<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Interactive Entertainment Limited
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
P.O. Box 241603
Memphis, Tennessee 38124-1603
, 1999
To Our Shareholders:
You are cordially invited to attend the 1999 Annual General Meeting of
Shareholders of Interactive Entertainment Limited, a Bermuda exempted company
(the "Company"), which will be held at 3:00 p.m., pacific daylight time, on
, 1999, at (the "Annual General
Meeting").
At the Annual General Meeting, Shareholders will vote to: (i) increase the
Company's authorized share capital; (ii) amend the Bye-Laws of the Company
regarding the size of the board of directors, appointment of directors and
quorum requirements; (iii) elect five persons to the Board of Directors; (iv)
appoint Buckley Dodds as the Company's independent public accountants; (v)
receive and consider the report of the directors to the shareholders and the
financial statements of the Company together with the auditor's report thereon
for the financial year ended December 31, 1998; and (vi) transact such other
business as may properly come before the Annual General Meeting. Further
information concerning the meeting and the nominees for director can be found
in the accompanying Notice and Proxy Statement.
I hope that you can attend the Annual General Meeting and assist the Board
of Directors by voting for the Increase of Capital, the Bye-Law amendments,
the election of directors, and the ratification of the appointment of the
auditors. Whether or not you plan to attend the Annual General Meeting, please
be sure to date, sign and return the proxy card in the enclosed, postage-paid
envelope as promptly as possible so that your shares may be represented at the
meeting and voted in accordance with your wishes.
If you attend the meeting, you may vote in person, even if you have
previously submitted a proxy card.
Sincerely,
[SIGNATURE OF DAVID LAMM APPEARS
HERE]
David Lamm
Secretary
<PAGE>
INTERACTIVE ENTERTAINMENT LIMITED
P.O. Box 241603
Memphis, Tennessee 38124-1603
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ,] 1999
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Shareholders
("Annual General Meeting") of INTERACTIVE ENTERTAINMENT LIMITED, a Bermuda
exempted company (the "Company"), will be held at
, on [ ,] 1999, at the hour of 3:00 o'clock in the afternoon, Pacific
Daylight Time, for the following purposes:
1. to amend the Company's Bye-Laws to increase the authorized share capital
of the Company to 100,000,000 million shares of Common Stock;
2. to amend the Company's Bye-Laws in the manner set forth in APPENDIX A to
the accompanying Proxy Statement;
3. to elect five persons to the Board of Directors;
4. to appoint Buckley Dodds as the Company's independent public
accountants;
5. to receive and consider the report of the directors to the shareholders
and the financial statements of the Company together with the auditor's
report thereon for the financial year ended December 31, 1998; and
6. to transact such other business as may properly come before the Annual
General Meeting.
The proposal to increase the authorized share capital of the Company is a
special resolution requiring the vote of at least three-quarters of the votes
cast at the meeting. Other proposals contained in the accompanying Proxy
Statement require a simple majority of votes cast.
The amendments to the Bye-Laws of the Company, the text of which is
attached as Appendix A to the attached Proxy Statement, would:
. Change the number of members of the Company's Board of Directors (the
"Board") from its current fixed number of ten to no fewer than two and
no more than ten;
. Permit vacancies of the Board and directorships created by an expanded
Board to be filled by a majority of the remaining directors with such
director serving until the earlier of the next Annual General Meeting
where a successor is elected or, such director's death, resignation or
removal; and
. Increase the quorum requirement for a meeting of shareholders from the
current two shareholders to shareholders holding at least one-third of
the outstanding Common Stock of the Company.
The foregoing matters are described more fully in the accompanying Proxy
Statement. While this Notice and Proxy Statement and the enclosed form of
proxy are being sent only to shareholders of record and beneficial owners of
whom the Company is aware as of [ ,] 1999, all shareholders of the Company
of record on the date of the meeting are entitled to attend and to vote at the
Annual General Meeting. The Company's Form 10-K Annual Report for the year
ended December 31, 1998, including audited financial statements, is included
with this mailing of the Proxy Statement and this Notice.
We hope you will be represented at the Annual General Meeting by signing,
dating and returning the enclosed proxy card in the accompanying envelope as
promptly as possible, whether or not you expect to be present in person. Your
vote is important--as is the vote of every shareholder--and the Board
appreciates the cooperation of shareholders in directing proxies to vote at
the meeting.
<PAGE>
Your proxy may be revoked at any time by following the procedures set forth
in the accompanying Proxy Statement, and the giving of your proxy will not
affect your right to vote in person if you attend the Annual General Meeting.
By Order of the Board of Directors
David Lamm
Secretary
DATED: [ ,] 1999.
<PAGE>
Preliminary Copy--Subject to Completion
INTERACTIVE ENTERTAINMENT LIMITED
P.O. Box 241603
Memphis, TN 38124-1603
PROXY STATEMENT
For the Annual General Meeting of Shareholders
[ ], 1999
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of INTERACTIVE
ENTERTAINMENT LIMITED, a Bermuda exempted company ("the Company" or "IEL"),
for use at the annual general meeting of the Company to be held at
on [ ], 1999 at 3:00 o'clock in the
afternoon, pacific daylight time, and at any adjournments or postponements
thereof (the "Annual General Meeting"). Unless the context otherwise requires,
references to the Company include IEL and its subsidiaries. The proxy is
revocable by (i) filing a written revocation with the Secretary of the Company
prior to the voting of such proxy, (ii) giving a later dated proxy, or (iii)
attending the Annual General Meeting and voting in person. Shares represented
by all properly executed proxies received prior to the Annual General Meeting
will be voted at the meeting in the manner specified by the holders thereof.
Proxies that do not contain voting instructions will be voted (i) FOR the
increase in share capital described herein; (ii) FOR the amendments to the
Bye-Laws described herein; (iii) FOR the election of the nominees approved by
the Board; (iv) FOR the appointment of Buckley Dodds as the Company's
independent public accountants; and (v) if any other matters properly come
before the Annual General Meeting, in accordance with the best judgment of
persons designated as proxies.
The Board has established [ ], 1999 as the date used to determine
those record holders and beneficial owners of Common Stock to whom notice of
the Annual General Meeting will be sent (the "Record Date"). On the Record
Date, there were 46,475,000 shares of common stock, par value U.S. $.01 per
share (the "Common Stock"), outstanding. The holders of the Common Stock are
entitled to one vote for each share of Common Stock held. All matters
presented at the Annual General Meeting require approval by a simple majority
of votes cast at the meeting, other than Proposal 1 (regarding the capital
increase) which is a special resolution requiring the vote of at least three-
quarters of the votes cast at the meeting. The presence, in person or by
proxy, at the Annual General Meeting of at least two shareholders entitled to
vote is necessary to constitute a quorum at the Annual General Meeting. This
Notice, Proxy Statement and enclosed form of proxy are first being mailed on
or about [ ], 1999.
INCREASE IN SHARE CAPITAL
(PROPOSAL 1)
On [ ], 1999, the Board approved as a special resolution, for
approval by the Annual Meeting of Shareholders, an increase in the share
capital of the Company from U.S.$550,030, consisting of 50,000,000 Common
Shares of par value $.01 each and 5,003,000 shares of preference shares, par
value $.01 each, to U.S.$10,050,030, consisting of 100,000,000 Common Shares
of par value $.10 each and 5,003,000 shares of preference shares, par value
$.01 each.
