<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Interactive Entertainment Limited
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
R. R. Donnelley Financial
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(4) Date Filed:
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Notes:
<PAGE>
LETTER FROM THE PRESIDENT & CEO
As we enter the second quarter of 1998, prospects look encouraging as we
approach the conclusion of a three-year development cycle, having successfully
tested our Sky Games inflight gaming system prior to launch on the world's
premier international air carrier, Singapore Airlines, with the goal of
eventually equipping their long-haul fleet of wide-body aircraft.
Strategically, IEL is well positioned to take advantage of the anticipated
growth in air travel and the introduction of a new generation of aircraft over
the next few years, as well as a desire by the world's leading commercial air
carriers to maintain their competitive position and offer service
differentiation, such as inflight entertainment and more specifically gaming,
which is a potential revenue source.
January of 1998 marked our acquisition of Inflight Interactive Ltd. in
London, UK, which allows us further entry into untapped airline markets by
offering a library of PC-based games of skill and amusement, now marketed as
Sky Play and in service with six airlines worldwide. This provides us with the
opportunity for market entry and recognition of the IEL brand, even with
commercial air carriers who are not initially implementing gaming due to
computer hardware limitations but who are potential customers in the future as
they upgrade their IFE systems.
On the technology front, we have progressed to the point of adapting
interfaces for all the major hardware systems available to the airlines today,
including Matsushita, Rockwell, Sony Trans Com and B/E Aerospace. In addition,
we have developed the first gaming application for integration with the
entertainment package offered in the cabins of a major cruise line and have
successfully completed a trial towards acceptance of our product in their
environment.
Our marketing efforts continue worldwide with our primary thrust still on
those international airlines who have already committed to the new generation
of interactive IFE hardware upon which our system is dependent. Despite the
recent economic downturn in Asia, we can actually look on this positively in
that, if we are able to demonstrate real revenue potential to those carriers
now faced with declining load factors, they may look at the implementation of
inflight gaming.
The Company continues to be operated as a financially well-managed, lean
operation, with the emphasis being on quality rather than quantity of
personnel, and with a sharp awareness of the economies of a small start-up
venture.
I remain at the respectful service of the Company, Board of Directors and
Shareholders. I am available at any time to meet with the Shareholders and I
am thankful for your continued support.
/s/ Gordon Stevenson
Gordon Stevenson
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
845 CROSSOVER LANE, SUITE D-215
MEMPHIS, TENNESSEE 38117
April 7, 1998
To Our Shareholders:
You are cordially invited to attend the 1998 Annual General Meeting of
Shareholders of Interactive Entertainment Limited, a Bermuda exempted company
(the "Company"), which will be held at 9:00 a.m., central standard time, on
May 14, 1998, at the Company's offices located at 845 Crossover Lane, Suite
D-215, 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 ratify the appointment of Ernst &
Young LLP as the Company's independent public accountants; (iii) to receive
and consider the report of the Board of Directors to the shareholders and the
financial statements of the Company together with the auditor's report thereon
for the financial year ended December 31, 1997; and (iv) to transact such
other business as may properly come before the Annual General Meeting. Further
information concerning the meeting and the nominees for directors can be found
in the accompanying Notice and Proxy Statement.
I hope that you can attend the Annual General Meeting and assist the Board
of Directors by voting for the election of directors, 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,
/s/ Laurence S. Geller
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 MAY 14, 1998
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 Company's offices
located at 845 Crossover Lane, Suite D-215, Memphis, Tennessee on MAY 14,
1998, at the hour of 9:00 O'CLOCK in the morning, central standard time, for
the following purposes:
1. to elect seven persons to the Board of Directors;
2. to ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants;
3. to receive and consider the report of the Board of Directors to the
shareholders and the financial statements of the Company together with
the auditor's report thereon for the financial year ended December 31,
1997; and
4. 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 April 2, 1998, 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 Form 10-K Annual Report for the year
ended December 31, 1997, including audited financial statements, is included
with this mailing of the Proxy Statement and this Notice.
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 of
Directors 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.
By Order of the Board of Directors
/s/ David Lamm
David Lamm
Secretary
DATED: April 7, 1998.
