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As filed with the Securities and Exchange Commission on May 7, 1998
Registration No.333-48759
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERACTIVE ENTERTAINMENT LIMITED
(Exact name of registrant as specified in charter)
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<S> <C> <C>
845 Crossover Lane, Suite D-215
Memphis, Tennessee 38117
Bermuda (901) 537-3800 98-0170199
(State or other jurisdiction of (Address, including zip code, and telephone (I.R.S. Employer
incorporation or organization) number, including area code, of registrant's Identification No.)
principal executive offices)
</TABLE>
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David B. Lamm
845 Crossover Lane, Suite D-215
Memphis, Tennessee 38117
(901) 537-3800
(Name, address, including zip code, and telephone number,
including area code, of agent for service.)
Copy to:
Andrew W. McCune
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
(312) 715-4000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
_______________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered(1) Offering Price Aggregate Registration
Per Unit(2) Offering Fee
Price(2)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share 3,238,385 $ 2.8125(3) $ 8,646,667(3) $ 2,550(3)
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(1) Includes a presently indeterminate number of shares issued or issuable upon
conversion of or otherwise in respect of the Registrant's common or
preference shares or warrants, as such number may be adjusted as a result
of stock splits, stock dividends, antidilution and conversion provisions to
the extent permitted by Rule 416 of Regulation C under the Securities Act
of 1933, as amended (the "Securities Act").
(2) Estimated solely for the purpose of calculating the registration fee.
(3) A registration fee of $2,313 (2,952,262 shares at a proposed maximum
offering price per share of $2.65625 and a proposed maximum aggregate
offering price of $7,841,946) was paid by the Registrant on March 26, 1998
with the initial filing of this Registration Statement. An additional fee
of $237 accompanies this Amendment No. 1 pursuant to Rule 457 of Regulation
C under the Securities Act based upon the additional 286,123 shares
registered hereby and the average of the high and low sale prices on the
Nasdaq SmallCap Market on May 5, 1998 and a proposed maximum aggregate
offering price of $804,721 for such additional shares.
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to such Section
8(a), may determine.
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SUBJECT TO COMPLETION, DATED MAY 7, 1998
PROSPECTUS
2,004,691 Shares
INTERACTIVE ENTERTAINMENT
LIMITED
Common Stock
This Prospectus relates to the offer and resale by certain selling
shareholders (collectively, the "Selling Shareholders") of up to 2,004,691
common shares, $0.01 par value per share ("Common Stock"), of Interactive
Entertainment Limited, a Bermuda exempted company ("IEL" or the "Company"). Of
the shares offered hereby, 560,770 shares are being offered by Proprietary
Convertible Investment Group Inc. ("PCIG"), 560,770 shares are being offered by
CC Investments, LDC ("CCI"), 112,154 shares are being offered by Palisades
Holdings, Inc. ("PHI"), 748,997 shares are being offered by Henderson
International Investments Limited ("HIIL") and 22,000 shares are being offered
by Jay Jacobson. See "Selling Shareholders" and "Plan of Distribution."
The Common Stock to be sold by PCIG, CCI and PHI was issued in connection
with a private placement of convertible preferred securities and warrants to
purchase Common Stock (the "Private Placement"). The Company has agreed with
PCIG, CCI and PHI to register 200% of the number of shares Common Stock which
could currently be issued upon conversion of the preferred shares and exercise
of the warrants purchased as part of the Private Placement, which shares are
included in the 2,004,691 shares of Common Stock offered hereby. HIIL purchased
its shares pursuant to a Subscription Agreement with the Company dated October
22, 1997 and amended April 2, 1998 (the "HIIL Subscription Agreement") and
received, as term of its investment, the right to include such shares in a
registration statement filed on behalf of PCIG and CCI. Mr. Jacobson received
his shares of Common Stock to be sold hereunder pursuant to an agreement in
March, 1997 to settle certain amounts owed by the Company for financial
relations services previously performed by Mr. Jacobson on behalf of the
Company. See "Risk Factors--Shares Eligible for Future Sale; Possible Effect on
Additional Equity Financing."
The Company has also agreed to pay certain fees and expenses incident to such
registration. It is estimated that the fees and expenses payable by the Company
in connection with the registration of the Common Stock will be approximately
$100,000. The Company intends to keep the registration statement, of which this
Prospectus is a part, effective until no later than June 30, 2000. See "Selling
Shareholders" and "Plan of Distribution."
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System SmallCap Market ("Nasdaq"), under
the symbol IELSF. On May 6, 1998, the last reported sale price of the Company's
Common Stock on Nasdaq was $2.625 per share. SEE "RISK FACTORS" BEGINNING ON
PAGE 5 FOR FACTORS TO BE CONSIDERED IN CONNECTION WITH A PURCHASE OF SHARES OF
COMMON STOCK. Potential purchasers of Common Stock are advised that an
investment in shares of Common Stock is highly speculative and only those
purchasers who can afford to lose their entire investment should purchase shares
of Common Stock.
The Selling Shareholders directly, through agents designated from time to
time, or through brokers, dealers or underwriters also to be designated, may
sell the shares of Common Stock being offered hereby from time to time through
Nasdaq, any other securities exchange on which the Common Stock may be listed or
the over the counter market or through the writing of options on or settlement
of short sales of the Company Stock, at prices and on terms then prevailing
thereon, or in negotiated transactions or otherwise. See "Plan of
Distribution." Each of the Selling Shareholders reserves the sole right to
accept and, together with its agents, brokers, dealers or underwriters from time
to time, to reject in whole or in part any proposed purchase of shares of Common
Stock to be made directly or through any such agents, brokers, dealers or
underwriters.
The Selling Shareholders and any broker, dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of the shares of
Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received by them and any profit on the resale of shares of Common Stock
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for indemnification
arrangements among the Company and the Selling Shareholders.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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No dealer, salesperson or any other person is authorized to give any
information or make any representations in connection with the offering other
than those contained in this Prospectus, and if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or solicitation of
an offer to buy by anyone in any jurisdiction in which such offer to sell or
solicitation is not authorized, or in which the person making such offer is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to the date
hereof.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and are incorporated herein by reference:
(1) the Annual Report on Form 10-K of the Company for the year ended December
31, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the shares of Common Stock shall be deemed to
be incorporated by reference herein and to be a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, upon written or oral request, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference herein, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference therein). Requests for such copies
should be directed to Interactive Entertainment Limited, 845 Crossover Lane,
Suite D-215, Memphis, Tennessee 38117, Attention: David B. Lamm, Corporate
Secretary, telephone number (901) 537-3800. Copies of certain of these documents
may also be obtained from the website maintained by the Commission at
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that include, among
others, statements concerning the Company's plans to implement its software
products, commence generating revenue from certain of its products, expectations
as to funding its capital requirements, the impact of competition, future plans
and strategies, statements which include the words "believe," "expect" and
"anticipate," and other statements of expectations, beliefs, anticipated
developments and other matters that are not historical facts. These statements
reflect the Company's views with respect to such matters. Management cautions
the reader that these forward-looking statements are subject to risks and
uncertainties, including those described in the information set forth in "The
Company," "Risk Factors," "Description of Capital Stock" and "Shares Eligible
for Future Sale" and the documents incorporated into this Prospectus by
reference that could cause actual events or results to materially differ from
those expressed or implied by the statements.
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THE COMPANY
IEL is in the business of developing a proprietary self-contained
computerized gaming system and acquiring additional games technology each for
commercialization in inflight use by international airline passengers and by
patrons in other non-traditional gaming venues. Many cultures do not approve of
gaming and many countries have prohibitions against or restrictions on gaming.
It is unknown how these cultural preferences may affect demand for inflight
gaming or how provision of inflight gaming might be regulated. Currently, gaming
is prohibited under U.S. law on flights to or from the United States on a
foreign air carrier, as well as all international flights of U.S. carriers and
all commercial flights within U.S. airspace. Other jurisdictions have also
imposed similar restrictions or restrictions on advertising or similar
promotional efforts which could reduce utilization of the program from projected
levels. Also, individual airlines or credit card companies may place
restrictions on aggregate and per-player losses, limitations on the amount of
individual wagers or other restrictions, which may limit the amount of revenue
generated by inflight gaming.
The Company's core product is marketed under the trade name Sky Games(TM).
The Sky Games(TM) system was developed to introduce gaming to international
airline passengers. The system is designed to enable users to play a number of
casino-type games from their seats by way of a built-in, color, interactive, in-
seat monitor. The product design in its current form has only recently been
possible since audio-video interactive inflight entertainment hardware ("IFE")
systems have only recently been commercially introduced. In order to operate the
Sky Games(TM) system in commercial settings, the Company must provide additional
hardware and software systems necessary to properly record and account for
gaming activities by patrons. The Company has designed accounting and financial
control systems for the management of inflight gaming operations. Inflight
gaming transactions will be conducted through major credit cards. The major
credit card companies have developed rules for the use of their cards with
inflight gaming wherein, presently, the maximum purchase of gaming credits on a
credit card is U.S. $350 and winnings are capped at U.S. $3,500. The Sky
Games(TM) system is being integrated with the IFE systems offered by Matsushita
Avionics Systems Corporation and is also intended to interface with systems
manufactured by other leading manufacturers, including, among others, B/E
Aerospace, Inc. ("B/EA"), Rockwell International Corp., Sony Trans Com Inc. and
The Network Connection, Inc. The Company does not believe that it has exposure
to the "Year 2000 Problem." Software developed by the Company is compliant with
dates in the year 2000. The Company uses commercial software produced by a
variety of vendors and believes that all of its major systems are
compliant.
IEL announced its first contract, which is with Singapore Airlines ("SIA"),
in April of 1996. IEL has not yet received and may never receive revenues under
its contract with SIA. Negotiations are under way with a number of other
carriers in Asia and Europe, and the Company expects it will secure additional
airline contracts if it is able to successfully launch its games on SIA.
IEL's agreement with SIA sets forth a specific testing protocol of the Sky
Games(TM) system which, upon successful completion, is intended to result in a
staged roll-out of the system. The roll-out is to be made ultimately to all
classes of service on SIA's fleet of 53 wide-body aircraft. The pace of the
roll-out depends on various factors such as acceptance of the system, time for
crew training, necessity of addressing technical issues and the like. As a
result, there is no timetable for the roll-out and one cannot be predicted.
IEL has currently progressed to the final testing protocol of testing live
inflight gaming before commencement of the roll-out. IEL is currently working
with SIA to achieve compliance by the Sky Games(TM) system with this final
protocol. IEL believes it has identified the problems which have been
encountered in this final protocol and believes it can correct them without
significant time or expense. IEL and SIA are scheduling a new test of the
system. However, there can be no assurance that the system will pass the final
protocol on the next attempt or any subsequent attempt. IEL has encountered
minor technical problems which have prevented successful completion of the
protocol.
3
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Such minor technical problems or more significant issues could arise in
subsequent attempts. SIA can terminate its agreement with IEL if the system
cannot pass the protocol after a reasonable number of attempts.
Based on conversations with SIA, the Company expects that if SIA accepts
the Company's software on the first aircraft, that aircraft will be flown for up
to two months to evaluate: (i) acceptance of the system by passengers; and (ii)
the effectiveness of the already completed crew training and to identify and, if
necessary, correct any technical issues that may be discovered during
operations. Upon an evaluation satisfactory to SIA, it is expected that the
system would then be rolled out to the remaining SIA fleet of wide-body aircraft
over a period of up to 24 months. It is in SIA's discretion to determine when
and whether the performance of the Company's software is sufficient such that it
is acceptable to SIA. See "Risk Factors--Long Term Development of Technologies;
Limited Commercialization of Products to Date; --Uncertainty of Achieving
Business Objective; --Inability to Integrate Software; and --New and Untested
Product; Competition; Possible Restrictions."
IEL anticipates that the IFE industry will grow rapidly over the next three
to five years as airlines commit to interactive IFE hardware based on improved
product reliability and demonstrated revenue generation. Accordingly, the
Company is committed to building its core business by focusing initially on the
airline market, but it is also investigating the potential of other venues such
as cruise ships, ferry boats, trains and hotel rooms. IEL has licensed its Sky
Games(TM) software as it existed on June 17, 1997 to subsidiaries of Harrah's
Entertainment, Inc. solely for use by Harrah's in traditional casino venues,
owned, operated or managed by Harrah's. The license is royalty-free, worldwide
and non-terminable.
IEL recently acquired London-based Inflight Interactive Limited ("IIL").
The acquisition has resulted in increased product offerings in the way of
computerized games of skill and amusement. As a result of this acquisition, IEL
anticipates that it will gain greater market access to the world's leading air
carriers. The acquisition of IIL enables the Company to equip interested
carriers with computerized games of skill and amusement as possibly a forerunner
to supplying inflight gaming. IIL's games are marketed under the trade name
Sky Play(TM) and are in use on over 50 aircraft operated by Cathay Pacific,
Egypt Air, Lauda Air, Malaysia Airlines, Saudi Arabian Airlines and Virgin
Atlantic. Negotiations are underway with several other international carriers.
IEL has been working on the development and application of its Sky
Games(TM) system for cruise and ferry lines. As a possible extension of IEL's
core business strategy, it is conducting a trial installation of in-cabin gaming
on board Princess Cruises' Sun Princess. IEL is working on the installation
jointly with Transdigital Communications Corporation ("TCC") in Brea,
California. IEL is the supplier of both the gaming software and the interfaces
with Princess' guest billing system. The software is integrated with TCC's
Transtar interactive video system which, among other features, enables a
passenger to gamble using the television set in the cabin or stateroom. The
trial will be conducted in approximately 100 cabins. The purpose of the trial is
to give Princess Cruises, TCC and IEL an opportunity to evaluate the viability
of in-cabin gaming on a cruise ship.
IEL has also completed the work necessary to make its Sky Play(TM) games
software compatible with all the major inflight interactive video systems. This
allows airlines who have interactive video systems from more than one
manufacturer to offer their passengers a consistent entertainment product across
their fleet. This cross-system compatibility is a feature only offered by IEL's
Sky Play(TM) games. The games have been successfully integrated with the
Matsushita 2000E, Rockwell Collins Passenger Systems Total Entertainment System
(TES), Sony Trans Com Inc. P@ssport, B/EA MDDS and the GMIS 27001K systems.
The mailing address of IEL's principal executive offices is 845 Crossover
Lane, Suite D-215, Memphis, Tennessee 38117, and its telephone number is (901)
537-3800.
4
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RISK FACTORS
The securities offered hereby are highly speculative and prospective
purchasers should be aware that the purchase of such securities involves a high
degree of risk. In addition to other information in this Prospectus, the
following factors should be considered carefully in evaluating the Company
before purchasing the securities offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth in
the following risk factors and elsewhere in this Prospectus.
History of Operating Losses and Accumulated Deficit
The Company commenced its software development operations in 1992 through a
wholly-owned subsidiary, Sky Games International Corp., a Nevada corporation,
which was formed to acquire, develop and commercialize entertainment
technologies from Sky Games International, Inc. ("SGII") on November 7, 1991.
Effective December 30, 1994, an indirect, majority-owned subsidiary of the
Company was formed under the name Interactive Entertainment Limited ("Old IEL")
by the Company along with Harrah's Entertainment, Inc., a large US-based gaming
company ("Harrah's"), through subsidiaries of Harrah's (the "Harrah's Entities")
as the minority equity holder. At that time, Old IEL acquired the Company's
rights to the Company's inflight gaming technology so it could be developed and
managed by the Harrah's Entities. On June 17, 1997, the Company reorganized by
amalgamating (the "Amalgamations") with its subsidiaries involved in the
development of the inflight gaming technology, including Old IEL, and exchanging
the Harrah's Entities' equity ownership and their contractual rights to manage
Old IEL for an approximate 38.2% equity interest in the Company at such time.
The Company is now responsible for the development of and commercialization of
its inflight gaming software which has not yet been used in any commercial
application. The Company has experienced significant operating losses and, as of
December 31, 1997, had an accumulated deficit of approximately $47.5 million.
The Company expects that it will continue to have a high level of operating
expenses and will be required to make significant up-front expenditures in
connection with development, marketing and implementation of its inflight gaming
technology. As a result, the Company anticipates significant additional
operating losses for 1998 and that such losses will continue thereafter until
such time, if ever, as the Company is able to generate sufficient revenues to
sustain its operations. There can be no assurance that the Company will ever
achieve profitable operations.
Significant Liquidity Restraints; Need for Additional Financing
The Company's cash available for funding its operations as of December 31,
1997 was $1,240,000. As of such date, the Company had trade payables and accrued
liabilities of $644,000. The Company currently has average monthly cash expenses
of approximately $450,000. Since the Company does not expect to generate
substantial revenues from the sale of any products, services or technologies in
the immediate future, the Company will require substantial additional funds from
other sources to complete its research and development, to conduct additional
tests and to market its product. The Company will attempt to acquire funds for
these purposes through operations, additional equity or debt financings,
collaborative arrangements with corporate partners or from other sources. No
assurance can be given that these funds will be available for the Company to
finance its development on acceptable terms, if at all. Pursuant to various
agreements with current holders of its equity, the Company is limited as to its
ability to incur indebtedness and the price as to which it can sell its equity
securities. If adequate funds are not available from operations or additional
sources of funding, the Company's business will suffer a material adverse
effect.
Ability to Meet Dividend Obligations
Dividends are payable quarterly in cash on the outstanding shares of Class A
Preference Shares at the rate of 9% per annum (or approximately $63,000 per
quarter) and on the outstanding shares of Series A and Series B Class B
Preference Shares at the rate of 8% per annum (or approximately $26,400 per
quarter). While the Company currently has adequate cash reserves for its next
quarterly dividend obligations, the Company's ability to pay dividends on the
Class A Preference Shares and the Series A and Series B Class B Preference
Shares is dependent upon receiving revenue from IEL's contract with SIA or
obtaining alternate financing, as to which there can be no assurance. Failure to
make such payments would have a material adverse effect on the Company. Upon
5
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proper prior notification, the Company has the option of paying dividends on the
Series A and Series B Class B Preference Shares in shares of Common Stock. See
"Description of Capital Stock--Class A Preference Shares and --Class B
Preference Shares."
Long Term Development of Technologies; Limited Commercialization of Products to
Date
The Company has not yet begun to generate significant revenues from the sale
of products, services or technologies. Fees from the Company's Sky Play/TM/
software are currently approximately $20,000 per month. Because the Company's
products are software which is continually being enhanced and revised, the
Company's products and technologies will require continuing commercialization.
There can be no assurance that such products or technologies will be
successfully developed, prove an entertainment alternative selected by
passengers or be successfully commercialized and marketed. See "Markets and
Marketing" and "New and Untested Products; Competition; Possible Restrictions."
Markets and Marketing
In the very competitive airline market, airlines are seeking a distinctive,
competitive edge to attract and retain paying customers. Entertainment and
service systems are forming a part of airlines' current business strategy. IEL's
primary target market is Asian and Pacific Rim airlines whose passengers, with
certain exceptions, generally have a broad cultural acceptance of gaming. IEL
believes that the Latin American and European markets may also hold strong
potential. Gaming is prohibited on the aircraft of U.S. commercial air carriers
and on all flights to and from the United States. Recent economic developments
in Asia may cause airlines to cancel or delay purchases of new aircraft and/or
IFE systems. Most airlines serving the Asian market have recently reported a
decrease in passenger load factors, and some have announced reductions in flight
frequencies and eliminations of service to some markets. It is possible that
these events will adversely affect IEL's ability to execute its business plan.
See "New and Untested Product; Competition; Possible Restrictions" and "Currency
Fluctuations."
Uncertainty of Achieving Business Objective
The business of IEL is currently focused on developing IEL's inflight gaming
software and becoming the preeminent provider of inflight entertainment content.
Given the inherent difficulties of developing a technologically complex product
such as the software for its gaming system and the delays which IEL has already
experienced in trying to integrate its software with the Matsushita Avionics
Systems Corp. 2000E (the "MAS 2000E") network and operating system and third
party provided software, there can be no assurance as to when or whether IEL
will be able to successfully commercialize its gaming technology since the MAS
2000E system accounts for approximately 75% of the interactive systems currently
in use by international airlines and is the system used by SIA. Currently, it is
not expected that any significant revenues will be received under IEL's
agreements with SIA until later 1998, nor can it be predicted when or whether
any such revenues will first be received. IEL's agreement with SIA is subject to
a trial period which is expected to be from six to nine months in duration.
During the trial period, the agreement may be terminated by SIA for any reason.
Inability to Integrate Software
IEL has been attempting to integrate its inflight gaming software with the MAS
2000E network and operating system and other third party provided software with
which it is also required to integrate for over a year with limited success.
Although IEL believes the software will ultimately be successfully integrated,
there is no assurance of such success or, if it does occur, when it will occur.
The MAS 2000E system is only one of several competing systems used by major
airlines, and the Company's software will need to be integrated with each system
if the software is to be licensed to airlines using different IFE systems. It is
likely the same or similar problems as encountered integrating with the MAS
2000E system will be encountered with competing systems.
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New and Untested Product; Competition; Possible Restrictions
Swissair began offering a limited program of inflight gaming in January,
1997 on an operating system provided by Interactive Flight Technologies, Inc.
("IFT"). Lauda Air announced in March, 1998 that it had began offering inflight
gaming in conjunction with InterGame Ltd. on an enhanced MAS 2000E system, which
differs from the MAS 2000E system currently utilized by SIA on a majority of its
airplanes equipped with an IFE system. IEL does not have any reliable
information about the scale of either program or passenger reaction or
utilization levels. However, IFT has stated that due to receipt of less than
expected cash flow from the inflight gaming system, it is looking for
alternatives for investment of its capital. It is unknown what the acceptance
will be of such a program by passengers or what the actual level of utilization
will be. See "Markets and Marketing."
Many cultures do not approve of gaming and many countries have prohibitions
against or restrictions on gaming. It is unknown how these cultural preferences
may affect demand for inflight gaming or how provision of inflight gaming might
be regulated. Currently, gaming is prohibited under U.S. law on flights to or
from the United States on a foreign air carrier, as well as all international
flights of U.S. carriers and all commercial flights within U.S. airspace. Other
jurisdictions have also imposed similar restrictions or restrictions on
advertising or similar promotional efforts which could reduce utilization of the
program from projected levels. Also, individual airlines or credit card
companies may place restrictions on aggregate and per-player losses, limitations
on the amount of individual wagers or other restrictions, which may limit the
amount of revenue generated by inflight gaming. Geographically broad rejection
of inflight gaming or limitations or prohibitions on conducting inflight gaming
could prevent a market developing for inflight gaming software.
Potential Dilution
A substantial number of shares of Common Stock are or will be issuable by
the Company upon the conversion of the outstanding shares of its convertible
Class A and Class B Preference Stock (collectively, the "Preferred Stock") and
upon the exercise of warrants and options which the Company has issued. Such
issuances could result in dilution to a shareholder's percentage ownership
interest in the Company and could adversely affect the market price of the
Common Stock. Under the applicable conversion formulas of the Class A and Class
B Preference Stock, the number of shares of Common Stock issuable upon
conversion is inversely proportional to the market price of the Common Stock at
the time of conversion (i.e., the number of shares increases as the market price
of the Common Stock decreases); and except with respect to certain redemption
rights of the Company for the Preferred Stock and the limitation under NASD
rules, there is no cap on the number of shares of Common Stock which may be
issued. In addition, the number of shares issuable upon the exercise of warrants
is subject to adjustment upon the occurrence of certain dilutive events. For a
complete description of the rights of holders of Preferred Stock and warrants,
see "Description of Capital Stock." Up to an additional 250,000 shares of Common
Stock may be issued to the former shareholders of IIL under the terms of the
acquisition agreement regarding IIL if certain performance criteria are
achieved.
Shares Eligible for Future Sales; Possible Effect on Additional Equity Financing
On May 5, 1998, there were issued and outstanding a total of 20,467,319
shares of Common Stock. Under the terms and assumptions set forth herein, such
as conversion prices, if all the outstanding convertible Preferred Stock was
converted into shares of Common Stock and if all warrants and options
outstanding were exercised, there would be outstanding 27,422,588 shares of
Common Stock. Of these, the Company currently has registered for resale
3,238,385 shares of Common Stock which is 200% of 1,233,694 shares of Common
Stock plus 770,997 shares of Common Stock as contemplated in this Prospectus.
B/EA, the holder of the outstanding Class A Preference Shares, has the right,
subject to certain conditions, to cause IEL to effect one demand registration of
not less than $2 million of its shares of Common Stock. Were B/EA to convert the
Class A Preference Shares into Common Stock and exercise its demand registration
rights, a substantial increase in the number of shares of Common Stock available
for trading would occur. The Company has an agreement in principle with B/EA to
redeem its shares
7
<PAGE>
of Class A Preference Shares in monthly installments of approximately $100,000
through March, 2000 to commence on an agreed-upon date. See "Description of
Capital Stock--Class A Preference Shares."
When the Company acquired the rights to the inflight gaming software from
SGII, a portion of the consideration was 2,000,000 and 1,000,000 shares of
Common Stock issued to SGII and Mr. Anthony Clements, respectively, which,
according to then applicable requirements, were placed in escrow (the
"Performance Shares"). An additional 525,000 shares, which were issued to Dr.
Rex E. Fortescue, formerly a director of the Company, are held in the escrow on
the same terms and are also included as Performance Shares. Each of Messrs.
Clements and Fortescue, as of April 30, 1997, have agreed to allow the Company
to redeem and cancel the Performance Shares when and if they are released from
escrow for any reason whatsoever (the "Redemption Agreement"). As consideration
for such agreement to tender the Performance Shares for cancellation by the
Company in the event they are ever released from the escrow, the Company has
issued to Messrs. Clements and Fortescue, 333,333 and 175,000 shares of Common
Stock, respectively. SGII, as of April 30, 1997, has also agreed that it will
tender the 2,000,000 Performance Shares which it holds for cancellation by the
Company when and if such Performance Shares are released from escrow for any
reason whatsoever. In consideration of this agreement and the agreement of
James Grymyr, the principal of SGII and a former director of IEL, to provide
certain consulting services, IEL issued 666,667 shares of Common Stock. As a
result of the foregoing, management of the Company does not consider the
3,525,000 Performance Shares to be outstanding.
All of the 6,886,915 shares of Common Stock owned by the Harrah's Entities
as of May 5, 1998 will become available for sale on the public market,
subject to the volume of sale, manner of sale and notice limitations of Rule 144
under the Securities Act commencing June 16, 1998. The Harrah's Entities have
the right to cause IEL to effect three demand registrations and, under certain
circumstances, to effect certain other registrations of their shares of Common
Stock. As of April 30, 1998, the 1,175,000 shares of Common Stock issued in
connection with the agreed-upon redemption of the Performance Shares are
available for sale on the public market, subject to the limitations of Rule 144.
As of January 13, 1999, the 500,000 shares of Common Stock issued in connection
with the acquisition of IIL will be available for sale on the public market,
subject to the limitations of Rule 144.
The sale, or availability for sale, of a significant number of shares of
Common Stock in the public market could adversely affect the market price of the
Common Stock. Sales, or the possibility of sales, of the shares of Common Stock
held by the Harrah's Entities, the holders of the shares issued in connection
with the acquisition of IIL, or the holders of the shares issued in connection
with the agreements for redemption and cancellation of the Performance Shares
could have an adverse affect on the market price of the shares of Common Stock.
In addition, certain holders of outstanding securities of the Company have
rights to approve and/or participate in certain types of future equity financing
by the Company. The availability to the Company of additional equity financing,
and the terms of any such financing, may be adversely affected by the foregoing.
Controlling Shareholder; Discretion of Largest Shareholder to Appoint Certain
Members of the Board of Directors and Approve Specified Corporate Actions
The Harrah's Entities, affiliates of Harrah's, are the largest shareholders
of IEL, holding, as of May 5, 1998, approximately 33.6% of the outstanding
shares, assuming the cancellation of the Performance Shares, (26.2% on an
Adjusted Outstanding Basis (as defined in the Bye-Laws)). The Harrah's Entities'
indirect ownership interest will not change as a result of the sales
contemplated by this Prospectus but will be reduced by any issuance of the
shares of Common Stock contemplated to be sold pursuant to this Prospectus upon
conversion of the Series A and Series B Class B Preference Shares and the
warrants issued in the Private Placement. The Harrah's Entities' level of
ownership and their resulting rights pursuant to agreements with the Company and
the Company's constituent documents is expected to enable them to continue to
exercise substantial control over certain corporate actions of IEL. Pursuant to
the provisions of the Company's Bye-Laws and certain contractual agreements
between the Company and the Harrah's Entities, the Harrah's Entities have the
right to designate certain members of the Board of Directors as long as their
ownership is 5% or more of the fully-diluted shares outstanding, and approval of
such members is
8
<PAGE>
required for certain significant corporate action, such as incurring debt or
selling equity in excess of certain amounts, making certain acquisitions or
changing lines of business. See "Description of Capital Stock--Common Shares."
