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As filed with the Securities and Exchange Commission on March 26, 1998
Registration No.333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
INTERACTIVE ENTERTAINMENT LIMITED
(Exact name of registrant as specified in charter)
845 Crossover Lane, Suite D-215
Memphis, Tennessee 38117
(901) 537-3800
[CAPTION]
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<S> <C> <C>
Bermuda 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: [_]
[CAPTION]
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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 Offering Registration
Per Unit(2) Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 2,952,262 $2.65625 $7,841,946 $2,313
per share
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</TABLE>
(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 in accordance with Rule 457 of Regulation C under the Securities
Act, solely for the purpose of determining the registration fee. The above
calculation is based on the average of the bid and ask prices of the Common
Stock quoted on Nasdaq on March 19, 1998.
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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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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 26, 1998
PROSPECTUS
1,718,568 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 1,718,568
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"), 462,874 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 1,255,694 shares of Common Stock offered hereby. HIIL purchased its
shares pursuant to a Subscription Agreement with the Company dated October 22,
1997 (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
$45,000. The Company intends to keep the registration statement, of which this
Prospectus is a part, effective until no later than [24 month anniversary of
Tranche B closing]. 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 March 24, 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 4
for factors to be considered in connection with a purchase of 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
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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 Current Report on Form 8-K of the Company dated December 17, 1997;
(2) the Current Report on Form 8-K of the Company dated September 30, 1997;
(3) the Quarterly Report on Form 10-Q of the Company for the three month
period ended September 30, 1997;
(4) the Current Report on Form 8-K of the Company dated September 15, 1997;
(5) the Current Report on Form 8-K of the Company dated July 15, 1997;
(6) the Quarterly Report on Form 10-Q/A of the Company for the four month
period ended June 30, 1997;
(7) the Current Report on Form 8-K/A of the Company dated June 16, 1997;
(8) the Current Report on Form 8-K of the Company dated June 16, 1997; and
(9) the Annual Report on Form 20-F/A of the Company for the year ended
February 28, 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.
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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.
The Company's core product is marketed under the trade name Sky Games . The
Sky Games 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. The Sky Games 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.
IEL announced its first contract, which is with Singapore Airlines ("SIA"), in
April of 1996. 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 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 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. 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. Assuming the system successfully passes this
final protocol, SIA has expressed its interest and willingness to conduct the
roll-out on as expeditious a basis as the situation warrants. See "Risk
Factors--Long Term Development of Technologies; No Commercialization of
Products to Date; --Uncertainty of Achieving Business Objective; --Inability to
Integrate Software; and --New and Untested Product."
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 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 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.
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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.
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.
Development Stage Company; History of Operating Losses and Accumulated Deficit
The Company is in the development stage. 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.
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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 and on the outstanding shares of
Series A and Series B Class B Preference Shares at the rate of 8% per annum. 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 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; No Commercialization of Products to Date
The Company has not yet begun to generate significant revenues from the sale
of products, services or technologies. 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.
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 latter 1998, nor can it be predicted when or whether
any such revenues will first be received.
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.
New and Untested Product
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. 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.
5
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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 March 9, 1998, there were issued and outstanding a total of 20,181,196
shares of Common Stock. Under the terms and assumptions set forth herein, such
as conversion prices, if all the outstanding convertible Preferred Stock and
convertible debentures were converted into shares of Common Stock and if all
warrants and options outstanding were exercised, there would be outstanding
26,489,733 shares of Common Stock. Of these, the Company currently has
registered for resale 2,952,262 shares of Common Stock which is 200% of
1,233,694 shares of Common Stock plus 484,874 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 principal with B/EA to redeem its shares of Class A
Preference Shares in monthly installments of $100,000 through March, 2000. 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
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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 March 9, 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 will be 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 March 9, 1998, approximately 34.1% of the outstanding
shares, assuming the cancellation of the Performance Shares, (26.5% 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 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
7
<PAGE>
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 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.
8
<PAGE>
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
March 9, 1998, 20,181,196 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.
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 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 Entity Appointee; (iv) the size of the
Board shall be fixed at 10 members until the Harrah's Entities ownership
interest
9
<PAGE>
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 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.
10
<PAGE>
Class A Preference Shares
All of the 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 principal 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."
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
11
<PAGE>
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Number of Days
After December 17, 1997 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>
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.