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
845 CROSSOVER LANE, SUITE D-215
MEMPHIS, TN 38117
PROXY STATEMENT
FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
MAY 14, 1998
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
Company's offices located at 845 Crossover Lane, Suite D-215, Memphis,
Tennessee on May 14, 1998 at 9:00 o'clock in the morning, central standard
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 for directors approved by the Board; (ii) FOR the ratification of the
appointment of Ernst & Young LLP as the Company's independent public
accountants; and (iii) 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 April 2, 1998 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
20,181,196 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 April 7, 1998.
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. 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
<PAGE>
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 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 members of the 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 Finance and Investor Relations at Harrah's
Entertainment, Inc. Since 1979, Mr. Atwood has held various positions at
Harrah's Entertainment, Inc. or its predecessors.
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, 1994 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.
JUDY WORMSER, age 42, has been a director of IEL since October 17, 1997. Ms.
Wormser has been Vice-President and Corporate Controller of Harrah's
Entertainment, Inc. since July, 1997. She joined Holiday Corporation in 1984
and has held various positions in finance, accounting and administration in
Memphis and Reno as the company transitioned to Promus Companies and then to
Harrah's Entertainment.
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 April 2, 1998, 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 56, 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 and President
and CEO of Sopo Investments, Ltd., a private investment holding company.
ANTHONY P. CLEMENTS, age 52, has been a director of the Company since March
of 1992. Mr. Clements is an investment banker with Yorkton Securities, based
in London, England. From 1994 to March, 1998 he was an investment banker with
T. Hoare & Co. 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 52, 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.
2
<PAGE>
LAURENCE S. GELLER, age 50, 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 served 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 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 and investment firm. Mr.
Geller is also Chairman 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. Mr. Geller is also a director of Vistana, Inc. and Sunstone Hotel
Investors, Inc.
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 26 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, has been a director of the Company since October
17, 1997. 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 25 years. Mr. Shiboleth is admitted to
practice law in New York and Israel.
GORDON STEVENSON, age 52, 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 four meetings of the Board held during the fiscal year ended
December 31, 1997. With the exception of Mr. Deeson who missed two meetings of
the Board, 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 were granted
options for the purchase of
3
<PAGE>
10,000 shares of Common Stock at the trading price on such day. On October 17,
1997, the Board approved an amendment to the Director Option Plan changing the
grant date to the date of the first meeting of the Board following the
Company's Annual General Meeting of Shareholders. Options granted pursuant to
the Director Option Plan have a 10 year term. On October 17, 1997, each of the
directors of the Company were awarded options for the purchase of 10,000
shares, at an exercise price of $3.6875 and an expiration date of October 17,
2007. All of 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
Stevenson. 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 held six meetings
during the fiscal year ended December 31, 1997.
AUDIT COMMITTEE
The Audit Committee of the Board consists of Messrs. Burke and Shiboleth and
Ms. Wormser. 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.
COMPENSATION COMMITTEE
The Compensation Committee is currently comprised of Messrs. Atwood, Gordon
and Shiboleth. The Compensation Committee held one meeting during the fiscal
year ended December 31, 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 April 2, 1998, 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) 4.8% 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
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
---- -------------------- -------------------
<S> <C> <C>
Gordon Stevenson................ -- --
Laurence S. Geller(2)........... 420,000 2.0%
Malcolm P. Burke(3)............. 360,500 1.7%
Anthony P. Clements(4).......... 120,000 *
Phillip Gordon(5)............... 25,000 *
Amnon Shiboleth................. 10,000(10) *
John M. Boushy(6)............... 10,000(10) *
Charles L. Atwood(7)............ 10,000(10) *
Brian Deeson.................... 10,000(10) *
Judy Wormser(8)................. 10,000(10) *
Michael Irwin................... 61,716 *
Kathleen Seymour................ -- --
Directors and Officers as a
Group (12 individuals)......... 1,037,216 4.8%
Harrah's Interactive Investment
Company(9)..................... 6,886,915 32.1%
</TABLE>
4
<PAGE>
- --------
* 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 1,280,000 shares which are currently exercisable.