Such control or share ownership may also have the effect of delaying or
preventing a change in control of IEL, impede a merger, consolidation, takeover
or other business combination involving IEL or discourage a potential acquiror
from making a tender offer or otherwise attempting to gain control of IEL.
Price Volatility
The market price of the Company's Common Stock has been, and may continue
to be, highly volatile. The Company believes that factors such as quarterly
fluctuations in results of operations, adverse circumstances affecting the
introduction or market acceptance of new products offered by the Company,
changes in or cancellations under existing contracts, change in the market
success of interactive computer networks and other products which utilize or
incorporate the Company's products, announcements of new products by
competitors, changes in accounting principles, sales by existing shareholders
(including sales from time to time of Common Stock issued upon conversion of the
Preferred Stock), short selling, loss of key personnel, and other factors will
continue to cause the market price of the Company's Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies,
including the Company, fluctuate widely for other reasons (such as market
perception of high technology industries) unrelated to operating results or the
Company. These fluctuations as well as general economic, political and market
conditions, such as recessions or military conflicts, may adversely affect the
market price of the Company's Common Stock. Changes in the price of the
Company's Common Stock could affect the Company's ability to successfully
attract and retain qualified personnel or complete other transactions in the
future. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against companies with fluctuating stock prices. Such litigation
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's operating
results and financial condition.
Currency Fluctuations
The Company currently conducts its operations with international airlines.
As a result, certain revenues, expenses, assets and liabilities of the Company's
operations may be denominated in foreign currencies. These foreign denominated
revenues, expenses, assets and liabilities would need to be translated to the
Company's reporting currency, the U.S. dollar. As a result, the Company's
operations may be exposed to a certain degree of exchange rate risk. The Company
does not currently engage in any hedging activities to mitigate its exchange
rate risk. There can be no assurance that the Company will not experience
material losses as a result of changes in the relative value of the foreign
currencies, as compared to the U.S. dollar. The Company may engage in hedging
activities in the future, in which case there can be no assurance that the
Company will not experience losses as a result of such hedging activities.
The Company's agreement with SIA and IIL's agreement with airlines are
denominated in U.S. dollars and, therefore, the revenue to the Company under
such agreement is not exposed to gain or loss on currency fluctuations. However,
as many of SIA's routes are in Asian countries which are currently experiencing
economic difficulties, such difficulties may adversely impact the usage level of
the Company's gaming software, in part because gaming in U.S. dollars will be
more expensive, and have a corresponding adverse impact on the Company's
revenues, once and if gaming begins on SIA.
Anti-Takeover Measures
In addition to the effect of the percentage ownership by the Harrah's
Entities, certain provisions of the Company's Bye-laws may have the effect of
discouraging unsolicited proposals for acquisition of control of the Company.
The Company's Board of Directors can, without obtaining shareholder approval,
issue shares of Class B Preferred Stock of the Company having rights that could
adversely affect the voting power of holders of the Common Stock, including the
right to vote as a class on any proposed change of control. Such an issuance
could have the effect
9
<PAGE>
of delaying, deferring, or preventing a change of control of the Company and
might make it difficult to replace incumbent management.
DESCRIPTION OF CAPITAL STOCK
The class of securities to be registered is Common Shares, $0.01 par value
per share.
Capital Stock
The following statements with respect to the Company's capital stock are
subject to the detailed provisions of the Company's Memorandum of Continuance
and Bye-Laws, as amended (the "Bye-Laws"). These statements do not purport to
be complete and are qualified in their entirety by reference to the terms of the
Memorandum of Continuance and the Bye-Laws, each of which are incorporated by
reference into this Prospectus.
The Company is authorized to issue 50,000,000 shares of its Common Stock.
The Company also has authorized 3,000 non-voting convertible redeemable Class A
Preference Shares and 5,000,000 redeemable Class B Preference Shares. As of
May 5, 1998, 20,467,319 shares of Common Stock, 2,737.443 Class A Preference
Shares, 1,000 Series A Class B Preference Shares and 300 Series B Class B
Preference Shares were issued and outstanding.
Common Shares
Subject to the class rights of the Harrah's Entities, each share of Common
Stock of the Company entitles the holder thereof to one vote on all matters
submitted to a vote of the shareholders. In electing directors, shareholders
are not entitled to cumulative voting. Holders of Common Stock do not have any
preemptive rights or rights to subscribe to additional securities of the
Company. There are no conversion rights, redemption provisions or sinking fund
provisions applicable to the Common Stock nor is it subject to calls or
assessments by the Company. Upon liquidation, the holders of the Common Stock
are entitled to receive, pro rata, the net assets of the Company available for
distribution to shareholders. Holders of Common Stock are entitled to share
ratably in dividends when and as declared by the Board of Directors of the
Company out of funds legally available therefor.
Class Rights of the Harrah's Entities. The rights of the Harrah's Entities
under the Bye-Laws of the Company vary depending on their aggregate ownership of
Voting Shares on a fully-diluted basis as such term is defined in the Bye-Laws.
The Harrah's Entities do not have any obligations to the Company (e.g., to
provide financial, managerial or any other support) in connection with or as a
result of their class rights or otherwise. For purposes of the Bye-Laws,
"fully-diluted basis" mean at any time that number of (A) shares of Common Stock
equal to the sum, without duplication, of (i) the total number of shares of
Common Stock then outstanding (other than the 3,525,000 Performance Shares),
plus (ii) the total number of shares of Common Stock into which all then
outstanding Preferred Stock or any other shares of the Company are then
convertible directly or indirectly, provided that shares of Common Stock
issuable upon conversion of Class A Preference Shares shall not be included
until such conversion occurs, plus (iii) the total number of shares of Common
Stock then issuable directly or indirectly upon exercise of all then outstanding
options, warrants, unexercised stock subscriptions, convertible debentures and
other convertible securities plus (B) Voting Shares (other than Common Stock)
equal to the sum, without duplication (including without duplication of any
Common Stock) of (i) the total number of Voting Shares (other than Common Stock)
then outstanding, plus (ii) the total number of Voting Shares (other than Common
Stock) into which all then outstanding Preferred Stock or any other shares of
the Company are then convertible directly or indirectly, plus (iii) the total
number of Voting Shares (other than Common Stock) then issuable directly or
indirectly upon exercise of all then outstanding options, warrants, unexercised
stock subscriptions, convertible debentures and other convertible securities.
The number of Voting Shares on a fully-diluted basis may be different from or
the same as the number of Voting Shares on an Adjusted Outstanding Basis. As
used in the Bye-Laws, "Voting Shares" means all shares of voting securities of
the Company and "Adjusted Outstanding Basis" means the number of outstanding
shares of Common
10
<PAGE>
Stock on an actual basis increased by 5,778,248, which represents the number of
shares of Common Stock issuable pursuant to certain convertible securities and
options outstanding at the time of the Amalgamations.
Board Representation. The Bye-Laws of IEL provide board representation
rights which apply to the Harrah's Entities in accordance with specified
percentages of equity ownership by the Harrah's Entities. These board
representation rights provide that: (i) at any time at which the Harrah's
Entities own 10% or more of the Voting Shares of IEL on a fully-diluted basis
(as defined in the Bye-Laws), the Harrah's Entities shall be entitled to appoint
a percentage of directors (rounded up to the nearest 10%) which bears the same
proportion to the size of the entire Board as the number of Voting Shares held
by the Harrah's Entities bears to the total number of Voting Shares of the
Company on a fully-diluted basis (as defined in the Bye-Laws), and the Harrah's
Entities would be entitled to proportionate representation on the Executive,
Compensation and Audit Committees of the Board; (ii) at any time at which the
Harrah's Entities own 5% or more, but less than 10%, of the Voting Shares of the
Company on a fully-diluted basis (as defined in the Bye-Laws), the Harrah's
Entities would be entitled to appoint one director to the Board and one member
of the Executive, Compensation and Audit Committees of the Board; (iii) the
Company may in a general meeting authorize the Board to fill any vacancy on the
Board, other than a vacancy in the office of a Harrah's Entities Appointee; (iv)
the size of the Board shall be fixed at 10 members until the Harrah's Entities
ownership interest falls below 5% of the Voting Shares of the Company on a
fully-diluted basis (as defined in the Bye-Laws); (v) at such time as the
Harrah's Entities own less than 5% of the Voting Shares of the Company on a
fully-diluted basis (as defined in the Bye-Laws) the Board shall consist of not
less than 3 directors; (vi) at least 2 of the directors sitting on the Board,
other than the Harrah's Entities Appointees, shall be outside directors; and
(vii) the Compensation Committee will be comprised of non-management directors.
Approval Rights. The Bye-Laws also provide that at any time that the
Harrah's Entities own 20% or more of the Voting Shares of the Company on a
fully-diluted basis (as defined in the Bye-Laws), any of the following actions
would require the approval of a majority of the Harrah's Entities Appointees as
part of the necessary majority of the Board of directors and the Harrah's
Entities' consent, as part of the necessary shareholder approval: (i) the
amalgamation, merger or consolidation of the Company; and (ii) any amendment to
the Bye-Laws of the Company which would have a material adverse effect on the
Harrah's Entities' rights under the Bye-Laws including their right to Board or
committee representation or Board or shareholder approval rights.
Shareholder Approval Rights. The Bye-Laws of IEL further provide for
certain approval rights to the Harrah's Entities as shareholders of the Company.
At any time that the Harrah's Entities own 20% or more of the Voting Shares of
the Company on a fully-diluted basis (as defined in the Bye-Laws), any of the
following actions would require the Harrah's Entities' consent, as part of the
necessary shareholder approval: (i) the dissolution or winding up of the
Company; and (ii) the appointment of the Company's independent auditors.
Rights to Protect Gaming Licenses and Integrity. The gaming industry is
highly regulated and gaming service providers are dependent on public perception
and regulatory licensing in order to conduct their business. Because public
perception and regulatory licenses can be jeopardized by the acquisition by
certain persons of material portions of the capital stock of entities engaged in
providing gaming, it is customary for participants in the gaming industry to
include in their charter documents provisions which enable them to redeem the
shares of persons whose acquisition of stock would put such participant's public
perception and regulatory gaming licenses at risk. Additionally, as a
relatively new venue for gaming, inflight gaming is, to a great degree, as of
yet, unregulated. Because inflight gaming is not, in many instances, subject to
intense regulatory scrutiny that other sectors of the gaming industry are
subject, IEL anticipates that it is incumbent upon market participants to be
highly vigilant in protecting its public perception and operational integrity.
Therefore, to protect its public perception and operational integrity and
ability to obtain the anticipated regulatory licenses, the Bye-Laws provide
that the Company is required to redeem, for cash at fair market value, the
shares of any holder of the shares of capital stock of the Company (such holder,
a "Disqualified Holder") (1) who, either individually or when taken together
with any other holders of shares of the Company, is or would reasonably be
expected to be determined by any gaming regulatory agency to be unsuitable, or
has or would reasonably be expected to have an application for a gaming license
or permit or other necessary regulatory approval rejected, or has or would
reasonably be expected to have a previously issued gaming license or permit or
other
11
<PAGE>
necessary regulatory approval rescinded, suspended, revoked, not renewed or not
reinstated, as the case may be, whether or not any of the foregoing is or would
reasonably be expected to be final and nonappealable, or (2) whose holding of
shares, either individually or taken together with the holdings of others, could
reasonably be expected to cause the Company (or any other company engaged in the
gaming business in any jurisdiction if such holder of shares were a shareholder
of that company) to be denied a license, permit or other necessary regulatory
approval to engage in any aspect of the gaming business or the serving or sale
of alcoholic beverages in connection with the operation of a gaming business. A
Disqualified Holder's shares shall (i) be required to be redeemed whenever the
Harrah's Entities own 10% or more of the Voting Shares on a fully-diluted basis
(as defined in the Bye-Laws) and (ii) be subject to redemption by action of the
Board whenever the Harrah's Entities own less than 10% of the Voting Shares on a
fully-diluted basis (as defined in the Bye-Laws). Additionally, the Bye-Laws
provide for the automatic disqualification of any director or officer of the
Company who would be a Disqualified Holder if he were to own shares of the
Company.
Class A Preference Shares
All of the 2,737.443 outstanding shares of Class A Preference Shares are
held by B/EA. The Class A Preference Shares are convertible at any time into a
number of shares of Common Stock, determined by dividing $1,000 per share of
Class A Preference Shares, plus any accrued and unpaid dividends thereon by: (i)
prior to February 28, 1999, a conversion price equal to 70% of the average mean
of the closing bid and ask prices of the Common Stock for the 20 trading days
prior to the conversion (the "Market Price"); (ii) after February 28, 1999 and
prior to August 31, 1999, a conversion price equal to 65% of the Market Price;
and (iii) after August 31, 1999, a conversion price equal to 60% of the Market
Price. In the event the aggregate value of (i) the number of shares of Common
Stock then issued upon conversion of the Class A Preference Shares multiplied by
the then prevailing Market Price plus (ii) the number of shares of Common Stock
issuable upon further conversion of the Class A Preference Shares in accordance
with the foregoing formula multiplied by the then prevailing Market Price plus
(iii) all amounts received by B/EA in redemption of the Class A Preference
Shares by IEL plus (iv) all amounts received by B/EA as proceeds from the sale
of shares of Common Stock issued upon conversion of the Class A Preference
Shares is less than $2,737,443 (the "Loan Amount"), then IEL would be obligated
to either (x) issue such additional number of shares of Common Stock to B/EA
such that at the Market Price the aggregate value of B/EA's Common Stock, Class
A Preference Shares and redemption proceeds would equal the Loan Amount or (y)
purchase all Common Stock and Class A Preference Shares issued to B/EA for an
amount equal to the Loan Amount less B/EA's prior redemption proceeds. Dividends
on the Class A Preference Shares are cumulative as of February 28, 1997 and
payable quarterly at an annual dividend rate of 9% per $1,000. IEL, at its
option, can redeem the Class A Preference Shares, in whole or in part, at any
time and from time to time, at a redemption price of $1,000 per share to be
redeemed plus any accrued and unpaid dividends thereon. IEL is not required to
redeem the Class A Preference Shares. Upon liquidation, holders of the Class A
Preference Shares will be entitled to repayment of an amount equal to $1,000 per
share plus accrued and unpaid dividends, prior to any distributions to holders
of Common Stock. The Class A Preference Shares do not have any voting rights.
The Company has an agreement in principle with B/EA pursuant to which B/EA and
the Company have agreed that the Company will redeem the Class A Preference
Shares held by B/EA at their redemption price of $1,000 per share plus accrued
and unpaid dividends in an amount equal to $100,000 per month through March,
2000. If the Company is in compliance with its redemption obligations, B/EA has
agreed not to convert any of its Class A Preference Shares.
B/EA has, subject to certain conditions, one demand registration right with
respect to not less $2 million of the shares of Common Stock received pursuant
to a conversion of the Class A Preference Shares and the right to include its
shares of Common Stock received upon conversion of the Class A Preference Shares
in registered offerings by the Company. In the event that the Class A Preference
Shares issued to B/EA are converted into Common Stock, the number of shares of
Common Stock which were issued to the Harrah's Entities as consideration for the
Amalgamations shall be adjusted for any dilution from such conversion of Class A
Preference Shares. The Harrah's Entities also will have preemptive rights
pursuant to the Registration and Preemptive Rights Agreement which was entered
into in connection with the Amalgamations. See "Shares Eligible for Future
Sale--Registration Rights--The Harrah's Entities."
12
<PAGE>
Class B Preference Shares
The Bye-Laws of the Company provide that the Board of Directors is
authorized to issue the Class B Preference Shares on such terms as it deems
appropriate, including, without limitation, the following: (i) the number of
shares of the Class B Preference Shares; (ii) whether dividends, if any, shall
be cumulative or non-cumulative and the dividend rate of the Class B Preference
Shares; (iii) the dates at which dividends, if any, shall be payable; (iv) the
redemption rights of the Class B Preference Shares; (v) the terms and amount of
any sinking fund provided for the purchase or redemption of shares of the Class
B Preference Shares; (vi) the amounts payable on shares of the Class B
Preference Shares in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of IEL; (vii) whether the shares of the
Class B Preference Shares shall be convertible into shares of any other class or
preference shares, or any other security, of the Company or any other company,
and if so, the specification of such other class of preference shares or such
other security, the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible and all
other terms and conditions upon which such conversion may be made; and (viii)
the voting rights, if any, of the holders of the Class B Preference Shares.
The Company has outstanding two series of Class B Preference Shares, Series
A and Series B (collectively, the "Series A and B Class B Preference Shares").
The terms of the Series A and Series B Class B Preference Shares are
substantially identical. The Series A and Series B Class B Preference Shares are
convertible into such number of fully paid and non-assessable shares of Common
Stock ("Conversion Shares") as is computed in accordance with the terms of
resolutions adopted by the Board of Directors of the Company setting forth the
terms of such Series A and Series B Preferred Stock (a "Conversion") at any time
and from time to time, from and after the earlier to occur of (i) the date which
is after March 17, 1998 and (ii) the date on which the Registration Statement
(pursuant to the Registration Rights Agreement discussed below) is declared
effective (the "Initial Conversion Date").
The number of Conversion Shares to be delivered by the Company pursuant to
a Conversion shall be determined by dividing the aggregate stated value of the
Series A and Series B Class B Preference Shares to be converted by the
Conversion Price (as defined herein) in effect on the Conversion Date.
"Conversion Price" shall mean the lesser of (A) $3.2038 (the "Fixed Conversion
Price") and (B) a price (the "Floating Conversion Price") calculated by (i)
determining the average of the three lowest closing bid prices for the Common
Stock during the 30 trading days occurring immediately prior to (but not
including) the Conversion Date, and (ii) multiplying such average by a
percentage determined as described below (the "Conversion Percentage"). In the
event that, prior to the expiration of the period ending on the later of June
17, 1998 or the 45th day following the Effective Date (as defined in the
Registration Rights Agreement), the Company incurs, assumes or guarantees any
indebtedness in excess of $1,500,000, individually or in the aggregate, without
the prior written consent of the holders of two-thirds of the Series A and
Series B Preference Shares then outstanding then the Conversion Percentage for
all conversions of Series A and Series B Class B Preference Shares thereafter
shall be 85%. In the event the Company exceeds the foregoing limitations without
the requisite approval, the Company shall give each holder of Series A and
Series B Class B Preference Shares written notice of such event within five
business days of the date the limitation was exceeded.
The Conversion Percentage shall otherwise be determined in accordance with
the following schedule, where "X" represents the Conversion Date:
13
<PAGE>
<TABLE>
<CAPTION>
Number of Days
After December 17, 1997 Conversion Percentage
- -------------------------------------------------------------------------------
<C> <S>
0 less than or equal X less than or equal 90 100%
- -------------------------------------------------------------------------------
90 Less-than X less than or equal 120 95%
- -------------------------------------------------------------------------------
120 Less-than X less than or equal 180 92.5%
- -------------------------------------------------------------------------------
180 Less-than X less than or equal 210 90%
- -------------------------------------------------------------------------------
210 Less-than X less than or equal 360 87.5%
- -------------------------------------------------------------------------------
360 Less-than X 85%
- -------------------------------------------------------------------------------
</TABLE>
Dividends on the Series A and Series B Class B Preference Shares are
cumulative from their date of issue and payable quarterly in cash, or, upon
proper prior notice, in shares of Common Stock, at an annual dividend rate of 8%
per $1,000.
Warrants
Pursuant to each warrant issued in the Private Placement (each, a "Warrant"
and collectively, the "Warrants"), the holder thereof shall have the right to
exercise the Warrant at any time and from time to time following the expiration
of six months from December 17, 1997 (the issue date) up to and including 5:00
p.m., eastern time, on December 17, 1999 as to all or any part of the shares of
Common Stock covered thereby. The exercise price payable by the holder in
connection with the exercise of a Warrant shall be equal to $3.2038.
In addition to the 80,233 Warrants already issued as part of the Private
Placement and the 123,432 additional Warrants anticipated to be issued in
connection with completing the funding under the Private Placement, as of May 5,
1998 the Company has outstanding warrants exercisable for 112,343 shares of
Common Stock as follows:
<TABLE>
<CAPTION>
Number of
shares issuable Date Become Exercise Expiration
Upon Exercise Exercisable Price/share Date
- --------------- ----------------- ----------- ----------------
<S> <C> <C> <C>
4,900 June 1, 1997 $4.00 June 30, 2002
17,500 June 1, 1997 $4.80 June 30, 2002
57,600 September 1, 1997 $4.80 August 31, 2002
20,000 February 11, 1998 $3.50 March 17, 1999
12,343 April 22, 1998 $3.81 October 22, 1999
</TABLE>
The Company also has a commitment to issue warrants for 0.85 shares of
Common Stock for each one share of Common Stock purchased by HIIL pursuant to
Tranche B and Tranche C of the HIIL Subscription Agreement provided HIIL
continues to hold such shares of Common Stock purchased by it for at least six
months. If issued, the warrants will be immediately exercisable at an exercise
price of $2.62125 and will expire 18 months after their issue date. For a
discussion of warrants which may be issuable in connection with the HIIL
Subscription Agreement, see "Selling Shareholders--Additional Equity
Commitments."
Options
The Company currently has outstanding options to purchase 1,130,000 shares
of Common Stock at $3.00 per share under the stock option plan approved by the
shareholders of the Company at the 1996 annual general meeting
14
<PAGE>
(the "1996 Option Plan"). Such options are exercisable through March 1, 2001,
except for options for 20,000 shares of Common Stock which are exercisable
through March 17, 2002. See "Shares Eligible for Future Sale--Option Plans" for
a discussion of management and director option plans.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
Selling Shareholders, including the number of shares of Common Stock
beneficially owned by each Selling Shareholder as of the date of this
Prospectus, the percentage of shares of voting stock outstanding held by each
and the number of shares of Common Stock offered hereby. There can be no
assurance that all or any of the shares of Common Stock offered hereby will be
sold.
<TABLE>
<CAPTION>
Number of Shares Number of
of Common Stock Shares of Number of Shares of Percentage of
Beneficially Held Common Common Stock Shares of Common
Prior to Stock Beneficially Held Stock Outstanding
Selling Shareholder/(1)/ the Offering/(2)/ Offered After the Offering/(2)(3)/ After the Offering
- ------------------------ ------------------- ---------- -------------------------- ------------------
<S> <C> <C> <C> <C>
Proprietary Convertible
Investment Group Inc./(4)(5)(6)/ 560,770 560,770 - *
CC Investments LDC/(4)(5)(7)/ 560,770 560,770 - *
Palisades Holdings,
Inc./(4)(8)(9)/ 112,154 112,154 - *
Henderson International
Investments Limited/(10)(11)/ 748,997 748,997 - *
Jay Jacobson/(12)/ 62,000 22,000 40,000 *
</TABLE>
- -------------------
* Represents less than one percent of the outstanding shares of Common Stock.
/(1)/The persons named in the table, to the Company's knowledge, have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes hereunder.
/(2)/No holder of the Series A or Series B Class B Preference Shares or the
Warrants is entitled to convert or exercise such securities or to receive
dividends thereon in shares of Common Stock to the extent that such
conversion, exercise or payment of dividends would cause such holder to own
beneficially more than 4.9% of the Common Stock then outstanding.
Accordingly, the number of shares of Common Stock set forth herein and
which a Selling Shareholder may sell pursuant to this Prospectus may exceed
the number of shares of Common Stock such Selling Shareholder beneficially
owns as determined in accordance with Rule 13-3(d) of the Exchange Act.
/(3)/Assumes all shares of Common Stock offered hereby are sold pursuant to the
registration statement of which this Prospectus constitutes a part.
/(4)/The number of shares of Common Stock issuable upon conversion of Series A
and Series B Class B Preference Shares and in respect of stock dividends
issuable thereon will vary based upon the market value of the Company's
publicly-traded Common Stock prior to the date of conversion. For purposes
of the disclosure of Shares Beneficially Owned Prior to Offering, it has
been assumed (i) that the applicable conversion price will be $3.2038
(calculated in accordance with the applicable terms of the Series A and
Series B Class B Preference Shares as of the date of issuance of the Series
A Class B Preference Shares on December 17, 1997), (ii) that all shares of
Series A and Series B Class B Preference Shares beneficially owned by the
PCIG, CCI and PHI are converted into shares of Common Stock at such
conversion price in
15
<PAGE>
accordance with the applicable terms of the Series A and Series B Class B
Preference Shares, (iii) that all Warrants beneficially owned by the PCIG,
CCI and PHI have been exercised for shares of Common Stock and (iv) that,
other than the dividend payable on March 30, 1998, all Common Stock
dividends accrued and payable in accordance with the terms of the Series A
and Series B Class B Preference Shares as of June 30, 1998 (the first day
such stock dividends may be issuable in accordance with the applicable
terms of the Series A and Series B Class B Preference Shares) have been
issued. For purposes of the disclosure of Shares Beneficially Owned After
the Offering, it has been assumed that the applicable Selling Shareholder
(x) has converted all shares of Series A and Series B Class B Preference
Shares beneficially owned by it into shares of Common Stock and has
received all Common Stock issuable as Common Stock dividends on such
Series A and Series B Class B Preference Shares as a result of such
conversion, (y) has exercised all Warrants beneficially owned by it and
(z) has sold all shares of Common Stock received by it upon such
conversion and exercise.
/(5)/ Consists of (i) 468,195 shares of Common Stock issuable upon conversion of
Series A Class B Preference Shares and (ii) 92,575 shares of Common Stock
issuable upon the exercise of the Warrants issued to PCIG and CCI. Does
not include Series A Class B Preference Shares or Warrants which may be
issuable to PCIG and CCI under certain conditions pursuant to the Private
Placement. See "--Additional Equity Commitments."
/(6)/ PCIG is a wholly-owned indirect subsidiary of Credit Suisse First Boston,
Inc., a Delaware holding company and a wholly-owned indirect subsidiary of
Credit Suisse First Boston Group, a Swiss financial services company, and
consequently may be deemed to have voting control and investment
discretion over securities held by PCIG. Credit Suisse First Boston, Inc.
disclaims beneficial ownership of any securities owned by PCIG. Its
address is 11 Madison Avenue, 3rd Floor, New York, New York 10010.
/(7)/ Castle Creek Partners, LLC is the investment manager of CCI and
consequently may have voting control and investment discretion over
securities held by CCI. Castle Creek Partners, LLC disclaims beneficial
ownership of any securities owned by CCI. The address of Castle Creek
Partners, LLC is 333 West Wacker Drive, Suite 1410, Chicago, Illinois
60606.
/(8)/ Consists of (i) 93,639 shares of Common Stock issuable upon conversion of
Series B Class B Preference Shares and (ii) 18,515 shares of Common Stock
issuable upon exercise of the Warrants issued to PHI.
/(9)/ Mr. Brad Greenspan has sole voting control and investment discretion over
securities owned by PHI. His address is 505 South Beverly Drive, Suite
305, Beverly Hills, California 90212.
/(10)/Does not include a warrant for shares of Common Stock which HIIL may
acquire from the Company under certain conditions pursuant to the HIIL
Subscription Agreement. See "--Additional Equity Commitments."
/(11)/Mr. Quinten Dreesmann has sole voting control and investment discretion
over securities owned by HIIL. His address is c/o Duncan Lawrie IOM, 14-15
Mount Havelock, Douglas, Isle of Man IM1 2QG, United Kingdom.
/(12)/Includes options for 20,000 shares of Common Stock and a warrant for
20,000 shares of Common Stock, each of which are currently
exercisable.
PCIG and CCI acquired the Series A Class B Preference Shares and PHI
acquired the Series B Class B Preference Shares, each which is convertible into
the shares of Common Stock offered hereby, pursuant to the Private Placement on
December 17, 1997 and February 20, 1998, respectively, directly from IEL. HIIL
acquired the shares of Common Stock pursuant to the HIIL Subscription Agreement
on October 22, 1997. Mr. Jacobson received his shares of Common Stock to be sold
hereunder pursuant to an agreement in March, 1997.
The Company and PCIG, CCI and PHI have entered into Registration Rights
Agreements pursuant to which the Company has agreed, among other things, to file
a registration statement in connection with public offerings of shares of Common
Stock, including the offering contemplated by this Prospectus, by PCIG, CCI and
PHI. HIIL is including its shares pursuant to its right under the HIIL
Subscription Agreement to participate in registrations on behalf of PCIG and
CCI.