Increase in Share Capital
The effect of the increase of share capital would be to permit the Company
to issue an additional 50,000,000 shares of Common Stock par value U.S.$.01.
The Company is currently authorized to issue 50,000,000 shares of Common
Stock. The Company currently has no shares of Common Stock available for
issuance. The Company
<PAGE>
has received conversion notices from holders of its Class B Series A
Preference Shares to convert 3,492,420 shares of Common Stock (the
"Unconverted Preference Shares") which it has not yet been able to honor, due
to the lack of available Common Stock. The Company also currently does not
have available Common Stock to issue upon the conversion of Preference Shares
or exercise of options that are already outstanding.
The Board believes that increasing the number of shares of Common Stock
would be desirable as it would make available shares to potential investors in
the Company without the burden and expense of a special meeting of
shareholders or having to wait for the next Annual Meeting of Shareholders. As
the Company believes that it may need to issue stock in order to raise capital
in the coming year, it believes it is appropriate to increase the share
capital of the Company at this time. At this time, other than the issuance of
the Unconverted Preference Shares, the Company does not have any current
plans, agreements or understandings for stock issuances that would involve the
issuance of Common Stock or Preferred Stock in excess of that authorized. Any
issuance of Common Stock may adversely affect the price of the Common Stock.
Issues Regarding Preference Shares. The increase would also allow
issuance of the Unconverted Preference Shares. The inability of the Company
to issue Common Stock upon receipt of conversion requests for the Company's
Preference Shares has placed the Company in violation of certain provisions
of the agreements with holders of the Preference Shares and could lead to
potential litigation since the Company is in default of agreements related
to the Unconverted Preference Shares. Specifically the Company is required
to keep sufficient shares authorized and is subject to monetary penalties
if Common Stock is not delivered as agreed. The Company believes that
potential litigation and penalties can be avoided upon approval of the
increase of share capital. The inability to issue Common Stock also gives
rights to the holders of the Class B Preference Shares to have the
Preference Shares redeemed at 130% of their issue price. Certain
characteristics of the Preference Shares, however, can have an adverse
effect on the price of the Company's Common Stock. Specifically:
. The outstanding Preference Shares are convertible at a discount from the
then market price of the Common Stock. As a result, the lower the price
for Common Stock at or around the time of conversion, the more Common
Shares a holder of Preference Shares will receive;
. To the extent a holder of Preference Shares converts and then sells the
Common Stock resulting from their conversion, the price of Common Stock
may decrease due to the additional shares in the market. This could allow
a holder of Preference Shares to convert any remaining Preference Shares
into even larger amounts of Common Stock, the sales of which would
further depress the price of the Common Stock;
. The terms of some of the Preference Shares outstanding do not contain
minimum conversion prices. This means that, should the price of the
Common Stock decline, there is no limit to the number of shares of Common
Stock that are issuable on conversion of the Preference Shares, and it is
possible that, even with an increase in the authorized capital, if the
market price of the Common Stock were to fall to near zero, there could
be insufficient common shares authorized to cover issuances related to
the conversion rights of the Preference Shares;
. The conversion of the Preference Shares may result in substantial
dilution to the interests of the other holders of Common Stock since the
holders of Preference Shares may ultimately convert and sell the full
amount of the Common Stock issuable on conversion of the Preference
Shares; and
. If holders of Preference Shares convert their Preference Shares to Common
Stock and hold the Common Stock, it is possible that they could become
the majority shareholders of the Company.
The following provides information regarding the Company's outstanding
Preference Shares.
Class A Preference Shares. On June 10, 1999, there were 2,237 Class A
Preference Shares outstanding. The Class A Preference Shares were issued in
June, 1997 in exchange for a promissory note due in the original amount of
$2,500,000 to B/E Aerospace ("BEA"). Each Class A Preference Share is
convertible at any time
2
<PAGE>
into a number of shares of Common Stock, determined by dividing $1,000 by a
conversion price equal to 65% (60% after August 31, 1999) of the average mean
of the closing bid and ask prices of the Common Stock for the 20 trading days
prior to the conversion.
At June 10, 1999, the 2,237 Class A Preference Shares were convertible into
19,552,221 shares of Common Stock. If the Class A Preference Shares are
converted into Common Stock, Harrah's Interactive Investment Company, a Nevada
corporation ("HIIC"), has the right to receive additional shares of Common
Stock at $0.01 per share (the "HIIC Additional Shares"). As of June 10, 1999,
HIIC would be entitled to receive 2,397,303 HIIC Additional Shares. The actual
number of shares of Common Stock issuable upon conversion may vary depending
upon the market price of the Common Stock prior to its conversion. BEA also
has the right to require the Company to issue additional shares of Common
Stock in the event the value of any conversions and any related resales of the
Common Stock do not satisfy the original promissory note to BEA. The Company
is negotiating with BEA to amend the conversion terms in such a manner to
reduce the potential dilution to shareholders of Common Stock.
Class B Series A Preference Shares. On June 10, 1999, there were 1,720
Class B Series A Preference Shares outstanding. Each share of Class B Series A
Preference Shares is convertible into a number of shares of Common Stock
determined by dividing $1,000 by the lesser of $3.2038 (the "Fixed Conversion
Price") and 85% of the average of the three lowest closing bid prices for the
Common Stock during the thirty trading days prior to the conversion date (the
"Floating Conversion Price"). The terms of the Class B Series A Preference
Shares have been amended so that the Floating Conversion Price shall not be
lower than $0.25 per share. Refer to the Company's Form 10-K for the year
ended December 31, 1998 which accompanies this proxy statement. At June 10,
1999, the outstanding Class B Series A Preference Shares were convertible into
6,880,000 shares of Common Stock.
Class B Series B Preference Shares. On June 10, 1999, there were 262 Class
B Series B Preference Shares outstanding. Each share of Class B Series B
Preference Shares is convertible into a number of shares of Common Stock
determined by dividing $1,000 by the lesser of $3.2038 (the "Fixed Conversion
Price") and 85% of the average of the three lowest closing bid prices for the
Common Stock during the thirty trading days prior to the conversion date (the
"Floating Conversion Price"). On June 10, 1999, the outstanding Class B Series
B Preference Shares were convertible into 2,465,882 shares of Common Stock.
The following table summarizes:
. The number of currently authorized, issued and outstanding shares of
Common Stock, and its percentage of the fully-diluted Common Stock;
. The number of currently authorized, issued and outstanding shares of
Class A Preference Shares, Class B Series A Preference Shares and Class B
Series B Preference Shares;
. The number of shares of Common Stock the Company would be required to
issue to the holders of each class and series of Preference Shares
assuming full conversion of outstanding Preference Shares on June 10,
1999, and its percentage of the fully-diluted Common Stock; and
. The number of shares of Common Stock subject to currently outstanding and
exercisable options and warrants, and its percentage of the fully-diluted
Common Stock.
