 422 and each Option which is intended to qualify as another type of
ISO which may subsequently be authorized by law, is required to comply with the
applicable provisions of the Code pertaining to such Options.
14
<PAGE>
Options awarded under the MIP are exercisable at such times and
subject to such restrictions and conditions as the Board or the Compensation
Committee determines, either at the time of grant of such Options or pursuant to
a general determination, and which need not be the same for all participants,
provided that, in the case of a grant of an Option to an officer, as that term
is used in Rule 16a-1 promulgated under the Exchange Act or any similar rule
which may subsequently be in effect (an "Officer"), the Board or the
Compensation Committee may determine either (i) no such Option will be
exercisable within the first six months of its term or (ii) if such Option is
exercisable in the first six months of its term, no Common Stock acquired under
such exercise is transferable until the six month anniversary of the date of the
grant of the Option.
To the extent required by the Code, the following additional
provisions will apply to the grant of Options which are intended to qualify as
ISOs (as such term is defined in Code Section 422): (i) the aggregate fair
market value (determined as of the date the Option is granted) of the shares of
Common Stock with respect to which ISOs are exercisable for the first time by
any participant during any calendar year (under all plans of the Company) will
not exceed $100,000 or such other amount as may subsequently be specified by the
Code; provided that, to the extent that such limitation is exceeded, any excess
Options (as determined under the Code) will be deemed to be NSOs; (ii) any ISO
authorized under the MIP will contain such other provisions as the Board or the
Compensation Committee will deem advisable, but will in all events be consistent
with and contain or be deemed to contain all provisions required in order to
qualify the Options as ISOs; and (iii) all ISOs must be granted within 10 years
from the earlier of the date on which the MIP was adopted by the Board or the
Compensation Committee or the date the MIP is approved by the shareholders of
the Company. Unless sooner exercised, terminated or canceled, all ISOs issued
under the MIP will expire no later than 10 years after the date of grant.
In the event of a participant's death or disability, each of his
outstanding Options will be immediately exercisable until any time prior to its
expiration date but in no event after its respective expiration date; provided
that NSOs may be exercised up to one year after the death of a participant, even
if this is beyond the expiration date. If a participant who is an employee
ceases to be an employee for any other reason, all of the participant's then
outstanding Options will immediately terminate. Any Option granted to a
consultant shall continue to be exercisable in accordance with the terms of its
grant, even if the consultant's relationship with the Company is terminated for
any reason.
All ISOs issued under the MIP are exercisable during the lifetime of a
participant only by the participant. The Board or the Compensation Committee may
permit participants to transfer NSOs to (i) family members, (ii) custodianships
under the Uniform Transfers to Minors Act or any similar statute, (iii) trusts
for the benefit of any family member, (iv) trusts by such participant for the
participant's primary benefit, (v) family partnerships and (vi) upon the
termination of a custodianship under the Uniform Transfers to Minors Act or
similar statute, the termination of a trust, by the custodian or trustee
thereof, or the dissolution or other termination of the family partnership, to
the person or persons who, in accordance with the terms of such custodianship,
trust or partnership are entitled to receive Options held in custody, trust or
partnership. The Board or the Compensation Committee, subject to approval by the
Board, may permit certain participants to transfer NSOs to persons or entities
other than those listed in (i) through (vi) above.
The Board may suspend or terminate the MIP or any portion thereof at
any time and may amend it from time to time in such respects as the Board may
deem advisable; provided, however, that no such amendment will, without
shareholder approval to the extent required by law, agreement or the rules of
any exchange upon which the Common Stock is listed, (i) materially increase the
number of shares of Common Stock which may be issued under the MIP, (ii)
materially modify the requirements as to eligibility for participation in the
MIP, (iii) materially increase the benefits accruing to participants under the
MIP, or (iv) extend the termination date of the MIP. No such amendment,
suspension or termination will (A) impair the rights of participants under
outstanding Options without the consent of the participants affected thereby or
(B) make any change that would disqualify the MIP, or any other plan of the
Company intended to be so qualified, from the exemption period provided by Rule
16b-3. The Compensation
15
<PAGE>
Committee may amend or modify any outstanding Options, including to accelerate
vesting, to change the date or dates as of which such Options may be exercised,
to decrease the exercise price or to increase the term of any Option.