Additional Equity Commitments
Pursuant to the Private Placement, each of PCIG and CCI have agreed that,
in the event the Sky Games/TM/ system is rolled-out by SIA to all classes of
service on one its wide-body aircraft prior to June 22, 1998, the Company will
have option to cause them to purchase, in the aggregate, an additional $2
million of Series A Class B Preference Shares and Warrants for a corresponding
number of shares of Common Stock on the same terms and conditions, including
conversion prices and registration rights, as their initial purchase. HIIL had
also committed pursuant to the HIIL Subscription Agreement to purchase and the
Company had committed to sell, in the event the Sky Games/TM/ system was rolled-
out by SIA to all classes of service on one its wide-body aircraft prior to
April 22, 1998, an additional $1.5 million of Common Stock on the same terms and
conditions, including purchase price and registration rights, as HIIL's initial
purchase. To address the Company's need for immediate funding, the Company and
HIIL have agreed that HIIL will waive the conditions as to one-half of its
additional purchase commitment and purchase $750,000 of Common Stock by April
21, 1998. The remaining
16
<PAGE>
$750,000 was still conditioned upon the roll-out of the Sky Games system by SIA
to all classes of service on one its wide-body aircraft prior to April 22, 1998.
This condition was not satisfied. In consideration of this agreement, the
Company and HIIL have agreed to change the purchase price for each $750,000
purchase to $2.62125 per share and replace the warrants otherwise issuable
pursuant to the HIIL Subscription Agreement with a warrant to purchase .85
shares of Common Stock for each share of Common Stock actually purchased
pursuant to the HIIL Subscription Agreement for each $750,000 purchase and held
for six months which would be exercisable at the same purchase price as the
Common Stock. Such warrant would be exercisable for 18 months from its issue
date. The amendment to the HIIL Subscription Agreement was subject to certain
conditions, including receiving the necessary approvals and waivers from PCIG,
CCI and PHI as well as from the Harrah's Entities, which were all satisfied
prior to consummation of the transactions contemplated by the amendment.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from this offering. The
Company will receive the exercise price of any warrants pursuant to which
certain shares of Common Stock offered hereby will be issued, although there can
be no assurance that any such warrants will be exercised.
The shares of Common Stock offered hereby may be sold from time to time in
one or more transactions at a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices.
The Selling Shareholders may from time to time offer shares of Common Stock
offered hereby to or through one or more underwriters, brokers, dealers or
agents, who may receive consideration in the form of discounts and commissions;
such compensation, which may be in excess of ordinary brokerage commissions, may
be paid by the Selling Shareholders and/or the purchasers of the shares of
Common Stock offered hereby for whom such underwriters, brokers, dealers or
agents may act. Any such dealers or agents that participate in the distribution
of the shares of Common Stock offered hereby may be deemed to be "underwriters"
as defined in the Securities Act, and any profit on the sale of such shares of
Common Stock offered hereby by them and any discounts, commissions or
concessions received by any such dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. The aggregate
proceeds to the Selling Shareholders from sales of the Common Stock offered by
the Selling Shareholders hereby will be the purchase price of such Common Stock
less any broker's commissions and underwriter's discounts.
To the extent required by the Securities Act with respect to underwritten
offerings, the specific shares of Common Stock to be sold, the names of the
Selling Shareholders, the respective purchase prices and public offering prices,
the names of the underwriter or underwriters, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus is a part.
The sale of shares of Common Stock by the Selling Shareholders, or by
pledgees, donees or transferees of, or successors in interest to, the Selling
Shareholders, may also be effected from time to time by selling shares directly
to purchasers or to or through broker-dealers, which sales may include long or
short sales. In connection with any such sales, any such broker-dealer may act
as agent for the Selling Shareholders or may purchase from the Selling
Shareholders all or a portion of such shares as principal. Such sales may be
made through Nasdaq or any exchange on which the shares of Common Stock may then
be traded, in the over-the-counter market, in negotiated transactions or
otherwise at prices and at terms then prevailing or at prices related to the
then-current market prices or at prices otherwise negotiated. Shares may also be
sold in one or more of the following transactions: (i) block transactions (which
may involve crosses) in which a broker-dealer may sell all or a portion of such
shares as agent but may position and resell all or a portion of the block as
principal to facilitate the transaction; (ii) purchases by any such broker-
dealer as principal and resale by such broker-dealer for its own account
pursuant to a Prospectus Supplement; (iii) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable Nasdaq
17
<PAGE>
rules; (iv) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers; (v) sales "at the market" to or through a
market maker or into an existing trading market, on an exchange or otherwise,
for such shares; (vi) transactions in options, swaps or other derivatives
(whether exchange listed or otherwise); (vii) sales in other ways not involving
market makers or established trading markets, including direct sales to
institutions or individual purchasers; and (viii) any combination of the
foregoing, or by any other legally available means. In addition, the Selling
Shareholders or their successors in interest may enter into hedging transactions
with broker-dealers who may engage in short sales of Common Stock in the course
of hedging the positions they assume with the Selling Shareholders. The Selling
Shareholders or their successors in interest may also enter into option or other
transactions with broker-dealers that require the delivery to such broker-
dealers of the shares of Common Stock, which shares of Common Stock may be
resold thereafter pursuant to this Prospectus.
In effecting sales, broker-dealers engaged by the Selling Shareholders may
arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or other compensation from the Selling Shareholders in amounts to be
negotiated immediately prior to the sale that are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may also receive
compensation from purchasers of the shares which is not expected to exceed that
customary in the types of transactions involved.
The Company will pay substantially all the expenses incurred by the Selling
Shareholders and the Company incident to the offering and sale of the shares of
Common Stock offered hereby to the public, but excluding any discounts,
commissions and fees of underwriters, broker-dealers or agents or legal fees
incurred by the Selling Shareholders. The Company has agreed to indemnify
certain of the Selling Shareholders against certain liabilities, including
liabilities under the Securities Act.
To the extent required, the specific number of shares to be sold, the names
of the Selling Shareholder(s), the respective purchase prices and public
offering prices, the names of any agents, dealers or underwriters, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement or in an amendment to the
registration statement of which this Prospectus is a part, as appropriate.
SHARES ELIGIBLE FOR FUTURE SALE
On May 5, 1998, IEL had outstanding 20,467,319 shares of Common Stock.
Of these shares, 11,419,281 shares of Common Stock are freely tradeable without
restriction or further registration under the Securities Act, except for shares
purchased by an existing "affiliate" of the Company which will be subject to the
volume of sale, manner of sale and notice limitations of Rule 144 under the
Securities Act. The 9,048,038 remaining shares of Common Stock are "restricted"
shares under the Securities Act. The holders of the 3,525,000 Performance Shares
have agreed pursuant to separate agreements (the Redemption Agreement and the
Redemption and Cancellation Agreement) to tender such Performance Shares for
redemption by the Company when and to the extent they are released from the
escrow pursuant to which they are held. Upon receipt of any of the Performance
Shares, the Company has agreed to cancel such shares. In addition, such holders
have agreed to grant an irrevocable proxy to a national banking association
which has agreed not to vote the Performance Shares. As a result of the
foregoing, the 3,525,000 Performance Shares should not become available for
future sale and are not included in the total number of shares outstanding.
The Company currently has outstanding convertible Preferred Stock. If all
the outstanding convertible Preferred Stock were converted into shares of Common
Stock as at May 5, 1998, and if all warrants and options outstanding were
exercised, there would be outstanding 27,422,588 shares of Common Stock. Of
these, the Company currently has registered for resale 200% of the 1,233,694
shares of Common Stock as contemplated in this Prospectus. The Company has an
agreement in principle with B/EA pursuant to which B/EA and the Company have
agreed that the Company will redeem the Class A Preference Shares held by B/EA
at their redemption price of $1,000 per share plus accrued and unpaid dividends
in an amount equal to approximately $100,000 per month through March, 2000 to
commence on an agreed-upon date. If the Company is in compliance with its
redemption obligations, B/EA has
18
<PAGE>
agreed not to convert any of its Class A Preference Shares. See "Risk Factors--
Shares Eligible for Future Sales; Possible Effect on Additional Equity
Financing."
In general, Rule 144 provides a person, including affiliates of the
Company, may sell an amount of shares which were last purchased from the issuer
or an affiliate of the issuer a minimum of one year prior to such sales, such
that, within any three-month period, such person's sales do not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the average
weekly trading volume in composite trading on all exchanges during the four
calendar weeks preceding such sale. In addition, sales under Rule 144 may be
made only through unsolicited "broker's transactions" or transactions directly
with a "market maker" and are subject to various other conditions. A person who
is not deemed an affiliate is entitled to sell shares which were last purchased
from the issuer or an affiliate of the issuer a minimum of at least two years
prior to such sale under Rule 144 without regard to the volume and other
limitations described above.
The market for the Common Stock has been thinly traded and may be
inefficient. There can be no assurance that a more meaningful trading market
will develop after the sales contemplated hereunder or that the trading market
will be any more efficient. No prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of such shares
of Common Stock for sale will have on the market price of the Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market may have an adverse impact on such market
price.
Registration Rights
The Harrah's Entities. Pursuant to a Registration and Preemptive Rights
Agreement (the "Registration and Preemptive Rights Agreement"), the Harrah's
Entities have three demand registration rights to cause the Company to register
the Common Stock owned by the Harrah's Entities, provided, that, except for the
special demand described below, 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
shall be underwritten on a firm commitment basis by an underwriter chosen by the
Company. The demand rights are subject to customary restrictions such as 120 day
blockage periods for corporate developments or registered offerings by the
Company, cut-backs and etc. The Company also agreed pursuant to such agreement
that until the earlier of when the Harrah's Entities own less than 5% of the
outstanding Voting Shares of the Company on a fully-diluted basis (as defined in
the Bye-Laws), the Harrah's Entities would have customary piggy-back rights to
include their shares of Common Stock in registered offerings by the Company.
The Harrah's Entities have one additional demand registration right, which
may be exercised by written demand given to the Company at any time during the
180-day period beginning on the 61st day after the "Inaugural Date" (i.e., the
date on which actual gaming takes place on the first aircraft installed with the
Sky Games system on SIA). The Company has also agreed that it shall not file a
registration statement within such 60-day period to register sales on its own
behalf. In the event the demand is not exercised within the 180-day period, the
right shall automatically expire. The Harrah's Entities may specify that all or
any part of their holdings (but in no event less than the number of shares which
would reduce HIIC's holdings to 19.9% on an issued and outstanding basis) be
registered pursuant to such demand. The restrictions on demand registrations
contained in Section 2(d) of the Registration and Preemptive Rights Agreement
will not be applicable to such demand registration. Upon receipt of notice from
the Harrah's Entities, the Company will, at Harrah's Entities' election, use its
best efforts either to (i) arrange a firmly underwritten offering for the shares
in the demand, at a price acceptable to the Harrah's Entities, in their sole
discretion, in satisfaction of the demand right; or (ii) locate a buyer, in a
private sale at a price acceptable to the Harrah's Entities in their sole
discretion for not less than all of the Harrah's Entities' holdings in the
Company. The Harrah's Entities may also locate a buyer for such amount of
shares, and the Company will offer, in either instance, to such potential buyers
in a private sale, Board representation and registration rights substantially
similar to those
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<PAGE>
the Harrah's Entities have with respect to the Company in such a manner that
does not require the approval of the shareholders of the Company. In the event
of an underwritten offering, the Harrah's Entities shall select the underwriter,
which underwriter shall be reasonably acceptable to the Company. Upon the
consummation of any sale of shares of the Company owned by the Harrah's
Entities, either pursuant to a public sale or to a private buyer, the Harrah's
Entities shall cause all or such number of their designees on the Board of
Directors to resign so that it will only have such number of designees as they
would then be entitled to elect pursuant to the bye-laws of the Company given
its share holdings of the Company after such transaction. This special demand
right was granted to the Harrah's Entities in consideration for their agreement
not to exercise their existing right under the Registration and Preemptive
Rights Agreement to include their shares of IEL Common Stock for sale pursuant
to the registration statement of which this Prospectus is a part.
The Harrah's Entities shall bear the costs of their legal counsel and any
underwriting discounts, commissions or allowances in connection with all sales
pursuant to the foregoing, and the Company shall bear all other fees and
expenses of such registrations.
The Harrah's Entities have the right to purchase securities offered by the
Company for as long as the Harrah's Entities own 20% or more of the outstanding
Common Stock on a fully-diluted basis (as defined in the Bye-Laws) at the same
price and terms such securities are otherwise being offered. The Harrah's
Entities also have the right for as long as the Harrah's Entities own 20% or
more of the outstanding Voting Shares on a fully-diluted basis (as defined in
the Bye-Laws) to participate on a proportionate basis in any non-pro rata stock
repurchases or redemptions conducted by the Company. At any time that the
Harrah's Entities own less than 10% of the outstanding Voting Shares, on a
fully-diluted basis (as defined in the Bye-Laws), the Company has the right to
cause the Harrah's Entities to sell their Voting Shares pursuant to a registered
sale and the Harrah's Entities have the right to cause the Company to file a
registration statement to sell their Voting Shares in the event (i) 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 constitute a Disqualifying Action or (ii the Company
does not redeem a "Disqualified Holder" (as defined in the Bye-Laws) pursuant to
the Bye-Laws, in each case at the Company's expense without being subject to the
limitations on demand rights set forth above. Upon any conversion of any Class A
Preference Shares issued to B/EA as part of the B/E Conversion, the Company
shall issue to the Harrah's Entities a number of shares of Common Stock upon
payment of the par value thereof by the Harrah's Entities such that such number
of shares plus the shares previously issued to the Harrah's Entities constitutes
the same percentage of the outstanding Common Stock on a fully-diluted basis (as
defined in the Bye-Laws) as the number of shares issued to the Harrah's Entities
constituted of the outstanding Common Stock on a fully-diluted basis (as defined
in the Bye-Laws) prior to such issuance.
B/EA. B/EA has, subject to certain conditions, one demand registration
right with respect to not less than $2 million of the shares of Common Stock
received pursuant to a conversion of the Class A Preference Shares and the right
to include its shares of Common Stock received upon conversion of the Class A
Preference Shares in registered offerings by the Company.
PCIG, CCI and PHI. In addition to their right to require the Company to
file the registration statement of which this Prospectus is a part and to
include shares of Common Stock acquired pursuant to their additional equity
commitment, PCIG, CCI and PHI have the right to include shares obtained by them
pursuant to the Private Placement, including any shares acquired as part of
their additional equity commitment, in any subsequent registration statement
filed by the Company while the Company was required to be keep the registration
statement of which this Prospectus is a part effective but PCIG, CCI or PHI were
unable to sell pursuant to such registration statement. See "Selling
Shareholders--Additional Equity Commitments."
HIIL. HIIL has the right to require the Company to include its shares
acquired pursuant to the HIIL Subscription Agreement, including any shares
acquired as part of its additional equity commitment, in the registration
statement of which this Prospectus is a part and is including the 748,997 shares
of Common Stock offered by this Prospectus pursuant to such right. HIIL also has
the right to include shares of Common Stock acquired pursuant to
20
<PAGE>
the HIIL Subscription Agreement in any subsequent registration statement filed
by the Company on behalf of PCIG and CCI pursuant to the Private Placement. See
"Selling Shareholders--Additional Equity Commitments."
Other. As part of terminating the Company's relationship with its prior
financial relations firm, Corporate and Financial Relations, the Company agreed
that under certain circumstances it will include in registrations by the Company
under the Securities Act shares of Common Stock owned by Jay Jacobson. Mr.
Jacobson owns 22,000 shares of Common Stock which are being offered by this
Prospectus pursuant to an exercise of such right and warrants and options for
the purchase of an additional 40,000 shares of Common Stock as to which he does
not have such registration rights.
The Redemption Agreement provides piggyback registration rights for the
shares of Common Stock issued under such agreement.
Option Plans
The Board of Directors of the Company has adopted a Management Incentive
Stock Option Plan (the "MIP") and a Directors Option Plan, in order to be able
to attract and motivate qualified management and directors. The MIP provides for
the allocation of options for up to 4,070,105 shares of Common Stock to be
issued to the management of the Company. Options for 3,027,300 shares of Common
Stock were issued as of May 5, 1998, but none were exercisable. The Director
Option Plan (the "DOP") provides for an allocation of options for up to 500,000
shares of Common Stock to be issued as an automatic grant of options for 10,000
shares of Common Stock to all directors holding office on the date of each
annual meeting of shareholders at the trading price on such day. As of May 5,
1998, options for 150,000 shares of Common Stock were outstanding under the DOP.
In addition, options for 1,130,000 shares of Common Stock are outstanding under
the 1996 Option Plan. See "Description of Capital Stock--Options."
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Appleby, Spurling & Kempe, Bermuda legal counsel
of the Company.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1997 and for the 10-month period then ended included in the
Company's Annual Report on Form 10-K/A for the 10 months ended December 31, 1997
have been audited by Ernst & Young LLP, and at February 27, 1997 and for each of
the two years in the period ended February 28, 1997 also included in the
Company's Annual Report on Form 10-K/A for the 10 months ended December 31, 1997
have been audited by Buckley Dodds, Chartered Accountants, as set forth in their
respective reports thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Reports, proxy and information
statements and other information filed with the Commission can be inspected and
copied during normal business hours at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices at 7 World Trade
Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a website at
http://www.sec.gov containing reports, proxy and
21
<PAGE>
information statements, and other information concerning the Company can also be
inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 30006-4300.
This Prospectus constitutes a part of a Registration Statement filed by
Company with the Commission under the Securities Act. This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
Common Stock. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee) of the fees and expenses anticipated to be payable
by the Company, in connection with the registration and distribution of the
Common Stock being registered:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee... $ 2,550
Blue Sky Fees and Expenses............................ 2,000
Legal Fees............................................ 45,000
Accounting Fees....................................... 30,000
Printing and Miscellaneous............................ 20,450
--------
Total....................................... $100,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Members of IEL's Board of Directors, IEL's officers and members of
committees appointed by IEL's Board of Directors are entitled to indemnification
in defending any proceedings, whether civil or criminal, in which judgment is
given in such person's favor, or in which such person is acquitted, or in
connection with any application under the Companies Act 1981 (the "Companies
Act") in which relief from liability is granted to such person by a court
regarding all civil liabilities, losses, damages or expenses (including but not
limited to liabilities under contract, tort and statute or any applicable
foreign law or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered by such Director, officer or committee
member. Indemnity is extended to any person acting as a Director, officer or
committee member in the reasonable belief that he has been so appointed or
elected notwithstanding any defect in such appointment or election provided that
such indemnity contained does not extend to any matter which would render it
void pursuant to the Companies Act.
Every Director, officer and member of a committee duly constituted by IEL
shall be indemnified out of the funds of IEL against all liabilities incurred by
such Director, officer or committee member.
To the extent that any Director, officer or member of a committee is
entitled to claim an indemnity pursuant to IEL's Bye-Laws in respect of amounts
paid or discharged by him, the relative indemnity shall take effect as an
obligation of IEL to reimburse the person making such payment or effecting such
discharge.
The Companies Act 1981 (the "Companies Act") permits indemnification
pursuant to a company's bye-laws or in any contract or arrangement between the
company and any officer, or any person employed by the company as auditor,
regarding any loss arising or liability attaching to such person by virtue of
any rule of law in respect of any negligence, default, breach of duty or breach
of trust of which the officer or person may be guilty in relation to the company
or any subsidiary thereof.
The Companies Act provides further that any provision for indemnification,
whether contained in bye-laws of a company or in any contract or arrangement
between the company and any officer, or any person employed by the company as
auditor, exempting such officer or person from, or indemnifying him against any
liability which by virtue of any rule of law would otherwise attach to him in
respect of any fraud or dishonesty of which he may be guilty in relation to the
company shall be void, provided that nothing shall operate to deprive any person
of any exemption or right to be indemnified in respect of anything done or
omitted to be done by such person while any such provision was in force; and
notwithstanding the foregoing a company may, in pursuance of any such provision
as
II-1
<PAGE>
aforesaid indemnify any such officer or auditor against any liability incurred
by him in defending any proceedings, whether civil or criminal in which judgment
is given in his favour or in which he is acquitted or when relief is granted to
him by a court pursuant to the Companies Act.
A company may purchase and maintain insurance for the benefit of any
officer of the company against any liability incurred by him pursuant to such
persons noncompliance with the Companies Act, regulations or in his capacity as
an officer of the company or indemnifying such an officer in respect of any loss
arising or liability attaching to him by virtue of any rule of law in respect of
any negligence, default, breach of duty or breach of trust of which the officer
may be guilty in relation to the company or any subsidiary thereof and nothing
in the Companies Act shall make void or voidable any such policy. IEL maintains
Directors and Officers insurance.
The Company has individual indemnification agreements with each of its
directors and officers pursuant to which it is obligated to indemnify them for
actions in their roles as directors and officers of the Company.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
5 Opinion of Appleby, Spurling & Kempe, Bermuda legal counsel
of the Company, regarding the legality of the shares of
Common Stock.
23 Consents of Experts and Counsel:
(a) The consent of Buckley Dodds, Chartered Accountants;
(b) The consent of Appleby, Spurling & Kempe is included in
their opinion filed as Exhibit 5; and
(c) Ernst & Young LLP.
24 Power of Attorney for Mr. Geller, Mr. Stevenson, Mr. Lamm,
Mr. Irwin, Mr. Burke, Mr. Clements, Mr. Atwood, Mr. Boushy,
Mr. Deeson and Ms. Wormser were included on page II-6 of the
registration statement filed on March 26, 1998.
99.1 Resolution of Board of Directors of the Company designating
and setting forth the rights and preferences of the Class A
Preference Shares dated June 17, 1997. (Incorporated by
reference to Exhibit 4(c) to the Registrant's Form 8-K filed
June 27, 1997).
99.2 Resolutions of the Board of Directors of the Company
designating and setting forth the rights and preferences of
the Series A Class B Preference Shares dated as of December
9, 1997. (Incorporated by reference to Exhibit 4(a) to the
Registrant's Form 8-K dated December 17, 1997).
99.3 Resolutions of Board of Directors of the Company designating
and setting forth the rights and preferences of the Series B
Class B Preference Shares, dated February 16, 1998.
99.4 Form of Warrant issued to each of Proprietary Convertible
Investment Group, Inc. and CC Investments, LDC.
(Incorporated by reference to Exhibit 4(b) to the
Registrant's Form 8-K dated December 17, 1997).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
99.5 Form of Registration Rights Agreement between the Company
and each of Proprietary Convertible Investment Group, Inc.
and CC Investments, LDC dated December 17, 1997.
(Incorporated by reference to Exhibit 4(c) to the
Registrant's Form 8-K dated December 17, 1997).
99.6 Form of Securities Purchase Agreement between the Company
and each of Proprietary Convertible Investment Group, Inc.
and CC Investments, LDC dated December 17, 1997, without
exhibits. (Incorporated by reference to Exhibit 99 to the
Registrant's Form 8-K dated December 17, 1997).
99.7 Warrant issued to Palisades Holding, Inc.
99.8 Registration Rights Agreement between the Company and
Palisades Holding, Inc. dated February 20, 1998.
99.9 Securities Purchase Agreement between the Company and
Palisades Holding, Inc. dated February 20, 1998.
99.10 Agreement dated March 17, 1997 between Jay Jacobson and the
Company.
99.11 Redemption Agreement, dated as of February 25, 1997, between
the Company and Anthony Clements and Rex Fortescue.
(Incorporated by reference to Exhibit 3.12 to the
Registrant's Form 20-F filed September 12, 1997).
99.12 Redemption and Cancellation Agreement, dated as of April 30,
1997, between the Company and Sky Games International, Inc.
(Incorporated by reference to Exhibit 3.13 to the
Registrant's Form 20-F filed September 12, 1997).
99.13 Consulting Agreement dated as of April 30, 1997, between the
Company and James P. Grymyr. (Incorporated by reference to
Exhibit 3.14 to the Registrant's Form 20-F filed September
12, 1997).
99.14 Shareholder Rights Agreement, dated June 17, 1997, between
the Company and Harrah's Interactive Investment Company.
(Incorporated by reference to Exhibit 3.15 to the
Registrant's Form 20-F filed September 12, 1997).
99.15 Continuing Services Agreement, dated June 17, 1997, between
the Company and Harrah's Interactive Entertainment Company.
(Incorporated by reference to Exhibit 3.17 to the
Registrant's Form 20-F filed September 12, 1997).
99.16 Plan and Agreement of Merger and Amalgamation, dated as of
May 13, 1997, among the Company, SGI Holding Corporation
Limited, IEL and Harrah's Interactive Investment Company.
(Incorporated by reference to Exhibit 2 to the Registrant's
Form 8-K filed June 27, 1997).
99.17 Registration and Preemptive Rights Agreement, dated June 17,
1997, between the Company and Harrah's Interactive
Investment Company. (Incorporated by reference to Exhibit
4(a) to the Registrant's Form 8-K filed June 27, 1997).
99.18 Registration Rights Agreement, dated June 17, 1997, between
the Company and B/E Aerospace, Inc. (Incorporated by
reference to Exhibit 4(b) to the Registrant's Form 8-K filed
June 27, 1997).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
99.19 Termination Agreement and Release, dated as of June 17,
1997, among the Company, SGI Holding Corporation Limited,
IEL, Harrah's Interactive Investment Company, and Harrah's
Interactive Entertainment Company. (Incorporated by
reference to Exhibit 3.21 to the Registrant's Form 20-F
filed September 12, 1997).
99.20 Subscription Agreement, dated as of October 22, 1997,
between the Company and Henderson International Investments
Limited. (Incorporated by reference to Exhibit 3.22 to the
Registrant's Form 10-Q dated November 19, 1997).
99.21 Subscription Agreement, dated as of October 22, 1997,
between the Company and Michael A. Irwin. (Incorporated by
reference to Exhibit 3.23 to the Registrant's Form 10-Q
dated November 19, 1997).
99.22 First Amendment to Registration and Preemptive Rights
Agreement dated March 18, 1998 between the Company and
Harrah's Interactive Investment Company.
99.23 First Amendment to Subscription Agreement between the
Company and Henderson International Investments Limited
dated April 2, 1998.
</TABLE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
(2) for the purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering;
II-4
<PAGE>
(4) for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(5) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective; and
(6) for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Memphis, State of Tennessee, on the 7th day of May,
1998.
INTERACTIVE ENTERTAINMENT LIMITED
By:/s/ David B. Lamm
------------------------------------
David B. Lamm
Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 7, 1998.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
Laurence S. Geller* Chairman of the Board and a Director
Gordon Stevenson* President, Chief Executive Officer and a
Director (Principal Executive Officer)
/s/ David B. Lamm Chief Financial Officer, Treasurer and
- ------------------------------ Secretary (Principal Financial Officer)
David B. Lamm
Michael A. Irwin* Director of Finance and Administration
(Principal Accounting Officer)
Malcolm P. Burke* Director
Anthony P. Clements* Director
Charles L. Atwood* Director
John M. Boushy* Director
Brian Deeson* Director
- ------------------------------ Director
Amnon Shiboleth
Judy Wormser* Director
- ------------------------------ Director
Phillip Gordon
*By: /s/ David B. Lamm
-------------------------
David B. Lamm,
Attorney-In-Fact
</TABLE>
II-6
<PAGE>
Exhibit 5
5th May, 1998
Interactive Entertainment Limited
840 Crossover Lane
Suite D-215
Memphis, Tennessee 38117
Dear Sirs,
Re: Interactive Entertainment Limited
Registration Statement on Form S-3
Registration No. 333-48759
(the "Registration Statement")
----------------------------------
We have acted as attorneys in Bermuda to Interactive Entertainment Limited, a
Bermuda exempted company (the "Company"). We have been requested to issue this
opinion as to Bermuda law in connection with the Registration Statement filed by
the Company with the Securities and Exchange Commission in the United States of
America on 5th May, 1998 in respect of the sale by the Selling Shareholders of
3,238,385 Common Shares of par value US$0.01 each (the "Shares"). Capitalised
terms used and not otherwise defined herein shall have the meanings set forth on
the Registration Statement.
We for the purposes of this opinion, we have examined and relied upon such
documents of public record in Bermuda and such other documents as we have
considered necessary, including:-
(i) a copy, as filed, of the Registration Statement;
(ii) the Certificate of Continuance, the Memorandum of Continuance and Amended
and Restated Bye-laws of the Company and the originals or certified
copies of the corporate records of the Company; and
(iii) Minutes of the Meetings of Shareholders and Directors in relation to the
issuance of the Shares.