<TABLE>
<CAPTION>
Shares Percent of
Authorized Common
Shares (following Stock
Shares Issued and increase in Converts (fully-
Name of Security Authorized Outstanding capital) Into(1) diluted)
- ---------------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Common Stock..... 50,000,000 46,475,000(2) 100,000,000 46,475,000 54.67%
Preference
Shares:
Class A......... 3,000 2,237 3,000 21,949,524(3) 25.82%
Class B......... 5,000,000 1,982(4) 5,000,000
Series A........ 3,000 1,720(5) 3,000 10,372,426(6) 12.20%
Series B........ 300 262 300 2,465,882 2.90%
Options.......... 2,960,341 3.48%
Warrants......... 782,420 0.92%
</TABLE>
3
<PAGE>
- --------
(1) Number of shares class of Preference Shares, Options or Warrants would
convert into, assuming full conversion or exercise on June 10, 1999, when
the price of the Common Stock was $0.137 per share.
(2) Does not include 3,525,000 Shares the subject of an irrevocable proxy and
agreement not to vote. See "Shares Subject to Irrevocable Proxy and
Agreement Not to Vote Shares."
(3) Includes the HIIC Additional Shares.
(4) Consists of the 1,720 shares of the Class B Series A Preference Shares and
the 262 shares of Class B Series B Preference Shares described below.
(5) Does not include Preference Shares that are to be converted into the
3,492,426 shares of Common Stock which comprise the Unconverted Preference
Shares.
(6) Includes the 3,492,426 Unconverted Preference Shares.
The following table illustrates the number of shares of Common Stock the
Company would be required to issue assuming full conversion of outstanding
Preference Shares assuming that the price of the Company's Common Stock, for
purposes of determining the conversion formula, is one of the prices set forth
in the table below, and assuming the consummation of the Reverse Stock Split.
The following table is for illustration purposes only.
Number of Shares of Common Stock Issuable Upon Conversion of Preference Shares
at Various Market Prices
<TABLE>
<CAPTION>
Common Stock Price(1) $ 0.025 $ 0.050 $ 0.100 $ .137($2) 0.200 $ 0.300 $ 0.400
- --------------------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Preference
Shares................. 152,049,130 76,763,920 38,596,900 21,949,520 19,356,680 12,917,880 9,731,150
Class B Series A
Preference Shares...... 6,880,000 6,880,000 6,880,000 6,880,000 6,880,000 6,880,000 5,058,820
Class B Series B
Preference Shares...... 12,329,410 6,164,710 3,082,350 2,465,880 1,541,180 1,027,450 770,590
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total................ 171,258,540 89,808,630 48,559,250 31,295,400 27,777,860 20,825,330 15,560,560
</TABLE>
- --------
(1) Assumed price used for conversion of each class and series of Preference
Shares.
(2) The closing price for the Common Stock on June 10, 1999.
Although management has no current plans to adopt any anti-takeover
measures, the availability of authorized but unissued shares of Common Stock
could have certain anti-takeover effects, making it more difficult or
discourage, to varying degrees and in various circumstances, a merger, tender
offer, proxy contest or acquisition of control of a large block of the
Company's Common Stock without prior approval of the Board.
BYE-LAW AMENDMENTS
(PROPOSAL 2)
On March 18, 1999, pursuant to Bye-Law 107 of the Company's Bye-Laws, the
Board authorized amendments to the Company's Bye-Laws (the "Bye-Law
Amendments") for confirmation by the Annual Meeting of Shareholders. If the
Bye-Law Amendments are approved, they would: (i) change the size of the Board
from its current fixed number of ten to a minimum of two and a maximum of ten;
(ii) permit a majority of the then remaining members of the Board to fill
vacancies and newly created directorships of the Board and (iii) change the
quorum requirements for shareholders meetings. THE BOARD RECOMMENDS THE
APPROVAL OF THE BYE-LAW AMENDMENTS.
Change of Size of the Board
The Company's Bye-Laws currently provide for a fixed ten member Board of
Directors. The proposed amendment would change the size of the Board to a
maximum of ten members and a minimum of two members. The Board intends to have
six members at this time with four vacancies.
The Company believes that a smaller Board would oversee the operations of
the Company in a more efficient and less expensive manner. Due to the current
limited nature of the Company's operations, the Board believes that a smaller
board size, with the right to increase the board should conditions warrant, is
appropriate at this time.
4
<PAGE>
In addition, under the terms of the Bye-Laws, HIIC has a right to appoint
directors based upon its holdings of voting securities in the Company. In
fiscal year 1998, because of dilution of the holdings of HIIC and its
affiliates (the "HIIC Entities"), the number of directors of the Board that
HIIC had the right to appoint went from three to one. A six member board
approximates the ratio of directors appointed by the HIIC Entities and those
appointed by the Annual Meeting of Shareholders
Appointment of Directors to Fill Vacancies
Under the current Bye-Laws, vacancies of directors elected by a vote of a
Meeting of Shareholders must be replaced by a vote of a Meeting of
Shareholders. The Board has determined that the calling of a special meeting
to replace a director is inefficient. In the past year, although seven members
of the Board resigned, no special election was held to replace them. The Board
believes that it is more efficient and provides greater Company operational
continuity to permit to Board to appoint a substitute director to serve out
the term of a director who vacates his or her Board seat before the end of the
term.
Change of Quorum Requirements
Under the current Bye-Laws, a quorum of shareholders is fulfilled at any
time two holders of shares are present. The Company has been informed by
Nasdaq that one of the requirements for a listing with the Nasdaq SmallCap
Market is that a quorum of shareholders consist of holders of at least one-
third of the outstanding voting shares. In the past, the SmallCap Market
waived this requirement. Although the Company has been delisted from the
SmallCap Market, the Board believes that it is appropriate at this time to
amend the Bye-Laws to provide a one-third quorum requirement, and the proposed
amendment states that a quorum of shareholders for a meeting shall be at least
two shareholders, where such shareholders hold, in the aggregate, at least
one-third of the outstanding voting stock.
ELECTION OF DIRECTORS
(PROPOSAL 3)
In accordance with the Company's Bye-Laws, five directors are to be elected
at this Annual General Meeting, five by the shareholders other than HIIC and
one by HIIC. The Board recommends the election to the Board of the nominees
whose names appear below. Directors of the Company are elected at each annual
general meeting and hold office until the next annual general meeting or until
their successors are nominated and elected. All of the nominees are presently
directors of the Company with the exception of Eppie Canning, Deborah
Fortescue-Merrin, Anastasia Kostoff-Mann and Stephen Rosenberg. In the absence
of instructions to the contrary, the enclosed proxy will be voted FOR the
nominees listed below.
Pursuant to the Bye-Laws of the Company, and assuming adoption of Proposal
3 above, the Board is comprised of six members. One director is to be
appointed by Harrah's Interactive Investment Company, a Nevada Corporation
("HIIC", and together with its affiliates, the "HIIC Entities"), pursuant to
Bye-Law 54B which provides that during such time as the HIIC Entities own 10%
or more of the outstanding voting securities, or their equivalents, of the
Company, on a fully-diluted basis, the HIIC Entities will have the ability to
appoint a percentage of directors (rounded to the nearest 10%) which has the
same proportion to the size of the entire Board as the number of such voting
securities held by the HIIC Entities bears to the total number of such
securities, on a fully-diluted basis. The HIIC Entities will also be entitled
to such proportionate representation on the Executive, Compensation and Audit
Committees of the Board. On the Record Date, the HIIC Entities owned
approximately 6,886,915 of the outstanding voting securities, or their
equivalents, of the Company. The director appointed by the HIIC Entities is in
addition to the five members of the Board to be elected at the Annual General
Meeting. The director appointed by the HIIC Entities currently serving on the
Board is listed below.