The Compensation Committee may make rules, regulations and
determinations under the MIP in respect of any leave of absence from the Company
granted to a participant. The Compensation Committee may also determine (a)
whether or not any such leave of absence will be treated as if the participant
ceased to be an employee, officer or consultant for the Company and (b) the
impact, if any, of any such Leave of Absence on Options under the MIP. For
purposes of this MIP, "leave of absence" means the cessation of a participant's
relationship with the Company as an employee, officer or consultant for the
Company for a period of one month or more.
The following chart sets forth the number of shares with respect to
which options have been awarded subsequent to the 1997 fiscal year end under the
MIP.
NEW PLAN BENEFITS
INTERACTIVE ENTERTAINMENT LIMITED MANAGEMENT INCENTIVE PLAN
<TABLE>
<CAPTION>
Dollar Value/1/ Number
--------------- ------
Name and Position of Units
----------------- ---------
<S> <C>
Laurence S. Geller 1,000,000
Chairman of the Board
Malcolm P. Burke 200,000
Director
Gordon Stevenson 358,000
President and CEO
David Lamm 250,000
CFO, Treasurer and Secretary
Executive Group 708,800
Non-Executive Director Group 1,200,000
Non-Executive Employees 251,550
</TABLE>
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/1/ The exercise price of the options is $3.00 per share. On the
Record Date the price of the Common Stock was $2.875. Vesting terms of the
grants under the MIP have not been determined for the recipients thereof, other
than for Messrs. Geller and Burke. Consequently dollar values cannot be
determined for these grants. Vesting terms for Messrs. Geller and Burke have
been set according to the achievement of specific stock price targets. Because
of the uncertainty of reaching such targets, no dollar value can be assigned to
these grants.
Federal Tax Effects. The following is a general summary of federal
income tax consequences of the grant and exercise of Options and the subsequent
disposition of shares acquired pursuant to such Options. The rules governing the
tax treatment of Options and shares acquired upon the exercise of Options are
quite technical. Therefore, the summary description of tax consequences set
forth below does not purport to be complete. Moreover, the applicable statutory
provisions and administrative regulations are subject to change, as are their
interpretation, and their application may vary in individual circumstances.
Finally, the following summary does not discuss possible foreign, state, estate
or other tax consequences.
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ISOs. Neither the grant nor, in general, the exercise of an ISO
produces taxable ordinary income to the employee or a deduction to the Company.
However, upon exercise of an ISO the participant's "alternative minimum taxable
income" will be increased, generally by the excess of the fair market value of
the shares at time of exercise over the option price, and the participant may be
required to pay the alternative minimum tax ("AMT"). Any AMT attributable to the
exercise of an ISO may be applied as a credit against the participant's regular
tax liability in subsequent years, subject to certain limitations.
In general, if the participant does not dispose of stock received upon
the exercise of an ISO within two years from the date the ISO was granted nor
within one year after the date of exercise, any later sale of the shares will
result in a long-term capital gain or loss. However, if shares received upon
exercise of an ISO are disposed of before these holding-period requirements have
been satisfied (a "disqualifying disposition"), the participant will realize
ordinary income, in the year in which the disqualifying disposition occurs
generally equal to the difference between the exercise price and the value of
the shares on the date of exercise. Such amount will ordinarily be deductible by
the Company for federal income tax purposes in the same year, provided that the
amount constitutes reasonable compensation and the Company satisfies certain
federal income tax withholding requirements. In the case of a disqualifying
disposition that is a sale with respect to which loss (if sustained) would be
recognized, the amount of ordinary income will not exceed the excess of the
amount realized on such sale over the adjusted basis for the stock. A
disqualifying disposition of shares acquired upon exercise of an ISO that occurs
in the same taxable year of the participant as the date his or her AMT income
was increased by reason of such exercise will eliminate the AMT effect, if any,
of such exercise.