In such examination, we have assumed:
<PAGE>
1. the genuineness of all signatures, the authenticity of documents submitted
to us as originals, and the conformity with the originals of all documents
submitted to us as copies; and
2. that when, issued, the Shares issued to each of PCIG, CCI AND PHI do not
individually exceed 4.9% of the outstanding Shares when aggregated with any
other Shares owned by each of PCIG, CGI or PHI.
In rendering this opinion, we do not express any opinion as to the laws of any
jurisdiction other than Bermuda law.
Based upon and subject to the foregoing, and to matters not disclosed to us, we
are of the opinion that the Shares registered pursuant to the Registration
Statement for sale by the Selling Shareholders have been or will be legally
issued and are or will be fully paid and non-assessable.
For the purposes of this opinion:-
(a) the term "fully paid" means, in relation to the issued shares of a
company limited by shares (that is to say, a company (such as the Company)
having the liability of its shareholders limited by its memorandum of
Continuance to the amount, if any, unpaid on the shares held by them)) that
the shareholders holding such shares have no liability to make contribution
or other payment to the Company in respect of those shares; and
(b) the term "non-assessable" shall mean, in relation to fully paid shares
of the Company and subject to any contrary provision in any agreement in
writing between the Company and the holder of such shares, that no
shareholder shall be bound by an alteration in the Memorandum of
Continuance, or the amended or restated Bye-laws of the Company after the
date on which he became a shareholder, if and so far as the alteration
requires him to take, or subscribe for additional shares, or in any way
increase his liability to contribute to the share capital of, or otherwise
to pay money to, the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to our firm under the caption "Legal
Matters" in the Prospectus contained therein.
Yours faithfully,
/s/ Appleby, Spurling & Kempe
APPLEBY, SPURLING & KEMPE
<PAGE>
Exhibit 23(a)
BUCKLEY DODDS
================================================================================
Chartered Accountants Suite 1140 - 1185 West Georgia Street
Vancouver, B.C. Canada V6E 4E6
Telephone: (604) 688-7227
Fax: (604) 681-7716
May 5, 1998
Securities Exchange Commission
Dear Sirs:
Re: Interactive Entertainment Limited, "the Company" (formerly Skygames
International Inc.)
-------------------------------------------------------------------
We refer the Form S-3 Registration Statement of the Company dated May 7, 1998.
We consent to the use in Amendment No. 1 to the above mentioned Form S-3
Registration Statement of our report dated April 28, 1997, (except for Note 14
which is revised as of February 1, 1998), to the shareholders of the Company on
the following financial statements:
- Consolidated balance sheets as at February 28, 1997 and February 29,
1996;
- Consolidated statements of operations, deficit and changes in financial
position for the years then ended.
We report that we have read the Form S-3 Registration Statement and have no
reason to believe that there are any misrepresentations in the information
contained therein that is derived from the financial statements upon which we
have reported or that is within our knowledge as a result of our audit of such
financial statements.
This letter is provided to the Securities Regulatory Authority to which it is
addressed pursuant to the requirements of their securities legislation and not
for any other purpose.
Yours truly,
/s/ Buckley Dodds
BUCKLEY DODDS
Chartered Accountants
==================================== A Partnership of Incorporated Professionals
<PAGE>
Exhibit 23(c)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 33-48759) and related
Prospectus of Interactive Entertainment Limited for the registration of
3,238,385 shares of its common stock and to the incorporation by reference
therein of our report dated February 11, 1998 (except for the second paragraph
of Note 14, as to which the date is March 19, 1998), with respect to the
consolidated financial statements and schedule of Interactive Entertainment
Limited included in its Annual Report (Form 10-K/A) for the ten months ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Memphis, Tennessee
May 5, 1998
<PAGE>
EXHIBIT 99.3
EXHIBIT B
---------
RESOLVED, that pursuant to the authority granted to the Board of Directors
of Interactive Entertainment Limited, a Bermuda exempted company (the
"Corporation"), in accordance with the provisions of the Corporation's Bye-Laws,
the Executive Committee of the Board of Directors hereby authorizes a series of
the Corporation's previously authorized Class B Preference Shares, par value
$.01 per share (the "Preferred Stock"), and hereby states the designation and
---------------
number of shares, and fixes the relative rights, preferences, privileges and
restrictions thereof as follows:
1. DESIGNATION AND AMOUNT.
----------------------
The designation of this series, which consists of three hundred (300)
shares of Preferred Stock, is the Series B Convertible Preference Shares (the
"Series B Preference Shares") and the face amount shall be One Thousand Dollars
- ---------------------------
($1,000) per share (the "Stated Value").
------------
2. DIVIDENDS.
---------
(a) Dividend Rate; Payments. The holders (each, a "Holder" and
-----------------------
collectively, the "Holders") of the Series B Preference Shares shall be entitled
to receive, to the extent permitted by applicable law, subject to the prior,
full payment of any accumulated and unpaid dividends on any class or series of
Senior Securities (as defined below) and in preference to the payment of any
dividend on any class or series of Junior Securities (as defined below),
cumulative dividends ("Dividends") on each Series B Preference Share in an
---------
amount equal to, on an annualized basis, the Stated Value of each Series B
Preference Share times eight percent (8%). Dividends shall accrue, whether or
-----
not declared, on each Series B Preference Share from the date of the original
issuance thereof (the "Purchase Date") pursuant to the terms of the Securities
-------------
Purchase Agreement governing the issuance and sale of the Series B Preference
Shares (the "Securities Purchase Agreement") through the earlier to occur of,
(i) the Maturity Date (as defined below), and (ii) the redemption or conversion
thereof in accordance with the terms hereof. Accrued Dividends on a Series B
Preference Share shall be payable on each Conversion Date (as defined below) and
on the Maturity Date (as defined below) (each, a "Dividend Payment Date"). If,
---------------------
on any date, Dividends on any outstanding Series B Preference Shares have not
been paid or declared by the Board of Directors in accordance with applicable
law and set aside for payment with respect to all Dividend Payment Dates
preceding such date, the aggregate amount of such Dividends shall be fully paid
or declared and set aside for payment before any distribution, whether by way of
dividend or otherwise, shall be declared, paid or set apart with respect to any
Junior Securities on or after such date. Dividends shall be paid either in cash
or, at the option of the Corporation (the "Stock Payment Option") and subject to
--------------------
the satisfaction of the conditions set forth in paragraph 2(e) below (the "Stock
-----
Payment Conditions"), in shares (the "Dividend Payment Shares") of the
- ------------------ -----------------------
Corporation's common stock (the "Common Stock"). Cash Dividends shall be paid
------------
to each Holder within five (5) Business Days following the applicable Dividend
Payment Date by delivering immediately available funds to such Holder in
accordance with such Holder's wiring instructions. Any amount of Dividends
payable in cash which is not paid within five (5) Business Days of the
applicable Dividend Payment Date shall bear interest at an annual rate equal to
the lower of (x) the "prime" rate (as published in the Wall Street Journal) on
-------------------
such fifth (5th) Business Day plus three percent (3%) and (y) the
-----
<PAGE>
highest rate permitted by applicable law, for the number of days elapsed from
such Dividend Payment Date until such amount is paid in full (the "Default
-------
Interest Rate").
- -------------
(b) Exercise of Stock Payment Option. In order for the Corporation to
--------------------------------
exercise the Stock Payment Option, it must deliver written notice thereof (a
"Stock Payment Exercise Notice") to each Holder on the Closing Date (as defined
- ------------------------------
in the Securities Purchase Agreement, the "Closing Date") with respect to
------------
Dividends during the calendar quarter during which the Closing Date occurs and
on or before the tenth (10th) Business Day prior to each calendar quarter
thereafter with respect to Dividends during the immediate following calendar
quarter specifying that the Corporation shall pay Dividends during such calendar
quarter (or shorter period in the case of the notice delivered on such Closing
Date) in Dividend Payment Shares. The Corporation's election as set forth in a
Stock Payment Exercise Notice shall be irrevocable during the period to which it
relates.
(c) Delivery of Dividend Payment Shares. Upon exercise of the Stock
-----------------------------------
Payment Option, the Corporation shall deliver to each Holder, on or before the
third (3rd) Business Day following the applicable Dividend Payment Date (the
"Dividend Payment Share Delivery Date"), the aggregate number of whole Dividend
- -------------------------------------
Payment Shares that is determined by dividing (x) the amount of the Dividend to
which such Holder is entitled as of such Dividend Payment Date with respect to
all of such Holder's Series B Preference Shares by (y) the applicable Conversion
Price (as defined below) on such Dividend Payment Date. The Corporation shall
effect delivery of Dividend Payment Shares to a Holder by, as long as the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, crediting the account of
such Holder or its nominee at DTC with the number of Dividend Payment Shares
required to be delivered, no later than the close of business on such Dividend
Payment Share Delivery Date. In the event that the condition specified in the
immediately preceding sentence is not satisfied as of the applicable Dividend
Payment Share Delivery Date, or if a Holder specifies in the applicable
Conversion Notice (as defined below) or otherwise notifies the Corporation in
writing prior to the applicable Dividend Payment Date that the Holder wishes to
receive physical certificates, the Corporation shall effect delivery of Dividend
Payment Shares by delivering to such Holder or its nominee physical certificates
representing such Dividend Payment Shares, no later than the close of business
on such Dividend Payment Share Delivery Date. No fractional Dividend Payment
Shares shall be issued; the Corporation shall, in lieu thereof, issue a number
of Dividend Payment Shares which reflects a rounding up to the next whole number
of shares. Dividend Payment Shares shall be fully paid and non-assessable, free
and clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Corporation other than as provided for in the Corporation's Bye-
laws.
(d) Failure to Deliver Dividend Payment Shares. In the event that the
------------------------------------------
Corporation fails for any reason to deliver to a Holder certificates
representing, or to have credited to the Holder's or its nominee's account at
DTC, the appropriate number of Dividend Payment Shares on or before the Dividend
Payment Share Delivery Date therefor, and such failure continues for three (3)
Business Days following the Dividend Payment Share Delivery Date, the
Corporation shall pay to such Holder payments in the amount of (x) (N/365)
multiplied by (y) the amount of such Dividend multiplied by (z) the lower of
- ------------- -------------
twenty-four percent (24%) and the maximum rate permitted by applicable law,
where "N" equals the number of days elapsed between the original Dividend
Payment Share Delivery Date for such Dividend Payment Shares and the date on
which all of the certificates representing such Dividend Payment Shares are
issued and delivered to such Holder. Amounts payable under this subsection 2(d)
shall be paid to the Holder in immediately available
-2-
<PAGE>
funds on or before the fifth (5th) Business Day of the calendar month
immediately following the calendar month in which such amounts have accrued. If
the Corporation fails to issue and deliver the appropriate number of Dividend
Payment Shares to a Holder on or before the tenth (10th) Business Day following
the applicable Dividend Payment Share Delivery Date, the Corporation shall, upon
written notice by such Holder, immediately pay the amount of the Dividend in
cash, together with interest at the Default Interest Rate on such unpaid amount
calculated from the applicable Dividend Payment Date until the date on which
such amount is paid. Each Holder shall have the right to pursue actual damages
for the Corporation's failure to issue and deliver Dividend Payment Shares on
the Dividend Payment Share Delivery Date for a Dividend, including, without
limitation, damages relating to any purchase of shares of Common Stock by such
Holder to make delivery on a sale effected in anticipation of receiving Dividend
Payment Shares, such damages to be in an amount equal to (x) the aggregate
amount paid by such Holder for the shares of Common Stock so purchased minus (z)
----
(i) the aggregate amount of net proceeds, if any, received by such Holder from
the sale of the Dividend Payment Shares issued by the Corporation with respect
to such Dividend and (ii) the amount of any cash received in lieu of such
Dividend Payment Shares pursuant to the third sentence of this subsection 2(d),
and such Holder shall have the right to pursue all remedies available to it at
law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(e) Conditions to Stock Payment Option. The Corporation may exercise the
----------------------------------
Stock Payment Option with respect to Dividends payable to a Holder only if the
following conditions each has been satisfied as of the applicable Dividend
Payment Date:
(i) the number of shares of Common Stock authorized, unissued and
unreserved for all other purposes, is sufficient to effect the issuance and
delivery of at least 175 % of the aggregate of, (A) the number of shares of
Common Stock into which all outstanding Preferred Shares are convertible (the
"Conversion Shares"), (B) the number of shares of Common Stock (the "Warrant
- ------------------ -------
Shares") issuable upon exercise in full of the Warrant (the "Warrant") issued
- ------ -------
and sold pursuant to the terms of the Securities Purchase Agreement and which
are then outstanding, and (C) the number of Dividend Payment Shares issuable
pursuant to such exercise;
(ii) the Common Stock is authorized for quotation on the Nasdaq
SmallCap Market, or for listing or quotation on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market;
(iii)(A) a Registration Statement covering the resale of shares of
Common Stock (the "Registration Statement") is effective and available for the
----------------------
sale of no less than 175 % of the aggregate of, (1) the number of Conversion
Shares into which all outstanding Series B Preference Shares are then
convertible, (2) the number of Warrant Shares then issuable upon the exercise in
full of the outstanding Warrant in full, (3) the number of Conversion Shares and
Warrant Shares, respectively, that are then held by all of the Holders and with
respect to which a registration statement is required to be maintained under the
terms of the Registration Rights Agreement pursuant to which the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares are required to be
registered under the Registration Statement (the "Registration Rights
-------------------
Agreement"), and (4) the number of Dividend Payment Shares issuable pursuant to
such exercise or (B) a Registration Statement is no longer required to be
maintained under the Registration Rights Agreement;
-3-
<PAGE>
(iv) a Mandatory Redemption Event (as defined herein) has not
occurred;
(v) the Corporation shall have delivered a Stock Payment Exercise
Notice to such Holder in accordance with the terms hereof and elected to pay
such Dividends in Common Stock; and
(vi) such payment in Dividend Payment Shares, after giving effect to
the Conversion of all Series B Preference Shares, the exercise of the Warrant
and the prior issuance of all shares of Common Stock hereunder, in each case
effected on or before such Dividend Payment Date, will not violate the
limitations set forth in Section 5 below.
For purposes of subsections 2(e)(i) and 2(e)(iii) above, the determination
of the number of Conversion Shares or Warrant Shares issuable at any time shall
be made without regard to the limitations set forth in Section 5 below or in
paragraph 4 of the Warrant.
3. PRIORITY.
--------
(a) Payment upon Dissolution.
------------------------
(i) Upon the occurrence of, (A) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation's creditors
(which is not dismissed within sixty (60) days) or by the Corporation, as such,
or relating to its assets, (B) the dissolution or other winding up of the
Corporation whether total or partial, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy proceedings, or (C) any
assignment for the benefit of creditors or any marshaling of the material assets
or material liabilities of the Corporation (each, a "Liquidation Event"), no
-----------------
distribution shall be made to the holders of any shares of Junior Securities (as
defined below) unless, following the payment of preferential amounts on all
Senior Securities (as defined below), each Holder shall have received the
Liquidation Preference (as defined below) with respect to each Series B
Preference Share then held by such Holder. In the event that upon the
occurrence of a Liquidation Event, and following the payment of preferential
amounts on all Senior Securities (as defined below), the assets available for
distribution to the Holders and the holders of securities ranking pari passu
with the Preferred Stock in respect of dividends, redemption or distribution
upon liquidation (the "Pari Passu Securities") are insufficient to pay the
---------------------
Liquidation Preference with respect to all of the outstanding Series B
Preference Shares and the preferential amounts payable to such holders, the
entire assets of the Corporation shall be distributed ratably among the Series B
Preference Shares and the shares of Pari Passu Securities in proportion to the
ratio that the preferential amount payable on each such share (which shall be
the Liquidation Preference in the case of a Series B Preference Share) bears to
the aggregate preferential amount payable on all such shares.
(ii) The "Liquidation Preference" with respect to a Series B
----------------------
Preference Share shall mean an amount equal to the Stated Value of such Series B
Preference Share plus any accrued and unpaid Dividends thereon. "Junior
------
Securities" shall mean the Common Stock and all other capital stock of the
- ----------
Corporation that are not Pari Passu Securities or do not have a preference over
the Preferred Stock in respect of dividends, redemption or distribution upon
liquidation. "Senior Securities" shall mean any securities of the Corporation
-----------------
which by their terms have a preference over the Preferred Stock in respect of
dividends, redemption or distribution upon liquidation.
-4-
<PAGE>
4. CONVERSION.
----------
(a) Right to Convert. Subject to the limitations contained in Section 5
----------------
below, each Holder shall have the right to convert, at any time and from time to
time, from and after the earlier to occur of, (i) the date which is three (3)
months following the Closing Date, and (ii) the date on which the Registration
Statement is declared effective (the "Initial Conversion Date"), all or any part
-----------------------
of the Series B Preference Shares held by such Holder into such number of fully
paid and non-assessable shares of Common Stock ("Conversion Shares") as is
-----------------
computed in accordance with the terms hereof (a "Conversion").
----------
(b) Conversion Notice. In order to convert Series B Preference Shares, a
-----------------
Holder shall send by facsimile transmission, at any time prior to 6:00 p.m.,
eastern time, on the date on which such Holder wishes to effect such Conversion
(the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice") to
--------------- -----------------
the Corporation and to its designated transfer agent for the Common Stock (the
"Transfer Agent") stating the number of Series B Preference Shares to be
- ---------------
converted, the applicable Conversion Price (as defined below) and a calculation
of the number of shares of Common Stock issuable upon such Conversion, and (ii)
a copy of the certificate or certificates representing the Series B Preference
Shares being converted. The Holder shall thereafter send the original of the
Conversion Notice and of such certificate or certificates to the Transfer Agent.
The Corporation shall issue a new certificate for Series B Preference Shares in
the event that less than all of the Series B Preference Shares represented by a
certificate delivered to the Corporation in connection with a Conversion are
converted. In the case of a dispute between the Corporation and a Holder as to
the calculation of the Conversion Price or the number of Conversion Shares
issuable upon a Conversion, the Corporation shall promptly issue to such Holder
the number of Conversion Shares that are not disputed and shall submit the
disputed calculations to its independent accountant within one (1) Business Day
of receipt of such Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and such Holder of the results in writing no later than two (2)
Business Days following the day on which it received the disputed calculations.
Such accountant's calculation shall be deemed conclusive absent manifest error.
The fees of any such accountant shall be borne by the party whose calculations
were most at variance with those of such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
---------------------------------------------
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined by dividing the aggregate Stated Value of the Series B
Preference Shares to be converted by the Conversion Price (as defined herein) in
effect on the Conversion Date. "Conversion Price" shall mean the lesser of (x)
----------------
$3.2038 (the "Fixed Conversion Price") and (y) a price (the "Floating Conversion
---------------------- -------------------
Price") calculated by (i) determining the average of the three (3) lowest
- -----
Closing Bid Prices for the Common Stock during the thirty (30) Trading Days
occurring immediately prior to (but not including) the Conversion Date, and (ii)
multiplying such average by a percentage determined as described below (the
"Conversion Percentage"). In the event that, prior to the expiration of the
- ----------------------
period ending on the later of the six (6) month anniversary of the Closing Date
or the forty-fifth (45th) day following the Effective Date (as defined in the
Registration Rights Agreement), the Company incurs, assumes or guarantees any
indebtedness in excess of one million five hundred thousand dollars
($1,500,000), individually or in the aggregate, without the prior written
consent of the holders of two-thirds (2/3) of the Company's Series A Convertible
Preference Shares and the Series B Preference Shares (collectively the "Series A
and Series B Preference Shares") then outstanding, then the Conversion
Percentage for all conversions of Series B Preference Shares thereafter shall be
eighty-five percent (85%).
-5-
<PAGE>
In the event the Company exceeds the foregoing limitations without the requisite
approval, the Company shall give each Holder written notice of such event within
five (5) Business Days of the date the limitation was exceeded.
The Conversion Percentage shall otherwise be determined in accordance with the
following schedule, where "X" represents the Conversion Date:
<TABLE>
<CAPTION>
Number of Days
After Tranche A Closing Date Conversion Percentage
---------------------------- ---------------------
<S> <C>
0 less than or equal to X less than or equal to 90 100%
- --------------------------------------------------------------------------------
90 less than X less than or equal to 120 95%
- --------------------------------------------------------------------------------
120 less than X less than or equal to 180 92.5%
- --------------------------------------------------------------------------------
180 less than X less than or equal to 210 90%
- --------------------------------------------------------------------------------
210 less than X less than or equal to 360 87.5%
- --------------------------------------------------------------------------------
360 less than X 85%
- --------------------------------------------------------------------------------
</TABLE>
(d) Certain Definitions. "Trading Day" shall mean any day on which the
------------------- -----------
Common Stock is traded on the Nasdaq SmallCap Market or on the principal
securities exchange or market on which the Common Stock is then traded.
"Closing Bid Price" means, with respect to a security, the closing bid price of
- ------------------
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by The Nasdaq Stock Market, Inc. or, if
The Nasdaq Stock Market, Inc. is not then reporting closing bid prices of such
security, Bloomberg Financial Markets or a comparable reporting service of
national reputation selected by the Corporation and reasonably acceptable to
holders of a majority of the then outstanding shares of Series A and Series B
Preference Shares (collectively, "Bloomberg"), or if the foregoing does not
---------
apply, the last reported bid price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no bid price is reported for such security by Bloomberg, the
average of the bid prices of all market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on any of the foregoing bases, the
Closing Bid Price of such security shall be the fair market value as reasonably
determined by an investment banking firm selected by the Holders (which may be a
Holder) of a majority of the then outstanding shares of Series A and Series B
Preference Shares and reasonably acceptable to the Corporation, with the costs
of such appraisal to be borne by the Corporation. "Business Day" means any day
------------
on which the New York Stock Exchange and commercial banks located in the City of
New York and the city of Vancouver, British Columbia are open for business.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a Conversion
----------------------------------------
Notice from a Holder pursuant to subsection 4(b) above, the Corporation shall,
no later than the close of business on the later to occur of, (i) the third
(3rd) Business Day following the Conversion Date set forth in such Conversion
Notice, and (ii) the first Business Day following delivery of the original
certificates, duly endorsed,
-6-
<PAGE>
representing the Series B Preference Shares being converted pursuant thereto
(the "Delivery Date"), issue and deliver or cause to be delivered to such Holder
-------------
the number of Conversion Shares as shall be determined as provided herein. The
Corporation shall effect delivery of Conversion Shares to a Holder by, as long
as the Corporation's transfer agent is participating in the DTC Fast Automated
Securities Transfer program, crediting the account of such Holder or its nominee
at DTC with the number of Conversion Shares required to be delivered, no later
than the close of business on such Delivery Date. In the event that the
condition specified in the immediately preceding sentence is not satisfied as of
the applicable Delivery Date, or if a Holder so specifies in a Conversion Notice
or otherwise in writing, the Corporation shall effect delivery of Conversion
Shares by delivering to the Holder or its nominee physical certificates
representing such Conversion Shares, no later than the close of business on such
Delivery Date. If any Conversion would create a fractional Conversion Share,
such fractional Conversion Share shall be disregarded and the number of
Conversion Shares issuable upon such Conversion, in the aggregate, shall be
rounded up to the nearest whole number of shares. Conversion Shares delivered to
the Holder shall not contain any restrictive legend as long as the sale of such
Conversion Shares is covered by an effective Registration Statement or may be
made pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act"), or any successor rule or provision.
--------------
(f) Failure to Deliver Conversion Shares.
------------------------------------
(i) In the event that the Corporation fails for any reason (other
than by operation of Section 5 below) to deliver to a Holder certificates
representing the number of Conversion Shares specified in the applicable
Conversion Notice on or before the Delivery Date therefor (a "Conversion
----------
Default"), such Holder shall notify the Corporation by facsimile of such
Conversion Default (a "Default Notice"). If, after the Holder has sent a
--------------
Default Notice to the Corporation, the Corporation has not delivered such
certificates, and such failure continues for three (3) Business Days following
the Delivery Date, the Corporation shall pay to such Holder payments
("Conversion Default Payments") in the amount of (x) (N/365) multiplied by (y)
- ----------------------------- -------------
the aggregate Liquidation Preference of the Series B Preference Shares
represented by the Conversion Shares which remain the subject of such Conversion
Default multiplied by (z) the lower of twenty-four percent (24%) and the maximum
-------------
rate permitted by applicable law, where "N" equals the number of days elapsed
between the original Delivery Date for such Conversion Shares and the earlier to
occur of, (A) the date on which all of the certificates representing such
Conversion Shares are issued and delivered to such Holder, (B) the date on which
the Series B Preference Shares are redeemed pursuant to the terms hereof, and
(C) the date on which a Withdrawal Notice (as defined below) is delivered to the
Corporation. Amounts payable under this subsection 4(f) shall be paid to the
Holder in immediately available funds on or before the fifth (5th) Business Day
of the calendar month immediately following the calendar month in which such
amounts have accrued.
(ii) In the event that a Holder has not received certificates
representing the Conversion Shares by the tenth (10th) Business Day following a
Conversion Default, such Holder may, upon written notice (a "Withdrawal Notice")
-----------------
delivered to the Corporation on such Business Day or on any Business Day
thereafter (unless, prior to the delivery of such notice, such Conversion Shares
are delivered to such Holder), withdraw its Conversion Notice with respect to
such Conversion Shares and regain its rights as a Holder of the Series B
Preference Shares that are the subject of such Conversion Default. In such
event, the Conversion Price that would otherwise be in effect when such Series B
Preference Shares are thereafter converted in accordance with the terms hereof
shall be reduced by one percent (1%) for each day occurring
-7-
<PAGE>
during the period immediately following such 10th Business Day until the day on
which such Holder delivers a Withdrawal Notice to the Corporation; provided,
however, that the maximum percentage by which such Conversion Price may be
reduced hereunder shall be fifty percent (50%). (For example, if such Conversion
Default were to continue for five days following such 10th Business Day, such
Conversion Price would be reduced by 5%; if for ten days, by 10%; and for fifty
days or more, 50%, so that the number of Conversion Shares deliverable upon
conversion of such Series B Preference Shares would be increased
proportionately). Upon delivery by a Holder of a Withdrawal Notice, such Holder
shall retain all of such Holder's rights and remedies with respect to the
Corporation's failure to deliver such Conversion Shares (including without
limitation the right to receive the cash payments specified in subsection
4(f)(i) above).
(iii) Nothing herein shall limit a Holder's right to pursue actual
damages for the Corporation's failure to issue and deliver Conversion Shares on
the applicable Delivery Date (including, without limitation, damages relating to
any purchase of shares of Common Stock by such Holder to make delivery on a sale
effected in anticipation of receiving Conversion Shares upon Conversion such
damages to be in an amount equal to (x) the aggregate amount paid by such Holder
for the shares of Common Stock so purchased minus (y) the aggregate amount of
net proceeds, if any, received by such Holder from the sale of the Conversion
Shares issued by the Corporation pursuant to such Conversion), and such Holder
shall have the right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(g) Conversion at Maturity. On the date which is three (3) years following
----------------------
the Purchase Date for the Series B Preference Shares (the "Maturity Date"), all
-------------
the Series B Preference Shares then outstanding shall be automatically converted
into the number of shares of Common Stock equal to the Stated Value of such
shares divided by the Conversion Price then in effect (a "Mandatory
---------- ---------
Conversion"); provided, however, that if either, (i) the Common Stock is not
- ----------
designated for quotation on the Nasdaq SmallCap Market or the Nasdaq National
Market or listed on the New York Stock Exchange or American Stock Exchange, or
(ii) the Corporation delivers a written notice to each Holder at least twenty-
five (25) Business Days prior to the Maturity Date for the Series B Preference
Shares stating that it intends to redeem the outstanding Series B Preference
Shares for cash, the Corporation shall, within five (5) Business Days following
such Maturity Date, pay to each Holder, in immediately available funds, an
amount equal to the Stated Value for the Series B Preference Shares then held by
such Holder. In the event that a Holder does not receive such amount within
such five (5) Business Day period, such Holder shall have the option, upon
written notice to the Corporation, to regain its rights as a holder of Series B
Preference Shares, including without limitation, the right to convert such
Series B Preference Shares in accordance with the terms of subsections 4(a)
through 4(f) hereof and, upon delivery of such notice, such shares shall no
longer be subject to Mandatory Conversion hereunder. If a Mandatory Conversion
occurs, the Corporation and each Holder shall follow the procedures for
Conversion set forth in this Section 4, with the Maturity Date therefor deemed
to be the Conversion Date, except that the Holder shall not be required to send
a Conversion Notice as contemplated by subsection 4(b).
