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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.:
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(3) Filing Party:
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(4) Date Filed:
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INTERACTIVE ENTERTAINMENT LIMITED
P.O. Box 241603
Memphis, Tennessee 38124-1603
April 19, 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
May 21, 1999, at the Park Hyatt Century City, 2151 Avenue of the Stars, Los
Angeles, CA 90067 (the "Annual General Meeting").
At the Annual General Meeting, Shareholders will vote to: (i) effect a one
for ten reverse stock split; (ii) increase the Company's authorized share
capital; (iii) amend the Bye-Laws of the Company regarding the size of the
board of directors, appointment of directors and quorum requirements; (iv)
elect four persons to the Board of Directors; (v) appoint Ernst & Young LLP as
the Company's independent public accountants; (vi) 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 (vii) 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 Reverse Stock Split, 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 MAY 21, 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 the Park Hyatt Century City,
2151 Avenue of the Stars, Los Angeles, CA, on May 21, 1999, at the hour of
3:00 o'clock in the afternoon, Pacific Daylight Time, for the following
purposes:
1. to effect a one for ten reverse stock split of the Company's Common
Stock;
2. to increase the authorized share capital of the Company to 15,000,000
million shares of Common Stock (assuming the adoption of the reverse
stock split);
3. to amend the Company's Bye-Laws in the manner set forth in APPENDIX A to
the accompanying Proxy Statement;
4. to elect four persons to the Board of Directors;
5. to appoint Ernst & Young LLP as the Company's independent public
accountants;
6. 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
7. to transact such other business as may properly come before the Annual
General Meeting.
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 directors'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 April 11, 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: April 19, 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
May 21, 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 the Park
Hyatt Century City, 2151 Avenue of the Stars, Los Angeles, CA 90067 on May 21,
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 Reverse Stock Split described herein;
(ii) FOR the increase to share capital described herein; (iii) FOR the
amendments to the Bye-Laws described herein; (iv) FOR the election of the
nominees approved by the Board; (v) FOR the appointment of Ernst & Young LLP
as the Company's independent public accountants; and (vi) 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 April 11, 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 and Proposal 2 (regarding
the Reverse Stock Split and capital increase) which are special resolutions
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 April 19, 1999.
REVERSE STOCK SPLIT
(PROPOSAL 1)
On April , 1999, the Board approved as a special resolution, for approval
by the Annual Meeting of Shareholders, a one for ten reverse stock split of
the Company's Common Stock (the "Reverse Stock Split"). The intent of the
Reverse Stock Split is to increase the marketability and liquidity of the
Common Stock and to effect an increase in the market price of the Common Stock
in connection with the goal of relisting the Common Stock on the Nasdaq
SmallCap Market. THE BOARD RECOMMENDS THE APPROVAL OF THE REVERSE STOCK SPLIT.
<PAGE>
The Common Stock is listed for trading on the NASD OTC Bulletin Board
system under the symbol IELSF. On the Record Date, the reported closing price
of the Common Stock was $0. per share. The primary purpose of the Reverse
Stock Split is to seek to maintain trading of the Common Stock at a minimum
market price of $1.00 per share. The Board believes that a decrease in the
number of shares of Common Stock outstanding, without any material alteration
of the proportionate economic interest in the Company represented by
individual shareholdings, may increase the trading price of such shares to a
price which meets this price. However, even if the Reverse Stock Split is
consummated, no assurance can be given that the market price of the Common
Stock will rise in proportion to the number of outstanding shares resulting
from any Reverse Stock Split or that the market price would not subsequently
decline to less than $1.00 per share.
The Board believes that the current low per share price of the Common Stock
may limit the effective marketability of the Common Stock because of the
reluctance of many brokerage, financial and institutional investors to
recommend lower-priced stocks to their clients or to hold them in their own
portfolios. Certain policies and practices of the securities industry may tend
to discourage individual brokers within those firms from dealing in lower-
priced stocks. Some of those policies and practices involve time-consuming
procedures that make the handling of lower-priced stocks economically
unattractive. The brokerage commission on a sale of lower-priced stock may
also represent a higher percentage of the sale price than the brokerage
commission on a higher-priced issue. Any reduction in brokerage commissions
resulting from the Reverse Stock Split may be offset, however, in whole or in
part, by increased brokerage commissions required to be paid by stockholders
selling "odd lots" created by the Reverse Stock Split.
The Board also believes that an increased price per share of the Common
Stock may increase the following of the stock among members of the investment
community, including those persons who may have an interest in making new
investments in the Company's common stock. This may improve the Company's
ability to raise capital, particularly from private investors.
The Company's Common Stock had been listed on the Nasdaq SmallCap Market.