In the event a participant pays the option price of an ISO by
surrendering shares of previously owned stock, the surrender will not, in
general, result in the recognition of gain. However, the exercise of an ISO by
the surrender of shares which were themselves acquired by the participant upon
exercise of an ISO will be a disqualifying disposition of the surrendered shares
if it takes place within two years after the grant or one year after the
exercise of the ISO pursuant to which the surrendered shares were acquired.
ISOs granted are treated for tax purposes as NSOs (see below) to the
extent that the aggregate fair market value of stock with respect to which such
Options are exercisable for the first time by an individual during any calendar
year exceeds $100,000. For purposes of the preceding sentence, ISOs under all
option plans of the Company and its subsidiaries are aggregated, and fair market
value is determined as of the time of grant of the Option.
NSOs. The grant of a NSO does not produce taxable income to the
employee or a deduction to the Company. When a participant exercises a NSO, he
or she realizes, for federal income tax purposes, ordinary income, subject to
withholding, in the amount of the difference between the exercise price and the
then-market value of the shares, and the Company is entitled to a corresponding
deduction (subject to satisfying its obligation to withhold with respect to such
income). The tax is due regardless of whether or not the participant sells the
stock acquired upon exercise of the Option.
If a participant exercises a NSO in whole or in part by surrendering
previously acquired stock (whether acquired upon exercise of an Option or
otherwise), no gain or loss is recognized on the exchange of the previously
acquired shares for an equivalent number of new shares, unless the surrender of
stock is a disqualifying disposition of shares previously acquired pursuant to
an exercise of an ISO.
Withholding Payments. If upon the exercise of any NSO or a
disqualifying disposition (within the meaning of Section 422 of the code) of
shares acquired from the exercise of an ISO, there shall be payable by the
Company any amount for income tax withholding, the Company shall have the power
to withhold or have the participant remit to the Company the amount payable
and/or the amount of Common Stock delivered by the Company to the participant
will be appropriately reduced, to reimburse the Company for such payment.
The Company may also defer issuance of the Common Stock upon exercise
of an Option or defer payment of any amount payable by the Company until payment
by the participant to the Company of the amount of any such tax.
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Participants may elect with the Company to satisfy such withholding obligations,
in whole or in part, by electing to have the amount of Common Stock delivered or
deliverable by the Company upon exercise of an Option appropriately reduced, or
by electing prior to the date on which the relevant tax obligation arises to
tender Common Stock back to the Company subsequent to exercise of an Option to
reimburse the Company for such income tax withholding. If the participant is an
officer of the Company, then such election must be made and effective during a
period beginning on the third business day and ending on the twelfth business
day following the release for publication of the Company's quarterly or annual
summary statements of sales and earnings and may not be effective if the date
the relevant tax obligation arises is within six months of the grant of the
award.
Limitation on Compensation Deduction. Publicly-held corporations are
precluded from deducting compensation paid to certain of their executive
officers in excess of $1 million. The employees covered by the $1 million
limitation on deductibility of compensation include the chief executive officer
and those employees whose annual compensation is required to be reported to the
Securities and Exchange Commission because the employee is one of the Company's
four highest compensated employees for the taxable year (other than the chief
executive officer).
Compensation attributable to Options generally would be included in an
employee's compensation for purposes of the $1 million limitation on the
deduction of compensation. However, there is an exception to the $1 million
deduction limitation for compensation (including compensation attributable to
options) paid pursuant to a qualified performance-based compensation plan, such
as the MIP. Compensation attributable to an Option will be deemed to satisfy the
qualified performance-based compensation exception if (i) the grant is made by a
Compensation Committee comprised of two or more outside directors, (ii) the MIP
under which the Options are granted states the maximum number of shares with
respect to which Options may be granted during a specified period to any
employee, (iii) under the terms of the Option, the amount of compensation the
employee would receive is based solely on an increase in the value of the shares
after the date of the grant (e.g., the Option is granted at fair market value as
of the date of the grant), and (iv) the individuals eligible to receive grants,
the maximum number of shares for which grants may be made to any employee, the
exercise price of the Options and other disclosures required by SEC proxy rules
are disclosed to, and subsequently approved by, shareholders.