5. CONVERSION LIMITATIONS.
----------------------
In no event shall a Holder be permitted to convert any Series B Preference
Shares in excess of the number of such shares, upon the Conversion of which (x)
the number of shares of Common Stock beneficially owned by such Holder (other
than shares of Common Stock issuable upon conversion of the
-8-
<PAGE>
Series B Preference Shares or which would otherwise be deemed beneficially owned
except for being subject to a limitation on conversion or exercise analogous to
the limitation contained in this Section 5) plus (y) the number of shares of
----
Common Stock issuable upon the Conversion of such Series B Preference Shares,
would be equal to or exceed (z) 4.99% of the number of shares of Common Stock
then issued and outstanding. As used herein, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules thereunder. To the extent that the limitation
contained in this paragraph applies, the determination of whether Series B
Preference Shares are convertible (in relation to other securities owned by a
Holder) and of which Series B Preference Shares are convertible shall be in the
sole discretion of such Holder, and the submission of Series B Preference Shares
for Conversion shall be deemed to be such Holder's determination that such
Series B Preference Shares are convertible pursuant to the terms hereof, and the
Corporation shall have no obligation whatsoever to verify or confirm the
accuracy of such determination. This Section 5 may be amended, (i) in order to
clarify an ambiguity or otherwise to give effect to such limitation, by the
Holders of three-fourths (3/4) of the shares of Series A and Series B Preference
Shares then outstanding, and (ii) for any other reason, with the further consent
of the holders of a majority of the shares of Common Stock then outstanding.
Nothing contained herein shall be deemed to restrict the right of a Holder to
convert Series B Preference Shares at such time as the Conversion thereof will
not violate the provisions of this Section 5. The restriction contained in this
Section 5 shall not apply in the event of a Mandatory Conversion.
6. ADJUSTMENT TO CONVERSION PRICE.
------------------------------
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
--------------------------------------------------------------
Dividend. Etc. If, prior to the Conversion of all of the Series B Preference
- -------------
Shares, (i) the number of outstanding shares of Common Stock is increased by a
stock split, a stock dividend on the Common Stock, a reclassification of the
Common Stock, the distribution to holders of Common Stock of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price thereof (based upon the subscription or exercise price of
such rights or warrants at the time of the issuance thereof) or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or (ii) the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Bid Price for the Common
Stock on the five (5) consecutive Trading Days occurring immediately prior to
but not including the earlier of such date and the Trading Day before the "ex"
date, if any, with respect to the issuance or distribution requiring such
computation. The term " 'ex' date", when used with respect to any issuance or
distribution, means the first Trading Day on which the Common Stock trades
regular way in the market from which such average Closing Bid Price is then to
be determined without the right to receive such issuance or distribution.
(b) Adjustment to Floating Conversion Price. If, prior to the
---------------------------------------
Conversion of all of the Series B Preference Shares, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, a stock
dividend on the Common Stock, a combination, a reclassification of the Common
Stock or other similar event, and such event takes place during the reference
period for the determination of the Floating Conversion Price for any Conversion
thereof, the Floating Conversion Price shall be calculated giving appropriate
effect to the stock split, stock dividend, combination, reclassification or
other similar event for all Trading Days occurring during such reference period.
-9-
<PAGE>
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
--------------------------------------------
Conversion of all of the Series B Preference Shares, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, redemption
or other similar event, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Corporation or another entity or
there is a sale of all or substantially all the Corporation's assets or there is
a Change of Control Transaction (as defined below) with respect to which, in any
such case, a Holder does not exercise its right to a Mandatory Redemption (as
defined below) of the Series B Preference Shares, then such Holder shall
thereafter have the right to receive upon Conversion of Series B Preference
Shares, upon the terms and conditions specified herein and in lieu of the shares
of Common Stock immediately theretofore issuable upon Conversion, such stock,
securities and/or other assets, if any, which such Holder would have been
entitled to receive in such transaction had such shares been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of such Holder
to the end that the provisions hereof (including, without limitation, provisions
for the adjustment of the Conversion Price and of the number of shares issuable
upon a Conversion) shall thereafter be applicable as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Corporation shall not effect any transaction described in
this subsection 6(c) unless, (i) it first gives to each Holder ten (10) days'
prior written notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, redemption or other similar event, and makes a
public announcement of such event at the same time that it gives such notice,
and (ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of the Corporation hereunder,
including the terms of this subsection 6(c).
(d) Distribution of Assets. If the Corporation shall declare or
----------------------
make any distribution of cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or the immediately preceding year), or any rights
to acquire any of the foregoing to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, including any
dividend or distribution in shares of capital stock of a subsidiary of the
Corporation (collectively, a "Distribution"), then, upon a Conversion by a
------------
Holder occurring after the record date for determining shareholders entitled to
such Distribution, the Fixed Conversion Price for Series B Preference Shares not
converted prior to the record date of a Distribution shall be reduced to a price
determined by decreasing the Fixed Conversion Price in effect immediately prior
to the record date of the Distribution by an amount equal to the fair market
value of the assets so distributed with respect to each share of Common Stock,
such fair market value to be determined by an investment banking firm selected
by the holders of at least three-fourths (3/4) of the shares of Series A and
Series B Preference Shares then outstanding and reasonably acceptable to the
Company.
(e) Adjustment Due to Major Announcement. If the Corporation, (i) makes a
------------------------------------
public announcement that it intends to enter into a Change of Control
Transaction (as defined below), or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
------------------
Announcement is made, the "Announcement Date"), then, in the event that a Holder
-----------------
seeks to convert Series B Preference Shares on or following the Announcement
Date, the Conversion Price shall, effective upon the Announcement Date and
continuing through the earlier to occur of the consummation of the proposed
transaction or tender offer, exchange offer or other transaction and the
Abandonment Date (as defined below), be equal to the lower of (x) the average
-10-
<PAGE>
Closing Bid Price for the Common Stock on the five (5) Trading Days immediately
preceding (but not including) the Announcement Date and (y) the Conversion Price
in effect on the Conversion Date for the Series B Preference Shares.
"Abandonment Date" means with respect to any proposed transaction or tender
- -----------------
offer, exchange offer or other transaction for which a public announcement as
contemplated by this subsection 6(e) has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this subsection 6(e) to become operative.
(f) No Fractional Shares. If any adjustment under this Section 6 would
--------------------
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be rounded up to the
next whole number of shares or, at the option of the Corporation, shall be paid
in cash in an amount calculated by multiplying (x) the amount of the fractional
share times (y) the Closing Bid Price used to calculate the Conversion Price for
-----
such Conversion.
7. MANDATORY REDEMPTION BY CORPORATION.
-----------------------------------
(a) Mandatory Redemption. In the event that a Mandatory Redemption Event
--------------------
(as defined below) occurs, each Holder shall have the right, to the extent
permitted by applicable law and subject to the rights and preferences of the
Senior Securities, to have all or any portion of the Series B Preference Shares
held by such Holder redeemed by the Corporation (a "Mandatory Redemption") at
--------------------
the Mandatory Redemption Price (as defined herein) in same day funds. In order
to exercise its right to effect a Mandatory Redemption, a Holder must deliver a
written notice (a "Mandatory Redemption Notice") to the Corporation at any time
---------------------------
during which such event is continuing; provided, however, that, in the case of
subsection 7 (b)(v) below, the following procedure shall be followed in lieu
thereof, (i) no sooner than fifteen (15) days nor later than ten (10) days prior
to the Corporation's good faith estimate of the consummation of a Change of
Control Transaction (as defined below), but not prior to the public announcement
of such Change of Control Transaction, the Corporation shall deliver a written
notice (a "Notice of Change of Control Transaction") to each Holder, and (ii)
---------------------------------------
within five (5) days of delivery by the Corporation of a Notice of Change of
Control Transaction but in any case prior to the abandonment of such Change of
Control Transaction, each Holder who wishes to exercise its right to effect a
Mandatory Redemption hereunder shall deliver a Mandatory Redemption Notice to
the Corporation. The Mandatory Redemption Notice shall specify the effective
date of such Mandatory Redemption (the "Mandatory Redemption Date") and the
-------------------------
number of such shares to be redeemed. In the event that a Change of Control
Transaction occurs and the Corporation does not deliver to a Holder a Notice of
Change of Control Transaction, such Holder may exercise its right to a Mandatory
Redemption hereunder by delivering a Mandatory Redemption Notice to the
Corporation (or to the surviving or successor entity) at any time on or before
the twentieth (20th) Business Day following such Change of Control Transaction.
(b) Mandatory Redemption Event. Each of the following events shall be
--------------------------
deemed a "Mandatory Redemption Event":
--------------------------
(i) the Corporation fails for any reason (including without limitation
as a result of not having a sufficient number of shares of Common Stock
authorized and reserved for issuance, but not
-11-
<PAGE>
including by reason of the provisions of Section 5 hereof) to issue shares of
Common Stock to a Holder and deliver certificates representing such shares to
such Holder as and when required by the provisions hereof upon Conversion of any
Series B Preference Shares, and such failure continues for ten (10) Business
Days;
(ii) the Corporation breaches, in a material respect, any covenant or
other material term or condition (including any material representation or
warranty) of the Securities Purchase Agreement, the Registration Rights
Agreement or the terms hereof and such breach continues for a period of ten (10)
Business Days after written notice thereof to the Corporation from a Holder;
(iii) the Registration Statement is not declared effective by one
hundred eighty (180) days following the Purchase Date or if the Registration
Statement has been declared effective by such date and, while the effectiveness
of the Registration Statement is required to be maintained pursuant to the terms
of the Registration Rights Agreement, the effectiveness of the Registration
Statement lapses for any reason (including without limitation, the issuance of a
stop order) or is unavailable to the Holder for the sale of Conversion Shares
except in accordance with the terms of the Registration Rights Agreement, unless
the Corporation is using its best efforts to remedy such lapse or unavailability
to utilize such registration statement; provided that in no event shall such
failure exist for a total of more than ten (10) Business Days in any twelve (12)
month period, and provided, further, that the cause of such lapse or
--------
unavailability is not due to factors within the control of the Holder;
(iv) the Common Stock is not quoted on the Nasdaq SmallCap Market or
listed on the New York Stock Exchange, the Nasdaq National Market or the
American Stock Exchange and such failure to be so quoted or listed continues for
a period of five (5) Business Days; and
(v) there occurs the sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, or the effectuation of a
transaction or series of related transactions, in which more than fifty percent
(50%) of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other entity, immediately following which the prior shareholders of the
Corporation fail to own, directly or indirectly, at least fifty percent (50%) of
the surviving entity (a "Change of Control Transaction").
-----------------------------
(c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall be
-------------------------- --------------------------
equal to the greater of, (x) the Liquidation Preference of the Series B
Preference Shares being redeemed multiplied by one hundred and thirty percent
-------------
(130%), and (y) an amount determined by dividing the Liquidation Preference of
the Series B Preference Shares being redeemed by the Conversion Price in effect
on the Mandatory Redemption Date and multiplying the resulting quotient by the
average Closing Bid Price for the Common Stock on the five (5) Trading Days
immediately preceding (but not including) the Mandatory Redemption Date.
(d) Payment of Mandatory Redemption Price.
-------------------------------------
(i) The Corporation shall pay the Mandatory Redemption Price to the
Holder exercising its right to redemption within five (5) Business Days
following the Mandatory Redemption Date. Upon the redemption of a Series B
Preference Share, and payment of the Mandatory Redemption Price to the Holder
thereof, the Holder will promptly return such share to the Corporation for
cancellation.
-12-
<PAGE>
(ii) If the Corporation fails to pay the Mandatory Redemption Price to
the Holder within five (5) Business Days of the Mandatory Redemption Date, the
Holder shall be entitled to interest thereon, from and after the Mandatory
Redemption Date until the Mandatory Redemption Price has been paid in full, at
an annual rate equal to the Default Interest Rate.
(ii) If the Corporation fails to pay the Mandatory Redemption Price
within ten (10) Business Days of the Mandatory Redemption Date, then the Holder
shall have the right at any time, so long as the Corporation remains in default,
to require the Corporation, upon written notice, to immediately issue, in lieu
of the Mandatory Redemption Price, the number of shares of Common Stock of the
Corporation equal to the Mandatory Redemption Price divided by the Conversion
----------
Price in effect on such Conversion Date as is specified by the Holder in writing
to the Corporation, such Conversion Price to be reduced by one percent (1%) for
each day beyond such 10th Business Day in which the failure to pay the Mandatory
Redemption Price continues; provided, however, that the maximum percentage by
which such Conversion Price may be reduced hereunder shall be fifty percent
(50%).
8. MISCELLANEOUS.
-------------
(a) Transfer of Series B Preference Shares. A Holder may sell or transfer
--------------------------------------
all or any portion of the Series B Preference Shares to any person or entity as
long as such sale or transfer is the subject of an effective registration
statement under the Securities Act or is exempt from registration thereunder and
otherwise is made in accordance with the terms of the Securities Purchase
Agreement. Such transferring Holder shall notify the Corporation in writing of
such transfer setting forth, (i) the number of shares being transferred, and
(ii) the person or persons to whom such transfer is being made. From and after
the date of such sale or transfer, the transferee hereof shall be deemed to be a
Holder; provided, however, that any such transfer shall be void if the notice
provided for in this subsection 8(a) is not complied with. Upon any such sale
or transfer, the Corporation shall, promptly following the return of the
certificate or certificates representing the Series B Preference Shares that are
the subject of such sale or transfer, issue and deliver to such transferee a new
certificate in the name of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
-------
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed given, (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier, and (iii) on the third Business Day after
deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
-13-
<PAGE>
If to the Corporation:
Interactive Entertainment Limited
845 Crossover Lane
Suite D-215
Memphis, Tennessee 38117
Attn.: David B. Lamm
Fax: (901) 537-3801
With a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune
Fax: (312) 715-4800
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
--------------------------
evidence of the loss, theft, destruction or mutilation of a certificate
representing Series B Preference Shares, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of such certificate if
mutilated, the Corporation shall execute and deliver to the Holder a new
certificate identical in all respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and subsection
----------------
8(e) below, the Holders of the Series B Preference Shares shall have no voting
rights with respect to the business, management or affairs of the Corporation;
provided that the Corporation shall provide the Holder with prior notification
of each meeting of stockholders (and copies of proxy statements and other
information sent to such stockholders).
(e) Protective Provisions.
---------------------
So long as shares of Series B Preference Shares are outstanding, the
Corporation shall not, without first obtaining the approval of the Holders of at
least three-fourths (3/4) of the then outstanding shares of Series A and Series
B Preference Shares.
(i) alter or change the rights, preferences or privileges of the
Preferred Stock or any other capital stock of the Corporation so as to affect
adversely the Series B Preference Shares ;
(ii) create any new class or series of capital stock having a
preference over or ranking pari passu with the Series B Preference Shares as to
redemption, the payment of dividends or distribution of assets upon a
Liquidation Event or any other liquidation, dissolution or winding up of the
Corporation;
-14-
<PAGE>
(iii) increase the authorized number of shares of Series B Preference
Shares;
(iv) issue any shares of Series B Preference Shares other than
pursuant to the Securities Purchase Agreement; or
(v) issue any Senior Securities or Pari Passu Securities.
In the event that Holders of at least three-fourths (3/4) of the then
outstanding shares of Series B Preference Shares agree to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of Series
B Preference Shares pursuant to the terms hereof, then the Corporation will
deliver notice of such approved change to the holders of the Series B Preference
Shares that did not agree to such alteration or change (the "Dissenting
Holders") and the Dissenting Holders shall have the right for a period of thirty
(30) days following such delivery to convert their Series B Preference Shares
pursuant to the terms hereof as they existed prior to such alteration or change,
or to continue to hold such Series B Preference Shares. No such change shall be
effective to the extent that, by its terms, it applies to less than all of the
Holders of Series B Preference Shares then outstanding.
-15-
<PAGE>
EXHIBIT 99.7
EXHIBIT A
---------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER. THIS WARRANT (THIS
"WARRANT") IS ISSUED SUBJECT TO THE TERMS OF (A) A SECURITIES PURCHASE
- --------
AGREEMENT, DATED AS OF FEBRUARY 20, 1998 ("PURCHASE AGREEMENT"), BY AND BETWEEN
------------------
INTERACTIVE ENTERTAINMENT LIMITED AND THE HOLDER OF THIS WARRANT AND (B) A
REGISTRATION RIGHTS AGREEMENT, DATED AS OF FEBRUARY 20, 1998 ("REGISTRATION
------------
RIGHTS AGREEMENT"), BY AND BETWEEN INTERACTIVE ENTERTAINMENT LIMITED AND THE
- ----------------
HOLDER OF THIS WARRANT.
WARRANT TO PURCHASE
18,515 SHARES
WARRANT TO PURCHASE COMMON STOCK
OF
INTERACTIVE ENTERTAINMENT LIMITED
THIS CERTIFIES that PALISADES HOLDINGS, INC., a California corporation, or
------------------------
its registered assigns (the "Holder"), has the right to purchase from
------
INTERACTIVE ENTERTAINMENT LIMITED, a Bermuda exempted company (the "Company"),
-------
up to 18,515 fully paid and nonassessable shares of the Company's Common Shares
(the "Common Stock"), subject to adjustment as provided herein, at a price equal
------------
to the Exercise Price (as defined below), at any time beginning on August 20,
1998 (the "Initial Exercise Date") and ending at 5:00 p.m., eastern time, on
---------------------
February 20, 2000 (the "Expiration Date"). This Warrant is issued, and all
---------------
rights hereunder shall be, subject to all of the conditions, limitations and
provisions set forth herein.
1. Exercise.
--------
(a) Right to Exercise; Exercise Price. The Holder shall have the
right to exercise this Warrant at any time and from time to time following
August 20, 1998 up to and including the Expiration Date as to all or any part of
the shares of Common Stock covered hereby (the "Warrant Shares"). The
--------------
<PAGE>
"Exercise Price" payable by the Holder in connection with the exercise of this
--------------
Warrant shall be $3.2038 per Warrent Share.
(b) Exercise Notice. In order to exercise this Warrant, the Holder
shall send by facsimile transmission, at any time prior to 6:00 p.m., eastern
time, on the date on which the Holder wishes to effect such exercise (the
"Exercise Date"), to the Company and to its designated transfer agent for the
- --------------
Common Stock (the "Transfer Agent"), (i) a copy of the notice of exercise in the
--------------
form attached hereto as Exhibit A (the "Exercise Notice") stating the number of
--------- ---------------
Warrant Shares as to which such exercise applies and the calculation therefor,
and (ii) a copy of this Warrant. The Holder shall thereafter deliver to the
Company the original Exercise Notice, the original Warrant and the Exercise
Price.
(c) Cancellation of Warrant/Reduction of Warrant Shares. This Warrant
shall be cancelled upon its exercise and the Holder shall be entitled to
receive, as soon as practicable after the Exercise Date, a new Warrant or
Warrants (containing terms identical to this Warrant) representing any
unexercised portion of this Warrant. If the Holder shall have, prior to the
Initial Exercise Date, sold or otherwise disposed of any portion of the
Preferred Shares acquired pursuant to the Purchase Agreement (or Common Stock
into which such Preferred Shares have been converted (the "Converted Common
----------------
Stock")) the number of Warrant Shares into which this Warrant is exercisable
- -----
shall be automatically reduced on a pro rata basis in the same proportion as (A)
the number of Preferred Shares which have been so sold or otherwise disposed of
plus the number of Preferred Shares represented by the shares of Converted
- ----
Common Stock which have been so sold or otherwise disposed of bears to (B) the
number of Preferred Shares originally purchased by the Holder pursuant to the
Purchase Agreement. In such event, the Holder shall be entitled to receive (on
the later of the Initial Exercise Date or the day which is five (5) days
following the date of the delivery of written notice to the Company of such sale
or disposition) a new Warrant or Warrants (containing terms identical to this
Warrant) exercisable into such reduced number of Warrant Shares.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of an Exercise
----------------------------------------
Notice pursuant to Section 1 above, the Company shall, (i) in the case of a
Cashless Exercise (as defined below), no later than the close of business on the
third (3rd) business day following the Exercise Date set forth in such Exercise
Notice, and (ii) in the case of a Cash Exercise (as defined below) no later than
the close of business on the earlier to occur of (A) the third (3rd) business
day following the Exercise Date set forth in such Exercise Notice and (B) such
later date on which the Company shall have received payment of the Exercise
Price (the "Delivery Date"), issue and deliver or caused to be delivered to the
-------------
Holder the number of Warrant Shares as shall be determined as provided herein.
Warrant Shares delivered to the Holder shall not contain any restrictive legend
as long as the sale of such Warrant Shares is covered by an effective
Registration Statement (as defined in the Registration Rights Agreement) or may
be made pursuant to Rule 144(k) under the Securities Act of 1933, as amended, or
any successor rule or provision.
3. Failure to Deliver Warrant Shares.
---------------------------------
(a) Exercise Default. In the event that the Company fails for any
reason (other than by operation of Section 4 below) to deliver to a Holder
certificates representing the number of Warrant Shares in accordance with
Section 2 above on or before the Delivery Date therefor (an "Exercise Default"),
----------------
such Holder shall notify the Company by facsimile of such Exercise Default (a
"Default Notice"). If, after the Holder has sent a Default Notice to the
- ---------------
Company, the Company has not delivered such certificates and such failure
continues for three (3) business days following the Delivery Date, the Company
shall pay to such
2
<PAGE>
Holder payments ("Exercise Default Payments") in the amount of (x) (N/365)
-------------------------
multiplied by (y) the aggregate Exercise Price for the Warrant
- -------------
Shares which are the subject of such Conversion Default on the five (5) Trading
Days occurring immediately prior to (but not including) the applicable Exercise
Date multiplied by (z) the lower of twenty-four percent (24%) and the maximum
-------------
rate permitted by applicable law, where "N" equals the number of days elapsed
between the original Delivery Date for such Warrant Shares and the date on which
all of such Warrant Shares are issued and delivered to such Holder. Amounts
payable under this Section 3(a) shall be paid to the Holder in immediately
available funds on or before the fifth (5th) business day of the calendar month
immediately following the calendar month in which such amount has accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right to pursue
actual damages for the Company's failure to issue and deliver Warrant Shares in
connection with an exercise on the applicable Delivery Date (including, without
limitation, damages relating to any purchase of shares of Common Stock by such
Holder to make delivery on a sale effected in anticipation of receiving Warrant
Shares upon exercise, such damages to be in an amount equal to (A) the aggregate
amount paid by such Holder for shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the Warrant Shares issued by the Company pursuant to such exercise, and such
Holder shall have the right to pursue all remedies available to it at law or in
equity (including, without limitation, a decree of specific performance and/or
injunctive relief)).
(c) Withdrawal of Exercise. In the event that a Holder has not
received certificates representing the Warrant Shares by the tenth (10th)
business day following an Exercise Default, such Holder may, upon written notice
to the Company, regain on such business day the rights of a Holder of this
Warrant, or part thereof, with respect to the Warrant Shares that are the
subject of such Exercise Default. In such event, such Holder shall retain all
of such Holder's rights and remedies with respect to the Company's failure to
deliver such Warrant Shares (including without limitation the right to receive
the cash payments specified in Section 3(a) above).
(d) Holder of Record. Each Holder, for all purposes, shall be deemed
to have become the holder of record of Warrant Shares on the Exercise Date of
this Warrant, irrespective of the date of delivery of such Warrant Shares.
Nothing in this Warrant shall be construed as conferring upon the Holder hereof
any rights as a shareholder of the Company.
4. Exercise Limitations. In no event shall a Holder be permitted to
--------------------
exercise this Warrant, or part thereof, with respect to Warrant Shares in excess
of the number of such shares, upon the issuance of which (x) the number of
shares of Common Stock beneficially owned by such Holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned except
for being subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section 4) plus (y) the number of shares of Common
----
Stock issuable upon such exercise, would be equal to or exceed (z) 4.99% of the
number of shares of Common Stock then issued and outstanding. Nothing contained
herein shall be deemed to restrict the right of a Holder to exercise this
Warrant, or part thereof, at such time as such exercise will not violate the
provisions of this Section 4.
5. Payment of the Exercise Price. The Holder may pay the Exercise Price
-----------------------------
in either of the following forms or, at the election of Holder, a combination
thereof:
3
<PAGE>
(1) Cash Exercise: by delivery of immediately available funds.
(2) Cashless Exercise: by surrender of this Warrant to the Company
together with a notice of cashless exercise, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the Closing Bid Prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Exercise Date.
B = the Exercise Price.
For purposes of Rule 144 under the Securities Act of 1933, as amended, it
is intended, understood and acknowledged that the Warrant Shares issued in
a cashless exercise transaction shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be deemed
to have been commenced, on February 20, 1998.
6. Anti-Dilution Adjustments.
-------------------------
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then the Holder hereof, upon
exercise of this Warrant after the record date for the determination of Holders
of Common Stock entitled to receive such dividend, shall be entitled to receive,
in addition to the number of shares of Common Stock as to which this Warrant is
exercised, such additional shares of Common Stock as such Holder would have
received had this Warrant been exercised immediately prior to such record date
and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice at the same time it
provides such notice to holders of Common Stock of any transaction described in
this Section 6(b).
4
<PAGE>
(c) Distributions. If the Company shall at any time distribute to
Holders of Common Stock cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or a preceding year) then, in any such case, the
Holder of this Warrant shall be entitled to receive, upon exercise of this
Warrant, with respect to each share of Common Stock issuable upon such exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which such Holder would have been entitled to receive with respect to each such
share of Common Stock as a result of the happening of such event had this
Warrant been exercised immediately prior to the record date or other date fixing
shareholders to be affected by such event (the "Determination Date") or, in lieu
------------------
thereof, if the Board of Directors of the Company should so determine at the
time of such distribution, a reduced Exercise Price determined by multiplying
the Exercise Price on the Determination Date by a fraction, the numerator of
which is the difference between (x) such Exercise Price and (y) the value of
such distribution applicable to one share of Common Stock (such value to be
determined by the Board of Directors in its discretion), and the denominator of
which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be exercisable into such
----------------
class and type of securities or other assets as the Holder would have received
had the Holder exercised this Warrant immediately prior to such Corporate
Change; provided, however, that Company may not affect any Corporate Change
unless it first shall have given ten (10) business days' notice to the Holder
hereof of any Corporate Change.
(e) Exercise Price as Adjusted. As used in its Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section 1
- ---------------
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 6, and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsection. No such
adjustment under this Section 6 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more.
(f) Adjustments: Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 6, the Holder of this Warrant shall, upon exercise of this Warrant,
become entitled to receive shares and/or other securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 6.
7. Fractional Interests. No fractional shares or scrip representing
--------------------
fractional shares shall be issuable upon the exercise of this Warrant, but on
exercise of this Warrant, the Holder hereof may purchase only a whole number of
shares of Common Stock. If, on exercise of this Warrant, the Holder hereof
would be entitled to a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock,
5
<PAGE>
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon exercise shall be the next higher number of shares.
8. Transfer of this Warrant. The Holder may sell, transfer, assign,
------------------------
pledge or otherwise dispose of this Warrant, in whole or in part, as long as
such sale or other disposition is made pursuant to pursuant to an effective
registration statement or an exemption to the registration requirements of the
Securities Act of 1933, as amended, and applicable state laws. Upon such
transfer or other disposition, the Holder shall deliver a written notice to the
Company, substantially in the form of the Transfer Notice attached hereto as
Exhibit B (the "Transfer Notice"), indicating the person or persons to whom this
- --------- ---------------
Warrant shall be transferred and, if less than all of this Warrant is
transferred or this Warrant is transferred in parts, the number of Warrant
Shares to be covered by the part of this Warrant to be transferred to each such
person. Within three (3) business days of receiving a Transfer Notice and the
original of this Warrant, the Company shall deliver to the each transferee
designated by the Holder a Warrant or Warrants of like tenor and terms for the
appropriate number of Warrant Shares.
9. Benefits of this Warrant. Nothing in this Warrant shall be construed
------------------------
to confer upon any person other than the Holder of this Warrant any legal or
equitable right, remedy or claim under this Warrant and this Warrant shall be
for the sole and exclusive benefit of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant. Upon receipt by
-------------------------------------------------
the Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
11. Notice or Demands. Except as otherwise provided herein, any notice,
-----------------
demand or request required or permitted to be given pursuant to the terms of
this Warrant shall be in writing and shall be deemed given, (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., eastern time, on a business day or, if such day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to a nationally-recognized overnight courier and (iii) on
the third business day after deposit in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed as follows:
If to the Company:
Interactive Entertainment Limited
845 Crossover Lane
Suite D-215
Memphis, Tennessee 38117
Attn: David B. Lamm
Fax: (901) 537-3801
6
<PAGE>
With a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune
Fax: (312) 715-4800
and if to the Holder, to such address as shall be designated by the Holder
in writing to the Company.