(2) Of the 420,000 shares of Common Stock listed, 200,000 are shares of
Common Stock beneficially owned by Mr. Geller and 200,000 shares are
issuable pursuant to options which are currently exercisable. Such shares
and options were issued and granted, respectively, to Geller & Co., of
which Mr. Geller is Chief Executive Officer, in connection with Geller &
Co.'s services to the Company as consultant. In addition, Mr. Geller has
options for the purchase of 20,000 shares of Common Stock, 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., of which Mr. Geller is principal, which were not exercisable as of
April 2, 1998.
(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 20,000 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 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 20,000 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.
(5) Includes options to purchase 20,000 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.
(6) 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.
(7) 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. Mr. Atwood serves on the Board as a designee by the HIIC Entities
pursuant to the Company's Bye-Laws.
(8) Does not include 6,886,915 shares of Common Stock held by HIIC a wholly
owned subsidiary of HEI. Ms. Wormser is Vice President and Controller of
HEI. Ms. Wormser serves on the Board as a designee by the HIIC Entities
pursuant to the Company's Bye-Laws.
(9) Harrah's Interactive Investment Company's address is 1023 Cherry Road,
Memphis, Tennessee 38117.
(10) Issued on October 17, 1997 pursuant to the Company's Director Option
Plan, which options are currently exercisable.
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 served as the Chief Executive
Officer during the last completed fiscal year and those individuals who were,
as of December 31, 1997, the executive officers of the Company whose
individual total compensation for the most recently completed financial year
exceeded $100,000 (collectively, "the Named Executive Officers") including any
individual who would have qualified as a Named Executive Officer but for the
fact that individual was not serving as such an Officer at the end of the most
recently completed financial year:
5
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------- -----------------------
SECURITIES
FISCAL OTHER ANNUAL RESTRICTED UNDERLYING
NAME AND YEAR SALARY BONUS COMPENSATION STOCK OPTIONS
PRINCIPAL POSITION ENDED ($) ($) ($) AWARDS (#) (#)
------------------ -------- ------- ------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Laurence S. Geller...... 12/31/97 -- -- $ 25,000(2) -- 1,010,000
CEO and Chairman(1) 02/28/97 -- -- 60,000 200,000(3) 210,000
02/29/96 -- -- 5,000 -- --
Gordon Stevenson........ 12/31/97 135,813 12,500 390(4) -- 358,000
President and CEO(1) 02/28/97 150,000 20,000 125,186 -- --
02/29/96 34,904 -- 90,304 -- --
Malcolm P. Burke........ 12/31/97 67,500 -- 53,600(5) -- 210,000
President(1) 02/28/97 85,000 7,500 -- -- 10,000
02/29/96 60,000 -- -- -- 300,000
Michael Irwin........... 12/31/97 49,193 -- 70,103(6) -- 100,000
Assistant Secretary 02/28/97 -- -- 147,941 -- --
02/29/96 -- -- 81,703 -- --
Kathleen Seymour........ 12/31/97 24,715 -- 77,700(7) -- 102,000
Director of Business 02/28/97 -- -- 133,200 -- --
Development 02/29/96 -- -- 66,600 -- --
</TABLE>
- --------
(1) Mr. Stevenson has been CEO and President since June 17, 1997. Mr. Geller
served as CEO of the Company from September 30, 1996 to June 17, 1997. Mr.
Burke served as President until June 17, 1997.
(2) Includes monthly cash retainer of $5,000 paid by the Company to Geller &
Co., of which Mr. Geller is principal. This arrangement ended July 1997
and was replaced with an agreement 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 adequate cash flows to pay
the cash amounts. This has been accrued for the five months, August
through December 1997, at $8,333.33 per month, none of which has been paid
at December 31, 1997 or included above.
(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, 1997, all 200,000
shares of Common Stock would vest.
(4) Mr. Stevenson was retained as a consultant from July 1995 through November
1995 with compensation of $75,000. Also included in other compensation is
moving expenses of $100, $124,891 and $15,304 for fiscal years ending
December 31, 1997, February 28, 1997 and February 29, 1996, respectively.
Financial counseling for $290 and $295 for years ending December 31, 1997
and February 28, 1997, respectively is also included.
(5) Includes an amount paid to Sopo Investments, Ltd. upon termination of a
management agreement.
(6) Mr. Irwin was retained as a consultant from August 1995 through June 1997
and became an employee of the Company on July 1, 1997.