5
<PAGE>
JOHN M. BOUSHY, age 44, has been a director of the Company since June 17,
1997. He also served as a director of the company's operating subsidiary from
December 1994 until June 17, 1997. Mr. Boushy served as President of the
Company's operating subsidiary from December, 1994 until November 1996. Mr.
Boushy is Senior Vice President for Information Technology and Marketing
Services, for Harrah's Entertainment, Inc., where he has been employed since
1979.
With respect to the nominees for the five members of the Board to be elected
by the shareholders of the Company at the Annual General Meeting, the following
sets forth the name of each nominee and, for each, the period during which the
nominee has served as a director, information relating to the nominee's age,
principal occupation and business experience during the past five years, any
other directorships held by the nominee in publicly held companies and certain
other information. Information with respect to the ages of directors is as of
April 2, 1999, and information as to their ownership of shares of Common Stock
as of that date is provided under the caption "Security Ownership By Directors,
Officers and Five Persons (or More) Shareholders."
EPPIE CANNING, age 54, is a nominee for director and a Certified General
Accountant with more than 25 years experience in the financial management of
projects in the Caribbean, Southeast Asia, Canada and the United States. Ms.
Canning is currently a founding director and Chief Financial Officer of
cyberoad.com Corporation, a publicly traded company, and eBanx Ltd., which has
developed technology to facilitate financial transactions over the internet.
ANTHONY P. CLEMENTS, age 52, has been a director of the Company since March
of 1992. Mr. Clements is an investment banker with Yorkton Securities, based in
London, England. From 1994 to March, 1998 he was an investment banker with T.
Hoare & Co. Mr. Clements also served as a director of the Company's operating
subsidiary from August 10, 1995 until its amalgamation with the Company on June
17, 1997. Prior to 1994, Mr. Clements was an investment banker for Rickets &
Co., also based in London. Mr. Clements has also managed the North American
portfolio of Postel Investment Management (pension fund managers for both the
Post Office and British Telecom) from 1973 until 1987, and has worked in areas
of corporate finance since 1987.
DEBORAH FORTESCUE-MERRIN, age 43, is a nominee for director and was
previously a director of the Company from October, 1995 to October, 1997. Mrs.
Merrin is Vice-President of J. Perot Financial Corp., a private investment
management firm located in Vancouver, British Colombia, Canada. Previous to
joining J. Perot Financial, Mrs. Merrin was a securities broker for twelve
years, and worked in the area of corporate finance from 1989-1992, specializing
in special situations concerning medical issues. Mrs. Merrin is the President
and a Director of North American Medical Services Inc. and she is also a
director of Creative Entertainment Technologies, Inc., both publicly traded
companies.
ANASTASIA KOSTOFF-MANN, age 51, is a nominee for director and has over 28
years experience in the hotel, sales and marketing, and travel industry. She is
the Founder and Chairman of the Corniche Group of Companies, overseeing all
aspects of travel and meeting management for corporate accounts. She is a
lifetime director and former President and Chairman of the International Travel
& Tourism Research Association (TTRA). She currently serves as a commissioner
on the California Travel and Tourism Commission where she also sits on the
Executive Committee.
STEPHEN ROSENBERG, age 54, is a nominee for director. Since January of 1989,
he has been President of his own investment advisory firm located in Warner
Robins, Georgia. From December 1985 through December 1988, Mr. Rosenberg was a
broker with Dean Witter Reynolds. He has taught graduate finance courses for
Mercer University in Macon, Georgia, and is the author of a number of financial
books. Mr. Rosenberg is also a Director of North American Medical Services
Inc., a publicly traded company.
The Company is not aware of any arrangements or understandings between any
of the individuals named above and any other person pursuant to which any of
the individuals named above were selected as a director and/or executive
officer. The Company is not aware of any family relationship among the officers
and directors of the Company or its subsidiaries. The only arrangement with
respect to members of the Board of which the
6
<PAGE>
Company is aware is the right of the HIIC Entities to appoint directors to the
Board pursuant to Bye-Law 54B of the Company's Bye-Laws.
OTHER INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Meetings; Compensation
There were seven meetings of the Board held during the fiscal year ended
December 31, 1997. Other than Brian Deeson, none of the directors attended less
than 75% of the aggregate number of meetings of the Board or the committees on
which they served. Pursuant to the Company's current Bye-Laws, the Board
consisted of ten directors. Gordon Stevenson resigned from the Board and its
committees on January 25, 1999. Laurence Geller, Phillip Gordon and Amnon
Shiboleth resigned from the Board on February 23, 1999. Quinten Dreesmann,
Charles Atwood and July Wormser resigned from the Board on March 18, 1999. As
pursuant to the Company's existing Bye-Laws, election of replacement directors
would have required a shareholders meeting, it was determined to leave these
open seats on the Board vacant. As discussed above, the HIIC Entities currently
have the right to appoint one of the directors. See "Election of Directors."
At the December 6, 1996 meeting of the Board, the Board adopted an option
plan covering 500,000 shares of Common Stock for members of the Board (the
"Director Option Plan"). Pursuant to the Director Option Plan, all directors
holding office at December 10th of each year automatically were granted options
for the purchase of 10,000 shares of Common Stock at the trading price on such
day. On October 17, 1997, the Board approved an amendment to the Director
Option Plan changing the grant date to the date of the first meeting of the
Board following the Company's Annual General Meeting of Shareholders. Options
granted pursuant to the Director Option Plan have a ten-year term. On May 14,
1998, each of the then directors of the Company were awarded options for the
purchase of 10,000 shares, at an exercise price of $2.50 and an expiration date
of May 14, 2008. All of the directors of the Company are reimbursed for out-of-
pocket expenses. The directors of the Company receive no other compensation.
Executive Committee
The Executive Committee of the Board currently consists of Mr. Boushy. The
principal functions of the Executive Committee are to exercise the power of the
Board in the management of the business and affairs of the Company with certain
exceptions. The executive committee held two meetings during the fiscal year
ended December 31, 1998.
Audit Committee
The Audit Committee of the Board currently is vacant. The principal
functions of the Audit Committee are to make recommendations to the Board
regarding its independent auditors to be nominated for election by the
shareholders and to review the independence of such auditors, to approve the
scope of the annual audit activities of the independent auditors, to approve
the audit fee payable to the independent auditors and to review such audit
results. The audit committee held two meetings during the fiscal year ended
December 31, 1998.
Compensation Committee
The Compensation Committee is currently vacant. The Compensation Committee
held one meeting during the fiscal year ended December 31, 1998. For
information on the duties and actions of the Compensation Committee, see
"Report on Compensation."
The Board intends to appoint new members to the Executive Committee, Audit
Committee and Compensation Committee at the Board meeting following the Annual
Meeting of Shareholders.