12. Applicable Law. This Warrant is issued under and shall for all
--------------
purposes be governed by and construed in accordance with the laws of the state
of New York, without giving effect to conflict of law provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
20th day of February, 1998.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ David Lamm
-------------------------------------
Name: David Lamm
Title: Chief Financial Officer
S-1
<PAGE>
EXHIBIT A TO WARRANT
--------------------
EXERCISE NOTICE
---------------
The undersigned Holder hereby irrevocably exercises the right to purchase
__________ of the shares of Common Stock ("Warrant Shares") of INTERACTIVE
--------------
ENTERTAINMENT LIMITED, a Bermuda exempted company (the "Company"), evidenced by
-------
the attached Warrant (the "Warrant"). Capitalized terms used herein and not
-------
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
_______ a Cash Exercise with respect to________ Warrant Shares; and/or
-------------
_______ a Cashless Exercise with respect to ________________ Warrant
----------------- Shares.
2. Payment of Exercise Price. In the event that the Holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the Holder shall pay the sum of $_________________ to the Company in
accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the Holder
____________ Warrant Shares in accordance with the terms of the Warrant.
Date:______________________
_________________________________
Name of Registered Holder
By:______________________________
Name:
Title:
S-1
<PAGE>
EXHIBIT B TO WARRANT
--------------------
TRANSFER NOTICE
---------------
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby
sells, assigns and transfers unto the person or persons named below the right to
purchase _______ shares of the Common Stock of INTERACTIVE ENTERTAINMENT LIMITED
evidenced by the attached Warrant.
Date:______________________
_____________________________________
Name of Registered Holder
By:__________________________________
Name:
Title:
Transferee Name and Address:
_____________________________________
_____________________________________
_____________________________________
S-2
<PAGE>
EXHIBIT 99.8
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 20,
---------
1998, by and between Interactive Entertainment Limited, a Bermuda exempted
company (the "Company"), and Palisades Holdings, Inc., a California corporation
-------
(the "Purchaser").
The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to the Purchaser, (i) shares
- ------------------------------
(the "Preferred Shares") of the Company's Series B Convertible Preference Stock
----------------
of the Company's Class B Preferred Stock (the "Preferred Stock"), and (ii) a
Warrant (the "Warrant") entitling the holder thereof to purchase shares (the
-------
"Warrant Shares") of the Company's Common Stock (the "Common Stock"). The
- ---------------
Preferred Shares are convertible into shares (the "Conversion Shares") of the
-----------------
Common Stock, pursuant to the terms approved by the Company's Board of Directors
(the "Authorized Terms"). In order to induce the Purchasers to enter into the
----------------
Securities Purchase Agreement, the Company has agreed to provide the certain
registration rights provided herein under the Securities Act of 1933, as
amended (the "Securities Act"), and under applicable state securities laws.
--------------
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement.
In consideration of the Purchaser entering into and consummating its
obligations under the Securities Purchase Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the meanings
specified:
(a) "Closing Date" means the date hereof;
------------
(b) "Registration Deadline" means the one hundred and thirty-fifth
---------------------
(135th) day following the Closing Date;
(c) "Holder" means any person owning or having the right to acquire,
------
through conversion of Preferred Shares or exercise of the Warrant, Registrable
Securities (as defined herein), including initially the Purchaser and thereafter
any permitted assignee thereof;
(d) "Register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement or
statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act ("Rule 415") or any successor rule providing for the offering
--------
of securities on a continuous basis ("Registration Statement"), and the
----------------------
declaration or ordering of effectiveness of the Registration Statement by the
Securities and Exchange Commission (the "Commission"); and
----------
(e) "Registrable Securities" means the Conversion Shares, the Warrant
----------------------
Shares and the Dividend Payment Shares, and any other shares of Common Stock
issued or issuable pursuant to the terms of the Preferred Stock, whether as a
dividend, payment of a redemption price or otherwise, and any shares
<PAGE>
of capital stock issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of the Conversion
Shares, the Warrant Shares or such Dividend Payment Shares.
2. MANDATORY REGISTRATION.
----------------------
(a) The Company shall prepare and file with the Commission a
Registration Statement on Form S-3 (or, if Form S-3 is not available, on such
form of Registration Statement as is then available to effect a registration of
the Registrable Securities, subject to the consent of the Purchaser, which
consent will not be unreasonably withheld) as a "shelf" registration statement
under Rule 415 covering the resale of at least 200% of the number of shares of
Registrable Securities then issuable on, (i) conversion of the Preferred Shares
then issued or issuable (assuming conversion at the Fixed Conversion Price), and
(ii) exercise in full of the Warrant then issued or issuable. The Registration
Statement shall state, to the extent permitted by Rule 416 under the Securities
Act, that it also covers such indeterminate number of shares of Common Stock as
may be required to effect, (i) conversion of the Preferred Shares to prevent
dilution resulting from stock splits, stock dividends or similar events, or by
reason of changes in the Conversion Price in accordance with the terms of the
Authorized Terms, and (ii) exercise of the Warrant in full to prevent dilution
resulting from stock splits, stock dividends or similar events.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable following the filing
thereof, but in no event later than the Registration Deadline, and shall submit
to the Commission, within five (5) business days after the Company learns that
no review of the Registration Statement will be made by the staff of the
Commission or that the staff of the Commission has no further comments on the
Registration Statement, as the case may be, a request for acceleration of the
effectiveness of the Registration Statement to a time and date not later than
forty-eight (48) hours after the submission of such request (the "Effective
---------
Date"), and maintain the effectiveness of the Registration Statement until the
- ----
earlier to occur of, (i) the date on which all of the Registrable Securities
have been sold pursuant to the Registration Statement, (ii) the date on which
all of the remaining Registrable Securities (in the opinion of counsel to the
Purchaser reasonably acceptable to the Company) may be immediately sold to the
public without registration and without regard to the amount of Registrable
Securities which may be sold by a Holder thereof at a given time, and (iii)
February 20, 2000 (the "Registration Period").
-------------------
(c) If, (i) the Registration Statement is not declared effective by
the Commission on or before the Registration Deadline, (ii) after the
Registration Statement has been declared effective by the Commission, sales of
Registrable Securities cannot be made by a Holder under the Registration
Statement for any reason not within the control of such Holder or not permitted
by the terms hereof (other than such Registrable Securities as are then freely
saleable pursuant to Rule 144(k) under the Securities Act), or (iii) the Common
Stock is not included for quotation on the Nasdaq SmallCap Market or the Nasdaq
National Market ("Nasdaq") or listed on the New York Stock Exchange or other
------
national securities exchange at any time after the Registration Deadline, the
Company shall pay to such Holder an amount equal to the lesser of (x) two
percent (2%) per month and (y) the highest rate permitted by applicable law,
times (z) the aggregate purchase price of the Preferred Shares held by such
- -----
Holder, accruing daily and compounded monthly, from the Registration Deadline
or, where the Registration Statement has become effective, from the date on
which the Registration Statement lapses or is otherwise unavailable, until the
Effective Date or
-2-
<PAGE>
the date on which the Registration Statement becomes available for sales of
Registrable Securities, as the case may be. The amounts paid or payable by the
Company hereunder shall be in lieu of any other remedies available to the
Purchaser at law or in equity or pursuant to the terms of any other Transaction
Document. Payments of cash pursuant hereto shall be made within five (5)
business days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
payments shall be made within five (5) business days after the end of each
thirty-day period.
(d) Restrictions on Sales Pursuant to Mandatory Registrations.
----------------------------------------------------------
Following the Effective Date, the Company may, by delivery of written notice to
the Holders of Registrable Securities identified in the Registration Statement
(the "Blackout Notice"), require that such Holders not sell any of the
Registrable Securities for the period set forth in the Blackout Notice (the
"Blackout Period"); provided, however, that in no event shall the duration of
any one Blackout Period exceed five (5 ) days and in no event shall the Company
require more than, (i) two (2) Blackout Periods in the first (1st) twelve (12)
month period after the date hereof, and (ii) four (4) Blackout Periods in the
second (2nd) twelve (12) month period after the date hereof.
3. PIGGYBACK REGISTRATION.
----------------------
If at any time prior to the expiration of the Registration Period, (i) the
Company proposes to register shares of Common Stock under the Securities Act in
connection with the public offering of such shares for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan or employee stock award or a registration on Form S-4 or Form
S-8 under the Securities Act or any successor or similar form registering stock
issuable upon a reclassification, a business combination involving an exchange
of securities or an exchange offer for securities of the issuer or another
entity) (a "Proposed Registration"), and (ii) a registration statement covering
---------------------
the sale of all of the Registrable Securities is not then effective and
available for sales thereof by the Holders (other than as provided herein), the
Company shall, at such time, promptly give each Holder written notice of such
Proposed Registration. Each Holder shall have ten (10) days from its receipt of
such notice to deliver to the Company a written request specifying the amount of
Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company
shall use its best efforts to cause all Registrable Securities which the Company
has been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Holder;
provided, however, that the Company shall have the right to postpone or withdraw
- -------- -------
any registration effected pursuant to this Section 3 without obligation to the
Holder. If, in connection with any underwritten public offering for the account
of the Company, the managing underwriter(s) thereof shall impose a limitation on
the number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distributions, then
the Company shall be obligated to include in such Registration Statement only
such limited portion of the Registrable Securities with respect to which each
Holder has requested inclusion hereunder as such underwriter(s) shall permit.
Any exclusion of Registrable Securities shall be made pro rata among the Holders
seeking to include Registrable Securities in the Registration Statement, in
proportion to the number of Registrable Securities sought to be included by such
Holders; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable
-3-
<PAGE>
Securities; and provided, further, however, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement subject to any rights of priority by
holders of other securities. If an offering in connection with which a Holder is
entitled to registration under this Section 3 is an underwritten offering, then
as a condition of participating in the registration each Holder whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters, subject to
the provisions of this Agreement (including, without limitation, Section 5(c)),
on the same terms and conditions as other shares of Common Stock included in the
same underwritten offering and shall join in the same underwriting agreement as
the other participants in the offering.
4. OBLIGATIONS OF THE COMPANY.
--------------------------
In addition to performing its obligations hereunder, including those
pursuant to Sections 2(a) and 2(b) above, the Company shall:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested by a Holder in order to incorporate information concerning such Holder
or such Holder's intended method of distribution;
(b) in the event that the number of shares available under the
Registration Statement filed by the Company hereunder is insufficient during any
period of three (3) consecutive trading days to cover 150% of the Registrable
Securities then issued or issuable, the Company shall promptly amend the
Registration Statement, or file a new Registration Statement, or both, so as to
cover 200% of such Registrable Securities, in any event as soon as practicable,
but not later than the tenth (10th) business day in the case of an amendment and
the twentieth (20th) business day in the case of a Registration Statement,
following the last day of such three (3) day period; any Registration Statement
filed pursuant to this Section 4 shall state that, to the extent permitted by
Rule 416 under the Securities Act, such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Shares or exercise of the Warrant in full.
Unless and until such amendment or new Registration Statement becomes effective,
each Holder shall have the rights described in Section 2(c) above;
(c) use its reasonable best efforts to maintain the designation and
quotation of the Registrable Securities on the Nasdaq SmallCap Market or the
listing thereof on the New York Stock Exchange or other national securities
exchange;
(d) furnish to each Holder such number of copies of the prospectus
included in such Registration Statement, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such Holder may reasonably request in order to facilitate the disposition of
such Holder's Registrable Securities;
-4-
<PAGE>
(e) use all commercially reasonable efforts to register or qualify the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested from
time to time by a Holder, and do any and all other acts or things which may be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;
(f) in the event of an underwritten public offering of the Registrable
Securities, enter into and perform its obligations under an underwriting
agreement, in usual and customary form reasonably acceptable to the Company,
with the managing underwriter of such offering;
(g) notify each Holder immediately upon the occurrence of any event as
a result of which the prospectus included in such Registration Statement, as
then in effect, contains an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and as promptly as practicable, prepare, file and furnish to each Holder a
reasonable number of copies of a supplement or an amendment to such prospectus,
as may be necessary so that such prospectus does not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(h) use all commercially reasonable efforts to prevent the issuance of
any stop order or other order suspending the effectiveness of such Registration
Statement and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify each Holder of the issuance of such
order and the resolution thereof;
(i) furnish to each Holder, on the date that such Registration
Statement becomes effective, (i) an opinion, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, regarding the effectiveness of the Registration Statement and the
absence of any stop order, and (ii) in the case of an underwriting, (A) an
opinion, dated such date, of such outside counsel, in form and substance as is
customarily given to underwriters in an underwritten public offering, and (B) a
letter, dated such date, from the Company's independent certified public
accountants, in form and substance as is at the time customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to each Holder;
(j) pursuant to the preparation of a Registration Statement, provide
each Holder and its representatives the opportunity to conduct a reasonable
inquiry of the Company's financial and other records during normal business
hours and make available its officers, directors and employees for questions
regarding information which such Holder may reasonably request in order to
fulfill any due diligence obligation on its part; provided as a condition to the
conduct of any such due diligence inquiry that each Holder conducting such
inquiry shall execute and deliver a confidentiality agreement reasonably
required by the Company and that such inquiry be conducted in a manner which
does not interfere with the operations of the Company; and
-5-
<PAGE>
(k) permit counsel for each Holder (at such Holder's expense) to
review such Registration Statement and all amendments and supplements thereto a
reasonable period of time prior to the filing thereof with the Commission.
5. OBLIGATIONS OF EACH HOLDER.
--------------------------
In connection with the registration of the Registrable Securities pursuant
to the Registration Statement, each Holder shall:
(a) furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
Registrable Securities as the Company shall reasonably request in order to
effect the registration thereof and shall execute such documents in connection
with such registration as the Company may reasonably request;
(b) upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4(h), immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement
until withdrawal of the stop order referred to in Section 4(h) and, if so
directed by the Company, such Holder shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Holder's possession, of the prospectus covering
such Registrable Securities at the time of receipt of such notice, provided that
each Holder may retain a limited number of file copies of such prospectuses;
(c) in the event of an underwritten offering of the Registrable
Securities no Holder may participate in any underwritten distribution hereunder
unless such Holder, (i) enters into a customary and reasonable underwriting
agreement, (ii) completes and executes such questionnaires, powers of attorney,
indemnities, underwriting agreements, and other documents as the managing
underwriter for such offering may reasonably request, and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions and any
expenses in excess of those payable by the Company;
(d) each Holder, by such Holder's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Holder has notified the Company in writing of
such Holder's election to exclude all of such Holder's Registrable Securities
from the Registration Statement; and
(e) each Holder whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating to such Registration Statement, and each such Holder
shall comply with the applicable delivery requirements of the Securities Act in
connection with any such sale.
6. INDEMNIFICATION.
---------------
In the event that any Registrable Securities are included in a Registration
Statement under this Agreement:
-6-
<PAGE>
(a) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers, directors, employees, agents and
representatives of such Holder, and each person, if any, who controls such
Holder within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "1934 Act"), against any losses, claims, damages,
--------
liabilities or reasonable out-of-pocket expenses (whether joint or several)
(collectively, including legal or other expenses reasonably incurred in
connection with investigating or defending same, "Losses"), insofar as any such
------
Losses arise out of, (i) any untrue statement or alleged untrue statement of a
material fact contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company will reimburse such Holder, and each such officer,
director, employee, agent, representative or controlling person for any legal or
other expenses as reasonably incurred by any such entity or person in connection
with investigating or defending any Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any Loss if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be obligated to indemnify
any person for any Loss to the extent that such Loss arises out of or is based
upon and in conformity with written information furnished by such person
expressly for use in such Registration Statement; and provided, further, that
the Company shall not be required to indemnify any person to the extent that any
Loss results from such person selling Registrable Securities, (i) to a person to
whom there was not sent or given, at or prior to the written confirmation of the
sale of such shares, a copy of the prospectus, as most recently amended or
supplemented, if the Company has previously furnished or made available copies
thereof, or (ii) during any period following written notice by the Company to
such Holder of an event described in Section 4(g) or 4(h); and provided,
further, however, that, in no event shall the indemnity under this Section 6(a)
exceed, in the aggregate, $300,000.
(b) To the extent permitted by law, each Holder, acting severally and
not jointly, shall indemnify and hold harmless the Company, the officers,
directors, employees, agents and representatives of the Company, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the 1934 Act, against any Losses to the extent (and only to the extent)
that any such Losses arise out of or are based upon and in conformity with
written information furnished by such Holder expressly for use in such
Registration Statement; and such Holder will reimburse any legal or other
expenses as reasonably incurred by the Company and any such officer, director,
employee, agent, representative, or controlling person, in connection with
investigating or defending any such Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the consent of such Holder; provided, that, in no
event shall any indemnity under this Section 6(b) exceed the net purchase price
of securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be
-7-
<PAGE>
inappropriate under applicable standards of professional conduct due to actual
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 6 with respect to such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 6 or
with respect to any other action.
(d) In the event that the indemnity provided in Section 6(a) or 6(b)
is unavailable or insufficient to hold harmless an indemnified party for any
reason, the Company and each Holder agree, severally and not jointly, to
contribute to the aggregate Losses to which the Company or such Holder may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company and such Holder in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall such Holder be
responsible for any amount in excess of the net purchase price of securities
sold by it under the Registration Statement and the Company shall not be
responsible for any amount in excess of $300,000. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Company or by such Holder. The Company
and each Holder agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 6(d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Securities
Act or the 1934 Act and each officer, director, employee, agent or
representative of such Holder shall have the same rights to contribution as such
Holder, and each person who controls the Company within the meaning of either
the Securities Act or the 1934 Act and each officer, director, employee, agent
or representative of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of this
Section 6(d).
(e) The obligations of the Company and each Holder under this Section
6 shall survive the conversion or redemption, if any, of the Preferred Shares,
the exercise of the Warrant, the completion of any offering of Registrable
Securities pursuant to a Registration Statement under this Agreement, or
otherwise.
7. REPORTS.
-------
With a view to making available to each Holder the benefits of Rule 144
under the Securities Act ("Rule 144") and any other similar rule or regulation
--------
of the Commission that may at any time permit such Holder to sell securities of
the Company to the public without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
-8-
<PAGE>
(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request, (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing such Holder of any rule or regulation of the Commission which
permits the selling of any such securities without registration.
8. MISCELLANEOUS.
-------------
(a) Expenses of Registration. All expenses, other than underwriting
------------------------
discounts and commissions and fees and expenses of counsel to each Holder,
incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements of
counsel for the Company, and the fees and disbursements incurred in connection
with the opinion and letter described in Section 4(i) hereof, shall be borne by
the Company.
(b) Amendment; Waiver. Any provision of this Agreement may be amended
-----------------
only pursuant to a written instrument executed by the Company and Holders of
two-thirds (2/3) of the outstanding Registrable Securities. Any waiver of the
provisions of this Agreement may be made only pursuant to a written instrument
executed by the party against whom enforcement is sought. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder, and the Company.
(c) Notices. Any notice, demand or request required or permitted to
-------
be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given, (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a business day or, if such day is not a business
day, on the next succeeding business day, (ii) on the next business day after
timely delivery to a nationally-recognized overnight courier, and (iii) on the
third business day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as follows:
If to the Company:
Interactive Entertainment Limited
845 Crossover Lane
Suite D-215
Memphis, Tennessee 38117
Attn.: David S. Lamm
Fax.: (901) 537-3801
With a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
-9-
<PAGE>
Chicago, Illinois 60606
Attn: Andrew W. McCune
Fax: (312) 715-4800
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier to
-----------
occur of, (i) the end of the Registration Period, and (ii) the date on which all
of the Registrable Securities have been publicly distributed; but any such
termination shall be without prejudice to (A) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (B) the indemnification and contribution obligations under this
Agreement.
(e) Assignment. The rights of a Holder hereunder shall be assigned
----------
automatically to any transferee of the Preferred Shares, the Warrant or
Registrable Securities from such Holder as long as, (i) the Company is, within a
reasonable period of time following such transfer, furnished with written notice
of (A) the name and address of such transferee and (B) the Securities with
respect to which the Registration Rights are being transferred, (ii) the
transferee agrees in writing with the Company to be bound by all of the
provisions hereof, and (iii) such transfer is made in accordance with the
applicable requirements of the Securities Purchase Agreement, the Authorized
Terms or the Warrant, as the case may be.
(f) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without regard to the
conflict of laws provisions thereof.
(g) Registered Holder. A person or entity is deemed to be a Holder of
-----------------
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(h) No Waiver. Failure of any party to exercise any right or remedy
---------
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
(i) Entire Agreement. This Agreement, the Preferred Stock, the
----------------
Warrant and the Securities Purchase Agreement constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Preferred Stock, the Warrant and the Securities Purchase Agreement supersede all
prior agreements and understandings between the parties hereto with respect to
the subject matter hereof and thereof.
(j) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto.
(k) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
-10-
<PAGE>
(l) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(m) Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(n) Severability. If any provisions of this Agreement shall be
------------
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-11-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ David Lamm
--------------------------------
Name: David Lamm
Title: Chief Financial Officer
PURCHASER NAME:
PALISADES HOLDINGS, INC.
By: /s/ Brad Greenspan
----------------------------------
Name: Brad Greenspan
Title: President
<PAGE>
EXHIBIT 99.9
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 20,
---------
1998, by and between Interactive Entertainment Limited, a Bermuda exempted
company (the "Company"), and Palisades Holdings, Inc., a California corporation
-------
(the "Purchaser").
---------
The Company wishes to sell to the Purchaser, and the Purchaser wishes to
buy, on the terms and subject to the conditions set forth in this Agreement, (i)
shares (the "Preferred Shares") of the Company's Series B Convertible Preferred
----------------
Stock of the Company's Class B Preferred Stock (the "Preferred Stock") in the
---------------
amount set forth below the Purchaser's name on the signature pages hereof, and
(ii) a Warrant in the form of Exhibit A hereto (the "Warrant") entitling the
--------- -------
holder thereof to purchase the number of shares (the "Warrant Shares") of Common
--------------
Stock (as defined below) set forth next to the Purchaser's name on the signature
pages hereof. The Preferred Shares are convertible into shares (the "Conversion
----------
Shares") of the Company's Common Shares (the "Common Stock") pursuant to the
- ------ ------------
terms approved by the Board of Directors of the Company and attached hereto as
Exhibit B (the "Authorized Terms"). The Preferred Shares, the Warrant, the
- --------- ----------------
Conversion Shares, the Warrant Shares and the Dividend Payment Shares (as
defined in the Authorized Terms) are collectively referred to herein as the
"Securities."
- -----------
The Company has agreed to effect the registration of the Conversion Shares,
the Warrant Shares and the Dividend Payment Shares under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Rights
---------------
Agreement of even date herewith by and between the Company and the Purchaser
(the "Registration Rights Agreement"). The sale of the Preferred Shares and the
-----------------------------
Warrants by the Company to the Purchaser will be effected in reliance upon the
exemption from securities registration afforded by the provisions of Regulation
D ("Regulation D"), as promulgated by the Securities and Exchange Commission
------------
(the "Commission") under the Securities Act.
----------
The Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
-------------------------------------
1.1 Agreement to Purchase and Sell. Upon the terms and subject to the
------------------------------
satisfaction or waiver of the conditions set forth herein, the Company agrees to
sell, and the Purchaser agrees to purchase, (i) the number of Preferred Shares
set forth below the Purchaser's name on the signature pages hereof, and (ii) a
Warrant entitling the holder thereof to purchase the number of Warrant Shares
set forth below the Purchaser's name on the signature pages hereof, at a
purchase price for such Preferred Shares and Warrant equal to one thousand
dollars ($1,000) times the number of Preferred Shares purchased by the Purchaser
-----
(the "Purchase Price").
--------------
1.2 Closing. Subject to the satisfaction or waiver of the conditions set
-------
forth herein, the closing of the purchase and sale of the Preferred Shares and
the Warrant (the "Closing") will be deemed to occur when this Agreement and the
-------
other Transaction Documents (as defined below) have been executed and delivered
by the Company and the Purchaser, and full payment of the Purchase Price has
been made by the Purchaser by wire transfer of immediately available funds
against delivery by the Company of duly executed
<PAGE>
certificates representing the Preferred Shares and the Warrant purchased by the
Purchaser hereunder. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date".
------------
1.3 Certain Definitions. When used herein, (i) "business day" shall mean
------------------- ------------
any day on which the New York Stock Exchange and commercial banks in the city of
New York and the city of Vancouver, British Columbia are open for business, (ii)
an "affiliate" of a party shall mean any person or entity controlling,
---------
controlled by or under common control with that party, and (iii) "control" shall
-------
mean, with respect to an entity, the ability to direct the business, operations
or management of such entity, whether through an equity interest therein or
otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
-----------------------------------------------
The Purchaser hereby makes the following representations and warranties to
the Company and agrees with the Company that, as of the date of this Agreement
and as of, with respect to the Closing and the Closing Date:
2.1 Authorization; Enforceability. The Purchaser is duly and validly
-----------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Preferred Shares and the Warrant and to execute and deliver this
Agreement. This Agreement constitutes the Purchaser's valid and legally binding
obligation, enforceable in accordance with its terms, except as such enforcement
may be limited by, (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (ii) general principles of equity.
2.2 Accredited Investor; Investment Intent. The Purchaser is an
--------------------------------------
accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Preferred Shares and the Warrant solely for its own account for
investment purposes as a principal and not with a view to the public resale or
distribution of all or any part thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. The Purchaser understands that the
Purchaser must bear the economic risk of this investment indefinitely, unless
the securities are registered pursuant to the Securities Act and any applicable
state securities laws or an exemption from such registration is available, and
that the Company has no present intention of registering such securities other
than as contemplated by the Registration Rights Agreement; provided, however,
that in making such representation, such Purchaser does not agree to hold the
Securities for any minimum or specific term and reserves the right to sell,
transfer or otherwise dispose of the Securities at any time in accordance with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Reliance on Exemptions. The Purchaser understands that the Preferred
----------------------
Shares and Warrant are being offered and sold to the Purchaser in reliance upon
specific exemptions from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Preferred Shares and Warrant.
2
<PAGE>
2.4 Information. The Company has provided the Purchaser with all
-----------
information regarding the business, operations and financial condition of the
Company which has been specifically requested by the Purchaser, and has granted
to the Purchaser the opportunity to ask questions of and receive answers which
it believes to be complete and satisfactory from representatives of the Company,
its officers, directors, employees and agents concerning the Company and
materials relating to the terms and conditions of the purchase and sale of the
Preferred Shares and the Warrant hereunder. Neither such information nor any
other investigation conducted by the Purchaser or any of its representatives
shall modify, amend or otherwise alter the Purchaser's right to rely on the
Company's representations and warranties contained in this Agreement. The
Purchaser has no actual knowledge that any of the Company's representations or
warranties contained in this Agreement are untrue.
2.5 Governmental Review. The Purchaser understands that no Federal or
-------------------
state agency has passed upon or made any recommendations or endorsement of the
Securities.
2.6 Limitations on Disposition. The Purchaser acknowledges that, (i)
--------------------------
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom, (ii) any sale of such Securities made in
reliance on Rule 144 under the Securities Act (or a successor rule) ("Rule 144")
--------
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of such Securities without registration under
the Securities Act under circumstances in which the seller may be deemed to be
an underwriter (as the term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Commission thereunder, and (iii) neither the Company nor any
other person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement).
2.7 Legend. The Purchaser understands that the certificates representing
------
the Securities will bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state of the United
States, and may not be offered, sold or transferred unless a
registration statement under the Securities Act and applicable state
securities laws shall have become effective with regard thereto, or an
exemption from registration under the Securities Act and applicable
state securities laws is available in connection with such offer, sale
or transfer. Such securities are issued subject to the provisions of,
(i) the Authorized Terms adopted by the Board of Directors of
Interactive Entertainment Limited (the "Company"), as amended, (ii) a
Securities Purchase Agreement, dated February 20, 1998, by and between
the Company and the purchaser named therein, and (iii) a Registration
Rights Agreement, dated February 20, 1998, by and between the Company
and such purchaser."