12
<PAGE>
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 March
9, 1998 the Company has outstanding warrants exercisable for 100,000 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
</TABLE>
The Company also has a commitment to issue warrants for 12,343 shares of
Common Stock on April 22, 1998 to a shareholder provided at such time he
continues to hold shares of Common Stock purchased by him in a private placement
on October 22, 1997. If issued, the warrants will be immediately exercisable at
an exercise price of $3.8125 and will expire on October 22, 1999. 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 (the "1996 Option
Plan"). Such options are exercisable through March 1, 2001. See "Shares Eligible
for Future Sale--Option Plans" for a discussion of management and director
option plans.
13
<PAGE>
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 560,770 560,770 - *
Investment Group
Inc./(4)(5)/
CC Investments LDC/(4)(5)/ 560,770 560,770 - *
Palisades Holdings,
Inc./(4)(6)/ 112,154 112,154 - *
Henderson International
Investments Limited/(7)/ 462,874 462,874 - *
Jay Jacobson/(8)/ 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 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
14
<PAGE>
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)/ 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.
/(7)/ Does not include shares of Common Stock or 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."
/(8)/ Include 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 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 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 March 27, 1998. The
remaining $750,000 would still be 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. In consideration of this agreement, the Company and HIIL have
agreed to change the purchase price for the entire $1.5 million to $2.6213 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 such $1.5 million 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 agreement is subject to
certain conditions, including receiving the necessary approvals and waivers from
PCIG, CCI and PHI as well as from the Harrah's Entities.
15
<PAGE>
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
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.
16
<PAGE>
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 March 9, 1998, IEL had outstanding 20,181,196 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 8,761,915 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 March 9, 1998, and if all warrants and options outstanding were
exercised, there would be outstanding 26,489,733 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 principal 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. 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.
17
<PAGE>
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 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.
18
<PAGE>
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 462,874 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 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.
19
<PAGE>
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 2,682,950 shares of Common
Stock were issued as of March 9, 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 March 9,
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 of the Company incorporated herein by
reference to the Company's Annual Report on Form 20-F/A for the fiscal year
ended February 28, 1997 have been audited by Buckley Dodds, Chartered
Accountants, independent public accountants, as indicated in their report with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of said firm as experts in giving said report.
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 information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission. Such reports, proxy and 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.
20
<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..... $ 2,313
Blue Sky Fees and Expenses.............................. 2,000
Legal Fees.............................................. 25,000
Accounting Fees......................................... 500
Printing and Miscellaneous.............................. 15,187
-------
Total............................................... $45,000
=======
</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
Exhibit Number Description
- -------------- -----------
*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;
and
(b) The consent of Appleby, Spurling & Kempe is included
in their opinion filed as Exhibit 5.
24 Power of Attorney is included on page II-6.
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).
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).
II-2
<PAGE>
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).
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.
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(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.
*To be filed by amendment.
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;
(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;
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(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.
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<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 26th day of
March, 1998.
INTERACTIVE ENTERTAINMENT LIMITED
By: /s/ Gordon Stevenson
--------------------
Gordon Stevenson
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Laurence S. Geller, Gordon Stevenson and
David B. Lamm, and each of them, his or her attorneys-in-fact and agents, each
with the power of substitution for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments), to this Registration Statement, and to file the
same, with all exhibits thereto, and all documents in connection therewith with
the Securities and Exchange Commission, and hereby ratifying and confirming all
that each of said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may do or cause to be done by virtue thereof.
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 March 26, 1998.
Signature Capacity
--------- --------
/s/ Laurence S. Geller Chairman of the Board and a Director
- ------------------------
Laurence S. Geller
/s/ Gordon Stevenson President, Chief Executive Officer and a Director
- ------------------------ (Principal Executive Officer)
Gordon Stevenson
/s/ David B. Lamm Chief Financial Officer, Treasurer and Secretary
- ------------------------ (Principal Financial Officer)
David B. Lamm
/s/ Michael A. Irwin Director of Finance and Administration
- ------------------------ (Principal Accounting Officer)
Michael A. Irwin
/s/ Malcolm P. Burke Director
- --------------------
Malcolm P. Burke
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Signature Capacity
--------- --------
/s/ Anthony P. Clements Director
- --------------------------
Anthony P. Clements
/s/ Charles L. Atwood Director
- --------------------------
Charles L. Atwood
/s/ John M. Boushy Director
- --------------------------
John M. Boushy
/s/ Brian Deeson Director
- --------------------------
Brian Deeson
Director
- --------------------------
Amnon Shiboleth
/s/ Judy Wormser Director
- --------------------------
Judy Wormser
Director
- --------------------------
Phillip Gordon
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