7
<PAGE>
SECURITY OWNERSHIP BY DIRECTORS, OFFICERS AND
FIVE PERCENT (OR MORE) SHAREHOLDERS
As of April 6, 1999, based on information supplied to the Company, IEL's
directors and executive officers as a group may be deemed to own beneficially
(including shares purchasable upon exercise of stock options and warrants,
exercisable within 60 days) 2.0% of the outstanding shares of Common Stock. To
the knowledge of the directors and officers of the Company, the following
directors and officers of the Company and owners of five percent (or more) of
the outstanding Common Stock beneficially own the shares of Common Stock set
forth below.
<TABLE>
<CAPTION>
Amount and Nature
of
Name Beneficial Ownership Percent of Class (1)
---- -------------------- -------------------
<S> <C> <C>
John M. Boushy (2)............. 20,000 *
Eppie Canning (director
nominee)...................... 0 *
Anthony P. Clements (3)........ 130,000 *
Deborah Fortescue-Merrin
(director nominee) (4)........ 584,971 1.2%
Anastasia Kostoff-Mann
(director nominee) (5)........ 50,000 *
Stephen Rosenberg (director
nominee) (6).................. 16,500 *
Michael Irwin (7).............. 107,393 *
David Lamm (8)................. 80,000 *
Directors and Officers as a
Group
(7 individuals)............... 988,864 2.0%
Harrah's Interactive Investment
Company (9)................... 6,886,915 14.0%
</TABLE>
- --------
*Less than 1%
(1) Percent of class is determined by dividing the number of shares
beneficially owned by the outstanding number of shares of the Company
decreased by the 3,525,000 shares held in escrow which are subject to an
irrevocable proxy and an agreement not to vote the shares, and increased by
options and warrants for 2,562,761 shares which are currently exercisable.
(2) Does not include 6,886,915 shares of Common Stock held by HIIC, which is a
wholly owned subsidiary of Harrah's Entertainment Inc., a Nevada
corporation ("HEI"). Mr. Boushy is Vice President of HIIC and is Senior
Vice President of HEI. Mr. Boushy serves on the Board as a designee by the
HIIC entities pursuant to the Company's Bye-Laws. Includes options for
20,000 shares of Common Stock under the Directors Option Plan.
(3) Does not include 1,000,000 of the shares of Common Stock owned of record by
Mr. Clements which are subject to an irrevocable proxy in favor of First
Tennessee Bank and an agreement by First Tennessee Bank not to vote such
shares under any circumstances. Does not include 333,333 shares of Common
Stock which are held in trust, for which Mr. Clements is neither trustee
nor beneficiary, and as to which Mr. Clements disclaims beneficial
ownership. Includes options for 100,000 shares of Common Stock under the
1996 Stock Program and options for 30,000 shares under the Directors Option
Plan.
(4) Includes 376,471 shares of Common Stock held by J. Perot Financial Corp., a
company which Ms. Fortescue-Merrin's is an officer. Includes options for
150,000 shares of Common Stock under the 1996 Stock Program and options for
10,000 shares of Common Stock under the Directors Option Plan.
(5) Includes options to purchase 50,000 shares of Common Stock under the 1996
Stock Program.
(6) Does not include 38,200 shares held by Mr. Rosenberg's spouse.
(7) Includes 61,716 shares of Common Stock, options to purchase 33,334 shares
of Common Stock under the Management Incentive Plan, and warrants to
purchase 12,343 shares of Common Stock through October 22, 1999.
(8) Includes options to purchase 80,000 shares of Common Stock under the
Management Incentive Plan.
(9) Harrah's Interactive Investment Company's address is 1023 Cherry Road,
Memphis, Tennessee 38117.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation for services in all
capacities to the Company for the three most recently completed fiscal years in
respect of each of the individuals who served as the Chief Executive Officer
during the last completed fiscal year and those individuals who were, as of
December 31, 1997, the executive officers of the Company whose individual total
compensation for the most recently completed financial year exceeded $100,000
(collectively, the "Named Executive Officers") including any individual who
would have qualified as a Named Executive Officer but for the fact that
individual was not serving as such an Officer at the end of the most recently
completed financial year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
--------------------------- -----------------------
Restricted Securities
Fiscal Other Annual Stock Underlying
Name and Principal Year Salary Bonus Compensation Awards Options
Position Ended $ $ $ (#) (#)
- ------------------ -------- ------- ------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Laurence S. Geller...... 12/31/98 -- -- -- -- 10,000
Chairman (1) 12/31/97 -- -- 25,000(2) -- 1,010,000
2/28/97 -- -- 60,000 200,000(3) 200,000
Gordon Stevenson........ 12/31/98 166,950 25,000 76,380(4) -- 658,000(8)
President and CEO (1) 12/31/97 135,813 12,500 390 -- 358,000
2/28/97 150,000 20,000 125,186 -- --
David Lamm.............. 12/31/98 124,405 30,000 56,823(5) -- 480,000(8)
CFO, Treasurer and 12/31/97 57,692 -- 15,284 -- 250,000
Secretary 2/28/97 -- -- -- -- --
Michael Irwin........... 12/31/98 96,596 -- 54,376(6) -- 200,000(8)
Assistant Secretary and 12/31/97 49,193 -- 70,103 -- 100,000
Controller 2/28/97 -- -- 147,941 -- --
Kathleen Seymour........ 12/31/98 91,836 -- 26,456(7) -- 152,000(8)
Director of Business 12/31/97 24,715 -- 77,700 -- 102,000
Development 2/28/97 -- -- 133,200 -- --
</TABLE>
- --------
(1) Mr. Stevenson was President and CEO from June 17, 1997 until January 25,
1999. Mr. Geller served as CEO of the Company from September 30, 1996 to
June 17, 1997.
(2) Includes monthly cash retainer of $5,000 paid by the Company to Geller &
Co., of which Mr. Geller is principal. The company agreed to compensate
Geller & Co. at the rate of $100,000 per year as for Mr. Geller's services
as Chairman of the Board of Directors. The Company and Geller & Co. agreed
that such payments could be deferred until such time as the Company was
generating adequate cash flows to pay the cash amounts. The fee to Geller &
Co., has been accrued but remains unpaid and is not included.
(3) Pursuant to the Company's retainer agreement with Geller & Co., of which
Mr. Geller is principal, Mr. Geller received a restricted stock award for
100,000 shares of Common Stock to vest in three equal tranches each six
months. Also, pursuant to its retainer agreement, Geller & Co. received a
grant award of 100,000 shares of Common Stock which was to vest upon the
completion of a major financing. The Board determined that the Company's
1967 merger constituted a major financing and that, as of June 17, 1997,
all 200,000 shares of Common Stock would vest.
(4) Included is moving expenses of $100, and $124,891 for fiscal years ending
December 31, 1997 and February 28, 1997, respectively. Includes financial
counseling of $295, $290 and $295 for years ending December 31, 1998,
December 31, 1997 and February 28, 1997, respectively. 1998 includes
severance pay in the amount of $75,000 and $1,085 for an annual medical
exam.
9
<PAGE>
(5) Mr. Lamm was retained by the Company July 14, 1997. Other compensation
includes moving expenses of $15,284, for the year ending December 31, 1997
and moving expense tax reimbursement of $1,823 and severance pay of $55,000
for the year ending December 31, 1998.