Notwithstanding the foregoing, it is agreed that, as long as the
resale of the Conversion Shares, the Warrant Shares or the Dividend Payment
Shares, as the case may be, is registered pursuant to an effective registration
statement or such shares are eligible for resale under Rule 144(k) under the
3
<PAGE>
Securities Act, such shares shall be issued without any legend or other
restrictive language. The legend set forth above shall be removed and the
Company shall issue a new certificate without such legend to the holder of any
Security upon which it is stamped if, (i) the resale of such Security is
registered under the Securities Act, (ii) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions (the cost of which shall be borne by such
holder) to the effect that such Security can be sold publicly without
registration under the Securities Act, (iii) such holder provides the Company
with an opinion of counsel reasonably satisfactory to the Company that such
Security can be sold pursuant to Rule 144 without any restriction as to the
number of shares of or represented by such Security that can then be immediately
resold, or (iv) such Security has been sold pursuant to Rule 144.
2.8 Residency. The Purchaser is a resident of the jurisdiction set forth
---------
under the Purchaser's name on the signature page hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company hereby makes the following representations and warranties to
the Purchaser and agrees with the Purchaser that, as of the date of this
Agreement and as of, with respect to the Closing and the Closing Date:
3.1 Organization Good Standing and Qualification. Each of the Company and
--------------------------------------------
its subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. The term "subsidiaries" shall mean entities in which the Company has an
equity interest of 50% or greater.
3.2 Authorization; Consents. The Company has the requisite corporate
-----------------------
power and authority to enter into and perform its obligations under, (i) this
Agreement, (ii) the Registration Rights Agreement, and (iii) all other
agreements, documents, certificates or other instruments delivered by the
Company at the Closing (the instruments described in (i), (ii) and (iii) being
collectively referred to herein as the "Transaction Documents"), to execute and
---------------------
perform its obligations under the Authorized Terms, to execute and perform its
obligations under the Warrant, to issue and sell the Preferred Shares and the
Warrant to the Purchaser in accordance with the terms hereof, to issue the
Conversion Shares upon conversion of the Preferred Shares in accordance with the
Authorized Terms, to issue the Warrant Shares upon exercise of the Warrant and
to issue the Dividend Payment Shares in accordance with the Authorized Terms.
All corporate action on the part of the Company by its officers, directors and
shareholders necessary for, (A) the authorization, execution and delivery of,
and the performance by the Company of its obligations under, the Transaction
Documents, (B) the authorization, execution and filing of, and the performance
by the Company of its obligations under the Authorized Terms, and (C) the
authorization and execution, and the performance by the Company of its
obligations under, the Warrant have been taken, and no further consent or
authorization of the Company, its Board of Directors, its shareholders, any
governmental agency or organization, or any other person or entity is required.
4
<PAGE>
3.3 Enforcement. The Transaction Documents, the Authorized Terms and the
-----------
Warrant constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by, (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, (ii) general principles of equity,
and (iii) Federal or state securities laws as to rights to indemnity and
contribution under this Agreement or the Registration Rights Agreement.
3.4 Disclosure Documents; Material Agreements; Other Information. The
------------------------------------------------------------
Company has filed with the Commission, (i) the Company's Annual Report on Form
20-F for the year ended February 28, 1997, (ii) a Transition Report on Form 10-
Q/A for the four months ended June 30, 1997, (iii) a Quarterly Report on Form
10-Q for the three months ended September 30, 1997, (iv) all Current Reports on
Form 8-K required to be filed with the Commission since June 17, 1997, and (v)
the Company's definitive Proxy Statement for its 1997 Annual General Meeting of
Shareholders (the "Disclosure Documents"). The Company is not aware of any
--------------------
event occurring on or prior to the Closing Date, (other than developments
regarding Sky Games/TM/ software) that would require the filing of, or with
respect to which the Company intends to file, a Form 8-K after the Closing Date.
Each Disclosure Document, as of the date of the filing thereof with the
Commission, conformed in all material respects to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act "), and the rules
-------------
and regulations thereunder and, as of the date of such filing, such Disclosure
Document did not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as described on Schedule 3.4 hereto, all material agreements
------------
required to be filed as exhibits to the Disclosure Documents have been filed as
required; neither the Company nor any of its subsidiaries is in breach of any
agreement where such breach is reasonably likely to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole. The information described in Section 2.4
above does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and does not include any material, non-public information. Except as
set forth in the Disclosure Documents or any schedule or exhibit attached
hereto, the Company has no liabilities, contingent or otherwise, other than
liabilities incurred in the ordinary course of business which, under generally
accepted accounting principles, are not required to be reflected in such
financial statements and which, individually or in the aggregate, are not
material to the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole. As of their respective dates, the financial
statements of the Company included in the Disclosure Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except, (A) as may be otherwise indicated in such financial statements
or the notes thereto, or (B) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end adjustments and final review by the Company's independent auditors);
provided, however, that the Company's Annual Report on Form 20-F for the year
ended February 28, 1997, is intended to be amended by the filing of a Form 20-
F/A to reflect a change in the reconciliation of Canadian GAAP to U.S. GAAP
relating to, (i) the reclassification of the preference shares held by B/E
Aerospace, Inc. in the amount of $2.6 million as debt as of February 28, 1997,
5
<PAGE>
and (ii) an incremental expense of $703,000 related to the issuance of options
to non-related parties; provided, further, that the Company's Transition Report
on Form 10-Q for the four months ended June 30, 1997 has been amended by the
filing of a Form 10-Q/A to reflect changes in the accounting treatment of
certain transactions reflected in the financial statements contained therein.
3.5 Capitalization. The capitalization of the Company as of January 31,
--------------
1998, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Stock and the Warrant)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares initially to be reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrant in full is set
forth on Schedule 3.5 hereto. All of such outstanding shares of capital stock
------------
have been, or upon issuance will be, validly issued, fully paid and non-
assessable. No shares of the capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances created by or through the Company, other than those
preemptive rights created in favor of Harrah's Interactive Investment Company
("HIIC") and its affiliates, pursuant to that certain Registration and
Preemptive Rights Agreement dated June 17, 1997, between the Company and HIIC
("Harrah's Preemptive Rights") and subject to the provisions of the Company's
Bye-laws. Except as disclosed on Schedule 3.5., or as contemplated herein, as
-------------
of the date of this Agreement and as of the Closing Date, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries.
3.6 Valid Issuance.
--------------
3.6.1 The Preferred Shares are duly authorized and, when issued, sold
and delivered in accordance with the terms hereof, (i) will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights (except as set forth herein) or
encumbrances imposed by or through the Company, (ii) based in part upon the
representations of the Purchaser in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws,
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Authorized Terms. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Preferred Shares in accordance
with the terms of the Authorized Terms, will be duly and validly issued, fully
paid and nonassessable, free and clear of any taxes, liens, claims, preemptive
or similar rights or encumbrances imposed by or through the Company. The
Dividend Payment Shares are duly authorized and will be, upon the issuance
thereof, duly and validly issued, fully paid and nonassessable, free and clear
of any taxes, liens, claims, preemptive or similar rights or encumbrances
imposed by or through the Company, subject to the provisions of the Company's
Bye-laws.
3.6.2 The Warrant is duly authorized and, when issued, sold and
delivered in accordance with the terms hereof, (i) will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights or encumbrances imposed by or through the
Company, and (ii) based in part upon the representations of such Purchaser in
this Agreement, will be issued, sold and
6
<PAGE>
delivered in compliance with all applicable Federal and state securities laws.
The Warrant Shares are duly authorized and reserved for issuance and, upon
exercise of the Warrant in accordance with the terms thereof, will be duly and
validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company subject to the provisions of the Company's Bye-laws.
3.7 No Conflict with Other Instruments. Neither the Company nor any of
----------------------------------
its subsidiaries is in violation of any provisions of its charter, bye-laws or
other organizational documents or any other governing document as amended and in
effect on and as of the date hereof or in default (and no event has occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any instrument or contract to which it is a party or by which
it is bound which would reasonably be expected to have a material adverse effect
on the consolidated business or financial condition of the Company and its
subsidiaries taken as a whole, or of any provision of any Federal or state
judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company, which would have a material adverse effect on the
consolidated business or financial condition of the Company and its subsidiaries
taken as a whole. The, (i) execution, delivery and performance of this
Agreement, the Warrant and the other Transaction Documents, (ii) approval of the
Approved Terms by the Board of Directors, and (iii) consummation of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Preferred Shares and the issuance and reservation for issuance
of the Conversion Shares and the Dividend Payment Shares) will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or of any of its
subsidiaries, or the triggering of any anti-dilution rights on the part of
holders of the Company's securities.
3.8 Financial Condition; Taxes; Litigation.
--------------------------------------
3.8.1 The Company's financial condition is, in all material respects,
as described in the Disclosure Documents, except for changes in the ordinary
course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. Except as
otherwise described in the Disclosure Documents, as of the date hereof and as of
the Closing Date, there has been no material adverse change to the Company's
business, operations, properties, financial condition or results of operations
since the date of the Company's most recent audited financial statements
contained in the Disclosure Documents.
3.8.2 The Company has filed all tax returns required to be filed by
it and paid all taxes which are due, except for taxes which it reasonably
disputes or which could not reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
3.8.3 Except as set forth in Schedule 3.8.3, each of the Company and
--------------
its subsidiaries is not the subject of any pending or, to the Company's
knowledge, threatened inquiry, investigation or administrative or legal
proceeding by the Internal Revenue Service, the taxing authorities of any state
or local jurisdiction, the Commission or any state securities commission or
other governmental or regulatory entity
7
<PAGE>
which would reasonably be expected to have a material adverse effect on the
consolidated business or financial condition of the Company and its subsidiaries
taken as a whole.
3.8.4 Except as set forth in Schedule 3.8.4, there is no material
--------------
claim, litigation or administrative proceeding pending, or, to the Company's
knowledge, threatened, against the Company or any of its subsidiaries, or
against any officer, director or employee of the Company or any such subsidiary
in connection with such person's employment therewith. Neither the Company nor
any of its subsidiaries is a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
3.9 Reporting Company; Form S-3. The Company is subject to the reporting
---------------------------
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required thereby. The
Company is eligible to register for resale shares of its Common Stock on a
registration statement on Form S-3 under the Securities Act.
3.10 Acknowledgment of Dilution. The Company acknowledges that the
--------------------------
issuance of, (i) the Conversion Shares upon conversion of the Preferred Shares
in accordance with the terms of the Authorized Terms, (ii) the Warrant Shares
upon exercise of the Warrant, and (iii) the Dividend Payment Shares in
accordance with the terms of the Authorized Terms may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation,
(A) to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms of the Authorized Terms, (B) to issue Warrant Shares
upon exercise of the Warrant, and (C) to issue Dividend Payment Shares in
accordance with the terms of the Authorized Terms is unconditional and absolute
regardless of the effect of any such dilution.
3.11 Intellectual Property. The Company and its subsidiaries own, possess
---------------------
or can acquire on reasonable terms adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential information
and other intellectual property rights necessary to conduct the business now
operated by them, or presently employed by them, and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any such rights that, if determined adversely to the Company or any
of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
3.12 Registration Rights; Rights of Participation. Except as described on
--------------------------------------------
Schedule 3.12 hereto, (i) the Company has not granted or agreed to grant to any
- --------------
person or entity any rights (including "piggy-back" registration rights) to have
any securities of the Company registered with the Commission or any other
governmental authority which has not been satisfied, and (ii) no person or
entity, including, but not limited to, current or former shareholders of the
Company, underwriters, brokers, agents or other third parties, has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Agreement or any other
Transaction Document which has not been waived.
3.13 Trading on Nasdaq. The Common Stock is authorized for quotation on
-----------------
the Nasdaq SmallCap Market, and trading in the Common Stock on Nasdaq is not
suspended as of the date hereof. The Company is not in violation of any
designation criteria of the Nasdaq SmallCap Market, and does not
8
<PAGE>
reasonably anticipate that the Common Stock will be delisted by the Nasdaq
SmallCap market for the foreseeable future.
3.14 Fees. Except as described on Schedule 3.14 hereto, the Company is not
---- -------------
obligated to pay any brokerage commissions, finder's fees or similar payment,
cost or related expenditure to any underwriter, broker, agent or similar
representative in connection with the transactions contemplated hereby.
3.15 Foreign Corrupt Practices. To the knowledge of the Company, neither
-------------------------
the Company, nor any of its subsidiaries nor any director, officer, agent,
employee or other person acting on behalf of the Company or any subsidiary, has,
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity, (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee, or (iii) violated in a material aspect any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or made any unlawful bribe, rebate,
payoff, influence payment, kickback or other payment to any foreign or domestic
government official or employee.
3.16 Other Issuances of Securities. Except as set forth on Schedule 3.16
----------------------------- -------------
hereto, the Company has not issued (and will not issue) any shares of Common
Stock or shares of any series of preferred stock or other securities or
instruments convertible into, exchangeable for or otherwise entitling the holder
thereof to acquire shares of Common Stock which would be integrated with the
sale of the Preferred Shares to the Purchaser, or the issuance of the Conversion
Shares upon conversion thereof, for purposes of determining whether shareholder
approval is required under the designation criteria of the Nasdaq SmallCap
Market.
3.17 Regulatory Permits. The Company and its subsidiaries possess all
------------------
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
4. COVENANTS OF THE COMPANY.
------------------------
4.1 Corporate Existence. The Company shall, so long as the Purchaser or
-------------------
any affiliate of the Purchaser beneficially owns any Securities (but in no event
shall such obligation continue for longer than three (3) years from the Closing
Date or until Purchaser no longer owns any Securities purchased hereunder),
maintain its corporate existence in good standing and shall pay all taxes owed
by it when due except for taxes which the Company reasonably disputes or as to
which the failure to pay could not reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company.
4.2 Provision of Information. The Company shall upon written request
------------------------
provide the Purchaser with copies of its annual reports on Form l0-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and proxy statements and other
materials sent to shareholders, in each such case promptly after the filing
thereof with the Commission, until the conversion or redemption of all of the
Preferred Shares and exercise of the Warrant held by the Purchaser.
4.3 Reporting Status. As long as the Purchaser or any affiliate of the
----------------
Purchaser beneficially owns any Securities and until the date on which any of
the foregoing may be sold to the public pursuant to
9
<PAGE>
Rule 144(k) (or any successor rule or regulation), (i) the Company shall file
with the Commission all reports required to be so filed pursuant to the Exchange
Act, and (ii) the Company shall not terminate its status as an issuer required
by the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination (other than a
termination resulting from the sale, conveyance or disposition of all or
substantially all of the assets of the Company, the effectuation of a
transaction or series of transactions, in which more than 50% of the voting
power of the Company is disposed of, or the consolidation, merger or other
business combination of the Company with or into any other entity, immediately
following which the prior shareholders of the Company fail to own, directly or
indirectly, at least fifty percent (50%) of the surviving entity).
4.4 Authorization of Common Stock. The Company shall at all times have
-----------------------------
authorized for issuance, free from any preemptive rights, solely for the purpose
of effecting conversions of the Preferred Shares hereunder and the exercise of
the Warrant, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares and
the exercise of the Warrant in full (the "Reserved Amount"). As of the Closing
Date, the Reserved Amount shall be equal to no less than 200 % of the number of
shares of Common Stock issuable upon conversion of all of the Preferred Shares
to be issued at, or which are otherwise outstanding on, the Closing Date and
exercise of the Warrant in full. If at any time the Reserved Amount is less
than 150% of the number of shares of Common Stock issuable upon conversion of
all of the Preferred Shares then outstanding and exercise of the Warrant in
full, the Company shall take action as soon as practicable thereafter (including
seeking shareholder authorization for additional shares of Common Stock) to
increase the Reserved Amount to no less than 200% of the number of shares of
Common Stock into which such outstanding Preferred Shares are then convertible
and such Warrant is exercisable. The Company shall not reduce the number of
shares reserved for issuance hereunder without the written consent of the
holders of two-thirds of the Preferred Shares then outstanding.
4.5 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Shares and the Warrant for general corporate purposes and shall
not use such proceeds to make a loan to or an investment in any other
corporation, partnership or other entity, including a loan, other than in
connection with an employee benefit plan or a de minimus payroll advance, to
any employee, officer or director of the Company, and such proceeds shall not be
used by any such employee, officer or director for any purpose that is not
directly related to the business or operations of the Company.
4.6 Quotation on Nasdaq. The Company shall, (i) promptly following the
-------------------
Closing, secure the designation and quotation of the Conversion Shares and the
Warrant Shares on the Nasdaq SmallCap Market, (ii) prior to the issuance
thereof, secure the designation and quotation of the Dividend Payment Shares on
the Nasdaq SmallCap Market, and (iii) use its reasonable best efforts to
maintain the designation and quotation, or listing, of the Common Stock on the
Nasdaq SmallCap Market, Nasdaq National Market, the New York Stock Exchange or
the American Stock Exchange; provided, however, that any failure to maintain
such designation, quotation or listing which is cured within five (5) business
days shall not be deemed a breach of this Agreement.
4.7 Use of Purchaser Name. The Company shall not use, directly or
---------------------
indirectly, the Purchaser's name in any advertisement, announcement, press
release or other similar communication unless it has received the prior consent
of the Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.
10
<PAGE>
4.8 Company's Instructions to Transfer Agent. On or prior to the
----------------------------------------
Closing, the Company shall execute and deliver irrevocable instructions to its
transfer agent (the "Transfer Agent"), (i) to issue certificates representing
--------------
Conversion Shares upon conversion of the Preferred Shares in accordance with the
terms of the Authorized Terms and receipt of a valid Conversion Notice (as
defined in the Authorized Terms) from the Purchaser, in the amount specified in
such Conversion Notice in the name of the Purchaser or its nominee, (ii) to
issue certificates representing Warrant Shares upon exercise of the Warrant in
accordance with its terms upon receipt of a valid Exercise Notice (as defined in
the Warrant) from the Purchaser, in the amount specified in such Exercise Notice
in the name of the Purchaser or its nominee, (iii) to issue certificates
representing the Dividend Payment Shares upon the issuance thereof in accordance
with the Authorized Terms, and (iv) to deliver such certificates to such
Purchaser no later than the close of business on the later to occur of (A) the
third (3rd) business day following the related Conversion Date or the Dividend
Payment Date (each as defined in the Authorized Terms) or Exercise Date (as
defined in the Warrant), as the case may be and (B) in the case of conversion of
Preferred Shares or exercise of the Warrant, the first business day following
the date of delivery to the Company or the Transfer Agent of the original
certificates, duly endorsed, representing the shares of Preferred Stock being
converted or the Warrant being exercised, as the case may be. The Company
represents to and agrees with the Purchaser that it will not give any
instruction to the Transfer Agent that will conflict with the foregoing
instruction or otherwise restrict the Purchaser's right to convert the Preferred
Shares or exercise the Warrant or issuance of the Dividend Payment Shares, and
as long as the Transfer Agent is a participant in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and such Purchaser has not
informed the Company that it wishes to receive physical certificates, the
transfer agent may effect delivery of Conversion Shares, Warrant Shares or
Dividend Payment Shares, as the case may be, by crediting the account of such
Purchaser or its nominee at DTC for the number of shares for which delivery is
required hereunder within the time frame specified above for delivery of
certificates. The Company represents to and agrees with the Purchaser that it
will not give any instruction to the Transfer Agent that will conflict with the
foregoing instruction or otherwise restrict such Purchaser's rights to convert
the Preferred Shares or exercise the Warrant or to receive Conversion Shares or
Dividend Payment Shares in accordance with the terms of the Authorized Terms or
to receive Warrant Shares in accordance with the terms of the Warrant. In the
event that the Company's relationship with the Transfer Agent should be
terminated for any reason, the Transfer Agent shall continue acting as transfer
agent pursuant to the terms hereof until such time that a successor transfer
agent is appointed by the Company and agrees to be bound by the terms hereof.
4.9 Capital Raising Limitations. The Company will not, prior to June 17,
---------------------------
1998 (the "Limitation Period"), offer for sale or sell, (i) Common Stock (A) at
-----------------
an issuance price of greater than a fifteen percent (15%) discount to the market
price of the Common Stock at the time of such issuance or with warrants
exercisable for more than twenty percent (20%) of the Common Stock purchased or
(B) for an aggregate purchase price in excess of five million dollars
($5,000,000), or (ii) any security convertible into, or exercisable or
exchangeable for, Common Stock (other than the sale of Preferred Stock for an
aggregate purchase price of up to two million dollars ($2,000,000))
(collectively, the "Capital Raising Limitations"). The Capital Raising
---------------------------
Limitations shall not apply to any transaction involving issuances of securities
as consideration in a merger, consolidation, acquisition or sale of assets (in
each case, the primary purpose of which is not to raise equity capital) or
pursuant to a strategic partnership or joint venture which is formed for a bona
fide commercial purpose, or as consideration for the acquisition of a business,
product or license by the Company or in connection with the exercise of options
by employees, directors or consultants. The Capital Raising Limitations also
shall not apply to, (i) the issuance of Common Stock in a transaction
11
<PAGE>
pursuant to a public offering (other than an offering conducted pursuant to Rule
415 under the Securities Act), (ii) issuances of securities to the Company's or
its affiliates' employees, directors or consultants (or pursuant to options or
rights granted to persons who were employees, directors or consultants of the
Company or its affiliates as of the date of the grant) pursuant to a stock
purchase or option plan adopted by the Company, (iii) issuances of securities in
connection with an acquisition by the Company or its affiliates of the assets or
capital stock of a third party, (iv) issuances of securities pursuant to a stock
split, dividend, etc., (v) issuances of securities upon the conversion of any
preference shares into Common Stock, or (vi) issuances of securities to any
lender in connection with the extension, renewal, modification or renegotiation
of any credit or indebtedness to the Company or its affiliates.
4.10 Right of First Offer. Prior to any offer or sale by the Company of
--------------------
Common Stock (or any securities convertible into or exchangeable for Common
Stock) during the one hundred eighty (180) day period following the Limitation
Period, the Company must first deliver to the Purchaser written notice
describing the proposed issuance, including the terms and conditions thereof,
and provide the Purchaser with an option during the five (5) business day period
following delivery of such notice to the Purchaser to purchase up to its
proportionate share (based on the number of shares of Preferred Shares purchased
by the Purchaser hereunder relative to the number of shares of Series A and
Series B Preferred Stock then outstanding) of the securities being offered on
the same terms as contemplated by such issuance. The foregoing right of first
offer shall not apply to, (i) the issuance of Common Stock in a transaction
pursuant to a public offering (other than an offering conducted pursuant to Rule
415 under the Securities Act), (ii) issuances of securities to the Company's or
its affiliates' employees, directors or consultants (or pursuant to options or
rights granted to persons who were employees, directors or consultants of the
Company or its affiliates as of the date of the grant) pursuant to a stock
purchase or option plan adopted by the Company, (iii) issuances of securities in
connection with an acquisition by Company or its affiliates of the assets or
capital stock of a third party, (iv) issuances of securities pursuant to a stock
split, dividend, etc., (v) issuances of securities upon the conversion of any
preference shares into Common Stock, or (vi) issuances of securities to any
lender in connection with the extension, renewal, modification or renegotiation
of any credit or indebtedness to the Company or its affiliates.
4.11 Debt Covenant. The Company shall refrain during the period ending on
-------------
the later of June 17, 1998 or the forty-fifth (45th) day following the Effective
Date (as such term is defined in the Registration Rights Agreement), from
incurring, assuming or guaranteeing any indebtedness. Following such period and
until December 17, 1998, in the event that the Company incurs, assumes or
guarantees any indebtedness in excess of one million five hundred thousand
dollars ($1,500,000), individually or in the aggregate, without the prior
written consent of the holders of two-thirds (2/3) of the Series A and Series B
Preferred Shares then outstanding the Conversion Percentage (as defined in the
Authorized Terms) of the Preferred Shares shall be eighty-five percent (85%).
In the event the Company exceeds the foregoing limitations without the requisite
approval, the Company shall give the Purchaser written notice of such event
within five (5) business days of date the limitation was exceeded.
5. COVENANTS OF THE PURCHASER
--------------------------
Prohibition of Short Position. The Purchaser acknowledges and agrees that
-----------------------------
it, (i) will not make any short sales prior to the Effective Date ( as defined
in the Registration Rights Agreement), and (ii) does not intend to and that it
shall not, so long as the Purchaser or any affiliate of the Purchaser
beneficially owns any
12
<PAGE>
shares of the Preferred Stock, establish an aggregate short position with
respect to the Common Stock exceeding twenty percent (20%) of the number of
shares of Common Stock into which the shares of Preferred Stock then held by the
Purchaser are convertible at the Fixed Conversion Price (as defined in the
Authorized Terms); provided, however, that the foregoing shall not apply to the
extent that the average Closing Bid Price (as defined in the Authorized Terms)
in the immediately preceding five (5) Trading Days (as defined in the Authorized
Terms) exceeds the Fixed Conversion Price (as defined in the Authorized Terms)
and provided further that notwithstanding the foregoing, in no event shall the
Purchaser be required to close out or reduce any portion of a short position
established in compliance with the terms of this Section 5. For purposes of this
Section 5, a short sale shall not include any sale of Common Stock made within
three (3) business days prior to the delivery of a Conversion Notice (in the
case of Preferred Shares) or an Exercise Notice (in the case of the Warrant) to
the Company in accordance with the Authorized Terms.
6. CONDITIONS TO CLOSING.
---------------------
6.1 Conditions to Purchaser's Obligation at Closing. The Purchaser's
-----------------------------------------------
obligation at the Closing, including without limitation its obligation to
purchase the Preferred Shares and the Warrant, are conditioned upon the
fulfillment of each of the following events:
6.1.1 the representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material
respects as of the Closing Date as if made on such date;
6.1.2 the Company shall have complied with or performed all of the
agreements, obligations and conditions set forth in this
Agreement that are required to be complied with or performed by
the Company on or before the Closing;
6.1.3 the Company shall have delivered to the Purchaser a
certificate, signed by an officer of the Company, certifying
that the conditions specified in Sections 6.1.1 and 6.1.2 above
have been fulfilled as of the Closing;
6.1.4 the Board of Directors of the Company shall have passed a
resolution designating the rights attaching to the Preferred
Shares and shall have furnished such Purchaser with a certified
copy thereof;
6.1.5 [intentionally deleted]
6.1.6 the Company shall have delivered to such Purchaser an opinion
of counsel for the Company, dated as of the applicable Closing
Date, in form and substance reasonably acceptable to such
Purchaser;
6.1.7 the Company shall have executed and delivered the Registration
Rights Agreement;
6.1.8 the Common Stock shall on the Closing Date be designated for
quotation and actively traded on the Nasdaq SmallCap Market;
13
<PAGE>
6.1.9 there shall have been no material adverse changes in the
Company's consolidated business or financial condition since
the date of the Company's most recent audited financial
statements contained in the Disclosure Documents;
6.1.10 the Company shall have authorized for issuance 200% of the
aggregate number of shares of Common Stock issuable upon, (i)
conversion of all of the Preferred Shares to be issued at the
Closing, (ii) exercise of the Warrant in full, and (iii) the
conversion of such Preferred Shares and exercise of the Warrant
then outstanding, such number, in the case of a conversion, to
be determined using the Conversion Price (as defined in the
Authorized Terms) in effect on the applicable Closing Date;
6.1.11 the Company shall have delivered to the Purchaser a copy of
HIIC's written waiver of Harrah's Preemptive Rights with
respect to the Securities; and
6.1.12 the Company shall have made available for inspection by the
Purchaser the certificates representing the Preferred Shares
and Warrant being purchased by such Purchaser hereunder.
6.2 Conditions to Company's Obligations at Closing. The Company's
----------------------------------------------
obligations at the Closing are conditioned upon the fulfillment of each of the
following events:
6.2.1 the representations and warranties of the Purchaser shall be
true and correct in all material respects as of the Closing
Date as if made on such date;
6.2.2 the Purchaser shall have complied with and performed all of the
agreements, obligations and conditions set forth in this
Agreement that are required to be complied with or performed by
the Purchaser on or before the Closing;
6.2.3 the Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered
the same to the Company;
6.2.4 the Purchaser shall have wired to an escrow agent mutually
agreed upon by the Purchaser and the Company the Purchase Price
of the Preferred Stock and the Warrant; and
6.2.5 no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, promulgated or endorsed
by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts
or prohibits the consummation of any of the transactions
contemplated by this Agreement.