(7) Ms. Seymour was retained as a consultant from September 1995 through
September 1997. She became an employee of the Company on October 1, 1997.
6
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE OR FOR OPTION TERM
OPTIONS GRANTED FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5% 10%
- ---- --------------- ------------- ----------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Laurence S. Geller...... 10,000(1) * $3.6875 October 17, 2007 $ 23,190 $ 58,769
Laurence S. Geller...... 1,000,000(2) 38.1% $3.0000 May 29, 2007 $1,886,684 $4,781,227
Gordon Stevenson........ 358,000(3) 13.6% $3.0000 August 5, 2007 $ 675,433 $1,711,679
Michael Irwin........... 100,000(3) 3.8% $3.0000 August 5, 2007 $ 188,668 $ 478,123
Kathleen Seymour........ 102,000(3) 3.9% $3.7500 October 1, 2007 $ 240,552 $ 609,606
Malcolm P. Burke........ 200,000(3) 7.6% $3.0000 May 29, 2007 $ 377,337 $ 956,245
Malcolm P. Burke........ 10,000(1) * $3.6875 October 17, 2007 $ 23,190 $ 58,769
</TABLE>
- --------
* Less than 1%
(1) Options granted to each director of the Company pursuant to the Director
Option Plan on October 17, 1997.
(2) Options granted to Geller & Co. under the Management Incentive Plan.
(3)Options granted to employees under the Management Incentive Plan.
FISCAL YEAR-END OPTION VALUES
No options were exercised by the Named Executive Officers during the fiscal
year ended December 31, 1997. No options listed in this table were in-the-
money at the end of the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FY-END(#)
-------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Laurence S. Geller(1)........................... -- 1,000,000
Laurence S. Geller(2)........................... 200,000 --
Laurence S. Geller(3)........................... 20,000 --
Gordon Stevenson(4)............................. -- 358,000
Michael Irwin(4)................................ -- 100,000
Kathleen Seymour(4)............................. -- 102,000
Malcolm P. Burke(5)............................. 300,000 --
Malcolm P. Burke(4)............................. -- 200,000
Malcolm P. Burke(3)............................. 20,000 --
</TABLE>
- --------
(1) Options issued to Geller & Co. pursuant to the Management Incentive Plan.
(2) Options issued to Geller & Co. pursuant to the 1996 Stock Program.
(3) Options issued pursuant to the Director Option Plan.
(4) Options issued pursuant to the Management Incentive Plan.
(5) Options issued to Sopo Investments, Ltd. pursuant to the 1996 Stock
Program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 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."
REPORT ON COMPENSATION
COMPENSATION OF GORDON STEVENSON
Mr. Stevenson served as President and a Director of the Company's primary
operating subsidiary until the June 17, 1997 merger of the Company with the
operating subsidiary. The operating subsidiary was managed by the HIIC
Entities and Mr. Stevenson received a salary from the HIIC Entities at the
rate of $155,000 annually. Mr. Stevenson also received a cash bonus of
$12,500. The HIIC Entities were reimbursed by the
7
<PAGE>
Company for both salary and bonus payments. Upon completion of the Company's
merger with its operating subsidiary, Mr. Stevenson was appointed President
and Chief Executive Officer of the Company at an annual salary of $165,000.
In addition to cash compensation, Mr. Stevenson was granted options for the
purchase of 358,000 shares of Common Stock at $3.00 per share pursuant to the
Management Incentive Plan.
COMPENSATION OF LAURENCE S. GELLER
Laurence S. Geller served as Chief Executive Officer of the Company from
September 30, 1996 until June 17, 1997. During the entire fiscal year ended
December 31, 1997, Geller & Co., a consulting 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 1,000,000 shares of Common Stock at $3.00
per share pursuant to the Management Incentive Plan. 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 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 MALCOLM P. BURKE
Malcolm P. Burke served as President until June 17, 1997. During his tenure
as President, Mr. Burke was compensated for his services to the Company, by
Sopo Investments, Ltd. ("Sopo"), a corporation wholly owned by Mr. Burke. Sopo
received management fees as compensation from the Company for providing the
services of Mr. Burke. The compensation received by Sopo, and Mr. Burke
indirectly in the fiscal year ended December 31, 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 February 29, 1996. 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 issued to Sopo have been canceled. Mr. Burke was
granted options for the purchase of 200,000 shares of Common Stock at $3.00
per share pursuant to the Management Incentive Plan.