(6) Mr. Irwin was retained as a consultant from August 1995 through June 1997
and became an employee of the Company on July 1, 1997. Severance pay of
$45,000 is included for the year ending December 31, 1998. Mr. Irwin was
retained from November 14, 1998 as a consultant and received $9,376 for the
year ending December 31, 1998.
(7) Ms. Seymour was retained as a consultant from September 1995 through
September 1997. She became an employee of the Company on October 1, 1997.
Severance pay of $26,456 is included for the year ending December 31, 1998.
(8) 1998 option grants under the Management Incentive Plan include options
granted to replace options originally granted during 1997.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Granted Employees in Base Price Expiration ---------------------
Name (#) Fiscal Year ($/sh) Date 5% 10%
- ---- --------------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Laurence S. Geller...... 10,000(1) * $2.50000 5-14-08 15,722 39,844
Gordon Stevenson........ 50,000(2) 2.1% $2.50000 1-13-08 78,612 199,218
Gordon Stevenson........ 100,000(2) 4.2% $2.84375 4-30-08 178,842 453,221
Gordon Stevenson........ 508,000(3) 21.4% $0.96875 9-02-08 309,495 784,321
David Lamm.............. 40,000(2) 1.7% $2.50000 1-13-08 62,889 159,374
David Lamm.............. 75,000(2) 3.2% $2.84375 4-30-08 134,131 339,915
David Lamm.............. 365,000(3) 15.4% $0.96875 9-02-08 222,373 563,537
Michael Irwin........... 50,000(2) 2.1% $2.84375 4-30-08 89,421 226,610
Michael Irwin........... 150,000(3) 6.3% $0.96875 9-02-08 91,386 231,591
Kathleen Seymour........ 25,000(2) 1.1% $2.84375 4-30-08 44,710 113,305
Kathleen Seymour........ 127,000(3) 5.3% $0.96875 9-02-08 77,374 196,080
</TABLE>
- --------
*Less than 1%
(1) Option granted to each director of the Company pursuant to the Director
Option Plan on May 14, 1998.
(2) Options granted under the Management Incentive Plan and subsequently
replaced by options granted 9-2-98.
(3) Options granted to employees under the Management Incentive Plan replacing
all prior options granted.
FISCAL YEAR-END OPTION VALUES
No options were exercised by the Named Executive Officers during the fiscal
year ended December 31, 1998. No options listed in this table were in-the-money
at the end of the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at FY-End (#)
-------------------------
Name Exercisable Unexercisable
---- ----------- -------------
<S> <C> <C>
Laurence S. Geller (1).......................... -- 1,000,000
Laurence S. Geller (2).......................... 200,000 --
Laurence S. Geller (3).......................... 30,000 --
Gordon Stevenson (4)............................ 109,667 --
David Lamm (4).................................. 80,000 --
Michael Irwin (4)............................... 33,334 --
Kathleen Seymour (4)............................ 8,333 --
</TABLE>
- --------
(1) Options issued to Geller & Co. pursuant to the Management Incentive Plan.
10
<PAGE>
(2) Options issued to Geller & Co. pursuant to the 1996 Stock Program.
(3) Options issued pursuant to Director Option Plan.
(4) Options issued pursuant to the Management Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, Charles Atwood, Phillip
Gordon and Amnon Shiboleth participated in deliberations of the Board
concerning executive officer compensation. Each removed themselves from any
deliberations or votes affecting their direct or indirect compensation. For a
discussion of transactions between the aforementioned executive officers and
the Company, see "Certain Relationships and Related Transactions."
REPORT ON COMPENSATION
Compensation of Gordon Stevenson
Mr. Stevenson served as President, Chief Executive Officer and a Director of
the Company in fiscal year 1998 at an annual salary of $175,000. Mr. Stevenson
received a cash bonus of $25,000 and severance pay of $75,000 during fiscal
year 1998. In addition to cash compensation, Mr. Stevenson was granted options,
pursuant to the Management Incentive Plan, for the purchase of 508,000 shares
of Common Stock at $.96875 per share. These options replaced options to
purchase 50,000 shares at $2.50 and 100,000 shares at $2.84375 (each of which
were also granted in 1998) and options to purchase 358,000 shares at $3.00 per
share granted in 1997. Mr. Stevenson resigned as CEO on January 25, 1999.
The Members of The Board of Directors During The Fiscal Year Ended December 31,
1998
Charles L. Atwood
John M. Boushy
Malcolm P. Burke
Anthony P. Clements
Brian Deeson
Quinten Dreesmann
Deborah Fortescue-Merrin
Laurence S. Geller
Phillip Gordon
Amnon Shiboleth
Gordon Stevenson
Judy Wormser
11
<PAGE>
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Shareholder Return on Common Shares of
the Corporation, and the CRSP Total Return Index for Nasdaq U.S. based on a
$100 Investment assuming reinvestment of Dividends
[PERFORMANCE GRAPH]
12
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Redemption Agreement. As of April 30, 1997, pursuant to Redemption
Agreements (the "Redemption Agreements"), the Company issued to Dr. Rex E.
Fortescue, formerly a director of the Company, and Anthony P. Clements, a
director of the Company, 175,000 and 333,000 shares of Common Stock,
respectively, as consideration for Messrs. Fortescue's and Clement's agreement
to tender for cancellation by the Company 1,525,000 shares of Common Stock (of
which 525,000 are owned by Dr. Fortescue and 1,000,000 are owned by Mr.
Clements) which are held in an escrow pursuant to a performance earn-out
provision, only if such shares are released from the escrow for any reason
whatsoever. Dr. Fortescue is the father of Deborah Fortescue-Merrin, a nominee
to the Board of Directors.
Amalgamations. Pursuant to a Plan and Agreement of Merger and Amalgamation,
dated as of May 13, 1997 (the "Amalgamation Agreement"), the Company's then
wholly-owned subsidiary SGI Holding Corporation Limited, a Bermuda exempted
company ("SGIHC"), amalgamated with and into its 80% owned subsidiary, then
known as Interactive Entertainment Limited, a Bermuda exempted company
("Operating Sub"). The Amalgamation Agreement is between the Company, Operating
Sub, SGIHC and HIIC, the former owner of 20% of the outstanding stock of
Operating Sub. Pursuant to the Amalgamation Agreement, Operating Sub
amalgamated with and into SGIHC and thereafter SGIHC amalgamated with and into
the Company (the "Amalgamations"). As a result of the Amalgamation of Operating
Sub and SGIHC, the outstanding shares of Operating Sub common stock held by
HIIC were converted into 5,879,040 shares of Common Stock. Pursuant to the
Amalgamation Agreement, HIIC and its affiliates were provided, through certain
amendments to the
Bye-Laws of the Company, which were approved at the Special General Meeting of
Shareholders of the Company held June 16, 1997, with the right to appoint
persons (the "HIIC Appointees") to the Board and to specified committees in a
number generally proportionate to their share holdings. Additionally, the HIIC
Entities, as shareholders, and the HIIC Appointees were provided, pursuant to
the Amalgamation Agreement, with the right to approve specified significant
corporate actions by the Company for as long as the ownership of Common Stock
by the HIIC Entities is in excess of 20% (10% in some cases) of the outstanding
voting shares computed on a fully-diluted basis. The total number of shares
owned by HIIC is 6,886,915.