14
<PAGE>
7. INDEMNIFICATION.
---------------
The Company agrees to indemnify and hold harmless the Purchaser and its
officers, directors, employees and agents, and each person who controls the
Purchaser within the meaning of the Securities Act or the Exchange Act (each, a
"Purchaser Indemnified Party") against any losses, claims, damages, liabilities
---------------------------
or reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) as incurred, joint or several, to which it, they or
any of them, may become subject and not otherwise reimbursed, arising out of
the breach by the Company of any of its representations, warranties or covenants
made herein.
The Purchaser agrees to indemnify and hold harmless the Company and its
officers, directors, employees and agents, and each person who controls the
Company within the meaning of the Securities Act or the Exchange Act (each, a
"Company Indemnified Party") (a Purchaser Indemnified Party and a Company
- --------------------------
Indemnified Party are each hereinafter referred to as an "Indemnified Party")
-----------------
against any losses, claims, damages, liabilities or expenses (including the fees
and disbursements of counsel) as incurred, joint or several, to which it, they
or any of them, may become subject and not otherwise reimbursed, arising out of
the breach by the Purchaser of any of its representations, warranties or
covenants made herein.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action by a third party pursuant to which indemnification
may be sought hereunder, such Indemnified Party will, if a claim in respect
thereof is to be made against the other party (the "Indemnifying Party"),
------------------
deliver to the Indemnifying Party a written notice of the commencement thereof
and the Indemnifying Party shall have the right to participate in and to assume
the defense thereof with counsel reasonably selected by the Indemnifying Party;
provided, however, that an Indemnified Party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of such counsel to
be paid by the Indemnifying Party, if representation of such Indemnified Party
by the counsel retained by the Indemnifying Party would be inappropriate due to
actual or potential conflicts of interest under applicable standards of
professional conduct between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the Indemnifying Party within a reasonable time of the commencement of
any such action will not relieve the Indemnifying Party of any of its
obligations hereunder with respect to such action except to the extent such
failure is prejudicial to the Indemnifying Party's ability to defend any such
action.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of pending or threatened action in
respect of which an Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on any claims that are the subject matter of such action. An
Indemnifying Party will not be liable for any settlement of any action or claim
effected without its written consent.
Any implication herein to the contrary notwithstanding, (i) any Indemnified
Party shall not be entitled to recover under Section 7 hereof until the total
amount for which such Indemnified Party would recover under Section 7 hereof
exceeds $3,000, and then only for the excess over $3,000, and (ii) the maximum
aggregate amount that any Indemnified Party shall be entitled to recover under
Section 7 hereof shall not exceed $300,000.
15
<PAGE>
8. MISCELLANEOUS.
-------------
8.1 Survival; Severability. The representations, warranties, covenants
----------------------
and indemnities made by the parties herein shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that in such case the parties shall
negotiate in good faith to replace such provision with a new provision which is
not illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.
8.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. The Purchaser may assign its rights hereunder, in connection
with any private sale or transfer of the Preferred Shares or the Warrant in
accordance with the terms hereof, as long as, as a condition precedent to such
transfer, the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement, in which case the term "Purchaser"
shall be deemed to refer to such transferee as though such transferee were an
original signatory hereto; provided that no such transfer or assignment shall
--------
relieve any Purchaser of its obligations hereunder.
8.3 No Reliance; Representations by Purchaser. The Purchaser acknowledges
-----------------------------------------
that, (i) it has such knowledge in business and financial matters as to be fully
capable of evaluating this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby, (ii) it is not relying on any
advice or representation of the other party in connection with entering into
this Agreement, the other Transaction Documents or such transactions (other than
the representations made in this Agreement or the other Transaction Documents),
(iii) it has not received from such party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and thereunder, and (iv) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary, and has entered into this Agreement
and the other Transaction Documents based on its own independent judgment and on
the advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by such party.
8.4 Injunctive Relief. The Company acknowledges that a breach by it of
-----------------
its obligations hereunder may cause irreparable harm to the Purchaser and that
the remedy or remedies at law for any such breach may be inadequate and agrees,
in the event of any such breach, in addition to all other available remedies, to
such Purchaser's ability to seek an injunction restraining any breach and
requiring immediate and specific performance of such obligations.
8.5 Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed under the laws of the State of New York without regard to the conflict
of laws provisions thereof. Each party hereby irrevocably submits to the non-
exclusive jurisdiction of the state and federal courts sitting in the City
16
<PAGE>
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
8.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
8.7 Headings. The headings used in this Agreement are used for
--------
convenience only and are not to be considered in construing or interpreting this
Agreement.
8.8 Notices. Any notice, demand or request required or permitted to be
-------
given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given, (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., eastern time, on a business day or, if such day is not a business
day, on the next succeeding business day, (ii) on the next business day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
third business day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as follows:
If to the Company:
Interactive Entertainment Limited
845 Crossover Lane
Suite D-215
Memphis, Tennessee 38117
Attn.: David B. Lamm
Fax: (901) 537-3801
With a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attn: Andrew W. McCune
Fax: (312) 715-4800
17
<PAGE>
and if to the Purchaser, to such address for such Purchaser as shall appear on
the signature page hereof or as shall be designated by the Purchaser in writing
to the Company.
8.9 Expenses. Except as otherwise specified herein, the Company and each
--------
Purchaser shall pay all costs and expenses that it incurs in connection with the
negotiation, execution, delivery and performance of this Agreement; provided
that the Company shall reimburse the Purchaser for their reasonable out-of-
pocket expenses, including legal expenses, not to exceed one thousand dollars
($1,000), in the aggregate, at Closing.
8.10 Entire Agreement; Amendments. This Agreement and the other
----------------------------
Transaction Documents constitute the entire agreement between the parties with
regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by a written
instrument signed by the party against whom enforcement of any such waiver is
sought.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ David Lamm
------------------------------------
Name: David Lamm
Title: Chief Financial Officer
PURCHASER NAME: PALISADES HOLDINGS, INC.
By: /s/ Brad Greenspan
------------------------------------
Name: Brad Greenspan
Title: President
ADDRESS:
505 South Beverly Drive, Suite 305
----------------------------------
Beverly Hills, CA 90212
----------------------------------
Tel: 310-546-5437
--------------------------------
Fax: 310-546-2807
--------------------------------
Number of Shares of Series B Convertible Preferred Stock to be Purchased: 300
Number of Shares of Common Stock to be
Represented by the Warrant to be Purchased: 18,515
<PAGE>
EXHIBIT 99.10
SKY GAMES INTERNATIONAL LTD.
1115-595 HOWE STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6C 2T5
March 17, 1997
Mr. Jay Jacobson
Corporate and Financial Relations
245 East 25th Street
Suite 21K
New York, NY 10010
Dear Jay:
This letter confirms the terms of the agreement between Sky Games
International Ltd. (the "Company") and you regarding the settlement of
$109,649.50 payable to you. Such settlement includes the conversion of $75,000
of debt into 22,000 shares of the common stock of the Company, Cdn. $.01 par
value ("Common Stock") received as of October 30, 1996, payment of the balance
owed and the specifics of such conversion and payment.
Subject to the terms and conditions set forth below, you agree to accept
(i) 22,000 shares of Common Stock (the "Debt Securities"), (ii) $34,649.50,
(iii) options for the purchase of 20,000 shares of the Common Stock at $3.00 per
share (the "Options") and (iv) a warrant for the purchase of 20,000 shares of
Common Stock at $3.50 per share (the "Warrant") and in full satisfaction and
accord and in consideration for the release of the Company from its obligations
with respect to $109,649.50 payable to you.
In connection with the Debt Securities, you shall have the right (the "Tax
Put Right"), exercisable at any time during the 90 day period beginning on April
15, 1997, to sell to the Company all or any portion of 7,700 shares of the Debt
Securities, at a price of the greater of $3.41 per share or the closing price
on the Nasdaq SmallCap Market on the last trading day prior to the date of
exercise of the Tax Put Right; provided, however, notwithstanding any
-----------------
implication herein to the contrary, in no event shall the aggregate price of the
shares sold to the Company pursuant to the Tax Put Right exceed $26,000.
Additionally, you shall have the right (the "Lock-in Put Right"),
exercisable at any time during the 90 day period beginning on last day of the
applicable holding period for release of the Debt Securities under section (d)
Rule 144 (or its successors ("Rule 144") promulgated under the Securities Act of
1933, as amended (the "Act"), with respect to the Debt Securities, to sell to
the Company all or any portion of 14,300 shares of the Debt Securities plus any
portion of the 7,700 shares of the Debt Securities not sold to the Company
pursuant to the Tax Put Right, at a price of $3.41 per share.
Each of the Tax Put Right and the Lock-in Put Right may be exercised by
giving written notice to the Company at any time during the period during which
the applicable right may be exercised. The parties shall close the purchase
within thirty (30) business days of receipt of such notice.
If, at any time, prior to your ability to sell under Rule 144, the Company
determines to file with the Securities and Exchange Commission (the "SEC") a
registration statement (other than on a Form S-4 or S-8, or their successors),
the Company shall notify you in writing of the proposed registration statement.
If you request the Company in writing, within ten (10) days of the receipt of
such notification
<PAGE>
Mr. Jay Jacobson
Corporate and Financial Relations
March __, 1997
Page:2
from the Company, to include in such registration statement any of your Debt
Securities, then, subject to the remaining provisions hereof, the Company will
use reasonable efforts to include those Debt Securities in the registration
statement. Any such request by you shall specify the number of Debt Securities
intended to be offered and sold by you, shall express your present intent to
offer such Debt Securities for distribution, shall describe the nature or method
of the proposed offer and sale thereof and shall contain an undertaking by you
to provide all such information and materials and take all such action as may be
requested in order to permit the Company to comply with all applicable legal and
regulatory requirements and to obtain acceleration of the effective date of such
registration statement. The Company, at its sole option, may elect not to
proceed with the registration statement which is the subject of such notice.
The obligation of the Company to use its reasonable efforts to cause the
Debt Securities to be registered under the Act is subject to each of the
following limitations, conditions and qualifications: (i) the Company shall be
entitled to reduce or eliminate entirely your Debt Securities to be included in
such registration if, in the good faith judgment of the managing underwriter(s)
of such proposed public offering of the Company's securities, inclusion of the
Debt Securities would have a material adverse affect on the public offering of
securities being sold, (ii) you may not participate in any underwritten
registration hereunder unless you (x) agree to sell your Debt Securities on the
basis provided in any underwriting arrangements approved by the Company, and (y)
accurately complete and execute in a timely manner all questionnaires, powers of
attorney, underwriting agreements, holdback agreements and other documents
required under the terms of such underwriting arrangements, and the Company may
require, as a condition to fulfilling its obligations hereunder, receipt of
executed customary indemnification agreements in form satisfactory to the
Company from you.
The Company agrees that it shall deliver to you $34,649.50 in two equal
installments of $17,324.75 plus interest accrued from the date of your
acceptance of this letter at a rate of .0165 per diem. The first installment
shall be paid on or before fifteen (15) days from the date of your acceptance of
this letter. The second installment shall be paid on or before forty-five (45)
days from the date of your acceptance of this letter.
The Options shall be issued under the current Stock Program adopted by the
shareholders of the Company on August 27, 1996, shall be immediately exercisable
and shall have an expiration date of five (5) years from the date of this
letter. The Options shall provide that shares of Common Stock may be accepted in
full or partial payment upon the exercise thereof. The Warrant shall be
immediately exercisable and shall have an expiration date of two (2) years from
the date of this letter.
The Company's obligations hereunder are subject to applicable law and
contractual provisions to which it is a party.
Documentation regarding the certificate representing the Debt Securities,
the Options, the Warrant and a General Release for your execution shall be
delivered to you no later than fifteen (15) days from the date of your
acceptance hereof.
<PAGE>
Mr. Jay Jacobson
Corporate and Financial Relations
March __, 1997
Page:3
If the foregoing accurately sets forth the terms of our agreement, please
acknowledge your agreement and willingness to be bound by such terms by signing
in the space below.
SKY GAMES INTERNATIONAL LTD.
By: /s/ Malcolm Burke
--------------------------------
Its: President
-------------------------------
ACCEPTED and AGREED to
this __ day of ________ 1997
/s/ Jay Jacobson
- ---------------------------------------
Jay Jacobson, individually and d/b/a
Corporate and Financial Relations
<PAGE>
EXHIBIT 99.22
FIRST AMENDMENT
TO
REGISTRATION AND PREEMPTIVE RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION AND PREEMPTIVE RIGHTS AGREEMENT
("First Amendment") dated March 18, 1998 is entered into between Harrah's
- -----------------
Interactive Investment Company, a Nevada corporation ("HIIC"), and Interactive
----
Entertainment Limited, a Bermuda exempted company (f/k/a Sky Games International
Ltd., the "Company").
-------
R E C I T A L S:
---------------
WHEREAS, HIIC and the Company are parties to a Registration and Preemptive
Rights Agreement dated as of June 17, 1997 (the "Agreement"), which, prior to
---------
the effectiveness of this First Amendment, is referred to herein as the
"Original Agreement."
- -------------------
WHEREAS, HIIC has agreed with the Company not to exercise its right
pursuant to Section 3(a) of the Agreement to include Registrable Securities in
the Registration Statement on Form S-3 which the Company currently intends to
file with the Securities and Exchange Commission in the near future (the
"Anticipated Registration") in exchange for the Company agreeing to grant HIIC
- -------------------------
and its Affiliates one additional right to require the Company to register
Registrable Securities under the Securities Act on behalf of HIIC and its
Affiliates under certain circumstances.
WHEREAS, the parties desire to amend the Agreement to reflect and embody
the foregoing agreement.
A G R E E M E N T:
-----------------
Therefore, for good and valuable consideration the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Incorporation of Recitals. The foregoing recitals are incorporated
-------------------------
herein by reference and made a part hereof.
2. Definitions. Capitalized terms not otherwise defined herein have the
-----------
meanings assigned to such terms in the Original Agreement.
3. Amendment of Section 1. Section 1 of the Agreement is hereby amended
----------------------
by inserting the following:
(a) immediately after subsection (o) and immediately before subsection
(p):
"(o)(i) the term 'Inaugural Date' means the date on
which actual gaming on Inflight Games (as defined in the SIA License)
takes place on the first Aircraft (as defined in the SIA License)
installed with the System (as defined in the SIA License), whether or
not the Acceptance Date (as defined in the SIA License) or the Trial
Commencement Date (as defined in the SIA License) has occurred;" and
<PAGE>
(b) immediately after subsection (cc) and immediately before
subsection (dd):
"(cc)(i) the term 'SIA License' means the Software
License and Software Services Agreement dated November 7, 1995 between
Interactive Entertainment Limited and Singapore Airlines Limited;
(cc)(ii) the term 'Special Demand Registration' shall
---------------------------
have the meaning assigned thereto in Section 2(f) of this Agreement;".
4. Amendment of Section 2. Section 2 of the Agreement is hereby amended
----------------------
by:
(a) deleting subsection (b) in its entirety and replacing it with the
following:
"(b) Number of Demand Registrations. HIIC and its
------------------------------
Affiliates shall be entitled to three (3) Demand Registrations, one
(1) of which shall be a Special Demand Registration."; and
(b) adding a new subsection (f) to the end thereto immediately after
subsection (e) as follows:
"(f) Special Demand Registration. The Company agrees
---------------------------
that HIIC and its Affiliates shall have one (1) Demand Registration
which may be exercised by a Demand at any time during the one hundred
eighty (180) day period beginning on the first (1st) day after
conclusion of the sixty (60) day period commencing on the Inaugural
Date (such 60-day period, the "Initial Roll-Out Period") for a firmly
-----------------------
underwritten offering at a price acceptable to HIIC, in its sole
discretion, with an underwriter selected by HIIC and reasonably
acceptable to the Company (the "Special Demand Registration"). The
---------------------------
Company shall not file a registration statement within the Initial
Roll-Out Period to register sales on its own behalf. In the event the
Special Demand Registration is not exercised within such one hundred
eighty (180) day period, the right shall automatically expire. HIIC
and its Affiliates may specify that all or any of their Registrable
Securities (but in no event less than the number of shares which would
reduce HIIC's and its Affiliates' holdings, in the aggregate, to not
more than 19.9% of the shares on an issued and outstanding basis) be
registered pursuant to such Special Demand Registration. The
restrictions on Demand Registrations contained in Section 2(d) of this
Agreement shall not be applicable to a Special Demand Registration."
5. Amendments to Section 13. Section 13 of the Agreement is hereby
------------------------
amended by inserting the following immediately after subsection (j) at the end
thereof:
"(k) Agreement to Cause Directors to Resign. Upon the
--------------------------------------
consummation of any disposition of Voting Shares owned by HIIC or its
Affiliates, either pursuant to a public sale or to a private buyer,
HIIC shall cause all or such number of its designees on the Board of
Directors of the Company to resign so that it shall only have such
number of designees as it would then be entitled to elect pursuant to
the bye-laws of the Company given its ownership of Voting Shares after
such transaction.
2
<PAGE>
(l) Agreement to Assist Private Sale. Upon receipt of
--------------------------------
written notice from HIIC at any time during the one hundred eighty (180)
day period beginning on the sixty-first (61st) day after the Inaugural
Date, the Company shall use its best efforts to locate a buyer, in a
private sale at a price acceptable to HIIC, in its sole discretion, for not
less than all of HIIC's and its Affiliates holdings in the Company. The
parties acknowledge HIIC may also locate a buyer for such amount of shares,
and the Company shall offer, in either instance, to such potential buyers
in a private sale, Board representation and registration rights
substantially similar to those HIIC and its Affiliates have with respect to
the Company in such a manner as does not require the approval of the
shareholders of the Company. The exercise of the right pursuant to this
Section 13(l) and the right pursuant to Section 2(f) shall be mutually
exclusive and the exercise of either right shall automatically terminate
the ability to exercise the other right."
6. Waiver of Right to Piggyback. HIIC hereby irrevocably waives its
----------------------------
rights pursuant to Section 3 of the Agreement with respect to the Anticipated
Registration and shall cause all of its Affiliates to waive such rights with
respect to the Anticipated Registration.
7. Effect of First Amendment.
-------------------------
(a) Upon the execution of this First Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of
similar import shall mean and be a reference to the Agreement as amended hereby,
and each reference to the Agreement in any other document, instrument or
agreement shall mean and be a reference to the Agreement as amended hereby.
(b) Except as specifically amended hereby, the Agreement shall remain
in full force and effect and is hereby ratified and confirmed.
(c) The First Amendment may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
***********
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment on the
date first above written.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ David Lamm
--------------------------------------------
Its: Chief Financial Officer
-------------------------------------------
HARRAH'S INTERACTIVE INVESTMENT COMPANY
By: /s/ John Boushy
--------------------------------------------
Its: Vice President
-------------------------------------------
4
<PAGE>
EXHIBIT 99.23
FIRST AMENDMENT
TO
SUBSCRIPTION AGREEMENT
THIS FIRST AMENDMENT TO SUBSCRIPTION AGREEMENT ("First Amendment") dated
---------------
April 2, 1998 is entered into between Henderson International Investments
Limited, a British Virgin Islands company ("HIIL"), and Interactive
----
Entertainment Limited, a Bermuda exempted company (the "Company").
-------
R E C I T A L S:
---------------
WHEREAS, HIIL and the Company are parties to a Subscription Agreement dated
as of October 22, 1997 (the "Agreement"), which, prior to the effectiveness of
---------
this First Amendment, is referred to herein as the "Original Agreement."
------------------
WHEREAS, on March 23, 1998 HIIL agreed with the Company to waive the
condition as to one-half of its Tranche B financing in exchange for the Company
agreeing to change the acquisition price per share of Common Stock for HIIL's
additional purchases pursuant to the Agreement and the amount and exercise of
price of warrants to be issued pursuant to the Original Agreement and the
Company agreed to make such changes.
WHEREAS, the parties desire to amend the Agreement to reflect and embody
the foregoing agreements and effect the resolution of issues between the
parties.
A G R E E M E N T:
-----------------
Therefore, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Incorporation of Recitals. The foregoing recitals are incorporated
-------------------------
herein by reference and made a part hereof.
2. Definitions. Capitalized terms not otherwise defined herein have the
-----------
meanings assigned to such terms in the Original Agreement.
3. Effective Date. Upon satisfaction of the conditions set forth herein,
--------------
the amendments effected by this First Amendment shall be effective as of
March 23, 1998.
4. Amendment of Section 1. Section 1 of the Agreement is hereby amended
----------------------
and restated in its entirety as following:
"1. Subscription for Shares. The Subscriber hereby subscribes for
-----------------------
and agrees to purchase from the Company and the Company hereby agrees to
sell to the Subscriber 1,035,120 shares of Common Stock and, subject to the
provisions of this paragraph, a warrant to purchase eighty-five hundredths
(0.85) shares of Common Stock for each one (1) share of Common Stock
acquired pursuant to Tranche B and Tranche C below (the 'Warrant'), which
Warrant will be in the form attached hereto as Exhibit A, for an aggregate
---------
purchase price of U.S. three million dollars
<PAGE>
(US$3,000,000) (which it is agreed represents the sum of (A) for Tranche A,
the quotient of (w) U.S. one million five hundred thousand dollars
(US$1,5000,000) divided by (x) 85% of the average of the closing prices for
shares of Common Stock on the Nasdaq SmallCap Market during the five (5)
trading days immediately preceding October 22, 1997) plus (B) for each of
Tranche B and Tranche C, the quotient of (y) U.S. seven hundred fifty
thousand dollars (US$750,000) divided by (z) U.S. two and sixty-two
thousand one hundred twenty-five one hundred thousandths (US$2.62125) (the
prices set forth in the foregoing clauses (x) and (z) collectively referred
to as, the 'Subscription Price'). The Subscription Price shall be payable
by the Subscriber by wire transfer to the Company's account identified on
Exhibit B attached hereto in accordance with the following: (i) a tranche
---------
of one million five hundred thousand dollars ($1,500,000) ('Tranche A') was
sold by the Company and purchased by the Subscriber immediately upon the
execution of the Original Agreement; (ii) a tranche of U.S. seven hundred
fifty thousand dollars (US$750,000) ('Tranche B') shall be sold by the
Company and purchased by the Subscriber on April 2, 1998; and (iii) a
tranche of U.S. seven hundred fifty thousand dollars (US$750,000) ('Tranche
C') may be sold by the Company and purchased by the Subscriber upon written
notice from the Company electing that Tranche C be closed within forty-
eight (48) hours of receipt of such notice by the Subscriber. In the event
that the Subscriber receives such written notice electing that the Tranche
C transaction be consummated, the Subscriber shall be obligated to purchase
such securities within the forty-eight (48) hour period designated in the
written notice. The Company's option with respect to Tranche C shall not be
exercisable until the Company's gaming software has been installed and is
available to paying passengers in the entire cabin of one (1) Singapore
Airlines B747, B777, or A340 aircraft and shall expire if not exercised
within six (6) months of October 22, 1997. The Company is obligated to
exercise its option with respect to Tranche C within thirty (30) days of
completion of the aforementioned flight. Upon delivery to the Company of
the Subscription Price, the proper officers of the Company shall execute
and deliver to the Subscriber certificates representing said shares of
Common Stock. If (and only if) , the Subscriber still holds all of the
Shares of Common Stock purchased hereunder pursuant to Tranche B and
Tranche C six (6) months from the respective dates of consummation of
Tranche B and Tranche C, the proper officers of the Company on that date
shall execute and deliver to the Subscriber a Warrant exercisable for the
proper number of shares of Common Stock. The Subscriber acknowledges that,
by signing this Agreement, it is making an irrevocable offer to purchase
shares of Common Stock and the Warrant."
5. Amendment to Form of Warrant. The first paragraph of the form of
----------------------------
Warrant attached as Exhibit A to the Agreement is hereby amended and restated in
---------
its entirety as follows:
"FOR VALUE RECEIVED, Interactive Entertainment Limited (the
'Company'), a Bermuda exempted company, hereby certifies that __________,
or its permitted assigns, are entitled to purchase from the Company, at any
time or from time to time commencing immediately, and prior to 5:00 p.m.,
New York City time then current, on {date 18 months from issue date},
__________ fully paid and non-assessable shares of the common stock, $.01
par value, of the Company at the purchase price of $2.62125 per share.
Hereinafter, (i) said common stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the 'Common Stock', (ii) the
shares of the Common Stock purchasable hereunder are referred to as the
'Warrant Shares', (iii) the aggregate purchase price payable hereunder for
the Warrant Shares is referred to as the 'Aggregate Warrant Price', (iv)
the price payable hereunder for each of the shares of the Warrant Shares is
referred to as the 'Per Share
2
<PAGE>
Warrant Price', and (v) this warrant and all warrants hereafter issued in
exchange or substitution for this warrant are referred to as the
'Warrants'."
6. Conditions to Amendments. The effectiveness of this First Amendment
------------------------
is conditioned upon only the following:
(a) HIIL obtaining and delivering to the Company the written and
unconditional (i) approval of each of Proprietary Convertible Investments Group
("PCIG"), CC Investments LDC ("CCI") and Palisades Holdings Inc. ("PHI") to this
First Amendment and the transactions contemplated hereby pursuant to Section 4.9
of their respective Securities Purchase Agreements and (ii) waiver of their
rights pursuant to Section 4.10 of their respective Securities Purchase
Agreements with respect to the sales of Common Stock contemplated by this First
Amendment;
(b) the Company receiving the requisite approval to this First
Amendment and the transactions contemplated hereby of the Executive Committee of
its Board of Directors; and
(c) the Company receiving a waiver from Harrah's Interactive
Investment Company of its pre-emptive rights with respect to the sales to HIIL
contemplated pursuant to this First Amendment.
The parties agree to use their best efforts to satisfy the foregoing conditions.
The parties agree that in the event the conditions set forth in this paragraph 6
are not satisfied on or prior to April 21, 1998 and the purchase pursuant to
Tranche B has not then been consummated, then this First Amendment shall
automatically terminate, the parties shall be released of their obligations
hereunder and this First Amendment shall be of no further force or effect.
7. Covenants. The parties agree to use their best efforts to perform or
---------
caused to be performed, as promptly as practicable immediately following and
only upon the effectiveness of this First Amendment pursuant to Section 6, the
following:
(a) HIIL shall deliver to the Company a written retraction (the
"Retraction") of the statements made in its letter to the Company of March 2,
- -----------
1998 (the "Letter") as follows:
------
"Solely in consideration of the promises and conditions set forth in
the First Amendment to Subscription Agreement (the 'Amendment') dated
April 2, 1998, Henderson International Investments Limited hereby
retracts its March 2, 1998 letter to Interactive Entertainment
Limited."; and
(b) HIIL and its affiliates and the Company shall execute an
acceptable mutual release (the "Mutual Release").
--------------
The parties acknowledge and agree that delivery of the Retraction shall not
affect HIIL's registration rights pursuant to Section 8 of this First Amendment.
The parties further acknowledge and agree that notwithstanding that delivery of
the Retraction may occur prior to, simultaneously with or after the parties
execute the Mutual Release, the Mutual Release shall effect a complete release
by the parties of all claims in, in connection with or arising as a result of
the Letter or the Retraction.
3
<PAGE>
8. Agreement to Register. The Company agrees that in the event the
---------------------
Tranche B purchase is consummated on or prior to April 21, 1998, the Company
will include the 462,874 shares of Common Stock previously acquired by HIIL
pursuant to the Agreement in the Registration Statement and all shares of Common
Stock acquired by HIIL pursuant to the Tranche B purchase on Form S-3 which the
Company has filed on behalf of PCIG, CCI and PHI.
9. Effect of First Amendment.
-------------------------
(a) Upon the execution of this First Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of
similar import shall mean and be a reference to the Agreement as amended hereby,
and each reference to the Agreement in any other document, instrument or
agreement shall mean and be a reference to the Agreement as amended hereby.
(b) Except as specifically amended hereby, the Agreement shall remain
in full force and effect and is hereby ratified and confirmed.
(c) The Original Agreement and this First Amendment constitute the
entire agreement between the parties and shall be binding upon and inure to the
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns. The parties make no representations,
warranties or agreements to or with each other, except as contained in the
Original Agreement and this First Amendment, and any and all prior
representations, warranties and agreement made by or with any party or its
representatives, whether verbally or in writing, are deemed to have been merged
into the Original Agreement and this First Amendment, it being intended that no
such prior representations, warranties and agreements shall survive the
execution and delivery of the Original Agreement and this First Amendment.
(d) The First Amendment may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
***********
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment on the
date first above written.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ David Lamm
--------------------------------------------
Its: Chief Financial Officer
-------------------------------------------
HENDERSON INTERNATIONAL INVESTMENTS LIMITED
/s/ Michael Galliver
By: RM Corporate Services S.A.
--------------------------------------------
Its: Director
-------------------------------------------
5