On March 24, 1999 the Company was notified by The Nasdaq Stock Market that its
securities would be delisted from the Nasdaq SmallCap Market because the
Common Stock no longer met the minimum $1.00 per share bid price that is
required for a securities to be listed in the Nasdaq SmallCap Market. The
Company has appealed that decision. The appeal is pending. The Board believes
that the Reverse Stock Split may help the Company to maintain the $1.00
required for the Company to maintain a listing on the SmallCap Market, should
its appeal be successful. No assurance can be given that its appeal will be
successful, or that, if it is, the Company will meet this or other
requirements for continuing its listing on the Nasdaq SmallCap Market.
Under Bermuda Law, the effect of the Reverse Stock Split would be to turn
the Company's share capital with respect to its Common Stock, currently
consisting of 50,000,000 shares of common stock, par value U.S.$.01 into
5,000,000 shares of common stock, par value U.S.$.10. Consummation of the
Reverse Stock Split would therefore reduce the number of shares of Common
Stock authorized for issuance from its current 50,000,000 shares to 5,000,000
shares. A proposed Bye-Law amendment described below, however, would serve to
increase the number of Common Shares available for issuance by the Company.
If the Reverse Stock Split is approved by the stockholders at the Annual
General Meeting, the Reverse Stock Split would become effective on the date
(the "Effective Date") selected by the Board on or prior to the Company's next
Annual General Meeting of Stockholders.
Treatment of Outstanding Shares after a Reserve Stock Split; Reverse Stock
Split Procedures
At the Effective Date, each share of the Common Stock issued and
outstanding immediately prior thereto (the "Old Common Stock"), will be
reclassified as and changed into one-tenth of a share of the Company's Common
Stock, par value $.10 per share (the "New Common Stock"). Fractional shares of
New Common Stock will not be issued. Instead, all fractional shares will be
canceled and the Company will pay all affected
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shareholders an amount of cash equal to the last sale price of the shares on
the trading day immediately before the Effective Date, as reported on the NASD
OTC Bulletin Board system (or other market on which the Common Stock is then
trading). If the Common Stock does not trade on such day, the price shall be
the average of the bid and ask price for the Common Stock at such time.
Shortly after the Effective Date, the Company will send transmittal forms to
the holders of the Old Common Stock to be used in forwarding their
certificates formerly representing shares of Old Common Stock for surrender
and exchange for certificates representing whole shares of New Common Stock
and cash in lieu of any fractional shares.
PLEASE DO NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO.
Tax Treatment
Consummation of the Reverse Stock Split will not have any significant
federal tax consequences to stockholders. The transaction should be treated as
a reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986,
as amended, and the applicable Treasury Regulations, judicial authority and
current administrative rulings and practices in effect on the date of this
Proxy Statement. However, where the Company purchases fractional shares of
shareholders, the transaction will have federal income tax consequences
associated with the purchase and sale of stock by an issuer.
INCREASE OF SHARE CAPITAL
(PROPOSAL 2)
On April , 1999, the Board approved a special resolution, for approval
by the Annual Meeting of Shareholders, regarding an increase in the share
capital of the Company from U.S.$550,030, consisting of (assuming the
occurrence of the Reverse Stock Split) 5,000,000 Common Shares of par value
$.10 each and 5,003,000 shares of preference shares, par value $.01 each, to
U.S.$[1,550,030], consisting of [15,000,000] Common Shares of par value $.10
each and 5,003,000 shares of preference shares, par value $.01 each. The
effect of the increase of share capital would be to permit the Company to
issue an additional [10,000,000] shares of Common Stock par value U.S.$.10.
THE BOARD RECOMMENDS THE APPROVAL OF THE INCREASE OF SHARE CAPITAL.
The Board believes that it's in the Company's best interest for the Annual
Meeting of Shareholders to approve this proposal to increase the share capital
of the Company, permitting the Company to issue additional Common Stock. The
Company is authorized to issue (assuming in each case the occurrence of the
Reverse Stock Split, but not accounting for any fractional shares of Old
Common Stock that may be converted into cash) 5,000,000 shares of Common
Stock, all of which shares are already outstanding. The Company has received
conversion notices from holders of its Class B Series A Preference Shares to
convert 349,242 shares of Common Stock (on a Reverse Stock Split Adjusted
basis) (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.
The increase would also allow issuance of the Unconverted Preference Shares.
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. If the increase of share capital is approved by the stockholders
at the Annual General Meeting, the increase would become effective on the
Effective Date.
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
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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 3)
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) permitting a majority of the then remaining members of the Board to fill
vacancies and newly created directorships of the Board and (iii) changing the
quorum requirements for shareholders meeetings. 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
five members at this time with five 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.
In addition, under the terms of the Bye-Laws, Harrah's Interactive
Investment Company, a Nevada Corporation ("HIIC," and, together with its
affiliates the "HIIC Entities"), 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 the HIIC Entities, the number of directors of
the Board that HIIC had the right to appoint went from three to one. A five
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. As discussed above under Proposal 1, the Company has
been delisted from the SmallCap Market, pending an appeal. The Board believes
that it is appropriate at this time to amend the Bye-Laws to provide a one-
third quorum requirement, regardless of the results of the appeal with the
Nasdaq SmallCap Market, 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.