HIIC Continuing Services. Subsequent to and in connection with the
Amalgamations, the Company entered into a Continuing Services Agreement with
HIIC (the "Continuing Services Agreement"). Pursuant to the Continuing Services
Agreement, the Company receives administrative support services from the HIIC
Entities. Under the terms of the Continuing Services Agreement, the Company
paid to an affiliate of HIIC $101,000 for its fiscal year ended December 31,
1997, and $123,700 for the fiscal year ended December 31, 1998.
Lease Arrangement with HIIC Affiliate. On June 5, 1997 the Company entered
into an Agreement to lease office space from an affiliate of HIIC (the "Office
Lease"), and to purchase certain leasehold improvements from such HIIC
affiliate. The Company paid $109,800 to the lessor under such Office Lease for
its fiscal year ended December 31, 1998.
HIIC License Agreement. On June 17, 1997, in connection with the
Amalgamations, the Company also entered into a Software License Agreement with
HIIC (the "License Agreement"). The License Agreement is a fully-paid,
perpetual world-wide license to the HIIC Entities to use the Company's gaming
technology in non-competitive uses in traditional casino venues which the HIIC
Entities own, operate or manage. The License Agreement includes source codes
for the Company's gaming software, and neither party to the License Agreement
has any obligation to share or provide any improvements or modifications with
the other party.
HIIC Registration and Preemptive Rights. Also on June 17, 1997 and in
connection with the Amalgamations, the Company entered into a Registration and
Preemptive Rights Agreement with HIIC (the "Registration Rights Agreement").
Under the Registration Rights Agreement, the HIIC Entities have two demand
registration rights to cause the Company to register the Common Stock owned by
the HIIC Entities. Each such offering is required to be underwritten on a firm
commitment basis by an underwriter chosen by the Company. Pursuant to the
Registration Rights Agreement, until the earlier of when the HIIC Entities own
less
13
<PAGE>
than 5% of the outstanding voting shares of the Company on a fully-diluted
basis, the HIIC Entities have customary piggy-back rights to include their
shares of Common Stock in registered offerings by the Company. Pursuant to the
Registration Rights Agreement, the HIIC Entities have the right to purchase
securities offered
by the Company for as long as the HIIC Entities own 20% or more of the
outstanding Common Stock on a fully-diluted basis at the same price and terms
such securities are otherwise being offered. The HIIC Entities also have the
right for as long as the HIIC Entities own 20% or more of the outstanding
voting shares on a fully-diluted basis to participate on a proportionate basis
in any non-pro rata stock repurchases or redemptions conducted by the Company.
Additionally, at any time that the HIIC Entities own less than 10% of the
outstanding voting shares, on a fully-diluted basis, the Company has the right
to cause the HIIC Entities to sell their voting shares pursuant to a registered
sale, and the HIIC Entities have the right to cause the Company to file a
registration statement to sell their voting shares in the event of any change
in or conduct of the business or proposed business of the Company or any of its
subsidiaries or any other action or inaction of the Company or any of its
subsidiaries which would jeopardize the HIIC Entities' gaming and related
licenses or the if Company does not redeem a "Disqualified Holder" (as defined
in and pursuant to the Company's Bye-Laws) of its securities, in each case at
the Company's expense without being subject to the limitations on demand rights
set forth above.
HIIC Shareholder Rights Agreement. Also on June 17, 1997, in connection with
the Amalgamations, the Company entered into a Shareholder Rights Agreement (the
"Shareholder Rights Agreement") with HIIC. Pursuant to the Shareholder Rights
Agreement, the Company has agreed that for so long as the HIIC Entities own 20%
or more of the outstanding voting shares on a fully-diluted basis, any of the
following actions by the Company require the approval of the majority of the
Board and HIIC Appointees: (i) the sale of all or any material portion of the
assets of the Company together with its subsidiaries; (ii) the incurrence,
renewal, prepayment or amendment of the terms of indebtedness of the Company
together with its subsidiaries in excess of $5 million in any one fiscal year;
(iii) the Company or any of its subsidiaries entering into any material joint
venture or partnership arrangement outside of its previously approved scope of
business; (iv) any material acquisition of assets by the Company or any of its
subsidiaries, including by lease or otherwise (other than by merger,
consolidation or amalgamation) other than pursuant to a previously approved
budget or plan, or the acquisition by the Company or any of its subsidiaries of
the stock of another entity, in each case involving an acquisition valued at $5
million or more; (v) any material change in the nature of the business
conducted by the Company or any of its subsidiaries; (vi) any material
amendments to the MIP for 12 months following the Amalgamations; (vii) any
material changes in accounting policies; (viii) the adoption of any stock
option plans for greater than 5% of the then outstanding Common Stock of the
Company on a fully-diluted basis, other than the MIP, in any one fiscal year;
and (ix) the creation or adoption of any shareholder rights plan. For so long
as the HIIC Entities own 10% or more of the outstanding voting shares on a
fully-diluted basis, as to (x) any change in or conduct of the Company's
business or proposed business, or (y) any action or inaction of or by the
Company or any of its subsidiaries' which the HIIC Entities determine in their
reasonable business judgment would result in, in the case of either (x) or (y),
any actual or threatened disciplinary action or any actual or threatened
regulatory sanctions with respect to or affecting the loss of, or the inability
to obtain or failure to secure the reinstatement of, any registration,
certification, license or other regulatory approval held by the HIIC Entities
in any jurisdiction in which the HIIC Entities are actively conducting business
or as to which any of them has received final approval or authorization to
proceed, even on a preliminary basis, from its respective board of directors
(or any appropriate committee established by such board of directors) of plans
to conduct business (each such change, conduct, action or inaction a
"Disqualifying Action"); provided, the reasonable business judgment to be
exercised by the HIIC Entities in determining whether a Disqualifying Action
has occurred or would result need not involve any consideration of the effect
of the Disqualifying Action on the Company alone or together with its
subsidiaries because the purpose of the protections afforded by the
determination of a Disqualifying Action is for the benefit of the separate
businesses and investments of the HIIC Entities.
14
<PAGE>
APPOINTMENT OF AUDITOR
(PROPOSAL 4)
Unless otherwise instructed, the proxies given pursuant to this solicitation
will be voted FOR the appointment of Buckley Dodds as the auditor of the
Company to hold office for the ensuing year at a remuneration to be negotiated
by management and approved by the Board.
Representatives from Buckley Dodds are expected to be invited to the Annual
General Meeting to respond to questions. If representatives from Buckley Dodds
so desire, they will be provided with the opportunity to make a statement at
the Annual General Meeting.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
DAVID LAMM, age 39, serves as Chief Financial Officer, Treasurer and
Secretary of the Company. Prior to joining the Company, Mr. Lamm was Vice
President of Finance at McKesson Corporation's Information Technologies and
Capital Investments Divisions from March, 1995 to July 1997. Prior to McKesson,
from October, 1993 to February, 1995, Mr. Lamm served as Chief Financial
Officer and Treasurer at 3Net Systems, a publicly traded software development
company specializing in client/server applications for the health care
industry. Previously, Mr. Lamm served as Vice President of Finance for the
Travel Services Division of AMR Information Services, Inc., a wholly-owned
subsidiary of AMR Corporation.