In order to satisfy the shareholder approval requirements applicable
to qualified performance-based compensation plans, there must be a separate
shareholder vote in which a majority of the votes cast on the issue are cast in
favor of approval. The MIP is being submitted to shareholders at the meeting in
part, to satisfy this requirement. If the shareholder approval and the other
requirements applicable to qualified performance-based compensation plans are
satisfied (including grant by a committee of two or more outside directors), the
$1 million compensation deduction limitation will not apply to Options with an
exercise price equal to a greater than the fair market value of the underlying
shares on the date of grant.
APPOINTMENT OF AUDITOR
(Proposal 3)
Unless otherwise instructed, the proxies given pursuant to this
solicitation will be voted FOR the appointment of Ernst & Young LLP as the
auditor of the Company to hold office for the ensuing year at a remuneration to
be negotiated by management and approved by the Board. The appointment of Ernst
& Young LLP is considered necessary by the Company on account of the increasing
importance of U.S. GAAP to the accounting practices and disclosures of the
Company, which has resulted from the Company's recent change of its status from
that of a foreign private issuer under Rule 3b-4, promulgated under the Exchange
Act.
Buckley Dodds, Charter Accountants has resigned as independent
Canadian auditors to the Company because of the expense of maintaining two
independent auditors. Ernst & Young LLP has sufficient resources to prepare both
Canadian GAAP and U.S. GAAP financials and maintenance of duplicative
independent auditors is unnecessary. The decision to change accountants was
recommended and approved by the Executive Committee of the board of directors.
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Buckley Dodds, Charter Accountants' reports on the financial statements for the
past two years have not contained any adverse opinions or disclaimer of opinions
and have not been qualified as to uncertainty, audit scope, or accounting
principles. There have been no disagreements with Buckley Dodds, Charter
Accountants during the two most recent fiscal years and any subsequent interim
period. There are no other disclosures required to be made pursuant to Item
304(a) of Regulation S-K. Buckley Dodds, Chartered Accountants had, since June
30, 1992, acted as independent auditor for the Company.
Representatives from Ernst & Young LLP are not expected to be present
at the Annual General Meeting to respond to questions. However, if
representatives from Ernst & Young LLP so desire, they will be provided with the
opportunity to make a statement at the Annual General Meeting.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
GORDON STEVENSON, serves as Chief Executive Officer and President of
the Company. For further information regarding his experience and positions with
the Company, see page 3 of this proxy statement.
DAVID LAMM, age 37, serves as Chief Financial Officer, Treasurer and
Secretary of the Company. Prior to joining the Company, Mr. Lamm was Vice
President of Finance at McKesson Corporation's Information Technologies and
Capital Investments Divisions from March, 1995 to July 1997. Prior to McKesson,
from October, 1993 to February, 1995, Mr. Lamm served as Chief Financial Officer
and Treasurer at 3Net Systems, a publicly traded software development company
specializing in client/server applications for the health care industry.
Previously, Mr. Lamm served as Vice President of Finance for the Travel Services
Division of AMR Information Services, Inc., a wholly-owned subsidiary of AMR
Corporation.
MICHAEL IRWIN, age 53, has served as Assistant Secretary of the
Company since June 17, 1997. From August, 1995 to June 17, 1997, Mr. Irwin
served as Director of Finance and Administration for the Company's principal
operating subsidiary. Prior to August, 1995, Mr. Irwin served in various
accounting, finance and human resource management capacities with Holiday Inns,
Inc, from 1975 through 1991. From 1992 to 1996, Mr. Irwin held the position of
Administrator of the Group Annuity Participant Protection Association.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
No director, officer or beneficial owner of more than 10% of the any
class of equity securities has failed to file reports required by Section 16(b)
of the Exchange Act since the Company became subject to Section 16(b) of the
Exchange Act on June 17, 1997. Prior to such time, the Company was a foreign
private issuer pursuant to Rule 3b-4 promulgated under the Exchange Act. As a
foreign private issuer and pursuant to Rule 3a12-3 promulgated under the
Exchange Act, prior to June 17, 1997 the Company was exempt from Sections 14(a),
14(b), 14(c), 14(f) and 16 of the Exchange Act. Consequently, prior to June 17,
1997, directors, officers or beneficial owners of more than five percent of the
any class of equity securities of the Company were not required to file reports
under Section 16(a).