4
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ELECTION OF DIRECTORS
(PROPOSAL 4)
In accordance with the Company's Bye-Laws, five directors are to be elected
at this Annual General Meeting, four 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 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 five 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 four 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.
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 four 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."
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.
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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 a
commissioner on the California Travel and Tourism Commission where she also
sits on the Executive Committee.
STEPHEN ROSENBERG, age 45, 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 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.
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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.
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) 1.1% 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>
Anthony P. Clements (2)........ 130,000 *
John M. Boushy (3)............. 20,000 *
Deborah Fortescue-Merrin
(director nominee) (4)........ 160,000 *
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)............... 563,893 1.1%
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 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.
7
<PAGE>
(3) 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.
(4) Does not include 376,471 shares of Common Stock and three shares of Class
B Series A Convertible Preference Shares held by a company which Ms.
Fortescue-Merrin's spouse controls. 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.
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>
8
<PAGE>
- --------
(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.
(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 -- --
Gordon Stevenson........ 50,000(2) 2.1% $2.50000 1-13-08 -- --
Gordon Stevenson........ 100,000(2) 4.2% $2.84375 4-30-08 -- --
Gordon Stevenson........ 508,000(3) 21.4% $0.96875 9-02-08 -- --
David Lamm.............. 40,000(2) 1.7% $2.50000 1-13-08 -- --
David Lamm.............. 75,000(2) 3.2% $2.84375 4-30-08 -- --
David Lamm.............. 365,000(3) 15.4% $0.96875 9-02-08 -- --
Michael Irwin........... 50,000(2) 2.1% $2.84375 4-30-08 -- --
Michael Irwin........... 150,000(3) 6.3% $0.96875 9-02-08 -- --
Kathleen Seymour........ 25,000(2) 1.1% $2.84375 4-30-08 -- --
Kathleen Seymour........ 127,000(3) 5.3% $0.96875 9-02-08 -- --
</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.
9
<PAGE>
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.
(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
10
<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. and Foreign
Stocks based on a $100 Investment assuming reinvestment of Dividends
<TABLE>
<CAPTION>
Raw Data Base 100 for Graph
-------- ------------------
IEL Nasdaq IEL Nasdaq
------- ------ ------- ------
<S> <C> <C> <C> <C>
12/31/93 4.725 253.873 100 100
12/30/94 5.625 246.25 119 97
12/29/95 2.75 345.863 58 136
12/31/96 3.75 423.427 79 167
12/31/97 2.875 517.841 61 204
12/31/98 0.03125 715.138 1 282
Total Return Index for Nasdaq US & Foreign
</TABLE>
11
<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
12
<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.
13
<PAGE>
APPOINTMENT OF AUDITOR
(PROPOSAL 5)
Unless otherwise instructed, the proxies given pursuant to this
solicitation will be voted FOR the appointment of Ernst & Young LLP as the
auditor of the Company to hold office for the ensuing year at a remuneration
to be negotiated by management and approved by the Board. The appointment of
Ernst & Young LLP is considered necessary by the Company on account of the
increasing importance of U.S. GAAP to the accounting practices and disclosures
of the Company, which has resulted from the Company's 1997 change of its
status from that of a foreign private issuer under Rule 3b-4, promulgated
under the Exchange Act.
Representatives from Ernst & Young LLP are expected to be present at the
Annual General Meeting to respond to questions. If representatives from Ernst
& Young LLP so desire, they will be provided with the opportunity to make a
statement at the Annual General Meeting.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
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.
14
<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: April 19, 1999.
15
<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 3(B) (Effecting the Reverse Stock Split and the Share Capital
Increase)
Bye-law 3(B) is replaced with the following:
"The authorised share capital of the Company at the date of the adoption
of these Bye-laws is US$[1,550,030] divided into [15,000,000] common shares
of par value US$0.10 each (the "Common Shares"), 3,000 non-voting
convertible redeemable preference shares of par value US$0.01 each (the
"Class A Preference Shares") and 5,000,000 redeemable preference shares of
par value US$0.01 each (the "Class B Preference Shares" and together with
the Class A Preference Shares, the "Preference Shares")."
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 32 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 May 14, 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 the Park Hyatt Century City, 2151
Avenue of the Stars, Los Angeles, CA 90067 on May 21, 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 4 and for approval of the matters set forth in Proposals 1, 2, 3
and 5.
Please mark, sign and mail this proxy promptly in the enclosed envelope.
1. Reverse Stock Split:
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
2. Increase in Capital
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
3. Bye-Law Amendments
[_] FOR [_] AGAINST [_] ABSTAIN
approval approval
(Continued and to be signed on reverse side)
(Continued from reverse side)
4. Election of Director Nominees: Messrs. Clements, Rosenberg and Ms.
Fortescue-Merrin and Kostoff-Mann
[_] FOR [_] WITHHELD [_] FOR, except
nominees from nominees vote withheld
from the
following
nominee(s).
--------------------------------
5. FOR the appointment of Ernst & Young LLP 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.