MICHAEL IRWIN, age 54, has served as Assistant Secretary and Controller of
the Company since June 17, 1997. From August, 1995 to June 17, 1997, Mr. Irwin
served as Director of Finance and Administration for the Company's principal
operating subsidiary. Prior to August, 1995, Mr. Irwin served in various
accounting, finance and human resource management capacities with Holiday Inns,
Inc., from 1975 through 1991. From 1992 to 1996, Mr. Irwin was an independent
consultant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Other than as indicated below, no director, officer or beneficial owner of
more than 10% of any class of equity securities has failed to file reports
required by Section 16(b) of the Exchange Act for the Company's fiscal year
ended December 31, 1998. Mr. Gordon Stevenson and David Lamm were granted
options to purchase Common Stock in January, 1998. Form 4 reports with respect
to those transactions, which were due in February 1998, were filed in May.
Quinten Dreesmann was elected a director of the Company on May 14, 1998. The
Form 3 for his initial holdings, due on May 24, 1998 was filed May 27, 1998.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. Custodians and
fiduciaries will be supplied with proxy materials to forward to beneficial
owners of stock and normal handling charges will be paid for such forwarding
services.
15
<PAGE>
SHARES SUBJECT TO IRREVOCABLE PROXY
AND AGREEMENT NOT TO VOTE SHARES
3,525,000 shares of Common Stock are subject to an irrevocable proxy and an
agreement not to vote, and will not be voted at the Annual General Meeting or
at any subsequent general meeting of the shareholders of the Company. When the
Company acquired the rights to its in-flight gaming software from SGII on
November 7, 1991, a portion of the consideration was 3,000,000 shares of Common
Stock which, according to then applicable requirements, were placed in escrow,
to be released on the basis of one share for each U.S.$1.78 of net cash flow
generated from the assets over a ten-year period (the "Performance Shares"). An
additional 525,000 shares which were issued to Dr. Rex E. Fortescue, formerly a
director of Sky Games, are held in the escrow on the same terms and are also
included as Performance Shares. As part of certain agreements to allow the
eventual redemption and cancellation of the 3,525,000 Performance Shares only
when and if such Performance Shares should be released from the escrow, the
holders of the Performance Shares issued an irrevocable proxy to First
Tennessee Bank, and First Tennessee Bank entered into an agreement not to vote
the Performance Shares at any general meeting of shareholders of IEL or
otherwise. The irrevocable proxy and the agreement not to vote the Performance
Shares will terminate upon the cancellation of the Performance Shares.
Consequently, the 3,525,000 Performance Shares will not be voted at the Annual
General Meeting or at any subsequent general meeting of the shareholders of the
Company.
OTHER MATTERS
Management of the Company is not aware of any other matter to come before
the meeting other than as set forth in the notice of meeting. If any other
matter properly comes before the meeting, it is the intention of the persons
named in the enclosed form of proxy to vote the shares represented thereby in
accordance with their best judgment on such matter.
SHAREHOLDER PROPOSALS
Proposals of shareholders to be presented at the 2000 Annual General Meeting
of Shareholders must be received by the Company no later than December 20, 1999
in order to be considered for inclusion in the Company's Proxy Statement and
form of proxy relating to such meeting.
DATED: [ ], 1999.
16
<PAGE>
APPENDIX A
SCHEDULE OF PROPOSED AMENDMENTS TO THE BYE-LAWS OF
INTERACTIVE ENTERTAINMENT LIMITED
The Board of Directors is recommending the following Bye-law amendments to
the shareholders for approval at the Special General Meeting:
Bye-Law 32 (Increasing the Quorum Requirement)
Bye-Law 32 is replaced with the following:
32. No business shall be transacted at any general meeting unless a
quorum is present when the meeting proceeds to business, but the absence of
a quorum shall not preclude the appointment, choice or election of a
chairman which shall not be treated as part of the business of the meeting.
Save as otherwise provided by these Bye-Laws, at least two Shareholders
holding at least one-third of the shares entitled to vote at the meeting
present in person or by proxy and entitled to vote shall be a quorum for
all purposes; provided, however, if the Company shall have only one
Shareholder, one Shareholder present in person or by proxy shall constitute
the necessary quorum.
Bye-Law 54(A) (Making the Size of the Board Variable)
Delete the first sentence of Bye-law 54(A) and insert the following as the
first sentence of Bye-law 54(A):
Until the HIIC Entities own less than 5% of the Voting Shares on a fully
diluted basis, the Board shall consist of a minimum of two and a maximum of
ten Directors who shall, subject to Bye-law 54(B), be elected or appointed,
except in the case of a casual vacancy filled pursuant to Bye-law 55, at
the annual general meeting or at any special general meeting called for the
purpose of electing or appointing Directors and who shall hold office for
such term as the Shareholders may determine or, in the absence of such
determination, until the next annual general meeting or until their
successors are elected or appointed or their office is otherwise vacated.
Bye-Law 55 (Permitting the Board to Fill Vacancies on the Board)
Bye-Law 55 is replaced with the following:
55. A majority of the then members of the Board may fill any vacancy on
the Board other than a vacancy in the office of a Director who was
appointed pursuant to Bye-law 54(B). Any vacancy in the office of a
Director appointed pursuant to Bye-law 54(B) may be filled by a written
resolution deposited at the Registered Office, signed by each of the HIIC
Entities holding Voting Shares.
A-1
<PAGE>
Interactive Entertainment Limited
Proxy for Annual General Meeting of Shareholders on [ ,] 1998
This Proxy is Solicited on Behalf of the Board of Directors of Interactive
Entertainment Limited
The undersigned hereby appoints Michal Irwin or David Lamm, or either of
them, with full power of substitution, the undersigned's true and lawful
attorneys and proxies to vote the shares of Common Stock of Interactive
Entertainment Limited which the undersigned is entitled to vote at the Annual
General Meeting of Shareholders to be held at [
] on [ ,] 1999 at 3:00 o'clock in the afternoon local time, and all
adjournments or postponements thereof, with all the powers the undersigned
would possess if personally present, as indicated on this card for the
proposals described in the Notice and Proxy Statement for such meeting and in
their discretion on such other matters as may properly come before the meeting
or any adjournments or postponements thereof.
Unless otherwise instructed, this proxy will be voted for the nominees
listed in Proposal 3 and for approval of the matters set forth in Proposals 1,
2 and 4.
Please mark, sign and mail this proxy promptly in the enclosed envelope.
1. Increase in Capital:
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
2. Bye-Law Amendments
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
(Continued and to be signed on reverse side)
(Continued from reverse side)
3. Election of Director Nominees: Messrs. Clements, Rosenberg and Ms.
Canning, Fortescue-Merrin and Kostoff-Mann
[_] FOR [_] WITHHELD [_] FOR, except
nominees from nominees vote withheld
from the
following
nominee(s).
--------------------------------
4. FOR the appointment of Buckley Dodds as the Company's independent public
accountants.
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
Dated: _____________, 1999
Signature: _______________
Capacity/Title: __________
Please sign the exact
name of the shareholder
as it appears hereon. If
acting as administrator,
trustee or in other
representative capacity,
please sign name and
title. Please check mark,
sign, date and mail this
proxy promptly in the
enclosed envelope.