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company.
Custodians and fiduciaries will be supplied with proxy materials to forward to
beneficial owners of stock and normal handling charges will be paid for such
forwarding services.
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SHARES SUBJECT TO IRREVOCABLE PROXY
AND AGREEMENT NOT TO VOTE SHARES
3,525,000 shares of Common Stock are subject to an irrevocable proxy
and an agreement not to vote, and will not be voted at the Annual General
Meeting or at any subsequent general meeting of the shareholders of the Company.
When The Company acquired the rights to its in-flight gaming software from SGII
on November 7, 1991, a portion of the consideration was 3,000,000 shares of
Common Stock which, according to then applicable requirements, were placed in
escrow, to be released on the basis of one share for each U.S.$1.78 of net cash
flow generated from the assets over a ten-year period (the "Performance
Shares"). An additional 525,000 shares which were issued to Dr. Rex E.
Fortescue, formerly a director of Sky Games, are held in the escrow on the same
terms and are also included as Performance Shares. As part certain agreements to
allow the eventual redemption and cancellation of the 3,525,000 Performance
Shares only when and if such Performance Shares should be released from the
escrow, the holders of the Performance Shares issued an irrevocable proxy to
First Tennessee Bank, and First Tennessee Bank entered into an agreement not to
vote the Performance Shares at any general meeting of shareholders of IEL or
otherwise. The irrevocable proxy and the agreement not to vote the Performance
Shares will terminate upon the cancellation of the Performance Shares.
Consequently, the 3,525,000 Performance Shares will not be voted at the Annual
General Meeting or at any subsequent general meeting of the shareholders of the
Company.
OTHER MATTERS
Management of the Company is not aware of any other matter to come
before the meeting other than as set forth in the notice of meeting. If any
other matter properly comes before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares represented
thereby in accordance with their best judgment on such matter.
SHAREHOLDER PROPOSALS
Proposals of shareholders interrelated to be presented at the 1998
Annual General Meeting of Shareholders must be received by the Company no later
than December 31, 1997, in order to be considered for inclusion in the Company's
Proxy Statement and form of proxy relating to such meeting.
DATED: September 15, 1997.
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INTERACTIVE ENTERTAINMENT LIMITED
PROXY FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS ON OCTOBER 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INTERACTIVE
ENTERTAINMENT LIMITED
The undersigned hereby appoints Laurence Geller and Malcolm P. Burke, or
either of them, with full power of substitution, the undersigned's true and
lawful attorneys and proxies to vote the shares of Common Stock of Interactive
Entertainment Limited which the undersigned is entitled to vote at the Annual
General Meeting of Shareholders to be held at the Adam's Mark Hotel, 939 Ridge
Lake Boulevard, Memphis, Tennessee on Friday, October 17, 1997 at 9:00 a.m.
local time, and all adjournments or postponements thereof, with all the powers
the undersigned would possess if personally present, as indicated on this card
for the proposals described in the Notice and Proxy Statement for such meeting
and in their discretion on such other matters as may properly come before the
meeting or any adjournments or postponements thereof.
Unless otherwise instructed, this proxy will be voted for the nominees listed
in Proposal 1 and for approval of the matters set forth in Proposals 2 and 3.
(Continued and to be signed on reverse side)
(Continued from reverse side)
Please mark, sign and mail this proxy promptly in the enclosed envelope.
1. Election of Director Nominees: Messrs. Burke, Clements, Deeson, Geller,
Gordon, Shiboleth and Stevenson.
[_] FOR [_] WITHHELD [_] FOR, except
nominees from nominees vote withheld
from the
following
nominee(s).
--------------------------------
2. Approval and Ratification of the Management Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
3. Appointment of Ernst & Young LLP as the Company's independent public
accountants.
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
Dated: _____________________, 1997
Signature: _______________________
Capacity/Title: __________________
Please sign the exact name of the
shareholder as it appears hereon.
If acting as administrator,
trustee or in other
representative capacity, please
sign name and title. Please check
mark, sign and mail this proxy
promptly in the enclosed
envelope.