THE MEMBERS OF THE BOARD OF DIRECTORS DURING THE FISCAL YEAR ENDED DECEMBER
31, 1997
Charles L. Atwood
John M. Boushy
Malcolm P. Burke
Anthony P. Clements
Brian Deeson
Deborah Fortescue-Merrin
Laurence S. Geller
Phillip Gordon
James P. Grymyr
Amnon Shiboleth
Gordon Stevenson
Judy Wormser
8
<PAGE>
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>
<CAPTION>
Date IEL Nasdaq
-------- --- ------
<S> <C> <C>
12-31-92 100 100
12-31-93 155 115
12-30-94 185 112
12-29-95 90 159
12-31-96 123 195
12-31-97 94 240
</TABLE>
9
<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 was for 18 months and terminated August, 1997. The retainer
agreement provided for a monthly cash retainer of $5,000. The retainer
agreement, as amended, also provided for a grant of 200,000 shares of Common
Stock to vest upon the closing of a major financing. The Board 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 shares have 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 was also made to
Geller & Co. as compensation for the consulting services under the retainer
agreement.
Laurence Geller Compensation. 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 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 options 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
options granted vest on the 20th consecutive day on which the fair market
value is at or above $7.00 per share. 30% of the options 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 options 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 options under the option grant vest on the tenth
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 333,333 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, and cancelled only if such shares are released from the escrow for
any reason whatsoever.
Redemption and Cancellation Agreement. As of April 30, 1997, 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 was owned by James P.
Grymyr, a former 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 pursuant to a performance
earn-out provision for cancellation by the Company and cancelled only if such
shares are released from the escrow for any reason whatsoever.
10
<PAGE>
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 past and future consulting services.
Amalgamations. Pursuant to a Plan and Agreement of Merger and Amalgamation,
dated as of May 13, 1997 (the "Amalgamation Agreement"), 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"). The Amalgamation Agreement is between the Company,
Operating Sub, SGIHC and HIIC, the former 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 did 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. Subsequent to 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 paid to an affiliate of HIIC $101,000 for its fiscal year ended
December 31, 1997, or approximately $15,000 per month.
Lease Arrangement with HIIC Affiliate. On June 5, 1997 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 paid $75,000 to the lessor under such Office Lease for
its fiscal year ended 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-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.
11
<PAGE>
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 registration 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, any of the following
actions by the Company require the approval of the majority of the Board and
the HIIC Appointees; (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 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
12
<PAGE>
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 December 31, 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 $36,000 in management fees to HIEC, as well
as $143,000 in additional charges, during the last fiscal year ending December
31, 1997. The Management Agreement was terminated in conjunction with the
Amalgamations.
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 $70,000 for
the fiscal year ending December 31, 1997.
APPOINTMENT OF AUDITOR
(PROPOSAL 2)
Unless otherwise instructed, the proxies given pursuant to this solicitation
will be voted FOR the ratification of 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. 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 expected to be present at the
Annual General Meeting to respond to questions. 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.
13
<PAGE>
DAVID LAMM, age 38, 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 and Controller 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 was an
independent consultant.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
With the exception of one report that was filed two days late by Michael
Irwin, an officer of the Company, regarding one transaction, 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.
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 of 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.
14
<PAGE>
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 to be presented at the 1999 Annual General Meeting
of Shareholders must be received by the Company no later than December 8,
1998, in order to be considered for inclusion in the Company's Proxy Statement
and form of proxy relating to such meeting.
DATED: April 7, 1998.
15
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
PROXY FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS ON MAY 14, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INTERACTIVE
ENTERTAINMENT LIMITED
The undersigned hereby appoints Laurence Geller and Gordon Stevenson, 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 (the "Company") which the undersigned is entitled to vote
at the Annual General Meeting of Shareholders to be held at the Company's
offices located at 845 Crossover Lane, Suite D-215, Memphis, Tennessee on
Thursday, May 14, 1998 at 9:00 a.m. central standard 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 matter set forth in Proposal 2.
(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. Ratification of Appointment of Ernst & Young LLP as the Company's
independent public accountants.
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
Dated: _____________________, 1998
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.
